Judge Mel Red Recana, Case Number: 23STCV08261, Date: 2024-03-06 Tentative Ruling

Johnny Jee and Louise Jee (collectively, Plaintiffs) filed an initial Complaint on April 13, 2023 against First American Title Insurance Company (Defendant) for two causes of action: (1) breach of policy title insurance, and (2) breach of the covenant of good faith and fair dealing. Plaintiffs followed their initial Complaint with a First Amended Complaint (FAC) on September 8, 2023, which included as an exhibit, the policy allegedly breached.

The motion now before the Court is Defendant’s Motion to Strike (Motion) punitive damages from the FAC. Specifically, Defendant requests that the Court strike the following from the FAC:

Plaintiffs are the sole owners in fee title of the property located at 328 Harrison Avenue, Claremont, California 91711 (the Property) (FAC, ¶ 5.) The Property, which contains a three-bedroom home, is located in a historical district that is a highly desirable area. (FAC, ¶ 15(d).) In connection with the purchase of the Property, Defendant issued its Eagle Policy of Title Insurance (the Policy), insuring the title of the Property upon close of escrow. (FAC, ¶ 5.) Escrow closed on August 21, 2020, and the Policy took effect the same day.

In November of 2020, Plaintiffs received a survey of their Property showing that the adjoining property owners (the Neighbors) had erected fences on portions of Plaintiffs’ property and had poured concrete (the Encroachments) on this portion for their own personal use, excluding Plaintiffs from this portion of Plaintiffs’ Property. (FAC, ¶ 7.) After notifying Defendant of the issue, Defendant issued a response noting they agreed with the survey and would look into the issue. (FAC, ¶ 8.)

After contacting and receiving no response from the Neighbors, Defendant informed Plaintiffs that “Unless, or until, the Neighbors provide a response First American [Defendant] will proceed under the assumption that Someone claims a right to use a portion of the Land for a special purpose…” (FAC, ¶ 9.) In so doing, Defendant retained Mr. Daniel Poyourow (Poyourow) to appraise Plaintiffs’ loss. Poyourow’s valuation of the Property was $730,000 without the Encroachments and $716,000 with the Encroachments, therefore Plaintiff’s loss was valued at $14,000, Defendant subsequently issued a check for the $14,000 loss. (FAC, ¶ 14.)

Plaintiffs disagreed with this evaluation, hired their own appraiser Kevin Apor (Apor) who concluded that Defendant’s appraisal of the land was unreasonable, inaccurate, and flawed. (FAC, ¶ 15.) Plaintiffs’ appraisal valued the Property at $780,000 with the Encroachments and that the loss because of the Encroachments was $179,000[1], not $14,000. Additionally, Apor noted purported errors in Defendant’s appraisal. (FAC ¶¶ 15a-15n). After bringing these errors to the attention of Defendant and Poyourow, Plaintiffs allege that Poyourow conceded that “reasonable minds may differ, arguably the sales data [Mr. Poyourow’s sales data] is sufficient to support a value estimate of $740,000[2].” (FAC, ¶ 16h.) Plaintiffs allege that Poyourow offered no explanation for choosing the lower number.

Plaintiffs allege that this failure to do a thorough and fair investigation of Plaintiffs’ claim is the basis for their causes of action and that this conduct constituted fraud, malice, oppression, and despicable conduct that warrants punitive damages.

“Before filing a motion to strike pursuant to this chapter, the moving party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to the motion to strike for the purpose of determining if an agreement can be reached that resolves the objections to be raised in the motion to strike.” (CCP § 435.5(a).) The Declaration of Edward W. Racek (Racek Decl.) states that the parties conferred telephonically on October 9, 2023, but were unable to reach an agreement. (Racek Decl., ¶ 3.) Nonetheless, the requirements of CCP § 435.5(a) are satisfied. The Court now turns its attention to the Motion.

The court may, upon motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (CCP § 436, subd. (a).) The court may also strike all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (CCP § 436, subd. (b).) The grounds for a motion to strike are that the pleading has irrelevant, false, or improper matter, or has not been drawn or filed in conformity with laws. (CCP § 436.) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (CCP § 437.)

A motion to strike any pleading must be filed “within the time allowed to respond to a pleading”—e.g., 30 days after service of the complaint or cross-complaint unless extended by court order or stipulation. [CCP § 435(b)(1)]. This does not affect the court's power to strike sua sponte. Courts are specifically authorized to strike a pleading upon a motion or at any time in the court's discretion. (CCP § 436)

The Court notes that motions to strike punitive damages may be granted, where the alleged facts do not support conclusions of malice, fraud or oppression. (Turman v. Turning Point of Central Calif., Inc. (2010) 191 Cal.App.4th 53, 63.)

In their moving papers, Defendant contends that none of the allegations in the FAC rise to the level required for an award of punitive damages. As explained below, the Court agrees. CIV § 3294 governs punitive damages and provides the following:

“In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.” (CIV § 3294(a).)

CIV § 3294(c)(1) provides the following definitions shall apply to this section:

(1) “Malice” means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.

(2) “Oppression” means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights.

(3) “Fraud” means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.

Upon opposition, Plaintiffs put forth two primary arguments: (1) the policy application was defective and (2) the appraisal was conducted contrary to Overholtzer v. Northern Counties Title Ins. Co. (1953) 116 Cal.App.2d 113 (“Overholtzer”). Plaintiff argues that these actions constitute malice, fraud, or oppression. The Court disagrees and takes each contention in turn.

a) Disagreements Over Defendant’s Policy Do Not Amount to Malice, Fraud, nor Oppression

The first contention that Plaintiffs put forth is that when Defendant was alerted to the Encroachments, and did not hear back from the Neighbors, Defendant wrongly proceeded to assess the claim as if the Encroachments were an easement. Plaintiffs point out that under California law an easement is the right to use the land of another for a specific purpose and that the easement holder cannot exclude the owner of the land from the use of the land for other purposes. (Opposition Papers, 4:6-11.) The Policy itself defines an easement as “the right of someone else to use the Land for a special purpose.” (FAC, Exh. B, “Definitions”.) The crux of the contention here is that under the labeled risk categories, Plaintiffs argue that this should have been handled under Covered Risk 5: “Someone else has a right to limit Your use of the Land.” Instead, Defendant proceeded under Covered Risk 4: “Someone else has an Easement on the Land.” (FAC, Exh. B, Covered Risks.)

Here, Plaintiffs argue that this is a misrepresentation of the operative provisions of the Policy and liken the instant case to Amerigraphics, Inc. v. Mercury Casualty Co. (3020) 182 Cal.App.4^th 1538 (“Amerigraphics”). In Amerigraphics the insured plaintiff brought an action against the insurer-defendant for breach of contract and bad faith. There, the court found evidence that warranted punitive damages because the evidence demonstrated that the insurer-defendant never advised the insured about the available coverages, that the insurer-defendant twice communicated to the insured-plaintiff that certain coverages were not available, and that the insurer-defendant denied coverage based on an investigation that never occurred. (Amerigraphics, supra, at 1559-1560.)

The Court can distinguish the instant case, the facts are simply not as malicious. Defendant never informed Plaintiff that coverage was not available, nor did Defendant deny coverage. The dispute arises out of how much Defendant should have paid out with regard to the applicable Policy. Additionally, whereas in Amerigraphics the jury found, and the court affirmed, a finding of fraud based on the false information communicated by insurer-defendant, there is no such allegation nor cause of action for fraud here.

b) Disagreements Over Defendant’s Appraisal Do Not Amount to Malice, Fraud, nor Oppression

Plaintiffs’ second contention is that that appraisal process was completed contrary to Overholtzer, and Defendant’s lack of adequate response warrant punitive damages.

Plaintiffs document extensive issues with Defendant’s appraisal process. Before the Court turns its attention to those issues, an overview of what Overholtzer requires is beneficial. Overholtzer held that when a title insurer experiences a loss in value due to a defect in the title, “liability should be measured by diminution in the value of the property caused by the defect in title as of the date of the discovery of the defect, measured by the use to which the property is then being devoted.” (Overholtzer, supra, at 130.) Plaintiffs contend that Defendant’s appraisal, conducted by Poyourow, did not adhere to this standard. Plaintiffs contend that Defendant’s appraisal method used the sales of properties without any homes on them in addition to sales of homes in the area. (Opposition Papers, 5:22-3 – 6:1-8.) Additionally, Plaintiffs contend that Defendant’s appraisal:

Moreover, Plaintiffs assert that Defendant’s appraisal took into consideration unimproved parcels of vacant land, and properties that were not remotely comparable to the location of Plaintiff’s home. (Opposition Papers, 6:21-27.)

After bringing these errors to Defendant’s attention, Poyourow conceded that he had not evaluated the water intrusion into Plaintiffs’ garage caused by the Encroachments nor the loss of storage due to the inaccessibility of the garage caused by the Encroachments. Plaintiffs further contend that not only was the appraisal faulty but that Defendant, when approached about applying the policy under Covered Risk 5 stated that Covered Risk 5 “only protected against covenants”, however the Policy contains no such wording.

Plaintiffs argue that together with the refusal to correct the errors in the faulty appraisal, the misapplication and misrepresentation of the Policy is akin to the deceitful conduct that occurred in Mazik v. Geico General Ins. Co. (2010) 35 Cal.App.5^th 455 (“Mazik”). In Mazik an insured motorist brought an action against their insurer alleging bad faith breach of the insurance contract after an accident occurred and the motorist filed a claim. There the Mazik Court found that the initial claims adjuster admitted that the initial claim evaluation omitted important information that appeared in plaintiff’s medical records after plaintiff’s accident including: (1) that plaintiff was still on crutches several weeks after the accident (2) that plaintiff had back pain despite no history of back problems, (3) the fracture in plaintiff’s heel bone was severe, (4) over five months after the accident plaintiff’s symptoms were worse when attempting to walk, plaintiff was experiencing significant discomfort, and was medicating with Vicodin and ibuprofen, in addition to several other pertinent details that would have counseled a different outcome than rejecting the initial claim. (Mazik, supra, 465.)

Again, the Court can distinguish the instant case from Mazik. Although there are allegations that the initial appraisal by Poyourow was faulty, there are no allegations that Defendant intentionally omitted information or deliberately avoided unfavorable facts. Here, there in fact was a Policy that was honored. Again, the debate is whether the amount was correct. However, the conduct of Defendant – who themselves acknowledge may amount to a breach – does not reach the level required to warrant punitive damages. Therefore, the Motion is granted.

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [court shall not “sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment”]. As there is reasonable possibility of successful amendment, the Court shall grant Plaintiffs 20 days leave to amend.

Accordingly, Defendant’s Motion to Strike is GRANTED. Plaintiffs are granted 20 days leave to amend.

[1] Although not provided in the FAC, the Court presumes that the value of the Property without the Encroachments was therefore $959,000.00.

[2] Although not provided in the FAC, the Court presumes that this number is still without the Encroachments, therefore a $10,000 difference in Poyourow’s initial value estimate of the property without Encroachments.

Superior Court of California

County of Los Angeles

Case No.: 23STCV08261