Opinion
C055346
9-29-2008
MILLVILLE ELEMENTARY SCHOOL DISTRICT et al., Plaintiffs and Appellants, v. DAVID HALLMAN CONSTRUCTION et al., Defendants and Respondents.
Not to be Published
Rain damaged a school building during a reroofing project, and the school district ultimately sued the general contractor for breach of contract and the architect for negligence and breach of contract. Two insurance companies that claimed to have reimbursed the district for some of its damages joined in the districts suit, asserting a right of subrogation. A third insurance company, also asserting a right of subrogation based on money it had paid for some of the districts damages, brought a separate suit for negligence against the architect. The two cases were consolidated.
In the first phase of a bifurcated trial, the trial court determined the negligence causes of action were time-barred. Based on this ruling, the court determined all three of the insurance companies were out of the case. Trial went forward on the districts causes of action for breach of contract, and the jury found in favor of the general contractor but against the architect in the amount of $200,000. The court, however, determined that the district was not entitled to the damages the jury awarded because the district had been reimbursed for those damages by its insurers. And since the insurers were no longer in the case, they could not claim the damages under their right of subrogation. Accordingly, the trial court entered judgment in favor of the general contractor and the architect.
On appeals by the district and the first two insurers from the judgment and a postjudgment costs order, we conclude the trial court did not err in refusing to instruct the jury on the standard of care in relation to the districts breach of contract claim against the general contractor. The trial court did err, however, in determining the two insurers that had joined the districts suit were out of the case after the ruling on the statute of limitations. Because the amended complaint filed by the district and the two insurers contained adequate subrogation allegations relating to the districts cause of action for breach of contract against the architect — for which the jury awarded $200,000 in damages — the two insurers should have been allowed to claim the right to recover the $200,000 under their right of subrogation, and the case must be remanded for the trial court to determine who is entitled to the $200,000. Accordingly, as explained further below, we will reverse the judgment in part and affirm in part. As a result, we will likewise reverse in part and affirm in part the postjudgment costs order.
The appeal by the third insurer was dismissed pursuant to a settlement shortly before oral argument.
FACTUAL AND PROCEDURAL BACKGROUND
In May 1998, plaintiff Millville Elementary School District entered into a contract with defendant Nichols, Melburg & Rossetto (Nichols), an architectural firm, for a school modernization project that included the reroofing of a classroom building at Millville Elementary School. Under the terms of the contract, Nichols was to prepare the plans and serve as Millvilles agent in dealing with the general contractor.
In May 2000, during the bidding process to secure a general contractor, asbestos was discovered in the roof. Rather than rebid the project, Nichols decided to award the asbestos removal to a separate contractor. This required Nichols to issue a change order removing demolition of the roofing material from the main contract.
In June 2000, Millville contracted with defendant David Hallman Construction (Hallman) to serve as the general contractor for the reroofing and climate control retrofit. CalTec Environmental, Inc. (CalTec) was hired to remove the asbestos roofing material.
By Hallman, we refer to both the firm and its principal, David Hallman.
Hallman began the project by removing the air conditioning units from the roof. CalTec then came in to remove the asbestos roofing materials, tearing the roof down to the wood deck. CalTec completed its work on July 3, 2000. On July 4, it rained, and the school building suffered extensive water damage.
Millvilles primary layer of insurance coverage was provided by plaintiff Northern California Schools Insurance Group (Insurance Group). Secondary coverage was provided by plaintiff Northern California Regional Liability Excess Fund (Excess Fund) and administered by Keenan & Associates (Keenan). In turn, the secondary coverage provided by Excess Fund was apparently reinsured by plaintiff Insurance Company of the West (West).
Millville claimed it expended over $867,000 for costs relating to the water damage to the school building. Ultimately, however, Millville was reimbursed — either through insurance or otherwise — for all of its expenditures.
Nearly four years after the incident, on April 13, 2004, Millville filed a complaint against Hallman, CalTec, and Doe defendants 1 through 50. With respect to Hallman, Millville alleged a cause of action for breach of contract and one for statutory violations of the Contractors State License Law (case No. 151391).
The complaint also named as defendants the two insurance companies that allegedly provided the state contractors license bonds for Hallman and CalTec, and the individual managing officers of Hallman and CalTec. Because CalTec, the two bonding insurance companies, and the managing officer for CalTec are not before us in these appeals, we do not discuss them further.
In its answer, Hallman alleged Millvilles action was barred by the statute of limitations.
On March 14, 2005, West filed a complaint against Nichols for "negligence, subrogation, [and] indemnity" (case No. 153859). West alleged that Millville was insured under a policy of insurance issued by West to Excess Fund. West further alleged that on or about March 16, 2004, it had paid Millville for repairs that were directly related to Nicholss negligent actions and therefore West was subrogated to Millvilles cause of action for negligence against Nichols.
Wests complaint actually purported to set forth three separate causes of action against Nichols: one for negligence, one for "injury for deficient planning," and one for "equitable indemnity." As Wests attorney ultimately admitted to the trial court, however, "the causes of action in the complaint are all negligence driven."
In its answer, Nichols alleged Wests action was barred by the statute of limitations.
In June 2005, Millville filed a motion for leave to file an amended complaint in its action against Hallman. As relevant here, Millville proposed to add Insurance Group and Excess Fund as coplaintiffs. Millville specifically explained that Insurance Group and Excess Fund were "subrogated to the rights of" Millville because they "made payment to and on behalf of [Millville] under their coverage contracts with [Millville] for water damage to [Millville]s property." Millville also proposed to add causes of action for negligence and breach of contract against Nichols. Millville did not expressly propose to substitute Nichols in place of a previously named Doe defendant.
We will use the term "Millville and its insurers" to refer to Millville, Insurance Group, and Excess Fund collectively. This term does not include West, the reinsurer of Excess Fund. Also, we will sometimes use the term "the insurers" to refer to Insurance Group and Excess Fund. Again, this term does not include West.
Millville also proposed to name as defendants in the new negligence cause of action two individuals (Rossetto and Tedder) who were (respectively) the principal architect and the construction manager on the project. The court later granted a motion in limine to dismiss these two individual defendants from the case. Accordingly, we do not discuss them further, except in regard to the postjudgment costs order issued in favor of Nichols and Rossetto.
The court granted Millvilles motion, and Millville and its insurers filed the amended complaint on July 25, 2005. The amended complaint generally alleged that both Insurance Group and Excess Fund were joint powers authorities that provided insurance coverage for Millville and that "paid monies to and on behalf of [Millville] under [their] contractual obligations for the losses sustained as referenced in this complaint." The amended complaint also contained more specific allegations that as a proximate result of Hallmans breach of contract, Nicholss negligence, and Nicholss breach of contract, Insurance Group and Excess Fund "made payments to [Millville] pursuant to the coverage provided to [Millville], and therefore have been damaged . . ., and . . . are subrogated to the rights of [Millville] and are entitled to enforce all of [Millville]s remedies against Defendants." Under the headings of the breach of contract causes of action, however, the amended complaint asserted that those causes of action were brought "[b]y Plaintiff DISTRICT," i.e., by Millville only. In contrast, under the headings of the negligence cause of action against Nichols and the statutory violations cause of action against Hallman, the complaint asserted those causes of action were brought "[b]y all Plaintiffs," i.e., by Millville and its insurers.
In their answers to the amended complaint, Nichols and Hallman alleged the action was barred by the statute of limitations.
In October 2005, the court consolidated the two cases for discovery and trial.
In February 2006, Nichols filed motions for judgment on the pleadings in both cases on the ground they were barred by the applicable statutes of limitations. The court denied both motions. As relevant here, with respect to the motion directed at Millville and its insurers the court ruled that "[a]s a matter of pleading, the plaintiffs have sufficiently availed themselves of the relation back doctrine of . . . section 474. Failure to comply with the procedural requirements of . . . section 474 does not preclude relation back. In this case, the original complaint included charging allegations in paragraph 8 that Doe defendants were responsible in some way for the acts complained and [Millville]s damages. These allegations were incorporated by reference into each cause of action. The original complaint and first amended complaint are based on the same set of facts. [Millville and its insurers] have alleged that they did not discover their potential claim against [Nichols] until the deposition of [Nichols]s employees on or about March 16 and 17, 2005. [Millville and its insurers] allege they could not have made an earlier discovery of their claim despite reasonable diligence. The court accepts as true these allegations for purposes of consideration of this motion."
Code of Civil Procedure section 474 provides that "[w]hen the plaintiff is ignorant of the name of a defendant, he must state that fact in the complaint, . . . and such defendant may be designated in any pleading or proceeding by any name, and when his true name is discovered, the pleading or proceeding must be amended accordingly."
The consolidated cases came on for trial in December 2006. The parties filed (and opposed) numerous motions in limine. As relevant here, Millville and its insurers sought an order excluding "collateral source evidence," that is, evidence that Insurance Group, Excess Fund, and West made payments to Millville for damages Millville suffered. Millville argued that "[i]f the jury finds in favor of [Millville] and awards damages — whatever that award may amount to — that amount will be split amongst the District and its self-insurance administrators in accordance with the memoranda of coverage governing that self[-]insurance. It is not for the jury or Defendants to decide the subrogation rights of [Insurance Group], [Excess Fund] and [West]."
For its part, Hallman filed a motion in limine asserting that Millvilles total potential recovery against Hallman should be limited to the $17,747.30 that Millville had admitted in responses to interrogatories was the amount of "expenses for which it had not received compensation by its insurers." Hallman argued that the collateral source rule (precluding evidence of payment from collateral sources) did not apply to Hallman because Millvilles only cause of action against Hallman was for breach of contract.
Nichols filed a similar motion in limine, arguing the collateral source rule did not apply to cases founded on breach of contract and that Millville should be limited to claiming damages for which it had not been compensated. Nichols further asserted that Millville had only $12,370.29 in damages for which it had not been reimbursed by its insurers. Nichols also argued that because Millville had received $35,000 in settlement from CalTec, Millville had "no standing to assert a claim."
The trial court granted the motion in limine by Millville and its insurers related to the collateral source rule and denied the motions by Hallman and Nichols. The court noted that the collateral source rule is generally not applied in cases founded on breach of contract unless the breach has a tortious or willful flavor and asserted that "[a]lthough, in-artfully drafted, the complaint in this action has a "`tort[i]ous flavor." The court also noted that "[t]he possibility of double or triple recovery is negated by the ability of the court to allocate damages among the several plaintiffs in accordance with any contractual agreements they may have made with each other, the total not to exceed the actual damage to the premises."
At the request of Millville, the trial court bifurcated trial on the statute of limitations defenses. The parties agreed the court could sit as the trier of fact for that portion of the trial.
Following some limited testimony, the parties argued the limitations issues. The court first addressed the cause of action for statutory violations against Hallman. Hallman asserted the cause of action was barred, and Millville and its insurers offered "no argument . . . on that point." The court ruled that the "motion w[ould] be granted," i.e., that the cause of action was barred by the statute of limitations. Hallmans attorney then asserted that because "the insurance plaintiffs" — Insurance Group and Excess Fund — "only sued my client for that cause of action," "their claims against my client should also be dismissed." The court responded that it would "do that" but that it "ha[d not] ruled on how the two plaintiffs that are remaining here stand with respect to damages and so forth." Hallmans attorney asserted, "I understand that. But thats the only cause of action that those two insurance plaintiffs — not ICW . . ., thats the only cause of action pled against my client by those two insurers." The court said, "Ill dismiss as to them," but "[t]hat still leaves Millville." Millvilles attorney then interjected, "As long as the Court is not suggesting that there [are] no subrogation rights." The court responded, "Im not. Thats what Im trying to differentiate between."
The court then turned to the causes of action against Nichols. Nichols argued that the claims were all filed too late "[a]nd those that might relate back . . . do not and cannot satisfy the relation back doctrine because they clearly knew of the involvement of [Nichols]." As to the negligence causes of action (by West and by Millville and its insurers), Nichols asserted they were barred because plaintiffs "did not file [the original complaint] within three years." Nichols also argued that the breach of contract cause of action (by Millville and its insurers) was time-barred because "they knew there was a breach of the contract as of July 5, 2000." In response, Millville and its insurers argued "there was actual factual ignorance on the part of [Millville] of the elements that it would have to have to bring a cause of action against [Nichols]." Essentially, they claimed it was not until February 2005, when one of the principals of Nichols testified at a deposition about an ambiguous change order Nichols had prepared, that Millville became aware of the basis for Nicholss potential culpability for the rain damage to the school.
In a brief written ruling, the court ruled that the negligence claims against Hallman and Nichols were time-barred but the breach of contract claim against Nichols was not because the four-year statute of limitations for breach of contract "had not run at the time of the filing of the original complaint" and Millville "did not have actual knowledge of the probable culpability of Nichols . . . until the spring of 2004." Essentially, the court concluded that Millvilles addition of Nichols as a defendant in the first amended complaint in July 2005 related back to the filing of the original complaint in April 2004.
For this reason, the breach of contract claim against Hallman was also timely, and Hallman did not argue otherwise.
As we will explain later, given that the original complaint was filed in April 2004 and the amended complaint was filed in July 2005, and that the pertinent question before the court was Millvilles knowledge at the time it filed its original complaint, we believe the trial court meant to refer to the spring of 2005, rather than the spring of 2004.
Following the courts ruling on the limitations issues, all that remained for trial were the breach of contract causes of action against Hallman and Nichols. West conceded that its case was "gut[ted] . . . because the causes of action in the complaint are all negligence driven."
Based on the fact that only breach of contract claims remained, Hallman "renew[ed]" its motion in limine relating to the collateral source rule, arguing that because only breach of contract remained, evidence of payments Millville received from its insurers should be admitted. Nichols joined in that request. Millville and its insurers opposed the request, arguing that the case "remain[ed] . . . a subrogation action." When the court asked the attorney for Millville and its insurers why Millville "need[ed] those subrogation entities" — i.e., Insurance Fund and Excess Group — "in the case at all," he said, "I dont think you do." Concluding that "the case is really between Millville and Hallman and [Nichols]," the court stood by its conclusion that "the collateral source rule does not apply. So Millville has the right to show what damages it had as a result of the rainstorm. Period."
Nichols argued that with West out of the case, the damages West had ultimately paid were "now gone," i.e., Millville could not seek to recover them. Millville disagreed. The trial court ruled that West was "out of the case" and also noted that it did not see "why the other subrogation plaintiffs should remain in the case." The attorney for Millville and its insurers said he could "withdraw them" as long as he was "allowed to proceed under the name of Millville to collect all the damages." The court responded, "Well, thats what I intend to do," but noted that its ruling was "subject to reopening."
The court later clarified that it would allow in evidence that Millville received money from its insurers, but would tell the jurors "that they shouldnt be worried about who paid for these damages up to now." When Nichols sought to confirm that "all of the insurers are now out of the action," the court indicated it was "not clear theyre all out." The court asked Millvilles counsel about Insurance Fund and Excess Group, and he responded that he believed they had claims. When the court asked if counsel was "going to ask the jury for that," he told the court he was "going to ask the jury for [the] total amount of damages paid, yes." When the court asked if he was going to "ask for it in the name of [Insurance Fund and Excess Group]," he responded, "I could ask in the name of Millville."
Nichols argued that Insurance Fund and Excess Group were out of the case because they "only had a negligence based claim against [Nichols] and a negligence based claim against . . . Hallman." The court clarified that Nichols was referring to the pleadings, then admitted, "I didnt really look at their pleadings." Failing to recognize that his breach of contract causes of action already contained subrogation allegations, the attorney for Millville and its insurers moved to amend the complaint to allege subrogation rights "for all causes of action and all funds paid by or through [Insurance Fund and Excess Group] to Millville on account of water damage occurring on or about July the 5th, 2000." The court responded, "Without me going through all this paper, do you concede that the first amended complaint as far as the subrogees did not allege contract damages?" Counsel answered, "I believe thats correct." The court then denied the request to amend the complaint and stated, "I dont think [Insurance Fund and Excess Group are] in the lawsuit." The attorney for Millville and its insurers then stated, "well proceed in the name of Millville only under our subrogation agreement," and Nichols argued, "No. They can proceed in the name of Millville only." Ultimately, the court decided that Millville could "attempt to prove any damage[] that was caused to the Millville school as a result of the rainstorm" and Nichols and Hallman would be "allowed to present evidence that that money was paid for by insurance companies," but "just because its mentioned doesnt mean that the jury isnt going to be instructed that theyre not to consider that in awarding damages."
Later, during trial, Millville asked the court to reconsider its "dismissal" of Insurance Fund and Excess Group from the case, arguing that there was no motion to dismiss pending at the time and that the amended complaint did, in fact, contain the necessary subrogation allegations. Around this same time, Nichols filed a supplemental trial brief offering "additional legal analysis and citations demonstrating that [Millville] is not entitled to recover any contractual damages as it has been made whole by its insurers."
The trial court refused "to permit [Insurance Fund and Excess Group] to get back into the lawsuit," but solicited and accepted counsels representation that "any monies received by Millville w[ould] be used to pay whatever obligations were incurred by [Insurance Fund and Excess Group]." With respect to Nicholss argument, the court determined the best way to proceed was to let the jury decide the case, then address whether Millville was entitled to recover any damages the jury might award.
Even though the trial court had ruled that all of the negligence causes of action were time-barred, Millville requested that the court give instructions on negligence to the jury, including an instruction on the standard of care applicable to architects and contractors. Nicholss attorney did not oppose the instruction, noting that "weve heard so much standard of care testimony I could take it or leave it." The court thought the instruction should not be given because negligence "was eliminated by the statute of limitations," and Hallman agreed. Millville argued the professional standard of care was still relevant because "negligence can be a breach of contract." The court declined to give the instruction because it believed "the statute of limitation[s] has removed [negligence] from the case" and "that subsumes negligent performance of the contract."
Ultimately the jury found in favor of Hallman but returned a verdict of $200,000 on Millvilles breach of contract claim against Nichols.
Nichols and Millville filed posttrial briefs on Millvilles entitlement to the damages the jury awarded. The trial court noted that none of the cases cited by Nichols "included contractual claims arising out of the wrongdoing of the defendant" and also noted that "[i]n cases where the plaintiff had the right to elect either a tort remedy or a contract remedy, the courts have not had to determine whether the collateral source rule applies to both remedies." The court further noted, however, that such a determination was required here because Millville "inexplicably failed to timely process the tort claim." Although expressing some doubt as to how the case would be resolved on appellate review, the trial court determined that "California law does make the collateral rule inapplicable" and thus Millville was not entitled to the $200,000 in damages the jury awarded because Millville "received [from its insurers] more than $200,000 to reimburse it for damages that were included in the jury verdict of $200,000."
Consistent with this ruling (and its earlier rulings), the trial court entered judgment against Millville and its insurers and against West. Millville and its insurers filed a timely notice of appeal, as did West.
Subsequently, the trial court entered a joint order on motions by Millville and its insurers and West to tax the costs claimed by Hallman and Nichols. Millville and its insurers filed a timely notice of appeal from that order.
Shortly before oral argument, West dismissed its appeal pursuant to a settlement with Nichols.
DISCUSSION
I
General Principles Of Subrogation
Because the general principles of subrogation are relevant to the appeal by Millville and its insurers, we begin by setting forth those principles.
"Subrogation is defined as the substitution of another person in place of the creditor or claimant to whose rights he or she succeeds in relation to the debt or claim. By undertaking to indemnify or pay the principal debtors obligation to the creditor or claimant, the `subrogee is equitably subrogated to the claimant (or `subrogor), and succeeds to the subrogors rights against the obligor. [Citation.] In the case of insurance, subrogation takes the form of an insurers right to be put in the position of the insured in order to pursue recovery from third parties legally responsible to the insured for a loss which the insurer has both insured and paid. [Citations.] `"As now applied [the doctrine of equitable subrogation] is broad enough to include every instance in which one person, not acting as a mere volunteer or intruder, pays a debt for which another is primarily liable, and which in equity and good conscience should have been discharged by the latter." [Citations.] [Citation.]
"The essential elements of an insurers cause of action for equitable subrogation are as follows: (a) the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible to the insured for the loss caused by the wrongdoer; (b) the claimed loss was one for which the insurer was not primarily liable; (c) the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable; (d) the insurer has paid the claim of its insured to protect its own interest and not as a volunteer; (e) the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer; (f) the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends; (g) justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and (h) the insurers damages are in a liquidated sum, generally the amount paid to the insured. [Citations.]
"The right of subrogation is purely derivative. An insurer entitled to subrogation is in the same position as an assignee of the insureds claim, and succeeds only to the rights of the insured. The subrogated insurer is said to `"stand in the shoes" of its insured, because it has no greater rights than the insured and is subject to the same defenses assertable against the insured. Thus, an insurer cannot acquire by subrogation anything to which the insured has no rights, and may claim no rights which the insured does not have." (Firemans Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279, 1291-1292.)
With these principles in mind, we turn first to the appeal from the judgment by Millville and its insurers.
II
The Appeal From The Judgment By Millville And Its Insurers
On appeal, Millville and its insurers offer three arguments that we have arranged into what we believe to be their logical order.
First, Millville and its insurers argue that the trial court erred in "dismissing" the insurers, Insurance Group and Excess Fund, from the case, either because they were properly in the case based on the subrogation allegations in the amended complaint or because the trial court should have allowed them leave to amend the complaint to add the necessary allegations.
Second, Millville argues that the trial court erred in refusing to instruct the jury on the standard of care in relation to Millvilles breach of contract claim against Hallman.
Third, Millville contends the trial court erred in entering judgment against Millville based on the conclusion that the collateral source rule does not apply to breach of contract. According to Millville, despite the fact that "in general the collateral source rule does not apply in breach of services contract cases," the rule should apply in cases (like this one) "where a self-insured public entity, through no fault of its own, sustains tort damages by virtue of a breach of contract."
As we will explain, we agree with the first argument and conclude the trial court erred in determining that Millvilles insurers were "out of the case" when only Millvilles causes of action for breach of contract remained following the trial courts rulings on the statute of limitations. The trial court did not err, however, in refusing to instruct on the standard of care. Finally, we need not decide whether the trial court erred in denying Millville the $200,000 in damages the jury awarded in the absence of the insurers from the case because on remand the insurers will be in the case, and the court will have to determine who, among Millville and its insurers, is entitled to the $200,000 in damages the jury awarded.
A
"Dismissal" Of The Insurers
1. The Trial Court Erred In Determining The Insurers Were "Out Of The Case"
We begin with the alleged error that occurred first — the trial courts so-called "dismissal" of the insurers. Millville and its insurers argue that the trial court erred in dismissing the insurers from the case sua sponte because the allegations of the amended complaint "satisf[ied] all of the essential elements of a cause of action for equitable subrogation." Although we do not agree with the characterization of the trial courts ruling as a sua sponte dismissal of the insurers from the case, we do agree that the trial court erred in concluding the insurers were no longer "in the case" following the determination that the causes of action other than for breach of contract were barred by the statute of limitations.
The resolution of this issue turns on whether, as a matter of pleading, the causes of action for breach of contract in Millvilles amended complaint were asserted on behalf of the insurers (under the right of subrogation) as well as on behalf of Millville. For the reasons that follow, we conclude they were.
As Millville and its insurers point out, and as we have noted already, the amended complaint generally alleged that both Insurance Group and Excess Fund were joint powers authorities that provided insurance coverage for Millville and that "paid monies to and on behalf of [Millville] under [their] contractual obligations for the losses sustained as referenced in this complaint." The amended complaint also contained more specific allegations that as a proximate result of Hallmans breach of contract and Nicholss breach of contract, Insurance Group and Excess Fund "made payments to [Millville] pursuant to the coverage provided to [Millville], and therefore have been damaged . . ., and . . . are subrogated to the rights of [Millville] and are entitled to enforce all of [Millville]s remedies against Defendants."
As we have also noted, however, both Hallman and Nichols asserted in the trial court that the insurers were not parties to the breach of contract causes of action asserted against them. It appears they must have based this assertion on the headings of the breach of contract causes of action in the amended complaint, which asserted that those causes of action were brought "[b]y Plaintiff DISTRICT," i.e., by Millville only, whereas other causes of action in the complaint indicated they were brought "[b]y all Plaintiffs," i.e., by Millville and its insurers.
It has long been established, however, that in construing a complaint, titles and headings must yield to the actual allegations themselves. "The subject matter of an action and the issues involved are determinable from the facts pleaded, rather than from the title or prayer for relief." (Luckey v. Superior Court (1930) 209 Cal. 360, 366.) "[I]t is not the appellation given to a pleading but its allegations which determine its legal effect." (Shimmon v. Moore (1951) 104 Cal.App.2d 554, 556.) "[T]he policy of the law is to construe pleadings liberally to the end that cases will be tried on their merits rather than disposed of on technicalities of pleadings." (Porten v. University of San Francisco (1976) 64 Cal.App.3d 825, 833.) Thus, "Mistaken labels . . . are not fatal; if [a plaintiffs] complaint states a cause of action on any theory, he is entitled to introduce evidence thereon." (Ibid. )
Here, despite the heading indicating that the breach of contract cause of action against Hallman was asserted by Millville alone, the allegations of that cause of action asserted that "as a proximate result of [Hallman]s failure to faithfully perform the contract, [Insurance Group and Excess Fund] have made payments to [Millville] pursuant to the coverage provided to [Millville], and therefore have been damaged . . ., and . . . are subrogated to the rights of [Millville] and are entitled to enforce all of [Millville]s remedies against Defendants." The amended complaint contained a similar allegation in the breach of contract cause of action against Nichols.
In our view, these allegations were sufficient to set forth the insurers claims of subrogation rights to Millvilles causes of action for breach of contract against Hallman and Nichols. Indeed, the trial court never concluded the allegations were not sufficient for that purpose. Faced with Nicholss argument that the insurers were not parties to the breach of contract cause of action against Nichols based on what was pled in the amended complaint, the trial court admitted, "I didnt really look at their pleadings." Instead, the court asked the attorney for Millville and its insurers whether the insurers were parties to the breach of contract causes of action. When counsel mistakenly asserted they were not and moved to amend the complaint to correct this (nonexistent) shortcoming, the court denied the motion, apparently without ever looking at the complaint to determine whether such a motion was necessary in the first place.
On appeal, neither Hallman nor Nichols argues that the allegations of the amended complaint were insufficient to make the insurers parties to the causes of action for breach of contract. Instead, they both argue that the trial court did not abuse its discretion in denying the insurers motion to amend the complaint. But given that the amended complaint already contained the necessary subrogation allegations, no amendment was necessary, and thus the trial courts denial of the unnecessary motion to amend is immaterial.
Given that the amended complaint sufficiently alleged subrogation claims on behalf of the insurers relating to Millvilles causes of action for breach of contract against both Hallman and Nichols, the trial court erred in determining the insurers were "out of the case" following the courts dismissal of the noncontract causes of actions based on the statute of limitations.
The next question is whether the error was prejudicial. In answering this question, a separate analysis is required as to each of the two defendants, Nichols and Hallman. First, however, it is important to note that the "dismissal" of the insurers from the case does not appear to have had any effect on the presentation of the case to the jury. Indeed, as we have noted, the attorney representing Millville and its insurers told the trial court he did not need the insurers to remain as parties as long as he was "allowed to proceed under the name of Millville to collect all the damages." Thus, it appears the case would have been tried the same way even if the trial court had recognized the insurers were still in the case. With this in mind, we turn to the remainder of our prejudice analysis.
2. The Error Was Prejudicial As To The Claim Against Nichols
At first glance, as to Millvilles cause of action for breach of contract against Nichols, the error in concluding the insurers were "out of the case" appears to have been prejudicial because the trial court ultimately ruled that Millville was not entitled to the $200,000 in damages the jury awarded because Millville had been compensated for those damages by its insurers. If the trial court had recognized the insurers were still in the case against Nichols, one or both of the insurers could have claimed those damages, or some portion of them, under their right of subrogation. The trial courts ruling that they were "out of the case" prevented them from doing so, and therefore it appears they were prejudiced by that ruling.
Nichols contends, however, Millville and its insurers were not prejudiced by the insurers exclusion from the case because the breach of contract action that was tried was barred by the statute of limitations anyway, and the trial court erred in concluding otherwise. Millville and its insurers assert that Nichols "is foreclosed . . . from asserting now that the breach of contract claim was barred by the statute of limitations" because Nichols did not file its own notice of appeal. Millville is mistaken; Nichols did not have to file its own notice of appeal to raise this argument because it is raising the argument as an alternate basis for affirming the judgment the trial court entered against Millville.
"If the decision of a lower court is correct on any theory of law applicable to the case, the judgment or order will be affirmed regardless of the correctness of the grounds upon which the lower court reached its conclusion. [Citation.] [¶] The rationale for this principle is twofold: (a) an appellate court reviews the action of the lower court and not the reasons given for its action; and (b) there can be no prejudicial error from erroneous logic or reasoning if the decision itself is correct." (Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, 610.)
Here, in essence, Nichols contends the judgment should be affirmed because Millville and its insurers were not prejudiced by the trial courts error in determining the insurers were not parties to the breach of contract cause of action against Nichols because that cause of action was barred by the statute of limitations and therefore should not have been tried in the first place. This argument is properly before us without a separate appeal by Nichols. Nevertheless, as we will explain, we disagree that the cause of action against Nichols for breach of contract was time-barred.
The trial courts ruling that the cause of action against Nichols for breach of contract was not time-barred rested on its conclusion that the amended complaint filed in July 2005 related back to the filing of the original complaint in April 2004. Nichols first asserts this ruling was erroneous because the trial court erred in treating the amended complaint as "something akin to a `Doe amendment." Relying on Woo v. Superior Court (1999) 75 Cal.App.4th 169, Nichols argues that because Millville did not expressly substitute Nichols in place of a previously named Doe defendant, but instead simply filed an amended complaint naming Nichols as a defendant, the amended complaint did not relate back to the filing of the original complaint and was therefore untimely.
Nicholss reliance on Woo is misplaced, largely because Nichols quotes only selectively from the case. In Woo, the plaintiff filed a complaint for medical malpractice, then later, after the expiration of the limitations period, filed an amended complaint naming Woo as a defendant for the first time. (Woo v. Superior Court, supra, 75 Cal.App.4th at pp. 173-174.) In opposition to Woos motion for summary judgment based on the statute of limitations, the plaintiff argued the amended complaint related back to the filing of the original complaint, which occurred within the limitations period. (Id. at pp. 174-175.) "The trial court treated the amended complaint as the functional equivalent of the substitution of a party for a fictitious Doe defendant" and found the amended complaint did relate back. (Id. at p. 175.)
Woo sought a writ from the appellate court. The court first noted that the plaintiff "made no apparent attempt to satisfy th[e] requirement" of the relation-back doctrine "that the new defendant in an amended complaint be substituted for an existing fictitious Doe defendant named in the original complaint." (Woo v. Superior Court, supra, 75 Cal.App.4th at pp. 172, 176.) The Woo court also noted an admonition by an earlier court that despite the "`liberal attitude toward allowing amendments of pleadings . . . [s]ome discipline in pleading is still essential to efficient processing of litigation." (Id. at pp. 176-177.) The Woo court observed that if it were "to follow the admonition of the [earlier] court, [it] would conclude that [the plaintiffs] inept handling of her amended complaint to bring Woo into the litigation as a defendant after the statute of limitations had expired did not comply with requirements of section 474 and therefore the amended complaint did not relate back to the date of filing the original complaint." (Woo, at p. 177.) The Woo court, however, did not follow the admonition of the earlier court, but instead noted that "the courts of this state have considered noncompliance with the party substitution requirements of section 474 as a procedural defect that could be cured and have been lenient in permitting rectification of the defect." (Woo, at p. 177.) Accordingly, the Woo court expressly "d[id] not hold that [the plaintiffs] noncompliance with the procedural requirements of section 474 foreclose[d] consideration of her section 474 relation-back contention." (Woo, at p. 177.) Instead, the Woo court went on to examine the "nonprocedural requirement for application of the section 474 relation-back doctrine . . . that [the plaintiff] must have been genuinely ignorant of Woos identity at the time she filed her original complaint." (Woo, at p. 177.)
Nicholss argument based on Woos discussion of the procedural requirements of Code of Civil Procedure section 474 ends with the admonition from the earlier case; it does not include Woos refusal to follow that admonition or its ultimate excusing of the plaintiffs "noncompliance with the procedural requirements of section 474." (Woo v. Superior Court, supra, 75 Cal.App.4th at p. 177.) Thus, by selectively quoting from Woo, Nichols is able to improperly characterize Woo as supporting Nicholss claim that the trial court erred here in treating the amended complaint as "something akin to a `Doe amendment," when in fact Woo actually supports what the trial court did. In short, contrary to Nicholss suggestion, under Woo, Millvilles failure to expressly substitute Nichols in place of one of the previously named Doe defendants was not a fatal flaw.
Turning to what Woo called "the identity ignorance requirement of section 474" (Woo v. Superior Court, supra, 75 Cal.App.4th at p. 177), Nichols contends the trial court erred in concluding Millvilles cause of action for breach of contract related back to the filing of the original complaint because "there was more than substantial evidence, and the Judge so found that MILLVILLE knew of the involvement and potential culpability of [Nichols] prior to July 4, 2004—the four year anniversary. The court found that the admissions in the Complaint and [amended complaint] revealed MILLVILLE had actual knowledge of the `probable culpability of [Nichols] by the `spring of 2004." (Bolding and underlining omitted.) Nichols goes on to suggest that because "the court found that MILLVILLE knew before July 4, 2004 of the potential breach of contract claim," the nonprocedural requirement of Code of Civil Procedure section 474 was not met here, and therefore the cause of action for breach of contract against Nichols in the amended complaint did not relate back to the timely filing of the original complaint.
Nicholss emphasis on what Millville knew before the statute of limitations ran in July 2004 reveals a misunderstanding of the identity ignorance requirement of Code of Civil Procedure section 474. "[W]here . . . a lawsuit is initiated within the applicable period of limitations against someone (that is, almost anyone at all) and the plaintiff has complied with section 474 by alleging the existence of unknown additional defendants, the relevant inquiry when the plaintiff seeks to substitute a real defendant for one sued fictitiously is what facts the plaintiff actually knew at the time the original complaint was filed." (General Motors Corp. v. Superior Court (1996) 48 Cal.App.4th 580, 588, italics omitted.) More specifically, the relevant inquiry is whether at the time the original complaint was filed the plaintiff "had actual knowledge of the basic facts giving [the plaintiff] a claim against" the defendant. (Id. at p. 597, italics omitted.)
Thus, contrary to Nicholss suggestion, the pertinent point here is not whether Millville knew of the facts giving rise to its breach of contract claim against Nichols before the expiration of the statute of limitations in July 2004, but whether Millville knew of those facts at the time it filed its original complaint in April 2004. Although it is true the trial courts written ruling states that Millville first obtained "actual knowledge of the probable culpability of Nichols . . . [in] the spring of 2004," we cannot read that finding as suggesting Millville had the requisite knowledge at the time it filed its original complaint in April 2004, because the trial courts ultimate ruling was that the breach of contract cause of action was not barred by the statute of limitations, and it could have reached that conclusion only if Millville obtained actual knowledge of the basic facts of its claim against Nichols after the original complaint was filed. As we have previously noted, Millvilles position was that it did not gain the requisite knowledge until after February 2005, when one of Nicholss principals was deposed. Nicholss position, on the other hand, was that Millville had the requisite knowledge from the day the damage occurred in July 2000. By concluding the breach of contract cause of action was not time-barred, the trial court implicitly accepted Millvilles position over Nicholss position, which leads to the conclusion that in referring to "the spring of 2004," the trial court meant to refer to the spring of 2005.
In any event, to persuade us that Millville and its insurers were not prejudiced by the trial courts error in determining the insurers were not parties to the breach of contract cause of action against Nichols because that cause of action was barred by the statute of limitations, Nichols must persuade us that the trial court erred in concluding the breach of contract cause of action was not time-barred. Nichols cannot carry its burden of persuading us that the trial court erred by invoking the very findings the trial court made in support of its ruling.
At no point does Nichols argue there was insufficient evidence for the trial court to find, as it implicitly did, that Millville did not have actual knowledge of the basic facts giving rise to its breach of contract claim against Nichols at the time of the filing of the original complaint in April 2004. Accordingly, Nichols has failed to persuade us the trial court erred in finding the breach of contract cause of action was not time-barred and for the same reason has failed to persuade us that Millville and its insurers were not prejudiced by the trial courts error in determining the insurers were not parties to that cause of action.
For the foregoing reasons, we will reverse the judgment in favor of Nichols and against Millville and its insurers and will remand for further proceedings to determine who, among Millville and its insurers, is entitled to recover the $200,000 in damages the jury awarded.
3. The Error Was Harmless As To The Claim Against Hallman
As to Millvilles cause of action against Hallman, we conclude the trial courts error in determining the insurers were "out of the case" was harmless. This is so because the exclusion of the insurers from the case did not affect the presentation of evidence, and the jury returned a defense verdict in favor of Hallman. This defense verdict established that Millville was not entitled to recover any damages for breach of contract from Hallman. Given that Millville was not entitled to recover any such damages, there was no right of recovery to which Insurance Group and/or Excess Fund could have been subrogated, and therefore the insurers were not prejudiced by the trial courts barring them from the case against Hallman.
As will be seen, we reject the sole claim of instructional error Millville asserts relating to its case against Hallman.
B
Standard Of Care Instruction
Because the first argument by Millville and its insurers provides no basis for reversing the judgment in favor of Hallman, we move on to the second argument, which is directed at the jury instructions underlying the verdict that led to that judgment. In this argument, Millville contends the trial court erred in refusing to give its requested instruction on the standard of care because Millville "presented evidence that HALLMAN negligently breached [its] contract." We find no error.
With respect to Hallman, the proposed instruction provided as follows: "A contractor is negligent if he/she fails to use the skill and care that a reasonably careful contractor would have used in similar circumstances. [¶] When you are deciding whether [Hallman] negligently performed its contract duties, you must base your decision only on the testimony of the expert witnesses who have testified in this case."
"A contract to perform services gives rise to a duty of care which requires that such services be performed in a competent and reasonable manner. A negligent failure to do so may be both a breach of contract and a tort. [Citation.] In such a hybrid circumstance, the plaintiff is entitled to pursue both legal theories until an occasion for an election of remedies arises." (North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 774.) "[H]owever, conduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law." (Erlich v. Menezes (1999) 21 Cal.4th 543, 551.)
Here, Millville never sought to pursue a tort claim of negligence against Hallman. The only causes of action against Hallman in the amended complaint were for breach of contract and violation of statutory duties, and the latter cause of action was dismissed as time-barred without any opposition from Millville and its insurers. That left only the cause of action for breach of contract. The question is whether, with no tort claim for negligence against Hallman before the court, was the court correct in concluding that no standard of care instruction should be given because the time bar of any tort claim for negligence "subsume[d] negligent performance of the contract" between Millville and Hallman? We think not. Because a negligent failure to perform services under a contract in a competent and reasonable manner may be a breach of contract (North American Chemical Co. v. Superior Court, supra, 59 Cal.App.4th at p. 774), standard of care may be a relevant issue in a breach of contract case, even where no tort claim for negligence is being pursued (or is barred). Thus, if Hallman failed to perform, in a competent and reasonable manner, the services required of it by its contract with Millville, that failure — which can be called negligent breach of contract — would constitute an actionable breach of contract that was not barred by the statute of limitations, and a standard of care instruction could have been necessary to assist the jury in determining whether Hallman did, in fact, fail to perform in a competent and reasonable manner.
Nevertheless, it does not follow that Millville was entitled to the instruction it requested. "A party is entitled upon request to correct, nonargumentative instructions on every theory of the case advanced by him which is supported by substantial evidence." (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 572.) Here, Millville discusses evidence that Hallman knew about the uncovered roof but failed to do anything about it. What Millville does not do is explain how Hallmans inaction in this regard could have been deemed the failure to perform in a competent and reasonable manner contractual services that Hallman was required to perform under its contract with Millville, because Millville does not refer to the contract in this argument.
Millville attempts to correct this omission in its reply brief by referring to an indemnity provision in the contract under which Hallman was required to indemnify Millville for damages to property caused in whole or in part by "negligent acts or omissions" by Hallman. Millville then argues that under this provision "HALLMANs negligence was not a distinct wrong separate from the contract but was itself a breach of contract." "In order to prove a breach of this contract provision, . . . [Millville] was required to prove the damage was `caused by HALLMAN `in whole or in part." "Thus," according to Millville, "the breach of contract claim was based upon negligence and causation, and [Millville] had to prove each of these elements to prevail."
This argument verges on the nonsensical. This provision, which appears to be nothing more than a standard indemnity provision in a construction contract, did not convert any act of negligence by Hallman into a breach of contract, as Millville suggests, thus allowing Millville to prove up a negligence claim under the guise of proving a breach of contract. This provision simply required Hallman to indemnify Millville from damages caused by Hallmans negligence. Millville could have sought to enforce this provision through a cause of action against Hallman for express indemnity, but that has nothing to do with whether Millville was entitled to have the jury instructed on the issue of standard of care in connection with its breach of contract cause of action against Hallman.
In summary, we conclude Millville has shown no error in the trial courts refusal to instruct the jury on standard of care because Millville has not shown there was substantial evidence on which the jury could have found that Hallman failed to perform any particular contractual services in a competent and reasonable manner.
C
Collateral Source Rule
Finally, we turn to Millvilles argument that the trial court erred in barring Millville from recovering any of the $200,000 in damages the jury awarded because Millville had been fully compensated by its insurers. We conclude we need not reach this issue because we have determined already that the trial court erred in ruling the insurers were "out of the case," and on remand the trial court will need to determine who is entitled to the $200,000 the jury awarded. Thus, even assuming the trial court erred in precluding Millville from recovering the $200,000 based on an exception to the collateral source rule that applies in breach of contract cases, that error will necessarily be remedied on remand when the trial court determines who, among Millville and its insurers, is entitled to recover the $200,000 in damages the jury awarded.
III
The Appeal From The Costs Order By Millville And Its Insurers
Because we are reversing the judgment as between Millville and its insurers and Nichols, the postjudgment costs order from which Millville and its insurers separately appealed must be reversed in part as well. To the extent that order directed Millville and its insurers to pay costs of $48,979.60 to Hallman, that portion of the order need not be disturbed because we are affirming the judgment in favor of Hallman. However, the order also ordered Millville and its insurers and West to pay costs of $27,577.39 to Nichols and Rossetto, with Millville and its insurers jointly and severally liable for $23,509.88, and Millville and its insurers and West jointly and severally liable for the remaining $4,067.51. To the extent the costs order makes Millville and its insurers liable for $27,577.39 in costs to Nichols and Rossetto, the order must be reversed based on our reversal of the judgment as between Millville and its insurers and Nichols. The portion of the order making West liable for the $4,067.51 in costs to Nichols and Rossetto is not effected.
DISPOSITION
The judgment is reversed to the extent it determined that Millville and its insurers should take nothing from Nichols; in all other respects, the judgment is affirmed. The postjudgment costs order is reversed to the extent it ordered Millville and its insurers to pay costs to Nichols and Rossetto; in all other respects, the order is affirmed. The case is remanded to the trial court to determine who (among Millville and its insurers) is entitled to the $200,000 in damages the jury awarded on Millvilles cause of action for breach of contract against Nichols.
Millville and its insurers shall recover their costs on appeal from Nichols, and Hallman shall recover its costs on appeal from Millville and its insurers. (Cal. Rules of Court, rule 8.278(a).)
We concur:
RAYE, Acting P.J.
CANTIL-SAKAUYE, J.