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A-1 Transmission Automotive Technology, Inc v. Amco Insurance Company

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA


April 27, 2012

A-1 TRANSMISSION AUTOMOTIVE TECHNOLOGY, INC., PLAINTIFF,
v.
AMCO INSURANCE COMPANY, DEFENDANT.

The opinion of the court was delivered by: Honorable Ronald S.W. Lew Senior, U.S. District Court Judge

ORDER re: Defendant AMCO Insurance Company's Motion for Partial Summary Judgment [43]

On April 6, 2012, Defendant AMCO Insurance Company's ("Defendant") Motion for Partial Summary Judgment was set for regular calendar before the Court [43]. The Court having reviewed all papers submitted pertaining to this Motion and having considered all arguments presented to the Court, NOW FINDS AND RULES AS FOLLOWS:

The Court GRANTS in Part and DENIES in Part Defendant's Motion for Partial Summary Judgment. The Court DENIES Defendant's Motion for Partial Summary Judgment in part as to Plaintiff A-1 Transmission Automotive Technology, Inc.'s ("Plaintiff") bad faith claims. The Court, however, GRANTS Defendant's Motion for Partial Summary Judgment in part as to preclude punitive damages.

I. UNDISPUTED FACTS

A. The Insurance Policy

This case arises out of an insurance claim for lost Business Income and Extra Expenses that Plaintiff filed with Defendant. Plaintiff is an auto transmission and exhaust emission specialist company that operates its principal place of business from an auto garage in Corona, California. In 2007, Defendant issued Plaintiff a Premier Businessowners Policy ("the Policy") to cover specific types of accidents or property damage that could occur at Plaintiff's auto garage. During the policy period, November 2, 2007 to November 2, 2008, the Policy covered the costs for building replacement, business personal property, potential loss of business income ("Business Income") due to an accident, any extra expenses ("Extra Expenses") that may occur during restoration, and other miscellaneous costs. The Policy, however, carried policy limits of: (1) $617,300 plus 6% inflation for building replacement, (2) $61,400 plus 2.9% inflation for business personal property, (3) $10,000 for increased construction costs, (4) $25,000 for debris removal, and (5) $10,000 for actual costs incurred to comply with enforcement of ordinance or law in the course of any repair efforts by Plaintiff.

At issue between the Parties is Defendant's alleged refusal to reimburse Plaintiff for (1) lost Business Income and (2) Extra Expenses incurred. For Business Income, the Policy provides that Defendant will reimburse Plaintiff for all Business Income loss, which results from the forced suspension of business operations after an accident. The Policy does not have any monetary limitations for Business Income but does limit compensation to actual loss of Business Income that occurs within 12 months after an accident. For Extra Expenses, the Policy provides that Defendant will reimburse Plaintiff for Extra Expenses incurred to avoid or minimize suspension of operations and to continue operations. Further, Defendant has an obligation to reimburse Plaintiff for Extra Expenses incurred (1) to repair or replace property or (2) to restore lost information on damaged valuable papers and records. The Policy provides, however, that Extra Expenses are only paid to Plaintiff to the extent that the Extra Expense incurred by Plaintiff reduces the amount otherwise payable as Extra Expenses or Business Income.

Finally, the Policy requires Plaintiff to take reasonable steps to protect all covered property from further damage and to keep a record of such expenses for consideration in the settlement of the claim. However, such expenses do not increase any of the policy limits of the insurance.

B. Property Damage at Plaintiff's Business

On January 18, 2008, Plaintiff sustained a substantial partial fire loss at its garage, and Defendant commenced a claim investigation on the same date. On January 21, 2008, Defendant issued Plaintiff a $25,000 advance to compensate for business personal property. Within the first week of the loss, Defendant's claim adjuster, David Melton ("Melton"), was working with Plaintiff's public adjuster ("PA"), David Skipton, to facilitate emergency shoring and repairs required by authorities to allow entry to the red-tagged building and to provide temporary power.

On January 29, 2008, Melton took the recorded statement of Plaintiff's president, David Krattenmaker who claimed Plaintiff grossed $1 million annually. Defendant then advanced $50,000 under the Business Income coverage and obtained an agreed scope of repair. The next day, Melton commenced investigation of Plaintiff's Business Income claim by retaining Roberta Salata ("Salata"), a CPA, to evaluate the merits of the claim. Between January and July 2008, Salata, the PA, and Melton exchanged various e-mails in which Defendant requested various financial documentation from Plaintiff that could help support Plaintiff's Business Income claim. In March 2008, Defendant also paid Plaintiff $81,808.45 in building coverage and advanced Plaintiff an additional $50,000 in Business Income.

On August 20, 2008, Defendant paid Plaintiff an additional $409,749.98 for the building loss. However, Melton sent Plaintiff a letter stating that it had not received documentation to support a Business Income claim.

On November 7, 2008, Defendant received an official Business Income loss claim from Plaintiff's PA, requesting an additional $143,099.94 for a six-month post-fire Business Income loss. Plaintiff also requested $120,378.84 in an Extra Expense claim, which included a request for reimbursement of $68,000 in security expenses. On November 21, 2008, Salata responded to the Business Income loss claim and requested various financial documents that Salata states had yet to be provided, including Plaintiff's general ledgers for 2007 and 2008. Between November 2008 and January 2009, the Parties exchanged various letters and e-mails, in which Defendant repeatedly reiterated its need for certain financial documents. Defendant, however, made certain payments to Plaintiff, which brought the total benefits paid to Plaintiff to $814,319.13.

During the course of 2009, the Parties exchanged multiple e-mails and letters, in which Plaintiff sent certain documents to Defendant, and Defendant asked for more documents. On August 24, 2009, Defendant sent a letter to Plaintiff, explaining that Salata did not have sufficient documentation to accurately determine Business Income loss and as a result, it could only estimate the Business Income loss at $29,181. Defendant offered to meet with Plaintiff to discuss additional documents needed to support the Business Income claim. In 2010, Plaintiff's attorney, Francis Doherty became involved and hired an expert, Phil Allman, who concluded that Plaintiff's Business Income loss was $373,462. Plaintiff also reiterated its request for Extra Expenses.

II. LEGAL STANDARD

Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A genuine issue is one in which the evidence is such that a reasonable fact-finder could return a verdict for the non-moving party. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986).

A party seeking summary judgment always bears the initial burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "Where the moving party will have the burden of proof on an issue at trial, the movant must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party." Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (2007).

Once the moving party makes this showing, the non-moving party must set forth facts showing that a genuine issue of disputed fact remains. Celotex, 477 U.S. at 322. The non-moving party is required by Federal Rule of Civil Procedure Rule 56(e) to go beyond the pleadings and designate specific facts showing a genuine issue for trial exists. Id. at 324.

III. DISCUSSION

A. Evidentiary Objections

In ruling on a Motion for Summary Judgment, courts consider only evidence that are admissible at trial. Fed. R. Civ. P. 56(c). Here, Defendant makes close to 350 evidentiary objections, and Plaintiff makes twenty-seven of its own objections. Given the number of objections made by the Parties, the Court will address the evidentiary objections in three separate orders. For the purpose of this ruling, the Court has only considered admissible evidence.

B. Objection and Request to Strike Proposed Order

Defendant objects and requests the Court to strike Plaintiff's Proposed Order Denying Motion for Partial Summary Judgment filed on March 29, 2012 [91]. Upon review, the Court GRANTS Defendant's request to strike Plaintiff's Proposed Order [92]. Local Rule 7-10 states that "absent prior written order of the Court, the opposing party shall not file a response to the reply." In this case, Plaintiff did not ask permission from the Court to file a Sur-reply, yet Plaintiff still filed a Proposed Order that is the equivalent of a sur-reply. The Court finds that this is a violation of Local Rule 7-10, and the Court does hereby STRIKES Plaintiff's Proposed Order.

C. Motion for Partial Summary Judgment

In this Motion, Defendant moves the Court for partial summary judgment of Plaintiff's claims for (1) bad faith in the denial of Plaintiff's requests for Business Income Loss reimbursement, (2) bad faith in the denial of Plaintiff's requests for Extra Expenses, and (3) punitive damages.

1. Bad Faith in the Denial of Business Income Loss Insurance Claim

California law recognizes in every contract, including insurance policies, an implied covenant of good faith and fair dealing. Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 720 (2007). In the insurance context, the implied covenant of good faith and fair dealing requires the insurer to refrain from injuring its insured's right to receive the benefits of the insurance agreement. Egan v. Mutual of Omaha Ins. Cos., 24 Cal. 3d 809, 818 (1979). In order to state a claim for bad faith, a plaintiff has the burden of showing that (1) the insurer withheld policy benefits, and (2) that the withholding was unreasonable and without proper cause. Love v. Fire Ins. Exch., 221 Cal. App. 3d 1136 (1990).

Under the "genuine dispute rule," "an insurer's denial or delay in paying benefits only gives rise to tort damages if the insured shows the denial or delay was unreasonable." Wilson, 42 Cal. 4th at 723. Thus, denial of benefits due to the existence of a genuine dispute may give rise to liability for breach of contract, but not bad faith. Id. A genuine dispute, however, "exists only where the insurer's position is maintained in good faith and on reasonable grounds." Id. "The reasonableness of an insurer's claims-handling conduct is ordinarily a question of fact." Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152, 1161 (9th Cir. 2002). As such, the genuine dispute rule only allows a district court to grant summary judgment on bad faith claims where it is undisputed that the basis for the insurer's decision was reasonable. Id. "On the other hand, an insurer is not entitled to judgment as a matter of law where, viewing the facts in the light most favorable to the plaintiff, a jury could conclude that the insurer acted unreasonably." Id. at 1162.

In this case, Defendant argues that it is entitled to summary judgment on Plaintiff's bad faith claim for denial of Business Income benefits because its decision was governed by a genuine dispute concerning Plaintiff's coverage under the policy. The Court, however, finds that triable issues of fact exist as to whether Defendant acted reasonably. As a result, the Court finds that summary judgment is inappropriate. In handling Plaintiff's Business Income claim, Defendant ultimately adopted the calculation of its CPA, finding that Plaintiff was only entitled to $29,181 in Business Income loss. In contrast, Plaintiff originally estimated Business Income loss at $243,099.94, and now, through an expert, has calculated this income loss at $373,462. The Court finds that, at this stage, it cannot determine which of these business income loss calculations was correct, let alone whether Defendant had a reasonable basis for choosing the significantly lower estimate.

Defendant argues that, as a matter of law, it cannot be liable for bad faith if it reasonably relied on an expert's opinion, such as the calculations of its CPA in this case. However, the Court finds that Defendant's reliance on its CPA's opinion does not automatically insulate Defendant from bad faith liability. Reliance on an unreasonable expert opinion or failure to conduct a thorough investigation can still subject an insurance company to liability. Guebara v. Allstate Ins. Co., 237 F.3d 987, 995. Here, the discrepancy between the Parties' estimations is primarily due to Defendant's CPA's perception that Plaintiff had submitted insufficient documentation to support a larger business income loss calculation. Defendant primarily argues that its CPA needed the general ledgers from Plaintiff's business for the years 2007 to 2008 in order to assess the accuracy of Plaintiff's business income loss calculation. Defendant argues that because it only just recently received the 2007 general ledger from Plaintiff and still has not received the 2008 general ledger, its expert could only recommend a Business Income loss at the amount finally adopted by Defendant.

The Court, however, finds that a reasonable juror could find that Defendant's CPA was unreasonable in its calculation. More specifically, triable issues of fact exist as to whether the CPA actually had all the documents necessary for a reasonable Business Income loss calculation. Plaintiff proffers affidavits from three individuals that all testify that Plaintiff had given Defendant both the 2007 and 2008 general ledgers early in the claims process. Furthermore, Plaintiff's expert witness, who is also a CPA, states that Plaintiff did submit enough documentation to justify its $373,462 Business Income loss calculation.

Based on the evidence presented, the Court cannot determine who is right without making a credibility determination, which would be inappropriate for a motion for summary judgment. Thus, it is unclear whether Defendant had a reasonable basis for denying Plaintiff's Business Income claim.

Accordingly, because a reasonable juror could find that Defendant acted unreasonably in denying Plaintiff's Business Income claim, the Court DENIES in part Defendant's Motion for partial summary judgment with respect to Plaintiff's claim for bad faith in Defendant's denial of Plaintiff's Business Income loss request.

2. Bad Faith in the Denial of Extra Expense Claim Defendant has also requested partial summary judgment on the bad faith claim as it pertains to Defendant's decision to deny Extra Expenses. The Court, however, finds that triable issues of fact also exist with respect to the Extra Expenses, and as such, partial summary judgment is not appropriate.

More specifically, as Defendant has interpreted the Policy, a prerequisite for Extra Expense reimbursement is that all claimed Extra Expenses must reduce amounts otherwise payable as Business Income. Defendant argues that it was reasonable in the denial of the Extra Expense claim because Plaintiff did not give Defendant enough documentation to support the Business Income claim.

The Court, however, finds that summary judgment on this issue is inappropriate because, as discussed earlier, there exists a genuine issue of material fact whether Plaintiff gave Defendant enough documentation to support the Business Income claim. As such, given that the Extra Expense claim is inextricably linked to the Business Income claim, the Court finds that summary judgment as it pertains to the Extra Expense is premature at this stage. Accordingly, the Court DENIES Defendant's Motion for partial summary judgment with respect to Plaintiff's claim for bad faith in Defendant's denial of Extra Expenses.

3. Punitive Damages

The California Civil Code provides that a plaintiff is entitled to punitive damages "where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice." Cal.

Civ. Code § 3294(a). Malice is defined as "conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others." Id. § 3294(c)(1). "Oppression" means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights. Id. § 3294(c)(2). Summary judgment on the issue of punitive damage is only proper "when no reasonable jury could find the plaintiff's evidence to be clear and convincing proof of malice, fraud, or oppression." Hoch v. Allied-Signal, Inc., 24 Cal. App. 4th 48, 60-61 (1994).

In the instant Action, the Court finds that no reasonable jury could find by clear and convincing evidence that Defendant is guilty of despicable conduct or oppression, fraud, or malice. As indicated above, for Defendant to prevail on summary judgment for punitive damages, plaintiff's evidence has to be "clear and convincing" of some type of malice, fraud, or oppression. Though a reasonable juror may find that Defendant operated in bad faith given evidence that it may have not acted reasonably, the evidence of Defendant's unreasonableness is not "clear and convincing" of oppression, malice, or fraud.

On the contrary, the undisputed evidence shows that Defendant responded to Plaintiff's claim almost immediately and made a number of advance payments to Plaintiff before Plaintiff had submitted information to verify its claim. Among these advance payments included a total of $100,000 in Business Income advances. Further, Defendant asserts, and Plaintiff does not dispute, that Defendant has paid Plaintiff a total $814,319.13 as a result of the loss. Moreover, it is undisputed that Defendant offered to meet with Plaintiff and its representatives multiple times to bring the claim to a conclusion and explain its rationale for the denial of certain benefits.

Furthermore, Plaintiff cannot meet its burden given that it has failed to produce any direct evidence establishing fraud, malice, or oppression. To support its claim for punitive damages, all Plaintiff offers are conclusory statements that Defendant attempted to defraud Plaintiff from benefits. These conclusory statements are unsupported by factual allegations and are insufficient to create a triable issue of fact so as to preclude summary judgment. Hansen, 7 F.3d at 138.

To distinguish from the bad faith claim, the undisputed facts show that Defendant's overall conduct was not that of oppression, malice or fraud. "Punitive damages are available if in addition to proving a breach of the implied covenant of good faith and fair dealing proximately causing actual damages, the insured proves by clear and convincing evidence that the insurance company itself engaged in conduct that is oppressive, fraudulent, or malicious." Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152, 1164 (9th Cir. 2002). In this case, a reasonable juror may find that Defendant ultimately was unreasonable and hence operated in bad faith in denying Plaintiff's Business Income and Extra Expenses insurance claims.

However, for punitive damages, Defendant, as the moving party, has met its burden in showing an absence of evidence showing oppressive, fraudulent, or malicious conduct. On the contrary, the Court finds that Plaintiff, as the non-moving party, cannot meet its burden in showing that there is clear and convincing evidence to suggest that Defendant's alleged unreasonableness rose to the level required for punitive damages. As such, in light of the high threshold for establishing punitive damages and the lack of any direct evidence of oppression, fraud, or malice, Plaintiff's claim for punitive damages must fail.

Accordingly, the Court GRANTS Defendant's Motion for Partial Summary Judgment with respect to Plaintiff's claim for punitive damages. See e.g., Empey v. Allied Prop. & Casualty Ins. Co., 2012 WL 104662, *8 (Jan. 12, 2012, N.D. Cal.) (granting a insurance company's motion for partial summary judgment to preclude punitive damages but denying summary judgment for some of the bad faith claims).

IV. CONCLUSION

For the foregoing reasons, the Court GRANTS in part and DENIES in part Plaintiff's Motion for Partial Summary Judgment. The Court DENIES summary judgment as it pertains to Plaintiff's bad faith claim. The Court finds that genuine issues of material fact remain pertaining to the reasonableness of Defendant's denial of Plaintiff's Business Income and Extra Expense insurance claims. The Court, however, GRANTS summary judgment for Plaintiff's request for punitive damages and hereby dismisses the punitive damages claim. Accordingly, the remaining issues left to be resolved in this Action are Plaintiff's claim for: (1) breach of contract, (2) bad faith, (3) damages with the exception of punitive damages, and (4) whether attorneys' fees should be awarded.

IT IS SO ORDERED.

20120427

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