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Paslay v. State Farm General Insurance Co.

California Court of Appeals, Second District, Fourth Division

June 27, 2016

CLAYTON D. PASLAY et al., Plaintiffs and Appellants
v.
STATE FARM GENERAL INSURANCE COMPANY, Defendant and Respondent.

         CERTIFIED FOR PARTIAL PUBLICATION [*]

         APPEAL from a judgment of the Superior Court of Los Angeles County No. SC119432, Nancy L. Newman, Judge.

          Hart, Watters & Carter and Thomas L. Watters for Plaintiffs and Appellants.

          LHB Pacific Law Partners, Clarke B. Holland, Matthew F. Batezel and Aparajito Sen, for Defendant and Respondent.

          MANELLA, J.

         In the underlying action, appellants Clayton and Traute Paslay asserted claims for breach of insurance contract, bad faith, and elder abuse against respondent State Farm General Insurance Company (State Farm), and requested an award of punitive damages. The trial court granted summary adjudication in State Farm’s favor on each claim and on the request for punitive damages. We conclude there are triable issues of fact regarding the claim for breach of insurance contract, but none regarding the other claims and the request for punitive damages. In the published portion of the opinion, we conclude that the bad faith claim fails under the genuine dispute doctrine, and that the evidence supporting the application of that doctrine precludes the existence of triable issues regarding the elder abuse claim. We therefore reverse the judgment solely with respect to the Paslays’ claim for breach of insurance contract, affirm the trial court’s remaining rulings, and remand the matter for further proceedings.

         RELEVANT FACTUAL AND PROCEDURAL BACKGROUND

         The following facts are not in dispute: In December 2010, the Paslays’ house in Pacific Palisades was insured under a homeowners policy issued by State Farm. On December 17, 2010, during a period of heavy rain, a roof drain failed, causing water to enter the house’s master bedroom through the ceiling, and damage other parts of the house. The Paslays reported the incident to State Farm, which arranged for them to live in a rented residence while their house was being repaired. At the end of October 2011, the Paslays resumed living in their house. State Farm made payments under the policy exceeding $248, 000, including $122, 770.98 for repairs to the house, but denied coverage for certain items, including work undertaken in the master bathroom, replacement of drywall ceilings, and installation of a new electrical panel.

         In December 2012, the Paslays initiated the underlying action against State Farm. Their second amended complaint (SAC), filed January 15, 2014, contained claims for breach of an insurance contract and bad faith, alleging that State Farm had violated the policy in numerous ways, including refusing to pay for repairs to the master bathroom, refusing to pay for replacement of certain drywall ceilings and the electrical panel, and “[p]rematurely forcing [the Paslays] to move out of temporary rental housing.” The SAC also contained a claim by Traute for elder abuse (Welf. & Inst. Code, §§ 15610.07, 15610.30) predicated on allegations that she was 80 years old when the house suffered water damage. In support of that claim, the SAC asserted that State Farm engaged in abuse by failing to pay policy benefits and forcing Traute to move back into the Paslays’ house while it was still under construction. The complaint sought compensatory and punitive damages.

         In November 2014, State Farm sought summary judgment or adjudication regarding the SAC. State Farm requested summary adjudication on the claims for breach of an insurance contract and bad faith, arguing that there were no triable issues whether it had provided all policy benefits due the Paslays. State Farm also argued that the bad faith claim failed under the “‘genuine dispute’” doctrine for want of triable issues whether it acted unreasonably with respect to the Paslays’ claim. In view of the purported defects in the claims for breach of an insurance contract and bad faith, State Farm contended that summary adjudication was proper with respect to the claim for elder abuse and the Paslays’ request for punitive damages.

         In granting summary judgment, the trial court concluded that summary adjudication was proper with respect to each claim in the SAC and the request for punitive damages because there were no triable issues whether State Farm failed to pay benefits owed under the policy and forced the Paslays to move prematurely back to their house. On May 19, 2015, the court entered a judgment in favor of State Farm dismissing the entire action with prejudice. This appeal followed.

         DISCUSSION

         The Paslays contend the trial court erred in granting summary judgment on the basis of the motions for summary adjudication. For the reasons explained below, we agree that summary adjudication was improper with respect to the SAC’s claim for breach of insurance contract, but not with respect to the other claims and the request for punitive damages.

         A. Standard of Review

         “A summary adjudication motion is subject to the same rules and procedures as a summary judgment motion. Both are reviewed de novo. [Citations.]” (Lunardi v. Great-West Life Assurance Co. (1995) 37 Cal.App.4th 807, 819.) “A defendant is entitled to summary judgment if the record establishes as a matter of law that none of the plaintiff’s asserted causes of action can prevail. [Citation.]” (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107.) Generally, “the party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) In moving for summary judgment, “all that the defendant need do is to show that the plaintiff cannot establish at least one element of the cause of action -- for example, that the plaintiff cannot prove element X.” (Id. at p. 853, fn. omitted.)

         Although we independently assess the grant of summary judgment, our inquiry is subject to two constraints. Under the summary judgment statute, we examine the evidence submitted in connection with the summary judgment motion, with the exception of evidence to which objections have been appropriately sustained. (Mamou v. Trendwest Resorts, Inc. (2008) 165 Cal.App.4th 686, 711; Code Civ. Proc., § 437c, subd. (c).) Here, State Farm raised numerous evidentiary objections to the showing proffered by the Paslays, which the trial court sustained in part and overruled in part. Because the Paslays do not challenge these rulings on appeal, our review is limited to the evidence considered by the trial court.

         Furthermore, our review is governed by a fundamental principle of appellate procedure, namely, that “‘[a] judgment or order of the lower court is presumed correct, ”’” and thus, “‘error must be affirmatively shown.’” (Denham v. Superior Court (1970) 2 Cal.3d 557, 664, italics omitted, quoting 3 Witkin, Cal. Procedures (1954) Appeal, § 79, pp. 2238-2239.) Under this principle, the Paslays bear the burden of establishing error on appeal, even though State Farm had the burden of proving its right to summary judgment before the trial court. (Frank and Freedus v. Allstate Ins. Co. (1996) 45 Cal.App.4th 461, 474.) For this reason, our review is limited to contentions adequately raised in the Paslays’ briefs. (Christoff v. Union Pacific Railroad Co. (2005) 134 Cal.App.4th 118, 125-126.) Underlying all the claims asserted in the SAC are allegations that State Farm breached the insurance contract with respect to numerous losses related to the December 2010 rain water leak in the house. Because the Paslays’ briefs discuss only a limited number of alleged losses, we confine our review to those.

         B. Policy Provisions

         The Paslays contend there are triable issues whether State Farm paid the policy benefits relating to the repair of the house, focusing primarily on work performed in the master bathroom, abatement of asbestos on the house’s ceilings, and replacement of the electrical panel. In addition, they maintain there are triable issues regarding additional living expenses due under the policy. We begin by describing the policy provisions relevant to those contentions.

         In Section I -- Losses Insured, the policy provides under Coverage A that State Farm insures “for accidental direct physical loss” to the pertinent dwelling, except as set forth in Section 1 -- Losses Not Insured. An endorsement concerning Coverage A further states that State Farm “will pay... the reasonable and necessary cost to repair or replace with similar construction and for the same use on the premises... the damaged part of the [covered] property....”

         The policy sets forth two pertinent limitations under Coverage A regarding (1) upgrades required by building ordinances or other laws and (2) mold-related costs. The endorsement described above states: “We will not pay increased costs resulting from enforcement of any ordinance or law regulating the construction, repair, or demolition of a building..., except as provided under Option OL -- Building Ordinance or Law Coverage [(Option OL)].” The endorsement contains Option OL, which states that (subject to restrictions not relevant here) when a dwelling is damaged by a “[l]oss [i]nsured, ” State Farm “will pay for the increased cost to repair or rebuild the physically damaged portion of the dwelling caused by the enforcement of a building, zoning or land use ordinance or law if the enforcement is directly caused by the same [l]oss [i]nsured and the requirement is in effect at the time the [l]oss [i]nsured occurs.” (Italics omitted.) Option OL further provides that under similar circumstances (that is, those described in the phrases italicized above), State Farm will pay for losses and “legally required” changes to undamaged portions of the dwelling resulting from the enforcement of an ordinance or law.[1]

         Also included in the policy is an endorsement relating to “any type or form of fungi, including mold....” The endorsement provides, inter alia, that under Section 1 -- Losses Not Insured, State Farm will not pay more than $5, 000 “for all loss by fungus” to a dwelling subject to Coverage A “caused by or directly resulting from” a covered “peril, ” including “the cost of any testing or monitoring of... property to confirm the type, absence, presence or level of fungus.”[2]

         In addition to the coverage for damage to the dwelling discussed above, the policy provides for additional living expenses. Under Coverage C, the policy states: “When a [l]oss [i]nsured causes the residence premises to become uninhabitable, we will cover the necessary increase in costs you incur to maintain your standard of living up to 24 months. Our payment is limited to incurred costs for the shortest of: (a) the time required to repair or replace the premises; (b) the time required for your household to settle elsewhere; or (c) 24 months.”

         C. Underlying Proceedings

         We next examine the parties’ showings, with special attention to the evidence bearing on the issues raised on appeal.

         1.State Farm’s Evidence

         In seeking summary adjudication on the Paslays’ claims, State Farm submitted evidence supporting the following version of the underlying events: On December 17, 2010, when rain water leaked through the ceiling of the house’s master bedroom, Traute contacted Clayton, who was then in Texas. After reporting the loss to State Farm and arranging for temporary repairs, Clayton told State Farm that his general contractor would prepare a damage estimate. State Farm assigned a field adjuster to the claim and hired Andrew Gillespie, a general contractor, to assist with its investigation.

         On January 11, 2011, the house was inspected by State Farm representatives and Clayton, together with Gillespie and the Paslays’ general contractor, Charlie MacDonald. State Farm gave the Paslays a $25, 000 check as an advance regarding the loss. Gillespie and MacDonald estimated that the period potentially required for repairs would be six months, and discussed issues relating to asbestos abatement.

         After the inspection, State Farm transferred the Paslays’ claim to a team managed by Donna Blazewich that processes long-term catastrophic claims. Blazewich assigned the claim to Radi Stewart, who conferred with Clayton regarding a six-month lease for a residence Clayton had found. To secure the lease, Stewart approved an $85, 000 advance and engaged Klein & Company (Klein), a housing vendor. By January 17, 2011, Klein had arranged for a six-month lease beginning on January 20, at $9, 000 per month, plus an $18, 000 deposit. Klein issued an invoice for $73, 657.50, which State Farm paid.

         On January 21, 2011, while inspecting the house, Stewart saw that some wallpaper had separated from a master bathroom wall. During the inspection, Clayton voiced concerns regarding the possibility of mold developing in the master bathroom; in addition, he stated that MacDonald wished to remove drywall ceilings throughout the house in order to abate asbestos. Stewart advised Clayton that the homeowners’ policy contained a $5, 000 coverage limit concerning mold, including the costs of drywall removal for mold, testing, and remediation. In a letter to the Paslays dated January 31, 2011, Stewart noted Clayton’s “feel[ing] there may be a potential for mold, ” and set forth the policy provisions regarding the $5, 000 mold coverage limit. Stewart also stated: “[W]e are currently in the process of awaiting the estimate from your contractor regarding the asbestos abatement for the ceiling damaged as a result of the water loss.”

         On February 9 and 10, 2011, an asbestos abatement subcontractor hired by MacDonald removed drywall ceilings throughout the house. Prior to that work, the Paslays submitted no estimate or proposal regarding asbestos abatement to State Farm for its review and approval. Upon discovering the removal, Stewart advised Clayton that State Farm would review the Paslays’ estimated asbestos abatement costs with Gillespie to determine whether they were reasonable.

         In early March 2011, Gillespie learned that the only “upgrade” work to the house then required by the Los Angeles Department of Building and Safety was the installation of hard-wired smoke detectors. Shortly afterward, he estimated that the water damage repairs would cost $83, 306.76, and that installation of smoke detectors would involve an additional expenditure of $4, 200. Gillespie’s estimate included $6, 815.40 to repair peeling wallpaper in the master bathroom, which was the only damage he had seen there.

         In February and March 2011, the Paslays submitted a $262, 234.70 repair estimate. Clayton, who had worked as an insurance adjuster but was not a licensed general contractor, was responsible for determining the proposed scope of repairs.[3] State Farm paid the Paslays $71, 352.89 as an undisputed portion of the claim.

         In mid-March 2011, the Paslays applied for -- and later obtained -- a building permit containing the following work description, “Completely remodel (E[xisting]) master bath.” Later, in April 2011, Clayton, Blazewich, and Stewart re-inspected the house, accompanied by MacDonald and Gillespie. The master bathroom had been reduced to its studs, and the shower entry reframed.

         Following the inspection, Gillespie advised Stewart that demolition of the master bathroom was not needed to repair water damage, and that the installation of smoke detectors did not require a new electrical power box, as the Paslays had proposed. He also told Stewart that removal of the house’s drywall ceilings had been unnecessary because scraping the ceilings would have been a less costly method of abating asbestos.

         On May 9, 2011, State Farm informed the Paslays that it disputed coverage for the demolition and reconstruction of the master bathroom, the proposed new electrical panel, and the replacement of undamaged ceiling drywall. State Farm agreed to pay for certain other repairs. Gillespie increased his estimate by approximately $10, 000 to reflect the approved repairs, and State Farm paid the Paslays an additional $10, 062.90 for those items.

         In late June 2011, the Paslays submitted a $349, 589.27 repair estimate and some invoices. Based on the invoices, State Farm paid the Paslays an additional $4, 414.55 for certain emergency work they had undertaken to protect the house. Later, State Farm also paid the Paslays’ claims for damage to personal property ($15, 232.52, less $2, 848.49 in depreciation), and moving expenses related to their rental housing ($9, 535.51).

         In July 2011, the Paslays’ initial six-month lease for their rental residence expired. Thereafter, State Farm authorized payment of their rent on a monthly basis.

         On September 29, 2011, in a letter to the Paslays, State Farm set forth its coverage positions relating to the disputed scope-of-repair issues. Accompanying the letter was an additional $14, 565.19 payment for other repairs that State Farm had determined were subject to ...


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