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American Modern Home Insurance Company v. Sohail Fahmian et al

April 8, 2011

AMERICAN MODERN HOME INSURANCE COMPANY, PLAINTIFF AND APPELLANT,
v.
SOHAIL FAHMIAN ET AL., DEFENDANTS AND RESPONDENTS.



Super. Ct. No. 05CC12158 Appeal from a judgment of the Superior Court of Orange County, Franz E. Miller, Judge. Reversed.

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

CERTIFIED FOR PUBLICATION

OPINION

INTRODUCTION

Sohail Fahmian was sued for injuries suffered by a worker on a residence Fahmian and his company were building. Fahmian tendered the matter to his homeowners insurance company, American Modern Home Insurance Company (American Modern), which accepted the defense of the personal injury lawsuit, subject to a reservation of rights. American Modern later determined a policy limits settlement demand of $300,000 by the injured worker was reasonable, and notified Fahmian in writing, pursuant to Blue Ridge Ins. Co. v. Jacobsen (2001) 25 Cal.4th 489 (Blue Ridge), that it intended to accept the settlement demand unless Fahmian would either take over his own defense, or waive any later bad faith claim based on the failure to settle the action.

Fahmian did not respond to American Modern's offer. American Modern then settled the underlying action with the worker and sued Fahmian for reimbursement. A jury found there was no coverage for the personal injury action under the American Modern insurance policy. The jury also found that Fahmian did not have sufficient time to make a reasoned reply to American Modern. Based on this finding, the trial court denied American Modern's claim for reimbursement, and entered judgment in favor of Fahmian.

We reverse. Under binding California Supreme Court authority, an insurance company may obtain reimbursement from its insured for a policy limits settlement, when it is determined the underlying claim was not covered by the policy, if the insurance company (1) made a timely and express reservation of rights, (2) provided express notification to the insured of the insurer's intent to accept the proposed settlement offer, and (3) made an express offer that the insured could assume its own defense. In this case, American Modern did all of the foregoing. We decline to add any additional requirements. This conclusion is mandated by the Blue Ridge opinion itself because of its analysis and because the timing of the insurer's offer to the insureds and the deadlines given by the insurer in Blue Ridge were essentially the same as in this case. As Blue Ridge makes clear, it is a timely and express reservation of rights letter that is determinative. For the reasons we discuss, we hold the trial court erred by imposing an additional requirement, not authorized by the Supreme Court's opinion or rationale, that the insured have "sufficient" time to respond to the insurer's offer.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

Fahmian is the owner of Provident Housing, Inc. (Provident). American Modern provided a homeowners insurance policy to Fahmian (the policy). The policy specifically excluded coverage for any liability arising out of Fahmian's business.

On April 5, 2005, Rudy Montoya sued Fahmian and Provident for injuries suffered as the result of being shot in the eye with a nail gun (the Montoya action). The accident occurred on the premises where Fahmian and Provident were building a house for the purpose of selling it. Fahmian tendered the lawsuit to American Modern, which accepted Fahmian's defense under a reservation of rights. Fahmian did not read the reservation of rights letter.

Montoya's attorney presented a settlement demand to American Modern for the policy limits--$300,000. On July 1, 2005, American Modern informed Fahmian in writing that it intended to accept the policy limits settlement demand unless Fahmian either agreed to undertake his own defense in the Montoya action, or waive any potential claims based on the failure to settle the Montoya action within the policy limits (the settlement advisement letter). The settlement advisement letter informed Fahmian that Montoya's settlement demand would expire by its terms on July 8, 2005, and American Modern therefore required Fahmian's response to the settlement advisement letter by 4:00 p.m. on July 6, 2005. The settlement advisement letter was delivered via Federal Express at 10:42 a.m. on July 2, and was signed for by "S. Fahmian." Fahmian, however, testified he never read it.

On July 5, 2005, Fahmian telephoned American Modern's coverage counsel, David Evans, and requested that the settlement advisement letter and its attachments be transmitted to him via electronic mail, so he could forward the documents to his counsel. The requested documents were transmitted electronically the same day. During that telephone conversation, Evans told Fahmian he could call Evans until the morning of July 8 with his decision.

American Modern did not receive any communication from Fahmian or any attorney purporting to represent him after July 5. Because American Modern did not hear from Fahmian by July 8, 2005, it accepted the policy limits settlement demand in the Montoya action.

On November 14, 2005, American Modern sued Fahmian for declaratory relief, seeking a declaration that the Montoya action was excluded under the policy, and for reimbursement of the monies it had paid to settle that action. The case proceeded to a jury trial, after which the jury completed a special verdict form. After posttrial hearings, the trial court concluded, based on the jury's findings, that although the Montoya action was not covered under the policy, and American Modern had made a timely and express reservation of rights, American Modern was not entitled to reimbursement because it had not provided Fahmian "sufficient time" to make a reasoned reply to the offer to assume his own defense if he disagreed with the decision to settle.

It is especially noteworthy that the trial court did not make any declaration of rights as requested in the complaint and as it should have adjudicated. In our disposition, we direct the trial court how to declare those rights.

Judgment was entered on August 25, 2009; American Modern timely appealed.

DISCUSSION

I. STANDARD OF REVIEW

The issue on appeal involves pure questions of law, and is reviewed de novo. (Farm Raised Salmon Cases (2008) 42 Cal.4th 1077, 1089, fn.10.)

II. SPECIAL VERDICT FORM

A. Contents of the special verdict form and the jury's answers

The jury answered the 13 questions on the special verdict form, as follows:

"1. On July 11, 2004, was the home at 29119 Avenida de las Flores connected to ...


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