Judge: Mark C. Kim, Case: 22LBCV00129, Date: 2023-04-04 Tentative Ruling

Case Number: 22LBCV00129    Hearing Date: April 4, 2023    Dept: S27

1.     Background Facts

Plaintiffs, Chai Five Laundry Services, LLC (hereinafter “Chai Five” or “Plaintiff”); Yaakov Levy; and Nelson Zager filed this action against Defendants, Ace Property and Casualty Insurance Company (hereinafter “Ace” or “Defendant”); Benjamin Cherven; and Does 1 to 100.  Plaintiffs’ complaint includes causes of action for:

1.     Breach of the Covenant of Good Faith and Fair Dealing in Tort (Bad Faith);

2.     Breach of Contract/Breach of the Covenant of Good Faith and Fair Dealing in Contract; and

3.     Promissory Fraud/Deceit

Plaintiffs allege that Defendant Ace improperly denied Chai Five insurance coverage although it was entitled to such coverage under a Businessowners Insurance Policy issued by ACE.  Plaintiffs allege that on or about December 12, 2020, an electrical service utility pole and supporting conduit at Chai Five’s premises, and that SoCalEdison (“Edison”) shut off electrical power after deeming it a “public safety issue.”  Plaintiff alleges that ACE improperly denied coverage by deeming Chai Five’s damage as caused by Chai Five and not thus not covered under the policy.

On January 17, 2023, Defendant filed this instant motion for summary judgment.  On March 21, 2023, Plaintiff filed an opposition.  As of March 30, 2023, no reply has been filed.

2.     Motion for Summary Judgment

a.     Parties’ Positions

Defendant moves for summary judgment/summary adjudication on the complaint, contending the first cause of action for breach of implied covenant of good faith and fair dealing in tort (“bad faith”) cannot stand because there is no evidence that coverage was owed and that even if there was, Defendant handled it reasonably.  It contends the second cause of action for breach of the implied covenant of good faith and fair dealing in contract (breach of contract) cannot stand because Plaintiff fails to meet its burden in proving that it is entitled to coverage under the insurance policy.  It contends that the claim for punitive damages cannot stand because there is no clear and convincing evidence that Defendant engaged in fraud or acted with malice or oppression.

Plaintiff opposes the motion.  It contends that Defendant fails to meet its burden in showing that it did not operate in bad faith, that the reasonableness of an insurer’s conduct in processing a claim is a question of fact, and that there were no reasonable grounds to delay or deny its claim.  It contends that it has alleged a valid, covered loss and that Defendant improperly denied the claim.  It contends that punitive damages are proper based on Defendant’s despicable conduct in denying Plaintiff’s claim based only on its alternate causation belief without any supporting evidence.

b.     Burdens on Summary Judgment

            Summary judgment is proper “if all the papers submitted 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.”  (Code Civ. Proc. §437c(c).)  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.”  (Id. at §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.  (Union Bank v. Superior Court (1995) 31 Cal.App.4th 574, 590.)  Once the defendant meets this burden, the burden shifts to the plaintiff to show that a “triable issue of one or more material facts exists as to that cause of action or defense thereto.”  (Ibid.)  

The moving party bears the initial burden of production to make a prima facie showing that there are no triable issues of material fact.  (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.)  A defendant moving for summary judgment must show either (1) that one or more elements of the cause of action cannot be established or (2) that there is a complete defense to that cause of action.  (Code Civ. Proc. §437c(p).)  A defendant may discharge this burden by furnishing either (1) affirmative evidence of the required facts or (2) discovery responses conceding that the plaintiff lacks evidence to establish an essential element of the plaintiff's case. If a defendant chooses the latter option he or she must present evidence “and not simply point out that plaintiff does not possess and cannot reasonably obtain needed evidence….”  (Aguilar, supra, 25 Cal.4th at 865-66.)

[A] defendant may simply show the plaintiff cannot establish an essential element of the cause of action “by showing that the plaintiff does not possess, and cannot reasonably obtain, needed evidence.”  (Aguilar, supra, 25 Cal.4th at p. 854.)  Thus, rather than affirmatively disproving or negating an element (e.g., causation), a defendant moving for summary judgment has the option of presenting evidence reflecting the plaintiff does not possess evidence to prove that element.  “The defendant may, but need not, present evidence that conclusively negates an element of the plaintiff's cause of action.  The defendant may also present evidence that the plaintiff does not possess, and cannot reasonably obtain, needed evidence—as through admissions by the plaintiff following extensive discovery to the effect that he has discovered nothing” to support an essential element of his case.  (Id. at p. 855.)  Under the latter approach, a defendant's initial evidentiary showing may “consist of the deposition testimony of the plaintiff's witnesses, the plaintiff's factually devoid discovery responses, or admissions by the plaintiff in deposition or in response to requests for admission that he or she has not discovered anything that supports an essential element of the cause of action.”  (Lona v. Citibank, N.A. 202 Cal.App.4th 89, 110.)  In other words, a defendant may show the plaintiff does not possess evidence to support an element of the cause of action by means of presenting the plaintiff's factually devoid discovery responses from which an absence of evidence may be reasonably inferred.  (Scheiding v. Dinwiddie Construction Co. (1999) 69 Cal.App.4th 64, 83.)

Thus, a moving defendant has two means by which to shift the burden of proof under the summary judgment statute: “The defendant may rely upon factually insufficient discovery responses by the plaintiff to show that the plaintiff cannot establish an essential element of the cause of action sued upon.  [Citation.]  [Or a]lternatively, the defendant may utilize the tried and true technique of negating (‘disproving’) an essential element of the plaintiff's cause of action.”  (Brantly v. Pisaro (1996) 42 Cal.App.4th 1591, 1598.)

Until the moving defendant has discharged its burden of proof, the opposing plaintiff has no burden to come forward with any evidence.  Once the moving defendant has discharged its burden as to a particular cause of action, however, the plaintiff may defeat the motion by producing evidence showing that a triable issue of one or more material facts exists as to that cause of action.  (Code Civ. Proc. §437c(p)(2).)  On a motion for summary judgment, the moving party's supporting documents are strictly construed and those of his opponent liberally construed, and doubts as to the propriety of summary judgment should be resolved against granting the motion.  (D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 21.)

c.     Evidentiary Objections

Plaintiffs filed evidentiary objections with their opposition papers.  The objections are overruled.

d.     First Cause of Action: Breach of the Covenant of Good Faith and Fair Dealing in Tort (Bad Faith)

“The law implies in every contract, including insurance policies, a covenant of good faith and fair dealing.  ‘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.’”  (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 720, as modified (Dec. 19, 2007).)¿ 

The relevant question in first first-party bad faith cases is not whether a decision made by the insurer as to coverage was right, but whether it was reasonable based on the facts known by the insurer at the time. ¿The test, sometimes referred to as the “genuine dispute” test, was explained in in Zubillaga v. Allstate Indemnity Company (2017) 12 Cal. App. 5th 1017, at 1028:¿¿ 

“When determining if a dispute is genuine, we do “not decide which party is ‘right’ as to the disputed matter, but only that a reasonable and legitimate dispute actually existed.”  (Chateau Chamberay, supra, 90 Cal.App.4th at p. 348, fn.7, 108 Cal.Rptr.2d 776.)  A dispute is legitimate, if “it is founded on a basis that is reasonable under all the circumstances.”  (Wilson, supra, 42 Cal.4th at p. 724, fn. 7, 68 Cal.Rptr.3d 746, 171 P.3d 1082.)  “This is an objective standard.”  (Bosetti v. United States Life Ins. Co. in City of New York (2009) 175 Cal.App.4th 1208, 1237, 96 Cal.Rptr.3d 744.)  “Moreover, the reasonableness of the insurer’s decisions and actions must be evaluated as of the time that they were made; the evaluation cannot fairly be made in the light of subsequent events that may provide evidence of the insurer’s errors.  [Citation.]”  (Chateau Chamberay, supra, at p. 347, 108 Cal.Rptr.2d 776.)”¿ 

            Defendant contends that Plaintiff cannot prove its first and second causes of action for bad faith because this claim is based on Defendant’s unreasonable investigation and denial of Plaintiff’s claim for insurance coverage.  Defendant argues that it does not owe Plaintiff benefits under the policy.  However, even if this Court were to find that benefits were owed, Defendant argues that its denial to pay policy benefits does not establish bad faith.

            In opposition, Plaintiff provides multiple arguments for Defendant’s bad faith.  Plaintiff contends that Defendant operated in bad faith by closing Plaintiff’s claims and citing a non-covered loss when the evidence showed that Plaintiff’s claim was a covered physical damage loss.  Plaintiff argues that the evidence indisputably shows that Defendant improperly denied Plaintiff’s claim unreasonably and in bad faith given that sufficient supporting documentation to support the claim was provided.  Plaintiff also argues that there were no reasonable grounds to delay or deny its claim because it unjustifiably relied on the explanation that Plaintiff’s power loss was due to their own excessive use.  Finally, Plaintiff contends that the “genuine dispute” doctrine is inapplicable because Defendant created its own dispute in contravention to the evidence provided by Plaintiff and its own investigators during the claims process.

            The Court finds that Defendant’s first argument, that Plaintiff’s claim was not covered under the policy, is sufficiently refuted as discussed in the analysis for the second cause of action.  The undisputed facts[1] show that the power loss was due to physical damage to a service pole rather than Plaintiff’s own excessive use.  (See Plaintiff’s Separate Statement of Uncontroverted Facts “PSSUF” Opposing Party’s Response and Supporting Evidence ¶¶ 19-23, 28-29, 34, 35; PSSUF Additional Material Facts ¶¶ 1, 4, 17.)  Secondly, Defendant’s bad faith argument is sufficiently rebutted by Plaintiff’s presentation of evidence.  (See PSSUF Additional Material Facts ¶¶ 18-24.)  Plaintiff’s expert opines: “It is clear that ACE’s investigation was not thorough, fair, nor objective based on the evidence presented.  This non-compliance with the affirmative duty to assist the insured is circumstantial evidence that the insurer’s behavior was purposed in denying the claim at the inception of the claims process.”  (Gunderman Decl. ¶ 17.)  The Court finds Plaintiff’s expert’s testimony as sufficient evidence of supporting Plaintiff’s bad faith claim.  Thus, Plaintiff’s first cause of action does not fail as a matter of law.

            Accordingly, the Court DENIES Defendant’s motion for summary adjudication as to the first cause of action.

e.     Second Cause of Action: Breach of Contract/Breach of the Covenant of Good Faith and Fair Dealing in Contract

“To establish a cause of action for breach of contract, the plaintiff must plead and prove (1) the existence of the contract, (2) the plaintiff’s performance or excuse for nonperformance, (3) the defendant’s breach, and (4) resulting damages to the plaintiff.  [Citation.]”  (Maxwell v. Dolezal (2014) 231 Cal.App.4th 93, 97-98.)  

            Defendant argues that Plaintiff cannot satisfy its burden in proving that it is entitled to coverage for its claim under the policy because it is undisputed that the power was shut down by Edison due to Plaintiff’s overuse of power.  Defendant contends that the power shut down was not “accidental” within the meaning of a property policy, but the intentional act of Edison.  Thus, Plaintiff’s power loss was not a caused by a direct physical loss or damage to its property or Edison’s property by a Coverage Cause of Loss. 

            In opposition, Plaintiff contends that its power loss was a covered loss under the policy because the evidence shows that Edison shut off service due to a direct call regarding physical damage loss of the service equipment.  Plaintiff claims its agents all testified that no damage to the pole existed before the subject incident date and that Edison’s immediate response to the “public safety hazard” was directly due to such physical damage.  

            The Court finds that the undisputed facts support Plaintiff’s claim that it was entitled to coverage under the policy as the power loss was caused by a direct physical loss or damage to its property.  (PSSUF Opposing Party’s Response and Supporting Evidence ¶¶ 19-23, 28-29, 34, 35; PSSUF Additional Material Facts ¶¶ 1, 4, 17.)  Particularly, the photograph shown in Exhibit 1 reveals physical damage to the service pole which is not insignificant.  Defendant does not provide any rebuttal arguments to address this piece of evidence.  Although Defendant satisfied its burden for summary judgment, Plaintiff successfully rebuts that showing, such that it cannot be found as a matter of law that there was no “contract” — in this case applicable coverage — between the parties for purposes of summary judgment.  Additionally, the undisputed facts support Plaintiff’s claim that the power shut down was not due to its overuse of power but due to physical damage to the service pole, which Edison deemed a “public safety issue.”  (PSSUF Opposing Party’s Response and Supporting Evidence ¶¶ 19-23, 28-29, 34, 35; PSSUF Additional Material Facts ¶¶ 1, 4, 17.)  Defendant fails to refute that Plaintiff would be precluded from coverage due to physical damage to the service pole.  Although Defendant argues that Edison decided to shut off power because of Plaintiff’s overuse of power, which was the efficient proximate cause of any alleged extra expenses, the undisputed facts show otherwise.  Thus, there is sufficient evidence to prove that Plaintiff was covered under the insurance policy for its power loss and that it was entitled to the claimed coverage.  Since the evidence supports Plaintiff’s contentions, Plaintiff second cause of action does not fail as a matter of law. 

            Accordingly, the Court DENIES Defendant’s motion for summary adjudication as to the second cause of action.

f.      Punitive Damages

“If [a] 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."  (Id. at 1122.)¿ California Civil Code, Section 3294 authorizes the imposition of punitive damages only upon proof of malice, fraud, or oppression.  A finding that an insurer violated its duty of good faith and fair dealing “does not necessarily establish that the defendant acted with the requisite intent to injure plaintiff.”  (Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 462.)¿ 

The Court finds that Plaintiff fails to make a clear and convincing showing of malice, oppression, or fraud to warrant an award of punitive damages.  Plaintiff contends that it has described many breakdowns in Defendant’s handling of its claim, including its improper investigation, denying Plaintiff’s claim for unsubstantiated reasons, and other bad faith conduct.  However, violation of duty of good faith and fair dealing or a showing of bad faith does not establish the malice, oppression, or fraud required for punitive damages.

Thus, the Court GRANTS Defendant’s motion for summary adjudication as to punitive damages.

3.     Conclusion

The motion for summary judgment is DENIED.  The motion for summary adjudication is granted as to the issue of punitive damages.

Plaintiff to give notice.

Parties who intend to submit on this tentative must send an email to the court at gdcdepts27@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.