California Court of Appeals, Fourth District, First Division
HOWARD J. BRANDWEIN, Individually and as Trustee etc., et al., Plaintiffs and Appellants,
ROBERT BUTLER et al., Defendants and Respondents
Order Filed Date: 8/23/13
APPEAL from a judgment of the Superior Court of San Diego County, Super. Ct. No. 37-2008-00090249- CU-CO-CTL Ronald S. Prager, Judge.
Lawrence Silver, Karen S. Lai, Silver & Field for Plaintiffs and Appellants Howard J. Brandwein, Individually and as Trustee of the Howard J. Brandwein Trust and Jeri Geblin.
Anthony Joseph Passante, Martin & Passante for Defendants and Respondents Robert Butler and Western Maritime, Inc.
Forrest Booth, Erik M. Kowalewsky, Severson & Werson for Defendants and Respondents Ace Global Markets Ltd. Syndicate 2488, Axis Specialty Europe Limited, Ireland, UK Branch and G.S. Christensen and Others Syndicate No. 958, Certain Underwriters at Lloyd's of London.
Neil S. Lerner, Arun Dayalan, Sands Lerner for Defendants and Respondents Oversea Insurance Agency, Inc., Scott Jarvie and Nichole Mayer.
This action was brought by plaintiffs Howard J. Brandwein (Brandwein), a related trust, and Jeri Geblin (Geblin) (collectively, plaintiffs) to recover losses allegedly suffered as a result of unsuccessful efforts to salvage Brandwein's 65-foot yacht, the Sea Bear, which ran aground in April 2007 on a Mexican beach. The insurer of the Sea Bear, ACE Global Markets, Ltd. et al. (the Underwriters),  paid Brandwein the full amount of the insurance policy proceeds, $1, 540, 000, after the loss of the vessel. Brandwein, however, claimed losses in excess of that amount, contending that the vessel had been underinsured because the value of upgrades had not been taken into account, and also that he suffered emotional distress as a result of the sinking of his yacht and loss of personal effects during the salvage operation. Plaintiffs brought an action to recover damages from multiple parties, including the Underwriters, Oversea Brokers,  who procured the insurance from the Underwriters, and Western Maritime,  the entity whose attempted salvage operation resulted in the total loss of the Sea Bear.
As a result of pretrial rulings, all the claims against the Underwriters and two claims against Oversea Brokers were dismissed, and Brandwein's request for emotional distress damages was stricken. Specifically, the trial court sustained Oversea Brokers's demurrer to plaintiffs' claims in the first amended complaint (FAC) arising from allegations that Oversea Brokers had failed to make inquiries about improvements to the vessel and advise Brandwein about insuring the full fair market value of the Sea Bear. As to those claims, the trial court found that it was Brandwein's legal duty to provide Oversea Brokers with all material information relating to the value of the Sea Bear, not Oversea Brokers's duty to inquire about increased value. The trial court also sustained the Underwriters' demurrer to the third amended complaint (TAC) as to all claims against them. In brief, the trial court concluded that Brandwein had released any negligence claims he might have had against the Underwriters as part of a settlement agreement entered into with the Underwriters in August 2008. The court also found that Brandwein had surrendered the insurance policy upon receiving payment of the insurance proceeds from the Underwriters and, thus, there was no longer any contract between them that could support a bad faith claim. Finally, the court concluded that emotional distress damages are not available under federal maritime law.
A jury trial was held on plaintiffs' remaining claims against Oversea Brokers and Western Maritime. The jury entered a verdict against Brandwein on the claim that Oversea Brokers had been negligent in the hiring of Western Maritime for the salvage operation. However, the jury found for Brandwein and against Western Maritime based on the latter's gross negligence during its salvage attempt. The jury awarded Brandwein damages on that claim in the amount of $1.45 million—equal to the purchase price of the vessel. The trial court entered judgment accordingly.
Brandwein does not appeal the jury's verdicts. Rather, he challenges the trial court's pretrial orders sustaining the demurrers of Oversea Brokers and the Underwriters to the FAC and TAC, respectively, as well as the order striking his request for emotional distress damages. We conclude the trial court did not err in these rulings and, accordingly, affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Loss of the Sea Bear
Brandwein purchased the Sea Bear, an ocean-going yacht, with the intent of using it not merely as an investment but as a home with Geblin, his life partner. Brandwein paid $1.45 million for the boat, but upgraded and refitted it with extra equipment and other items. Brandwein believed the value of the Sea Bear exceeded $3 million. In February 2007, Oversea Brokers procured from the Underwriters an insurance policy covering, among other things, the Sea Bear's hull, machinery, personal effects, and tender and outboards, in the amount of $1.54 million. Brandwein alleged that the Underwriters and Oversea Brokers "knew or should have known that the SEA BEAR was not fully insured" under the Underwriters' policy. A copy of the policy was attached to the FAC.
Brandwein alleged that, on or about April 14, 2007, the Sea Bear "became distressed at sea" and ran aground on a beach near Manzanillo, Mexico. Western Maritime was selected—allegedly by Oversea Brokers, who was acting for the Underwriters—to perform the salvage operation. Brandwein alleged that even though Western Maritime had "been engaged" by the Underwriters, Butler, Western Maritime's employee, represented to Brandwein that he required Brandwein to execute an agreement to pay for the costs involved with the salvage operation. Brandwein alleged he signed the agreement "under duress." On April 24, 2007, during Western Maritime's attempt to remove the Sea Bear from the beach and bring it to a safe location, the yacht sank "and was a total loss."
Brandwein alleged that Western Maritime did not have the skill, experience or equipment to perform the salvage operation, which the Underwriters knew or should have known, and that the loss was "due to the failure of [Western Maritime] to exercise reasonable care." He further alleged that Western Maritime demanded that the Underwriters pay its fees and costs, but the Underwriters "refused to pay" Western Maritime because its salvage efforts were "negligent and below any reasonable standard of care." Brandwein also alleged that the Underwriters "employed certain surveyors to evaluate the work done and efforts undertaken by [Western Maritime] and fees and costs presented to the Underwriters by [Western Maritime]."
Brandwein made a claim under the insurance policy for the loss of the Sea Bear. He alleged that he and the Underwriters ultimately entered into a settlement agreement by which the Underwriters paid him for the loss of the vessel "to the full extent that it was insured [$1.54 million], leaving the uninsured value of the SEA BEAR to plaintiff Brandwein's loss." The August 31, 2007 settlement agreement, attached to the FAC and TAC, released the Underwriters from "any and all liability, claims, demands, liens, mortgages and all other claims of ownership or interest" in the Sea Bear "for damage to and loss of the vessel and personal effects, " subject to certain specified reservations of rights. Brandwein also "tender[ed] and surrender[ed] the policy of insurance... relative to any accident or incident post-dating the subject loss, the vessel having been declared a total loss, in full and complete satisfaction of the claim and damages presented herein." Finally, the settlement agreement obligated the Underwriters "to assist and cooperate with Dr. Brandwein in any action brought by him for recovery against any person or entity regarding claims other than the claims against the Underwriters settled here relating to SEA BEAR." Brandwein alleged in the FAC that "incident to the settlement, " the Underwriters agreed to "provide to Brandwein certain writings, " including any "surveyor's report(s) relating to the loss of the SEA BEAR."
B. The Lawsuit and Pretrial Rulings
Brandwein, together with the Howard J. Brandwein Trust and Geblin (an alleged beneficiary of the trust) filed the first complaint in Ventura County on April 23, 2008. The action subsequently was transferred to San Diego County. The Underwriters and Western Maritime answered the complaint, but Oversea Brokers demurred. Before any action was taken on the demurrer, Brandwein filed the FAC, naming as defendants the Underwriters, Oversea Brokers, and Western Maritime.
In that amended complaint, Brandwein first sought a judicial declaration that the Underwriters were responsible to pay the expenses of the salvage effort, that Oversea Brokers and Western Maritime were the agents of the Underwriters in the salvage effort and, thus, responsible for damages arising therefrom, that the Underwriters acted in bad faith by failing to agree to hold Brandwein harmless from any claim against him by Western Maritime, and that the settlement agreement did not preclude the action against the Underwriters. The second and third causes of action against Oversea Brokers alone alleged breach of duty and negligence in failing to advise Brandwein of his ability to insure the Sea Bear at its full fair market value, and in failing to inquire about any improvements that increased the value of the Sea Bear, as a result of which the vessel was underinsured. The fourth cause of action against the Underwriters and Oversea Brokers alleged these defendants' negligence in the selection of Western Maritime for the salvage operation and in supervising those efforts. The fifth and sixth causes of action against the Underwriters were based on the insurer's alleged breach of contract in failing to provide Brandwein with promised documents before his commencement of the lawsuit, and in "fail[ing] and refus[ing] to acknowledge [the Underwriters'] obligations" under the insurance policy to pay for Western Maritime's salvage efforts. The seventh cause of action alleged the Underwriters acted in bad faith by, among other things, failing to select a competent salvager, and failing to provide promised information regarding the loss of the Sea Bear, including whether others might have liability to Brandwein. The eighth, ninth and tenth causes of action alleged negligence and fraud against Western Maritime. Finally, the eleventh cause of action alleged that Western Maritime acted as the Underwriters' agent, rendering the Underwriters responsible for Western Maritime's negligence.
Western Maritime and the Underwriters answered the FAC. Oversea Brokers filed a demurrer to the second, third and fourth causes of action. It argued principally that it had no duty to either advise Brandwein that he should procure additional insurance for the Sea Bear, or to inquire about any improvements to the Sea Bear, and in fact, Brandwein violated his duty of uttermost good faith under maritime law (known as "uberrimae fidei") to fully disclose all facts material to the risk being covered—in particular, that the Sea Bear had been upgraded and allegedly was worth far more than its purchase price. In addition, Oversea Brokers argued that Brandwein did not allege facts sufficient to support his negligence claim, and specifically, that he failed to allege any legal duty and breach of any duty with respect to Oversea Brokers' alleged negligent hiring of Western Maritime.
On February 27, 2009, the trial court sustained the demurrer without leave to amend as to the second and third causes of action, and sustained the demurrer as to the fourth cause of action with leave to amend. The record does not contain any tentative or final order reflecting the trial court's reasoning; however, as to the second and third causes of action, the transcript of the demurrer hearing indicates the trial court agreed with Oversea Brokers that admiralty law applied and that Brandwein failed in his duty to disclose all material facts to Oversea Brokers. With respect to the fourth cause of action, the trial court opined that Brandwein should be given the opportunity to amend the complaint to add facts clarifying that Oversea Brokers voluntarily took upon itself the duty to select the salvager and supervise the salvage operation, but fulfilled that duty negligently when it hired Western Maritime for that purpose.
Brandwein promptly sought reconsideration of the court's decision to deny leave to amend as to the second and third causes of action. He explained that he "did not anticipate the Court's ruling" and in particular, the decision to deny leave to amend. He therefore asked for leave to amend so that he could allege facts—admittedly known before the filing of the action—showing that Oversea Brokers knew the Sea Bear had undergone renovation and upgrades but nevertheless failed to advise Brandwein that the upgrades should be added to the value of the yacht for insurance purposes. The court denied Brandwein's motion for reconsideration, holding that Brandwein failed to adequately explain why he did not allege the foregoing "new" facts earlier. Moreover, the court explained, the proposed new allegations would contradict the FAC's allegations that Oversea Brokers failed to ask about improvements to the Sea Bear and to advise Brandwein about procuring more insurance, the import of which was that Brandwein "did not disclose information to [Oversea Brokers] regarding any increased value from the purchase price."
In relevant part, Brandwein's second amended complaint amended the negligent hiring cause of action against Oversea Brokers and the Underwriters by alleging that Oversea Brokers "undertook to direct, control, and be fully in charge of all activities in any attempt to salvage the Sea Bear, " and "excluded the plaintiffs from any activity they may wished to have engaged in the attempted salvage of the Sea Bear." The second amended complaint also alleged that Oversea Brokers, "by and for themselves and for and under the supervision and direction of" the Underwriters, negligently "selected" and "approved the actions of" Western Maritime in the attempted salvage of the vessel. Both Oversea Brokers and the Underwriters filed demurrers to this complaint, while Western Maritime again answered.
The trial court sustained Oversea Brokers' demurrer to the negligent hiring cause of action, finding that while Brandwein "properly pleaded a duty assumed, [he has] not pleaded sufficient allegations to impose liability for negligent maritime salvage." Specifically, the court concluded Brandwein failed to allege either that Western Maritime's actions worsened the Sea Bear's situation, or that those actions were reckless and wanton. The court granted Brandwein another opportunity to amend that claim. With respect to the Underwriters' demurrer, the court overruled it as to the causes of action alleging the Underwriters' breach of contract and bad faith, holding they concerned the Underwriters' alleged failure to acknowledge obligations under the insurance policy "that are not affected by the settlement agreement." However, the court sustained the Underwriters' demurrer without leave to amend as to the declaratory relief claim, and also dismissed Brandwein's Trust and Geblin as plaintiffs, holding that only Brandwein, as trustee for the Trust, had standing to sue. The trial court further sustained the Underwriters' demurrer, with leave to amend, as to 1) the cause of action for breach of contract based on the Underwriters' alleged failure to deliver documents, due to Brandwein's failure to allege consideration; and 2) the causes of action alleging negligent hiring of Western Maritime and agency, holding, as it did with respect to Oversea Brokers, that Brandwein had not pled the necessary allegations to support a claim of negligent maritime salvage.
Brandwein filed the TAC in August 2009, and attached to it copies of the insurance policy; pages from Oversea Broker's website; the salvage contract with Western Maritime; the settlement agreement with the Underwriters; and correspondence with the Underwriters' counsel regarding the language of the settlement agreement's release and the Underwriters' alleged promise to provide documentation relevant to Western Maritime's potential liability. The TAC alleged eight causes of action, including the negligent hiring and supervision of Western Maritime by the Underwriters and Oversea Brokers; breach of contract, bad faith and negligence/agency against the Underwriters; and duress, fraud and negligence against Western Maritime. Once again, the Underwriters and Oversea Brokers demurred, and Western Maritime answered.
The trial court overruled Oversea Brokers' demurrer to the negligent hiring cause of action, concluding the TAC sufficiently alleged (1) that Western Maritime's salvage efforts had worsened the position of the Sea Bear, in that Brandwein alleged a competent salvager might have rescued the vessel, and (2) that Western Maritime had acted recklessly and wantonly. However, the court sustained the Underwriters' demurrer as to all claims without leave to amend. This time, the court concluded that the release in the settlement agreement precluded the negligence claims against the Underwriters. The court also held that Brandwein's bad faith claim failed because Brandwein had surrendered his insurance policy. "Because there is no longer a valid insurance contract, it is not possible to plead a claim of bad faith." Finally, the court found Brandwein had no viable breach of contract claims arising from his allegations that the Underwriters agreed to provide documentation to support Brandwein's case against Western Maritime, and that the Underwriters had failed to fulfill their obligations to indemnify and defend against any claim made against Brandwein in connection with the salvage efforts.
Prior to trial, Western Maritime and Oversea Brokers moved to strike Brandwein's request for emotional distress damages. The trial court granted the motion, holding that such damages are not recoverable under maritime law when, as in this case, plaintiff alleges the damages resulted from injury to property alone, rather than physical injury.
C. The Trial, Verdict and Judgment
The remaining claims against Oversea Brokers and Western Maritime were tried to a jury in July and August 2010. On August 12, 2010, the jury issued its verdict, finding in favor of Brandwein and against Western Maritime on the claim that Western Maritime was grossly negligent, or wanton and reckless, in attempting to salvage the Sea Bear. The jury awarded Brandwein $1.45 million. However, the jury found in favor of Oversea Brokers and Western Maritime on all other claims. On February ...