Justia California Court of Appeals Opinion Summaries

After defending the general contractor in two construction defect actions, general liability insurer St. Paul Mercury Insurance Company (St. Paul) sought reimbursement of defense costs under an equitable subrogation theory against six subcontractors (defendants) that had worked on the underlying construction projects and whose contracts required them to defend the general contractor in suits involving allegations related to their work. After a bench trial, the court denied St. Paul’s claim. Relying on Patent Scaffolding Co. v. William Simpson Constr. Co., 256 Cal.App.2d 506, 514 (1967), the trial court concluded St. Paul had not demonstrated it was fair to shift all of the defense costs to defendants because their failure to defend the general contractor had not caused the homeowners to bring the construction defect actions. St. Paul argued this conclusion misconstrued the law governing equitable subrogation and therefore constitutes an abuse of discretion. To this, the Court of Appeal agreed: (1) a cause of action based on equitable subrogation allowed an insurer to step into the shoes of its insured and recover only what the insured would be entitled to recover from the defendants; and (2) the appropriate inquiry should have been whether defendants’ failure to defend the general contractor caused St. Paul to incur the defense costs, not whether that failure caused the underlying lawsuits. Judgment was reversed and the matter remanded to the trial court to grant judgment in St. Paul's favor and for a determination of defense costs each defendant owed. View "Pulte Home Corp. v. CBR Electric, Inc." on Justia Law

The 2015 Valley Fire caused smoke damage to the Fadeeffs’ home, insured under a State Farm homeowners’ policy. Linen wall covering inside the home had started to buckle and the Fadeeffs had health concerns. With State Farm’s approval, the Fadeeffs retained ServPro to assist with smoke and soot mitigation and cleaning. State Farm’s independent adjuster (Gannaway) reported that the home was “well maintained” and that “[a]ll damage is related to smoke and soot.” State Farm made payments totaling $50,000. The Fadeeffs hired a public adjuster and submitted supplemental claims, totaling $75,000. State Farm’s independent adjuster (Carpenter), who is not a licensed adjuster in California and not licensed in any building trade reported he could not find smoke damage. State Farm retained FACS, which took only surface samples from the home and determined that no additional cleaning was required. State Farm denied the supplemental claims. The Fadeeffs filed suit, alleging insurance bad faith. The court granted State Farm summary judgment.The court of appeal reversed, concluding that multiple disputed facts made summary judgment inappropriate. It is not possible to conclude that it is indisputable that the basis for denial was reasonable. There are triable issues regarding whether State Farm could have reasonably relied on its experts. A jury should determine the issue of punitive damages. View "Fadeeff v. State Farm General Insurance Co." on Justia Law

Plaintiffs-appellants James and Maria Mosley rented out a home they owned that defendant-respondent Pacific Specialty Insurance Company (PSIC) insured under a homeowners’ policy (the Property). The Mosleys’ tenant started growing marijuana in the Property. To support his marijuana-growing operation, the tenant re-routed the Property’s electrical system to steal power from a main utility line. The tenant’s re-routed electrical system caused a fuse to blow, which started a fire that damaged the Property. PSIC denied coverage, citing a provision in the Mosleys’ policy that excluded any loss associated with “[t]he growing of plants” or the “manufacture, production, operation or processing of . . . plant materials.” The Mosleys sued, but the trial court granted summary judgment in favor of the insurance company, finding that the Mosleys had control over their tenant's conduct. A divided Court of Appeals reversed, finding no evidence the Mosleys were aware of their tenant's marijuana growing operation, and because the record was silent as to what the Moseleys could or should have done to discover it. "[T]he Mosleys did not use the Property in a prescribed way that would have allowed PSIC to suspend their insurance and deny all coverage. More importantly, contrary to PSIC’s assertion and the trial court’s finding, there was no evidence Mosleys knowingly increased a risk of fire hazard. In addition, a fact issue remains as to whether [the Tenant's] hazard-increasing conduct was within their control. If it was, then PSIC properly denied coverage. But by denying the Mosleys coverage for Lopez’s conduct, regardless of the Mosleys’ control over or knowledge of it, the Policy did not provide 'substantially equivalent' coverage to that required under [Insurance Code] section 2071." View "Mosley v. Pacific Specialty Ins. Co." on Justia Law

North Edwards Water District (the District) selected Clark Bros., Inc. (Clark) as its general or direct contractor on a public works project to build an arsenic removal water treatment plant. Clark hired subcontractor Crosno Construction (Crosno) to build and coat two steel reservoir tanks. The subcontract contained a "pay-when-paid" provision that stated Clark would pay Crosno within a reasonable time of receiving payments from the District, but that this reasonable time "in no event shall be less than the time Contractor and Subcontractor require to pursue to conclusion their legal remedies against Owner or other responsible party to obtain payment . . . ." After Crosno completed most of its work, a dispute arose between the District and Clark halting the project. As Clark sued the District, Crosno sought to recover payments owed under the public works payment bond that Clark had obtained for the project. The issue this case presented for the Court of Appeal's review involved Crosno's claim against the bond surety, Travelers Casualty and Surety Company of America (Travelers). At issue was whether the pay-when-paid provision in Crosno's subcontract precluded Crosno from recovering under the payment bond while Clark's lawsuit against the District was pending. Relying on Wm. R. Clarke Corp. v. Safeco Ins. Co., 15 Cal.4th 882 (1997), the trial court found the pay-when-paid provision here unenforceable because it affected or impaired Crosno's payment bond rights in violation of Civil Code section 8122. With the facts largely undisputed, the court granted Crosno's motion for summary judgment and entered judgment in its favor for principal due plus prejudgment interest. Travelers argued the trial court misconstrued Wm. R. Clarke and erred in failing to enforce the pay-when-paid provision against the bond claim. After carefully considering the parties' arguments, the Court of Appeal agreed with the trial court's analysis and affirmed. View "Crosno Construction, Inc. v. Travelers Casualty etc." on Justia Law

Plaintiff filed suit against defendants after defendants denied plaintiff's claim for damages to its apartment complex caused by a ruptured underground water main.The Court of Appeal affirmed the trial court's judgment following summary adjudication in favor of defendants on plaintiff's claim for breach of the covenant of good faith and fair dealing relating to the parties' insurance contract. The court agreed with the trial court that there is no material dispute whether defendants denied the claim in good faith based on an expert report concluding the damage was not caused by the broken water main. In this case, there is no dispute that defendants based their claim denial on the final expert report, and there is no evidence that the report was contrived or false. View "501 East 51st Street v. Kookmin Best Insurance Co." on Justia Law

Travelers won summary judgment in this duty-to-defend insurance dispute with its insured, KLA. The superior court concluded that the language of the commercial liability insurance policies, which covered claims for “malicious prosecution,” could not have created an objectively reasonable expectation that Travelers would defend a “Walker Process claim” against KLA. The Walker Process claim that KLA tendered to Travelers alleged that KLA had fraudulently procured a patent and used that patent to attempt to monopolize the market for a product. KLA argued that it was objectively reasonable for it to expect the “malicious prosecution” coverage in its policies to extend to this Walker Process claim. The court of appeal affirmed. Coverage language is construed as of the time of issuance of the policy, so the construction of that language cannot depend on the precise allegations made in a subsequent complaint. The history of prior litigation between the parties did not change the basis for this claim into one for malicious prosecution because there were no allegations of any legal proceedings involving the patent. View "Travelers Property Casualty Co. of America v. KLA-Tencor Corp." on Justia Law

The issue this case presented for the Court of Appeal's review centered on whether a binding arbitration clause in an insurance policy issued by plaintiff Philadelphia Indemnity Ins. Co., applied to a third party, defendant SMG Holdings, Inc. The policy had been issued to Future Farmers of America, which was holding an event inside the Fresno Convention Center. Future Farmers had licensed the use of the convention center from its property manager, SMG. As part of the license, Future Farmers agreed to obtain coverage for itself and to name SMG as an additional insured. Thereafter, Future Farmers obtained a policy from Philadelphia Indemnity, which provided coverage for “managers, landlords, or lessors of premises” as well as for any organization “as required by contract.” The policy also contained an arbitration clause for coverage disputes. During the Future Farmers event, an attendee was injured in the convention center parking lot. When the injured man sued SMG, which also managed the parking lot, SMG tendered its defense to Philadelphia under the policy. Philadelphia refused, believing SMG was not covered under the policy for an injury occurring in the parking lot. After two years, Philadelphia petitioned the trial court to compel arbitration against SMG. The trial court denied the petition, concluding no evidence was presented that the parties to the policy intended to benefit SMG, and Philadelphia was equitably estopped from claiming SMG was required to arbitrate the dispute. Philadelphia contended: (1) the trial court erred in determining SMG was neither a third party beneficiary of the policy, nor equitably estopped from avoiding the policy’s arbitration clause; (2) alternatively, the court erred in finding Philadelphia estopped from compelling SMG to arbitrate; and (3) the coverage dispute was encompassed by the arbitration clause and arbitration should be ordered. The Court of Appeal agreed SMG could be compelled to arbitrate. Judgment was reversed, the trial court's order vacated, and the trial court directed to order arbitration of the coverage dispute. View "Philadelphia Indemnity Ins. Co. v. SMG Holdings, Inc." on Justia Law

In a case of first impression, the Court of Appeal was asked to determine whether insurers have the right to appeal a small claims default judgment entered against their insureds. Vanessa Gonzalez sued Jonathan Johnson in small claims court after an auto accident in Orange, California. Johnson did not show up for the small claims hearing, and the small claims court entered a default judgment against him for $10,000, plus $140 in costs. Johnson’s auto insurer was Pacific Pioneer Insurance Company. Pacific Pioneer filed a timely notice of appeal. The trial court struck the notice of appeal, and Pacific Pioneer sought to set aside that order. This prompted the trial court to compose a minute order explaining why it had struck the notice: Code of Civil Procedure 116.710(d) precluded a non-appearing “defendant” - which the court equated with Pacific Pioneer - from appealing a small claims judgment. Pacific Pioneer then filed this writ petition, challenging the trial court’s reading of the relevant statutes. The Court of Appeal concluded the insured’s failure to appear in small claims court did not annul the appeal right conferred upon the insurer by Code of Civil Procedure section 116.710(c). The trial court thus erred in striking Pacific Pioneer’s notice of appeal. The Court issued a writ to direct the trial court to vacate its order striking Pacific Pioneer’s notice of appeal, and to reinstate its appeal of the small claims judgment in favor of Gonzalez. View "Pacific Pioneer Ins. Co. v. Super. Ct." on Justia Law

In September 2014, a driver was rear-ended by an SUV driven by a Union Pacific employee. The motorist lost control of her car, spinning off the freeway and onto the dirt shoulder, where it struck a roadside light pole. The light pole, which was manufactured by Ameron Pole Products, was designed to “break away” on impact, causing the pole to pass over the impacting vehicle, thereby reducing the force of the collision and concomitant risk of injury. On this occasion, however, the light pole did not break away, but instead remained standing. The driver sustained multiple injuries, including skull fractures, injuries to her brain and face, a fracture of the right scapula, and bilateral chest trauma. The driver sued Union Pacific Railroad Comapny and Ameron. Union Pacific cross-complained against Ameron for equitable indemnity and apportionment. Ameron moved for summary judgment, arguing the driver would be unable to prove causation as a matter of law. Union Pacific opposed the motion, arguing Ameron failed to carry its initial burden or showing judgment as a matter of law. Alternatively, Union Pacific argued the evidence submitted raised triable issues of fact as to whether Ameron’s negligence was a substantial factor in causing the driver’s injuries. The trial court entered judgment in Ameron’s favor. The Court of Appeal reversed, concurring with Union Pacific’s alternate grounds. Summary judgment was reversed and the matter remanded for further proceedings. View "Union Pacific Railroad Co. v. Ameron Pole Products LLC" on Justia Law

Fireman’s Fund issued insurance covering property damage at Stephens's warehouse. Three days after the policy became effective, Stephens discovered that burglars stripped the property of all electrical and conductive material. Stephens filed an insurance coverage suit, retaining attorney O’Reilly who had a first lien to assure payment of fees. The trial court entered judgment NOV, awarding Stephens nothing. O’Reilly withdrew from the case and was the subject of an involuntary bankruptcy petition. Following a remand, Stephens and Fund settled for $5.8 million. The bankruptcy estate claimed 40% of the settlement. Danko, the largest creditor, bought the claim and obtained the Stephens's files from the trustee. Based on O’Reilly’s failure to sign the retainer agreement, Stephens sent Danko a letter voiding the retainer agreement and sought declaratory relief. The court ordered Danko to return Stephens’s client file and granted a special motion to strike (anti-SLAPP) a claim for breach of trust against Fund based on the theory that Fund breached a fiduciary duty to O’Reilly and/or the bankruptcy estate by failing to advise the bankruptcy court of the Stephens-Fund settlement and “secretly disbursing” the proceeds and a claim for interference with prospective business advantage against Fund based on the same acts. The court of appeal affirmed the trial court’s denial of Stephens’s motion to disqualify the Danko from representing the corporate entity to which Danko assigned the claim; a protective discovery order regarding Stephens’s client file; and the anti-SLAPP order. View "O&C Creditors Group, LLC v. Stephens & Stephens XII, LLC" on Justia Law