Franciscan Hill HOA v. State Farm

Filed 2/8/07  Franciscan Hill HOA v. State Farm CA2/8

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b).  This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

            APPEAL from the order of the Superior Court of Los Angeles County.  Victor  H. Person, Judge.  Reversed in part and affirmed in part.

            Robie & Matthai, James R. Robie, Kyle Kveton, and Ronald P. Funnell for Defendant and Appellant.

            Richardson & Harman, Steven G. Harman and J. Andrew Douglas for Plaintiff and Appellant.

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            Defendant State Farm Fire and Casualty Company appeals from the order partially granting plaintiff Franciscan Hills Homeowners Association a new trial, which reinstated plaintiff's previously dismissed breach of contract claim for the alleged failure to pay benefits pursuant to an earthquake policy.  Plaintiff cross appeals from those portions of the order denying its new trial motion as to other causes of action, as well as from orders sustaining demurrers to certain claims, and an order striking others.  We affirm the new trial order to the extent it granted plaintiff a new trial on its contract claim for unpaid insurance benefits.  We also reverse the order sustaining without leave to amend the demurrer to the second cause of action for breach of an alleged side agreement to reimburse the plaintiff expert witness fees, and the concomitant fourth cause of action – a common count based on that obligation.  Finally, we reverse the order striking causes of action for fraud and bad faith.

FACTS AND PROCEDURAL HISTORY^[1]

1.         First Amended Complaint

            A Santa Clarita condominium complex managed by Franciscan Hills Homeowners Association (HOA) was damaged by the January 1994 Northridge earthquake.  At the time, HOA was covered by an earthquake insurance policy issued by State Farm Fire and Casualty Company (State Farm).  HOA made a claim under the policy, and State Farm paid to repair most, but not all, of the damage.  In June 2001, HOA made a supplemental claim to State Farm for additional covered damages.  In August 2001, State Farm acknowledged the supplemental claim in writing, and agreed to reopen and discuss that claim.  HOA continued to demand payment of the remaining unpaid items, including the supplemental claim.  State Farm never formally denied those claims, but, on August  19, 2003, State Farm told HOA that it would pay no more money.  Based on these events, HOA alleged a cause of action for breach of the insurance policy.

            HOA also alleged that in September 1994 it sued the developer of the condominium complex for construction defects.  Soon after, State Farm sued the developer on a subrogation claim to recover the money it had spent to repair the property.  The two cases were then consolidated and tried in December 1999. 

            In March 1994, State Farm agreed in writing that it would make HOA whole for its damages before making any recovery against the developer on its own behalf, and that if it recovered from the developer, State Farm would credit HOA for all necessary and reasonable costs HOA incurred in connection with State Farm's subrogation claim.  When the cases went to trial, State Farm asked for and received HOA's permission to use the consultants HOA had retained in connection with HOA's construction defect claim.  HOA did not intend to call all of its consultants as witnesses, or expected to use them in a limited fashion because its case differed from State Farm's.  State Farm did use those consultants at trial, but they were paid by HOA, which received little benefit from their testimony.  In 2003, State Farm received a $4 million post trial settlement from the developer.  State Farm was obligated by unspecified policy terms, and by the March 1994 agreement, to reimburse HOA for more than $831,000 in expert witness fees.  Based on those allegations, HOA stated its second cause of action for breach of an agreement to reimburse for consultant's fees.

            By the allegations from the first two causes of action, HOA stated four other claims.  The third, a common count for money had and received, alleged that after State Farm and HOA prevailed at the trial of their consolidated actions against the developer, the developer appealed, winning a reversal and a new trial as to HOA.  While the appeal was pending, however, the developer settled with State Farm, paying approximately $4 million.  That money was held by State Farm on behalf of HOA in order to fully compensate HOA for its losses.  The fourth cause of action was a common count to recover the money HOA spent to pay the expert witnesses used by State Farm.  The fifth sought a constructive trust over the settlement funds.  The sixth sought declaratory relief that State Farm owed HOA the amount of the unpaid claims under the policy and of the expert witness fees.

            State Farm demurred to these causes of action.  The trial court sustained without leave to amend the demurrer to the first cause of action for unpaid policy benefits, based on the following reason:  Such claims were normally governed by a one year limitations period.  (Ins. Code, §  2071.)  The Legislature revived time-barred claims for Northridge earthquake damages (Code Civ. Proc., §  340.9 (§  340.9)), but that revival period ended on January  2, 2002.  While the statute of limitations was ordinarily subject to equitable tolling until the insurer gave formal written notice of claim denial, that doctrine did not apply to Northridge earthquake claims under section  340.9.  The court sustained with leave to amend the demurrer to the second cause of action for breach of the agreement to reimburse HOA for use of its expert witnesses, finding that HOA did not properly allege the material terms of the written agreement, or, in the alternative, did not attach as exhibits the writings upon which the alleged agreement was based.  The demurrer to the third cause of action was sustained without leave to amend because HOA did not allege a sum certain that was owed and because the settlement funds State Farm received from the developer were intended to reimburse State Farm's own expenditures and were not for HOA's benefit.  The demurrer to the fourth cause of action was sustained with leave to amend because HOA did not allege a sum certain that was owed.  The demurrer to the fifth cause of action was sustained without leave to amend because a constructive trust was a remedy, not an independent cause of action.  The demurrer to the sixth cause of action was sustained without leave to amend because declaratory relief was not proper where the plaintiff had an accrued cause of action for breach of contract.

2.         Second Amended Complaint

            HOA's second amended complaint made few substantive changes to the allegations of its second cause of action for breach of the witness fees reimbursement agreement.  HOA alleged that in a March  26, 1994, letter from State Farm, it promised to make HOA â€