Opinion
B183898
5-14-2007
SUNLAND VILLAGE HOMEOWNERS ASSOCIATION, Plaintiff and Appellant, v. STATE FARM FIRE & CASUALTY COMPANY, Defendant and Respondent.
Loewenthal, Hillshafer & Rosen and Glenn T. Rosen for Plaintiff and Appellant. Crandall, Wade & Lowe, Edwin B. Brown, Michael J. McGuire and Matthew F. Batezel; Robie & Matthai and James R. Robie; and LHB Pacific Law Partners and Clarke B. Holland for Defendant and Respondent.
NOT TO BE PUBLISHED
Plaintiff Sunland Village Homeowners Association ("the Association") appeals from the judgment entered in favor of defendant State Farm Fire & Casualty Company ("State Farm") following the granting of State Farms summary judgment motion. The Association contends the court erred in granting the motion because genuine issues of material fact exist regarding State Farms adjustment of the Associations insurance claim filed in the aftermath of the Northridge earthquake. The Association further contends the court erred in awarding certain items of cost to State Farm. We reverse and remand the costs order with directions to the court to vacate its order denying the Associations motion to tax costs. In all other respects, the judgment is affirmed.
FACTUAL AND PROCEDURAL SYNOPSIS
I. Factual Background
A. The Policy
At the time of the January 17, 1994, Northridge earthquake, the Association was insured under condominium association master policy No. 92-11-6258-5 ("the Policy"), issued by State Farm. The Policy covered the Associations real property, consisting of a 20-building, 140-unit condominium complex located in Sunland.
As of that date, State Farm insured the Associations property for earthquake damage in the total amount of $10,215,231. The Policy carried a ten percent deductible for earthquake damage. The deductible could be calculated based on either the aggregate policy limit or the per building limit, whichever was the most favorable to the Association. In order to receive the benefits, the earthquake damage to one of the smaller buildings had to be more than $50,593.60 while damage to one of the larger buildings had to be more than $101,146. Alternatively, benefits could be received if the cumulative earthquake damage exceeded $ 1,021,423.10.
B. The Inspection
The Associations board of directors ("the board"), property managers and maintenance personnel made an independent assessment of the earthquake damage. Greg Duer, the board president, personally inspected ten units. Other board members inspected a similar number of units. The Association asked each unit owner to advise of earthquake damage. The board members were confident the unit owners would identify all earthquake damage to the board, the management company or the on-site maintenance man. The property manager and the on-site maintenance man were instructed to relay such information to the board members.
On January 25, on behalf of the Association, Duer reported the earthquake damage to State Farm; he characterized the damage as minor.
On February 21, Duer reported at the board meeting that only 18 units had reported minor interior cracks as a result of the earthquake.
On February 21, State Farm representative Kenneth Weiland contacted the Associations property manager Thora Vanderwilt. Vanderwilt told Weiland the damage to Sunland Village was very light and would probably not approach the deductible. On March 10, Vanderwilt said only 15 units had even reported damage and advised Weiland the board did not want State Farm to inspect units that had not reported damage. As a result, State Farm scheduled inspections for only those units reporting damage.
At her deposition, Vanderwilt testified she did not recall those representations, but stated she had been told the damage was light.
On March 13, State Farm, in the company of the Associations maintenance man Cliff Rodgers, inspected the units reporting earthquake damage. State Farms estimate to repair those units averaged about $1,000 per unit.
Rodgers testified at his deposition that he did not inspect unit interiors.
During the March 21 board meeting, the board reported State Farm had contacted all unit owners who had reported damage. The board also decided that all interior cosmetic repairs would be the individual unit owners responsibility.
On May 2, the Associations new property manager Reina Zuckerman asked State Farm for a letter stating there was no structural damage caused by the earthquake. State Farm retained engineer John Divita to inspect the property. On May 19, accompanied by Rodgers, Divita inspected the unit identified as having the most earthquake damage. The earthquake had caused cosmetic drywall cracks to the interior of the unit. Divita did not observe anything that indicated structural damage to the concrete floor, slab or foundation, and he saw no indication of any seismically induced cracking of the floors or walls. Divita also inspected the exterior front areas of two other units and concluded that the damage to balcony support posts had been caused by long term settling and not the earthquake. Divita was told an exterior crack had been caused by the earthquake, but the crack only required epoxy repair. As the unit identified as the most severely damaged had no structural damage, Divita determined further engineering inspections for structural damage were unnecessary.
On June 16, State Farm sent Divitas report to Zuckerman and requested inspections of the remaining units. On June 28, Zuckerman told State Farm the Association did not want to formally withdraw its claim, but it would not allow State Farm to inspect additional units.
On July 5, State Farm wrote the Association summarizing Divitas findings. State Farm expressed its preliminary belief, based on its limited inspections, that the damage would not exceed the deductible, but it twice emphasized that it would prefer to inspect every unit to determine the actual cost to repair all the earthquake damage. The letter confirmed that the Association had denied State Farm the opportunity to conduct further inspections. State Farm requested a letter stating the Associations intent to withdraw its claim from further consideration and advised that in the interim, it would maintain the file in an inactive status pending further contact or until January 18, 1996, whichever occurred first.
Board president Duer mistakeningly believed the Association needed only $25,000 in earthquake damage to any one building to recover insurance benefits. Even with that assumption, the board felt there was insufficient damage. In his deposition, when Duer was asked if the board made a decision not to make a claim, he testified, "As I remember it, the consensus [of the board was] . . . the deductible was higher than what would work."
In opposition to State Farms facts, the Association stated it did not hire its own contractors or engineers to inspect the complex because it relied on the expertise and advice of State Farm and because it trusted State Farm to do its job properly and thoroughly. Because State Farms representative advised the Association that its damages were cosmetic and below the deductible, the Association believed State Farms representations and allowed its claim to be closed without payment. Many homeowners were never approached to have their units inspected by State Farm and were not made aware that representatives of State Farm wished to see their homes.
According to the Association in its response to State Farms undisputed facts.
After the closure of the Associations earthquake claim, it began to repair the damages it could afford to repair on a priority basis; it made repairs to the exterior siding, the roofs, the balconies and patios, the water pipes, the cement hardscape, the asphalt drives and repainted the complex. The pools were fixed to a degree (though additional pool work remained to be completed). The Association repaired all of the earthquake damage which it was aware of by November 1995. The Association spent approximately $500,000 on earthquake repairs. The Association did not contact State Farm because it did not want to hear again that the damages were cosmetic.
An amount below the Policy deductible.
After the Legislature enacted Code of Civil Procedure section 340.9, giving certain earthquake victims an additional year to file claims for earthquake damages even though the applicable statue of limitations had expired, the Association hired consultants to conduct inspections of the common areas and unit interiors. The consultants discovered significant earthquake damages never fully appreciated by State Farm during its initial investigation. The litigation consultants prepared reports and estimates regarding the nature and cost of repairs for the Associations earthquake damages in the amount of $4,076,992.83, an amount more than 280 times greater than the amount stated by State Farm in 1994.
All statutory references are to the Code of Civil Procedure.
II. Procedural Background
The Association filed its complaint on March 21, 2001. Subsequently, the first amended complaint ("FAC") became the operative pleading. The FAC alleged causes of action for breach of contract and breach of the covenant of good faith and fair dealing.
State Farm filed a motion for summary judgment, arguing it was not liable because the Association had prevented State Farm from completing its investigation, had effectively withdrawn its claim and had not effected repairs in an amount greater than the deductible.
After taking the motion under submission, the court issued its order, providing in part:
"The fundamental issue is whether or not defendant State Farm properly adjusted the claim in 1994 and whether they failed to pay damages owed under the earthquake insurance policy. State Farm did inspect eighteen or so units reporting damage. State Farm asked to inspect the remaining units but was denied access. . . . Meanwhile, the unit owners and the homeowners association independently inspected for earthquake damage, concluded that the damage was minor and decided that the damage did not exceed the deductible. A provision of the earthquake policy requires the claimants to permit the insurance company to inspect the property. Since access was refused, a condition precedent to payment was not satisfied and no contractual action for payment can be maintained. Of note is the fact that both the howeowners and the carrier independently determined that the earthquake damage did not exceed the one million dollar deductible. On these issues, plaintiff presents no triable issues of material fact and is therefore precluded from recovery." (Citations omitted.)
After the court entered judgment in favor of State Farm, it submitted its memorandum of costs, and the Association filed a motion to tax costs. The court denied the motion to tax costs and awarded all the costs sought.
The Association filed a timely notice of appeal from the judgment.
DISCUSSION
I. Summary Judgment
A. Standard of Review
On review of a summary judgment, "[w]e review the trial courts decision de novo, considering all of the evidence the parties offered in connection with the motion (except that which the court properly excluded) and the uncontradicted inferences the evidence reasonably supports." (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476.) "It is axiomatic that in `reviewing a motion for summary judgment, the relevant facts are limited to those facts set forth in the parties statements of undisputed facts, supported by affidavits and declarations, filed in support of and opposition to the motion . . . to the extent those facts have evidentiary support." (Cheviot Vista Homeowners Assn. v. State Farm Fire & Casualty Co. (2006) 143 Cal.App.4th 1486, 1499, fn. 8.)
B. Triable Issues
The Association contends summary judgment was improperly granted because the court ignored State Farms duties to thoroughly investigate and adjust the Associations original earthquake damage claim and by failing to give due consideration to the Associations newly presented earthquake damages. The Association states issues of material fact include: (1) whether State Farm breached the insurance contract (a) by failing to properly adjust the Associations claim, including failing to thoroughly investigate the claimed earthquake damages, and (b) by failing to acknowledge and investigate the Associations newly discovered earthquake damages; and (3) whether State Farm breached the covenant of good faith and fair dealing by those and other actions. The Association concedes it is the alleged failure to thoroughly investigate the damages that is the root of its claims for breach of contract and bad faith.
"Subsequently discovered evidence of earthquake damage may or may not support a claim an insurers initial investigation and adjustment of a claim were deficient, but it does not impose on the insurer a new duty to investigate." (Lincoln Fountain Villas Homeowners Assn. v. State Farm Fire & Casualty Ins. Co. (2006) 136 Cal.App.4th 999, 1009; see also Cheviot Vista Homeowners Assn. v. State Farm Fire & Casualty Co., supra, 143 Cal.App.4th at p. 1498.)
C. Duty of Investigation
In order to prevail on its breach of contract cause of action, the Association had to establish State Farm had a duty to pay earthquake benefits. Before an insured receives payment for any damage, the damage must exceed the policy deductible. State Farms investigation in 1994 determined the Associations damages were less than the deductible under the Policy. Repairs made after the Associations claim closed were also less than the deductible.
The Association posits State Farm misrepresented the nature and extent of appellants damages in an effort to close the Associations claim without payment, and, aided by the Associations trust and reliance on State Farms representations, the Association did not hire an independent contractor. The Association complains State Farms investigation was inadequate because it only investigated 14 of the 140 units and did not counsel the Association to get its own analysis of the damage.
Whether an insurers conduct constitutes a breach of a contract term is determined on a case by case basis and depends "on the contract purposes and reasonably justified expectations of the parties." (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.) Whether an insurer failed to properly investigate the insureds claim is ordinarily a question of fact, but may be a question of law where but one inference can be drawn from the evidence. (Paulfrey v. Blue Chip Stamps (1983) 150 Cal.App.3d 187, 196.)
"Among the most critical factors bearing on the insurers good faith is the adequacy of its investigation of the claim." (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 879.) "An unreasonable failure to investigate amounting to such unfair dealing may be found when an insurer fails to consider, or seek to discover, evidence relevant to the issues of liability and damages." (Id., at p. 880.)
The Association suggests State Farms actions must result in the forfeiture of its rights under the Policy. (Cf. Chase v. Blue Cross of California (1996) 42 Cal.App.4th 1142, 1157.) The Association asserts this case is like Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142 and Ward v. Allstate Ins. Co. (C.D.Cal. 1979) 964 F.Supp. 307, 312, two cases in which the court determined the insured reasonably relied on misrepresentations of the insurer that the subject policies did not cover the insureds claim.
In Vu, after the Northridge earthquake, the insurers adjuster inspected the insureds home and told the insured his damages were significantly below the policy deductible. Relying on the insurers inspection and denial of his claim, the insured took no further action until August 1995 when he discovered substantial additional damage had been caused by the earthquake. The insurer declined coverage of the newly discovered damage on the ground the one-year statute of limitation had expired. In response to a question certified by the United States Court of Appeals for the Ninth Circuit, the California Supreme Court determined that because the insurer made factual representations about the nature and amount of damages and advised the insured not to file a claim, the insurer might be estopped from raising a statute of limitations defense if the insured could show he reasonably relied on the insurers representations, and whether that reliance was reasonable depended on a myriad of factual questions. (Vu v. Prudential Property & Casualty Ins. Co., supra, 26 Cal.4th at pp. 1152-1153; see also Ward v. Allstate Ins. Co., supra, 964 F.Supp. at p. 312 [The court determined the insureds had raised triable issues of fact as to the tolling of the statute of limitations with regard to the reasonableness of their actions as to when a reasonable insured would have discovered appreciable loss as they had relied upon the representations of the insurers adjuster that their damages was limited to an amount less than the policys deductible and allowed the limitations period to elapse.].)
In 1231 Euclid Homeowners Assn. v. State Farm Fire & Casualty Co. (2006) 135 Cal.App.4th 1008, 1018-1020, the court determined State Farm had not breached its contractual obligations under the subject earthquake policy because the homeowners association ("HOA") had never submitted a claim on which State Farm was required to act. In 1231 Euclid, it was "undisputed that in less than 45 days after the Northridge earthquake, HOA had satisfied itself that its damages were well below the deductible and voluntarily withdrew the claim." (Original emphasis.) (Id., at p. 1019.) The court noted the insureds failure to comply with policy conditions "will excuse insurer liability due to the failure of a condition precedent" and "[t]he burden is on the insured to initiate and support a claim." (Id., at p. 1018.) Although not on all fours (the Association let its earthquake claim lapse rather than voluntarily withdrawing it), we conclude the instant case is similar to 1231 Euclid.
The crux of the Associations position is that its current engineering analysis discussing structural deficiencies related to the earthquake and the accompanying cost of repair estimate of $4,076,992.83 is more than 280 times greater that the $14,300 acknowledged by State Farm in 1994 and evidences State Farm did not thoroughly investigate the Associations claim in 1994. In its brief, the Association claims "State Farms inspection of the condominium project was ultimately determined to be cursory and poorly executed. Indeed, it was subsequently learned that many homeowners were never approached to have their units inspected by State Farm and were never even made aware that representatives of State Farm wished to see their homes. This is why only 14 of 140 units were inspected by State Farm." The record shows only 14 of 140 units were inspected because the Association refused State Farms request to be allowed to inspect additional units.
Furthermore, citing Mariscal v. Old Republic Life Ins. Co. (1996) 42 Cal.App.4th 1617, 1624, the Association implies State Farms investigation was unreasonable because respondent failed to consider and seek evidence relating to appellants earthquake damages. In Mariscal, the issue was whether the insurer had conducted a thorough investigation considering "all the information reasonably available to it at the time it denied the claim." (Emphasis added.) (Ibid.) We conclude that State Farm did consider the information reasonably available to it at the time it determined the Associations earthquake damage was below the deductible.
In the case at bar, the court expressly found the Association failed to satisfy a condition precedent to coverage under the Policy in that it did not permit State Farm to inspect the property and that the Association independently inspected the damage and concluded the damage was minor and did not exceed the deductible. The Association does not address the courts findings.
Under the section for "Duties in the Event of Loss," the Policy provided the insured must "permit us to inspect the property and records proving the loss."
"Prevention of performance by the promisee is equivalent to performance by the promisor. . . . A party to a contract cannot take advantage of his own act or omission to escape liability thereon. Where a party to a contract prevents the fulfillment of a condition or its performance by the adverse party, he cannot rely on such condition to defeat his liability." (Citations omitted.) (Unruh v. Smith (1954) 123 Cal.App.2d 431, 437.)
In its minute order, the court cited the facts supporting its findings: State Farm asked to inspect the remaining units, but was denied access (facts 24, 25 & 26); State Farms letter of July 5, 1994, confirmed denial of access; the unit owners and the Association independently inspected for earthquake damage and concluded the damage was minor (facts 5, 13 & 32) and decided the damage did not exceed the deductible (fact 44). The Association did not dispute facts 5, 13, 24, 25 and 32.
The Association disputed fact 26 (referring to State Farms letter the damage was below the deductible and confirming the Associations refusal to allow additional inspections) "to the extent that many homeowners were never approached to have their units inspected by State Farm and never even saw representatives of State Farm on the property. Moreover, the Associations Board of Directors were of the opinion that further inspections and further contact with State Farm would be useless and a waste of time based on the stated position of State Farms representatives, whom the Board trusted and believed, that the damages were cosmetic and below deductible." The evidentiary support for that statement was a declaration by unit owner Jane Kobel, who first became a board member in 1998, confirming her unit had not been inspected by State Farm and she did not observe representatives of State Farm on the property. Unit owner Louise Stone, who was a member at large in 1994, essentially stated the Association did not hire its own contractors in reliance on State Farms advice the damages were cosmetic and did not contact State Farm after the closure of the claim because of that advice.
In opposition to many of State Farms facts, including fact 44 (the board did not go forward with the claim because it did not believe the damage exceeded the deductible), the Association attempted to create a triable issue of fact by stating (with minor variations): "The Association did not hire its own contractors or engineers to inspect the complex for earthquake damage because it relied on the expertise and advise of its insurer, State Farm and because it trusted State Farm to do its job properly and thoroughly. Because State Farms representatives advised the Association that our damages were cosmetic and below deductible, the Associations Board, foolishly or not, believed State Farm and allowed the Associations claim to be closed without payment. Afterward, the Association began to repair those damages . . . . The Association did not contact State Farm after the closure of our claim to discuss the many problems it was experiencing because State Farm had said in 1994 that the damage from the earthquake was cosmetic and below the Associations deductible; thus, all of the problems were the Associations responsibility to deal with." The Stone declaration was the only evidence supporting that statement.
State Farm adduced evidence board members conducted inspections of the property and deposition testimony from Duer, the board president at the time of the earthquake, that the board determined the damages were below the deductible. (See Cheviot Vista Homeowners Assn. v. State Farm Fire & Casualty Co., supra, 143 Cal.App.4th at pp. 1496, 1500.)
On appeal, the evidentiary support cited by the Association is the newly discovered earthquake damage (i.e., the reports and estimates regarding the nature and cost of repairs) and deposition testimony by Cliff Rogers, the Associations maintenance supervisor, that he did not inspect interiors or recall saying he had inspected more units and found only minor cracks. That evidence and the evidence cited in opposition to facts 26 and 44 did not create a triable issue of fact as to the boards independent determination the earthquake damages did not exceed the deductible or its refusal to permit State Farm to inspect all the units.
Any failure to do a thorough investigation was due to the Associations refusal to give State Farm permission to inspect all the units. Having refused that permission, the Association cannot claim to have been misled by any action of State Farm. The evidence of newly discovered earthquake damage cannot override the fact State Farm was not allowed to do a complete inspection at the time. Accordingly, any reliance on State Farm about the amount of earthquake damages is unreasonable as a matter of law.
Moreover, as State Farm was not in breach of contract, the Association cannot state a cause of action for breach of the covenant of good faith. (See 1231 Euclid Homeowners Assn. v. State Farm Fire & Casualty Co., supra, 135 Cal.App.4th at p. 1021.) Thus, summary judgment was properly granted.
II. Motion to Tax Costs
Subsequent to the judgment, which awarded to State Farm "costs, according to proof," pursuant to section 1033.5, State Farm filed its memorandum of costs seeking recoverable costs totaling $ 37,462.47. The memorandum requested $24,008.96 for "[m]odels, blowups, and photocopies of exhibits." The court denied the Associations motion to tax the photocopying costs finding the costs reasonably necessary to the conduct of the litigation.
"`[S]ection 1033.5, enacted in 1986, codified existing case law and set forth the items of costs which may or may not be recoverable in a civil action. An item not specifically allowable under subdivision (a) nor prohibited under subdivision (b) may nevertheless be recoverable in the discretion of the court if `reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation. (§ 1033.5, subd. (c)(2).) [¶] . . . . Whether a cost item was reasonably necessary to the litigation presents a question of fact for the trial court and its decision is reviewed for abuse of discretion. However, because the right to costs is governed strictly by statute a court has no discretion to award costs not statutorily authorized." (Citations omitted.) (Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 773-774.)
In Seever v. Copley Press, Inc. (2006) 141 Cal.App.4th 1550, 1559-1560, this court reasoned that section 1033.5, subdivision (a)(12) "allows the recovery of the cost of photocopies of exhibits, but only if they were reasonably helpful to aid the trier of fact. Because the Legislature has expressly stated in subdivision (a)(12) what is allowable (exhibits used at trial that are reasonably helpful) and implicitly what is not, the discretion granted in section 1033.5, subdivision (c)(4), to award costs for items not mentioned in section 1033.5 is simply inapplicable." Accordingly, the cost award must be reduced on remand to delete the costs for photocopying.
DISPOSITION
The costs order is reversed and remanded with directions for the court to vacate its order denying the motion to tax costs and to enter a new costs order deleting the photocopying costs. In all other respects, the judgment is affirmed. Each party to bear its own costs on appeal.
We concur:
JOHNSON, Acting P.J.
ZELON, J.