Judge: H. Jay Ford, III, Case: 20SMCV01145, Date: 2022-10-06 Tentative Ruling

Case Number: 20SMCV01145    Hearing Date: October 6, 2022    Dept: O

  Case Name:  Javaheri, et al. v. Shanley Construction, Inc., et al.        

SUBJECT:                 MOTION FOR SUMMARY JUDGMENT

MOVING PARTY:   Defendant Nautilus Insurance Company  

RESP. PARTY:         Plaintiff Benjamin Javaheri, individually and as the Trustee of the Benjamin Living Trust dated July 30, 2009

TENTATIVE RULING

            Defendant Nautilus Insurance Company’s Motion for Summary Judgment is DENIED.  Triable issues of fact remain regarding the damages element of Plaintiff’s claims against Nautilus.  See Defendant’s SSUMF Nos. 8-11; Plaintiff’s Response to Defendant’s SSUMF Nos. 8-11. 

            Defendant Nautlius’s Evidentiary Objections Nos. 8 and 9 (Javaheri Dec. ¶¶8-10) are OVERRULED.  Defendant Nautilus’s Evidentiary Objections 1-7, 10-18 are not ruled on as immaterial to the Court’s ruling per CCP §437c(q).   

            Where a defendant seeks summary judgment or adjudication, he must show that either “one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to that cause of action.”  See Code of Civil Procedure §437c(o)(2).)  A defendant may satisfy this burden by showing that the claim “cannot be established” because of the lack of evidence on some essential element of the claim.  See Union Bank v. Superior Court (1995) 31 Cal.App.4th 574, 590.  Once the defendant meets this burden, the burden shifts to plaintiff to show that a “triable issue of one or more material facts exists as to that cause of action or defense thereto.”  Id.  If unable to prove the existence of a triable issue of material fact, summary judgment or summary adjudication in favor of the defendant is proper.  Id.

            “A party is entitled to summary judgment only if it meets its initial burden of showing there are no triable issues of fact and the moving party is entitled to judgment as a matter of law. This is true even if the opposing party fails to file any opposition.  The court's assessment of whether the moving party has carried its burden—and therefore caused a shift—occurs before the court's evaluation of the opposing party's papers.  Therefore, the burden on the motion does not initially shift as a result of what is, or is not, contained in the opposing papers.”  Mosley v. Pacific Specialty Insurance Company (2020) 49 Cal.App.5th 417, 434–435 (landlord’s failure to address issue of whether they were aware of their tenant’s marijuana growing operation was not grounds to grant summary judgment where moving party failed to satisfy its initial burden as to the issue); Thatcher v. Lucky Stores, Inc. (2000) 79 Cal.App.4^th 1081, 1086-1087 (court cannot grant summary judgment based merely on lack of opposition; court must first determine if the moving party has satisfied its burden). 

            In addition, the evidence and affidavits of the moving party are construed strictly, while those of the opponent are liberally read.  See Government Employees Ins. Co. v. Sup. Ct. (2000) 79 Cal.App.4th 95, 100.  “All doubts as to the propriety of granting the motion (whether there is any issue of material fact [Code of Civil Procedure] § 437c) are to be resolved in favor of the party opposing the motion (i.e., a denial of summary judgment).”  Hamburg v. Wal-Mart Stores, Inc. (2004) 116 Cal.App.4th 497, 502. 

            Defendant Nautilus moves for summary judgment of Plaintiff’s third cause of action for breach of contract and fourth cause of action for breach of the implied covenant of good faith and fair dealing on grounds that Plaintiff suffered no compensable loss as a result of Nautilus’s alleged breach of their duty to defend and indemnify.  For purposes of this motion, Nautilus does not dispute that it breached its duty of defense or indemnification.  Nautilus only argues that Plaintiff did not suffer any damage as a result of its breach, because (1) AIG stepped in to provide a full defense and Plaintiff was not required to pay any defense costs; and (2) AIG paid the full settlement amount, such that Plaintiff suffered no loss as a result of any judgment or settlement in the underlying action. 

            Nautilus submits evidence to support its claim that Plaintiff did not incur any defense costs, because AIG provided a full defense.  See Defendant’s SSUMF Nos. SSUMF Nos. 5-9.  However, Nautilus fails to establish that Plaintiff did not personally suffer any loss subject to indemnification in the underlying action.  Nautilus submits evidence that AIG paid the monetary portion of the settlement in the underlying action.  See Defendant’s SSUMF No. 10.  Nautilus also submits evidence that Plaintiff paid no “monetary sums” to settle the underlying action.  Id. at No. 11. 

Nautilus admits that Plaintiff gave up “unstated affirmative rights to settle his affirmative claim against the underlying plaintiffs.”  See Motion, 9:6-7.  The settlement in Krimendahl required Javaheri to release Krimendahl/Heck from all his claims.  See Dec. of L. Ramos, Ex. J, ¶1.5. Nautilus does not dispute the terms of the settlement agreement wherein Defendant settled his affirmative claims for less than their full value or that AIG did not compensate Plaintiff for that loss. See Defendants “response to additional facts” SSUMF 18-19 (filed 8-11-22).  Instead, Nautilus argues that as a matter of law Plaintiff cannot seek the lost value of those affirmative claims as “consequential damages” flowing from Nautilus’s breach of the duty to indemnify.  See Motion, 9:10-11.  Nautilus argues, “a liability policy such as the AIG policy and the Nautilus policy provide defensive benefits, they provide coverage if someone sues the insured. They do not pay for the pursuit or settlement of affirmative rights the insured has against other, including the claimants.”  Id. at 9:8-10.  According to Nautilus, as a matter of law Javaheri cannot recover the lost value of his affirmative claims, which were released as part of the Krimendahl/Heck settlement.  None of the cases cited by Nautilus, however, address claimed consequential damage for the lost value of the insured’s affirmative claim in the the underlying action that the insured waived or released as additional consideration of the settlement of the underlying case.  

In particular, Nautilus cites to Richards v. Sequoia Ins. Co. (2011) 195 Cal.App.4^th 431, 437, arguing that Richards holds that “the measure of damages for any breach of [insurer]'s contractual duty to defend are the costs and attorney’s fees expended by the insured in defending the underlying action.”  Richards v. Sequoia Ins. Co. (2011) 195 Cal.App.4^th at 438.  Richards did not address the measure of an insured’s damages for breach of the duty to indemnify or to provide coverage for a loss.  Richards dealt with the very narrow question of whether contract damages for breach of the duty to defend includes time expended by the insured “as attorneys working on the case on their own behalf.”  Id. at 436.  Richards did, however, recited the general rule that, “When the policy provides coverage for the claim, an insured may also recover the amount of any reasonable, good faith settlement.”  Richards, supra, 195 Cal.App.4th at 436  The Cases cited by Plaintiff likewise recognize the general rule that an insured is entitled to recover all damages reasonably incurred by the insured when the insurer fails to defend its insured.  (See, Wint v. Fidelity & Casualty Co. (1973) 9 Cal.3^rd 257, 261; Risely v Interinsurance Exchange (2010) 183 Cal.All,.4^th 196, 210.

Remarkably, neither party cites the recognized controlling case of Earth Elements, Inc. v National American Ins. Co. (1995) 41 Cal.App.4^th 110 that directly addressed this issue. [See California Practice Guide: Insurance Litigation (The Rutter Group), Damages for Breach of Duty to Defend, Ch. 7B-H “Where the settlement requires the insured to dismiss its counterclaim against the third party, the value of that counterclaim is recoverable as damages for the insurer's failure to defend.” (Citing Earth Elements.))

Indeed, the holding of Earth Elements  directly contradicts Nautilus’s position that Javaheri cannot recover from Nautilus the lost value of his affirmative claims which Plaintiff released as consideration for the Krimendahl/Heck settlement.  The Court in Earth Elements specifically addressed the question of “whether an insurer, which breaches its contractual duty to defend and indemnify an insured, may be responsible under a breach of contract claim to recompense the insured for the value of an intangible which was given to the third-party claimant in settlement of that third party’s claim.”  Earth Elements, supra, 41 Cal.App.4^th at 114.  The “intangible” that was given in settlement was dismissal of the insured’s counterclaim. 

Like Nautilus, the insurer in Earth Elements argued in a bench trial based on stipulated facts that “the consideration paid by the insured [release of affirmative claims] is not compensable under a breach of contract theory.”  Id. at 115.  Nautilus maintained such a loss was consequential economic loss that was not recoverable in a breach of contract action.  Like Nautilus, for purposes of trial, the insurer in Earth Elements conceded that it had breached the contract and was not disputing the reasonableness of the settlement.  Id. 

The Court of Appeals rejected the insurer’s position that an insured’s waiver of compensable claims was not compensable under a breach of contract theory.  The Court of Appeals specifically rejected the same argument now asserted by Nautilus that that an insured’s waiver of claims as part of a settlement are not recoverable as a “consequential loss”: 

“Here, the breach was also a failure to defend an action brought within a risk contemplated by the policy. Unlike California Shoppers, however, the damage suffered was not a consequential loss suffered as a result of the breach of the duty to defend. The damage was the payment made to settle a covered claim, i.e., damages directly resulting from a breach of the duty to indemnify, something clearly within the contemplation of the parties at the time they entered into the insurance contract. The issue here is whether Earth is entitled to be compensated for the value of that which it gave up in return for the settlement. That answer is clearly yes.”  Earth Elements, Inc., supra, 41 Cal.App.4th at 115–116.

            The Court went on to explain that the value of an intangible surrendered by an insured as consideration for a settlement agreement is no different from the insured’s payment of money for settlement: 

“A chose in action was given as consideration for a settlement. There is no analytical distinction between surrendering money in exchange for a settlement and exchanging any other item of value. While the value of money is apparent on its face, an intangible item is equally capable of being evaluated. Whether the insured gave up money or a chose in action, the consideration for the settlement had a value which is compensable because of the breach of the contractual duty to indemnify. Earth is entitled to be compensated for the value of the consideration paid in settlement of the third party claim.”  Earth Elements, Inc., supra, 41 Cal.App.4th at 116. 

            Defendant fails to establish as a matter of law that the value of Plaintiff’s affirmative claims against Krimendahl/Heck, which were waived as part of the settlement, does not qualify as recoverable damage for breach of the contractual duty to indemnify.  Defendant Nautilus moved for summary judgment of the 3^rd and 4^th causes of action for breach of contract and breach of the implied covenant on grounds that Plaintiff did not suffer any compensable damages. Defendant Nautilus failed to satisfy its burden as moving party, because it failed to fully negate Plaintiff’s allegation of damage, which includes the lost value of the consideration Plaintiff contributed to the settlement.