Judicial Council of California Issues Opinion in Marissa Janney Vs. CSAA Insurance Exchange Case

SACRAMENTO, California, Oct. 16 (TNSsro) -- The Judicial Council of California issued the following opinion (No. C089534):

MARISSA JANNEY, as Successor in Interest, etc., Plaintiff and Appellant, v. CSAA INSURANCE EXCHANGE, Defendant and Respondent.

APPEAL from a judgment of the Superior Court of Siskiyou County, JoAnn M. Bicego, Judge. Affirmed.

The O'Connor Law Firm and Timothy J. O'Connor for Plaintiff and Appellant.

Coddington, Hicks & Danforth, R. Wardell Loveland, and Min K. Kang for Defendant and Respondent.

Peggy Baltar's home in Siskiyou County was destroyed by a wildfire in September 2014. She ultimately had a new house built on the same property. Her insurer, CSAA Insurance Exchange (CSAA), paid the full amount charged by her contractor for construction of the new house. Baltar sued for breach of contract and breach of the implied covenant of good faith and fair dealing. According to Baltar, CSAA breached the insurance policy by, among other things, failing to provide her with a complete and accurate estimate for replacing the original house, which would have provided her with a budget for the construction of the new house; without such a budget, she claims, she was forced to build a cheaper house than the one destroyed by the fire. She claims this, and other asserted breaches of the policy, amounted to bad faith and entitled her to punitive damages. The trial court granted CSAA's motion for summary judgment and entered judgment in favor of the company. Baltar appeals./1

We affirm.

BACKGROUND

In September 2014, Baltar's house in Weed was destroyed by the Boles Fire. The homeowners policy she purchased from CSAA insured her against such an occurrence.

Relevant Policy Provisions

The policy's declarations page set out the following coverages in section I: $219,800 for the dwelling (Coverage A), $22,600 for other structures (Coverage B), $164,900 for personal property (Coverage C), and $87,920 for loss of use (Coverage D). The policy also included an endorsement providing limited home replacement cost coverage. This endorsement increased the coverage limits for the dwelling and other structures to "150% of the respective amounts" noted above if certain conditions were met./2

The endorsement further provides: "Coverage is limited to the amount reasonably necessary to repair or replace the dwelling and other 'building structures,' but does not include any costs required to replace, rebuild, stabilize or otherwise restore or protect the land." Thus, the policy limits for repair or replacement of the dwelling and other structures was increased to $329,700 and $33,900, respectively, limited by the "reasonably necessary" qualification noted above.

The policy's loss settlement provisions relating to repair or replacement of the dwelling and other structures provide:

"Covered property losses are settled as follows: [

] . . . [

]

"b. 'Building structures' under Coverage A or B at 'replacement cost' without deduction for depreciation, subject to the following:

"(1) . . . we will pay the cost of repair or replacement, without deduction for depreciation, but not exceeding the smallest of the following amounts:

"(a) The limit of liability under this policy applying to the 'building structure';

"(b) The 'replacement cost' of that part of the 'building structure' damaged for equivalent construction and use on the same premises; or

"(c) The amount actually and necessarily spent to repair or replace the damaged 'building structure.' "

Paragraph 4 of this subdivision further provides that CSAA would "pay no more than the 'actual cash value' of the damage until actual repair or replacement is completed and costs incurred."

Additional relevant policy provisions will be set forth in the discussion portion of this opinion. For now, we simply note the policy also covered loss of "trees, shrubs, plants or lawns" up to "5% of the limit of liability that applies to the dwelling," as well as "the reasonable expense incurred" by the policyholder for debris removal.

CSAA's Initial Handling of Baltar's Claim

On September 16, 2014, the day after Baltar's house was destroyed, she submitted a claim to CSAA. The company immediately acknowledged the claim and assigned a large loss claim adjuster to handle the matter. Three days later, after certain payments were made to Baltar for loss of personal property, CSAA's large loss specialist, Rick McMullen, met with Baltar and inspected the property.

On September 22, Baltar notified CSAA that she had moved into a rental home, requiring payment of a security deposit in addition to monthly rent beginning October 1. The following day, CSAA paid Baltar additional sums for loss of personal property and also advanced her the security deposit for the rental home.

On September 24, McMullen completed a valuation report, estimating the actual cash value of the destroyed house to be $108,355.44. This valuation was based on square footage and other basic details of the structure. Three days later, CSAA paid Baltar and her lienholder $107,355.44 (estimated actual cash value, minus Baltar's $1,000 deductible).

About a week later, CSAA paid Baltar the balance of the policy limit for loss of personal property. Additional loss of use payments (totaling six months of rent, minus the amount advanced for the security deposit) were made in October.

Thus, about a month after the loss of her home, Baltar was paid the policy limit of $164,900 for loss of personal property, as well as the estimated actual cash value of the dwelling, plus loss of use payments allowing her to move into and pay rent at the rental home for six months.

Competing Reconstruction Estimates

CSAA also consulted with Cronic Disaster Services (Cronic), a licensed general contractor located in Redding, to prepare a reconstruction estimate for Baltar's destroyed house. Cronic submitted the requested estimate in November 2014. On a page titled "Summary for dwelling," the estimate listed $180,984.39 as the replacement cost value. This valuation was based on a "Line item total" of $145,095.55, plus materials sales tax of $5,724.78, plus $30,164.06 in overhead and profit. However, various line items did not list the estimated cost for that item, but were instead simply designated "OPEN ITEM" or "AS OCCURRED." Thus, as Matthew Williams, the large loss specialist who took over Baltar's claim in May 2016, admitted during his deposition, Cronic would "[m]ore than likely" have charged more than $180,984.39 to rebuild Baltar's house. Nevertheless, Williams understood that Cronic had agreed to rebuild the house for that price, "subject to [the] open items that would be paid as incurred."

On November 21, 2014, CSAA sent Baltar a letter following up on a previous phone conversation and informing her that the policy entitled her to "the actual cash value of [the] damaged building," which had already been paid, "along with the opportunity to make further claim for replacement cost." The letter attached the Cronic estimate described above and stated: "As discussed, our payment has been based upon an agreed price [of] $180,984.39 with Cronic who is a member [of] our Direct Repair Network. They have indicated their willingness to assist you in the reconstruction of the home if you so desire." The letter advised Baltar that she had the right to choose another contractor, but also noted that "reconstruction costs will vary by contractor and increased costs for equivalent construction are not in themselves grounds for adjustment in the amount necessary to repair the home." The letter continued: "Please review the estimate to assure its accuracy. If you believe something has been over looked please contact us immediately so that we may address your concerns. Additionally it is possible that the contractor may identify supplemental issues during the actual repair that will require additional work and payment."

About a week later, CSAA paid Baltar an additional $53,061.30 for replacement of the dwelling, $21,322.81 for replacement of other structures, and $13,037.58 for debris removal. Thus, by the end of the year, CSAA had paid Baltar a total of $160,416.74 for the dwelling ($180,984.39 total replacement cost value estimated by Cronic, minus depreciation of $19,567.65, minus the $1,000 deductible). The payments for replacement of other structures and debris removal were also based on Cronic's estimate.

In May 2015, Baltar entered into a contract with a different contractor, J. Carleton Company, to build her a new house on the same property for $260,000. Rather than confer with CSAA regarding whether the company considered this amount reasonably necessary to replace the original dwelling, Baltar retained the services of Robert Ellenberg, a licensed public adjuster with Unity Adjustments, to have her own replacement cost estimate prepared. As Ellenberg explained in his declaration: "I retained an estimator, Victor Romero of Construction First, to work with Ms. Baltar's contractor John Carleton to calculate a more complete replacement cost estimate for Ms. Baltar's home. Ms. Baltar's contractor checked and corrected the estimate, and authorized me to submit the estimate to CSAA under his company name." This estimate listed $346,998.57 as the replacement cost value of the dwelling, more than $17,000 above the policy limit for the dwelling coverage.

Ellenberg submitted the estimate to CSAA in August 2015. He wrote in the cover letter: "The first measure of what is to be established in determining what an insured may be due under the terms of their policy is almost never properly calculated THE REPLACEMENT COST for what they actually had." After noting that Baltar's policy entitled her to "the smallest" of various amounts, one being the cost of replacing the structure using equivalent construction, Ellenberg continued: "Determining the Replacement Cost as defined in the policy can only be done by an accurate and in depth determination of the specifications to which the building was built. This must include all aspects of a project that would be necessary to rebuild the home as it existed at the time of the fire AND VERIFIED BY A LICENSED CONTRACTOR WHO WOULD CARRY OUT THE REPLACEMENT IF IT WERE BEING DONE. This might be totally different than the replacement choice which the insured makes. The amount actually spent is an entirely separate measure of what might be due under the terms of the policy."

The following month, Baltar and various other policyholders retained counsel to assist them in recovering under their respective policies. Baltar's attorney and CSAA agreed to a tolling of the statute of limitations to allow the company "to continue working with Unity Adjustments to resolve the claims instead of escalating . . . immediately to a litigation posture."

Thereafter, between December 2015 and March 2016, CSAA sent Baltar and her attorney a series of letters asking for additional information, including the construction plans for the replacement house. These requests were apparently forwarded to Ellenberg, who explained in his declaration: "I did not provide Ms. Baltar's Carleton contract to CSAA while the replacement home was under construction because I was waiting for an answer from CSAA on the replacement cost estimate."

Meanwhile, CSAA reviewed the Romero estimate internally but did not inform Baltar or Ellenberg that it had done so. In an April 2016 e-mail from McMullen to large loss supervisor Gabby Martinez, McMullen provided a comparison of the competing estimates and concluded certain items in the Romero estimate were unnecessary and other items were not covered within the dwelling coverage, resulting in an adjusted replacement cost total of $227,611.93. Williams also reviewed the Romero estimate and concluded it "exceeded the scope of work that was reasonably related to the subject loss" and that both "the scope of work and prices reflected in the estimate . . . [were] not reasonable or necessary to rebuild [Baltar's] home after the Boles Fire."

Completion of the New Home and Payment of Actual Construction Costs

Between January 2015 and March 2016, CSAA paid Baltar a total of $6,523.75 for the creation of construction plans for the new home and an additional $11,820 for loss of use while it was being constructed. After the initial contract with J. Carleton Company was entered into in May 2015, the price of that contract was adjusted downward by two change orders, ultimately resulting in a revised contract amount of $252,688.

The house was completed and a certificate of occupancy was issued in May 2016. As mentioned, Williams was assigned to take over the claim that month. On May 26, Williams sent Ellenberg a letter listing the total payments CSAA had made up to that date: $179,978.07 for the dwelling, $164,900 for personal property, $16,620 for loss of use, and $21,322.81 for other structures. Williams asked Ellenberg to provide "a current status of the rebuild of the home" and to notify him "if there is anything outstanding for this loss."

Williams also spoke with someone at Unity Adjustments on June 3 and was informed the construction of the replacement house was complete. Three days later, he sent another letter to Ellenberg./3

This letter stated: "We believe the rebuild of the insured's home has been completed. At your earliest convenience, please provide us with the verification of the completed rebuild, including but not limited to; paid permit fees, paid architect, engineering and plan fees, photos of both the interior and exterior of the home showing the status of the rebuild, a signed Certificate of Completion from the contractor and insured, and a final paid invoice showing the amount the insured paid for the work done on the home."

Receiving no response from Ellenberg, Williams sent follow-up letters requesting the same information on June 22, July 22, August 19, September 15, and October 14. Ellenberg responded on October 27, attaching various invoices from J. Carleton Company, as well as the change orders indicating the revised contract amount of $252,688. Williams responded on November 23, informing Ellenberg that CSAA was reviewing these documents.

On December 6, Williams wrote to Ellenberg seeking clarification regarding the total amount Baltar was claiming for loss of the dwelling. Apparently, in the meantime, Ellenberg had a conversation with another CSAA employee, large loss specialist Nicholaus Gorman, and stated Baltar was seeking $260,856.86. Williams asked Ellenberg whether this amount was for the dwelling alone or for other structures as well, and if the latter, how much was requested for each. Williams noted the documents Ellenberg submitted showed the revised contract price for the new house was $252,688 and asked him to explain "the difference between the revised contract and the amount you are seeking." Williams also asked for additional breakdowns of "any code upgrade work that may have been needed for the re-build," as well as the contractor's "broken down estimate" for the project, and "the total [Baltar] paid in the separate receipts that were submitted" because certain receipts were difficult to read. Receiving no response, Williams sent a follow-up letter on December 22 seeking the same information.

On January 17, 2017, Ellenberg responded and confirmed the amount Baltar paid J. Carleton Company for the new house was $255,088. He provided no additional breakdowns, but noted CSAA should have the replacement cost estimate previously submitted. Three days later, Williams wrote back, explaining that CSAA did have the Romero estimate of $346,998.57, but the company did not have any "estimate or contract from the contractor who completed the work." Williams again asked for an explanation as to why the amount Baltar paid was more than the revised contract amount listed at $252,688.

On February 16, another follow-up letter requesting the same information was sent to Ellenberg, who responded by e-mail indicating that CSAA should contact the contractor directly to obtain the requested information. CSAA did so and eventually obtained additional information. On May 12, Williams wrote a letter to Ellenberg acknowledging receipt of the information and advising him that it was being reviewed.

Based on the information provided by J. Carleton Company, CSAA determined it owed Baltar an additional $60,771.26 for the dwelling and $11,300 for other structures./4

These amounts were paid on July 18. On August 17, CSAA also paid an additional $24,250.01 for code upgrade expenses.

On September 1, Williams sent a letter to Baltar listing the total payments CSAA had made up to that date: $264,999.34 for the dwelling, $164,900 for personal property, $16,620 for loss of use, and $33,900 for other structures. Williams asked Baltar to let him know if there were any outstanding issues that CSAA needed to address in order to conclude the claim. Monthly follow-up letters conveying the same information were sent to Baltar between September 2017 and July 2018.

No outstanding issues were identified by Baltar until June 22, 2018, when she testified at her deposition that certain landscaping and nursery invoices had not been paid. CSAA reviewed the invoices and determined it owed an additional $12,095.80. This amount was paid on July 11.

On August 3, Williams sent another letter to Baltar listing the total payments CSAA had made up to that date. Williams again asked Baltar to let him know if there were any outstanding issues that CSAA needed to address in order to conclude the claim. Follow-up letters conveying the same information were sent to Baltar on August 31 and September 28.

No additional outstanding issues were identified by Baltar until December 2018, when she responded to CSAA's motion for summary judgment and claimed for the first time that CSAA owed additional amounts for debris removal. We describe this claim in greater detail below.

The Lawsuit and Summary Judgment Motion

As previously mentioned, Baltar sued CSAA for breach of contract and breach of the implied covenant of good faith and fair dealing, seeking punitive damages for the latter alleged breach. Her operative second amended complaint was filed in October 2016.

CSAA moved for summary judgment in October 2018. CSAA argued it did not breach its contract with Baltar as a matter of law because the undisputed evidence established that it "paid all amounts due under the policy." CSAA argued that, "[w]ith the exception of the Romero Estimate generated after [Baltar] was in contract with [J. Carleton Company], all expenses covered by the policy and submitted to CSAA for reimbursement have been paid." CSAA further argued "the Romero Estimate does not support a claim for additional policy benefits" because the policy expressly limited Baltar to "the smallest of various amounts, including 'the amount actually and necessarily spent to repair or replace the damaged "building structure." ' " Because CSAA paid Baltar the amount she paid J. Carleton Company to build the new house, nothing more was owed under the dwelling coverage.

Turning to Baltar's bad faith cause of action, CSAA argued it "acted reasonably in the handling of [her] claim," noting it paid her the policy limit for the personal property and the other structures coverages, and further paid all amounts submitted by Baltar for loss of use. With respect to the dwelling coverage, CSAA explained it initially paid Baltar the estimated actual cash value of the destroyed house, then supplemented that amount based on the Cronic estimate of the replacement cost value, and further supplemented that amount when Baltar finally revealed the amount she "actually and necessarily spent to replace the building structure." CSAA argued: "If [Baltar] thought some aspect of her claim had not been paid, CSAA had no idea because [she] and her representatives accepted CSAA's payments and have not requested additional payment. Indeed, when [Baltar] was deposed in this lawsuit, she testified that certain landscaping expenses had not been reimbursed. When CSAA was informed of that testimony, it reviewed those invoices and issued payment within 30 days. Nothing further has been submitted to CSAA for review or consideration."

CSAA additionally argued that even if it was found to have breached the insurance contract, it did not do so in bad faith as a matter of law because there was a "genuine dispute" over the existence of coverage or the amount owed. Nor, CSAA argued, was Baltar entitled to punitive damages, there being no oppression, fraud, or malice as a matter of law.

Baltar's Summary Adjudication Motion and Opposition Filing

About a week after CSAA's summary judgment motion was filed, Baltar filed a motion for summary adjudication of five identified issues of duty. These can be condensed to the following: (1) whether CSAA had a duty to advise Baltar of the all available coverage under the policy, including the full amount of replacement cost coverage available under the policy based on CSAA's estimate of the replacement cost; and (2) whether CSAA had a duty to adjust any replacement cost estimate submitted on Baltar's behalf and provide that adjusted estimate to Baltar, notifying her of any increase in the replacement cost coverage available under the policy.

Baltar also filed an opposition to CSAA's motion for summary judgment, arguing "CSAA breached the policy and acted in bad faith in at least three major respects: (A) CSAA deprived . . . Baltar of the benefits of the contract by insisting on an unreasonable lowball estimate of the cost to replace [her] lost home; (B) CSAA failed to pay the amounts due under the separate landscaping . . . coverage in the Policy until July 2018, despite knowing about the landscaping losses no later than November 2014; and (C) CSAA still to this day has not paid most of the debris removal costs incurred by Ms. Baltar."

With respect to the first claimed breach, Baltar argued the Cronic estimate was so "unreasonably low" that she was required to retain Unity Adjustments to prepare a more accurate replacement cost estimate, and "[w]hen CSAA would not acknowledge the full amount of available coverage, [she] was forced to economize on the rebuild because she could not afford to fully replace her house." Baltar argued CSAA's handling of the replacement cost estimate "breached the contract and also amounted to bad faith" because CSAA "failed to establish an agreed on scope of loss[,] . . . deprived [her] of benefits under the Policy[, and] . . . violated industry standards and [title] 10 [California Code of Regulations] [section] 2695.4[ subdivision ](a) [and] . . . [title] 10 [California Code of Regulations] [section] 2695.9."

With respect to the delayed payment of landscaping costs, Baltar argued CSAA had sufficient information from which to determine the total amount of her landscaping loss in November 2014, and Baltar's expert would "testify that failure to pay promptly is a breach of the contract, that unreasonable delay in payment is a breach of the carrier's duty of good faith, and that CSAA's delay in payment for landscaping in this case was unreasonable given the information CSAA had about . . . Baltar's landscaping loss." Turning to the claimed failure to pay the total amount owed for debris removal, she argued: "CSAA still has not paid the amounts owed for debris removal. On November 26, 2014[,] CSAA's records indicate CSAA issued a check for $13,037.58 to Ms. Baltar based on the Cronic estimate for debris removal. The actual debris removal bill from the City of Weed was $62,008.29. Ms. Baltar's public adjuster submitted this information to CSAA along with the replacement cost estimate no later than August 2015. CSAA still has not paid the $48,970.71 remainder of the debris removal bill."

Baltar additionally argued the genuine dispute doctrine did not shield CSAA from bad faith liability, and CSAA's bad faith entitled her not only to punitive damages, but also damages for emotional distress, attorney fees, public adjuster fees, costs of bringing the lawsuit, and interest.

CSAA's Reply

In reply, CSAA argued Baltar did not set forth specific facts showing a triable issue of material fact with respect to either of her causes of action. Noting that Baltar was not entitled to more than the actual cash value of the destroyed house until she replaced it, CSAA argued Baltar neither alleged nor offered any evidence to show she did not receive an appropriate actual cash value amount immediately after the loss. Nor did Baltar offer any evidence disputing the fact that she thereafter received the full amount actually spent to replace the house. Addressing Baltar's argument that she was forced to build a less expensive house than the one she could have built had CSAA adjusted the Romero estimate and provided her with that adjusted replacement cost amount, CSAA responded by noting Baltar testified in her deposition "that the home she had before the fire was essentially the same as the home that she rebuilt." CSAA also noted the new house "was larger than her previous home by over 500 square feet" and characterized her arguments that CSAA "forced down the cost and quality of [her] rebuild" such that "she did not and could not rebuild what she had before the fire" as "disingenuous."

With respect to landscaping and debris removal, CSAA argued these expenses were not owed until they were incurred and brought to CSAA's attention. CSAA argued the receipts Baltar submitted for landscaping "were unclear, and CSAA's request for clarification was ignored." "At worst," the company argued, "the landscaping expenses were inadvertently overlooked, and paid by CSAA once the oversight was brought to the adjuster's attention." With respect to the City of Weed's debris removal bill, CSAA argued Baltar "does not have a personal claim for those expenses" as a matter of law because the undisputed evidence established that the city waived personal liability of the property owners for debris removal. Thus, "the amount to be paid is an issue between CSAA and the City of Weed."

* * *

Footnotes:

1/ Baltar passed away in April 2019, after the trial court's summary judgment ruling but before judgment was entered. Baltar's daughter, Marissa Janney, was substituted into the action as Baltar's successor in interest and filed a timely notice of appeal. For ease of reference, we refer to the contentions raised in this appeal as being raised by Baltar.

2/ There is no assertion these conditions were not met in this case.

3/ The same day, CSAA paid Baltar an additional $1,277.19 for loss of other structures, the balance of the policy limit listed on the declarations page for this category of coverage.

4/ The $11,300 amount brought the amount paid for other structures to the policy limit of $33,900, reflected on the declarations page modified by the replacement cost coverage endorsement. The $60,771.26 amount paid for the dwelling was calculated as follows: $255,088 (amount Baltar paid J. Carleton Company for both the dwelling and other structures), minus $33,900 (amount CSAA paid Baltar under the other structures coverage), plus $13,037.58 (for debris removal), plus $6,523.75 (for plans and permits), equals a total dwelling replacement cost of $240,749.33. This amount minus the $179,978.07 already paid to Baltar under the dwelling coverage equals $60,771.26.

* * *

View full opinion at https://www.courts.ca.gov/opinions/documents/C089534.PDF