Aichel v. State Farm Fire and Casualty Co.

Filed 6/18/07 Aichel v. State Farm Fire and Casualty Co. CA2/7

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

APPEAL from a judgment of the Superior Court of Los Angeles County. Wendell Mortimer, Jr., Judge. Affirmed.

Jeffrey D. Diamond for Plaintiff and Appellant.

Crandall, Wade & Lowe, Michael J. McGuire and Matthew F. Batezel; Robie & Matthai and James R. Robie; LHB Pacific Law Partners and Clarke B. Holland, for Defendant and Respondent.

_________________________

Plaintiff Norman Aichel (Aichel) appeals judgment after a bench trial in favor of State Farm Fire and Casualty Company in his action for breach of contract arising from State Farms denial of his insurance claim relating to additional damages to his house suffered in the Northridge Earthquake. Plaintiff contends on appeal the trial court erred in finding that the evidence did not support his claim and in awarding certain costs.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Plaintiffs home in Tarzana was damaged by the Northridge Earthquake on January 17, 1994. Plaintiff held a policy of earthquake insurance with State Farm with a policy limit $250,000 and a deductible of $25,000. This action arises out of a claim plaintiff made in 2001 for unpaid earthquake repairs. At trial, proof was complicated by the fact plaintiff had destroyed all of his bank statements and cancelled checks for the relevant time period in 2002, when he sold the home.

Prior to the earthquake, plaintiff had entered into a contract with Don Koppel Construction to build a new deck on the property for a contract price of $15,750. Plaintiff claimed construction on the deck was commenced prior to the earthquake. However, the first permit for the deck was issued in June 1994, and Koppel testified at trial it was not likely that any construction started prior to the issuance of the permit.

Plaintiff initially made a claim with State Farm shortly after the Northridge Earthquake. State Farm concluded that plaintiff was entitled to policy benefits of $79,513.43 for damage to his house and $11,163.99 for personal property, for a total loss of $90,677.42. After subtracting $4,899.31 for depreciation and the $25,000 deductible, in April 1994, State Farm paid plaintiff $60,788.11.

In April 1994, State Farm sent plaintiff a letter stating that the replacement cost benefit available to you for your building damage, based on the estimate of repair, is $4,079.31. You may be entitled to an additional amount representing the reasonable customary charges of a general contractor for overhead and profit. If you have not already done so, you must provide documentation that the repairs are underway or that there is a signed contract with a repair firm.

Plaintiff hired Don Koppel, who had submitted to plaintiff an estimate of $76,850.00 to repair the earthquake damage, to perform some of the earthquake repairs. The Koppel estimate included overhead of 25 to 35 percent. Plaintiff and Koppel did not enter into a formal contract; rather, the earthquake repairs were peformed as change orders to the 1993 deck contract. These earthquake repairs were completed sometime in 1995.

In October 1999, after plaintiff reported additional damages, State Farm inspected his property and paid $4,079.31 in replacement cost benefits based upon repairs already completed. At the time, the additional claims were treated as time-barred. In January 2001, Code of Civil Procedure section 340.9, which revived time-barred Northridge earthquake claims, became effective. Plaintiff filed a new claim with State Farm in December 2001; after State Farm denied the claim, plaintiff commenced this action.[1]

Trial commenced in December 2005. Plaintiff submitted a report prepared by John Sisneros, a public adjuster, showing that plaintiff had spent $100,524.51 on earthquake repairs. After subtracting Allstates original damage figure of $79,513.43, Sisneros concluded State Farm owed plaintiff $21,011.08. In arriving at this figure, Sisneros relied on Don Koppels earthquake repair estimate of $76,850.00, and added additional sums for among other things, landscaping, plumbing repairs, carpeting, storage, and window coverings. Sisneros supporting documentation consisted of invoices, repair estimates, and change orders.

Sisneros did not have access to the house because plaintiff had sold the house in 2002. Sisneros admitted Koppel had not done all of the work on his estimate, and it was not possible to tell who had done the work. Koppels change orders were difficult for Sisneros to understand, and Sisneros did not use progress payments to determine what in fact had been paid. Sisneros was unable to confirm how much money plaintiff actually spent repairing his house, nor could he confirm the repairs were actually made because he was unable to view the house.

Don Koppel testified on behalf of State Farm that the deck contract was made in June 1993. Each change order made for the earthquake repairs would typically have five or six invoices associated with it. The total billed for the deck was $49,810. The earthquake repairs were $12,910. Koppel specifically testified that plaintiff did not pay him $76,850 for earthquake repairs.

Plaintiff testified that he received a Small Business Administration Loan in the sum of $25,000, and used the funds to complete the earthquake repairs. He sold the house in 2002 for $655,000; the price was not discounted because of the previous earthquake damage.

After taking the matter under submission, the trial court concluded that Sisneros analysis was flawed, primarily because it rested upon the assumption that all of the work in the Koppel estimate was done and that the cost was $76,850. In particular, the court noted that the estimate was never reduced to a contract, was not sent to State Farm, Koppel did not do all of the work on the estimate, and the scope of the work described in the estimate was vague. On the other hand, the court noted that Koppel testified he had only performed $12,910 worth of earthquake work for plaintiff. The court therefore re-evaluated the Sisneros report, eliminating the $76,850 Koppel estimate, and replacing it with Koppels earthquake damage total of $12,910; the court concluded proven damages were $36,854.51, or far less than State Farm paid. Finally, even with the addition of overhead and profit, the court concluded the figure was less than the amount State Farm had paid, and consequently concluded plaintiff had failed to establish a breach of contract.

DISCUSSION

I. SUBSTANTIAL EVIDENCE SUPPORTS THE TRIAL COURTS CONCLUSION THAT PLAINTIFF FAILED TO ESTABALISH STATE FARMS BREACH.

Plaintiff contends State Farm breached its agreement in two ways. First, it failed to pay him replacement cost benefits in the form of contractor overhead and profit at the customary rate of 20 percent above the replacement cost value of $79,513.43, the value of his earthquake damage claim. Second, he contends the evidence established the total actual cash value of his claim was $100,524.51, and after State Farms payment of $79,513.45, the unpaid principal amount owing was $21,011.08.

A. Standard of Review.

Under the substantial evidence test, we view the entire record in the light most favorable to the prevailing party to determine whether there is substantial evidence to support the trial courts findings. (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874.) We review the entire record in the light most favorable to the judgment to determine whether there are sufficient facts, contradicted or uncontradicted, to support the judgment. (Jonkey v. Carignan Construction Co. (2006) 139 Cal.App.4th 20, 24.) Substantial evidence is evidence which is reasonable, credible, and of solid value. In evaluating the evidence, we do not consider issues of credibility or whether contrary inferences may be made from the evidence. (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1632-1633.)

B. Plaintiffs Evidence Did Not Establish Breach.

Substantial evidence supports the trial courts finding that plaintiff failed to establish that he was not fully indemnified for damages to his house arising from the Northridge Earthquake, under either theory plaintiff propounded at trial. To establish breach of contract, the plaintiff must show (1) the terms of the contract, (2) the plaintiffs performance or excuse for nonperformance, (3) the defendants breach, and (4) resulting damages. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App. 3d 1371, 1388.)

Here, plaintiffs policy provided for two measures of indemnity, replacement cost value and actual cash value.[2] Replacement cost value consists of the lesser of the policy limit, or the estimated amount of the cost of repair, less the deductible, or the amount actually spent to repair the property. Our Supreme Court has held that actual cash value damages consist of the loss of market value to an insured building, or if the policy expressly so states, actual cash value can be measured by replacement cost minus depreciation. (Jefferson Ins. Co. v. Superior Court (1970) 3 Cal.3d 398, 402 (Jefferson) [actual cash value synonymous with fair market value]; Cheeks v. California Fair Plan Assn. (1998) 61 Cal.App.4th 423, 429 (Cheeks) [policy may define actual cash value as replacement less depreciation].)

The policy here did not define actual cash value as replacement cost less depreciation, and therefore damages to Aichels house would be determined by either replacement cost, or as set forth in Jefferson, loss in market value. However, even if we were to assume, as the parties here did, that plaintiff was entitled to damages as set forth in Cheeks (defined as replacement cost less depreciation), under that theory or the other theories advanced at trial, the court was justified in concluding the confusing and incomplete evidence did not establish plaintiff had spent a total of $100,000 repairing his home, that the market value of the house was diminished, or that plaintiff had not in fact received replacement cost less depreciation.

The trial court was within its powers as factfinder to credit Don Koppels testimony that plaintiff spent only $12,910 with his firm on earthquake repairs (with the remainder spent for the deck), and to ignore contrary evidence, such as Sisneros report, that the court found had questionable evidentiary foundation. The record indicates plaintiffs evidence was incomplete due to the lack of banking records, and the trial court was within its powers to disregard the plaintiffs documentary evidence in the form of invoices, change orders, and estimates, as being conclusive proof of payment. Further, the evidence was ambiguous on the issue of how much was spent on plaintiffs new deck and how much was spent on earthquake repairs. Thus, the courts conclusion that plaintiff did not spend in excess of $100,000 on earthquake repairs is supported by the evidence.

To the extent that plaintiff was claiming additional monies based upon his allegation he did not receive the customary 10 to 20 percent markup to account for the contractors profit, the trial court was within its powers to conclude that, because plaintiff had failed to establish he spent more than the $79,000 State Farm indemnity figure, no additional funds were due for profit and overhead. Finally, to the extent there was a claim for loss or diminution in the value of the property, plaintiffs testimony established that he sold the house for $655,000 in 2002, there was no unrepaired earthquake damage at the time of sale, and plaintiff did not discount the value of the property on account of earthquake damage. Thus, no evidence supports a claim for breach of contract based upon diminution in the propertys value.

II. THE TRIAL COURT DID NOT ABUSE ITS DISCRETION IN AWARDING COSTS TO STATE FARM.

Plaintiff contends that State Farms Verilaw costs should be disallowed because under the Case Management Order they were expressly the equivalent of service by Express Mail under Code of Civil Procedure section 1013 (c). . . . Furthermore, he contends the Case Management Order did not, as the trial court found, provide that Verilaw was the exclusive means of providing service.

A. Factual Background.

State Farm filed a Memorandum of Costs in which it sought, among other things, $1,175.92 for subpoenas, Verilaw, and overnight express costs. Plaintiff moved to tax those costs, contending the Verilaw costs were non-recoverable postage expenses under Code of Civil Procedure section 1033.5, subdivision (b)(3).[3] State Farm contended its Verilaw costs were recoverable under section 1033.5, subdivisions (c)(2) and (c)(4), which provided for costs reasonably necessary to the conduct of the litigation. It also argued that because Verilaw was mandated as the means of service under Case Management Order No. 1, regular mailing service was not permitted.

The trial court denied plaintiffs motion to tax costs, finding that State Farms costs were proper because Verilaw was the agreed-upon exclusive means of effectuating service.

B. Discussion.

Section 1033.5 provides that certain enumerated costs are recoverable, provided that they are reasonable in amount and reasonably necessary to the conduct of the litigation. ( 1033.5, subds. (a) [specific allowable costs], (b) [specific nonrecoverable costs].) Relevant here is the rule that items not specifically allowed or prohibited as costs under section 1033.5 subdivisions (b) and (c) may nonetheless be awarded as costs in the courts discretion. ( 1033.5, subd. (c)(4) [items not mentioned in section 1033.5 may be allowed or disallowed in the courts discretion]; Science Applications Internat. Corp. v. Superior Court (1995) 39 Cal.App.4th 1095, 1103.) Reading the two subparts of subdivision (c) together with the rest of the cost statute, we conclude, if an expense is neither expressly allowable under subdivision (a) nor expressly prohibited under subdivision (b), it may nevertheless be recovered if, in the courts discretion, it is reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation. (Science Applications Internat. Corp. v. Superior Court, supra, 39 Cal.App.4th at p. 1103;  1033.5, subd. (c)(2)) Whether a particular cost was reasonably necessary is a fact question for the court, and we review its award of costs for abuse of discretion. (Ladas v. CaliforniaState Auto. Assn. (1993) 19 Cal.App.4th 761, 774 (Ladas).)

In Ladas, the defendant sought as uncategorized costs certain items, including faxes. The court denied faxes on the grounds they were akin to postage, telephone, and photocopy, which section 1033.5 specifically did not allow as costs. Fax expenses contain elements of all three of the above nonrecoverable items, and it is unlikely that the Legislature intended to allow attorneys to circumvent the statutory bar by using a fax machine of instead of the mail, the telephone or a photocopier. (Ladas, supra, 19 Cal.App.4th at p. 775.)

Plaintiffs argument that Verilaw was nothing more than a specialized method of mailing minimizes the numerous case-management and document organization functions of Verilaw. According to the Case Management Order, the Verilaw system established a website for each insurer who was part of the Northridge Earthquake Litigation. Each document served by the parties was to be posted to the website. Documents were to be served using Verilaw by electronic transfer, web-based fax transmission, or overnight mail using the systems web-based interface. Upon receipt of documents, Verilaw would date and time-stamp documents, and such date and time stamp would constitute the date and time of service. The Case Management Order deemed service under Verilaw to be equivalent to express mail service for purposes of section 1013, subdivision (c); Verilaw did not prohibit parties from serving documents by personal service, but personally served documents were nonetheless required to be posted to Verilaw in accordance with the Case Management Order. Once a document was posted on the Verilaw system, Verilaw would notify the appropriate parties by email of Verilaws receipt of the document. The Case Management Order noted that in addition, Verilaw provides an alternative daily digest notification option for those attorneys interested, which aggregates all the e-mails distributed in one day into a single e-mail. The e-mail or digest shall contain hypertext link(s) to the document location(s) on the [Verilaw] System. Verilaw provided a file organization system that contained a searchable and sorted index of all served documents, with each insurance group to have its own secure, password-protected folder. Each firm in the litigation paid an initial fee of $350 to establish the Verilaw system. Thereafter, for each document submitted, the party submitting the document paid a fee of $12.

Given these numerous functions, and the fact Verilaw was designed to facilitate and manage the filing, serving and retrieval of documents in a large, complex case, the trial court was well within its discretion in concluding Verilaw costs were reasonably necessary to the litigation, rather than merely convenient and beneficial.

DISPOSITION

The judgment of the Superior Court is affirmed. Defendant is to recover its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

ZELON, J.

We concur:

JOHNSON, Acting P. J.

WOODS, J.

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Analysis and review provided by Escondido Property line attorney.

[1] The complaint originally stated claims for breach of contract and tortious breach of the covenant of good faith and fair dealing. The matter went to trial on the breach of contract claim only.

[2] The policy states (1) We will pay the cost of repair or replacement, without deduction for depreciation, but not exceeding the smallest of the following amounts: []  (a) the limit of liability under this policy applying to the building, []  (b) the replacement cost of that part of the building damaged for equivalent construction and use on the same premises; or []  (c) the amount actually and necessarily spent to repair or replace the damaged building. [] (2) We will pay the actual cash value of the damage to the buildings, up to the policy limit, until actual repair or replacement is completed.

[3] All subsequent statutory references herein are to the Code of Civil Procedure unless otherwise noted.