Judge: Andrew E. Cooper, Case: 23CHCV00787, Date: 2025-01-31 Tentative Ruling

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Case Number: 23CHCV00787    Hearing Date: January 31, 2025    Dept: F51

NORTH VALLEY DISTRICT

DEPARTMENT F-51

MOTION FOR SUMMARY JUDGMENT

Motion Filed: 10/14/24

MOVING PARTY: Defendant California Automobile Insurance Company (“Defendant”)

RESPONDING PARTY: Plaintiffs Megan Karasch; and Christopher Wallace (collectively, “Plaintiffs”)

NOTICE: OK 

RELIEF REQUESTED: An order granting summary judgment, or, in the alternative, summary adjudication in favor of Defendant and against Plaintiffs on Plaintiffs’ complaint.

TENTATIVE RULING: The motion for summary adjudication is denied as to Plaintiff’s first and second causes of action and granted as to the issue of punitive damages.

BACKGROUND

This is an insurance action in which Plaintiffs, who reside at certain real property located at 11906 Louise Avenue, Granada Hills, California, allege that after two water intrusions at the subject insured property, the insurance Defendants wrongfully denied Plaintiffs’ insurance claims after failing to conduct a full investigation. (Compl. ¶¶ 1–2, 6–8.)

On 3/16/23, Plaintiffs filed their complaint, alleging against Defendants the following causes of action: (1) Breach of Contract; and (2) Breach of the Covenant of Good Faith and Fair Dealing. On 4/19/23, Defendants filed their answer.

On 10/14/24, Defendant filed the instant motion for summary judgment, or, in the alternative, summary adjudication. On 1/17/25, Plaintiffs filed their opposition. On 1/24/25, Defendant filed its reply.

ANALYSIS

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party cannot show evidentiary support for a pleading or claim and to enable an order of summary dismissal without the need for trial. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) Code of Civil Procedure section 437c, subdivision (c) “requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.) “The function of the pleadings in a motion for summary judgment is to delimit the scope of the issues; the function of the affidavits or declarations is to disclose whether there is any triable issue of fact within the issues delimited by the pleadings.” (Juge v. County of Sacramento (1993) 12 Cal.App.4th 59, 65, citing FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 381–382.) 

As to each claim as framed by the complaint, the defendant moving for summary judgment must satisfy the initial burden of proof by presenting facts to negate an essential element, or to establish a defense. (Code Civ. Proc., § 437c, subd. (p)(2); Scalf v. D. B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1519–1520.)  

Once the defendant has met that burden, the burden shifts to the opposing party to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 163.) Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.” (Dore v. Arnold Worldwide, Inc.¿(2006) 39 Cal.4th 384, 389.)

A.    Breach of Contract

Plaintiffs’ first cause of action alleges Breach of Contract against Defendant. To state a cause of action for breach of contract, a plaintiff must be able to establish “(1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.)

Here, Plaintiff alleges that Defendant breached the terms of the subject insurance policy “by failing to conduct a full and complete investigation into the facts, law, and circumstances of Plaintiffs’ claim and by unreasonably and improperly denying the coverage and benefits due to Plaintiff under the Insurance Policy. Plaintiffs’ loss is covered under the Insurance Policy.” (Compl. ¶ 17.) The Court notes that of the two subject insurance claims, “Plaintiffs’ have withdrawn Claim No. 1. The Court need only consider the factual and legal issues surrounding Claim No. 2 for purposes of CAIC’s motion and this opposition.” (Pls.’ Opp. p. 1, fn.1.)

On 7/18/22, Plaintiffs submitted Claim 2 (Claim No. CAHO-00184096) to Defendant, after finding cracks in the plaintiffs’ kitchen tile flooring, and living room and master bedroom walls and door openings. (UMF No. 21.) It is undisputed that Defendant’s retained geotechnical engineer David H. Lee conducted a site inspection of the subject property and concluded that the cause of loss was water from the pool, which had caused earth movement under the foundation of the residence, allowing it to settle and causing visible cracks in the ceiling, walls and floor of the residence. (UMF No. 33.)

Defendant argues that under the terms of the policy, “a loss caused by earth movement or water damage causing earth movement and/or damage caused by subsurface water is not covered. Also excluded is a loss caused by deterioration, and wear and tear and a loss caused by weather condition when the weather conditions contribute to an otherwise excluded cause of the loss.” (MSJ 34:6–10, citing Ex. A to Compl., pp. 16–17.) Here, Defendant contends that “the uncontroverted evidence establishes that all of plaintiffs’ claimed damages, including cracking to the slab, floors and walls of plaintiffs’ residence, are excluded by the exclusions for a loss caused by earth movement and subsurface water.” (MSJ 44:5–6.)

In support of its argument, Defendant points to the insurance policy, attached as Exhibit A to Plaintiffs’ complaint, which excludes from coverage “Earth Movements,” defined to include “any expansion, shifting, rising, sinking, contracting, or settling of the earth, soil or land. This exclusion applies whether or not the earth, soil or land is combined or mixed with water or any other liquid or natural or manmade material.” (Ex. A to Compl., pp. 16–17, sec. I.A.2.h.) Also excluded from the policy coverage is any “Water Damage” “which causes ‘earth movement.’” (Id. at p. 17, sec. I.A.3.c(2).) Defendant also proffers the sworn declaration of Jeremy Tucker, its Vendor Oversight Manager, stating that Plaintiffs’ Claim 2 was denied, based in part on Mr. Lee’s report finding that “the cause of the loss was the water from the pool which had caused earth movement under the foundation, allowing it settle, causing visible cracks in the ceiling, walls and floor.” (Decl. of Jeremy Tucker ¶ 38.) Defendant further proffers Mr. Lee’s report and Mr. Lee’s deposition testimony confirming “that it was his opinion, to a reasonable degree of scientific certainty, that the distress features within the plaintiffs’ house were the result of earth movement in the form of either differential heave, settlement, or a combination of both.” (MSJ 44:6–9, citing Ex. B to Decl. of Tina M. Bhatia; Ex. H to Tucker Decl.)

Based on the foregoing, the Court finds that Defendant has met its initial burden to present a defense to Plaintiffs’ breach of contract claims. Accordingly, the burden shifts to Plaintiffs to produce substantial responsive evidence to show a triable issue of material fact exists as to this cause of action.

In opposition, Plaintiffs argue that “Claim No. 2 should have been covered because the swimming pool (including the faulty water return line) – like Plaintiffs’ residence – was a covered structure under the CAIC Policy.” (Pls.’ Opp. 1:23–24.) Plaintiff contends that here, “under the proximate cause doctrine, the sudden discharge of water from the pool’s return line (a covered risk) set into motion the chain of events which resulted in the Plaintiffs’ cracked foundation. While earth movement may have been the last link in the chain of events before the damage was evident to the insured, it was not the predominant cause of the loss.” (Id. at 9:18–21 citing Ins. Code § 530 [“An insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote cause.”].) “In determining whether a loss is within an exception in a policy, where there is a concurrence of different causes, the efficient cause—the one that sets others in motion—is the cause to which the loss is to be attributed, though the other causes may follow it, and operate more immediately in producing the disaster.” (Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 402.)

Plaintiffs’ argument partially relies on an exception within the policy, which states as follows: “Exception To 2.c.(6): Unless the loss is otherwise excluded, we cover loss to property covered under Coverage A or B resulting from an accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance on the ‘residence premises’. … Under 2.b. and c. above, any ensuing loss to property described in Coverages A and B not excluded by any other provision in this policy is covered.” (Ex. A to Compl., pp. 14–15.) Plaintiffs further proffer the deposition testimony of Defendant’s Person Most Qualified, Jeremy Tucker, purporting to confirm that this exception applies to the subject property, extending coverage for losses caused by the pool water return line. (Ex. B to Decl. of McDonald, 66:2–67:1, 72:7–76:19.)

Defendant argues in reply that the policy unambiguously excludes “damage where water causes earth movement and the soils expansion, heave or settlement causes damage to the dwelling. This is true regardless of the source of the water, be it from rain, a slab leak, or an underground pool return line, irrespective of the duration of the leak.” (Def.’s Reply 6:7–10.) “The CAIC policy covers certain manifestations for the peril of water but excludes coverage for the manifestations of the peril of water when the peril of water in combination with earth movement causes a loss, as it did in the instant matter.” (Id. at 9:23–25.) Defendant asserts that “Plaintiffs do not provide an expert declaration or report discussing the cause of the pool leak. What is clear and is uncontested is that water from the pool or the pool return line caused earth movement which in turn caused the damages claimed by the plaintiffs.” (7:12–15.)

While Defendant maintains that any earth movement caused by water is excluded from the coverage, the Court finds that a triable issue exists as to whether Plaintiffs’ pool return line is covered under Exception 2.c.(6), and if so, whether that leak was the “efficient proximate cause” of the losses claimed by Plaintiffs. Based on the foregoing, the Court finds that Plaintiffs have met their responsive evidentiary burden. Accordingly, the motion is denied as to Plaintiffs’ first cause of action.

B.     Breach of the Covenant of Good Faith and Fair Dealing

Plaintiffs’ second cause of action alleges against Defendant a breach of the implied covenant of good faith and fair dealing. Every contract contains an implied covenant of good faith and fair dealing that neither party will do anything to interfere with the other party’s right to receive the benefits of the agreement. (Howard v. American Nat’l Fire Ins. Co. (2010) 187 Cal.App.4th 498, 528.) The precise nature and extent of the duty depends on the nature and purpose of the underlying contract and the parties’ legitimate expectations arising from the contract. (Ibid.) “A breach of the implied covenant of good faith is a breach of the contract … and breach of a specific provision of the contract is not ... necessary to a claim for breach of the implied covenant of good faith and fair dealing.” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.)

In the insurance context, “it is the obligation, deemed to be imposed by the law, under which the insurer must act fairly and in good faith in discharging its contractual responsibilities. Where in so doing, it fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing.” (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 574.) “An insurer cannot reasonably and in good faith deny payments to its insured without fully investigating the grounds for its denial.” (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1072.) “An insurer owes a duty to its insured to investigate all of the possible bases of an insured’s claim. … An insurer must fully inquire into the bases for the claim; indeed, it cannot reasonably and in good faith deny benefits to its insured without thoroughly investigating the foundation for its denial.” (Id. at 1073–1074 [internal quotations omitted].)

Here, Defendant argues that “a prima facie case for bad faith requires evidence demonstrating misconduct more egregious than an incorrect denial of policy benefits. In the present case, as demonstrated by the declaration of Jeremy Tucker, there is no evidence of misconduct on the part of CAIC more egregious than an incorrect denial of policy benefits even assuming policy benefits were owed to plaintiffs.” (MSJ 50:14–18.)

Defendant further asserts that it cannot be held liable for a bad faith breach claim where there exists a “genuine dispute” over coverage. (Id. at 50:22–52:26, citing Chateau Chamberay Homeowners Assn. v. Associated Intern. Ins. Co. (2001) 90 Cal.App.4th 335; Opsal v. United Services Auto. Assn. (1991) 2 Cal.App.4th 1197.) Here, Defendant argues that “it is uncontroverted that, at the very least, a genuine dispute existed whether the damages claimed by the plaintiffs … were covered under the terms of their homeowners insurance policy.” (Id. at 52:28–53:2.) “The uncontroverted evidence demonstrates that CAIC relied upon the opinions of … its consulting geotechnical engineer (in claim 2) in determining that the claimed damages were not covered under the subject policy.” (Id. at 53:5–7.)

Based on the foregoing, the Court finds that Defendant has met its initial burden to negate an element of Plaintiffs’ bad faith breach claims. Accordingly, the burden shifts to Plaintiffs to show a that triable issue of material fact exists as to this cause of action.

In opposition, Plaintiffs argue that “here, CAIC never investigated other potential causes of the foundation damage besides the potentially excluded ‘earth movement.’ In fact, CAIC did not even bother to interview either Ms. Karasch or Mr. Wallace in connection with the claim. Although CAIC agreed that the damage resulted from the pool leak, CAIC ignored the proximate cause of the damage and solely focused on the excluded earth movement. Moreover, CAIC concluded that the leak occurred over a period of 14- days or more to invoke a Policy exclusion, even though there were no findings to support that conclusion. CAIC received the final report from its geologist on September 16, 2022 but unreasonably delayed making a coverage determination for over three-months; overall, it took CAIC an astounding 158 days to complete its investigation (which involved single, one-hour site visit from its expert and no interview with Plaintiffs).” (Pls.’ Opp. 14:17–26.)

Plaintiffs proffer the sworn declaration of expert Sandra Moriarty, retained to provide “professional opinions regarding industry standards and practices for policy interpretation and first-party property insurance claim handling.” (Decl. of Sandra L. Moriarty, CPCU, ¶ 1.) Ms. Moriarty declares that based on her review of the case, Defendant’s failure to adequately investigate Plaintiffs’ claim is inconsistent with “acknowledged customs and practices in the first part property claim handling industry,” which a factfinder may conclude as a breach of the implied covenant of good faith and fair dealing. (Id. at ¶¶ 64–65, 79–80, 82–85, 89, 95, 105, 108–110.) Additionally, Defendant’s person Most Qualified testified that Defendant did not conduct an investigation into the cause of the pool leak. (Ex. B to McDonald Decl. 54:21–55:2.)

Defendant argues in reply that “Plaintiffs’ conclusory allegation that CAIC failed to properly investigate the claim is insufficient to create a triable issue of material fact.” (Def.’s Reply 13:22–24.) “An insurance company may not ignore evidence which supports coverage. If it does so, it acts unreasonably towards its insured and breaches the covenant of good faith and fair dealing.” (Mariscal v. Old Republic Life Ins. Co. (1996) 42 Cal.App.4th 1617, 1624.) Based on the foregoing, the Court finds that Plaintiffs have met their responsive burden to show that a triable issue exists as to whether Defendant’s investigation of Plaintiffs’ claim was adequate, and its denial thereof reasonable, given Defendant’s undisputed knowledge that the excluded “earth movement” was caused by the pool leak. (UMF No. 33.)  Accordingly, the motion is denied as to Plaintiffs’ second cause of action.

C.    Punitive Damages

Punitive damages may be recovered in non-contract actions upon a proper showing of malice, fraud, or oppression by clear and convincing evidence. (Civ. Code § 3294, subd. (a).) “Malice” is defined as conduct intended to cause injury to a person or despicable conduct carried on with a willful and conscious disregard for the rights or safety of others. (Id. at subd. (c); Turman v. Turning Point of Cent. Cal., Inc. (2010) 191 Cal.App.4th 53, 63.) “Oppression” means despicable conduct subjecting a person to cruel and unjust hardship, in conscious disregard of the person’s rights. (Ibid.) “Fraud” is an intentional misrepresentation, deceit, or concealment of a material fact known by defendant, with intent to deprive a person of property, rights or otherwise cause injury. (Ibid.)

An insurance carrier may be liable for punitive damages if it is found to have acted with malice, fraud, or oppression in failing to deal fairly and in good faith with its insured. (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 922–923.) “On a motion for summary adjudication with respect to a punitive damages claim, the higher evidentiary standard applies. If the plaintiff is going to prevail on a punitive damages claim, he or she can only do so by establishing malice, oppression or fraud by clear and convincing evidence. Thus, any evidence submitted in response to a motion for summary adjudication must necessarily meet that standard.” (Basich v. Allstate Ins. Co. (2001) 87 Cal.App.4th 1112, 1121.)

Here, Defendant argues that “no evidence remotely supports a punitive damages award in this case.” (MSJ 54:25.) The Court notes Defendant’s arguments that it reasonably relied on Mr. Lee’s geotechnical engineering report in denying Plaintiffs’ claim. (Tucker Decl. ¶¶ 38, 50, 51.) Based on the foregoing, the Court finds that Defendant has met its initial burden to show that its handling of Plaintiffs’ claim was not malicious, oppressive or fraudulent. The burden thus shifts to Plaintiffs to establish Defendant’s malice, oppression, or fraud by clear and convincing evidence.

Plaintiffs argue in opposition that “from the failure to thoroughly investigate the claim, to the cascade of inapplicable coverage exclusions cited in its December 23, 2022 coverage denial, CAIC has acted – from the outset – with an intent to deny coverage under the Policy in a manner that was either expressly fraudulent and oppressive and/or, at best, with extreme indifference to Plaintiffs’ rights under the Policy.” (Pls.’ Opp. 14:12–16.) The Court finds that the evidence proffered by Plaintiffs fail to meet the heightened evidentiary standard warranting the recovery of punitive damages. Accordingly, the Court grants the motion as to the issue of punitive damages.

CONCLUSION

The motion for summary adjudication is denied as to Plaintiff’s first and second causes of action and granted as to the issue of punitive damages.