Opinion
No. C-05-4057 MEJ.
September 14, 2006
MICHAEL A. PAPUC, SBN 130024, LAW OFFICE OF MICHAEL A. PAPUC, San Francisco, California, Attorneys for Plaintiffs, Gail Taback, Eugene Taback.
FACTS
A. Facts Warranting Reformation 1. 1985: Purchase of Insurance
The Tabacks first became insured with Allstate in 1985 through Allstate Agent Fred Heckendorn. They renewed their policy on July 17 each year thereafter through July 17, 2003. (Ex. 2, Taback depo., pp. 16:10-17:2, 18:1-4; Ex. 3, Vicario depo., p. 25:7-21; Allstate's Ex. M, Vicario dec., par. 3.)
2. 1985-1995: Allstate issues Guaranteed Replacement Cost Coverage to Tabacks
From 1985 through 1995, Allstate issued guaranteed replacement cost coverage on the Tabacks' home. (Vicario depo., pp. 36:10-37:5, 86:6-13.)
3. 1995: Allstate Stops Issuing Guaranteed Replacement Policies a. April 21, 1995: Allstate Agents told that Reason Why Allstate Stopped Issuing Guaranteed Replacement Cost Coverage is Because Claims Experience Reveals that Cost to Replace Homes Far Exceeds Estimates of Cost to Rebuild
On April 21, 1995, Allstate sent its agents a brochure providing guidance on questions the agents may receive about the policy changes. In pertinent part, the brochure stated as follows:
"A. . . . we learned through our claims experience that the cost to replace homes destroyed far exceeded our estimates and the amount of insurance our customers purchased. . . ." (Ex. 4, Heckendorn depo., p. 47:20-48:23; Ex. 10 (Ex. 39 to Heckendorn depo.), 95 Q A.)4. 1995: Allstate Notifies its Insureds that It will No longer Issue Guaranteed replacement Cost Coverage
In 1995, Allstate sent a notice of this policy change to its policyholders several weeks before the renewal for each policy. The Tabacks typically received their policy renewals in May of each year. (Ex. 2, Taback depo, p. 94:11-13, 95:25-96:1, 96:21-23, 97:9-11; Ex. 3, Vicario depo., pp. 44:6-16, 45:1-11, 46:17-24, 46:25-47:3, 49:2-5, 73:19-22, 80:7-13; 86: 6-13; 141:14-142:18.)
5. Gail Taback called Mr. Heckendorn because She Received Notice that Allstate Stopped Issuing Guaranteed Replacement Cost Coverage
Gail Taback testified that the triggering event for her to call Agent Fred Heckendorn was learning that she no longer would have guaranteed replacement cost coverage. (Ex. 2, Taback depo. p. 22:2-13, 22:24-23:16, 26: 3-6, 27: 5-15.)
6. 1995: During Conversation with Mrs. Taback, Mr. Heckendorn Describes Allstate's New Policy with Extended Limits
In response to Mrs. Taback's inquiries about Allstate not providing guaranteed replacement cost coverage, Mr. Heckendorn explained that Allstate would calculate what it costs to rebuild her home, and the deluxe policy will fully cover her. Mr. Heckendorn said that Allstate "had professionals, people who knew about the cost of construction, and they use professional guidelines to know what the cost would be to rebuild [her] home, and that this would be periodically updated and would be reflected in [her] renewals." Mr. Heckendorn also told Mrs. Taback that there was an extra protection of 150% in case the estimate was not enough. (Ex. 2, Taback depo, pp. 22: 24-23:4, 36:3-11, 68:11-15, 87:21-88:6.)
Mr. Heckendorn said she should not worry, she would be fully covered. It sounded to Mrs. Taback like she was in "good hands." (Ex. 2, Taback depo., pp. 88: 1-17.)
7. Allstate and Heckendorn Conceal that its Construction Cost Estimator was Grossly Inaccurate
Mr. Heckendorn was aware of Allstate's inaccurate estimates before speaking with Mrs. Taback. (Ex. 4, Heckendorn depo, pp. 47:20-48:23.) He never told any insured who inquired about the change from guaranteed replacement cost that Allstate stopped issuing guaranteed replacement cost because the cost to replace homes destroyed exceeded its estimates. (Ex. 4, Heckendorn depo., pp. 49:14-50:10.)
8. 1999-2000: Allstate Sends out Construction Cost Survey
In the summer of 1999, Allstate's Insurance to Value Unit ("ITV") sent a survey to the Tabacks, advising of the characteristics of the Taback home Allstate had on file, and asking the Tabacks to make corrections to the information. Mrs. Taback completed the survey, but made a number of errors. Allstate tagged the survey submitted by Mrs. Taback as being illogical. The ITV unit was closed in March or April, 2000. The agents then had to deal directly with the insureds in correcting any errors on the survey. (Ex. 2, Taback depo., pp. 97:24-98:17, 101:11-105:17, and Ex. 11 (Ex. 25 to Taback depo.), 1999 survey; Ex. 3, Vocario depo., pp. 130:8-25, 132:9-15, 133:17-134:21, 138:7-139:20, 146:10-147:2, 150:21-151:3.)
9. July 2000 Renewal a. Premiums and Coverages dramatically increase and Agent Bernosky undertakes to correct errors
In July 2000, the Tabacks received a premium notice for their new policy, which almost doubled the amount of coverage and the premium. Mrs. Taback contacted her new Allstate agent, Susan Strahan (Bernosky), who explained that the increases were due to the survey Mrs. Taback filled out. They discussed the survey and Ms. Bernosky advised that the kitchen was standard, the bathroom was standard, and that her decks were not custom. There were also about the increased square footage. (Taback depo., pp. 60:2-63:16, 82:9-83:17; Ex. 12 (Ex. 19 to Taback depo.), 7/17/2000-2001 renewal; Ex. 5, Bernosky depo, pp. 94:11-25.)
b. New Survey Completed by Mrs. Taback with Additions Made by Allstate Agent Bernosky, resulting in Amended Renewal
Contrary to Allstate's assertion, Ms. Bernosky told Mrs. Taback to fill out a new survey reflecting Mrs. Taback's new understanding of the terms in the survey. Ms. Bernosky sent Mrs. Taback a blank survey form to fill out from scratch. Mrs. Taback made the changes recommended by Mrs. Bernosky, and returned it with a cover letter of October 11, 2000. (Ex. 2, Taback depo., p. 62:15-21, 72:25-73:24; Ex. 5, Bernosky depo., p. 87:10-16; Ex. 13 (Ex. 9 to Bernosky depo and Ex. 18 to Taback depo, pp. 0207-0208), 2000 survey filled out by Gail Taback.) The cover letter of October 11, 2000 stated in pertinent part as follows:
" Just to remind you of my situation . . .
"Enclosed is a survey form which comes closer to the actual dimensions of the house. . . .
"I would appreciate it if you would submit the new data and revise our Insurance coverage to reflect these new figures. " (Ex. 13, pp. 0207, bold italics added.)
Ms. Bernosky inputted the new data into Allstate's cost estimator program. She sent the Allstar computer print-out to the Tabacks to review and sign. The Tabacks and Ms. Bernosky signed the document. Ms. Bernosky never alerted Mrs. Taback that she inputted different information than Mrs. Taback provided on the surveys to Allstate. Mrs. Taback did not catch the changes made by Mrs. Bernosky. As a result, an amended policy renewal was sent to Mrs. Taback, effective October 19, 2000. (Ex. 5, Bernosky depo., pp. 90:18-91:1, 93:16-23; 96:17-97:11; Ex. 14 (Ex. 10 to Bernosky depo.), Allstar print-out; Ex. 15 (Ex. 11 to Bernosky depo.), Amended policy renewal for July 17, 2000-2001 policy period; Ex. 16, Taback dec., pars. 2-6.) The Amended Policy Renewal (Ex. 15) came with a cover letter from Ms. Bernosky, which said:
" Policy Change Notice
"Changes have been made to your policy to reflect new or corrected information affecting your policy. We want your policy information to be up-to-date and accurate. . . ." (Ex. 15, p. A 0055, bold italics added.)
There are a number of discrepancies between the information provided by Mrs. Taback on the 2000 survey (Ex. 13) and the ultimate information which ended up on the Dwelling Profile which resulted from the inputting of information provided by Mrs. Taback (Ex. 15, p. A 0059). These discrepancies are as follows:Ex. 13: 2000 Survey Information Ex. 15: Resulting Dwelling Profile on Amended Renewal (p. A Provided by Gail Taback 0059)
Year Built: 1917 Year Built: 1911 Dwelling Style: 2.5 story Cape Cape, 1.5 stories 2 units 1 Family no square footage written 2100 square feet (note: prior survey of 1999, Ex. 11, had 2400 square feet written in by Mrs. Taback) Foundation: basement%, crawl space% Foundation: 50% crawl space, 50% slab (note: prior survey of and slab% left blank 1999, Ex. 11, had 100% finished basement written in by Mrs. Taback) Mrs. Taback did not catch these changes or errors made by Ms. Bernosky. (Ex. 16, Taback dec., pars. 2-6.)10. Amended Renewal
The amendment renewal information (Ex. 15) contained an "Important Notice," which referenced a "Dwelling Profile," of the Tabacks' home. The notice states in pertinent part as follows:
" IMPORTANT NOTICE
" DWELLING PROFILE
" Allstate has determined that the estimated cost to replace your home is: $295,341.
"The enclosed Policy Declarations shows the limit of liability applicable to Coverage A — Dwelling Protection of your homeowners insurance policy. That limit of liability must be at least equal to the estimated replacement cost of your home as shown above." (Ex. 15, p. 0059.)
There are several inches of blank space at the bottom of the page which follows the dwelling profile. There is no indication on the bottom of the page that the "Important Notice" is continued on the following page. (Ex. 15, p. 0059.) With that in mind, the following page states:
"It is important to keep in mind that the replacement cost shown above is only an estimate based on construction cost data for a point in time. The actual amount it will cost to replace your home cannot be known until a loss has occurred. The decision regarding the limit applicable to your Coverage A-Dwelling Protection is your decision to make, as long as you purchase at least the minimum limit Allstate specifies and meet certain other requirements." (Ex. 15., p. 0060.)11. 2003: Purchase of Earthquake Insurance
In March, 2003, Allstate sent the Tabacks an Earthquake Application and disclosure to review, sign and return. The Document lists the Dwelling Limit as $281,426. The disclosure documents reference that the earthquake policy would be a replacement cost policy up to policy limits. The following language is contained in this part of the disclosure:
"To be eligible to recover replacement cost, you must insure the dwelling to 100 percent of its replacement cost at the time of loss."
The Applicant Statement of this Document states:
"I am applying for the insurance indicated, and the information on this application is correct." (Ex. 5, Bernosky depo., pp. 108:23-110:3; Ex. 18, Earthquake application (Ex. 15 to Bernosky depo.), pp. A0216, A0218, A0220)
The applicants, Gail Taback and Eugene Taback, as well as Agent Susan Bernosky signed this document. (Ex. 18, p. A0218; Ex. 5 Bernosky depo. pp. 108:23-110:3.) This document references Allstate and the Tabacks' intent that the Coverage A limit be 100% of the replacement cost of the Tabacks' home.
12. The Allstate Policy In Effect at the Time of the Loss
The Allstate policy effective July 17, 2003-July 17, 2004, makes a similar statement, as follows:
"Building Structure Reimbursement
"Extended Limits Coverage
"This endorsement applies only if:
"1) You insure your dwelling, attached structures and detached building structures to 100% of replacement cost as determined by:
"a) a home replacement cost estimator completed and based on the accuracy of information you furnished; or
"b) our inspection of your residence premises;. . . ." (Ex. 16, Taback declaration., par. 7; Ex. 17, excerpts from policy in effect at time of loss; Bold italics added.)B. Facts of Fire
On May 29, 2004, at approximately 4:00 a.m., a fire destroyed the Tabacks' home and personal property. Mrs. Taback was awakened in the middle of the night the morning of May 29, 2004 by windows breaking. She and saw flames. She woke her family while screaming. They ran out the house and watched their home being engulfed by flames. (Ex. 2, Taback depo., pp. 105:18-107:23.)
C. Facts of Allstate's Adjustment of Personal Property Claim
Adjuster Catherine Smith first came out to the Tabacks' property on June 1, 2004, three days after the fire. Ms. Smith testified that she provided the Tabacks with a $10,000 advance on June 1, 2004. However, whenever Ms. Smith provides an advance payment, she has the insured sign an advance payment agreement, and she places that advance payment agreement and check in the claim file. These documents are missing. (Ex. 6, Smith depo., p. 40: 8-15, 41:1-5, 42:5-14, 43:22-44:3, 45:8-46:3.)
On June 1, 2004, Ms. Smith wrote in the Allstate computerized diary log that an appraiser would be necessary for speciality items such as antiques. (Smith depo, pp. 47:8-18.) On June 6, 2004, Ms. Smith issued to the Tabacks an advance payment of $30,000. (Ex. 6, Smith depo., pp. 54:3-20, 55:23-56:22; Ex. 20 (Ex. 44 to Smith depo.).) The advance payment agreement states that "1) that this advance shall not be considered payment under any portion of the policy; . . ." (Ex. 20, p. 0280; emphasis added.).)
The Tabacks submitted their inventory of personal property items on November 29, 2004. (Smith depo, pp. 88:1-90:10; Ex. 21, cover letter of November 29, 2004 with supporting documentation.) Once received, Ms. Smith had the list inputted into Allstate's system. (Ex. 6, Smith depo., p. 92:1-20.)
On February 2, 2005 , Ms. Smith asked for authority to retain an appraiser for antique items. (Ex. 6, Smith depo. pp. 102:2-103:13.) On February 8, 2005, Melissa Shanley, the appraiser and left her a message. She sent her a copy of the insured's inventory list. (Ex. 6, Smith depo., p. 108:5-22.) Documents are missing from Smith's personal property claim file of this transaction. (Ex. 6, Smith depo., pp. 110:21-113:8.)
Melissa Shanley sent Allstate a letter agreement, which was signed by Ms. Smith on February 24, 2005. Ms. Smith had the option of paying an additional 15% to Shanley to have the antiques appraised on a rush basis, but did not do so. (Ex. 6, Smith depo. pp. 113:15 — 115:21; Ex. 22, letter agreement.)
On March 1, 2005, Mr. Taback called Ms. Smith. Ms. Smith advised that items went out for appraisal, and there was no definite time for completion. (Ex. 6, Smith depo., p. 116:1-13.)
On March 8, 2005, Ms. Smith's supervisor, Kirk Mang, asked her how long the appraisal process would take. Ms. Smith saw no sense of urgency. She responded that items were being appraised and she was working on getting figures for the items not subject to appraisal. (Ex. 6, Smith depo., pp. 116:21-117:25.)
On April 11, 2005, Mr. Mang asked Ms. Smith to push the appraiser to complete the loss by the one year anniversary of the loss (May 29). Ms. Smith did not contact the appraiser on April 11 or during the course of the week following April 11. (Ex. 6, Smith depo. pp. 119:15-120:19.)
On May 2, 2005, Ms. Smith finally spoke to the appraiser, Melissa Shanley, who told Ms. Smith simply that she was continuing to do her research. (Ex. 6, Smith depo., pp. 120:20-121:21.)
On May 3, 2005 Mr. Taback called Ms. Smith. Ms. Smith told him she would settle the claim fairly soon. She had no estimate of time as to how long it would take. (Ex. 6, Smith depo., pp. 122:4-22.)
On May 9, 2005 and May 25, 2004, Kirk Mang asked Ms. Smith to push the appraiser. Ms. Smith saw no urgency about the claim. (Ex. 6, Smith depo., pp. 123:6-15,128:9-129:9.)
On May 27, 2005, Mrs. Taback contacted Ms. Smith and advised they were buying a new home and needed the personal property monies. Mrs. Taback told Ms. Smith that they were forced to sell their home and buy a new one because they did not have enough money to rebuild. They needed money for beds, furniture, clothing and other things. Mrs. Taback asked what was taking so long. Mrs. Taback asked if she needed to contact a lawyer. Ms. Smith agreed to contact the appraiser and ask her to contact Mrs. Taback. Ms. Smith also agreed to ask for an additional $50,000 advance. (Ex. 2, Taback depo., pp. 109:9-111:11; Ex. 16, Taback depo., par. 8; Ex. 6, Smith depo. pp. 129:9-130:6.)
On May 27, 2005, Smith asked for authority to issue an additional $50,000 advance. She also wrote in the diary that the contents claim will well exceed the policy limits. (Smith depo, pp. 131:18-132:14.) On June 15, 2005, Ms. Smith sent a $50,000 contents advance to the Tabacks. (Smith depo., p. 140:20-141:7.)
On August 15, 2005, Melissa Shanley completed her appraisal , and sent an invoice to Allstate for payment for a total of 20.75 hours of work. (Smith depo., pp. 146:20-147:24; Ex. 23, Shanley Invoice, p. A0475.) Ms. Shanley required that she receive payment for the appraisal before the report would be released. Allstate sent a check for payment of the appraisal on August 22, 2005. (Ex. 6, Smith depo., pp. 148:13-20.)
On September 6, 2005, Ms. Smith finally received the appraisal report, and complete her evaluation. (Smith depo, p. 152:18-153:22.) On September 19, 2005, Smith sent a check for $123,894.40 to the insureds for the remaining items of personal property. (Ex. 6, Smith depo., pp. 161:21-162:4.)
D. Facts Concerning Presentation of Under-Insured Claim and Investigation (or lack) Thereof
On July 22, 2005, Michael Papuc, counsel for the Tabacks sent a letter to Allstate adjuster Laura Gallagher, advising that the policy limits were insufficient to rebuild the Tabacks' home. Mr. Papuc enclosed a copy of a complaint he filed on July 21, 2005. He explained he filed because of the policy's one year suit limitations, but he would hold off serving because the Tabacks wished to attempt a settlement. The complaint asserted claims for Reformation, Agent negligence, among other claims. The information was forwarded to Mr. Mang for response. (Ex. 7, Mang depo., pp. 26:5-27:9, 27:23-28:11; Ex. 24, 7/22/05 letter to Gallagher with summons and complaint (Ex. 205 to Mang depo.).)
Mr. Mang gathered policy information and information on the amounts paid under the policy, and telephoned Mr. Papuc. Mr. Mang explained that the claims department only enforces the contract as written. (Ex. 7, Mang depo., pp. 32:8-13, 40:1-41:10.)
Mr. Papuc sent a letter to Mr. Mang dated July 26, 2005 following the conversation. The fax cover page asks Mr. Mang to provide the identity of someone with authority who can settle this claim. (Ex. 7, Mang depo, pp. 39:16-25; Ex. 25 (Ex. 206 to Mang depo.), p. 0478.) The letter states:
"Please give me the name, address and telephone number of one of your superiors who would have authority to actually investigate the under-insurance aspect of this claim and perhaps attempt to settle this matter short of my serving the lawsuit. . . . ." ( Id.)
Mr. Mang spoke with Jodi Vicario in Underwriting. Jodi Vicario said they cannot negotiate a policy that has been issued after a loss has occurred. Mr. Mang thereafter wrote Mr. Papuc on July 28, 2005, telling Mr. Papuc to serve the lawsuit. Mr. Mang undertook no efforts to investigate the reasons why the Tabacks believed they were underinsured. (Ex. 7, Mang depo., pp. 42:14-45:19; 47:18-48:7, 51:25-53:8, 57:7-24; Ex. 26, Mang letter to Mr. Papuc.)
ARGUMENT I. First Cause of Action for Breach of Written Contract
A. Plaintiff Does Not Make a Claim for Attorneys Fees or Punitive damages based on the First Cause of Action for Breach of Written Contract
Mrs. Taback does not make a claim in this action for Attorneys fees or punitive damages in the First Cause of Action for Breach of Contract.
II. Second Cause of Action: Breach of Implied Covenant of Good Faith and Fair Dealing on Contract as Written for Delay in Payment of Personal Property ClaimA. Plaintiff Stipulates that She Incurred No Attorneys Fees to Obtain the Remainder of the Personal Property Limits under the Written Contract, which were paid after suit was filed
The Tabacks' fee agreement with their attorney, entered in July, 2005, is a contingency fee agreement which excludes payment of any fee for recovery of the remaining written policy limits. Suit was filed on July 21, 2005. Payment of the remaining $123,894.40 was made on September 19, 2005.
B. There are Genuine Issues of Material Facts Concerning Whether Allstate is Liable for Punitive Damages on the Second Cause of Action for Bad Faith in Delaying Payment of the Personal Property Claim
Civil Code, sec. 3294 states in pertinent part as follows::
"(a) In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice , the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.
"(b) An employer shall not be liable for damages pursuant to subdivision (a), based upon acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.1. Testimony of Claims Expert Witness Robert Westin
Mr. Westin was retained as an expert on agency/broker and claims handling. He has been in the insurance industry since 1956, including as General Manager of the Los Angeles Branch of Home Insurance Company from 1956 through 1965; Senior Vice President of Administration for Penn General Agencies (now Acoria Insurance Brokers, Inc.) from 1965 through 1978; President of Physicians and Surgeons Underwriters Corp. From 1978 through 1983; and President and Owner of Victus, Inc. from 1983 through the present. Mr. Westin was retained by the Sonnenschein firm on behalf of Allstate in a number of cases involving claims handling arising out of the Northridge earthquake. He testified at arbitration and depositions on behalf of Allstate. (Ex. 8, Westin depo., pp. 8:7-9:5, 23:13-23; Ex. 19, Westin report and CV (Ex. 200 to Westin depo.), see CV.)
In his report, Mr. Westin gave the following opinion of the personal property claim:
"29. It is my opinion that while Allstate's partial payment of advances toward the settlement of the Tabacks' personal property loss, and its assumptions of the responsibility to obtain an appraisal of Tabacks' antiques was commendable, its acts did not relieve it of the duty to settle the Coverage C claim within a reasonable time. It is my opinion that Smith clearly understood the strain the Tabacks were under, her failure to press Shanley for completion of the appraisal or assign the task to another appraisal was grossly unreasonable. It is beyond the measure of reason for any personal property adjuster to tolerate at an insured's expense a delay of 190 delays to complete 20.75 hours of appraisal work." (Ex. 8, Westin depo., p. 8:7-9:5; Ex. 19, Westin report (Ex. 200 to Westin depo.), pp. 14:28-15:6.)
There was a 190 day time lag from when the appraisal assignment was accepted by Ms. Shanley and the time Allstate received the report. (Ex. 8, Westin depo, pp. 134:21-135:10.) Mr. Westin is of the opinion that the appraisal could have been done in a week. (Ex. 8, Westin depo., p. 135:7-10.) Once the appraiser got involved, the claim should have been resolved within 30 days. (Ex. 8, Westin depo., 135:20-136:7.) 2. There is a Genuine Material Factual Issue as to whether Ms. Smith acted with Malice
Under section 3294(c)(1), "`Malice' means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others." (Bold italics added.) On May 3, 2005, Ms. Smith lied to Mr. Taback when she told him that the personal property claim would be settled shortly. She had not completed her personal property inventory and she had no idea when the appraiser would complete her appraisal. She waited 10 weeks after receipt of the inventory to hire an appraiser, even though she was aware from the first day she inspected the property that an appraiser would be needed.
By May 27, 2005, 363 days after the loss, and 6 months after the personal property inventory was submitted, Ms. Smith and Allstate knew that the personal property loss exceeded policy limits. She concealed this information from the Tabacks. At this time, Ms. Smith also knew that the insureds needed the personal property funds because they had to buy a new home because there were grossly underinsured and were not able to rebuild their home. A $50,000 advance went out on June 15, 2005, but that was an "advance." By the terms of the Advance Payment Agreement, it was "not to be considered payment under the policy." No unconditional payments were made under the policy for personal property loss until September 19, 2005, almost 16 months after the loss. It can be inferred from these facts that Ms. Smith intended to harm the Tabacks. Her conduct was despicable and in conscious disregard of the rights of the Tabacks.
3. There is a Genuine Material Factual Issue as to whether Ms. Smith acted with Fraud
Under Civil Code, sec. 3294(c)(3), "`Fraud' means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury." Ms. Smith lied to Mr. Taback on May 3, 2005 when she told him that she would settle the personal property claim shortly. She had no idea how long it would take. On May 27, 2005, Ms. Smith was aware that the personal property claim would exceed policy limits. She concealed that information from the Tabacks, and instead tried to placate Mrs. Taback with a promise that an advance payment of $50,000 was forthcoming. Under the terms of the advance payment agreements, advance payments are not to be deemed payments under the policy. At the time of the promise, Ms. Smith was aware that Mrs. Taback was considering legal action and that the Tabacks were underinsured to the point where they could not afford to rebuild their home and had to sell their home. This conduct is fraudulent under Civil Code, sec. 3294(c)(3).
4. There is a Genuine Material Factual Issue as to whether Ms. Smith acted with Oppression
Under Civil Code, sec. 3294(c)(2) "`Oppression' means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights." For the same reasons set forth above with regard to malice and fraud, the conduct of Ms. Smith constituted oppression.
5. There is a Genuine Material Factual Issue over whether Ms. Smith and her supervisor, Mr. Mang are Managing Agents of Allstate for punitive damages purposes
Under Civil Code, sec. 3294(b), "With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation." Egan v. Mutual of Omaha, 24 Cal.3d 809, 822-823 (1979), involved a bad faith claim against an insurer on the failure of two employees to investigate adequately a claim before denying insurance coverage. The California Supreme Court stated as follows:
"the critical inquiry is the degree of discretion the employees possess in making decisions that will ultimately determine corporate policy. When employees dispose of insureds' claims with little if any supervision, they possess sufficient discretion for the law to impute their actions concerning those claims to the corporation. " ( Id., emphasis added.)
Although Egan predated the drafting of the present version of Civil Code, sec. 3294(b), it has been cited with approval by the California Supreme Court in decisions discussing what the term "managing agent" means for punitive damages purposes. (See White v. Ultramar, Inc. (1999) 21 Cal.4th 563, 573.) In this case, Ms. Smith and Mr. Mang disposed of the Tabacks' personal property claim with little or no supervision. As such, their conduct is imputed to Allstate for punitive damages purposes.
6. There is a Genuine Issue of Material Fact over Whether Allstate "Ratified" the conduct of Ms. Smith and Mr. Mang
A corporate insurer may be found to have expressly or impliedly ratified wrongful acts by its agents or employees. "[R]atification generally occurs where, under the particular circumstances, the employer demonstrates an intent to adopt or approve oppressive, fraudulent, or malicious behavior by an employee in the performance of his job duties" ( College Hosp. Inc. v. Sup.Ct. (Crowell), 8 Cal.4th 704, 726 (1994) (emphasis added); see also Cruz v. Homebase 83 Cal.App.4th 160, 168 (2000).)
In White v. Western Title Ins. Co., 40 Cal.3d 870, 885-886 (1985), the California Supreme Court disagreed, holding that the insurer's duties under the implied covenant of good faith and fair dealing continue after the onset of litigation.
Allstate has a continuing duty of good faith and fair dealing which continues throughout the litigation. It cannot stick its head in the sand and assert that its officers, directors and managing agents are unaware of what has been going on in the claims process. All facts which are developed in this litigation are known to Allstate's attorneys, and are therefore imputed to Allstate, the corporate defendant. As such, there is ratification of the conduct of Ms. Smith and Mr. Mang.
Mrs. Taback has not been able to discover the knowledge of Allstate Insurance Company concerning the handling of the Tabacks' claim. Allstate has blocked all efforts at this discovery. There is a motion to compel the deposition of Allstate outstanding on these issues. (See Document No. 88, filed August 18, 2006.) In the event the court is considering granting the motion on this issue, Mrs. Taback asks for delay of the ruling until after the court rules on the motion and, if the ruling is in plaintiff's favor, after the discovery on the matter is completed.
III. There are Genuine Material Factual Disputes which Prevent Summary Judgment on the Third Cause of Action for Reformation
Reformation is an equitable remedy that allows a court to alter or rewrite a written agreement which fails to conform to the parties' oral or other prior agreement as the result of fraud or mistake. Civil Code, sec, 3399.) The California Supreme Court described the purpose of reformation as follows:
"The purpose of reformation is to correct a written instrument in order to effectuate a common intention of both parties which was incorrectly reduced to writing." ( LeMoge Electric v. San Mateo County, 46 Cal.2d 659, 663 (1956).)
See also American Home Ins. Co. v. Travelers Indem. Co. 122 Cal.App.3d 951, 963 (1981) (purpose of reformation is "to make a written contract truly express the intention of the parties.") (Emphasis added.)
Civil Code, sec. 3401 provide:
"In revising a written instrument, the court may inquire what the instrument was intended to mean, and what were intended to be its legal consequences, and is not confined to the inquiry what the language of the instrument was intended to be."
Allstate cites two California state court decisions for the proposition that the burden of proof on a claim for reformation is "clear and convincing evidence." ( California Trust Co. v. Cohn, 9 Cal.App.2d 33, 40 (1935); Taft v. Atlas Assurance Co., 58 CalApp.2d 696, 702 (1943) There is some question as to whether the "clear and convincing evidence" standard still applies after the California Supreme Court decision holding a "preponderance of evidence" sufficient to establish fraud. (See Liodas v. Sahadi (1977) 19 Cal.3d 278, 286-293; Rutter Group, California Practice Guide, Insurance Litigation, Sec. 5:142 (2005 ed.). Plaintiff submits that in light of Liodas v. Sahadi (1977) 19 Cal.3d 278, 286-293, the court should apply a preponderance of the evidence standard. Notwithstanding, plaintiff submits that the facts in this case meet the clear and convincing evidence that the policy should be reformed to reflect the true intentions and agreement of the parties that the Coverage A Dwelling Limit be sufficient to rebuild the Tabacks' home.
A. There was a Mutual Intent that the Dwelling (Coverage A) Limits Reflect 100% of the Cost to Rebuild the Home
Mr. Heckendorn told Mrs. Taback that Allstate would calculate the cost to rebuild her home, and upgrade those figures periodically. Allstate did in fact do that. Mr. Heckendorn told Mrs. Taback that Allstate had professionals who know what they are doing who use professional guidelines on construction matters. He said the policy limits would be increased periodically based on the most recent construction cost data. After the conversation Mrs. Taback was contacted by a Value Quote vendor who asked questions about the characteristics of her home, and used that information to set the policy limits for the 1996-1997 policy. Thereafter, Allstate increased the policy limits each year based on an inflationary factor built into the construction cost index it uses. Ms. Bernosky in 2000, after amending the policy for the Tabacks based on correcting the characteristics of the home, sent the Tabacks a letter advising that Allstate wants the coverages to be up-to-date and accurate. (Ex. 15, p. A 0055.)
Mr. Westin provided expert testimony that a proper investigation by Mr. Mang (discussed infra) would have revealed the mutual intent of the Tabacks and Allstate that the dwelling be insured to 100% of its replacement cost. Mr. Westin's opinion is based on Allstate's process of calculating the estimated replacement cost of the home, Allstate providing that information to the insured to use. The replacement cost endorsement itself applies only if the Tabacks insure the home to 100% of replacement cost in accordance with Allstate's calculations. The whole process of gathering information to come up with a figure reflective of 100% of the cost to replace was exemplary of that intent. (Ex. 8, Westin depo., pp. 124:25-125:25; Ex. 17, excerpts from policy, Building Coverage Reimbursement Extended Limits Coverage.)
Mr. Westin further testified that the Tabacks were led to believe that the estimates were accurate numbers. Allstate was providing a precise figure of the cost to replace, not round numbers. Ms. Bernosky in her transmittals to the Tabacks represented that Allstate wants the Tabacks' coverages to be up-to-date and accurate. Ms. Bernosky never suggested to the Tabacks to get an independent appraisal on the cost of construction. On top of that, Mr. Heckendorn told the Tabacks not to worry, there is a 50% cushion. (Ex. 8, Westin depo., pp. 41:11-42:14, 47:11-16, 62:2-9, 63:5-12, 68:20-69:2, 73:14-25, 75:2-76:6; Ex. 15, p. A 0055, bold italics added.)
In addition, Allstate signed off on the 2003 earthquake application to the California Earthquake Authority that the Coverage A dwelling limit was 100% of the cost to replace the home. (Ex. 5, Bernosky depo., pp. 108:23-110:3; Ex. 18, Earthquake application (Ex. 15 to Bernosky depo.), pp. A0216, A0218, A0220) The term "estimate" was not used. Allstate represented to the CEA that the dwelling limit it calculated was 100% of replacement cost. All of these factors point to a mutual intent that the Dwelling (Coverage A) limits be 100% of the cost to replace the home.
B. There was a Mutual Intent that Allstate's Estimates of the Cost to Rebuild the Home, which were used as the Dwelling (Coverage A) Would Be Accurate
For the same reasons set forth immediately above, there was a mutual intent that Allstate's estimates of the cost to replace the Tabacks' home be accurate.
C. There Was a Mutual Mistake as to the Accuracy of Allstate's Estimates of the Cost to Rebuild
As set forth above, at Facts, Section A.9.b., there were some mistakes as to the characteristics of the Tabacks' home. Some of the mistakes were made by Mrs. Taback. However, other more significant errors were made by Ms. Bernosky. Notwithstanding those errors, there was a much more significant error on the part of Allstate in relying on the construction cost data of R.S. Means which fed the Value Quote system. Ms. Bernosky calculated the cost to rebuild the Tabacks home in 2000 at approximately $277,000. This provided a cost per square foot of only $132.00. With the extended limits endorsement, there was an additional 50% above that figure, brining the total insurance available to $415,000, translating to $197 a square foot. (Ex. 5, Bernosky depo, p. 92: 5-23.) The actual cost to rebuild the Tabacks' home in 2004, less than four years later was $781,619, plus an additional $30,000 in engineer plan fees. The total of $811,619 is close to $350 a square foot. (Ex. 27., Allen depo., p. 9:3-10:3, 62:7-15, 89:15-19, 108:23-25; Ex. 28, Allen report.) Had every component of the home been accurately reflected in the Dwelling Profile, the cost to rebuild would have still been off by over $125 per square foot.
D. There was Fraud on the Part of Allstate Concerning the Accuracy of its Estimates
As discussed above, Mr. Heckendorn was aware that Allstate's estimates of the cost to rebuild prior to 1995 were far exceeded by the cost to rebuild. Yet Mr. Heckendorn gave assurances to Mrs. Taback that Allstate's estimates could be relied upon. At the same time, there was no track record of the new system in place for estimating the cost to replace homes. Due to the inaccuracies in estimating the cost to rebuild prior to 1995, at the time it stopped issuing guaranteed replacement cost coverage, Allstate switched from the Boeckh estimating system to the Value Quote estimating system for estimating the replacement cost of home. (Ex. 3, Vicario depo., pp. 88: 10-89:19.) The Tabacks were experimental guinea pigs in the new system, without being told of such. This conduct constitutes fraud by concealment as well as fraudulent misrepresentation, providing a further basis for reformation.
IV. There Are Genuine Issues of Material Fact Preventing Summary Judgment on the Fourth Cause of Action for Breach of Reformed Contract
Under Civil Code, sec. 3402, "A contract may be first revised and then specifically enforced." When the court reforms a written agreement to reflect this oral term, it does so retroactively , so that the claim can be paid. ( American Sur. Co. of New York v. Heise, 136 Cal.App.2d 689, 695-696 (1955); Beach v. United States Fid. Guar. Co., 205 Cal.App.2d 409, 417 (1962).) In this case, the Tabacks were underinsured by approximately $300,000 on their home and approximately $120,000 on their personal property. If the court grants reformation, Allstate would have breached the reformed contract by not paying these amounts. (Ex. 2, Taback depo, pp. 59, 199.)
V. There are Genuine Material Factual Disputes Preventing Summary Judgment on the Fifth Cause of Action for Breach of the Implied Covenant of Good Faith and Fair Dealing on the Reformed ContractA. The Court's Ruling of March 20, 2006, Permitting the Cause of Action for Bad Faith on the Reformed Contract Should Not Be Changed
This Court issued an order on March 20, 2006, denying Allstate's Motion to Dismiss the claim for Breach of the Implied Covenant of Good faith and Fair Dealing based on the on the Reformed Contract. This Court reasoned in pertinent part as follows:
"Under California Civil Code Section 3399, courts may revise (reform) contracts to reflect the true intentions of the parties. Immediately upon reforming a contract, courts may specifically enforce the contract. (Cal. Civ. Code Sec. 3402 ("A contract maybe first revised and then specifically enforced."); see also Tomas v. Vaughn, 63 Cal. App. 2d 188 (1944) (contract may be revised and specifically enforced in same action). Once a contract is reformed, it is subject to the same general liabilities as any other contract (e.g. it is subject to the covenant of good faith and fair dealing, which is implied in every contract ( see Jonathon Neil Associates, Inc. v. Jones, 33 Cal. 4th 917, 937 (2004) emphasis added)." (Document No. 36, Order of March 20, 2006, pp. 4:23-5:3; bold italics added.)
In R B Auto Center, Inc. v. Farmers Group, Inc. 140 Cal.App.4th 327, 354 (2006) (" R B") a used car dealership purchased lemon law liability insurance from Farmers Insurance ("Farmers") and Truck Insurance ("Truck"). When sued under the lemon law, it was discovered that the coverage only applied to the sale of new vehicles. Truck refused to provide a defense or indemnity for the lawsuit. The trial court dismissed most of the action. The appellate court ruled that the trial court properly disposed of the causes of action for breach of contract, bad faith and breach of fiduciary duties. In making its holding on the bad faith claim, the appellate court in R B noted that did not have any cases on point to work with:
"R B attempts to piggy-back a bad faith cause of action on top of its reformation cause of action. . . . As R B sees it, even though there was no potential for coverage at the time Truck Insurance processed the lemon law claim, Truck Insurance nonetheless should be held liable for bad faith if in the future the insurance contract is reformed to provide lemon law coverage for used car sales. Truck Insurance disagrees. Neither party cites a case on point. "
"However, we observe that `before an insurer can be found to have acted tortiously (i.e., in bad faith), for its delay or denial in the payment of policy benefits, it must be shown that the insurer acted unreasonably or without proper cause. [Citations.]' [Citation omitted.] Generally speaking, `the reasonableness of the insurer's decisions and actions must be evaluated as of the time that they were made. . . . [Citation.]' [Citation omitted.] When an insured submits a claim to an insurer and there is no potential for coverage of that claim under the policy, the insurer has no duty to defend and it may reasonably deny the claim. [Citation omitted] Since it is reasonable to deny the claim at the time, if the policy is later reformed to provide retroactive coverage, the insurer may not be held liable for bad faith for failing to have the foresight to know that the policy would be reformed. fn. 12
"In the case before us, R B submitted a lemon law claim with respect to a used car sale when the policy clearly provided lemon law coverage with respect to new car sales only. At the time Truck Insurance evaluated the claim, it was reasonable to deny it. If, on remand, the court should reform the policy to provide lemon law coverage for used car sales, this does not mean that Truck Insurance will be deemed to have acted in bad faith retroactively. The court did not err in dismissing the bad faith cause of action. " ( R B Auto Center, Inc. v. Farmers Group, Inc., 140 Cal.App.4th 327, 353-354 (2006); bold italics added.)
At footnote 12, the R B court was careful to limit its opinion based on the facts of that case, as follows:
"As this court has previously made clear, we disagree with any suggestion that court opinions rendered after an insurer has made its coverage decision can never be considered in determining whether the insurer acted in bad faith. [Citation omitted.] However, it would be inequitable to use a judgment of reformation to provide a retroactive basis for a bad faith claim in the particular context before us. " ( R B Auto Center, Inc. v. Farmers Group, Inc., 140 Cal.App.4th 327, 354 fn. 12 (2006); bold italics added.)R B failed to recognize, as this court did in its order of March 20, 2006, that a reformed a contract is an actual contract that was in existence at the time it was made. The granting of reformation does not create a new contract. The granting of reformation merely remedies an error which prevented the agreed upon contract from being accurately reflected in the written agreement. (Civil Code, sec, 3399; LeMoge Electric v. San Mateo County, 46 Cal.2d 659, 663 (1956.)
R B failed to recognize numerous California Supreme Court and Appellate court decisions, that there is an implied covenant of good faith and fair dealing in every contract (including reformed contracts). (Jonathan Neil Associates, Inc. v. Jones, 33 Cal.4th 917, 937-938 (2004); Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 43-44; Foley v. Interactive Data Corp., 47 Cal.3d 654, 683-684 (1988); Schwartz v. State Farm Fire Casualty Co., 88 Cal.App.4th 1329, 1336, fn. 3 (2001); Fireman's Find Ins. Co. v. Maryland Cas. Co. (1994) 21 Cal.App.4th 1586, 1599 (1994).)
The plaintiff in R B, conceded that there was no potential for coverage at the time Truck Insurance processed its claim. That concession was wrong, because the plaintiff failed to recognize that Truck Insurance should have made a coverage decision on the "insurance contract," which includes the "written policy and the oral representations of the agents." That argument was never submitted in R B.
There is no indication in the R B decision that any evidence was submitted by the plaintiff to attempt to establish that Truck Insurance acted in bad faith in denying a claim for reformation on the reformed contract. There is no evidence from the decision that a reformation claim was even submitted to the insurer to consider. In this case, unlike in R B, Allstate was presented with a copy of the complaint (prior to service of process) on July 22, 2005, asking that Allstate attempt to settle this case. The complaint laid out a theory for reformation of the insurance contract as well as negligence of the agent. Allstate was asked to investigate the claim by letter dated July 26, 2005. Allstate responded that the Tabacks should serve the complaint. In R B, there is no evidence of any efforts to bring the reformation claim to the attention of the insurer during the claim handling process.
There is no indication in the R B decision that the appellate court recognized that the insurer had a duty under the implied covenant of good faith and fair dealing to investigate the claims of its insured, even after the onset of litigation. ( Egan v. Mutual of Omaha Ins. Co., 24 Cal.3d 809, 819 (1979); Love v. Fire Insurance Exchange, 221 Cal.App.3d 1136, 1153 (1990); White v. Western Title Ins. Co., 40 Cal.3d 870, 885-886 (1985).) There is no indication in that decision whether the investigation revealed that the policy should be reformed to effectuate the mutual intent of the parties. There is simply no foundational legal analysis of the implied covenant of good faith and fair dealing in the R B decision.
As such, R B has no bearing on this case. The Court should not change its order of March 20, 2006.
B. Allstate Acted in Bad Faith on the Reformed Contract by Failing to Investigate the Reformation Claim
The implied covenant of good faith and fair dealing places a duty upon Allstate to thoroughly investigate the claim. ( Egan v. Mutual of Omaha Ins. Co., 24 Cal.3d 809, 819 (1979); Love v. Fire Insurance Exchange, 221 Cal.App.3d 1136, 1153 (1990).) Allstate's duties under the implied covenant of good faith and fair dealing continue even after the onset of litigation. ( White v. Western Title Ins. Co., 40 Cal.3d 870, 885-886 (1985).)
It is Mr. Westin's opinion that Mr. Mang's refusal to conduct an investigation was unreasonable and in bad faith. Mr. Mang should have done two things: (1) send Mr. Papuc a Reservation of Rights letter, including an agreement to toll the one-year suit limit and (2) conducted an investigation. Mr. Mang should have reserved rights to maintain his position that reformation or an increase in limits were not correct. Any investigation he undertakes does not waive those rights. Mr. Mang should have conducted an investigation or instructed someone to do it, which would have included taking the examination under oath of the insureds, and gathering information from the agents and underwriting. None of that was done. Instead, he told Mr. Papuc to serve suit. (Ex. 8, Westin depo., pp. 8:7-9:5; 112:17-113:13, 119:19-120:25, 121:12-122:19, 124:5-126:1; Ex. 19, Westin report (Ex. 200 to Westin depo.), p. 14, par. 28.)
The investigation performed by Mr. Mang and Allstate following receipt of notice of the claim for reformation was non-existent. Further, Plaintiff is attempting to discover what Allstate has done during the course of the litigation to evaluate plaintiff's claim, including whether a determination was made that reformation should be made, and if so, whether it will pay the under-insured aspect of the claim. Plaintiff has filed a motion to compel to seek this information. (See Document Np. 88, filed August 18, 2006.)
Accordingly, the evidence is overwhelming that Allstate violated the implied covenant of good faith and fair dealing on the reformed contract. The motion for summary judgment on this issue should be denied.
V. There are Genuine Issues of Material Fact Preventing the Granting of Summary Judgment on the Punitive Damages Claim and Attorneys Fees Claim on the Fifth Cause of Action for Bad Faith on the Reformed ContractA. Punitive Damages 1. Mr. Mang's conduct was Malicious
Mr. Mang received the July 22, 2005 letter from Mr. Papuc with the accompanying complaint. He was aware that the Tabacks were grossly underinsured. He called Mr. Papuc to tell him that Allstate will not negotiate a change in policy limits and Mr. Papuc should go ahead and serve his suit. By that time, he did no investigation except obtaining the policy and claim payment information from his computer screen.
Mr. Papuc wrote him back on July 26, 2005, asking that Mr. Mang give him the identity of an appropriate manager has authority to "investigate" the claim. Mr. Mang then spoke with Underwriting Manager Jodi Vicario, who said Allstate was on solid ground. Mr. Mang wrote back to Mr. Papuc on July 28, advising that he is the "manager," and Mr. Papuc should serve the lawsuit.
Mr. Mang obviously did not care about the problems the Tabacks were facing. He immediately made a decision to not pay anything further on the claim, and did absolutely no investigation to attempt to determine the factual basis of the claim. He was well aware of Allstate's standards for investigating claims and the tools Allstate had available to it under the policy to do so. An intent to harm the Tabacks can be inferred from this outrageous, despicable conduct.
2. Mr. Mang's Conduct was Oppressive
For the same reasons set forth immediately above, with regard to malice, Mr. Mang's conduct was oppressive.
3. Mr. Mang's conduct was Fraudulent
Mr. Mang concealed the identity of his superiors who would have the authority to investigate and properly handle the underinsurance aspect of the Tabacks' claim with the intent that the claim not be paid and the Tabacks continue to suffer the effects of being grossly underinsured after their disaster.
4. There is a Genuine Factual Material Dispute over Whether Mr Mang is a Managing Agent of Allstate for punitive damages purposes
In Egan v. Mutual of Omaha, 24 Cal.3d 809, 822-823 (1979), the California Supreme Court stated:
"the critical inquiry is the degree of discretion the employees possess in making decisions that will ultimately determine corporate policy. When employees dispose of insureds' claims with little if any supervision, they possess sufficient discretion for the law to impute their actions concerning those claims to the corporation. "
Mr. Mang held himself out as being the "manager" with authority to dispose of the Tabacks' underinsurance claim. He had little or no supervision. He spoke with only Jodi Vicario at Underwriting. He did not conduct any interviews of agents, underwriters or the Tabacks. There was no one looking over his shoulder on the handling of this claim. As such, he is a managing agent of Allstate under Egan. 5. There is a Genuine Issue of Material Fact over Whether Allstate "Ratified" the conduct of Mr. Mang
Allstate has a continuing duty of good faith and fair dealing which continues throughout the litigation process. ( White v. Western Title Ins. Co., 40 Cal.3d 870, 885-886 (1985).) It cannot stick its head in the sand and assert that its officers, directors and managing agents are unaware of what has been going on in the claims process. All facts which are developed in this litigation are known to Allstate's attorneys, and are therefore imputed to Allstate, the corporate defendant. Allstate has a continuing duty to reconsider its denial of the underinsurance aspect of the claim. It has not changed its position. As such, there is ratification of the conduct of Mr. Mang.
Mrs. Taback has not been able to discover the knowledge of Allstate Insurance Company concerning the handling of the Tabacks' claim. Allstate has blocked all efforts at this discovery. There is a motion to compel the deposition of Allstate outstanding on these issues. (See Document No. 88, filed August 18, 2006.) In the event the court is considering granting the motion on this issue, Mrs. Taback asks for delay of the ruling until after the court rules on the motion and, if the ruling is in plaintiff's favor, after the discovery on the matter is completed.
B. Plaintiff is entitled to Attorneys Fees for Obtaining the Unpaid Benefits due under the Reformed Insurance Contract
In Brandt v. Superior Court 37 C3d 813, 817 (1985), the California Supreme Court held where an insurer acts in bad faith, attorneys fees incurred in attempting to obtain policy benefits are recoverable by the insured. Brandt was not a reformation action.
Plaintiff is seeking to have the policy of insurance reformed to effectuate the intent and agreement of the parties that the coverage under the Allstate policy provide 100% of the cost to replace plaintiff's home. That agreement was in effect in 1995 when Plaintiff first spoke with Mr. Heckendorn. The written policy does not accurately reflect that agreement, which is why reformation is sought. There is an implied covenant of good faith and fair dealing in every contract, including the contract (insurance policy) as reformed. (See Jonathan Neil Associates, Inc. v. Jones, 33 Cal.4th 917, 937-938 (2004).) None of the cases cited by Allstate which discuss the term "policy" as opposed to "insurance contract" are reformation cases. None of those cases addressed the issue of reformation. Once again, Allstate is assuming that a reformed contract is a new contract. It is not. It is an existing agreement that is not accurately set forth in the written agreement.
VI. There are Genuine Issues of Material Fact on the Sixth (Negligence in Setting Policy Limits), Seventh (Negligent Misrepresentation) and Eighth (Agent Negligence imputed to Allstate) Causes of ActionA. There are Genuine Issues of Material Fact Requiring Denial of Summary Judgment on the Seventh Cause of Action for Negligent Misrepresentation 1. Mr. Heckendorn made Misrepresentations of Existing Material Facts
Mrs. Taback testified that when she called Mr. Heckendorn about Allstate no longer issuing guaranteed replacement cost coverage, Mr. Heckendorn responded that she need not worry because Allstate would calculate the cost of rebuilding her home, that it had professionals who know what they are doing in calculating the cost to rebuild her home who use professional guidelines, and that the policy limits would be updated periodically to reflect the latest construct cost information. Contrary to Allstate's erroneous assertion, the triggering event for this call was Allstate's notice that it is no longer issuing guaranteed replacement cost coverage, which happened in 1995. (Ex. 2, Taback depo. p. 22: 2-13, 22:24-23:16, 26 3-6, 27: 5-15, 36:3-11, 68:11-15, 87:1-88:17, 94:11-13, 95:25-96:1, 96:21-23, 97:9-11; Ex. 3, Vicario depo., pp. 44:6-16, 45:1-11, 46:17-24, 46:25-47:3, 49:2-5, 73:19-22, 80:7-13; 86: 6-13; 141:14-142:18.)
Before having this conversation with Mrs. Taback, Mr. Heckendorn was aware that Allstate stopped issuing guaranteed replacement cost coverage because its claims history has shown that the actual cost to replace homes far exceeded its estimates. Mr. Heckendorn never told any insured who inquired about the change from guaranteed replacement cost that Allstate stopped issuing guaranteed replacement cost because the cost to replace homes destroyed exceeded its estimates. (Ex. 4, Heckendorn depo., p. 47:20-48:23, 49:14-50:10; Ex. 10 (Ex. 39 to Heckendorn depo.), 95 Q A.)
The existing fact which was Misrepresented was that Allstate knew how to accurately calculate the cost to rebuild the Tabacks' home, and would update that information periodically to reflect the latest construction cost information. Mr. Heckendorn gave Mrs. Taback the impression that the figures are accurate and would be updated with accurate information in the future. The figures were not accurate.
2. The Representation was False, and Mr. Heckendorn Had No Reasonable Basis for Believing the Information to be True
Mr. Heckendorn was aware that as of 1995, Allstate's estimates on the cost to rebuild homes were grossly inaccurate. Although Allstate was starting a new program under the Value Quote System, which Mr. Heckendorn did not disclose to Mrs. Taback, he had no track record to base any representations on the reliability of the system on, especially whether the construction cost data submitted by R.S. Means to Value Quote was in fact accurate at any time. He therefore had no reasonable basis for believing the information to be reliable.
3. The Tabacks were harmed
As a result of the conversation with Mr. Heckendorn, Mrs. Taback felt assured and would not have to look around for another insurer. (Ex. 2, Taback depo., p. 23: 6-9.) Mrs. Taback also did not undertake to have her home evaluated by a professional to determine the an accurate estimate of the cost to rebuild.
B. The Seventh and Eighth Causes of Action are Not Released by the Rubin Settlement
The Rubin settlement Released Claims based on Activity which took place "under the ITV program." At pages 26 and 27 of the Stipulation for Settlement (Allstate's Ex. I, p. 1745-1746), The Released claims consist of the following claims which are:
"in any way based upon or arising out of: (1) the manner in which the estimated replacement cost of the Class member's residence has been calculated under the ITV Program or is calculated under this settlement, and/or (2) the manner in which the Dwelling Protection Limit of the Class member's Allstate homeowners Insurance policy has been established under the ITV Program or is established under this Settlement, and/or (3) the amount, adequacy or inadequacy of the estimated replacement cost of the Class member's home or of the Dwelling Protection Limit of Liability of the Class member's Allstate homeowners insurance policy as calculated or established under the ITV Program or under the procedures of this Settlement, and/or (4) any of the allegations or contentions made in the Lawsuit or any transaction or event giving rise to any of such allegations or contentions."
The Stipulation for Settlement (Allstate's Ex. I, p. 1728), at page 9, defines the ITV Program as follows:
"`ITV Program' means that certain "Insurance To Value" program to calculate the estimated replacement costs and to determine the Dwelling Protection Limits for new or renewal homeowners insurance policies issued by Allstate for real property located in the State of California implemented by Allstate beginning in 1994 and continuing as to each individual Class Member to the date that the Settlement Processing Procedures described in this Stipulation of Settlement are completed for that Class Member (but not including as part of the ITV Program any of the Settlement Processing Procedures)."
The Stipulation for Settlement, at page 2-3 (Allstate's Ex. I, pp. 1721-1722), describes the characteristics of the ITV Program, as follows:
"2. Beginning in 1994, Allstate implemented a program, known as `Insurance to Value' or `ITV', to estimate the replacement cost of the homes it insured in California. The ITV Program was designed to determine an estimated replacement cost of a policyholder's home based upon information provided by the policyholder concerning the particular characteristics of the home (such as style, type of construction, size and number and type of characteristics of particular rooms, and other items). Value Quote was hired by Allstate to collect information from Allstate's policyholders regarding the characteristics of their homes and to calculate the estimated replacement cost of the homes based on those characteristics using a computer software program called `Home Quote' and construction cost data provided by R.S. Means." (Emphasis added.)1. Mr. Heckendorn was not part of the ITV program
As discussed above, under the ITV program, "Value Quote was hired by Allstate to collect information from Allstate's policyholders regarding the characteristics of their homes and to calculate the estimated replacement cost of the homes based on those characteristics using a computer software program called `Home Quote' and construction cost data provided by R.S. Means." (Allstate's Ex. I, Rubin Stipulation of Settlement, pp. 1721-1722.) Allstate agents played no part in the gathering of information by Value Quote or in the calculation of the estimated replacement cost of the dwelling by Value Quote. The Value Quote software was first made available for use by agents in 1999, which was after the Rubin settlement. (Ex. 3, Vicario depo., p. 91:10-25.)
2. The Tabacks were not part of the ITV program until after the conversation with Mr. Heckendorn
In 1995, Allstate stopped issuing guaranteed replacement cost policies, and sent a notice of this change to its policyholders. (Ex. 3, Vicario depo., pp. 80:7-13.) A letter providing notice of the change from guaranteed replacement cost to a policy with extended limits was sent to all insureds in California by Allstate. The notice was sent out several weeks before the renewal for each policy. (Ex. 3, Vicario depo., pp. 86: 6-13; 141:14-142:18.) The Tabacks typically received their policy renewals in May of each year they were insured by Allstate. The triggering event for this call was Allstate's notice that it is no longer issuing guaranteed replacement cost coverage, which happened in 1995. (Ex. 2, Taback depo. p. 22: 2-13, 22:24-23:16, 26 3-6, 27: 5-15, 36:3-11, 68:11-15, 87:1-88:17, 94:11-13, 95:25-96:1, 96:21-23, 97:9-11; Ex. 3, Vicario depo., pp. 44:6-16, 45:1-11, 46:17-24, 46:25-47:3, 49:2-5, 73:19-22.))
Allstate's records reveal that the Tabacks were processed under the Value Quote system on July 9, 1995, over one month after they received their renewal documents for the July 17, 1995-1996 policy period. (Ex. 3, Vicario depo., pp. 94:16-95:17, 99:12-23, 101:10-11, 101:22-102:21.)
Mr. Heckendorn played no part in the ITV program. He did not gather information from the insureds for purposes of calculating the estimated replacement cost of their home, and he did not transmit that information (obtained by a Value Quote Vendor in 1995) to Allstate. Further, his representations pre-dated the Tabacks being processed with Allstate in that program. As such, Mr. Heckendorn's representations to Mrs. Taback are not released by the Rubin settlement.
3. The Rubin settlement Releases only Existing Claims as of the time of the Settlement. It does not release Future Claims
The Rubin settlement defines "Released Claims" as follows:
"Y. `Released Claims' means any and all actions causes of action, obligations, costs, fees, sanctions, damages, losses, claims, liabilities and demands released and discharged under paragraph 21 below."
The appellate court in First Corporation, Inc. v. County of Santa Clara, 146 Cal.App.3d 841, 845 (1983), discussed the meaning of the word "claim" as follows:
"`Claim' is defined as "to demand delivery of [something] by or as if by right." (Webster's Third New Internat. Dict. (1970) p. 414.) It has also been said that "`Claim' in its primary meaning, is used to indicate the assertion of an existing right." [Citation omitted.].)
In this case, at the time of the Rubin settlement, the Tabacks were not damaged, and therefore had no no existing right to damages for under-insurance. This is a claim that arose after they learned they were under-insured following the fire of May 29, 2004. As such, the Rubin settlement does not release this future claim.
4. Claims which first came into Existence after the ITV program were not released
Under the Stipulation of Settlement (Allstate's Ex. I, p. 1728), claims arising after the ITV program closed are not released. The Stipulation for Settlement, at pages 28 and 29 (Allstate's Ex. I, pp. 1747-1748), further provides that "the release does not extend to any claim by a Class Member against herein arising out of any wrongful act or omission committed after the Settlement Processing Procedures Completion Date for that Class member." The ITV unit was closed in March or April, 2000. (Ex. 3, Vocario depo., pp. 146:10-147:2, 150:21-151:3.)
Under the Eighth Cause of Action of the Third Amended Complaint (filed September 11, 2006), it is alleged that Allstate is responsible for the negligence of its agents Heckendorn (pre- Rubin settlement) and Bernosky (post- Rubin settlement.). The negligence of Bernosky consists of making errors in inputting the construction cost data and making representations of the accuracy of the information. The Value Quote software was first made available for use by agents in 1999, which was after the Rubin settlement. (Ex. 3, Vicario depo., p. 91:10-25.)
5. Under-Insurance Claims are Excepted from the Released Claims
The Stipulation for Settlement (Allstate's Ex. I, p. 1746-1747) makes an exception for underinsurance. Plaintiff's claim therefore outside of the scope of this settlement for under-insurance the following reasons: (1) Plaintiff is not making claim that there was an error under the ITV program in the characteristics of her home. The errors in estimating the cost to rebuild plaintiff's home occurred after the ITV unit was closed. (2) Plaintiff is not making claim that there is "any alleged inaccuracy, inadequacy, distortion or bias or any kind of or in the Home Quote software used under the ITV Program. " Plaintiff is making claim that the cost to rebuild her home was inaccurately estimated after the ITV program closed. (3) Plaintiff is not making claim that there was "reliance upon any alleged representation or misrepresentation during the ITV program regarding the adequacy or inadequacy of the Class Member's estimated replacement cost or HQERC or Dwelling Protection Limit." The conversations with Mr. Heckendorn predated plaintiffs being a part of the ITV program. The conversations with Ms. Bernosky post-dated.
C. Plaintiff is Not Making a Claim for Attorneys Fees under the Sixth, Seventh and Eighth Causes of Action
Plaintiff does not make such a claim.
D. There are Genuine issues of Material fact concerning whether Allstate is liable for Punitive Damages on the Sixth, Seventh and Eighth causes of Action
Allstate fails to distinguish between negligent "conduct" and a negligence "cause of action." One can sue on a cause of action for negligence where the conduct which caused the injury was intentional, wilful, and malicious. ( Peterson v. Superior Court (Thompson), 31 Cal.3d 147 (1982); Nolin v. National Convenience Stores, Inc., 95 Cal.App.3d 279 (1979); West v. Johnson Johnson Products, Inc., 174 Cal.App.3d 831, 867-879 (1985) (punitive damages in toxic shock syndrom products liability case.).)
In this case, there are factual issues as to whether Mr. Heckendorn's misrepresentations concerning the accuracy of Allstate's estimates and concealment of inaccuracies of prior estimates is sufficient to warrant a claim for punitive damages.