United States District Court, C.D. California
FINDINGS OF FACT AND CONCLUSIONS OF LAW
MICHAEL W. FITZGERALD, UNITED STATES DISTRICT JUDGE.
matter came on for trial before the Court sitting without a
jury between May 28 and June 7, 2019.
28, 2019, Jayesh Patel appeared on behalf of Plaintiff The
Sunset Landmark Investment, LLC (“Sunset”) and
gave an opening statement. Sunset is the corporate form of
the Hollywood Athletic Club (“HAC”), the property
at issue in this action. Curtis D. Parvin then appeared on
behalf of Defendant Chubb Custom Insurance Company
(“Chubb”) and gave an opening statement.
following witnesses were called and examined by the parties
in the order recited below:
same day, following opening statements, Mr. Patel examined
Saeed Nourmand, the HAC's owner. Mr.
Parvin cross-examined Mr. Nourmand; Mr. Patel conducted a
redirect examination; and Mr. Parvin conduced a recross.
Michael S. Wilde, appearing on behalf of Chubb, examined
William Runyan, a licensed civil engineer
self-employed for Runyan Engineer, Inc. and was retained by
Chubb's insurance adjustor to produce repair plans for
water damage to the HAC. Mr. Patel cross-examined Mr. Runyan
and Mr. Wilde conducted a redirect examination.
29, 2019, Neil Thakor, appearing on behalf of Sunset,
examined Mohamed Iravani, the HAC's
property manager. Mr. Parvin cross-examined Mr. Iravani and
Mr. Thakor conducted a redirect examination.
Mr. Patel examined Dr. Jose Andrade,
Sunset's structural integrity and sulfate attacks expert.
Mr. Parvin cross-examined Dr. Andrade; Mr. Patel conducted a
redirect examination; and Mr. Parvin conducted a recross.
30, 2019, Mr. Wilde examined Edmon
Badmagharian, a licensed civil engineer employed by
Erkel and Greenfield and Associates (“EGA”) and
was retained by Mr. Nourmand to conduct an assessment of the
structural damages of the HAC. Mr. Patel cross-examined Mr.
Badmagharian and Mr. Wilde conducted a redirect examination.
Mr. Thakor examined Jeremy Callister,
Sunset's cost estimation expert. Mr. Parvin
cross-examined Mr. Callister; Mr. Thakor conducted a redirect
examination; and Mr. Parvin conducted a recross.
Mr. Parvin examined Scott Richard Petersen,
Chubb's claims adjustor assigned to the HAC. Mr. Patel
cross-examined Mr. Petersen; Mr. Parvin conducted a redirect
examination; Mr. Patel conducted a recross; and Mr. Parvin
conducted a re-redirect examination.
31, 2019, Mr. Parvin examined Scott Cushing,
a building consultant retained by Mr. Petersen to estimate
reconstruction costs of the HAC. Mr. Thakor cross- examined
Mr. Cushing; Mr. Parvin conducted a redirect examination; and
Mr. Thakor conducted a recross.
Mr. Parvin examined Geoff Hichborn,
Chubb's sulfate attacks expert. Mr. Thakor cross-examined
Mr. Hichborn and Mr. Parvin conducted a redirect examination.
5, 2019, Mr. Parvin examined Dr. John
Osteraas, Chubb's structural integrity expert.
Mr. Patel cross-examined Dr. Osteraas and Mr. Parvin
conducted a redirect examination.
Mr. Patel examined Dr. Andrade as a rebuttal expert. Mr.
Parvin cross-examined Dr. Andrade; Mr. Patel conducted a
redirect examination; and Mr. Parvin conducted a recross.
7, 2019, Mr. Patel made a closing argument on behalf of
Sunset and Mr. Parvin made a closing argument on behalf of
Chubb. Mr. Patel also made a rebuttal argument on behalf of
the presentation of evidence and the parties' closing
arguments, the matter was taken under submission.
carefully reviewed the record and the arguments of counsel,
as presented at the trial and in their written submissions,
the Court now makes the following findings of fact and
reaches the following conclusions of law under Rule 52 of the
Federal Rules of Civil Procedure. Any finding of fact that
constitutes a conclusion of law is also hereby adopted as a
conclusion of law, and any conclusion of law that constitutes
a finding of fact is also hereby adopted as a finding of
FINDINGS OF FACT
The Parties and the Property
Plaintiff Sunset is a California limited liability
corporation with its principal place of business in Los
Angeles. (Ex. 161). Sunset is the corporate form of the HAC,
a property located at 6525 Sunset Boulevard, Los Angeles,
California 90028. Mr. Nourmand testified that he is the sole
owner of the HAC. Mr. Nourmand was a dignified and
intelligent witness who clearly loves his beautiful building,
as well he might. Dropping the third person for a moment, as
an Angeleno I'm grateful he ignored an architect's
suggestion to cover the historic structure in gunite. But as
explained below, neither his understandable pride of
ownership nor his own training as a structural engineer allow
him, in fact or law, to dictate to Chubb that the HAC be
repaired to his unreasonable specifications.
HAC, built in 1923, consists of several structures: (1) a
nine-story tower (and the core subject of this action), (2) a
two-story leased space, (3) a barrel roof gymnasium event
space, (4) a club area, (5) a two-story office space, (6) a
site residence, and (7) a storage building. (Ex. 161). The
interior walls of the nine-story tower are made up of dry
walls and hollow clay tiles (“HCTs”) bound
together by mortar composed of lime, sand, and Portland
Defendant Chubb, a Delaware corporation with its principal
place of business in New Jersey, is an insurance provider.
Chubb issued a Commercial Property Policy (the
“Policy”) to insure the HAC for $10, 100, 000.00.
(Ex. 20). In connection with the Policy, Chubb valued the
nine-story tower at $6, 326, 288.11. (Ex. 16).
Policy-in effect between July 17, 2009, and July 17, 2010-has
several relevant provisions in the Building and Property
Coverage Form (the “Building Coverage Form”).
First, Section A of the Building Coverage Form is the
insuring provision and provides the scope of coverage as
We [Chubb] will pay for direct physical loss of or damage to
Covered Property [e.g., the HAC] at the premises
described in the Declarations caused by or resulting from any
Covered Caused of Loss.
Section A(4)(e) also describes additional coverage under the
Policy where there is an increased in cost of construction
incurred “to comply with enforcement of an ordinance or
law in the course of repair, rebuilding or replacement of
damaged parts of that property.” (Id.). The
additional coverage is limited to the lesser of $10, 000 or
5%. The actual amount payable is available if “repairs
and replacement are made as soon as reasonably possible after
the loss or damage, not to exceed two years.” 8.
Second, Section D of the Building Coverage Form provides that
the Policy includes a $5, 000 deductible. (Id.).
Third, Section E of the Building Coverage Form provides the
loss conditions under the Policy. (Id.). Section
E(4) states the loss payment options, as follows:
In the event of loss or damage covered by this Coverage Form,
at our option, we [Chubb] will either:
(1) Pay the value of lost or damaged property;
(2) Pay the cost of repairing or replacing the lost or
damaged property, subject to b. below
[non-coverage for increased cost attributable to enforcement
of an ordinance or law];
(3) Take all or any part of the property at an agreed or
appraised value; or
(4) Repair, rebuild or replace the property with other
property of like kind and quality, subject to
We will determine the value of lost or damaged property, or
the cost of its repair or replacement, in accordance with the
applicable terms of the Valuation Condition in this Coverage
Form or any applicable provision which amends or supersedes
the Valuation Condition.
Section E(7) also states the loss payment valuation, as
We [Chubb] will determine the value of Covered Property in
the event of loss or damage as follows:
(1) At actual cash value as of the time of loss or damage
[subject to some conditions] . . .
Section E(3) further states the duties required of Sunset in
the event of a loss, as follows:
You [Sunset] must see that the following are done in the
event of loss or damaged to Covered Property:
. . .
(5) At our request, give us complete inventories of the
damaged and undamaged property. Include quantities, costs,
values and amount of loss claimed.
. . .
(7) Send us a signed, sworn proof of loss containing the
information we request to investigate the claim. You must do
this within 60 days after our request. We will supply you
with the necessary forms.
(8) Cooperate with us in the investigation or settlement of
Fourth, Section F of the Building Coverage Form provides
additional conditions that apply to the Policy, including a
coinsurance obligation. (Id.). The coinsurance
obligation states that the full amount claimed is not payable
where the value of the covered property multiplied by the
coinsurance percentage (or 90%) is less than the insurance
limit of the property (or $10, 100, 000). If a coinsurance
obligation applies, Chubb is required to cover an amount,
pre-deductible, that is proportional to the amount the
property is underinsured.
addition to physical damage to the property as set forth in
the Building Coverage Form, the Policy also covers certain
loss of business income as set forth in the Business Income
(and Extra Expense) Coverage Form (the “Business Income
Coverage Form”). (Id.).
Section A(1) of the Business Income Coverage Form states that
Chubb “will pay for the actual loss of Business Income
you [Sunset] sustain due to the necessary suspension of your
operations during the period of restorations” caused by
direct physical loss of or damage to the HAC. (Id.).
The limit of the business income loss is no greater than
Section (C)(3) states that the amount of business income loss
will be determined based on the net income of the business
before the direct physical loss or damage occurred, the
likely net income had no physical loss or damage occurred,
the operating expenses of the HAC, and other relevant sources
of information such as financial records and accounting
procedures. (Id.). Business income, however, is
reduced by the extent to which Sunset can operate, in whole
or in part, the damaged or damaged portions the HAC.
Sections (C) and (D), similar to sections in the Building
Coverage Form, provide duties required of Sunset in the event
of a loss and apply a coinsurance obligation to business
addition to the Building Coverage Form and the Business
Income Coverage Form, the Policy finally contains a form
called the Common Policy Conditions. (Id.). The
Common Policy Conditions exhibit provides that the
Policy's terms and conditions “can be amended or
waived only by endorsement issued by us [Chubb] and made a
part of this [P]olicy.” The Common Policy Conditions
exhibit further provides that Chubb is “not obligated
to make any inspections, surveys, reports, or
recommendations” and that any such actions that Chubb
undertakes “relate only to insurability and the
premiums to be charged.”
some point between the close of business on Friday, January
25, 2010, and Saturday, January 26, 2010, a galvanized water
supply pipe in the southeast corner of the tower between the
eighth and ninth floor burst. Water from the burst pipe
flowed from the eighth floor all the way down to the
basement, primarily through a plumbing chase behind the
the morning of January 26, the maintenance crew turned off
the water supply and notified Mr. Iravani, the property
manager. When Mr. Mr. Iravani arrived at the HAC, he did not
immediately examine all of the floors. Instead, he focused on
cleaning the water that was on the first floor. On the
morning of Monday, January 28, 2010, he eventually examined
all of the floors for water damage.
Also on January 28, 2010, Sunset notified Chubb of the water
The Remediation Efforts
After being notified of the loss, Chubb retained Koning &
Associates (“Koning”), an independent insurance
adjustor, to handle the claim. On February 3, 2010, Koning
visited the tower, took numerous photographs of the water
damage, and prepared an estimate of the cost to restore the
tower to pre-water damage condition. (Ex. 119). Koning
estimated that the cost of repairing every floor, from the
eighth to the basement, would total $71, 742.43. Koning
retained KB Construction to obtain various bids for the
estimated cost of repairs.
Koning also recommended, which Sunset approved, that Advanced
Restoration Specialists (“ARS”), a remediation
company, be retained to dry out the areas affected by the
water prior to repairing the walls. To dry out the affected
areas, ARS performed “demolition services, ”
which included removing some of the cement plasters on the
walls with heavy equipment. As a result, some of the HCTs
were damaged or were entirely taken out of the walls. ARS
sent multiple status reports to Sunset and Chubb during the
drying out process.
February 12, 2010, ARS sent a status report indicating that
it had inspected the property earlier that day, controlled
demolition services were scheduled to begin on the third and
fifth floor that afternoon, and work was “progressing
as per our estimate and scope.” (Ex. 26). ARS also
indicate that controlled demolition services on the seventh
and eighth floors had been performed the previous day, on
February 11, 2010. ARS finally recommended further
investigation by a third-party specialized expert such as a
structural engineer who has experience with concrete, brick,
and mortar construction.
February 17, 2010, ARS sent another status report indicating
that the tower was drying well and the drying equipment was
being reduced. (Ex. 27). ARS also stated that it had spoken
with Mr. Iravani, who stated that most tenants were satisfied
with the drying process and that he had received no
complaints as to dust buildup. ARS further stated that it was
still waiting on an answer as to the structural engineer to
assess the integrity of the walls.
February 19, 2010, ARS sent one more status report indicating
that most of the exposed plaster and brick were registering
dry on its moisture meters. (Ex. 28). There was no comment
about conducting an assessment of the structural integrity of
Around the same time as ARS' status reports, Mr.
Nourmand, himself a structural engineer, also requested an
assessment of the structural integrity of the walls from
Chubb denied the request, objected to the cost of hiring a
structural engineer, and questioned the necessity of such an
assessment, noting that the water damage was largely
cosmetic. Both Koning and KB Construction also believed that
hiring a structural engineer was not necessary and excessive.
some point between February 19 and February 25, 2010, Mr.
Nourmand hired Mr. Badmagharian, a structural engineer with
the engineering firm EGA, to assess the structural integrity
of the walls. On February 25, Mr. Badmagharian inspected the
tower with ARS's representative and took numerous photos
from various angles on all floors, except for the third. Mr.
Badmagharian testified that in the areas that he observed, he
did not see anything of concern that would make the building
unsafe. He eventually produced a report on May 10, 2010,
discussed beginning on paragraph 32.
February 26, 2010, ARS sent a status report to Sunset and
Chubb, noting the site inspection with Mr. Badmagharian from
the day prior and indicating continued progress on drying the
tower. (Ex. 29). It appears that ARS completed drying out the
tower in late March 2010. (Ex. 101).
April 15, 2010, ARS sent Sunset and Chubb a final report,
including invoices for the work performed, status updates on
the building, photographs taken during the drying out
process, and psychrometric readings of the moisture on
various floors. (Ex. 101). Though ARS' invoices total
$94, 835.51, Chubb's estimate of ARS' costs for
drying out the tower (and what Chubb ultimately paid) was
May 6, 2010, Sunset's insurance agent, Meslee Insurance
Services, Inc. (“Meslee”), sent a letter to
Chubb. (Ex. 60). In that letter, Meslee stated that while ARS
advised Mr. Nourmand that the affected walls were dry and
that its task was complete, Mr. Nourmand was
“completely unsatisfied” with the outcome of the
work. Meslee stated that the affected walls were still not
dry and some affected areas smelled of unpleasant odors.
Meslee also wrote that, according to Mr. Badmagharian's
inspection and report, whole sections of certain walls need
to be rebuilt in order to preserve the structural integrity
of the tower.
May 10, 2010, Sunset sent the EGA report to Chubb. (Ex. 2).
In the EGA report, Mr. Badmagharian noted that “the
primary purpose of [his] visit was to make an assessment of
the structural damages to the building, if any, that were
caused by water and moisture due to a broken pipe on the
eighth floor.” Mr. Badmagharian observed the damages as
The damages were mainly to the hollow clay tile with cement
plaster finish partition walls between the office, bathroom
and closet area. The damages were mostly some removed cement
plaster from walls, exposed hollow clay tiles with numerous
locations with broken, displaced and/or missing tiles, as
well as some damages to grouted joints. . . . The most severe
damages that [he] observed were in the 8th,
6th, 4th, 2nd floors and the
lobby area, where not only plaster was removed but also some
of the tiles were damaged, and/or missing.
Badmagharian also observed damages to the first and fifth
floors, but not the third. He was not able to observe the
extent of damages to the basement because the wall was
covered in telephone jacks and power lines.
the EGA report, Mr. Badmagharian concluded that the effect of
the damaged walls on the lateral load resisting system of the
tower is unclear. (Id.). To have an accurate
evaluation, a computer model of the existing building's
frames would need to be created. Mr. Badmagharian, however,
recommended as follows:
[I]n the absence and in lieu of such an extensive and
expensive study and evaluation [i.e., computer
modeling], we [EGA] recommend that all damaged walls be
repaired and reconstructed to their original condition,
including removing the damaged tiles and replacing with new
tiles, repairing the joints and applying new cement plaster,
etc. . . . [T]he damaged walls can be replaced with similar
materials that have the same weight and same shear strength
Badmagharian recommended that one possible solution to repair
the damaged walls between the first to eight floors would be
to replace those damaged walls with light gauge metal stud
walls. (Id.). He did not recommend the damaged walls
be replaced with solid brick or masonry walls because those
are heavier and may cause further complications. At trial, he
also testified that if the damaged walls were ...