California Court of Appeal, Bartel v. Chicago Title Insurance Co., Docket No. H052083

Insurance Law

 

Bad Faith Claim

 

Breach of the Implied Covenant of Good Faith and Fair Dealing

 

Range of Possible Damages

 

Availability of Tort Remedies

 

Recovery of Attorney Fees in This Context—Often Called Brandt Fees

 

Emotional Distress

 

Declaratory Relief

 

California Law

 

 

 

“The law implies in every contract, including insurance policies, a covenant of good faith and fair dealing.” (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 720.) “‘The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement’s benefits.’” (Ibid.; see Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818 (Egan).) In other words, it “ ‘imposes upon each party the obligation to do everything that the contract presupposes they will do to accomplish its purpose.’” (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335, 345 (Chateau Chamberay).) “An insurer is said to act in ‘bad faith’ when it not only breaches its policy contract but also breaches its implied covenant to deal fairly and in good faith with its insured.”  (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1071.) In this context, “the term ‘bad faith’ is used as “a shorthand reference to a claimed breach by the insurer of the covenant of good faith and fair dealing.” (Bosetti v. United States Life Ins. Co. in City of New York (2009) 175 Cal.App.4th 1208, 1235.) “An insurer’s tortious ‘breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself.’” (Howard, supra,187 Cal.App.4th at p. 528.) That is, “an insurer’s responsibility to act fairly and in good faith in handling an insured’s claim ‘is not the requirement mandated by the terms of the policy itself—to defend, settle, or pay. It is the obligation ...under which the insurer must act fairly and in good faith in discharging its contractual responsibilities.’” (California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 15, quoting Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573–574.)“ In simple terms, an insurer’s tortious bad faith conduct is conduct that is unreasonable.” (Howard, at p. 529.)

Reasonableness is an objective standard (Bosetti, at p.1237) and must be evaluated as of the time of the insurer’s decisions and actions, not “in the light of subsequent events that may provide evidence of the insurer’s errors.” (Chateau Chamberay, at p.347.)

 

 

“Ordinarily, reasonableness is a factual issue to be decided by a jury.”  (Fadeeff v. State Farm General Ins. Co. (2020) 50 Cal.App.5th 94, 102.)  However, the reasonableness of an insurer’s conduct “can be decided as a matter ‘of law where the evidence is undisputed and only one reasonable inference can be drawn from the evidence.’” (Ghazarian v. Magellan Health, Inc. (2020) 53 Cal.App.5th 171, 186–187; accord Chateau Chamberay, supra, 90 Cal.App.4th at pp.346, 350; Mt. Hawley Ins. Co. v. Lopez (2013) 215 Cal.App.4th 1385, 1424 (Mt. Hawley).)

 

 

The relevant facts related to Bartel’s tender requests and Chicago Title’s investigation and denials of tender are neither in dispute nor susceptible to competing reasonable inferences. We therefore review the trial court’s determination on Bartel’s bad faith claim de novo, and we do not defer to the trial court’s determination that Chicago Title did not act in bad faith. Regarding the legal principles governing Bartel’s claim for damages in relation to Chicago Title’s alleged breach of the implied covenant of good faith and fair dealing, a finding of bad faith exposes the insurer to a broad range of possible damages. (See Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 400 [“The availability of tort remedies in the limited context of an insurer’s breach of the covenant [of good faith and fair dealing] advances the social policy of safeguarding an insured in an inferior bargaining position who contracts for calamity protection, not commercial advantage”].) Such damages include any damages, including attorney fees, that are the proximate result of the insurer’s breach of the implied covenant of good faith and fair dealing. (Brandt v. Superior Court (1985) 37 Cal.3d 813, 817(Brandt); see Civ. Code, § 3333.) The recovery of attorney fees in this context—often called Brandt fees—is an exception to the generally applicable rule that parties to a lawsuit must ordinarily pay their own fees. (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 806 (Cassim).) “If an insurer fails to act fairly and in good faith when discharging its responsibilities concerning an insurance contract, such breach may result in tort liability for proximately caused damages. Those damages can include the insured’s cost to hire an attorney to vindicate the insured’s legal rights under the insurance policy. ‘When an insurer’s tortious conduct reasonably compels the insured to retain an attorney to obtain the benefits due under a policy, it follows that the insurer should be liable in a tort action for that expense. The attorney’s fees are an economic loss—damages—proximately caused by the tort. [Citation.] These fees must be distinguished from recovery of attorney’s fees qua attorney’s fees, such as those attributable to the bringing of the bad faith action itself.’ ” (Ibid., quoting Brandt, supra, 37 Cal.3d at p. 817.) Stated differently, because the “entitlement to attorney fees as compensatory damages is premised on an insured’s need to hire an attorney to vindicate his or her contractual rights under an insurance policy” (Cassim, supra, 33 Cal.4th at p. 807), our high court has “placed a critical limitation on the amount of fees recoverable. ‘The fees recoverable, . . ., may not exceed the amount attributable to the attorney’s efforts to obtain the rejected payment due on the insurance contract. Fees attributable to obtaining any portion of the plaintiff’s award which exceeds the amount due under the policy are not recoverable.’ ” (Ibid., italics omitted.) To the extent the claimed legal fees for both the contract and tort recoveries are intertwined, the plaintiff bears “the burden of demonstrating how the fees for legal work attributable to both the contract and the tort recoveries should be apportioned.” (Cassim, supra, 33 Cal.4th at p. 813.) Further, “to the extent some overlap in legal work occurs, the trial court should exercise its discretion to apportion the fees” (id. at p. 811) to ensure that the Brandt fee award reflects only those fees attributable to the attorney’s efforts to recover under the breach of the insurance contract. (Id. at p. 813.) Similarly, while noneconomic damages such as for emotional distress are available, those damages must flow from the initial breach of the implied covenant and resulting economic loss. (Gourley v. State Farm Mut. Auto. Ins. Co. (1991) 53 Cal.3d 121, 128–129; see also Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1215 (Major).) 

Whether a party is entitled to a particular measure of damages is a question of law. (Atkins v. City of Los Angeles (2017) 8 Cal.App.5th 696, 738).

 

 

(…) As our Supreme Court has stated in connection with the duty to defend, “an insurer must defend against a suit even ‘“where the evidence suggests, but does not conclusively establish, that the loss is not covered.”’” (Hartford, supra, 59 Cal.4th at p. 287.) Any doubt must be resolved in favor of the insured (ibid.), such that the insurer is excused from defending against a third party claim “only when ‘“the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.”’”(Id. at p. 288, italics added; see also Montrose, supra, 6 Cal.4th at p. 300, italics omitted [stating, to prevail in an action seeking declaratory relief on the issue of the duty to defend “the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot”].)

 

 

The implied covenant in this context did not require Chicago Title to divine the outcome or speculate as to unpleaded legal theories. Rather, in the face of a claim against the property based on ambiguous maps and road designations, Chicago Title had an implied promise to take reasonable steps to fulfill the expectations of its insured and provide a defense to the claim arising from circumstances conceivably within the scope of the policy. (See Lambert, supra, 53 Cal.3d at p.1081 [“The contract of insurance is unique in that the purchaser seeks not commercial advantage, but rather peace of mind and security in the event of unforeseen calamity.”].)

 

 

 

(California Court of Appeal, Bartel v. Chicago Title Insurance Co., May 30, 2025, Docket No. H052083, Certified for Publication)

 

California Court of Appeal, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848

Insurance Law

 

Covenant of Good Faith and Fair Dealing

 

Liability in Tort

 

California Law

 

 

 

(…) “An insurer is said to act in ‘bad faith’ when it not only breaches its policy contract but also breaches its implied covenant to deal fairly and in good faith with its insured. ‘A covenant of good faith and fair dealing is implied in every insurance contract. [Citations.] The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement’s benefits. To fulfill its implied obligation, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. When the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.’” (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1071–1072, italics omitted.)

 

 

 

(California Court of Appeal, March 28, 2025, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848, Certified for Publication)

 

 

California Court of Appeal, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848

Insurance Law

 

“All-Risks” Policy

 

Exclusions

 

Nonaccidental Faulty Workmanship

 

Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing

 

California Law

 

 

 

In 2021, while a building owned by appellant 11640 Woodbridge Condominium Homeowners’ Association (HOA) was being reroofed, two rainstorms penetrated the partially constructed roof and caused extensive interior damage. The HOA made a claim under its condominium policy, which was underwritten by respondent Farmers Insurance Exchange (Farmers). Farmers denied the claim, concluding that the HOA’s losses resulted from nonaccidental faulty workmanship, which the policy did not cover. The HOA then brought the present action, alleging breach of contract and breach of the implied covenant of good faith and fair dealing against Farmers. Farmers moved for summary judgment, and the trial court granted the motion, concluding there was no coverage under the condominium policy as a matter of law. We reverse.  As we discuss, the condominium policy was an “all-risks” policy, which covered all damage to the HOA’s property unless specifically excluded.  There are triable issues of material fact as to whether the exclusions relied on by Farmers—the water damage exclusion and the faulty workmanship exclusion—preclude coverage in the present case. We thus reverse the summary judgment.

 

(…)

 

— “Covered Causes of Loss” are “Risks of Direct Physical Loss” unless the loss is “excluded in Section B” or “limited in Paragraph A.4.” (Italics added.) 

 

The policy also contained two coverage exclusions that are relevant to our analysis:

—Water damage exclusion: Farmers will not pay for loss or damage caused directly or indirectly by “water,” “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”  However, Farmers will pay for “water damage to the interior of any building or structure caused by or resulting from rain, . . . whether driven by wind or not, if . . . the building or structure first sustains damages by a Covered Cause of Loss to its roof or walls through which the rain . . . enters.” 

—Faulty workmanship exclusion: Farmers will not pay for loss or damage “caused by or resulting from” specified exclusions, including, among others, “faulty, inadequate or defective . . . planning, zoning, development, surveying, siting . . . and workmanship, repair, construction or renovation.” (Italics added.) However, “if an excluded cause of loss . . . results in a Covered Cause of Loss,” Farmers “will pay for the loss or damage caused by that Covered Cause of Loss.”

 

 

(…) Consistent with Dewsnup, Victory Peach, and Wellsville Manor, we conclude that there are triable issues of fact as to whether the water exclusion applied in the present case. As an initial matter, we reject Farmers’s contention that the property was without a “roof” when it suffered rain damage in October 2021. The policy does not define “roof,” and we agree with the cited cases that a common sense meaning of “roof” includes a covering over a building that provides structural integrity and protection from the elements. We note in this regard that because no roof is permanent, all roofs must be periodically replaced. Replacing a roof requires removing worn outer layers and replacing them with new materials, thus leaving a structure not fully protected from the elements for a least a short time. Yet, nothing in the relevant condominium policy informed an insured that it would be without coverage for rain damage during periodic reroofing. To the contrary, the policy defines “covered property” to include “additions under construction, alterations and repairs to the building or structure,” unless covered by other insurance. In view of this language, we conclude that a roof under repair remains a “roof” within the meaning of the policy. In the present case, therefore, the property was never without a “roof” because Bardales removed just some of the roof’s outer layers, leaving the lower layers intact. Specifically, at the time of the first rainstorm, Bardales had removed much of the roof’s top layers, but other layers, including the plywood sheathing and insulation, remained. By the time of the second rainstorm, Bardales had replaced about 80 percent of the insulation and plywood, added a layer of “base paper” and “base felt,” hot-mopped and tarred much of the roof, and covered the entire roof with tarps. Like the courts in Dewsnup, Victory Peach, and Wellsville Manor, we conclude that the remaining layers of roof, even without the roof membrane, were sufficient to constitute a “roof” within the meaning of the policy.

 

 

Having concluded that the property had a “roof” at all points during the repairs, we must consider whether rain entered the property through “damage” to the roof caused by a “Covered Cause of Loss.”

 

 

(…) The policy does not purport to exclude losses that result from workmanship generally, but only from such “workmanship, repair [or] construction” that is “faulty, inadequate or defective.” Under the maxim expression unius est exclusio alterius, “the fact that [a] contract expressly so provides tends to negate any inference that the parties also intended another consequence to flow from the same event.” (Stephenson v. Drever (1997) 16 Cal.4th 1167, 1175; G & W Warren’s, Inc. v. Dabney (2017) 11 Cal.App.5th 565, 576.)  Accordingly, the exclusion for damages caused by negligent workmanship suggests that the policy does not exclude damages caused by workmanship that was not negligent. We therefore conclude that rain damage resulting from roof repairs are covered unless expressly excluded by another provision of the policy, such as the faulty workmanship exclusion. We turn now to that question.

 

 

The parties disagree about the proper characterization of Bardales’s alleged negligence: The HOA asserts Bardales’s alleged negligence was “faulty workmanship,” while Farmers characterizes it as defecting “planning.” We need not decide whether the alleged negligence constitutes faulty “workmanship” or faulty “planning” because both are excluded under the policy if they are direct causes of loss. (Fn. 7).

 

 

We conclude, in line with other cases that have declined to follow Allstate, that “workmanship” unambiguously refers both to the way a contractor creates a finished product and the finished product itself. (See, e.g., Fourth Street Place, LLC v. Travelers Indem. Co., supra, 270 P.3d at p. 1242 [“the plain and ordinary meaning of the term ‘workmanship’ encompasses the quality of the process utilized to achieve the finished product and the quality of the finished product itself” (italics added)]; Wider v. Heritage Maintenance, Inc. (2007) 14 Misc.3d 963, 975 [827 N.Y.S.2d 837] [“An ordinary business-person applying for a commercial property insurance policy and reading the language of this exclusion would understand that, depending on the type of work done, the faulty workmanship exclusion could apply to the process of doing the work or the finished product”]; Schultz v. Erie Ins. Group (Ind. Ct. App. 2001) 754 N.E.2d 971, 976 [“while the term ‘faulty workmanship’ allows at least two definitions, we see no reason why it must mean either a ‘flawed product’ or a ‘flawed process.’ ”Since ‘workmanship’ denotes both ‘process’ and ‘product,’ an insurer could just as likely have both perils in mind when it drafts a policy’s list of exclusions”].)

 

 

However, although we do not adopt Allstate’s reasoning, we nonetheless conclude that the faulty workmanship exclusion does not unambiguously exclude coverage in this case. To establish the absence of coverage, Farmers had to demonstrate that there were no triable issues regarding the cause of the damage to the HOA’s property—or stated, differently, that the undisputed evidence established that the damage to the HOA’s property was “caused by or resulted” from Bardales’s negligence. But there was evidence that roof damage was caused not only by Bardales’s alleged negligence, but also by wind and rain. Specifically, Bardales testified that rain damaged the exposed plywood and insulation layers on October 4, and wind blew off tarps Bardales placed over the partially constructed roof on October 25. Farmers did not establish that the damage to the plywood, insulation, and tarps—that is, to the “roof”—did not contribute, at least in part, to the interior water damage. Moreover, as the HOA notes, Farmers introduced no evidence that the roof repairs could have been done in a way that would have fully protected the property in the event of a rainstorm. That is, while Farmers’s evidence suggested that Bardales failed to follow industry standards by removing nearly the entire roof membrane at once, it did not establish that compliance with industry standards would have avoided rain damage entirely—and thus that the damage resulted entirely from Bardales’s alleged negligence.

 

 

(…) “An insurer is said to act in ‘bad faith’ when it not only breaches its policy contract but also breaches its implied covenant to deal fairly and in good faith with its insured. ‘A covenant of good faith and fair dealing is implied in every insurance contract. [Citations.] The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement’s benefits. To fulfill its implied obligation, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. When the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.’” (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1071–1072, italics omitted.)

 

 

 

 

 

(California Court of Appeal, March 28, 2025, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848, Certified for Publication)

 

 

California Court of Appeal, Gharibian v. Wawanesa Gen. Ins. Co., Docket No. B325859

Insurance Law

 

Breach of Contract 

 

Breach of the Implied Covenant of Good Faith and Fair Dealing

 

Physical Loss

 

California Law

 

 

 

Following a wildfire near their home, plaintiffs and appellants Hovik Gharibian (Gharibian) and Caroline Minasian (Minasian) submitted a claim to their property insurer, defendant and respondent Wawanesa General Insurance Company (Wawanesa). Wawanesa ultimately paid plaintiffs more than $20,000 for professional cleaning services that they never used. Dissatisfied with the resolution of their claim, plaintiffs filed the instant lawsuit against Wawanesa for breach of contract and breach of the implied covenant of good faith and fair dealing. The trial court granted Wawanesa’s motion for summary judgment, and plaintiffs appeal. Because plaintiffs’ insurance policy did not provide coverage for the claimed loss, Wawanesa did not breach (and could not have breached) the insurance policy. Accordingly, we affirm.

 

 

Plaintiffs obtained a Wawanesa homeowner property insurance policy for their house in Granada Hills covering the period September 8, 2019, to September 8, 2020. In a section of the policy titled “Perils Insured Against,” the policy provides that Wawanesa will “insure against direct physical loss to property.” (Bolding & capitalization omitted.) The policy’s terms include a $2,000 deductible.

 

 

A nearby fire results in debris, but not burn damage, to plaintiffs’ house.

 

On October 10, 2019, the Saddle Ridge wildfire began in the foothills of northern Los Angeles County. The fire burned about half a mile away from plaintiffs’ property; plaintiffs’ property did not suffer any burn damage. Even though plaintiffs kept their doors and windows closed, debris still entered their home, with more debris falling outside their home and in their swimming pool. While there was the smell of wildfire smoke, it dissipated over time. In fact, Minasian testified that she could no longer smell the smoke by December 31, 2019, less than three months after the fire.

 

 

(…) By December 2019, plaintiffs were not aware of any visible wildfire debris that remained either outside or inside their home. Gharibian is not aware of anything at his property that was physically damaged.

 

 

The elements of a cause of action for breach of an insurance contract are (1) the contract, (2) the insured’s performance or excuse for nonperformance, (3) the insurer’s breach, and (4) resulting damages.  (Janney v. CSAA Ins. Exchange (2021) 70 Cal.App.5th 374, 390.) “‘“While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.”  [Citations.]’” (Westoil Terminals Co., Inc. v. Industrial Indemnity Co. (2003) 110 Cal.App.4th 139, 145.) Thus, we “interpret insurance policy language ‘“in its ‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage.’”’ [Citation.] We must also ‘interpret the language in context.’ [Citation.]” (Tustin Field Gas & Food, Inc. v. Mid-Century Ins. Co. (2017) 13 Cal.App.5th 220, 226.) “The insured has the initial burden of showing that a claim falls within the scope of coverage, and a court will not ‘“indulge in a forced construction of the policy’s insuring clause to bring a claim within the policy’s coverage.”’ [Citation.]” (Dua v. Stillwater Ins. Co. (2023) 91 Cal.App.5th 127, 136.)

 

 

Applying these legal principles, we readily conclude that the trial court did not err. In order to defeat Wawanesa’s motion, plaintiffs had to establish (or at least create a triable issue of fact) that their claim was covered by their insurance policy. Thus, they had to show that there was a “direct physical loss to property.”

 

 

“Under California law, direct physical loss or damage to property requires a distinct, demonstrable, physical alteration to property. The physical alteration need not be visible to the naked eye, nor must it be structural, but it must result in some injury to or impairment of the property as property.” (Another Planet Entertainment, LLC v. Vigilant Ins. Co. (2024) 15 Cal.5th 1106, 1117 (Another Planet).) Here there is no evidence of any “direct physical loss to [plaintiffs’] property.” The wildfire debris did not “alter the property itself in a lasting and persistent manner.” (Another Planet, supra, 15 Cal.5th at p. 1149.) Rather, all evidence indicates that the debris was “easily cleaned or removed from the property.” (Another Planet, supra, 15 Cal.5th at p. 1140.) Such debris does not constitute “direct physical loss to property.” (Ibid.)

 

 

Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co. (1996) 45 Cal.App.4th 1, cited by plaintiffs, is readily distinguishable. Armstrong dealt with third party liability coverage, which is “‘wholly different’” than first party property damage coverage. (United Talent Agency v. Vigilant Ins. Co. (2022) 77 Cal.App.5th 821, 837.) Thus, Armstrong is not persuasive precedent in the instant context. (Inns-by-the-Sea v. California Mutual Ins. Co. (2021) 71 Cal.App.5th 688, 701, fn. 16.)

 

 

Urging us to reverse, plaintiffs direct us to Mr. Benjamin’s deposition testimony that “ash can create physical damage to a structure,” and ash was detected at plaintiffs’ property. But plaintiffs ignore Mr. Benjamin’s qualification that ash only causes physical damage to property when it becomes wet, and no such damage existed on plaintiffs’ property.

 

 

In light of our conclusion that Wawanesa did not breach (and could not have breached) its insurance policy because plaintiffs did not have a covered claim, all remaining arguments raised by the parties are moot. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36 [without coverage there can be no liability for bad faith on the part of the insurer]; McLaughlin v. National Union Fire Ins. Co. (1994) 23 Cal.App.4th 1132, 1164 [no independent cause of action for punitive damages].)

 

 

 

 

(California Court of Appeal, Feb. 7, 2025, Gharibian v. Wawanesa Gen. Ins. Co., Docket No. B325859, Certified for Publication)

21st Century Insurance v. Super. Ct., S154790

Implied covenant of good faith and fair dealing: one cannot invoke the implied covenant to prohibit conduct that a contract expressly allows (Cal. S. Ct., 24.08.09, 21^st Century Insurance v. Super. Ct., S154790).

Covenant implicite d’agir de bonne foi et de manière équitable dans les relations contractuelles : ces principes ne peuvent pas être invoqués pour interdire une conduite que le contrat autorise expressément.