target="D060837_files/props0002.xml">
Valley Casework v. Lexington Ins.
Filed 7/10/13
Valley Casework v. Lexington Ins. CA4/1
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
VALLEY CASEWORK, INC.,
Plaintiff and Appellant,
v.
LEXINGTON INSURANCE COMPANY,
Defendant and Respondent.
D060837
(Super. Ct. No. 37-2010-00101021-
CU-BC-CTL)
APPEAL from
a judgment of the Superior Court of
Timothy Taylor, Judge. Reversed and
remanded with directions.
Yale &
Baumgarten, David W. Baumgarten and Eugene P. Yale for Plaintiff and Appellant.
Gordon
& Rees, Peter Schwartz and Christopher R. Wagner for Defendant and
Respondent.
Plaintiff
and appellant Valley Casework, Inc. (Valley), a cabinet maker and installer,
appeals from a summary judgment in favor of defendant and respondent Lexington
Insurance Company (Lexington) on Valley's second amended complaint for
covenant of good faith and fair dealing. Valley alleged Lexington owed a duty to defend
it against a claim of liability arising out of Valley's installation of
cabinets, after one cabinet fell from the wall and broke a faucet causing water
damage to a home in August 2008.
Lexington had denied coverage under a commercial general liability (CGL)
insurance policy issued for the period February 20, 2007, to February 20,
2008. Valley contends Lexington cannot
meet its burden of proving there is no conceivable theory raised by the
underlying lawsuit bringing it within the operative provisions of the
Lexington's CGL policy. Valley also
contends there is a triable issue of material fact as to whether a continuous
loss endorsement in the policy deems the alleged property damage to have
occurred during the policy period.
We reverse
the summary judgment on Valley's breach of contract cause of action because
Valley raised triable issues of material fact via the declaration of its
founder Ronald Raymond, which was erroneously excluded in its entirety by the
trial court. However we conclude
Lexington is entitled to summary adjudication of Valley's claims for breach of
the covenant of good faith and fair
dealing and punitive damages. We
remand with directions that the trial court enter a new order accordingly.
FACTUAL AND
PROCEDURAL BACKGROUND
The CGL Policy
Lexington
issued a CGL policy to Valley effective February 20, 2007, to February 20, 2008
(the policy).
title="">[1] The policy's insuring agreement provides in
part: "We will pay those sums that
the insured becomes legally obligated to pay as damages because of . . .
'property damage' to which this insurance applies. We will have the right and duty to defend any
'suit' seeking those damages . . . .
[¶] . . . [¶] .
. . This insurance applies to
. . . 'property damage' only if: [¶]
(1) The . . . 'property damage'
is caused by an 'occurrence' that takes place in the 'coverage territory'; and [¶]
(2) The . . . 'property damage'
occurs during the policy period."
As pertinent here, the policy defines "property damage" to
mean "[p]hysical injury to tangible property, including all resulting loss
of use of that property."
The policy
contains a "Continuous or Progressive Loss Endorsement" (the
continuous loss endorsement). It
provides: " 'Occurrence' means an
accident including continuous or repeated exposure to substantially the same
general harmful conditions. [¶] In the event of continuing or progressive . .
. 'property damage' over any length of time, such . . . 'property damage' shall
be deemed to be one 'occurrence[,'] and shall be deemed to occur only when such
. . . 'property damage' first commenced."
The endorsement further provides:
"In the event of continuing or progressive . . . 'property damage'
over any length of time, we will have no duty to defend or investigate any
'occurrence', claim or 'suit' unless such . . . 'property damage' first
commenced during the policy period."
Events Giving Rise to
This Litigation
Valley was
hired to install cabinets in a newly constructed home in Carlsbad (the
property), which was eventually purchased by Danny Lampel in 2006. Lampel was the first homeowner to occupy the
property.
In August
2008, Lampel returned from a two-day trip and discovered her home was
flooded. She inspected the property and
found that a cabinet in the utility room had fallen off the wall and struck a
faucet, causing a release of water seriously damaging the property. Lampel's homeowner's insurer, California
Capital Insurance (CCI), paid for repairs.
In May
2009, CCI filed an action against Valley and others demanding it be reimbursed
for $50,848.37 in damages. In the
Judicial Council form complaint, CCI alleged that on or about August 4, 2008,
it was injured by a certain cabinet that the defendants had designed,
manufactured, sold and installed. It
further alleged: "Defendants owed a
duty to erect a personal residence for the benefit of plaintiff's insured,
Danny Lampel, in a fit and workmanlike manner, including the installation of a
certain cabinet in that new residence in a fashion which would insure [
a wall in the residence by its own weight; defendants breached that duty when
they installed the cabinet by merely screwing the cabinet into the drywall and
without fasteners of any sort which would be sufficient to hold the cabinet up,
so as to allow the cabinet to fail and fall upon a faucet located immediately
beneath the falling cabinet, thereby resulting in a breakage of the faucet and
the release of water throughout the residence.
Having paid to repair that water loss to the residence under the written
homeowners policy which the plaintiff issued to Danny Lampel, the plaintiff
acquired rights of subrogation to hold the defendants accountable and to secure
reimbursement from the defendants for those repair costs . . . ." (Some capitalization omitted.)
In July
2009, Valley's insurance broker submitted a loss notice to third party claims
administrator York Claims Service, Inc. (York), identifying August 4, 2008, as
the "time of [the] accident" and the damage as "water released
throughout the residence[.]"
(Capitalization omitted.)
Thereafter, York advised Valley's founder, Ronald Raymond, that a
question of coverage had arisen on preliminary review and it would conduct an
investigation under a reservation of its rights.
In October
2009, York on Lexington's behalf informed Raymond it had denied coverage on
grounds the CCI action did not allege property damage during the relevant
policy period. In part, the letter
advised Valley of the definitions of "property damage" and
"occurrence," stating that the latter "means an accident
including continuous or repeated exposure to substantially the same harmful
conditions." The letter also
states: "The [CCI complaint's]
allegations do include a claim for damages that includes 'property damage' that
was caused by an 'occurrence' as those terms are defined by the policy. However, the alleged damages occurred on
August 4, 2008, which was outside of the Lexington policy period, which ended on
February 20, 2008. Accordingly, there is
no coverage for this lawsuit under the Lexington policy." The letter continues: "If you have any additional information
which you feel would either cause us to change our position or would assist us
in our investigation or determination, we ask that you advise us as soon as
possible."
The Present Lawsuit
Valley sued
Lexington for breach of contract and breach of the implied covenant of good
faith and fair dealing. Valley
voluntarily amended its complaint in the face of Lexington's demurrer, and
eventually filed a second amended complaint in which Valley alleged for the
first time that, prior to expiration of its policy on February 20, 2008, the
cabinet causing the flooding had started pulling away from the subject wall,
damaging paint and drywall. Valley
alleged on information and belief that "such damage continuously
progressed to the point where the mechanical fastening system failed, causing
the cabinet to pull completely away from the wall and crash into the faucet
below, resulting in the additional damage claimed in the CCI suit. [Valley] contends that under the amended
definition of 'occurrence' contained in [the continuous loss endorsement], all
of the damage—from the preliminary damage to the paint and drywall through the
damage to the faucet and the resulting flood—is 'deemed to be one occurrence'
and is 'deemed to [have] occur[ed]' when the cabinet first started pulling away
from the wall during the Lexington policy period."
Lexington
moved for summary judgment or alternatively summary adjudication. It argued Valley could not maintain its
breach of contract cause of action because (1) coverage was not triggered under
the policy and (2) the continuous loss endorsement was irrelevant because there
was no evidence—but only speculation—that property damage "first
commenced" during the policy period.
It submitted Lampel's declaration, in which Lampel, who had a background
in new construction real property sales, averred she never saw the cabinet in
the utility room pulling away from the wall before the damage occurred on
August 4, 2008, nor did she observe any evidence (paint chips, drywall dust)
indicating damage relating to the installation of the cabinets above the
faucet. Lampel stated: "The first time I observed any damage to
the Property relating to the cabinet installed above the faucet in the utility
room was when I discovered the flood on or about August 4, 2008." As for Valley's bad faith cause of action,
Lexington argued it failed absent coverage under the policy, it was precluded
by the "genuine dispute" doctrine, and the evidence showed Lexington
had conducted an appropriate investigation.
Finally, Lexington sought summary adjudication of Valley's punitive
damages claim, asserting there was no evidence to support it.
Valley
opposed the motion. It argued given the
allegations in its second amended complaint and Lexington's broad duty to
defend, Lexington could not meet its threshold burden of proving that the CCI
action " 'can by no conceivable theory raise a single issue which would
bring it within the policy coverage[.]' "
It further argued there was a triable issue of material fact as to
whether the property damage first commenced during the policy period; that
Lexington was required to look beyond the complaint's allegations regarding
when the cabinet fell off the wall, and had it conducted an adequate
investigation, it would have discovered that an improperly installed cabinet
begins to fail as soon as it is put under a load, damaging paint and drywall as
it pulls away from the wall. According
to Valley, under the continuous loss endorsement, "all of the property
damage—from the preliminary damage to the paint and drywall through the damage
to the faucet and the resulting flood"—was deemed to be one occurrence and
was deemed to have occurred when it first commenced, i.e., when the cabinet
started to "creep" shortly after it was installed, approximately two
years before expiration of the policy period on February 20, 2008. Valley also argued
Lexington denied coverage in bad faith and acted fraudulently for purposes of
recovering punitive damages.
Valley
submitted the declarations of Raymond, who started Valley in 1982, and also
architect and general contractor expert Norbert Lohse. Raymond averred that homeowners with a
falling cabinet would not notice damage occurring to the drywall, paint, or
caulking on the top of the cabinet because the top of upper cabinets is not
readily visible. He stated: "In all of the 'falling' cabinet claims
I have investigated during my 49 year career, the weight of the lower shelves
would result in the cabinet pulling away from the top of the cabinet until
eventually it would reach a point of no return and fall from the wall, with the
top falling first and the bottom following.
As soon as the cabinet starts moving, immediately after being put to
use, the bottom of the cabinet would begin to damage the drywall by indenting it
(the wood cabinet is harder than the soft drywall), and the top of the cabinet
would begin to separate, damaging the paint and the caulking across the top of
the cabinet." Raymond stated that
based on his experience, the cabinet at issue would have started to cause
damage to drywall, paint and caulking immediately after being put to use by the
homeowner in 2006. Lohse reached the
same conclusions, stating that Lampel's cabinet exhibited a "classic
situation commonly referred to as 'continuous creep.' " He averred that paint chipping and drywall
dust were not necessarily manifestations of damage to paint, caulking and
drywall in continuous creep cabinet cases, nor were they determinative of when
the damage commenced.
In reply,
Lexington objected to the Raymond and Lohse declarations on numerous grounds,
including that their opinions lacked foundation, and were irrelevant and
improper. In part, it argued that the
point of the continuous loss endorsement was to trigger only one policy for a
given loss, and the pertinent inquiry was whether the CCI action involved a
claim for property damage during the policy period. According to Lexington, Valley could not make
that showing because the CCI action alleged the "property damage"
occurred on August 4, 2008, which was consistent with Lampel's statement that
there was no indication of damage to the utility room before that date. Lexington further argued the property damage
testified to by Raymond and Lohse was so negligible and immaterial that it did
not fall within the policy's definition of property damage.
Sustaining
Lexington's objections to the Raymond and Lohse declarations, the trial court
tentatively granted Lexington's motion.
In part, it ruled based on both the CCI action's allegations and extrinsic
evidence, Lexington met its burden to demonstrate Valley could not establish
the CCI action involved a claim for property damage that occurred during the
policy period.
title="">[2] It further ruled that any property damage
suggested by Raymond and Lohse, assuming admissibility of their opinions and
findings, was "imperceptible" and did not qualify as "property
damage" within the meaning of the policy.
Following oral argument, the court confirmed its ruling and entered
judgment in Lexington's favor. Valley
timely appeals.
DISCUSSION
I.
Summary Judgment Standard of Review
Summary judgment is appropriate
"if all the papers submitted show that there is no triable issue as to any
material fact and that the moving party is entitled to a judgment as a matter
of law." (Code Civ. Proc.,
§ 437c, subd. (c).) A defendant who
moves for summary judgment or summary adjudication bears the initial
burden to show that the cause of action has no merit—that
is, "that one or more elements of the cause of action, even if not separately
pleaded, cannot be established, or that there is a complete defense to that
cause of action." (Code Civ. Proc.,
§ 437c, subds. (a), (p)(2).)
If the
defendant carries that burden, "the opposing party is then subjected to a
burden of production of his own to make a prima facie showing of the existence
of a triable issue of material fact."
(Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 (
" 'if, and only if, the evidence would allow a reasonable trier of fact to
find the underlying fact in favor of the party opposing the motion in
accordance with the applicable standard of proof.' [Citation.] Thus, a party 'cannot avoid
summary [adjudication] by asserting facts based on mere speculation and
conjecture, but instead must produce admissible evidence raising a triable
issue of fact.' " (Dollinger
DeAnza Associates v. Chicago Title Ins. Co. (2011) 199 Cal.App.4th 1132,
1144-1145.)
On review of a summary judgment, we
take the facts from the record before the trial court when it ruled on the
motion. (Yanowitz v. L'Oreal USA,
Inc. (2005) 36 Cal.4th 1028, 1037.)
" ' "We review the trial court's decision de novo, considering
all the evidence set forth in the moving and opposing papers except that to
which objections were made and sustained.' " [Citation.] We liberally construe the evidence in
support of the party opposing summary judgment and resolve doubts concerning
the evidence in favor of that party."
(Ibid.)
II. Insurer's
Duty to Defend
An insurer's duty to defend its
insured is very broad. "[T]he
insured is entitled to a defense if the underlying complaint alleges the
insured's liability for damages potentially covered under the policy, or
if the complaint might be amended to give rise to a liability that would be
covered under the policy." (Montrose
Chemical Corp. v. Superior Court (1993)
6 Cal.4th 287, 299 (Montrose I).) " '[O]nce the insured has established
potential liability by reference to the factual allegations of the complaint,
the terms of the policy, and any extrinsic evidence upon which the insured
intends to rely, the insurer must assume its duty to defend unless and until it
can conclusively refute that potential.' " (Ibid.,
italics added.) To protect an insured's
right to call on the insurer's "superior resources for the defense of
third party claims . . . California courts have been consistently solicitous of
insureds' expectations on this score."
(Id. at pp. 295-296.) Any
doubt as to whether the facts establish the existence of the defense duty must
be resolved in the insured's favor. (Id.
at pp. 299-300.)
Accordingly,
"[t]he insurer must defend any claim that would be covered if it were
true, even if it is 'groundless, false or fraudulent.' [Citation.]
'Implicit in this rule is the principle that the duty to defend is
broader than the duty to indemnify; an insurer may owe a duty to defend its
insured in an action in which no damages ultimately are awarded. [Citations.]'
[Citation.] 'Thus, when a suit
against an insured alleges a claim that potentially could subject the insured
to liability for covered damages, an insurer must defend unless and until the
insurer can demonstrate, by reference to undisputed facts, that the claim
cannot be covered. In order to establish
a duty to defend, an insured need only establish the existence of a potential
for coverage; while to avoid the duty, the insurer must establish the absence
of any such potential.' " (Palp,
Inc. v. Williamsburg National Ins. Co. (2011) 200 Cal.App.4th 282, 288-289
(Palp); Aydin Corp. v. First State Ins. Co. (1998) 18 Cal.4th 1183, 1188
[plaintiff bears the burden to establish that the occurrence "forming the
basis of its claim is within the basic scope of insurance coverage"].)
"
'[W]hether the insurer owes a duty to defend usually is made in the first
instance by comparing the allegations of the complaint with the terms of the
policy' [citation] and extrinsic facts 'known by the insurer at the inception
of the third party lawsuit . . . .' "
(Palp, supra, 200
Cal.App.4th at p. 289.) The duty
disappears "where the facts are undisputed and conclusively eliminate the
potential the policy provides coverage for the third party's claim." (Ibid.) Stated another way,
" ' "[t]he insurer need not defend if the third party complaint
issue which could bring it within the policy coverage." ' " (Advanced
Network, Inc. v. Peerless Ins. Co. (2010) 190 Cal.App.4th 1054, 1061.)
However,
the assessment of potential coverage is not limited to the complaint's
allegations or extrinsic facts known to the insurer. The California Supreme Court has
emphasized: "To
protect its insured's contractual interest in security and peace of mind, 'it
is essential that an insurer fully inquire into possible bases that might
support the insured's claim' before denying it." (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 721;
24 Cal.3d 809, 819.) " 'A trier of
fact may find that an insurer acted unreasonably if the insurer ignores
evidence available to it which supports the claim. The insurer may not just focus on those facts
which justify denial of the claim.' "
(Wilson, at p. 721.) Thus, an insurer must undertake a thorough,
fair and reasonable investigation into the circumstances of the claim before
denying coverage. (Ins. Code,
§ 790.03, subd. (h)(3); Wilson,
at pp. 720, 723; Aerojet-General Corp. v.
Transport Indemn. Co. (1997) 17 Cal.4th 38, 58; Egan, at p. 819; American
Internat. Bank v. Fidelity & Deposit Co. (1996) 49 Cal.App.4th 1558,
1571.)
III. Trigger
of Coverage
title="">[3]
Where a summary judgment involves " 'a
dispute over the interpretation of the provisions of a
rules governing the interpretation of insurance
contracts.' " (Powerine Oil Co.,
Inc. v. Superior Court (2005) 37 Cal.4th 377, 390.) Ordinary rules of contract interpretation
apply. (Ibid.; County of San
Diego v. Ace Property & Casualty Ins. Co. (2005) 37 Cal.4th 406,
415.)
" 'The
fundamental rules of contract interpretation are based on the premise that the
interpretation of a contract must give effect to the "mutual
intention" of the parties.
"Under statutory rules of contract interpretation, the mutual intention
of the parties at the time the contract is formed governs interpretation. [Citation.]
Such intent is to be inferred, if possible, solely from the written
provisions of the contract.
[Citation.] The 'clear and
explicit' meaning of these provisions, interpreted in their 'ordinary and
popular sense,' unless 'used by the parties in a technical sense or a special
meaning is given to them by usage' [citation], controls judicial
interpretation." ' " (MacKinnon
v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 647-648; see also State of
California v. Continental Ins. Co. (2012) 55 Cal.4th 186, 194-195.)
An insurance policy's coverage
provisions must be interpreted broadly to afford the insured the greatest
possible protection. (MacKinnon,
supra, 31 Cal.4th at p. 648.) To
prevail, the insurer must establish its interpretation of the policy is the only
reasonable one. (Id.
at p. 655.) Even in the face of an
insurer's reasonable interpretation, the court must interpret the policy in the
insured's favor if any other reasonable interpretation permits recovery on the
insured's behalf. (Ibid., citing State Farm Mut. Auto.
Ins. Co. v. Jacober (1973) 10 Cal.3d 193, 202-203.)
In this
case, the Lexington policy provides that property damage must be caused by an
occurrence, and the property damage must "occur[] during the policy
period." The insuring clause of
Lexington's policy makes it "occurrence-based," which ordinarily
means that the policy covers property damage that occurred during the policy
period. (St. Paul Mercury Ins. Co. v. Mountain West Farm Bureau Mut Ins. Co.,
supra, 210 Cal.App.4th at p. 660,
citing Montrose II,
question, because it is necessary to decide whether the continuous loss
endorsement affects activation of Lexington's defense duty. (See Montrose
II, at p. 677 [when deciding which trigger of coverage applies, the
"precise question . . . is what result follows under the language of the policies of insurance to which the parties
agreed, including the standardized definitions that were incorporated into
those policies"]; accord, Pennsylvania
General Ins. Co. v. American Safety Indemnity Co. (2010) 185 Cal.App.4th
1515 (Pennsylvania General).)
Lexington's
continuous loss endorsement added language to the definition of occurrence
"in the event" of continuing or
progressive property damage over any length of time. Furthermore, where property damage is
continuing or progressive it is deemed to be "one 'occurrence' " and
"shall be deemed to occur only when such . . . 'property damage' first
commenced." Lexington's obligation
to defend or investigate is eliminated "unless such . . . 'property
damage' first commenced during the policy period." This additional language, as Lexington points
out, is intended to circumvent the "continuous injury trigger"
established in Montrose II, allowing
multiple policies to be triggered for the same loss. (Montrose
II, supra, 10 Cal.4th at p. 689
["Where . . . successive CGL policy periods are implicated, bodily injury
and property damage which is continuous or progressively deteriorating
throughout several policy periods is potentially covered by all policies in
effect during those periods"]; Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group
2012) ¶¶ 7:175, p. 7A-88, 7:177.10, p. 7A-92, 7:1437.5, p. 7E-30.1.)
The
Lexington CGL policy is akin to the CGL policy interpreted in
an insuring clause similar to Lexington's policy at issue here,
and also, like here, contained an endorsement refining the definition of
occurrence to focus on the commencement of property damage:
" ' "Occurrence" means an accident, including
continuous or repeated exposure to substantially the same general harmful
conditions that happens during the term of this insurance. "Property damage" . . . which
commenced prior to the effective date of this insurance will be deemed to have
happened prior to, and not during, the term of this insurance.' "
(Pennsylvania General, supra, 185 Cal.App.4th at p.
1525.) This court observed the language
employed was designed to circumvent the continuous injury trigger of the
coverage rule laid down in Montrose II, and that construction
"means the appropriate focus for an occurrence is on when the damages
caused by the negligent causal acts of the insured first commenced, and is not
on when the insured completed its work." (Pennsylvania
General, at p. 1532.) That CGL policy's amended definition of
occurrence was held in Pennsylvania General to be reasonably
susceptible to the interpretation that "
the [negligent act
of the insured],
is still a
that must take
place during the
policy period to
create coverage." (Id. at p.
1526.)
In this
case, the continuous loss endorsement's amended definition of
"occurrence" is implicated in the event of continuing or progressive
property damage, and here, like in Pennsylvania
General, the "appropriate
focus for an occurrence is on when the damages caused by the negligent
causal acts of [Valley] first commenced . . . ." (Pennsylvania
General, supra, 185 Cal.App.4th
at p. 1532.) It is not enough, as Valley seems to suggest,
that some of the property damage take place "at any time prior to
the expiration of the policy . . . ."
(Italics added.) Lexington's
coverage obligation is eliminated even where property damage occurs before the
end of the policy period, if it does not first commence within the policy's
effective dates.
IV. Breach
of Contract Cause of Action
A.
Burden
With the
above principles in mind, we assess whether Lexington met its initial summary
judgment "burden of production to make a prima facie showing of the
nonexistence of any triable issue of material fact." (Aguilar, supra, 25 Cal.4th at pp. 850-851; see also
State Farm General Ins. Co. (2010) 187 Cal.App.4th 766, 776-777.) Valley appears to address Lexington's initial
burden by contending, as it did below, that "Lexington cannot carry its
burden of proving that the CCI suit 'can by no conceivable theory raise a
single issue which would bring it within the Policy coverage.' " Valley then argues that summary judgment
should be denied because, "Under the operative provisions of the Policy,
there is at least a triable issue of material fact as to whether the alleged
property damage is 'deemed' to have 'first commenced' within the Policy period." Valley additionally argues that Lampel's
declaration does not establish the absence of a triable issue of material fact
because her assertion that she did not notice any paint chips or drywall dust
does not negate other damage to caulking or drywall. It maintains her statement is not
determinative of coverage because the policy is not a claims-made or
"manifestation" policy,
name="_ftnref5" title="">[5]
but only requires property damage, no matter how slight, to commence during the
policy period.
Lexington's
threshold summary judgment burden is heavy, since, as discussed above, it must
defend Valley as long as it ascertains facts that raise the possibility that the insured will be liable for losses
covered by the policy. (
v. Zurich Ins. Co. (1966) 65 Cal.2d 263, 276-277.) It is Valley's underlying
burden at trial to show the complaint's allegations, extrinsic facts known to
Lexington, or facts that were available to Lexington had it conducted a
reasonable inquiry into possible bases that would support Valley's claims, gave
rise to potential coverage in that property damage—defined as physical injury
to tangible property—first commenced during the policy period. (See Aydin
Corp. v. First State Ins. Co., supra,
18 Cal.4th at p. 1188.) Lexington must
demonstrate Valley cannot meet its burden by presenting evidence sufficient to
show "that the underlying claim cannot come within the policy coverage by
virtue of the scope of the insuring clause" (Montrose I, supra, 6
Cal.4th at p. 301), and it is therefore
entitled to summary judgment as a matter of law. (Code Civ. Proc., § 437c, subds.(c) &
(f)(2); see also MRI Healthcare Center of
Glendale, Inc. v. State Farm General Ins. Co., supra, 187 Cal.App.4th at p. 778 [summary judgment affirmed in
insurer's State Farm's favor on ground State Farm demonstrated insured could
not meet its threshold burden of showing a claimed loss fell within the
policy's insuring clause]; Monticello Ins. Co. v. Essex Ins. Co. (2008)
162 Cal.App.4th 1376, 1385.)
We conclude Lexington met its
threshold summary judgment burden.
Looking first to the underlying complaint's allegations, the CCI action
alleges CCI suffered injury on August 4, 2008, and describes its right to
subrogation as arising after it had paid to repair "water loss to the
residence" occurring due to the falling cabinet; it sought reimbursement
"for those repair costs . . . ."
Reasonably construed, the CCI action on its face does not recite facts
suggesting that the defectively installed cabinet had caused any sort of
gradual, progressive or continuing damage to Lampel's home preceding its fall
and the resulting broken faucet. There
are no "fairly inferable" facts (Montrose
II, supra, 10 Cal.4th at p. 655)
indicating a potential that property damage first commenced during the policy
period, which ended approximately six months before the cabinet failed and
caused the ensuing flood damage in August 2008.
Nor does
the record show or suggest that there was extrinsic evidence known to Lexington
at the time of Valley's tender that should have put Lexington on notice of
potential coverage. All indications at
the time of tender were that the property damage was caused by a sudden event:
the flood caused by the falling cabinet, which resulted in immediate damage to
Lampel's home; those are not the sort of circumstances from which Lexington
should have suspected a defectively installed cabinet would cause gradual,
progressive or continual property damage months or years before falling from
the wall.
Valley
suggests Lexington's own evidence shows it did not conduct an adequate
investigation of coverage by reasonably available sources extrinsic to the CCI
complaint, including presumably by consulting with Raymond or other
experts. It points out that in denying
coverage, Lexington did not reference the amended definition of
"occurrence" in the continuous loss endorsement, and that Lexington
as a result did nothing to determine whether property damage "first
commenced" at some point before the policy's expiration on February 20,
2008. We note that Lexington in its
letter denying coverage invited input from Raymond on the coverage question
without any response. Under the
circumstances, Lexington reasonably concluded that no progressive or continuing
property damage was implicated by the sudden event of a defectively installed
cabinet falling from the wall, and that the amended definition of
"occurrence" was not at issue.
Accordingly, we cannot say Lexington unreasonably ignored the policy
language in denying coverage.
In any
event, where an insurer "has made an informed decision on the basis of the
third party complaint and the extrinsic facts known to it at the time of tender that there is no potential for
coverage, the insurer may refuse to defend the lawsuit. . . .
[¶] An insured may not trigger
the duty to defend by speculating about extraneous 'facts' regarding potential
liability or ways in which the third party claimant might amend its complaint
at some future date. . . . Thus, the issues here are what facts [the
insurer] knew at the time [the insureds] tendered the defense of the [third
party] lawsuit, both from the allegations on the face of the third party
complaint, and from extrinsic information available to it at the time; and
whether these known facts created a potential for coverage under the
terms of the Policy." (Gunderson
v. Fire Ins. Exchange (1995) 37 Cal.App.4th 1106, 1114; see also
193 Cal.App.4th 780, 786 [insurer has no duty to defend where under the facts
of the complaint or known extrinsic facts, the potential for liability is
" ' "tenuous and farfetched" ' "]; Griffin Dewatering Corporation v. Northern Insurance Company of New
York (2009) 176 Cal.App.4th 172, 197-198 [facts from which potential for
coverage is gauged are those from the inception of the lawsuit, and such facts
"do not include speculative facts not
in the complaint or otherwise unknown by the insurance
company"].)
Once
Lexington reasonably determined there was no potential for coverage by
reference to the policy, the CCI complaint, and facts known to it, it had no
"continuing duty to investigate whether there is a potential for
coverage." (Gunderson v. Fire Ins. Exchange, supra, 37 Cal.App.4th at p. 1114.
presented by Lexington in its moving papers were sufficient to meet its prima
facie summary judgment burden.
B.
In
opposition to Lexington's motion, Valley had a burden of production of its own
to make a prima facie showing of the existence of a triable issue of material
fact. (Aguilar, supra, 25 Cal.4th at p.
850.) A triable issue of material fact
exists " 'if, and only if, the evidence would allow a reasonable trier of
fact to find the underlying fact in favor of the party opposing the motion in
accordance with the applicable standard of proof.' [Citation.]
Thus, a party 'cannot avoid summary judgment by asserting facts based on
mere speculation and conjecture, but instead must produce admissible evidence raising
a triable issue of fact.' " (Dollinger
DeAnza Associates v. Chicago Title Ins. Co., supra, 199 Cal.App.4th at pp. 1144-1145; see MRI
Healthcare Center of Glendale, Inc. v. State Farm General Ins. Co., supra, 187 Cal.App.4th at p.
777 [opposition to summary judgment will be deemed insufficient when it is
essentially conclusionary, argumentative, or based on conjecture and
speculation].) " 'If coverage
depends on an unresolved dispute over a factual question, the very existence of
that dispute would establish a possibility of
(2010) 187 Cal.App.4th 498, 520.)
Here,
Valley sought to meet its burden by proffering Raymond's and Lohse's opinions,
but the trial court excluded their declarations almost in their entirety on
foundation, speculation and relevance grounds, as well as on grounds they
constituted "improper opinion."
In reviewing the propriety of summary judgment, we consider "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.) We review for abuse of discretion the trial
court's decision to exclude the experts' testimony. (DiCola
v. White Brothers Performance Products, Inc. (2008) 158 Cal.App.4th 666,
679; Shugart v. Regents of University of
Cal. (2011) 199 Cal.App.4th 499, 505; Avivi
v. Centro Medico Urgente Medical Center (2008) 159 Cal.App.4th 463,
467.)
1. The
Trial Court Abused its Discretion in Excluding Raymond's Declaration
Principles
relating to the admissibility and foundation of expert testimony are well
established: "[T]he lack of
foundation of an expert's testimony can be as to the expert being qualified,
the validity of the principles or techniques upon which the expert relied, or
as to the reliability and relevance of the facts upon which the expert
relied. [Citation.]
"Evidence Code
section 720, subdivision (a) provides, 'A person is qualified to testify as an
expert if he has special knowledge, skill, experience, training, or
qualify him as an expert on the subject to which his testimony relates. Against
the objection of a party, such special knowledge, skill, experience, training,
or education must be shown before the witness may testify as an expert.' '[T]he qualifications of an expert must be
related to the particular subject upon which he is giving expert
testimony.' [Citation.] Consequently, 'the field of expertise must be
carefully distinguished and limited' [citation], and '[q]ualifications on
related subject matter are insufficient' [citation].
qualifications is a showing that the expert has the requisite knowledge of, or
was familiar with, or was involved in a sufficient number of transactions
involving the subject matter of the opinion.
[Citations.] 'Whether a person
qualifies as an expert in a particular case . . . depends upon the facts of the
case and the witness's qualifications.'
[Citation.] '[T]he determinative
issue in each case is whether the witness has sufficient skill or experience in
the field so his testimony would be likely to assist the jury in the search for
truth.' " (Howard Entertainment, Inc. v. Kudrow (2012) 208 Cal.App.4th 1102,
1114-1115.)
other inadmissible matter in forming an opinion. (Evid. Code, § 801, subd. (b).)" (Howard
Entertainment, Inc. v. Kudrow, supra,
208 Cal.App.4th at p. 1115.)
name="_ftnref6" title="">[6] But the matter relied upon must
" ''provide a reasonable basis for the particular
opinion offered, and . . . an expert opinion based on speculation or conjecture
is inadmissible.' " (
Southern Cal. (2012) 55 Cal.4th 747, 770; Howard Entertainment, at p. 1115.)
" '[T]he expert's opinion may not be based "on assumptions of
fact without evidentiary support [citation], or on speculative or conjectural
factors . . . . [¶] Exclusion of expert opinions that rest on
guess, surmise or conjecture [citation] is an inherent corollary to the
foundational predicate for admission of the expert testimony: will the
testimony assist the trier of fact to evaluate the issues it must decide?'
" (Sargon Enterprises, at p. 770.)
An expert's opinion given without a reasoned explanation of why the
underlying facts lead to the ultimate conclusion has no evidentiary value
because such opinion is worth no more than the reasons and facts on which it is
based. (Powell v. Kleinman (2007) 151 Cal.App.4th 112, 123.)
Our
assessment of the adequacy of Valley's opposing summary judgment evidence
requires us to liberally construe Raymond's declaration. (Aguilar,
supra, 25 Cal.4th at pp. 844-845.) An opposing party's declaration does not need
to be detailed, and it is entitled to all favorable inferences. (Hanson
v. Grode (1999) 76 Cal.App.4th 601, 607; Jennifer C. v. Los Angeles Unified School Dist. (2008) 168
Cal.App.4th 1320, 1332; Powell v.
Kleinman, supra, 151 Cal.App.4th
at p. 125.) In making a preliminary
determination as to whether an expert opinion is founded on sound logic, we
must not decide its persuasiveness, nor weigh the opinion's probative value or
substitute our own opinion for the expert's.
(Sargon Enterprises, Inc. v.
University of Southern Cal., supra,
55 Cal.4th at p. 772.) "Rather, the court must simply
determine whether the matter relied on can provide a reasonable basis for the
opinion or whether that opinion is based on a leap of logic or
conjecture." (Ibid.)
Here,
Raymond recited the documents on which he relied in expressing his opinion:
Valley's job file, demand letters, discovery, Lampel's declaration, and
"photographs of the alleged damage."
Further, Raymond recounted special knowledge and experience to support
his opinions: 49 years of experience in the trade, familiarity with
"falling cabinet" claims by reason of having been directly involved
in customer service claims, and his experience since 1982 as the person at
Valley who would inspect every reported claim where a cabinet fell from the
wall to which it was attached. "An
expert may rely upon experiences and conversations he or she has had and
information he or she has obtained without the necessity of providing the
specifics of such experiences and conversations." (Howard
Entertainment, Inc. v. Kudrow, supra,
208 Cal.App.4th at p. 1117.)
We conclude
Raymond reasonably relied on these matters in reaching his conclusions; such
matters provide a sufficient basis for his opinion as to how and when damage
will occur from a defectively installed utility wall cabinet, and his reliance
on them did not result in him making a "leap of logic or
conjecture." (Sargon Enterprises, Inc. v. University of Southern Cal.,
Dist., supra, 168 Cal.App.4th at
p. 1332.) Raymond explained the bases
for his conclusions as to the mechanism and type of damage (the standard uses
of a utility cabinet, as well as relative softness and hardness of the cabinet
versus the drywall) and why a homeowner such as Lampel would not have observed
damage to the paint, caulking or and drywall (that the top of an upper cabinet,
where the damage would first occur, was not readily visible). We conclude Raymond had sufficient
qualifications, and provided an adequate foundation for his opinions.
Nor can we
say Raymond's conclusions were speculative.
On this point, Lexington argues Raymond's opinions lacked foundation for
the assumed facts, that
he engaged in conjecture as to what Lampel did or did not
see, and he also contradicted Lampel, who was assertedly the only person to
observe "firsthand" the property damage. Lexington criticizes Raymond's opinion for
lacking a foundational "photograph or other firsthand evidence of
'property damage' during the Policy period . . . ." It is true that an expert's opinion that
" 'something did occur, when unaccompanied by a reasoned explanation
illuminating how the expert employed his or her superior knowledge and training
to connect the facts with the ultimate conclusion, does not assist the [fact
finder.]' " (Shugart v. Regents v. University of California,
party disputes) the cabinet at issue was defectively installed, and, as
explained above, Raymond provided sufficient foundation and a reasoned
explanation for his conclusions; he was not required to conduct an independent
investigation or view the damage firsthand to deduce how it developed. (See Schreidel v. American Honda Motor Co.
(1995) 34 Cal.App.4th 1242, 1251-1253 [expert's testimony regarding cause of
automobile accident not wild speculation or inadmissible due to lack of
scientific testing, product disassembly, or independent investigation];
Dist., supra, 168 Cal.App.4th at
p. 1332 [expert's opposing summary judgment opinions (that plaintiff special
needs student was vulnerable, it was unreasonable for school staff not to see
two special needs students walking across campus, and a particular sweep
reasonably done would have caught them) was not conclusory and defeated summary
judgment where opinions were based on experience, the facts surrounding the incident,
reports prepared by the school district, school records, and psychological
assessment of the plaintiff].)
Raymond's
observations are not like those of the expert in Mitchell v. United Nat. Inc. Co. (2005) 127 Cal.App.4th 457, relied
upon by Lexington. In
testify about what representations in an insurance application a particular
underwriter did or did not find material, and his opinions were based on
speculation about what that underwriter knew, considered or concluded. (Id.
at pp. 477-478.) Nor does Raymond's
declaration have the flaw observed by the court in Nardizzi v. Harbor Chrysler Plymouth Sales, Inc. (2006) 136
Cal.App.4th 1409, in which the expert failed to take into account uncontested
facts that made his view of causation both improbable and physically
impossible. (Id. at p. 1415; see Castillo
v. Toll Bros., Inc. (2011) 197 Cal.App.4th 1172, 1202, fn. 18.) Unlike in Nardizzi,
Raymond gave a reasoned explanation why Lampel might not have observed any damage,
and Lampel's declaration did not preclude with certainty the cause or existence
of property damage that was not readily detectable.
We need not
resolve the propriety of the trial court's rulings on Lohse's declaration
because, as we explain below, Raymond's declaration alone was sufficient to
raise triable issues of material fact as to potential coverage under
Lexington's policy.
2. Lexington's
Claim of "Immaterial" Damage
Lexington
argues that even assuming Valley's experts were qualified and their
declarations admissible, their opinions did not create a triable issue of
fact. It maintains, relying on
Insurance Company of the West (2004) 118 Cal.App.4th 364 (
221 Cal.App.3d 961, that "courts have interpreted the term 'property
damage' in an insurance policy to require a material
change in the affected property."
Because, Lexington asserts, the experts essentially admitted that the
damage allegedly caused by the cabinet may have been less significant than
chipped paint or drywall dust, there was no material change in the property
amounting to property damage within the meaning of the policy.
Neither
case, however, stands for the asserted proposition. In F
& H Construction, the issue was whether the welding of inferior-grade
steel caps onto another product, steel composite piles, caused property
damage—"physical injury to tangible property"—to the piles within the
meaning of a CGL policy. (
371-372.) It was undisputed that the use
of the lesser grade caps produced structural units that were not damaged but
were inadequate for their intended purpose.
(Id. at p. 368.) On review of a grant of summary judgment in
the insurer's favor, the appellate court explained that the prevailing view was
that "incorporation of a defective component or product into a larger
structure does not constitute property damage unless and until the defective
component causes physical injury to tangible property in at least some other
part of the system." (
court, in distinguishing cases relied upon by the appellant, agreed with the
Illinois Supreme Court's definition of the term "physical injury" as
" 'unambiguously connot[ing] damage to tangible
property causing an alteration in appearance, shape, color or in other material
dimension.' " (F & H Construction, at p. 377, quoting Travelers Ins. Co. v. Eljer Mfg., Inc. (Ill. 2001) 197 Ill.2d 278,
312.) The F & H court used the word "material" to qualify the
color), not the extent of the alteration; the court did not define physical
injury to require a material
or other dimension. The
that where the only injury was in the form of a product's failure to perform as
intended and the damages were "intangible
economic damages" (the cost of modifying the caps and lost bonus for
early project completion), there was no physical injury to tangible property
within the meaning of the CGL policy. (
at pp. 373-374.)
involved a circumstance in which the appellate court rejected the notion that
mere inclusion of a defective component in property, or mere allegations of
inferior materials or workmanship, constitutes "property damage"
within the meaning of a policy defining such damage as "physical injury to
or destruction of tangible property . . . ." (Id.
at pp. 968-970.) The court observed that
a CGL policy does not provide contractors with coverage against inferior or defective
work, but "comes into play when the insured's defective materials or work cause injury to
property other than the insured's own work or products." (Id.
at p. 967.) Thus, "where the defect
in fact has caused either physical injury to or the lost use of tangible
property, liability coverage has been found." (Id.
at p. 970.) In that case, the homeowners
had alleged soil subsidence caused physical harm to tangible property
consisting of cracked concrete floor slab, foundations, retaining walls and other
areas, as well as failure of the roofs, allowing rain water to damage the
building structures and living areas. (
in materials and workmanship, and was held sufficient to allege property damage
within the meaning of the CGL policy at issue.
(Id. at p. 971.) Maryland
Casualty does not stand for the proposition that "property
damage" means a "material change" in the property at issue. Thus, Lexington is incorrect when it asserts
generally that appellate courts interpret the definition to require a "
property."
Our focus
is on a layman's understanding of the phrase "physical injury to tangible
property," in its ordinary and popular sense (E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465,
471) and whether the alteration of the drywall, caulk and paint testified to by
Raymond meets that standard. "[I]f
the meaning a lay person would ascribe to contract language is not ambiguous,
we apply that meaning." (
Cal.3d 807, 822.) As stated, Lexington's
policy defines property damage as "[p]hysical injury to tangible
property." The term "
'[t]angible property' is not ambiguous, and . . . [c]onsistent with an
insured's reasonable expectations, 'tangible property' refers to things that
can be touched, seen, and smelled."
(Kazi v. State Farm Fire and Cas.
Co. (2001) 24 Cal.4th 871, 880; Gunderson
v. Fire Ins. Exchange, supra, 37
Cal.App.4th at p. 1119 [" ' "Understood in its plain and ordinary
sense, 'tangible property' means 'property (as real estate) having physical
substance apparent to the senses' " ' "].) The Merriam-Webster Dictionary defines
"physical" as "having material existence: perceptible esp. through
the senses" and defines "injury" as "hurt, damage, or loss
sustained." (Merriam-Webster's
Collegiate Dict. (11th ed. 2006) pp. 644, 935.)
It defines "loss" as "destruction, ruin" and
"the amount of an insured's financial detriment by death or damage that
the insurer is liable for." (
modifies the term "injury" and thus the policy covers only physical
loss or damage. (See
Employers Fire Ins. Co. (2003) 114 Cal.App.4th 548, 554.) The requirement that a loss be
"physical," given the ordinary definition of that term, is "
'widely held to exclude alleged losses that are intangible or incorporeal, and,
thereby to preclude any claim against the property insurer when the insured
merely suffers a detrimental economic impact unaccompanied by a distinct,
demonstrable, physical alteration of the property.' " (MRI
Healthcare Center of Glendale, Inc. v. State Farm General Ins. Co.,
[defining phrase "direct physical loss" in business property
insurance policy], quoting
10A Couch on Insurance (3d ed. 2010) § 148:46, p. 148-8.)
Applying
these plain, ordinary definitions, we conclude Valley's evidence raised a
material factual issue as to the existence—at least potentially—of a continuing
and progressively deteriorating process of property damage that began with
normal use of the defectively installed cabinet within the policy period. (Accord, Century
Indemnity Co. v. Hearrean (2002) 98 Cal.App.4th 734, 739-741, 743
[allegations that contractors and subcontractors negligently designed and
constructed improvements at hotel, causing property damage including leaking
windows and cracked exterior stucco, raised triable issue as to whether continuing
and progressive property damage occurring within the policy period];
62 Cal.App.4th 1045, 1048-1049, 1055-1056 [implication of complaint was that
continuing and progressively deteriorating process began during policy period
as a result of defective design and construction, even though damage did not
manifest itself until after expiration of the policy period, creating a
disputed issue of fact].) According to
Raymond, upon Lampel's normal use of the cabinet in 2006, the defectively
installed cabinet would begin to separate from the wall, breaking the caulking
and indenting the drywall below the cabinet.
Such alterations would require repairs to both caulk, paint and drywall
to return the property to a satisfactory state.
Thus, the evidence creates a triable issue as to whether the cabinet
caused "distinct, demonstrable, physical alteration" of tangible
property—drywall, caulk and paint—commencing at some point in 2006.
It is of no
moment that Lampel did not observe such damage; at best her testimony creates a
conflict in the evidence that we do not resolve on summary judgment. Our role is to find issues for the trier of
fact, not resolve them. (
233 Cal.App.3d 1505, 1510.) Further, we
emphasize that we do not reach the merits of whether Valley can ultimately
establish coverage under Lexington's policy for the alleged injury and damage
alleged in the CCI lawsuit; whether the damages and injuries alleged were in
fact continuous and progressive is itself a matter for final determination by
the trier of fact. (Pepperell v. Scottsdale Ins. Co., supra, 62 Cal.App.4th at
p. 1056, quoting Montrose II,
The duty to
defend "is a continuing one, arising on tender of defense and lasting
until the underlying lawsuit is concluded [citation], or until it has been
shown that there is no potential for
coverage . . . ." (
Because Valley has demonstrated facts raising the potential that
Lexington's policy may cover CCI's claims giving rise to Lexington's duty to
defend, we reverse the summary judgment on Valley's breach of contract cause of
action.
V. Bad
Faith Cause of Action
Breach of
an insurance contract does not automatically subject an insurer to tort damages
for bad faith. (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001)
90 Cal.App.4th 335, 345, disapproved on other grounds in Wilson v. 21st Century Ins. Co., supra, 42 Cal.4th at p. 724, fn. 7; Shade Foods, Inc. v. Innovative Products Sales & Marketing Inc.
(2000) 78 Cal.App.4th 847, 881.)
Accordingly, it is necessary to decide whether, notwithstanding our
conclusion that Valley's evidence raises issues of material fact as to a
potential for coverage under Lexington's policy preventing summary judgment on
its breach of contract cause of action, Lexington is entitled to summary
adjudication of Valley's cause of action for breach of the covenant of good
faith and fair dealing. (See
(2010) 182 Cal.App.4th 1601, 1614, fn. 6 [trial court may properly grant
claim and request for punitive damages
in a case alleging breach of an insurance contract and breach of the implied
covenant of good faith and fair dealing].)
" 'The
law implies a covenant of good faith and fair dealing in every insurance
contract. [Citation.] Therefore, when an insurer unreasonably and
in bad faith withholds payment on a claim of its insured, it is subject to
liability in tort. [Citation.] An insurer may also breach the covenant of
good faith and fair dealing
when it fails to properly investigate its insured's claim. [Citation.]
Under this implied promise, in determining whether to settle a claim,
the insurer must give "at least as much consideration to the welfare of
its insured as it gives to its own interests." [Citation.]'
[Citations] [¶]
coverage was unreasonable.
can be
| Description | Plaintiff and appellant Valley Casework, Inc. (Valley), a cabinet maker and installer, appeals from a summary judgment in favor of defendant and respondent Lexington Insurance Company (Lexington) on Valley's second amended complaint for breach of contract and breach of the implied covenant of good faith and fair dealing. Valley alleged Lexington owed a duty to defend it against a claim of liability arising out of Valley's installation of cabinets, after one cabinet fell from the wall and broke a faucet causing water damage to a home in August 2008. Lexington had denied coverage under a commercial general liability (CGL) insurance policy issued for the period February 20, 2007, to February 20, 2008. Valley contends Lexington cannot meet its burden of proving there is no conceivable theory raised by the underlying lawsuit bringing it within the operative provisions of the Lexington's CGL policy. Valley also contends there is a triable issue of material fact as to whether a continuous loss endorsement in the policy deems the alleged property damage to have occurred during the policy period. We reverse the summary judgment on Valley's breach of contract cause of action because Valley raised triable issues of material fact via the declaration of its founder Ronald Raymond, which was erroneously excluded in its entirety by the trial court. However we conclude Lexington is entitled to summary adjudication of Valley's claims for breach of the covenant of good faith and fair dealing and punitive damages. We remand with directions that the trial court enter a new order accordingly. |
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