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Major v. Western Home Insurance Co.

January 6, 2009; as modified January 30, 2009


APPEAL from a judgment of the Superior Court of San Diego County, Ronald L. Styn, Judge. Affirmed. (Super. Ct. No. GIC842164).

The opinion of the court was delivered by: Nares, J.


In this insurance bad faith action arising out of the destruction of Patrick A. and Elsa L. Major's (together the Majors) home in the Cedar Fire in October 2003, their insurer, Western Home Insurance Company (Western), appeals from a jury verdict against it totaling approximately $1.3 million dollars, consisting of $31,359.55 in economic damages, $450,000 in non-economic damages, $189,000 in attorney fees, and $646,471.53 in punitive damages. On appeal, Western asserts the verdict must be reversed because (1) it had no legal duty to pay the insurance benefits the Majors claim were withheld because they were "courtesy benefits" over and above the coverage limits in their policy; (2) no substantial evidence supports the amount of compensatory damages awarded by the jury; (3) the award of non-economic damages is excessive (4) the emotional distress award is the result of prejudicial instructional error; (5) the amount of the attorney fees award is not supported by substantial evidence; (6) the punitive damages award is not supported by substantial evidence that a "managing agent" of Western committed the alleged bad faith; (7) a new trial on the amount of punitive damages is necessary if this court reduces or eliminates the compensatory damages award; and (8) the punitive damages verdict is inconsistent on the findings on malice and oppression. We affirm.


A. The Insurance Policy

In 2001 the Majors obtained a homeowners policy from Western for their house in El Cajon, California. At the time of the fire, the policy provided coverage of $193,000 for their dwelling (coverage A), $19,300 for other structures (coverage B), $135,100 for personal property (coverage C), $38,600 for living expenses (coverage D), and $18,000 for mortgage disaster protection.

The policy was an "extended replacement cost" policy. Under this coverage, "In the event of any covered loss" to the Majors' home, Western agreed to repair or replace their home "up to specified percentage over the policy's limits of liability" as specified in the declarations page of the policy. The declarations page specified that the extended replacement cost was 25 percent over the policy limits, meaning the coverage under the policy, as written, called for coverage A limits of $241,250, coverage B of $24,125, coverage C of $168,875, and coverage D of $48,250.

As a condition to recovering extended replacement cost coverage,Western required that the dwelling coverage limits be equal to the cost to replace the home. In order to ensure the proper amount of coverage was granted, the policy required that the Majors "must permit an inspection of the dwelling by the insurance company" and required a physical inspection of the home be made and a report issued identifying the replacement cost. However, Western did not send an inspector until after the policy was issued and the coverage limits set. The inspection report identified the replacement cost as $235,578, approximately $40,000 more than the coverage for the dwelling listed in the policy. Based on this valuation, the extended replacement cost coverage for coverage A should have been $305,216, for coverage B $30,522, for coverage C $213,651, and coverage D $61,043.

As will be discussed, post, once the discrepancy was discovered after the Majors retained counsel, Western, by a letter dated February 23, 2005, increased the coverage limits to match these amounts. This was based upon Western's policy that required a modification of the coverage amount if the inspection number was not equal to the coverage in the policy.

The policy allowed for modifications, but required that in order to be valid they must be in a writing prepared by Western.

B. The Cedar Fire and Western's Claims Handling

In October 2003 the Cedar Fire burned the Majors' home and all of their personal belongings in the house. The only things that survived were "a few pieces of porcelain . . . [and] a couple jars of pennies that were kind of fused together."

Western used a company named Cambridge Integrated Services (Cambridge) to administer their claims. Cambridge Regional Manager/Supervisor/Claims Representative Linda Dare supervised the Majors' file and agreed that "[t]ime was of the essence" because their home was gone. In October 2003 Dare assigned the file to claims adjuster Richard Fleming. Western did not make its first payment on the dwelling until February 2004. Western failed to make a mortgage payment on time that month. Fleming also refused to provide the Majors with a copy of the policy, despite several requests.

In May 2004 Dare reassigned the claim to Andrew Anderson. At that time, Anderson had not received training required by California law in fair claims settlement practice.*fn2 Moreover, although Dare knew that requiring an adjuster to process anything more than 75 to 100 claims was "way too many to handle," over the time the Majors' claim was assigned to Anderson, he handled over 200 other claims.

At the time Anderson took over the file, Western was two months behind on payment of mortgage benefits and behind in payments for the trailer the Majors were living in on their property. The Majors received complaints from their lender and had to use their savings to pay their mortgage. In May 2004 Patrick Major sent a letter to Western regarding unresolved issues regarding their claim. They submitted invoices for $25,315 to replace their pool, inquired about replacing a spa destroyed by the fire, and told Anderson they would be providing an inventory of personal property lost in the fire. Shortly thereafter, the Majors sent Western a 77-page inventory of personal property for payment.

Anderson did not respond and the Majors followed up with phone calls on May 25, 28 and June 1, 2004. On June 2, Anderson called back and told the Majors he had not reviewed the claims file and would call them back on June 7. He did not do so and the Majors called him on June 9. At that time, Anderson again said he had not reviewed the file and told them their claim was "third in his stack." He told the Majors on at least three occasions their claim was not his top priority.

On June 15, 2004, the Majors contacted Anderson again because the issues raised in their May 14 letter had still not been addressed. Anderson told the Majors that two adjusters had quit, he had been given additional files to manage, and he had not yet read the claims file. On June 25, 2004, the Majors again contacted Western regarding the issues raised in the May 14 letter. Anderson said he had "glanced over [the letter,] but ha[d]n't had time to go over it yet."

Anderson reviewed the May 14 letter on or about July 12. Anderson thereafter told the Majors they were not entitled to recover the cost of replacing their pool because it fell within the coverage for the dwelling, and the policy limit for the dwelling had already been met. Anderson also stated he did not know what coverage the spa fell under. He stated he had not read the personal property inventory, which constituted the most significant part of the Majors' remaining claims.

On August 30, 2004, Anderson admitted that he had still not reviewed the personal property inventory and told the Majors it would be a "nightmare" to have to do so. On September 13, 2004, the Majors again inquired about the progress on the claim. In response, Anderson indicated the file was "16 inches thick." That statement, together with his inability to accomplish anything to that point led the Majors to believe he had never reviewed the claims file. If he had reviewed the file, there should have been notations reflecting that fact in the file. There were no such notations.

On September 16, 2004, Western again failed to pay mortgage benefits. Nevertheless, by April or May of 2005 Western had paid all policy benefits due under the policy.

C. The Majors Retain Counsel

In October 2004 the Majors retained legal counsel. Elsa Majors testified this was necessary because "[w]e were tired of the phone calls, tired of not being able to get ahold of them or have them call us back. We were exhausted. We had no choice."

Fifteen days later, Western paid the total amount of personal property benefits the Majors had submitted in May.

Moreover, after the Majors retained counsel, Western's vice president of claims and legal services, Donald Grimm, reviewed the inspection report for the Majors' property and noted that it had a replacement cost for the Majors' house that was "significantly higher" than the coverage limit in the policy. He thereafter authorized an increase in the policy limits to correspond to the replacement cost set forth in the inspection report.

D. The Majors File Suit

The Majors filed suit in February 2005. Three weeks later, Western, through Dare, sent a letter to the Majors' counsel, increasing coverage limits for dwellings, other structures, personal property, and additional living expenses, to reflect the difference between the coverage limits of the policy and the replacement costs reflected in the inspection report. It stated that the "letter confirms that [Western] is increasing the Coverage A limits of the Major's homeowners' insurance policy to 236,000." The stated the "new limits" for coverage B was $30,522, for coverage C was $213,651, and coverage D was $61,043.Dare's letter stated, "There may be additional benefits owed to the Majors resulting from the revised coverage limits." (Italics added.)

Dare assumed claims handling duties after the Majors retained counsel in October 2004. She immediately recognized that the Majors had not received benefits under the "other structures" coverage for the pool and spa, but did not pay those benefits until late April, a period of over five months from the time Dare began handling the file. At trial Dare agreed the delay in payment for those items was "wrong."

In January or February 2006 the Majors submitted receipts for the replacement cost of the personal property for which Western had thus far only paid a depreciated value. Dare refused to pay the Majors their supplemental personal property benefits because she asserted they needed to see receipts and requested the Majors match the receipts to the inventory submitted in support of the claim. After the Majors submitted receipts, Dare told the Majors Western would not pay the increased personal property policy limits because the receipts were faxed and she could not read them. However, she admitted at trial that this statement was false as the receipts were not faxed to her, but were sent by mail.

Elsa Major testified that after Western increased the coverage by virtue of the February 2005 letter, the Majors submitted a second claim for personal property (coverage C) benefits that exceeded $30,000. As of the time of trial, the Majors had paid $6,070 in attorney fees.

E. Trial and Judgment

The case went to a jury on the Majors' claims for breach of contract, bad faith, and promissory fraud. The court granted a non-suit on their claim for reformation of the contract because of alleged underinsurance.

The jury found in Western's favor on the false promise claim, but found in the Majors' favor on the breach of insurance contract and bad faith claims. The jury awarded the Majors $31,359.55 in personal property benefits, $450,000 in emotional distress damages, and $189,000 in Brandt*fn3 attorney fees.

The jury also found that Western acted with oppression, and awarded $646,471.53 in punitive damages. The court thereafter entered judgment in the total amount of $1,316,831.

F. Motion for New Trial and Judgment

Notwithstanding the Verdict Western brought a motion for new trial and for judgment notwithstanding the verdict arguing, among other things, that the evidence was insufficient to support the judgment and the award of non-economic and punitive damages was excessive. The court denied both motions. Western also argued the contract was not modified and that the additional coverage provided to the Majors was a "gift."

With respect to the evidence in support of the compensatory damages award of $31,359.55, the court found substantial evidence supported that award because "the jury could have drawn inferences from both the comments of the insurance witnesses as well as the comments of the Majors that [these were], in fact, additional receipts that . . . justify the additional payment . . . ."



Western asserts the economic damages award must be reversed because (1) it was not contractually obligated to pay the "gratuitous" "courtesy" benefits that the jury awarded as economic damages, and (2) there is no substantial evidence to the support the economic damages award. We reject these contentions.

A. Standard of Review

So long as there is "substantial evidence," to support a jury award, the appellate court must affirm,even if the reviewing court would have ruled differently had it presided over the proceedings below, and even if other substantial evidence would have supported a different result. Stated another way, when there is substantial evidence in support of the jury or trial court's decision, the reviewing court has no power to substitute its deductions for those of the trier of fact. (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 874; Rupf v. Yan (2000) 85 Cal.App.4th 411, 429-430.) The testimony of a ...

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