Opinion
NOT TO BE PUBLISHED
Appeals from a judgment and from an order of the Superior Court of Orange County No. 785435, Ronald L. Bauer, Judge.
Bergman & Dacey, Gregory M. Bergman, Mark Waterman; Pollak, Vida & Fisher, Daniel P. Barer and Jeffrey A. Needelman for Plaintiff and Appellant.
Horvitz & Levy, Peter Abrahams; Rudloff Wood & Barrows, G. Edward Rudloff, Jr., Marjie D. Barrows, Renée M. Peters; Foran Glennon Palandech & Ponzi and Matthew S. Ponzi for Defendants and Appellants.
OPINION
RYLAARSDAM, ACTING P. J.
OVERVIEW
This is a large case. A very large case. The clerk’s transcript, which is just the record of the trial court proceedings, consists of no less than 222 volumes in excess of 65, 000 pages. Then there is a supplemental clerk’s transcript, consisting of another 46 volumes in excess of 13, 000 pages. The reporter’s transcript, which is the record of oral trial court proceedings, consists of 104 volumes and reaches almost 19, 000 pages. And then there are the trial court exhibits. There were over 2, 100. The briefs (just the normal appellant’s opening brief, respondents’ brief and reply brief) are, respectively 120 pages, 159 pages, and 180 pages. (And those aren’t even all the briefs in this appeal.) The case would be literally and physically unmanageable but for the thoughtfulness of the appellate counsel who arranged to have the record, including the briefs, put on a single computer disk, including helpful internal links. So, for example, an important record reference on page 95 of the opening brief to “58 CT 16, 831-16, 835” is, happily, linked to that set of pages in the clerk’s transcript.
As befits its size, the case has also occupied a long -- a very long -- span of time. It is easily the 14 Years War of civil litigation in Orange County.
The event on which the complaint is based was the Northridge earthquake of January 1994. The complaint was not filed until October 1997. The pretrial and discovery period took about five years: from 1997 to late 2002. It then took another four years, until November 2006, for judgment to be entered. And even then judgment was only entered after two separate trials held pursuant to a bifurcation order. And even after the judgment, with various posttrial matters and matters preparatory to this appeal, the last entry in the chronological index of the clerk’s transcript -- in April 2007 -- was almost ten years after the complaint and more than 13 years after the earthquake that gave rise to the claims for property damage that engendered the complaint.
This appeal raises four issues, one extremely record-intensive. Here is background to understand those four issues:
This is a case brought by the County of Los Angeles (“LA County”) against a group of insurers. The insurers jointly provided a specially negotiated property insurance plan, called the “PPP” in the briefs for “Public Properties Insurance Policy, ” which we will call simply the “insurance plan.” The insurance plan provided first party property insurance for 27 separate properties belonging to LA County, including the Los Angeles County Central Courthouse in downtown Los Angeles, and outlying courthouses in Beverly Hills and Pasadena. Indeed, the fact that the case might have been tried by judges working in some of the very buildings at issue in the litigation is the reason the case has landed here in Orange County. (LA County, of course, when one considers all of its firehouses, libraries and other structures, owns many more than a mere 27 buildings; at one point in the record it was revealed that LA County owns at least another 225 properties.)
After the January 1994 Northridge earthquake, the primary layer insurers participating in the insurance plan quickly advanced $10 million to LA County for the repair of properties covered by the insurance plan. Between 1994 and 1997, however, LA County and the insurers developed disagreements as to just how much in the way of repairs were needed, and in particular disagreed over the degree to which the insurers were obligated to pay for damage or wear and tear arguably preexisting the 1994 earthquake.
Like garden-variety earthquake insurance policies available to ordinary homeowners, the insurance plan here carried a relatively large deductible -- 5 percent of the value of any particular building among the 27 insured properties. There was also an aggregate maximum deductible of $20 million. That is, if total damage to all 27 buildings exceeded $20 million, the insurance plan would be obligated to pay something, even if many of the 27 properties sustained damage of less than 5 percent of their value and hence did not individually trigger any obligation to pay.
On the opposite end from the deductibles, there was a total limit on payouts of $125 million.
LA County began the litigation optimistically, thinking that its claim on just one county building alone -- the county’s Hall of Administration -- would exceed the insurance plan limits of $125 million and it would have a viable bad faith claim so as to be able to collect more than that. Indeed, in exhibit 54, in which LA County acknowledged the receipt of $10 million, LA County recited that its proof of loss exceeded $201 million.
And so perhaps it is not wholly surprising that the complaint, filed in October 1997, was restricted to only three of the 27 properties covered by the plan (the Hall of Administration, the Los Angeles County Central Courthouse, and an underground parking lot). Ironically, it was only because the insurers, in cross-complaints, sought declaratory relief as to three more properties that the case expanded to encompass a total of six separate county-owned properties. It should be noted here that LA County never did amend its complaint.
The pleading, discovery and pretrial motion period took place from 1997 until late 2002, when the five-year deadline loomed. The parties solved that problem by stipulating to a putative beginning of trial in November 2002, albeit no real trial would begin until February 2003.
In late December 2002, LA County brought what might have been -- at least in retrospect and for purposes of this appeal -- the most important pretrial motion in this case: A request to bifurcate trial so that four of the six properties at issue (the three in the complaint, plus another parking structure) would be tried in a “Phase I” jury trial with the remaining two properties to be tried in a “Phase II” jury trial. LA County’s hope was that it would do so well in Phase I that the case would soon settle, with the insurers paying their policy limits.
It didn’t happen that way. After a jury trial that lasted over six months and spanned the better part of 2003 (from February 2003 to September 2003), the jury returned a verdict to the effect that the none of the four properties at issue in Phase I sustained damage that exceeded the respective five-percent deductibles. LA County thus recovered nothing in Phase I. The bad faith claims were rejected by the jury as well.
Then came Phase II. LA County waived its request for a jury trial, and Phase II was tried to the court in late 2004. Of the two properties remaining at issue for Phase II (the outlying courthouses in Beverly Hills and Pasadena), damage from one did not exceed the deductible, but damage from the other (Beverly Hills) did exceed the deductible -- by about $400,000. However, the trial court ruled that before any obligation on that $400,000 was payable, LA County had to actually complete the repairs, and as of the time of trial, none of its repair expenses had exceeded the deductible. Moreover, any obligation by the insurers was readily subsumed within the $10 million already advanced by the primary layer insurers. We should note here: There is no argument on appeal that the trial court erred, in taking into account the absence of completion of repairs to the Beverly Hills courthouse or the $10 million advance, in calculating the judgment to require no payment of money from the insurers.
As far as the trial court was concerned, the completion of Phase II was the completion of the issues to be tried from the complaint. LA County had gained nothing from the litigation. The insurers were the prevailing parties and entitled to costs.
On top of their entitlement to costs as prevailing parties, the insurers also claimed expert costs pursuant to section 998 of the Code of Civil Procedure. (All references to “998” or “section 998” in this opinion will be to section 998 of the Code of Civil Procedure.) (Technically, the attack on the order dealing with costs is its own appeal, consolidated with the main appeal challenging the judgment.)
It seems that back in 2001 each of the insurers -- including excess layer insurers who had not participated in the advancement of the $10 million -- made formal “998” offers to settle for various amounts which, collectively, added up to about $4.8 million. But, as noted, LA County recovered nothing from either the Phase I trial or the Phase II trial, so the trial court, in its judgment, also awarded the insurers $5.9 million in costs, of which about $3.9 million consisted of expert and witness fees under Code of Civil Procedure section 998. We should pause to note here that there is no issue on appeal as to the reasonableness of the amount of the expert witness fees and costs.
And so, what had begun with great expectations of exhausting policy limits and recovering bad faith damages on top of those limits had turned, like Napoleon’s invasion of Russia, into a rout. Instead of LA County recovering money from the insurers, it now had to pay about $5.9 million to the insurers.
We now return to the four great issues in the opening brief, as framed by LA County’s opening brief:
1. The trial court “failed to try key issues of policy interpretation.” (This issue is the record-intensive one, occupying more than 80 pages in the opening brief.)
2. The trial erred in giving a jury instruction that put the “burden of proving earthquake-related loss” on LA County.
3. The trial court erred in ruling that the insurers were “entitled to expert costs under Code of Civil Procedure section 998.”
4. The trial court erred in “determining that the county was not the prevailing party.” (Yes, on appeal LA County is arguing that it was the “prevailing party”!)
Here is a summary of our conclusions:
1. As we show in detail below, the “issues” that were “tried” in either Phase I or Phase II were the issues that were raised in LA County’s own, never-amended complaint. LA County overoptimistically restricted its complaint to three of the 27 properties, and as late as the bifurcation order that structured the conduct of both phases of trial, was affirmatively telling the trial judge that the case was restricted to only six of the 27 properties covered by the insurance plan.
2. The trial court correctly put the burden of proof on LA County to show its losses were related to the Northridge earthquake. In fact, under section 10088 of the Insurance Code, which specifically governs earthquake insurance, the trial court had no other alternative.
3. The insurers 998 offers were valid. Those offers were tightly written: In return of the payment of certain amounts from each of the insurers, the complaint and the cross-complaint would be dropped. We should note here that LA County’s argument to this court on appeal is much the opposite of its argument to the trial court on the validity of the 998 offers: LA County told the trial court that the insurers’ 998 offers tried to do too much, by encompassing litigation outside the complaint and cross-complaints in this case. On appeal, LA County contends that the insurers’ 998 offers tried to do too little, and were not sufficiently encompassing to allow LA County to evaluate the effect of the 998 on issues outside the complaint and cross-complaints. Upon examination, we have determined that neither contention is true: The 998 offers were just right. They proposed to settle the claims asserted in the complaint and cross-complaints, nothing more, nothing less.
4. The trial court correctly ascertained that the insurers were the “prevailing parties” under section 1031 of the Code of Civil Procedure for purposes of normal recoverable costs of litigation. Since the briefing has been completed, the California Supreme Court has settled whatever tension there has been in the law on this point. It is now clear that if a party recovers nothing monetarily by way of trial, it is not a prevailing party, period. (See generally Goodman v. Lozano (2010) 47 Cal.4th 1327 (Goodman).) LA County clearly recovered nothing monetarily here. Moreover, by the same token, to the degree that the trial court had discretion to determine, pursuant to section 1032, subdivision (a)(4) of the Code of Civil Procedure, who was the prevailing party as to nonmonetary issues, that discretion was obviously not abused by the trial court in determining that the insurers were the prevailing parties.
THE “UNTRIED ISSUES” ISSUE: THE RECORD
1. Introduction
By far the great bulk of the opening brief is devoted to the argument that the trial court failed to “try” -- and that is the key word in the main headings and most of the subheadings -- “key issues” of “policy interpretation.” (In one of the subheadings under this argument the key verb is “adjudicate” and another the verb is “construe.”)
Preliminarily, one must step back and recognize that this basic argument is unusual, to say the least, and, to be plain, a little nebulous. What does it mean, after all, for a trial court to “fail”to “try issues” in a case where an insured is seeking money from an insurance company, or, as in this case, a whole group of insurance companies?
In this appeal LA County appears to be using the word “issue” in its briefing to insinuate, almost at a subliminal level, certain assumptions about the course of the litigation. These assumptions are that the complaint contained claims based on a series of provisions in the insurance plan that we will call the “auxiliary benefit provisions.” The auxiliary benefit provisions are things like loss adjustment expense and debris removal, as distinct from the repair of damaged property as such. The complaint, as we will soon show in great detail, contained no reference to such auxiliary benefit provisions and no claims based upon them at all.
Indeed, if one substitutes the word “claims” for “issues” when one reads LA County’s briefs, a much clearer picture emerges. The theories of recovery that LA County now wants us to assume were somehow reserved for some future adjudication after two trials were, in fact, never put forward at all by the complaint. But by using the word “issues” instead of “claims, ” the opening brief suggests that LA County sought recovery from the insurers under certain theories and the trial court arbitrarily just decided not to allow those theories to go to the triers of fact.
Not so. LA County limited its claims against the insurers in its complaint to just three properties, and then based its claims on the straight-up damage to those properties sustained in the Northridge earthquake, as distinct from any claims based on the auxiliary benefit provisions of the insurance plan.
Moreover, in critical “housekeeping” hearings involving the way the trial would be organized, LA County either gave up its attempt to force the trial court to make rulings on policy “issues” in the abstract (which is what happened on November 4, 2002) or completely omitted those “issues” as any basis for recovery (which is what happened in regard to LA County’s own bifurcation motion and the February 2003 hearing on that motion).
But then, in Phase I -- that is, after the bifurcation motion that was to determine how trial would proceed -- things went south for LA County. The jury precluded any recovery after the Phase I trial. And the trial court did not find enough damage to require payment in Phase II.
All of a sudden, LA County found itself scrambling to find some policy payouts that would put it over the $20 million aggregate deductible, so it could say it won and would not suffer the ignominy of having to pay its insurers money in litigation costs.
And yet, when, in post-Phase II hearings, the trial court practically invited LA County to make a motion to “reopen” the case so that it could yet present the claims against the insurers based on theories of recovery (i.e., these supposedly untried “issues”), LA County declined the opportunity. It told the trial judge that it had already reserved its auxiliary benefit claims for a future “Phase III” trial. Only in postjudgment motions for new trial and jnov did LA County announce an intention to bring a motion to reopen.
At this point we segue to the opening line of the respondent’s brief: “The County of Los Angeles’ appeal seeks to undo the consequences of its own litigation strategy.”
On first reading the line (and particularly after plowing through the opening brief), one is inclined to be highly skeptical. Surely in this insurance case LA County’s lawyers didn’t have a “litigation strategy” that precluded the trial court’s “trial” of various “policy issues”?
But on reflection, and digging what one can into the record, one is forced to conclude that the opening line of the respondent’s brief is accurate, and LA County’s “litigation strategy” was the result of thoughtful, tactical, judgmental decisions. (That those decisions did not, in hindsight, work out, is another matter. Neither did Napoleon’s invasion of Russia.)
One should remember as one reads this opinion: As it has arrived at the doorstep of the Court of Appeal, this appeal (with the one distinct issue involving burdens of proof) is not, fundamentally, an insurance case at all. It is a story of the difficult job which counsel for both sides and the trial judge faced in managing incredibly complex civil litigation of titanic proportions.
Consider the sheer elephantine girth of the case. Wise trial attorneys would no doubt have recognized that it would have tested the patience of even the most dedicated and otherwise nondistracted jury for LA County to have presented claims for each of the 27 properties covered by the insurance plan. Thus it is understandable that the complaint limited itself to just the big three properties damaged in the earthquake. After all, LA County had substantial evidence which, if believed by the jury, would have readily maxed out the limits of the insurance plan and presumably brought the insurers to heel as regards LA County’s bad faith claims.
Next, after the insurers put three more properties in issue, LA County, still recognizing the need to narrow the focus of the case, sought to bifurcate the trial so that only three of the total six properties at issue would be tried initially (as it turned out, the phase one trial encompassed four of the six). Readers should consider this irony: We have 104 volumes of reporter’s transcript largely out of the decision to limit LA County’s claims to just six properties. It does not bear thinking what this case might have turned into had LA County decided to present claims based on all 27 properties.
And then came yet another tactical choice. With a no-recovery judgment staring them in the face, LA County had to decide whether or not to present a motion to “reopen” to the trial court. To make such a motion might be to admit that it had never really pressed its auxiliary benefit theories until then, and invite a response by the insurers that would have reminded the court that these were claims not pressed in discovery, or presented in two previous phases of trial. After all, at that point, after eight years of discovery and litigation, the insurers would have a very good argument that any reopening would have been highly prejudicial to them.
So, LA County deliberately chose not to make a motion to reopen, though it had a period of more than five months to do so. (The five months extended from June 2006 (when the trial court issued the possible invite) to mid-November, 2006 (when the judgment was ultimately entered).) During that period LA County’s position was: We never restricted the case to just six properties; we have “coverage issues” we are still entitled to still try. As the trial judge summed up LA County’s position: “If I can interpret what I’ve just heard from Mr. Mason [one of LA County’s attorneys], it’s not necessary to move to reopen something that’s never been closed.” Only after it became clear that the trial judge was not going to order -- and never had contemplated -- a “Phase III, ” did LA County claim that it even wanted to make a motion to reopen. And by then, of course, it was too late.
One more thought: We apologize for the size of this opinion. But its bulk is necessary precisely because this is a study of complex civil litigation, in which the very facts and events salient to this appeal are papers and oral proceedings at the trial level. Most of LA County’s argument is predicated on its own paraphrases of what happened at various status conferences and hearings, instead of the actual words recorded by the reporter. Only by quoting -- including quoting at length so as to show the surrounding context -- from the motions of the parties and the transcript of the various hearings does a true picture emerge.
2. The Complaint
While the original (and only) complaint in this case is, at first blush, quite long -- it takes up the better part of no less than three volumes of clerk’s transcript -- that length is a little deceptive. Almost all of the size of the complaint is attributable to exhibits and attachments, not the least are the various policies that make up the composite 21-insurer “insurance plan.” (We will explain the nature of the insurance plan where it is most relevant to the issues raised in this appeal, which is in the next section where we address the question of whether plaintiff LA County had the burden of showing earthquake-related damage.) The actual, lawyer-drafted pleading, the complaint “proper” as it were, is relatively short, extending less than 13 pages, from page 146 of the clerk’s transcript (which begins simply identifying the insurers in the plan) to the middle of page 158 (which is mostly the prayer for relief on the second cause of action listed).
The complaint lists only two causes of action: declaratory relief and bad faith. The complaint sorts itself into nine separate sections. We now detail each of those nine sections:
-- The first section, which simply identifies all 21 insurers who were part of the insurance plan.
-- The second section, under the heading first cause of action for declaratory relief, which devotes two paragraphs to giving an outline of the insurance plan, which it calls the “PPP, ” an acronym for Public Properties Insurance Policy. (As noted above, we will call it simply, “the insurance plan.”) Paragraph 25 makes the point that the insurance was in effect from July 1993 through July 1994, and one of the “purposes of the [insurance plan] was to provide, inter alia, $125 million in coverage for physical damage to the insured buildings due to earthquakes.” The next line identifies three of those “insured buildings.” It says: “Three of the insured buildings were the Hall of Administration [address], the Civic Center Courthouse [address] and Auto Park 18 [address].” Paragraph 26 then details the insurance plan itself, and particularly the layers of coverage: Six insurers provide “primary layer” coverage, another five provide “first level excess coverage, ” eight insurers provide “second level” excess coverage, four provide “third level” excess coverage, and five provide “fourth level” excess coverage. (The totals add up to more than 21 because some insurers, like New York Marine and General, provide more than one layer of coverage.)
-- The third section, consisting of just one short, one-sentence paragraph, under the heading “the county’s loss.” This part we will now quote in full: “On January 17, 1994, a massive earthquake occurred which physically damaged a number of the County’s insured properties, including the Hall of Administration, Civic Center Courthouse, and Auto Park 18.”
-- The fourth section, which alleges that LA County gave notice of its loss to defendant insurers and they received it. This part references exhibit B, the actual notice. Exhibit B -- a letter from LA County’s risk and insurance management office -- is, on examination, indefinite as to the precise properties on which LA County made claim. (“Notice of loss is given that a number of County facilities sustained damage on January 17, 1994 as a result of the Northridge earthquake.”) Attachments to exhibit B give a printout list of many county buildings, plus some status reports on some of the bigger ones. Interestingly enough, the County Courthouse on Hill Street is listed as open as of January 20, 1994, and (unless we missed something) the Hall of Administration is not listed at all. But that was to come in the fifth section.
-- The fifth section, which was under the specific heading “Hall of Administration” (paragraphs 30 and 31). These paragraphs alleged that LA County’s Hall of Administration sustained at least $70 million in “covered earthquake damage” (and possibly as much as $100 million). Paragraph 31 also specifically alleges: “There is also a rental loss claim estimated at $8,455,040.”
-- The sixth section, which was under the heading “Civic Center Courthouse” (paragraph 32). This part alleged (1) “cost to repair” the “covered earthquake damage” was $49.7 million and (2) “There is also a rental loss claim estimated at $9,057,644.”
-- The seventh section, under the heading “Auto Park 18.” Like the two previous headings, the allegations here mentioned the “sustained covered earthquake damage” and a rental loss claim. However, unlike the previous two (possibly because the repair figure was not quite as astronomical as the previous two), the allegation here also acknowledged the existence of a deductible: “Auto Park 18 has sustained covered earthquake damage, and the cost to repair is estimated at $3,126,949.00, minus $1,511,561 which would be applied to the deductible. There is also a rental loss claim estimated at $91,815.00.”
-- The eighth section, under the heading “the Controversy.” This part consisted of two paragraphs detailing the exchanges between LA County and its insurers evidencing a dispute as to reasonableness of the repair costs requested by LA County. No buildings other than the three (the Hall of Administration, the Civic Center Courthouse, and Auto Park 18) is mentioned, and the language is clear that the “controversy” in question is limited to just those three properties: “While the County contends that the earthquake damage to the Hall of Administration, Civic Center Courthouse, and Auto Park 18 is covered by the policies, and that the proposed repairs are reasonable, County is informed and believes, based on the defendants’ failure to pay their policy limits, that defendants, and each of them, dispute County’s positions as to the amount of the damage, coverage for the damage, and the scope of needed repairs.” This part then mentions a series of reports and letters backing up that allegation, none of which mention any buildings other than the Hall of Administration or Civic Center Courthouse. The part finishes, in paragraph 35, with a wrap-up allegation again limiting the “claim” to the Hall of Administration, the Civic Center Courthouse, and Auto Park 18”: “The defendants dispute with the County over the coverage, scope of damage, and reasonableness of repairs for the Hall of Administration, Civic Center Courthouse, and Auto Park 18 is ripe for judicial resolution by way of a declaratory relief action.”
-- The ninth section of the complaint is devoted entirely to the bad faith claim, and is under heading “second cause of action.” Again, no claims are made with reference to any buildings other than the Hall of Administration, Civic Center Courthouse and Auto Park 18, and the key charging allegations (in paragraph 37.a.), specially focus on the insurers’ denial of LA County’s claim with regard to those three buildings: “Even though they received documentation over one year ago, defendants, and each of them, have failed to pay their policy limits for the damage to the Hall of Administration, Civic Center Courthouse, and Auto Park 18 claims within a reasonable amount of time following the presentation of the partial proof of loss and supporting documentation as required by law.” These refusals, the ninth part of the complaint goes on to say, were with the “requisite malice, fraud and/or oppression to warrant” punitive damages.
Then comes the prayer, divided into two sections for each cause of action. As to the first cause of action for declaratory relief, the focus is exclusively on the three buildings: “For a declaration that: [¶] a. County’s assessments of the damage at the Hall of Administration, Civic Center Courthouse and Auto Park 18, as documented in the A&E [architectural and engineering] Reports, are correct; [¶] b. That the earthquake-related damages to the Hall of Administration, Civic Center Courthouse, and Auto Park 18 are covered by the policies issued by defendants, and each of them; [¶] c. That the proposed repairs are reasonable, can be undertaken, and that the cost of the repairs is covered by the policies issued by defendants, and each of them; and that defendants, and each of them, must pay for the actual costs incurred; [¶] d. For costs of suit incurred herein; and [¶] e. For such other and further relief as the Court deems just and proper.”
As to the second cause of action for bad faith, the complaint sought punitive damages, “attorneys’ fees and costs pursuant to Brandt v. Superior Court, 37 Cal.3d 813, 210 Cal.Rptr. 211” and costs of suit and further relief as the court would deem just and proper.
And that’s it. Let us now note what is conspicuously not in the complaint: (1) any allegations that the total damages to all 27 of the buildings covered under the insurance plan exceeded the $20 million aggregate deductible; and (2) any allegation that, when various auxiliary benefit provisions of the policy (such as loss adjustment or relocation expenses) were added in, the $20 million aggregate deductible was exceeded. Rather, LA County had put all its chips on two squares of the roulette table: Repair costs and rental losses for three -- and only three -- properties.
3. Summer-Fall 2002: The Raising of “Policy Interpretation” Issues
By August 19, 2002, the five-year deadline to bring the case to trial was looming. That day, in a status conference, the trial court entertained a motion from LA County to exclude “everything about FEMA” in the case (referring to the federal emergency management agency). The motion was denied as way too broad.
At the same hearing, the trial judge raised the problem of the trial schedule. Trial was, at that point, scheduled for November 4, and counsel for LA County clearly saw the five-year problem. The five-year deadline was, however, readily solved when counsel for the insurers stipulated that November 4 would be the “start of the trial for purposes of the five-year statute” even though it was obvious no real “trial” would begin that day.
Soon, however, an attorney for LA County rose to say that “five issues” had been “identified” for trial to the court. (As will be the case throughout this opinion, material in all caps has been lifted -- virtually cut and virtually pasted -- from the actual reporter’s transcript. When such material is italicized, it is our own italics.) Here are his remarks:
MR. MASON: THANK YOU, YOUR HONOR.
FIVE ISSUES WERE IDENTIFIED FOR PURPOSES OF LEGAL ISSUES TO BE TRIED TO THE COURT:
FIRST IS SECTION 104(B) OF THE LOS ANGELES COUNTY BUILDING CODE OF 1992.
SECOND IS ADA/TITLE 24.
THIRD IS BURDENS OF PROOF.
FOUR IS INTERPRETATION OF POLICY PROVISIONS.
AND FIVE WAS THE EFFECT OF PRINTED ENDORSEMENTS TO THE MANUSCRIPT POLICY FORM.”
Defense counsel, however, was bothered by the nebulousness of the “interpretation of policy provisions” comment, and when his turn came, indicated that there was still basic work to be done:
MR. MCBURNEY: AND IF I COULD JUST ADD, YOUR HONOR, IN ADDITION THERE IS A -- THE DEFENDANTS AT LEAST PERCEIVE AN ABSENCE OR A LACK OF SPECIFICITY WITH RESPECT TO TWO OF THE ISSUES RECITED BY -- OR ONE OF THE ISSUES RECITED BY MR. MASON HAVING TO DO WITH THE INTERPRETATION OF POLICY PROVISIONS. IF THAT ISSUE COULD BE BETTER DESCRIBED BY THE DATE OF THAT FINAL EXCHANGE OF
MR. MASON: FURTHER LEGAL ISSUES.
MR. MCBURNEY: -- FURTHER LEGAL ISSUES.
THE FINALIZATION OF THE LIST OF FURTHER LEGAL ISSUES SHOULD INCLUDE A FINALIZATION OF A DESCRIPTION OF WHAT IS BEING BRIEFED AS TO INTERPRETATION OF POLICY PROVISIONS.”
It does not appear that the matter of these “issues” was resolved in the August 19, 2002 hearing. But, as the ostensible trial date of November 4 approached, they were raised again in a “brief” filed by LA County on October 18, 2002.
4. The Briefing and Hearings of October through December, 2002
While a good portion of the opening brief in the case before us is devoted to asserting that “throughout the case” LA County had brought “policy-interpretation issues” to the trial court’s attention, the opening brief points to just three discrete instances where these “issues” were brought to the trial court’s attention before Phase I, and that was in (1) a pretrial brief filed October 18; (2) another brief filed on October 28; and (3) a third brief filed on January 13, 2003.
The first two briefs were addressed by the trial court in a hearing on November 4, 2002. The last addressed in a hearing on January 31, 2003. We will now detail these briefs and the hearings on them as the trial court experienced them, in chronological order:
a. LA County’s October 18 Pretrial Brief
When the first of the pretrial briefs was filed October 18, 2002, the putative trial date was set for less than three weeks away, i.e., November 4, 2002.
While the document was denominated a “brief, ” the caption also put it under the heading “legal motion no. 6 of 6.” The declared purpose of the document was to “determine the effect of the endorsements to the County’s manuscript policy form and to interpret same.”
Here is how the brief explained itself -- basically asserting that the insurers needed to be pinned down on what policy provisions the insurers were relying on:
“The policy for which the County sought subscribers consisted of a manuscripted (i.e., written specifically for the insured) primary layer and a four manuscripted excess layers. But when the Defendants agreed to subscribe, they also attempted to modify the terms of the manuscript form by issuing printed and/or manuscripted endorsements. Some of these endorsements were even dated after the January 17, 1994 Northridge Earthquake. The result of these varying changes is that the County’s coverage is not uniformly consistent regarding the scope of the coverage provided and the applicable exclusions. But throughout the course of the County’s loss, each defendant has failed, in violation of California law, to advise the County as to what parts of each defendant’s policy applies to the County’s loss. Instead, defendants have chosen to rely upon generic letters written by their adjuster, letters that failed to identify the specific per policy terms that were applicable. [¶] It is therefore incumbent upon this Court to determine, as a matter of law, what endorsements were properly executed, countersigned, and delivered to the County prior to the January 17, 1994 Northridge Earthquake. Once this determination is complete, the rights of the County and the duties of each Defendant can be completely identified.”
Thereafter, the motion set forth a “series of rulings sought by the County.” The rulings that are relevant to this appeal were that the court “interpret” the insurance plan in a myriad of ways. We will quote the entire section here. Preliminarily, we should note that it is reasonably clear that the requests are, optimistically, geared to questions that would arise if LA County was successful and maxed out the policy limits, hence the continued seeking of a determination that certain kinds of coverages had “no dollar limits.” However, to be fair to LA County, a number of its requests could also be interpreted as seeking a determination that LA County was entitled to reimbursement for any amounts spent on certain categories of expenses, because the deductible provisions of the insurance plan did not apply to those categories. Here are the requests:
“The Court should interpret the policies as follows:
“a. Primary layer.
“(1) In the LIMIT OF LIABILITY Section of the manuscript policy form (Section II), the $30 million per occurrence (A) is a separate limit from the $30 million per occurrence for earthquake coverage (B).
“(2) In the LIMIT OF LIABILITY (II), the $5 million limit for Extra Expense applies separately to each participating insurer since the policy uses the phrase “This Company” in this section.
“(3) In the LIMIT OF LIABILITY (II), the $100,000.00 limit for LOSS ADJUSTMENT EXPENSE apply separately to each participating insurer since the policy uses the phrase ‘This Company’ in this section.
“(4) All expenses incurred by the County (e.g., consultant fees, expert fees) are covered under LOSS ADJUSTMENT EXPENSES (paragraph 22) since there are no restrictions constrained therein.
“(5) There is no cap on the dollar amount defendants must pay for EXPEDITING EXPENSE (paragraph 10).
“(6) There is no cap on the dollar amount defendants must pay for DEBRIS REMOVAL (paragraph 8).
“(7) There is no cap on the dollar amount defendants must pay for CONSEQUENTIAL LOSS (paragraph 24).
“b. First, Second, Third, and Fourth Layer Excess.
“(1) There is no limit on the dollar amount each defendant must pay for LOSS ADJUSTMENT EXPENSES.
“(2) There is no limit on the dollar amount each defendant must pay for EXTRA EXPENSE.
“(3) There is no limit on the dollar amount each defendant must pay for DEBRIS REMOVAL.
“(4) There is no limit on the dollar amount each defendant must pay for EXPEDITING EXPENSE.
“(5) There is no limit on the dollar amount each defendant must pay for CONSEQUENTIAL LOSS.
“(6) There is no deductible applicable to the LOSS ADJUSTMENT EXPENSES clause.
“(7) There is no deductible applicable to the EXTRA EXPENSE clause.
“(8) There is no deductible applicable to the DEBRIS REMOVAL clause.
“(9) There is no deductible applicable to the EXPEDITING EXPENSE clause.
“(10) There is no deductible applicable to the CONSEQUENTIAL LOSS clause.”
Another aspect of the October 18 “brief” was an orientation to a bad faith recovery and apparently outstanding discovery issues. Hence, later on, the brief asserted that it hadn’t received satisfactory answers from the insurers as to precisely what policies in the plan were at issue: “The parties and the Court need to identify the pertinent policies so that the trial may proceed in an orderly, efficient, and reasoned manner. The Defendants in this action are all subject to the Unfair Claims Settlement Practices Regulations (10 Cal. Code Reg., § 2695.1, et seq.).”
Under the heading “this court has the duty to interpret the policies as a matter of law, ” the brief finished up with a section on how policy interpretation issues are (usually) legal issues (hence the citation to Waller v. Truck Ins. Exch., Inc. (1995) 11 Cal.4th 1, 18) and, though the document was denominated a “brief” and had no hearing date set, finished with the line, “the County’s motion should be granted.”
b. the insurers’ own October 18, 2002 “legal brief re policy interpretation issues”
The insurers also filed a “brief” on October 18, 2002. But they had a different take on these “issues.” The insurers’ theme was that the “issues” which LA County now wanted adjudicated were too nebulous to intelligently discuss in a vacuum, pretrial, and without established facts. The insurers argued that these issues had not been developed in discovery.
The insurers’ brief referenced an October 4, 2002 letter sent by LA County’s attorneys setting forth the “issues” which had only been obliquely alluded to at the August 28, 2002 status conference: After mentioning the status conference, the insurers brought the court up to date: “Thereafter, on October 4, 2002, the County sent a letter to defendants purportedly ‘clarifying’ these issues and adding other legal issues to be briefed to the Court. However, the October 4, 2002 letter raises more questions than it answers. Among other things, the letter fails to set forth the County’s position, fails to explain why the County believes certain policy provisions need to be interpreted, and fails to identify the facts and/or aspects of the County’s claim which the County deems applicable to the policy provisions.”
The next paragraph made the point that LA County was essentially asking for relief in a vacuum: “Policy provisions cannot be analyzed in a vacuum. To the contrary, any particular policy language must be examined in context with regard to its intended function in the policy, which requires a consideration of the policy as a whole, the circumstances of the case in which the claim arises and ‘common sense.’ (Bank of the West v. Sup.Ct. (1992) 2 Cal.4th 1254, 1265, 1276.) Since the County has failed to state how the various identified policy provisions are construed by the County, and under what factual context, defendants cannot prepare a brief in the abstract which purports to analyze the provisions identified by the County’s October 4, 2002 letter.” (Italics added.)
c. LA County’s October 28 response to the insurers’ brief
LA County did not waste the opportunity to respond to the insurer’s brief. While the insurers had claimed that LA County’s October 4, 2002 letter was nebulous, LA County came back with the same theme as its earlier, October 18 brief: The insurers themselves had been playing hide-the-ball. Hence, the response opened with this paragraph: “In its opening brief, the County documented that policy interpretation is a matter of law for the Court to determine and set forth the three rules of written contract interpretation. The County also highlighted the difficulty the County has had in discerning what are the Defendants’ positions regarding their applicable policy provisions in view of the Defendants’ failure to set forth their individual coverage positions as required by California law. This failure has gone on for eight years and has now been carried over into Defendants’ Opening Brief on policy interpretation. While they claim that each defendant has made individual modifications to the County’s bargained-for coverage, Defendants persist in not advising the County and the Court of those changes and how they impact their individual position vis-a-vis the County on its Northridge earthquake insurance claim.”
LA County’s brief in some ways reciprocated the insurers’ brief on the subject of the adversary’s failures in discovery. That is, LA County’s brief accused the insurers of various omissions that presumably should have been thrashed out in discovery: “Having elected to not set forth a legal position for the Court regarding (1) what are the applicable and enforceable endorsements to the County’s manuscript form; (2) what are the applicable indemnity limits; and (3) are there any deductibles or caps on loss adjustment expenses, debris removal, consequential loss, or expenses incurred pursuant to the assistance and cooperation clause, the Defendants should not be able to set forth their position in their response as it would afford the County no opportunity to respond in writing to Defendants’ position.” (Italics added.)
Beyond that, the opposition continued with themes that the insurers were about to make arguments that had yet to be pinned down. The insurers, said the brief, had “failed to identify which of the ninety-seven printed and manuscript policy forms are effective to modify the terms of the manuscript policy form” and also that the insurers were asserting that certain “full waiver” and “attachment” clauses to endorsements to their policies controlled over terms in their policies. Next, LA County claimed that the insurers’ position that, because the insurance plan was a “manuscript” policy the parties had “equal bargaining power, ” was “not supported by the facts.” And, finally, LA County took the position that given the insurers’ “failure to set forth their positions regarding coverage, ” the “order” that had been requested in the October 18, 2002 brief should be issued.
The next section of the October 28, 2002 brief was rhetorical, making the point that the insurers’ “feigned inability” to “address all of the issues regarding policy interpretation” that LA County had previously identified (in the letter dated October 4, 2002) was “disingenuous.” In this section, LA County grouped its policy interpretation issues into four major categories. Readers will again notice the emphasis on identifying endorsements, then limits and caps: (1) “What are the applicable and enforceable endorsements to the manuscript policy form”; (2) “What are the applicable indemnity limits;” (3) “Are there any deductibles or caps on loss adjustments expenses, debris removal, consequential loss, expediting expense;” and (4) “Are all costs incurred by the County at Defendants’ request recoverable under the assistance and cooperation clause.”
The context of these complaints was LA County’s attempt to establish liability of the various individual insurers in the plan. Hence the next line, after the four categories, was: “As they have done throughout the claims adjustment process, Defendants steadfastly refuse to take a position concerning their individual obligations owed to the County and what the applicable policy provisions might be under said policies.” (Italics added.) That point was backed up by the assertion that “as far back” as October 1996, LA County had sought from the insurers a written statement as to “what part of the damages that the County has identified that the insurers will pay” plus a statement from the insurers identifying from them “all disputed coverage issues, repair issues, and scope issues, ” with a “detailed explanation to support each of the insurers’ positions.” (Original italics omitted.)
The remainder of the response brief asserted that the insurers were (1) incorrect in their positions as regards the “full waiver” and “attachment” clauses; and (2) had asserted rules of construction that did not correspond to the “full factual record” before the court.
d. the November 4 hearing, aka “trial”
“Trial, ” as it were, began November 4, but it was basically a combination status conference and hearing on the briefs filed on October 18 and 28. The proceedings of that date divide themselves into three broad segments: (1) some preliminary housekeeping matters, including consideration of more depositions to be taken, and reiteration that the five-year deadline had been successfully overcome by the device of saying “trial” had begun that date; (2) a discussion of the issue of the burden of proof in the context of earthquake insurance coverage, including the effect of Insurance Code section 10088; and (3) consideration of “coverage” issues raised in the briefs. It is the latter category that concerns this appeal.
The trial judge began by noting some of these coverage “issues” had not exactly been joined by the parties:
I AM TOLD IN ONE AREA THAT THERE IS NO ISSUE OF DEBRIS REMOVAL. I DON’T KNOW THAT. IN ONE OF MY OTHER MOTIONS HERE IT TALKS AT GREAT LENGTH ABOUT WHETHER THERE IS A CERTAIN LEVEL OF COVERAGE OWED BY EACH OF THE INSURERS FOR CONSEQUENTIAL LOSSES AND OTHER EXPENSES OR WHETHER THAT LEVEL OF COVERAGE IS OWED COLLECTIVELY BY THESE INSURERS.
SO I GET THE IMPRESSION THAT THE PLAINTIFF BELIEVES THAT THERE ARE DEBRIS REMOVAL AND EXPEDITING REPAIRS AND CONSEQUENTIAL LOSSES, BUT THE DEFENDANT SAYS IT’S A NONISSUE. SO I DON’T KNOW HOW I DECIDE THAT WHEN I DON’T EVEN KNOW WHETHER IT IS AN ISSUE.” (Italics added.)
At this point the trial judge invited a response from LA County:
I WANT TO STOP. MR. BERGMAN, YOU LOOK READY TO TELL ME WHERE I’VE GONE ASTRAY.
LA County’s attorney immediately perceived the problem the trial judge was having with these “issues” -- how could one argue these “issues” in a vacuum?
MR. BERGMAN: I THINK IF I HEAR YOUR HONOR CORRECTLY, YOUR HONOR IS SAYING YOU DON’T HAVE ENOUGH FACTS TO REALLY MAKE A DECISION ON THESE ISSUES AT THIS TIME.” (Italics added.)
The trial judge was helpful. He pointed out that they were discussing matters that might be better covered in jury instructions:
THE COURT: WON’T THESE BE JURY INSTRUCTIONS AT BEST?
LA County’s attorney did not try to disabuse the judge of this impression. In fact, he agreed with the judge that the better way to proceed was in terms of jury instructions, or at least by way of well-crafted opening statements. To show that, we quote his response at length:
MR. BERGMAN: I WAS ABOUT TO -- I WAS GETTING THERE. NUMBER TWO IS PROBABLY THE FIGHT WILL BE OVER JURY INSTRUCTIONS. THREE, BUT I DISAGREE WITH MY COLLEAGUE, MR. MCBURNEY -- MY WORTHY OPPOSING COLLEAGUE. I DO BELIEVE THESE WILL BE SOMETHING RAISED BOTH IN VOIR DIRE AND IN OPENING STATEMENTS, JUST TO PUT EVERYONE -- DEFENDANTS ON NOTICE. I THINK IT WOULD BE FAIR TO TALK ABOUT WHAT THE EVIDENCE WILL PROVE OR NOT PROVE. I’M NOT GOING TO READ TO THE JURY POTENTIAL JURY INSTRUCTIONS, BUT I THINK WE CAN SAY THE EVIDENCE WILL SHOW. SO I THINK ON TWO GROUNDS: ONE, THERE’S PROBABLY A FIGHT WHEN WE GET TO THE JURY INSTRUCTIONS, BUT IT’S ALSO SOMETHING THAT NEEDS TO BE DEALT WITH UP FRONT WHEN WE TELL THE JURY IN VOIR DIRE AND OPENING WHAT THE EVIDENCE WILL SHOW OR NOT SHOW. ONE EXAMPLE WOULD BE OUR BELIEF IS DEFENDANTS TAKE CERTAIN POSITIONS THAT DON’T EXIST IN THE POLICY. WE’RE GOING TO SAY IN A VERY NONARGUMENTATIVE WAY -- I WILL -- THE EVIDENCE WILL SHOW THE FOLLOWING IS IN THE POLICY -- VERY CLEAR POLICY, EASY TO FOLLOW -- AND WHAT IS NOT, JUST SO THE JURY UNDERSTANDS FROM THE OPENING WHAT TO LOOK FOR.
SO I THINK IT’S BOTH GOING TO BE AN ISSUE IN THE OPENING AND VOIR DIRE AND ALSO THE JURY INSTRUCTIONS THAT YOUR HONOR WILL ULTIMATELY GIVE. (Italics added.)
At this point, LA County’s trial attorney asked whether the judge planned to “preinstruct the jury.” The trial judge’s response was basically positive, essentially encouraging counsel to develop a “little packet of instructions” for the jury at the beginning. (“I think it’s a great idea. And I rarely do it.”) The trial judge then proffered the ideas of giving the jury a group of stipulated written instructions or a notebook at the beginning of the case.
After a recess, the court took up the “six motions” (we have only discussed the one, number 6 of 6, on “policy interpretation issues” generally) filed by LA County. Much of the next round of discussion focused on repair of earthquake damage in the context of local code compliance.
Finally, after one more recess, the judge turned to the “sixth” motion, the one which LA County now features in its argument on appeal. (See App. Opn. Br. at p. 25.) The judge took number six out of order because he was worried that it might not be considered if he didn’t:
I WANT TO GO TO NUMBER SIX BECAUSE I WANT TO GET NUMBER SIX ON THE TABLE FOR DISCUSSION TODAY AND THERE IS SOME RISK THAT WE WON’T IF I DON’T GO THERE RIGHT NOW.
The trial judge began noting the practical difficulty which the motion, as presented by LA County, posed to him. Essentially, he didn’t have all the relevant documents to make an informed decision:
THE COURT: THE SIXTH OF THESE ISSUES OR MOTIONS SEEMS TO RAISE ISSUES ABOUT THE INTERRELATIONSHIP BETWEEN THE MANUSCRIPTED POLICY IN QUESTION AND THE STANDARD POLICIES, WHICH AT LEAST ONE OR TWO OF THESE DEFENDANTS USED, AND VARIOUS ADDENDA OR RIDERS OR OTHER DOCUMENTS. I’M AT A BIT OF A LOSS TO BE AT ALL COHERENT BECAUSE I’M ASKED TO INTERPRET THE RELATIONSHIP BETWEEN THESE DOCUMENTS AND TO ESTABLISH SOME PRIORITY AND RANKING OF THE LANGUAGE IN VARIOUS AND SUNDRY DOCUMENTS, BUT I DON’T KNOW WHAT THOSE DOCUMENTS ARE. (Italics added.)
After wondering out loud about the insurers’ point that one could, after all, simply ascertain the relevant documents from the complaint filed by LA County, the trial judge asked one of the defense attorneys what he thought. This attorney made the point that the insurers were essentially being blindsided by LA County’s motion, bringing up various policy provisions that were not in the complaint or the subject of discovery.
Said the insurers’ attorney:
BECAUSE I HAVE TO TELL YOU THAT I DON’T UNDERSTAND -- WE’VE GONE THROUGH FIVE AND A HALF YEARS OF LITIGATION ON THIS THING AND NEVER ONCE DURING ALL THAT TIME, NOR THE TWO YEARS -- THREE YEARS BETWEEN THE EARTHQUAKE AND THE LITIGATION COMMENCING, HAS PLAINTIFF EVER SAID, FOR EXAMPLE, WE HAVE A DEBRIS REMOVAL PROBLEM, WE HAVE X-NUMBER OF DOLLARS FOR DEBRIS REMOVAL, WE’RE MAKING A CLAIM FOR IT, OR EVEN THAT THERE WERE ANY DEBRIS OR ANYTHING ELSE. SO IN TERMS OF POLICY INTERPRETATION, WHY DO WE CARE ABOUT WHETHER THERE IS A DEDUCTIBLE ON DEBRIS REMOVAL? FOR WHATEVER REASON -- I MEAN, IT JUST DIDN’T COME UP. THERE IS ONLY ONE POLICY PROVISION -- WELL, THERE ARE -- THERE IS ONLY ONE POLICY PROVISION NOT FOUND IN THE MAIN FORM THAT I AM AWARE OF THAT IS GOING TO BE OR IS AT ISSUE IN THIS LITIGATION, AND THAT IS THE FRAUD PROVISION THAT IS ATTACHED TO SOME OF THE POLICY WRAPPERS. (Italics added.)
After a few words on “construing policy provisions in the abstract and for no reason, ” this defense attorney returned to the theme that LA County was raising issues not in the complaint, and finished his remarks with what appears to be perhaps just a tad bit of irritation that new matters were being raised so late:
AND FINALLY, JUST TO WRAP THIS UP, WE HAVE A DOCUMENT THAT OUGHT TO BE GOVERNING OUR DELIBERATIONS HERE. IT’S CALLED THE COMPLAINT. THERE IS A DECLARATORY RELIEF ACTION PLED IN THE COMPLAINT. IN THE COMPLAINT PLAINTIFF SAYS NOT THAT DEBRIS WERE REMOVED OR WE NEED TO CONSTRUE THE DEBRIS REMOVAL COVERAGE OR WE NEED TO CONSTRUE THE -- YOU KNOW, SOME OF THE OTHER THINGS, EXPEDITING EXPENSES AND SO FORTH. PLAINTIFF SAYS BUILDINGS DAMAGED, LOTS OF MONEY FOR REPAIR, AND YOUR HONOR HAS REQUESTED TO CONSTRUE THE DEBRIS REMOVAL.
IF THEY CAME IN HERE WITH A DECLARATORY RELIEF ACTION ASKING FOR DEBRIS REMOVAL COVERAGE, I WOULD DEMUR TO THAT SAYING I’M NOT AWARE OF AN ACTUAL CONTROVERSY OVER DEBRIS REMOVAL. WHAT HAVE WE GOT TO ARGUE ABOUT?
NOW, DAMAGE TO THE BUILDING, METHODS OF REPAIR, NOW WE’RE TALKING -- EVEN FRAUD PROVISIONS THAT WERE RAISED IN MY CLIENT’S --AS AFFIRMATIVE DEFENSES FOR MY CLIENTS. I UNDERSTAND THOSE. THOSE ARE IN PLAY.
BUT THOSE OTHER ISSUES -- I MEAN, WE WENT THROUGH FIVE YEARS AND ALL OF A SUDDEN WE’RE TALKING ABOUT DEBRIS REMOVAL WHEN THERE HAS BEEN NOT ONE SPECK OF DISCOVERY ON THIS ISSUE. AND IF THEY WERE REALLY CONCERNED THAT THEY DIDN’T UNDERSTAND WHAT CONSTITUTED MY POLICY, THEN I WOULD SAY A COUPLE YEARS AGO AN INTERROGATORY OR A REQUEST FOR PRODUCTION OF DOCUMENTS OR A REQUEST FOR ADMISSIONS AS TO DOCUMENTS WOULD HAVE COVERED THAT.
When it was one of LA County’s attorneys turn, his tack was not offensive -- pressing new issues to be litigated -- but defensive: Again returning to the themes of the October 18 and October 28 briefs, his point was that the insurers asserting various policy defenses to LA County’s claims and LA County was simply using the motion to get a better grip on those defenses, particularly in the context of the fact that each of the 21 defendant insurers had its own forms:
SO IT REALLY IS A FUNDAMENTAL ISSUE HERE IN TERMS OF THE EXTENT OF THE COVERAGE THAT EACH DEFENDANT IS PROVIDING TO THE POLICY, THE EXTENT OF THE EXCLUSIONS EACH DEFENDANT IS TRYING TO RELY UPON, THE EXTENT OF ANY EXTENSIONS TO COVERAGE, AND NOT JUST DEBRIS REMOVAL. THAT’S CERTAINLY AN EXAMPLE IN THERE OF EXTENSIONS TO COVERAGE BEYOND THE LIMITS OF LIABILITY THAT’S BEING PROVIDED.
BUT THEN YOU HAVE THE FACT THAT THE DEFENDANTS ARE CLAIMING THAT THEY HAVE TRIED TO PLACE, THROUGH EITHER MANUSCRIPTED OR PRINTED FORMS, LIMITATIONS ON THE COVERAGE THAT IS BEING PROVIDED TO THE COUNTY, NOTWITHSTANDING THE FACT THAT A MANUSCRIPT FORM HAS A FULL WAIVER CLAUSE IN IT.
SO THEN IT COMES DOWN TO WELL, WHAT ARE THE PROVISIONS THAT ARE GOING TO CONTROL? THEY TERMED IT IN TERMS OF SOME TYPE OF HIERARCHY OR A PRIORITIZING OF WHAT ARE WE GOING TO BE LOOKING AT HERE. AND THE COUNTY WOULD SUSPECT AND SUGGEST IT IS CERTAINLY FAIR TO SUGGEST THATEACH DEFENDANT IDENTIFY THE POLICY -- THE PROVISIONS IN THEIR POLICY, NOT AS A GROUP, BUT AS THE INDIVIDUAL, SINCE THEY HAVE ALL TRIED TO MAKE INDIVIDUAL CHANGES TO THE MANUSCRIPT FORM; WHAT THEY’RE RELYING UPON; WHAT THEY THINK IS CONTROLLING UNDER THEIR PROVISIONS; WHAT THEIR OBLIGATIONS WOULD BE WITH RESPECT TO THE COUNTY’S CLAIM UNDER THE PARTICULAR POLICY PROVISIONS EACH INDIVIDUAL DEFENDANT HAS ISSUED.” (Italics added.)
The trial judge still seemed concerned that his task, as formulated by LA County’s sixth motion was simply too nebulous to get a hold of. He turned to LA County’s attorney:
THE COURT: MR. MASON, I’M A LITTLE CONCERNED THAT YOU HAVE GIVEN ME TOO BROAD AND TOO AMORPHOUS AN ASSIGNMENT IN THIS PARTICULAR MOTION. IT MAY BE BURIED IN HERE SOMEWHERE. IT MAY IN FACT BE OBVIOUS ON THE SURFACE OF THESE MATERIALS. BUT I HAVEN’T PERCEIVED THAT WE HAVE GIVEN A PRECISE STATEMENT ABOUT WHAT ISSUE OR DOCUMENT YOU WANT THE COURT TO ANALYZE. YOU HAVE A LONG LIST OF ISSUES, IF YOU WILL; BUT UNLESS I KNOW WHAT DOCUMENTS TO INTERPRET, I’M AT A LOSS AND I DON’T THINK I KNOW THAT. YOU HAVE BOTH SAID THERE ARE 97 ADDENDA, OR SOME NUMBER THAT DEFIES MY UNDERSTANDING. IT MAY BE, HOWEVER, THAT 96 OF THEM ARE IRRELEVANT OR THE OPPOSITE. I JUST DON’T KNOW. I REALLY DON’T KNOW WHERE TO START TO PICK UP THIS DOCUMENT AND READ THAT PARAGRAPH AND SAY WHAT IT MEANS OR TO COMPARE THESE TWO PARAGRAPHS AND DECIDE WHICH IS MORE IMPORTANT OR MORE PERSUASIVE THAN ANOTHER. I’LL BET IT’S IN HERE. I CAN’T IMAGINE THAT IT’S NOT IN HERE. BUT I’LL HAVE TO TELL YOU I DIDN’T SEE IT PUT IN THE WAY THAT I CAN ABSORB AND UNDERSTAND. (Italics added.)
But then, another attorney for LA County stepped up to try to find a graceful way out of the perceived problems. Essentially, LA County would withdraw its motion and perhaps -- his word -- reintroduce it later, maybe in jury instructions:
MR. BERGMAN: I APPRECIATE YOUR HONOR’S COMMENT. I THINK IN ALSO LISTENING TO MR. RUDLOFF’S COMMENT, PERHAPS WE’LL TAKE ANOTHER LOOK AT THIS. IN THIRTY DAYS PLUS A FEW DAYS WE’LL BE FILING JURY INSTRUCTIONS, TRIAL BRIEFS, ET CETERA. WE MIGHT REVISIT IT AT THAT TIME WHEN AND IF IT’S NEEDED.
FOR EXAMPLE, AS WE GO THROUGH THESE AND WE LISTEN TO WORTHY COUNSEL’S DISCUSSIONS, YOUR HONOR, YOU KNOW, SOME ISSUES SUCH AS STRUCTURAL DAMAGE IS GOING TO BE FOR THE EXPERTS AND THE JURY. THESE ISSUES PROBABLY NEED TO BE, IN TERMS OF THIS CODE INTERPRETATION -- I’M SORRY. -- THE MANUSCRIPT POLICY, ET CETERA, INTERPRETATION, PROBABLY NEEDS SOME MORE FOCUS. WE THINK IT’S THERE, BUT I THINK WE CAN FOCUS IT MORE.
AND I THINK WE’LL HAVE TIME FOR YOUR HONOR TO TAKE ANOTHER LOOK AT THIS.
And any doubt that LA County was now executing a graceful withdrawal was belied by the same attorney’s comments a few seconds later, which acknowledged that these policy “issues” (e.g., whether debris removal was subject to a deductible) were small potatoes in the grand scheme of the plaintiff’s case:
YOU KNOW, MR. MCBURNEY SAID IT CLEARLY. WE’RE SEEKING $300 MILLION FOR ONE BUILDING. WHY AM I SPENDING TIME -- MR. MCBURNEY IS WORRYING ABOUT A THOUSAND DOLLARS, ASSUMING THAT’S THE AMOUNT. I’M NOT SAYING IT IS. BUT WHY DON’T WE GO BACK -- SOME OF THESE THERE ARE PROVISIONS OF THE POLICIES THAT ARE ADD-ONS, THAT WILL GIVE U.S. THE POLICY LIMITS PLUS MORE IF WE’RE SUCCESSFUL IN CONVINCING THE JURY THAT WE’RE RIGHT.
SO I THINK WE’LL TAKE ANOTHER LOOK AT IT, TALK WITH THE DEFENDANTS, AND COME BACK TO YOUR HONOR IF THERE ARE ANY MAJOR DISAGREEMENTS ON MAJOR ISSUES.
With that, LA County’s lawyer wondered if his adversary wanted to “add something, ” and, not hearing a response, ended his comments with:
SO THAT’S BASICALLY LOOKING AT IT HEARING YOUR HONOR’S COMMENTS AND DEFENSE COUNSEL’S COMMENTS.
Those comments then allowed the trial court to declare “closure” and move on to discussing the next meeting: THE COURT: THOSE ARE ACTUALLY VERY HELPFUL COMMENTS, MR. BERGMAN, BECAUSE I’M GOING TO USE THEM TO A CLOSURE TODAY.
e. the November 22 hearing
In a status hearing held November 22, the trial judge revisited (along with numbers 4 and 5) the sixth motion from October 18. After a lengthy discussion of how the architectural requirements of the Americans With Disabilities Act might affect repair costs (number 4) followed by a shorter discussion of the insurers reliance on advice of counsel as a defense to the bad faith claims against them, the trial judge turned to the “policy interpretation” issues he had found so amorphous on November 4.
Counsel for LA County immediately perceived that the judge needed the matters framed in a more “manageable” format:
MR. BERGMAN: I BELIEVE YOUR HONOR, AS YOU’RE LOOKING, ASKED U.S. TO COME UP WITH SOME TYPE OF MORE MANAGEABLE FORMAT TO GET THIS RESOLVED. WE’RE MORE THAN WILLING TO THROW AN IDEA OUT.
With that, another LA County counsel put out an idea. LA County would compile a “tome” of individual policies, and the insurers would have a certain amount of time to say whether there was a “cap” on a given provision, and whether a given endorsement does, or does not, apply.
Soon, the conversation revealed that LA County’s quest was to establish that these various policy provisions (debris removal was the example) allowed recovery without limit. The court began:
HERE IN YOUR PROPOSAL REGARDING THE PRIMARY LAYER OF COVERAGE, YOU HAVE TENDERED THIS POINT OF VIEW, AND THAT IS: THERE IS NO CAP ON THE DOLLAR AMOUNT DEFENDANTS MUST PAY FOR DEBRIS REMOVAL.
IN REGARD TO THE EXCESS POLICIES, THE EQUIVALENT STATEMENT IS THERE IS NO LIMIT ON THE DOLLAR AMOUNT EACH DEFENDANT MUST PAY FOR DEBRIS REMOVAL.
DO YOU MEAN THAT LITERALLY?
The answer surprised the judge:
MR. MASON: DOLLAR?
THE COURT: BILLIONS OF DOLLARS?
MR. MASON: CORRECT. THAT THERE WAS NO -- AND THE CAP OR LIMIT REALLY WOULD BE INTERCHANGEABLE. THAT THERE WAS NO UPPER LIMIT ON THE FINANCIAL OBLIGATION OF THE CARRIERS TO PAY FOR DEBRIS REMOVAL. THERE WAS NO CEILING PLACED WITHIN THE CONFINES OF THE POLICIES, LIKE OUR DUTY TO PAY FOR DEBRIS REMOVAL CEASES AT 100, 000 OR 500, 000 OR $1,000,000 OVER AND ABOVE WHAT THE INDEMNIFICATION LIMIT IS SET FORTH IN THE POLICY. THAT’S CORRECT.” (Italics added.)
The judge was polite, but incredulous at the idea LA County was seriously contending for a beyond-policy limits recovery:
THE COURT: YOU HAVE AN UPHILL BATTLE ON THAT.
Then, the trial judge made a comment which, in retrospect, may have influenced LA County’s future litigation strategy. Essentially, the trial judge said: the $125 million limit was it -- LA County was not going to collect more than that as a matter of contract. The policy limits on the various policies were real limits, and those caps would be respected:
MY CURRENT THINKING IS THAT THE POLICY HAS -- IN EACH INSTANCE, EACH POLICY HAS A MAXIMUM OBLIGATION OF THAT CARRIER AND THAT THAT OBLIGATION IS NOT GOING TO BE EXCEEDED BY CATEGORIZING THE EXPENSES AS BEING CONSEQUENTIAL LOSS OR EXPEDITING EXPENSE AND SO FORTH. I’LL HAVE TO LOOK MORE CLOSELY AT THE POLICIES.
AND I’LL PUT THAT BURDEN ON YOU, MR. BERGMAN AND YOU MR. MASON, TO SHOW ME MORE PRECISELY IN THESE POLICIES WHERE WE CAN HAVE LAYERS OF OBLIGATION. (Italics added.)
When the insurers’ counsel got his chance, he reiterated one of his main themes of November 4: LA County was making claims that had not been previously presented:
MR. MCBURNEY: THE SAME WITH EXPEDITING EXPENSE.
THE PROBLEM IS IN EACH OF THOSE CASES I HAVE NEVER SEEN A NUMBER THAT SOMEBODY HAS SAID, WELL, THIS PERSON DID THAT, WE CLAIM THAT AS AN EXPEDITING LOSS, AND SO THAT I CAN ANALYZE IT AND COME TO A CONCLUSION.
THE COURT: AND THE SAME WITH LOSS ADJUSTMENT EXPENSE?
MR. MCBURNEY: OBVIOUSLY, YES. THE SAME THING.
In a few moments, defense counsel returned to the theme that the insurers were being blindsided by matters and claims that were not in the complaint:
THE PLAINTIFF FILED A COMPLAINT IN THIS ACTION SEEKING DECLARATORY RELIEF. AND WHEN IT DID SO, IT DID NOT PUT IN ISSUE THE DEBRIS REMOVAL PROVISION NOR ANY OF THESE OTHER THINGS THAT ARE COMING UP NOW AFTER DISCOVERY CLOSED OR AFTER NONEXPERT DISCOVERY IS CLOSED.
I HAVEN’T HAD THE OPPORTUNITY, BECAUSE I DIDN’T KNOW ABOUT IT -- THEY NEVER BREATHED A WORD ABOUT DEBRIS REMOVAL COVERAGE UNTIL A MONTH AGO. IF THEY’RE ALLEGING THAT THE COURT NEEDS TO MAKE A DETERMINATION OF THE RIGHTS AND DUTIES OF THE POLICIES -- UNDER THE POLICIES WITH RESPECT TO THE DEBRIS REMOVAL COVERAGE, THEY’VE GOT TO AT SOME POINT PROVIDE U.S. WITH FACTS THAT WOULD SUPPORT A BASIS FOR AN ACTUAL CONTROVERSY ON THAT.
AND IT’S UNFAIR FOR THEM TO SURPRISE U.S. AT TRIAL. I MEAN, WE JUST HAD MR. BERGMAN SAY ABOUT HOW UNFAIR IT WAS TO LAUNCH SURPRISE ATTACKS IN THE MIDDLE OF TRIAL, BUT HE IS NOT WILLING TO PLAY BY HIS OWN RULES WITH RESPECT TO THESE PROVISIONS. (Italics added.)
For its part, the trial judge was dumbfounded that LA County was presenting issues or claims that had not been the subject of discovery:
THE COURT: THE THOUGHT THAT THIS HAS NOT BEEN THE SUBJECT OF DISCOVERY BOGGLES THIS MIND, BUT THAT’S REALLY NOT HARD TO DO.
Even so, the trial judge held the door open. He turned to LA County’s attorney and asked:
GIVE U.S. A SUGGESTION, MR. BERGMAN, ABOUT WHEN YOU WOULD LIKE TO PRESENT THAT SUMMARY.
MR. BERGMAN: WHEN WOULD THE COURT LIKE IT?
THIRTY DAYS, YOUR HONOR, WITH THE HOLIDAYS AND ALL?
THE COURT: THIRTY DAYS SOUNDS FAIR TO ME.
However, the trial judge cautioned LA County’s attorneys that he wanted to see actual claims with dollar figures: THE COURT: I WOULD ENCOURAGE YOU TO INCLUDE WITHIN IT DOLLAR FIGURES, SUMS CLAIMED IN THESE CATEGORIES.
With LA County’s attorneys promise to “do that, ” the judge turned to other matters.
f. the written bifurcation motion and opposition to it
If, apropos its counsel’s comments on August 28, LA County wanted the “interpretation of policy provisions” tried to the court, or, apropos its counsel’s comments of November 4, had decided to take “another look” at those policy issues for another presentation to the trial court, or, apropos its counsel’s comments of November 22, had decided to present hard number claims based on the various auxiliary benefits provisions, it certainly gave no indication in its motion to bifurcate trial filed on December 20, 2002. As we will now see, that motion gave the trial court no hint that LA County was seeking the trial of any coverage issues “to the court” or some opportunity to present claims based on the auxiliary benefit provisions in the policies that had only recently surfaced as issues. The bifurcation motion was keyed strictly to properties, not issues.
The motion was entitled “motion to bifurcate or sever jury trial on certain claims/causes of action for one insured property.” Reading this motion in detail does much to explain why the litigation progressed as it did.
The order sought by LA County asked for one of two alternatives. Either (we now quote them in full): “(1) Bifurcating or severing the jury trial in this action so that there will be separate jury trials for each property at issue, starting with the causes of action for declaratory relief and bad faith as to the Hall of Administration and, if necessary, followed by separate jury trials for the Los Angeles County Courthouse (aka Civic Center Courthouse), ’Auto Park 18, Auto Park 10, Beverly Hills Courthouse and Pasadena Courthouse; or, [¶] (2) Alternatively, the County seeks an order bifurcating or severing the jury trial for the County’s complaint properties (i.e.. Hall of Administration, Los Angeles County Courthouse, and Auto Park 18, sometimes referred to as the ‘Civic Center Properties’) from the defendants’ cross-complaint properties (i.e.. Auto Park 10, Beverly Hills Courthouse, and Pasadena Courthouse).” (Italics added.)
The motion was predicated on the need to narrow issues in the upcoming trial. It pointed out that experts had exchanged “in excess of 140 banker boxes of documents and over 1000 DVDs and CDs containing backup data, computer runs, and other evidence.” Moreover, retained experts would be offering “in excess of 232 opinions” to be “offered at trial.”
The motion also noted that the insurers had asserted an affirmative defense of fraud, based on LA County’s proof of loss for Auto Park 10. The motion pointed out that: “Even though twenty-seven different structures were insured and the total premium was based on each structure’s insured value, defendants argued that fraud as to any one insured property voided the policy in its entirety.”
Clearly, LA County’s litigation orientation was on each of six properties individually. One of the subheadings for the motion was that the motion sought “separate trials based on the number of properties for which coverage is sought.”
For their part, the insurers were not keen on a property-by-property approach to the litigation, with the possibility of running a bad-faith gauntlet up to six times. And they clearly understood that LA County was seeking to structure the trial on a property-by-property basis. As the introduction to their opposition stated: “The County’s current motion to bifurcate this litigation into as many as six separate trials is no less absurd than its prior motion to bifurcate. Separating this litigation into a distinct trial for each and every property in the complaint and cross-complaint will not be more efficient, nor will it assist the trier of fact.... [¶] Rather, as in its prior motion, the County wishes to ‘cherry pick’ one building from among the six buildings that have been the subject of this lawsuit for more than five years because it perceives it will obtain a strategic advantage. The County’s proposed procedure will lead to as many as six separate trials and will result in no savings of time or resources, but, to the contrary, will result in duplication and waste.” (Italics added.)
And the insurers were also alarmed at the possibility of LA County receiving multiple bites at the apple in regard to its bad faith claims: “If the County’s bad faith claim was successful for the Hall of Administration, it is likely that the County would then seek to litigate each of the remaining properties to take advantage of the ruling. If the bad faith claim for the Hall of Administration were unsuccessful, what would prevent the County from continuing to litigate that cause of action as to the remaining properties along with the declaratory relief action?”
5. The Briefing and Hearings of January and February 2003
a. the January 13 brief
On January 13, 2003 LA County filed the third of the three documents which its brief now claims “brought these issues to the court’s attention” at a point in time before the Phase I trial. It was a “supplemental brief regarding the court’s duty to determine the effect of the endorsements to the County’s manuscript policy form and to interpret same.”
The brief sought to present the problem of the auxiliary benefit provisions as it had been presented earlier: As a reason to gain a recovery in excess of the policy limits. The brief opened with a reference to “the Court’s comments made at the November 22, 2002 trial” and then presented a single issue.
In reading LA County’s formulation, readers should note that the focus was on using those auxiliary benefit provisions to exceed the $125 million policy limits, as distinct from ascertaining how those provisions might affect damages below the deductible. At this point, the possibility that LA County would not show enough repair cost damage to exceed the deductible apparently was not being seriously entertained.
Here is the formulation from the brief: “May the County obtain sums under the loss adjustment expense, expediting expense, consequential loss, debris removal, assistance and cooperation, code compliance, extra expense or continuing expense provisions separate from, and in addition to, the indemnity limit set in each individual policy if there is no expressed limitation set forth in the policy”?
And of course the sought-after answer to its own rhetorical question was yes. Thus LA County continued, emphasizing its theory that the auxiliary benefits could provide it with beyond-limits recovery, i.e., gravy on top of a policy limits payout: “With a few exceptions, the indemnity limits set forth in the policies are separate and independent from, and do not impact, the defendants’ obligations under the policies to pay the full costs of loss adjustment expenses, expediting expenses, consequential losses, debris removal, assistance and cooperation, code compliance, extra expenses, and continuing expenses. Had defendants intended to limit these obligations, they could have expressly done so, but did not. Thus, like a duty to defend obligation, that may exceed indemnity limits many times over if not expressly limited under the express terms of the policy, the defendants’ obligations set forth above should likewise be found not to be capped by the indemnity limits.” (Italics added.)
To the degree that LA County was presenting any new theories of recovery in its January 13 brief based on the auxiliary benefits provisions, the brief made it clear that those theories were linked to an anticipated recovery in excess of the $125 million cap. Hence, the “summary of the County’s position” opened with the words: “In addition to the stated indemnity limit for each policy, the County is entitled to recover all sums that fit within the” -- and then the various auxiliary benefit provisions were itemed. After a long section on general insurance law (and identification of the various auxiliary benefits provisions) LA County’s main substantive subheadings reiterated the same theme: “The rules of interpretation support the conclusion that the County is entitled to payments separate from and above the stated indemnity limits.” (Italics added.) The idea that auxiliary benefit provisions might be used to obtain a number that exceeded the deductible is not to be found.
b. the January 31 hearing on the bifurcation motion
By the time of the January 31, 2003 hearing on LA County’s bifurcation motion, LA County’s entire theory of recovery was based on the actual damages sustained to only six of the 27 properties covered by the insurance plan. Limitation to six properties was the ineluctable import of what LA County’s attorneys told the trial court at that hearing.
By way of overview, what happened was this: The trial judge was initially highly skeptical of the bifurcation order, and indicated a strong presumption against granting it. But, the judge was also intrigued by the possibility of narrowing the case to make trial more manageable, including the hope of a settlement after a first trial. The bifurcation motion was only the first of a number of pretrial matters taken up by the trial court in that hearing, and so final resolution of the bifurcation motion was put over to February 7, 2003, just prior to trial. The ultimate resolution was a compromise, finally put forth by LA County’s counsel on February 7: LA County would drop its bad faith claims as regards the two of the six properties (the Pasadena and Beverly Hills courthouses) that were being split off for later. By waiving the bad faith claims as to the latter two properties, the prejudice to the insurers from bifurcation was minimized, yet some of the advantages of bifurcation would be achieved.
With that, we begin by noting the trial judge’s opening remarks as regards the then-pending bifurcation motion. The trial judge thought the motion too one-sided and was fishing for some sort of compromise:
“THE COURT [addressing counsel for LA County]: BUT THE SIX THAT ARE PENDING NOW ARE THE SUBJECT OF THIS MOTION. AND LET ME GIVE YOU MY THOUGHTS ABOUT THE MOTION. IT’S YOUR MOTION, MR. BERGMAN, AND IT LOOKS TO ME LIKE A MOTION THAT DOESN’T OFFER ANYBODY ELSE ANYTHING AND IS DESIGNED FOR THE MOVING PARTY’S GOALS AND HOPES.
“I DON’T THINK YOU’RE LIKELY TO HAVE SUCH A MOTION GRANTED UNLESS YOU WOULD RECAST THE MOTION AND OFFER SOMEBODY ELSE A BENEFIT. IF YOU OFFER THE COURT A BENEFIT, THAT MAY GAIN FAVOR. IF YOU OFFER THE DEFENDANTS A BENEFIT, THAT MAY GAIN THEIR SUPPORT.”
In the course of his remarks, the trial judge also made clear that he considered the entire case one limited to six properties:
I THINK SOME OF THE POINTS MADE IN THE OPPOSITION WERE PRETTY ACUTE. AND, IN FACT, I THOUGHT THE REPLY ACKNOWLEDGED AS MUCH BY SUGGESTING THAT THERE IS SOME HOPE, OF COURSE, OF SETTLING AFTER ONE CASE IS CONCLUDED BUT THAT THERE IS A SIGNIFICANT POSSIBILITY THAT THERE WILL STILL BE MULTIPLE LAWSUITS OVER THESE SIX BUILDINGS AND MULTIPLE BAD FAITH CLAIMS. AND IF THAT BE THE CASE, SUBSTANTIALLY MORE LITIGATION THAN ONE CASE WOULD PRESENT.
And with that, the trial judge plainly sought some sort of modification or alternative:
I WANT TO HEAR YOUR THOUGHTS. AND YOUR THOUGHTS, MR. BERGMAN, IF YOU CARE TO SHARE THEM WITH US, MIGHT INCLUDE AN ALTERNATIVE.
LA County’s attorney then replied. (And we quote the entirety of his reply). In no way did he attempt to disabuse the trial judge of the trial judge’s understanding that the whole case was limited to just six properties:
I GUESS MY ALTERNATIVE WOULD BE THIS: I THINK THIS SUIT HAS THE NEED OF THE DEFENDANTS TO RAISE THEIR FRAUD CLAIM. AND ALL PARTIES -- THE COURT, THE COUNTY, THE DEFENDANTS -- DESIRE TO MAKE THIS EXPEDITE. I THINK THE FOCUS SHOULD BE ON THE CIVIC CENTER, HALL OF ADMINISTRATION, THE CIVIC CENTER COURTHOUSE, AUTO PARK 18, AND AUTO PARK 10. I BELIEVE IT WOULD ALLOW ALL SIDES TO FULLY AND FAIRLY PRESENT THEIR CASES. ANY FRAUD CLAIMS THAT THE DEFENDANTS HAVE ARE REALLY DIRECTED, I BELIEVE, AT AUTO PARK 10, PERHAPS AT THE HALL OR THE COURTHOUSE OR AT THE CIVIC CENTER.
IT WOULD ALLOW BOTH SIDES TO COMPLETELY PRESENT THEIR MATTERS TO THE JURY SO WE CAN GET A FULL, FAIR TRIAL. AND BY BIFURCATING OUT THE BEVERLY HILLS COURTHOUSE, THE PASADENA COURTHOUSE, I DON’T THINK THERE WILL BE ANY LOSS TO EITHER SIDE IN PRESENTING THEIR CASE. IF DEFENDANTS ARE UNSUCCESSFUL AND PLAINTIFFS ARE SUCCESSFUL, MORE THAN LIKELY IT WILL GO OVER POLICY LIMITS. BUT THE SAVING IN TIME FOR THE COURT AND THE SAVING OF TIME FOR THE JURY I THINK WOULD BE QUITE LARGE. NOW, MANY WITNESSES, YES, DO HAVE OPINIONS THAT APPLY TO ALL SIX BUILDINGS; BUT ALL WE’RE DOING IS, RATHER THAN HAVING EACH EXPERT UP THERE FOR THREE, FOUR DAYS TALKING ABOUT SIX BUILDINGS, WE MIGHT LOSE A DAY PER WITNESS OR SOME EXPERTS BY CUTTING BACK TO FOUR BUILDINGS. AND I THINK IT WOULD SAVE TIME. I THINK THE JURY WOULD BE HELPED TO STAY FOCUS[ED]. EACH SIDE COULD PRESENT THEIR FULL CASE. AND WE DIDN’T SUE ON BEVERLY HILLS OR PASADENA.THEY BROUGHT THEM IN, WHICH THEY’RE ALLOWED TO DO. BUT I THINK IN TERMS OF SAVING TIME FOR THE COURT AND THE JURY, ALLOWING DEFENDANTS TO GET IN THEIR FULL CASE ON FRAUD --WE DON’T THINK IT WILL FLY, BUT THEY SHOULD HAVE THEIR OPPORTUNITY TO PRESENT IT TO THE JURY. YOU HAVE ALREADY DENIED OUR MOTIONS ON THAT SO FAR. AND THAT WOULD BE MY AMENDMENT TO OUR MOTION.” (Italics added.)
The trial judge struggled for closure, noting that LA County had over 200 buildings:
“THE COURT: GIVE ME SOME HELP ON THIS POINT, MR. BERGMAN, AND THAT IS THE LIKELY FUTURE OF LITIGATION OVER THE OTHER 200 BUILDINGS OR THE OTHER STRUCTURES THAT ARE THE SUBJECT OF ONGOING CONTROVERSY.” (Italics added.)
But if the trial judge had fears that other buildings were involved, LA County’s attorney allayed his fears:
MR. BERGMAN: THAT’S THE OTHER LAWSUIT.
THE COURT: I UNDERSTAND THAT.
MR. BERGMAN: OKAY. IT’S A DIFFERENT -- HERE IS MY BELIEF.
THE COURT: DID YOU HAVE THE SAME INVESTIGATORS? DID YOU HAVE THE SAME PEOPLE STUDYING THE DAMAGES IN THOSE CASES?
MR. BERGMAN: YES. BUT THEY’RE NOT GOING TO TALK ABOUT THOSE IN THIS CASE, WHATEVER BUILDINGS ARE INVOLVED IN THIS CASE.
THE COURT: I KNOW THAT.” (Italics added.)
And LA County’s attorney hastened to show that the other matters were for another day, and another case:
MR. BERGMAN: I THINK THE PRACTICAL REALITY IS THIS: THAT WHICHEVER SIDE DOES BEST, MORE THAN LIKELY THE SIDES WOULD THEN SIT DOWN AND SEEK TO ACTIVELY RESOLVE THE OTHER MATTERS: THE ALLIANCE, THE 200 BUILDINGS, PLUS THE BAD FAITH CLAIMS AGAINST ALL THE EXCESS CARRIERS. THE PRACTICAL STEP IS, I’M SURE, DEPENDING HOW IT GOES, BOTH SIDES ARE GOING TO WANT TO SIT DOWN WITH JUDGE SUNDVOLD ABOUT, OKAY, WE NOW HAVE A JURY HAS TOLD U.S. THE FACTS OF LIFE, WE HAVE THESE OTHER MATTERS OUT THERE, HELP U.S. RESOLVE THEM. THAT WOULD BE THE ULTIMATE RECOMMENDATION WE WOULD WANT.
THE COUNTY IS NOT IN THE BUSINESS OF LITIGATION. THE COUNTY OF L.A. IS IN THE BUSINESS OF RUNNING THE COUNTY OF L.A. WE’RE HERE FOR TRIAL ON THIS. BUT I THINK THE RULINGS IN THIS MATTER ARE -- THE JURY, THE VERDICT WOULD ULTIMATELY LEAD BOTH SIDES TO A RESOLUTION OF THE OTHER MATTERS. NEITHER SIDE IS FOOLISH. NEITHER SIDE WANTS TO THROW MONEY AWAY. BUT THAT WOULD BE -- FROM THE COUNTY’S STANDPOINT, THIS WOULD BE THE GUIDING LIGHT FOR SUCCESS, FOR THE DEFENDANTS TO REALIZE THERE ARE OTHER WAYS AND PONY UP AND RESOLVE THE OTHER TWO MATTERS. AND I’M SURE THE DEFENDANTS’ ATTITUDE IS IF THEY’RE SUCCESSFUL HERE, THE COUNTY WILL REALIZE THE ERROR OF ITS WAYS AND REALIZE MAYBE THEY HAVE BETTER THINGS TO DO.
Even so, when it was time for the insurers’ attorney to speak, he reiterated his dislike of the idea of any bifurcation with the inherent possibility of returning to court and facing multiple bad-faith claims:
THE COURT: MR. RUDLOFF?
MR. RUDLOFF: YES, SIR.
I HAVEN’T HEARD THAT ALTERNATIVE YET; BUT JUST
LISTENING TO THE GENTLEMAN SAY IT TODAY, I GUESS, CAUSES A COUPLE OF COMMENTS TO COME TO MIND. ONE OF THEM IS THAT THE LION’S SHARE OF THE DAMAGE IN THE CASE ARE THESE FOUR BUILDINGS IN THE CIVIC CENTER. AND SO I AM NOT SURE WHAT BENEFIT IT WOULD BE TO CARVE OFF THE TWO SMALLEST PIECES AND HOLD THEM OUT THERE, BECAUSE TO ADD THOSE TO THIS IS REALLY A MINIMAL CONSEQUENCE, IN MY VIEW. AND YET THE ALTERNATIVE IN CARVING THOSE AWAY FROM THIS, IN THE UNLIKELY EVENT THAT THE COUNTY DOESN’T WANT TO SETTLE WHEN THEY LOSE THIS CASE, COULD LEAD TO TWO MORE JURY TRIALS, NOT ONLY ON THE TECHNICAL ISSUES AND ON THE BAD FAITH ISSUES, WHICH THE COURT SURMISES CREATES A MUCH LENGTHIER PROCESS.
I GUESS I WOULD THINK THAT IF THIS CASE HYPOTHETICALLY WERE TO TAKE FOUR MONTHS AND WE DID THREE AND A HALF OF IT ON THESE FOUR BUILDINGS AND LEFT HALF A MONTH AT BEVERLY HILLS AND PASADENA TO OTHER JURY TRIALS, WE’RE LOOKING AT TWO MORE MONTHS OR THREE MORE MONTHS, NOT ONE MORE MONTH, BECAUSE WE HAVE TO BRING ALL THESE WITNESSES BACK. THERE ARE COMMON ISSUES OF WITNESSES AND EVIDENCE, NOT TO MENTION THE BAD FAITH ISSUE WHERE THESE FOLKS WOULD HAVE NOT JUST ONE BITE AT THE APPLE BUT THEY’RE GOING TO HAVE ANOTHER BITE AT THE APPLE.” (Italics added.)
In particular, defense counsel didn’t like the idea that this case would only make LA County hungrier for lawsuits on other properties:
I DON’T KNOW WHAT THE DISCUSSIONS ARE IN THE RECESSES OF COUNTY OF LOS ANGELES GOVERNMENT, BUT I WOULD ASSUME THEY SPENT A LOT OF MONEY IN THIS CASE. I KNOW THAT. SOMEONE MAY SAY WE LOST THIS ONE BUT, BY GEORGE, WE’RE GOING TO COLLECT IT IN THE OTHER CASE, AT LEAST ON BAD FAITH EXPOSURE ON THE OTHER TWO CASES OUT THERE. THAT’S REALLY NO HELP TO US, FROM OUR PERSPECTIVE; AND I DON’T THINK IT’S OF BENEFIT TO THE TAXPAYERS OF ORANGE COUNTY TO SUPPORT THIS, NOR YOURSELF OR YOUR STAFF. THOSE ARE MY IMMEDIATE REACTIONS.” (Italics added.)
But the trial judge remained interested in the idea of a four-two bifurcation, and the idea that, given a first trial, trial as regards the latter two buildings might actually go away by being absorbed into a separate lawsuit:
THE COURT: BEFORE I HEAR FROM THEM, MR. RUDLOFF, LET ME POSE THIS QUESTION AND THAT IS THE CURIOSITY I HAVE ABOUT THE OTHER 200 BUILDINGS. THERE IS LURKING ON THE DISTANT HORIZON LOTS MORE LITIGATION INVOLVING THIS LARGER DISPUTE. IF TWO OF THE SMALLEST TOPICS IN THIS PRESENT LAWSUIT ARE SHAVED OFF NOW, IT OCCURS TO ME THAT IT’S AT LEAST PLAUSIBLE THAT THEY COULD THEN BE AFFIXED TO ANOTHER LAWSUIT WITH 200 BUILDINGS AND THAT LAWSUIT BARELY CHANGES IN NATURE IF YOU ADD TWO MORE BUILDINGS TO IT. AND AT LEAST WE HAVE SAVED, IN YOUR ESTIMATE, A COUPLE OF WEEKS HERE AND GAINED ALL THAT WE COULD POSSIBLY GAIN FROM THIS LAWSUIT BYTHE JURY’S REPORT ON FOUR BUILDINGS INSTEAD OF SIX.”
The trial judge continued, now positively warming to the idea of splitting off Pasadena and Beverly Hills for a separate lawsuit:
I SEE SOME VALUE IN THIS PROPOSAL, AND I SEE GREAT VALUE IN THIS PROPOSAL IF IT IS PLAUSIBLE TO TAKE THE PASADENA AND BEVERLY HILLS COURTHOUSES AND SQUEEZE THEM INTO SOME OTHER LAWSUIT RATHER THAN GIVING THEM THEIR OWN SEPARATE CASE.” (Italics added.)
Insurers’ defense counsel then sought to comment, and brought up the issue of other properties. His point was that the 27 properties in the insurance plan could not be equated with other, more numerous county buildings which might have separate insurance policies:
MR. RUDLOFF: HERE IS WHAT I THINK ABOUT THAT: THESE ARE TWO DIFFERENT PROGRAMS. AND UNDER NORMAL CIRCUMSTANCES, THAT MIGHT BE A GOOD IDEA IF ALL YOU’RE WORRIED ABOUT ARE TECHNICAL ISSUES. BUT THE PROGRAM OF INSURANCE THAT GOVERNS THESE 27 OR 28 BUILDINGS IS CALLED THE P.P.P. PROGRAM. IT HAS ITS OWN MANUSCRIPT FORM POLICY. THE OTHER 225 BUILDINGS ARE IN WHAT’S CALLED THE J.P.A. PROGRAM. IT HAS ITS OWN INSURANCE POLICY. AND SO A NUMBER OF THE PROVISIONS THAT ARE IN ONE POLICY AREN’T NECESSARILY IN THE OTHER POLICIES OF INSURANCE. AND SUPPOSE YOU CARVED OUT BEVERLY HILLS AND PASADENA AND PUT THEM OVER THERE WITH THAT ONE. THERE COULD BE CONFUSION ABOUT THE INSURANCE ISSUES, THE BAD FAITH ISSUES, BECAUSE, FRANKLY, THE SAME CONDITIONS AND PROVISIONS OF THE POLICY AREN’T THERE. THAT’S ONE COMMENT I HAVE. THE DISCOVERY OF THAT CASE IS BARELY OFF THE GROUND AND IT’S IMPOSSIBLE FOR ME TO FORESEE WHAT CONFLICT THERE MAY BE OR WHAT TECHNICAL ISSUES MAY ARISE IN ONE AS OPPOSED TO THE OTHER. BUT JUST THE FACT THAT THE INSURANCE POLICIES ARE DIFFERENT, THE CONTRACT OF INSURANCE THAT BRINGS U.S. ALL HERE TOGETHER IS A DIFFERENT ONE HERE THAN IT IS THERE, IT SEEMS TO ME IT WOULD PROHIBIT SUCH AN ADDITION OF THESE TWO OR THAT. PLUS, THESE TWO ARE SO SMALL THAT IT’S WORTH -- IT’S WORTH GETTING THEM DONE NOW IN THIS LAWSUIT FOR THE PURPOSES OF TIME.” (Italics added.)
At this point, there was an exchange as to what might, or might not, be encompassed in the lawsuit, with defense counsel making the point that the lawsuit only encompassed six properties, a point which LA County’s attorney did not dispute:
MR. RUDLOFF: THERE ARE 27 BUILDINGS IN THIS PROGRAM. I THINK THAT’S WHAT THEY’RE TRYING TO SAY. I THINK I SAID THAT A LITTLE WHILE AGO. BUT THE ONLY LITIGATION OVER THIS PROGRAM ARE THESE SIX BUILDINGS.
IS THAT CLEAR?
THE COURT: YES.” (Italics added.)
But then, another defense counsel spoke, to make the point that he represented some insurers who did not participate in the insurance program, and therefore did not like the idea that those insurers might be involved in litigation not really having to do with them:
MR. MCBURNEY: COULD I JUST ADD ONE COMMENT TO WHAT MR. RUDLOFF HAS SAID?
THE COURT: YES.
MR. MCBURNEY: AND, TO ME, A PERHAPS MORE TELLING POINT THAN THOSE THAT MR. RUDLOFF HAS JUST MADE, FOUR OF MY CLIENTS WHO INSURED THIS PROGRAM DID NOT INSURE THE OTHER PROGRAM. AND I’M SURE THAT THOSE CLIENTS WOULDN’T WANT TO HAVE THEIR PARTICIPATION IN THIS ACTIVITY PROLONGED TO ATTACH TO A PROGRAM OR TO BE INVOLVED IN LITIGATION FOR A PROGRAM WHICH THEY DID NOT UNDERWRITE. OTHERS OF MY CLIENTS ARE IN BOTH PROGRAMS. BUT EVEN AS TO THOSE CLIENTS, THEY HAVE NOT YET BEEN SUED IN THE ALLIANCE LAWSUIT. SO AS FAR AS ALL OF MY CLIENTS, IT WOULD -- I’M NOT SURE THAT IT WOULD BE APPROPRIATE TO USE THE TECHNIQUE YOU HAVE JUST IDENTIFIED.
THE COURT: THANK YOU.”
The trial judge then asked why the case had increased from only three structures to six:
THE COURT: THANK YOU.
I NEED SOME HELP WITH THE HISTORY OF THIS CASE. I KNOW THAT IT BEGAN WITH A COMPLAINT PUTTING IN PLAY A DISPUTE OVER THREE OF THE STRUCTURES THAT ARE DISCUSSED IN THE PRESENT CASE. PERHAPS MR. BERGMAN CAN TELL U.S. WHY THE COMPLAINT ADDRESSED ONLY THREE IF THERE WERE DISPUTES THEN PENDING OVER MORE THAN THREE.
At that point LA County’s attorney was plain: Only three properties were really at issue in the complaint. And he explained why the case had been framed so narrowly. To keep the litigation “simple and focused”:
MR. BERGMAN: BECAUSE, BASED ON THE SIZE OF THE POLICY, THE SIZE OF THE HALL OF ADMINISTRATION AND THE CIVIC CENTER, IT MADE SENSE TO HAVE THOSE TWO IN THE SAME LAWSUIT. AND SINCE AUTO PARK 18 RUNS UNDERNEATH THEM, IT CONNECTS THEM -- YOU HAVE THE COURTHOUSE, HALL OF ADMINISTRATION, AUTO PARK 18. IT’S LIKE ONE LARGE BLOCK. WE PICKED THOSE THREE BECAUSE IF WE WERE SUCCESSFUL, WE GO WAY OVER POLICY LIMITS. AND THAT IS BASICALLY THE REASON: TO KEEP IT SIMPLE AND FOCUSED.” (Italics added.)
With that, the trial court asked for more thoughts, making it clear that LA County’s motion for bifurcation was denied, but allowing for the possibility that an amended bifurcation motion might yet be granted:
THE COURT: ANY OTHER THOUGHTS?
ALL RIGHT. I’LL GIVE SOME MORE THOUGHT TO THIS SITUATION AS WE PROCEED THROUGH THE DAY. CERTAINLY I’VE ALREADY INDICATED THE MOTION THAT WAS PRESENTED IN WRITING FOR THE BIFURCATION OF THIS TRIAL AND THE PRESENTATION OF EVIDENCE RELATING ONLY TO THE HALL OF ADMINISTRATION IS DENIED. THE POSSIBILITY OF SOME OTHER FORMULATION OF A LIMITED TRIAL REMAINS THAT: A POSSIBILITY.
The bifurcation motion was not revisited that day, as the trial judge then proceeded to take up a series of motions in limine.
c. the February 7 2003 completion of the hearing on the bifurcation motion
On February 7, 2003, the bifurcation motion was revisited. Counsel for both sides had had time to think things over, and a compromise was in the offing.
The trial judge began by bringing up the old, unresolved business:
WE HAD LAST WEEK A MOTION FROM MR. BERGMAN ON BEHALF OF THE PLAINTIFF TO BIFURCATE; THAT MOTION WAS DENIED. HE SUGGESTED A DIFFERENT FORMULATION FOR POSSIBLE BIFURCATION, AND IN FAIRNESS DEFENSE COUNSEL ASKED FOR TIME TO THINK THAT ONE OVER. AND PERHAPS WE CAN CONTINUE THAT DISCUSSION TODAY. I SUPPOSE I SHOULD HEAR FROM MR. RUDLOFF AS TO WHETHER YOU HAVE ANY RESPONSE OR COMMENTS ON THAT SUBJECT.
Again, counsel for the insurers made the point that his clients did not want to face to separate bad faith trials.
MR. RUDLOFF: I HAVE DISCUSSED IT WITH OUR CLIENTS, AND THEY RAISED AN ISSUE THAT I’M NOT SURE I RAISED WITH YOU LAST WEEK. IT’S OF SERIOUS CONCERN TO THEM, AND THAT IS THAT IF WE CUT THESE TWO BUILDINGS OFF — I THINK THAT WAS THE PROPOSAL — THAT WE REMOVE PASADENA AND BEVERLY HILLS — MOVE THAT OFF AND TRY THAT SEPARATELY — THAT LEAVES THEM OPEN TO TWO BAD-FAITH LAWSUITS, ONE IN THE CIVIC CENTER AND ONE ON THE PASADENA AND BEVERLY HILLS COURTHOUSES. AND THAT’S OBVIOUSLY, FROM OUR PERSPECTIVE, UNACCEPTABLE, SO WE OPPOSE IT.” (Italics added.)
LA County’s attorney reiterated his hope for a four-two bifurcation:
MR. BERGMAN: I BELIEVE THAT — I THINK MR. MCBURNEY’S CONCERN IS A CONCERN, IN THAT ADMISSIBLE EVIDENCE WILL COME IN WHETHER THEY ARE PART OF THE CASE OR NOT.
I THINK THIS CASE WILL BE MUCH MORE MANAGEABLE FOR THE JURY AND PARTIES BY STICKING WITH THE FOUR CIVIC CENTER BUILDINGS. ALL ISSUES WILL BE RAISED, AND I BELIEVE THE RESOLUTION OF THOSE FOUR ISSUES WILL PROBABLY GO A LONG WAY TO RESOLVING EVERYTHING ELSE, BOTH IN THIS CASE AND IN ALLIANZ AND IN AGRICULTURAL.
The trial judge liked the idea of bifurcating, but still was concerned about unfairness to the defendants, in particular the “amorphous” standards governing punitive damages. Interestingly, the trial judge now floated the prospect of bifurcation on lines of issues, rather than properties:
THE COURT: THAT’S OUR GOAL AND HOPE, BUT IN THE WORST CASE SCENARIO, WE TRY THEM ALL. I DON’T THINK ANYBODY WANTS THAT TO HAPPEN, BUT I AM WILLING TO TAKE THAT RISK THAT WE SOMEHOW END UP WITH ONE EXTRA LAWSUIT OR ONE EXTRA PORTION OF A LAWSUIT THAT WOULD RELATE TO BEVERLY HILLS AND PASADENA, IF THIS PLAN DOES NOT RESULT IN THE FULL SETTLEMENT OF ALL THE DISPUTES. I THINK IN MY MIND THE BALANCING OF RISKS AND BENEFITS FAVORS THAT SORT OF APPROACH. BUT I WOULD INVITE YOU TO CONSIDER AND RESPOND TO MR. RUDLOFF’S CONCERNS THAT THE BAD FAITH ASPECT IS BEING DIVIDED IN TWO. AND IF THE DAMAGES ASPECT OF THESE CASES GETS DIVIDED IN TWO AND COVERAGE ISSUES GET DIVIDED IN TWO PORTIONS, THAT’S TOLERABLE BECAUSE THOSE PRESUMABLY CAN BE MEASURED WITH SOME FRAMES OF REFERENCE BY THE JURY. BUT NO MATTER HOW MANY TIMES WE GIVE THE STANDARD -- BUT VERY AMORPHOUS — INSTRUCTIONS ON PUNITIVE DAMAGES, AND NO MATTER HOW MANY TIMES THE SUPREME COURT MAKES A STAB AT THIS ISSUE, THE FRAMES OF REFERENCE ARE ILL-DEFINED. AND I THINK THAT IS AN UNFAIR RISK FOR THE DEFENDANTS.” (Italics added.)
But LA County’s did not propose the more traditional bifurcation based on a coverage-punitive damage dichotomy, but kept to the four-two split he had wanted all along.
However, the logjam broke when LA County’s attorney removed bad faith from the bifurcated two properties to be reserved for another trial:
MR. BERGMAN: GIVE ME ONE MOMENT.
THE COURT: YES.
(A DISCUSSION IS HELD OFF THE RECORD.)
MR. BERGMAN: YOUR HONOR, WE ARE NOT — THERE WOULD BE NO BAD FAITH SOUGHT ON THE PASADENA AND THE BEVERLY HILLS CLAIMS IF, IN FACT, THEY ARE BIFURCATED OFF AND IT’S A SEPARATE TRIAL. IT WOULD BE A PURE COMPENSATORY DAMAGE CASE. THE BAD FAITH WOULD BE ON THE FOUR BUILDINGS IN THE CIVIC CENTER AND IN THE AGRICULTURAL CASE.
THE COURT: THAT WOULD BE THE PLAN. ANY QUESTIONS ABOUT THAT PLAN? THANK YOU VERY MUCH.”
d. the January 31, February 7, and February 18 hearings vis-à-vis the January 13 supplemental brief
We will not make a too-long opinion even longer by going into the details of the balance of the hearings of January 31 and February 7, as well as the February 18 hearing, in order to show what didn’t happen. Readers should simply recall that LA County’s January 13, 2003 supplemental brief was just that -- a “brief.” There was no “hearing date” specified in the caption (only a date already more than two months old -- November 4, 2002) and there was nothing on the brief to indicate a request on LA County’s part that it should be treated as a motion in limine, a motion for summary adjudication, or any other sort of request for an order from the court. The trial court did not bring up the brief in the hearings of January 31, February 7, or February 18. More importantly, neither did LA County, despite several instances in the hearings (most notably at the end of the hearing on February 7) where it might have been brought up. In fact, at the conclusion of the hearing on February 7, the trial court specifically invited counsel to bring up any matters to be heard on February 18 (other than a defense summary adjudication motion already scheduled for that date). LA County’s attorneys did not avail themselves of that opportunity.
6. Phase I Trial
The salient details for this appeal about the trial of Phase I, now limited to just the four properties, but including all bad faith claims which LA County made attendant to the claims handling of those properties, are again significant for what is not there, in this case -- not in the opening brief: There is no claim of error made in the opening brief as to the conduct of the trial, the admission or exclusion of evidence, or (with one big exception which is its own major issue, discussed below) the jury instructions given or withheld.
As noted, the jury returned a defense verdict for the insurers, and also rejected LA County’s bad faith claims.
7. PrePhase II Skirmishing
LA County’s appellate briefing, particularly its reply brief, identifies three key pre-Phase II hearings where it contends that the trial court somehow misled it into thinking it could have “evidence on policy interpretation issues.” These hearings were April 12, 2004, August 20, 2004, and October 4, 2004.
a. April 12, 2004
Interestingly enough, the April 12, 2004 hearing was not reported.
That is not a typo. The one hearing that LA County now contends was the most important to this appeal that exceeds 104 volumes of Reporters Transcript was not reported!
All we have is the declaration of one of LA County’s own attorneys, offered to support LA County’s opposition to a motion brought by the insurers to prevent the declaration that was offered in support of opposition papers filed against the insurers’ motion to “exclude plaintiff from offering evidence re: claims for damages, policy benefits and/or exhaustion of the deductibles for buildings other than Beverly Hills Courthouse and Pasadena Courthouse.” The “other than” to that opposition of course indicates that the insurers were not opposing the offering of evidence on “claims for damages, policy benefits and/or exhaustion of the deductible” in connection with the two properties that had been set aside for the Phase II trial.
The declaration offered by LA County’s attorney was this: “I was present at the April 12, 2004 Status Conference. During the Status Conference, counsel for the Defendants, Marjie Barrows, argued that policy interpretation and deductible issues should be resolved before the start of the Phase II trial. In response, this Court stated that policy interpretation and the deductible issues would be resolved following the Phase II trial as the Phase II trial is a continuation of the same trial.”
b. August 20, 2004
On August 20, 2004, the court took up a number of pretrial motions preparatory to Phase II. Toward the end of the hearing, the trial court specifically considered two motions brought by the insurers: The first motion was denied, the second granted.
The motion that was denied was an attempt by the insurers to preclude LA County from offering evidence in the Phase II trial concerning some $33 million in attorney fees that, the insurers argued, was being belatedly asserted by LA County as loss adjustment (as distinct from litigation) expense.
In arguing for the motion, counsel for the insurers apparently became a bit impassioned -- for which he later apologized to the court -- because he felt that insurers were being sandbagged by belated claims.
Here is how the argument opened:
THE COURT: THANK YOU VERY MUCH.
POLICY BENEFITS. MR. RUDLOFF, I SEE YOU STIRRING.
MR. RUDLOFF: PARDON ME?
THE COURT: I SEE YOU STIRRING.
MR. RUDLOFF: I AM STIRRING, YES.
WE ARE CONCERNED AND OFFERING THIS MOTION THAT THE COUNTY MAY BE INCLINED TO MAKE AN EFFORT TO OFFER INTO EVIDENCE IN PHASE II CERTAIN CLAIMS THAT HAVE NEVER BEEN MADE BEFORE AND WOULD BE ABSOLUTELY UNFAIR TO U.S. IF THEY WERE MADE NOW. AND THOSE ARE CLAIMS THAT RELATE TO ADDITIONAL COVERAGES CALLED LOSS ADJUSTMENT EXPENSES, ASSISTANCE AND COOPERATION
The insurers’ counsel then moved on to elaborate on the unfairness of being hit with new claims regarding additional policy benefits so late in the process:
MR. RUDLOFF: I’LL JUST CALL THEM WHATEVER WE WANT TO
CALL THEM. LOSS ADJUSTMENT EXPENSES, ASSISTANCE AND COOPERATION, DEBRIS REMOVAL, CONSEQUENTIAL LOSS AND EXPEDITING EXPENSE.
THROUGHOUT THE COURSE OF THE CLAIMS PROCESS -- AND WE KNOW A WHOLE LOT ABOUT THAT NOW, HAVING GONE SIX MONTHS THROUGH THE CLAIM PROCESS. WE’VE SEEN MANY, MANY HUNDREDS OF LETTERS BACK AND FORTH -- YOU WILL FIND NO LETTERS FROM THE COUNTY MAKING ANY CLAIM FOR ANY OF THESE FIVE AREAS OF WHATEVER WE WANT TO CALL IT.
After a few more words about how LA County had not made these claims in answers to interrogatories when it had the chance, the insurers’ counsel inveighed about how LA County was now trying to get, as an insurance claim, attorney fees that had been spent in the course of Phase I of the trial:
IN THE LAST YEAR OR SO, SINCE THE TIME OF THE JURY VERDICT IN PHASE I, WE’VE BEEN PRIVY TO INFORMATION FROM THE COUNTY THAT THEY ARE IN FACT NOW, AT LEAST IN SOME RESPECTS, WANTING TO MAKE CLAIM FOR OTHER AREAS SUCH AS THESE FIVE. AND THEY HAVE INCLUDED LOTS OF DIFFERENT THINGS.
THEY HAVE INCLUDED, UNDER THE LOSS ADJUSTMENT AND THE ASSISTANCE IN COOPERATION CLAUSE, OVER $11 MILLION IN ATTORNEYS’ FEES THAT ARE NOT BROKEN DOWN IN ANY WAY, SHAPE, OR FORM, BUT APPEAR TO U.S. AS THOUGH THEY WERE ATTORNEYS’ FEES INCURRED BY GREG’S FIRM IN CONNECTION WITH PROSECUTING PHASE I OF THE JURY TRIAL.
THEY INCLUDE 21 PLUS MILLION DOLLARS FOR, QUOTE, EXPERTS’ AND CONSULTANTS’ FEES THROUGH AUGUST OF 2003, WHICH INCLUDE A LIST OF THE EXPERT WITNESSES WHO CAME IN HERE AND WEREN’T ABLE TO CONVINCE THE JURY OF MUCH OF ANYTHING. $21 MILLION.
AND SO WE’RE GIVEN TO BELIEVE THAT THE COUNTY, AT LEAST AS THAT ONE EXAMPLE, MAY WELL COME IN HERE AND SEEK TO PUT INTO EVIDENCE NOT ONLY EVIDENCE THAT SHOULD HAVE BEEN PUT INTO EVIDENCE -- IF IT WERE, IN FACT, ABLE TO BE PUT INTO EVIDENCE -- LAST YEAR, BUT THEY'RE ACTUALLY TRYING TO GET IN EVIDENCE THINGS THAT HAVE NEVER COME UP IN THE PAST.
The trial judge, as he was wont to do throughout the entire case, listened to the insurers’ counsel, waited for him to finish, and then turned to LA County’s attorney to hear his side of the story. LA County’s attorney opened with comments reminiscent of the November 4, 2002 hearing, i.e., asserting that it was the insurers who were under an obligation to tell LA County what wasn’t covered, as distinct from LA County being obligated to present claims. Along the way, however, he also asserted, as if it were established fact, that the court had already determined that additional benefit provisions would be tried after Phase II:
MR. MASON: THANK YOU, YOUR HONOR. I'LL GO FIRST; AND IF MR. BERGMAN HAS ANYTHING TO SAY, HE’LL BE SECOND.
WITH INTERPRETATION TO WHAT THE POLICY PROVISIONS PROVIDE AND WHAT THE COUNTY IS ENTITLED TO AND WHAT THE DEFENDANTS ARE OBLIGATED TO PAY, THAT IS AN ISSUE THAT YOUR HONOR HAS INDICATED WOULD BE RESOLVED AT THE CONCLUSION OF THE PHASE II TRIAL.
THE ISSUE OF POLICY INTERPRETATION, THE RELEVANT PROVISIONS -- THE ISSUE HAS BEEN BRIEFED EXTENSIVELY BY THE PARTIES AND THE COUNTY HAS GIVEN AN INDICATION OF ITS POSITION OF WHAT IT BELIEVES IT WOULD BE ENTITLED TO UNDER THE VARIOUS PROVISIONS WHERE THE INFORMATION IS AT HAND.
IT IS IMPORTANT TO RECOGNIZE THAT THE DEFENDANTS SHOULD NOT BE ABLE TO PRESENT THEMSELVES IN THE ROLE OF THE VICTIM WITHIN THIS ISSUE BECAUSE, UNDER THE APPLICABLE FAIR CLAIMS SETTLEMENT PRACTICES REGULATIONS, THEY HAVE CERTAIN OBLIGATIONS TO THE COUNTY TO ADVISE THE COUNTY, ONCE THE CLAIM COMES IN, WHAT THE COUNTY'S RIGHTS ARE UNDER EACH OF THE POLICIES AND TO ASSIST THE COUNTY IN GETTING THE INFORMATION TOGETHER SO THOSE RIGHTS CAN BE FULFILLED AND PAYMENTS ARE MADE TO THE COUNTY.
THAT’S NEVER HAPPENED IN THIS ACTION. IT DID NOT HAPPEN IN THE PRELITIGATION STAGE WHERE THE CLAIM WAS PLACED BACK IN JANUARY OF 1994. VARIOUS MEETINGS TOOK PLACE BETWEEN COUNTY REPRESENTATIVES AND THE INSURANCE COMPANY REPRESENTATIVES. CLAIMS WERE PRESENTED THROUGH THE A&E’S AND THE PARTIAL PROOFS OF LOSS. AND THE COUNTY WROTE ON OCTOBER 29, 1996, AND ASKED, WHAT IS YOUR POSITION ON EACH OF THESE PROPERTIES WHERE WE HAVE GIVEN YOU A PARTIAL PROOF OF LOSS? WHERE DO YOU AGREE? WHERE DO YOU DISAGREE? WHAT ARE THE APPLICABLE POLICY PROVISIONS? THAT INFORMATION HAS NEVER BEEN FORTHCOMING.
Further, returning to the theme of a putative insurer obligation to tell LA County what wasn’t covered, LA County’s attorney appeared to recognize that, indeed, additional benefit claims had not been presented to the insurers:
SO I DON’T BELIEVE THE DEFENDANTS ARE IN A POSITION AT THIS JUNCTURE TO COMPLAIN THAT THEY ARE UNAWARE OF CERTAIN COMPONENTS OF THE CLAIM WHEN THEY HAVE THE INITIAL OBLIGATION AND DUTY TO ADVISE THE COUNTY WHAT ITS RIGHTS WERE. THAT HASN'T CHANGED WITH THE INITIATION OF A LAWSUIT. WHILE THERE WERE REFERENCES TO FORM INTERROGATORIES AND SPECIAL INTERROGATORIES, IT DIDN'T SPECIFICALLY REQUIRE THE COUNTY TO IDENTIFY UNDER EVERY SINGLE POLICY ISSUED BY EVERY SINGLE DEFENDANT EVERY SINGLE RIGHT THE COUNTY BELIEVED IT WAS ENTITLED TO OBTAIN MONEY.
Since it was the insurers’ motion that was being considered, the trial court gave the insurers’ a chance to have the “final word” in the argument. Attorney Rudloff pointed out that LA County’s attorney missed the part of Phase I where the scope of the claims was actually talked about:
MR. RUDLOFF: YES, SIR. THANK YOU.
MR. MASON WASN’T HERE DURING THE TRIAL SO HE DIDN’T HEAR THE TESTIMONY OF LARRY SHIROMA AND RUDY ALVAREZ AND GARY BROWN WHERE THEY SPOKE ABOUT HOW THEY MET AND TALKED IN LENGTH ABOUT THESE INSURANCE POLICIES, BOTH BEFORE THIS LOSS AND AFTER THAT LOSS HAPPENED, AND THE ASSISTANCE PROVIDED BY GARY BROWN TO THOSE TWO FELLOWS IN MAKING THEIR INSURANCE CLAIMS. HE DIDN'T HEAR THE TESTIMONY ABOUT GARY BROWN MET WITH THOSE FELLOWS, AND OTHERS, EVERY WEEK IN GENERAL INSURANCE MEETINGS. SO HE REALLY DOESN'T KNOW WHAT HE IS SAYING ISN’T CORRECT. THE FACTUAL RECORD DEFIES THAT.
Apparently, as noted, the insurers’ attorney became somewhat impassioned at the prospect that LA County might be allowed to present new claims that had not been presented previously, and mentioned how much trouble and expense LA County’s litigation strategy had caused, and alluded to his future section 998 motion for expert witness fees:
THE INSURANCE COMPANIES ARE VICTIMS HERE. IT WOULD BE ABSOLUTELY ILLOGICAL TO SUGGEST THAT THE INSURANCE COMPANIES SHOULD PAY $33 MILLION FOR A LOT OF EXPERTS AND ATTORNEYS TRYING TO PURSUE A BAD FAITH LAWSUIT WHEN THE JURY CAME BACK WITH $10 MILLION EVEN LESS THAN MR. PONZI BLACKBOARDED IN HIS FINAL ARGUMENT.
The judge caught on to what appeared to be an allusion to a future 998 motion:
THE COURT: THAT’S A FUTURE ARGUMENT THOUGH, MR. RUDLOFF.
MR. RUDLOFF: MAYBE IT IS. I JUST GET ANGRY AND I APOLOGIZE FOR THAT.
The trial judge was understanding of counsel’s frustration:
THE COURT: I APPLAUD YOU FOR IT. YOU SHOULD PUT SOME EMOTION INTO THIS.
MR. RUDLOFF: THANK YOU. I'VE LIVED WITH THE CASE, TOO, FOR A LONG TIME.
Soon the trial judge alluded to the “next phase.” The insurers’ counsel returned to the theme that the insurers were being sandbagged by belatedly made claims:
The lead-in was Attorney Rudloff’s comments about the insurers’ victory in the bad faith part of Phase I:
THE INSURANCE COMPANY MAY HAVE A CONTINUING DUTY OF GOOD FAITH AND FAIR DEALING TO PAY CLAIMS THAT SHOULD BE PAID, BUT OBVIOUSLY THIS JURY FOUND THEY DIDN'T HAVE ANY DUTY TO PAY ANY CLAIM TO THESE FOLKS.
THE INSURANCE COMPANY AND ITS LAWYERS
At this point the court mentioned “the next phase.”
THE COURT: COULD IT BE DIFFERENT IN THE NEXT PHASE?
MR. RUDLOFF: PARDON ME?
THE COURT: COULD IT BE DIFFERENT IN THE NEXT PHASE?
Again, counsel for the insurer returned to the theme that the insurers were being sandbagged by the presentation of new claims:
MR. RUDLOFF: I DON’T THINK IT CAN BE. THIS CASE HAS GONE FOR TEN YEARS. THERE IS NO BAD FAITH ALLEGATION IN PHASE II. IT’S ONLY A QUESTION OF DECLARATORY RELIEF ON THE AMOUNT OF DAMAGES AND THE NATURE, THE SCOPE OF THE DAMAGES.
BUT WE HAVE NO OBLIGATION CONTINUALLY DURING LITIGATION TO PROPOUND INTERROGATORIES THAT HAVE NOTHING TO DO WITH THE OPERATIVE PLEADINGS ON VARIOUS AREAS OF POTENTIAL RECOVERY WHEN THEY HAVE NOT EVEN -- THEY HAVE NOT EVEN SURFACED IN THE CLAIM. THAT WOULD BE A WASTE OF OUR CLIENT’S, THE COURT'S TIME, THE TAXPAYERS OF LOS ANGELES COUNTY'S TIME IN DOING THAT.
MR. MASON WOULD HAVE U.S. SEND INTERROGATORIES ABOUT EVERY SINGLE POTENTIAL POLICY CONDITION, EVERY YEAR UNTIL WE'RE IN TRIAL, AND EVEN WHEN WE'RE IN TRIAL. THAT ISN’T OUR OBLIGATION. THAT’S A STRAINED VIEW OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING AND THE REGULATIONS IN CALIFORNIA.
THE FACT OF THE MATTER IS THAT THE PROOFS OF LOSS, THE LETTERS, THE EVIDENCE, UP TO THE TIME LITIGATION WAS FILED, SAY NOTHING AT ALL ABOUT THESE FIVE AREAS. THE INFORMATION PROVIDED UNDER OATH AND IN DISCOVERY ON MANY, MANY OCCASIONS BY THE COUNTY SAYS NOTHING AT ALL ABOUT THESE AREAS. AND THE COUNTY OUGHT NOT NOW BE ABLE TO SURPRISE U.S. WITH SOME CLAIM THEY HAVE THAT REALLY HAS TO BE LITIGATED IN FRONT OF A JURY ANYWAY TO FIND OUT WHETHER OR NOT THEY’RE ENTITLED TO THESE $33 MILLION.
Counsel for the insurers again finished up by apologizing for becoming impassioned. But, understanding as the trial judge was, he denied the motion.
SO ONE MORE TIME, JUDGE BAUER, I APOLOGIZE FOR EVEN GETTING A LITTLE OUT OF HAND HERE.
THE COURT: BY NO MEANS.
MR. RUDLOFF: IT’S ALWAYS A PLEASURE.
THE COURT: NOT OUT OF HAND AT ALL. NO NEED FOR APOLOGY. MAYBE NEED FOR APOPLEXY BUT NOT APOLOGY BECAUSE YOUR MOTION IS DENIED. THANK YOU.
AT BEST, IT’S TOO BROAD, IT’S TOO PREMATURE. I’LL STOP THERE AND MOVE TO NUMBER SEVEN WHICH IS OUR LAST.
We should note here that in the discussion we have just recounted, the trial judge said nothing to confirm attorney Mason’s assertion that “what the policy provisions provide” would be resolved “at the conclusion of the Phase II trial.” Judge Bauer simply listened and let attorney Mason make his argument, then simply listened and let attorney Rudloff make his argument, and denied an in limine motion to preclude LA County from putting on loss adjustment expense evidence in the Phase II trial. Judge Bauer’s allusion to a “next phase” is at best ambiguous: Given that, literally, the next phase of trial (Phase II) was looming, the natural reading of his passing comment is that he was indeed referring to Phase II. And that meant, as is logical given the trial judge’s denial of the insurers’ motion to exclude evidence concerning the $33 million in attorney fees, that LA County was free to put on such evidence in Phase II. (After all, that $33 million went to only the properties that were in the complaint or cross-complaint.)
The “last” motion to which the trial judge referred was granted. It was a motion, in the judge’s own words:
THE COURT: THE MOTION PROHIBITS THE PRESENTATION IN PHASE II OF EVIDENCE ABOUT DAMAGES OTHER THAN BEVERLY HILLS AND PASADENA. IT ALSO PROHIBITS EVIDENCE HERE ABOUT THE COST OF REPAIRS OF THOSE BUILDINGS.
LA County does not, in this appeal, argue that the grant of the motion was error. We will simply note again that, throughout the course of the August 20, 2004 hearing, the trial court said nothing to confirm what, at that point, was LA County’s assertion that there was some go-ahead to save auxiliary benefit claims for some post-Phase II trial. We do not think a trial judge is required to immediately disabuse counsel every time, in oral argument, counsel makes a statement which may not be accurate. Moreover, there was nothing pending in front of the court regarding a possible Phase III -- the only items which were before the court were the in limine motions regarding Phase II, and motions by the insurers to boot.
c. October 4, 2004
Finally, there was the October 4, 2004 hearing. In some ways, the October 4, 2004 hearing was a replay of the November 4, 2002 hearing 23 months earlier.
The trial judge had just finished up a motion preparatory to Phase II on computer modeling, and then brought up a matter, precipitated by a letter to the court from the insurers’ counsel in September, as to the court’s “prior rulings.” The court was clearly addressing counsel for LA County:
LET’S GO NOW TO THREE TOPICS THAT MOST RECENTLY COME TO MY ATTENTION, AND THEY RELATE TO THE SEPTEMBER 29 LETTER THAT WAS SUPPLIED TO THE COURT FROM MR. RUDLOFF’S OFFICE RELATING TO YOUR EFFORTS TO SUMMARIZE PRIOR RULINGS IN THE CASE AND HOW THEY MIGHT APPLY TO THIS LAWSUIT.
Still addressing counsel for LA County, the judge continued, and even made an apparent reference to the old “6 of number 6” brief from October of 2002:
YOU LEFT THREE FOR FUTURE DISCUSSION. IF YOU ARE PREPARED TO DO IT, SO AM I. IF YOU ARE NOT, WE CAN PUT IT TO ANOTHER DAY. BUT DON’T HESITATE TO TELL ME IF THAT IS THE CASE. UNTIL I HEAR OTHERWISE WE’LL START AND JUST CHAT ABOUT WHAT YOU’VE DESCRIBED AS LEGAL ISSUE NUMBER SIX, POLICY INTERPRETATION.
WHAT DO YOU THINK WE OUGHT TO DO WITH THIS ISSUE AND HOW SHOULD WE APPROACH THIS ISSUE, MR. BERGMAN OR MR. BENYAMINI? (Italics added.)
Counsel for LA County then said:
MR. BENYAMINI: YOUR HONOR, I THINK THAT THIS IS AN ISSUE THAT HAS KIND OF BEEN LINGERING WITH THE COURT SINCE WE FILED A BRIEF, I THINK, BACK IN AUGUST OF 2002 AND THEN WE SUPPLEMENTED IN JANUARY OF 2003 AND MOST RECENTLY WE SUBMITTED PAPERS WITH SUPPLEMENTAL BRIEFING. AND WE BELIEVE THAT THIS IS RELEVANT TO PHASE TWO, BECAUSE IT IS -- IT DOES INVOLVE POLICY INTERPRETATION. EVEN THOUGH YOUR HONOR HAS NOT RULED YET, I THINK IT IS JUST AN ISSUE THAT WE SHOULD NOT FORGET ABOUT. THAT SHOULD BE ON THE LIST AS T.B.D., TO BE DETERMINED.
JUST BECAUSE THERE HASN’T BEEN A RULING THAT DOESN’T MEAN THAT THE ISSUE HAS GONE AWAY.
The judge then asked for comments from the insurers’ counsel (though it appears he misspoke and used the name of one of LA County’s counsel):
THE COURT: MR. BERGMAN, ANYTHING YOU WANT TO ADD TO YOUR LETTER?
The insurers counsel argues that the matter really was not appropriate for the day’s agenda:
MR. RUDLOFF: YES. THAT IS THIS, THAT THERE IS NO RULING. THIS IS SUPPOSED TO BE A SUMMARY OF RULINGS. IF THERE IS NO RULING IT SHOULDN’T BE ON THERE. THAT IS THE SURFACE LEVEL.
The judge, however, seemed to willing to keep the matter as a “watchpoint”:
THE COURT: WHAT’S THE HARM IN LISTING IT AS A KIND OF A WATCH POINT?
Defense counsel was certainly aware of the issue:
MR. RUDLOFF: I -- IT IS ALWAYS ON MY RADAR.
THE COURT: IT IS JUST IN THE WRONG PLACE.
MR. RUDLOFF: I KNOW IT IS THERE.
THE COURT: NO HARM, NO FOUL.
But then defense counsel raised the question as to how the matter “fits, ” and perhaps should have been a matter for jury instructions back in Phase I:
MR. RUDLOFF: NO. EXCEPT THAT I’M JUST WONDERING WHERE THIS FITS IN. FOR EXAMPLE, MIGHT THIS HAVE BEEN A MOTION FOR SUMMARY JUDGMENT? MIGHT THIS HAVE BEEN SOMETHING TAKEN UP DURING THE COURSE OF THE LAST TRIAL WHEN EVIDENCE CAME IN REQUIRING A LEGAL RULING? MIGHT THIS HAVE COME IN DURING THE APPROPRIATE TIME OF JURY INSTRUCTIONS? SORRY.
THE COURT: WELL,
Defense counsel changed course and welcomed the chance to discuss the matter:
MR. RUDLOFF: THOSE ARE MY THOUGHTS ON THE SUBJECT. WE WERE NOT PREPARED TO ADDRESS THIS TODAY BUT HAPPY TO DO SO.
The trial court agreed. He was ready to discuss the matter:
THE COURT: MAYBE THEN I SHOULD CONSIDER THAT AS AN INVITATION ACCEPTED.
But then the court gave LA County’s attorney a chance to put off the matter for another day:
MY INVITATION IS, IF YOU WEREN’T READY TO DISCUSS THESE WE WOULDN’T DO THAT. I’LL TAKE THAT AS AN ANSWER THAT YOU WOULD RATHER PUT THESE OFF TO ANOTHER DAY.
And then, something that in retrospect seems unexpected. It was LA County’s attorney who affirmatively declined the chance to take up the matter on that day:
MR. BERGMAN: YES.
The trial court came to closure:
THE COURT: WE’LL DO JUST THAT. MAYBE I SHOULD STOP AGAIN AND FIND OUT WHAT YOUR TOPICS FOR THE DAY ARE. (Italics added.)
We will simply note this from the foregoing transcription. In its opening brief, LA County says, referring to the October 4, 2004 hearing: “At a hearing held October 4, 2004, the day before Phase II commenced, the County reminded the court policy interpretation posed unresolved issues.” But that’s not quite an accurate rendition. As we have just shown, it was the trial judge who raised the problem of unresolved issues, and defense counsel who was willing to settle the matter that day. The person who declined the “invitation” to talk about them was LA County’s own counsel.
LA County’s reply brief’s rendition is also not quite accurate. That rendition frames the discussion as an “agreement” by all sides to put off the issue to another day: “Defendants argue, ‘Contrary to... County’s assertions, it was allowed to argue all policy interpretation issues.” (RB:43, § G.1.) Yet defendants concede in their Introduction to this section that, on October 4, 2004, ‘[t]he court postponed the matter [oral argument on policy interpretation issues] only after a discussion and agreement by all counsel.’ (RB:44, citing AOB:38, citing 81RT:14, 995-14, 997.) Thus, it does not matter the court could have heard policy interpretation arguments that day. (RB:43-44.)” (Reply br. at p. 66.)
Not so. A fairer reading of the colloquy is that the trial judge was giving LA County’s counsel the opportunity to raise it later if LA County so desired. There was certainly no “agreement” to definitely consider the matter at a future date.
8. Phase II trial
As with Phase I, the remarkable thing about Phase II is what is not asserted as error in the opening brief. There is no argument that the trial judge made an erroneously evidentiary ruling, or that the ultimate determination lacked substantial evidence. There is, in the opening brief, the assertion that evidence relating to the auxiliary benefit issues was indeed put to the trial court in Phase II, and that the court did not “did not address or rule on the policy interpretation and deductible issues.” But, conspicuously absent from the opening brief is any assertion that LA County specifically requested a ruling on any of these “issues” in Phase II and was refused it.
As noted, the Phase II trial resulted in a determination that the damages to the Pasadena Courthouse did not exceed the deductible, but those to the Beverly Hills Courthouse did by about $400,000.
9. Post-Phase II Skirmishing
a. the April 11, 2006 hearing
While the Phase II trial might have been completed, there were still plenty of numbers to be crunched, and that process continued into 2006 at a hearing conducted on April 11, 2006. The hearing resulted in a direction to insurers to prepare a draft judgment and statement of decision. LA County did not appear to raise (and certainly makes no argument in its briefs that it did raise) any of the auxiliary benefit issues on which it now relies in that hearing.
What did happen was that the trial court itself, in the process of its comments about deductibles, stated its belief that the various benefits should be bundled per applicable property. Significantly, the trial judge began by agreeing with the insurers that LA County really hadn’t put on evidence as to the total amount of expert fees, investigative fees, or other ancillary costs incurred by LA County.
AND THAT REALLY, I THINK, COMPLETES THE ANALYSIS THAT I WOULD TENDER TO YOU ON THESE QUESTIONS ABOUT THE DEDUCTIBLES, EXCEPT A COUPLE OF MORE POINTS THAT I THINK WERE POINTS THAT YOU LEGITIMATELY DISCUSSED IN RESPONSE TO THE COURT’S SUGGESTION THAT THERE MIGHT BE OTHER TOPICS PERIPHERAL OR RELATED TO THE QUESTIONS POSED BY THE COURT. AND I THINK THERE IS AT LEAST A COUPLE OF POINTS THAT I WOULD ADDRESS IN THAT REGARD. THERE’S A LOT OF DISCUSSION ABOUT THE PLAINTIFF’S CLAIMS FOR INVESTIGATIVE WORK, ATTORNEYS’ FEES, TRASH DISPOSAL, AND OTHER CATEGORIES THAT ARE LISTED IN THE POLICY AS SOURCES OF COVERAGE. I’M AS FORGETFUL AS ANYONE, BUT CERTAINLY MY RECOLLECTION OF THE EVIDENCE THAT WE’VE HEARD OVER TWO SUMMERS IS QUITE CONSISTENT WITH THE DEFENDANTS’ RECOLLECTION ABOUT WHAT IS IN THE RECORD AND WHAT HAS BEEN PRESENTED IN EVIDENCE ON THESE TOPICS.
THE DEFENDANTS MADE THAT POINT; AND THEY WERE, I THINK, VERY, VERY PRECISE AND I THINK JUSTIFIABLY SKILLFUL IN THEIR ANALYSIS. HERE AT PAGE 14 OF THEIR REPLY BRIEF, THEY SAID NO ONE TESTIFIED ABOUT ATTORNEYS’ FEES ALLEGEDLY INCURRED BY THE COUNTY. I THINK THAT’S TRUE.
THEIR NEXT PHRASE IS VERY PRECISE. THEY SAID, “NO ONE TESTIFIED ABOUT THE TOTAL AMOUNT OF EXPERT AND CONSULTANT FEES ALLEGEDLY INCURRED BY THE COUNTY.” AND I ADMIRE THE PRECISION WITH WHICH THAT PHRASE WAS PRESENTED, BECAUSE THE WORD “TOTAL” IS VERY IMPORTANT THERE. AND I KNOW IT WASN’T PLACED THERE INADVERTENTLY, BECAUSE THERE WAS TESTIMONY AT VARIOUS TIMES FROM EXPERTS WHO TESTIFIED ABOUT THEIR BILLABLE RATE AND THE AMOUNT OF HOURS THEY SPENT. SO THERE WERE LITTLE SNIPPETS OF TESTIMONY HERE AND THERE ABOUT THE FEES CHARGED BY THE EXPERT.
BUT WHEN THE WRITER OF THIS BRIEF SAYS THAT NO ONE TESTIFIED OR GAVE EVIDENCE ABOUT, QUOTE, “THE TOTAL AMOUNT OF EXPERT AND CONSULTANT FEES ALLEGEDLY INCURRED BY THE COUNTY, ” THAT STATEMENT IS TRUE.
AND THEN IT GOES ON TO SAY THAT THERE WAS NO EVIDENCE ABOUT THE AMOUNT ALLEGEDLY INCURRED BY THE COUNTY TO INVESTIGATE AND REPAIR ANY P.P.P. PROPERTIES, EXCEPT THE TWO COURTHOUSES IN PASADENA AND BEVERLY HILLS. AND THAT SECTION OF THE BRIEF GOES ON TO NOTE WHAT I THINK IS AN ACCURATE SUMMARY OF THE RECORD ABOUT THIS POINT. (Italics added.)
Then the trial court did turn to the subject of damage and its relationship to some of the auxiliary benefit provisions, and gave a ruling, or at least a “thinking” if not a ruling:
ANOTHER POINT I WOULD COMMENT ON. THE SUBCATEGORY OF EXPENSES, I WOULD THINK, CAN’T BE RECOGNIZED WHERE THERE WAS NO DAMAGE. THIS IS ONE OF THOSE POINTS WHERE I’M A LITTLE NERVOUS BECAUSE IT SEEMS TO ME SO OBVIOUS THAT I MAY WELL BE WRONG. THAT’S MY UNCERTAIN STATE OF MIND, BECAUSE IT SEEMS SO OBVIOUS THAT INVESTIGATIVE WORK AND ATTORNEYS’ FEES AND OTHER EFFORTS RELATING TO THE AUTO PARKS COULDN’T BE RECOVERABLE IF THE JURY FOUND THERE WAS NO DAMAGE THERE. THAT’S SUCH A SIMPLISTIC APPROACH THAT THERE’S PROBABLY A FLAW IN MY THINKING THERE, BUT I’LL TELL YOU THAT’S MY THINKING RIGHT NOW.
AND THEN I HAVE ANOTHER THOUGHT ABOUT THIS ISSUE, AND THAT IS THE QUESTION ABOUT WHETHER THERE IS — WHAT THE IMPLICATION IS FOR THE DEDUCTIBLE IN REGARD TO ANYTHING THAT WAS PROVED IN THESE CATEGORIES.” (Italics added.)
The trial judge then reiterated his point that LA County had to have damage before any of the auxiliary benefit provisions kicked in:
I THINK THERE IS ONE DEDUCTIBLE IN THE POLICY — AT LEAST THE LOWER LEVEL POLICIES. AND THERE IS AN ISSUE HERE ABOUT WHETHER WE EVER IMPLICATE THE EXCESS COVERAGE. BUT THERE IS ONE DEDUCTIBLE IN THE BASIC POLICIES AND ONE PACKAGE OF COVERAGE THERE. AND I THINK THAT’S THE SHORT ANSWER TO THIS ISSUE ABOUT ALL OF THESE OTHER SOURCES OF RECOVERY.
WHERE THERE IS DAMAGE, THERE CAN BE RECOVERY FOR DEBRIS REMOVAL AND INVESTIGATIVE SERVICES, AND SO FORTH, AS THE POLICY PROVIDES. AND I THINK WE PACKAGE ALL THAT TOGETHER FOR A PARTICULAR LOCATION AND THEN APPLY THE DEDUCTIBLE APPROPRIATELY AND APPLY POLICY LIMITS APPROPRIATELY.
I THINK THERE IS SOME DISAGREEMENT ABOUT THAT, BUT I HOPE I EXPLAINED MY POINT OF VIEW ON SOME OF THOSE TOPICS ADEQUATELY. (Italics added.)
b. the June 1, 2006 hearing
By this time, the prospect of a no-recovery judgment had galvanized LA County, and, at the hearing on June 1, 2006, it put forward this theory of recovery: Damages from all 27 of the buildings in the insurance plan, plus additional amounts from the auxiliary benefit provisions, could be aggregated to clear the hurdle of the $20 million maximum deductible.
Here is the point, as put forward by one of LA County’s attorneys at that hearing. The theory was that it was enough to put the question of the deductible in issue to raise the claim:
WITH RESPECT TO MR. RUDLOFF’S COMMENT THAT THERE WAS NEVER A MOTION MADE TO ADD OTHER PROPERTIES INTO THE LITIGATION, THE ISSUE HERE, THOUGH, IS ONCE THE DEDUCTIBLE GETS PUT INTO ISSUE AND THE DEFENDANTS CLAIM THAT THERE IS NEVER GOING TO BE AN EXHAUST OF THE DEDUCTIBLE, YOU NECESSARILY HAVE TO CONSIDER HOW THE DEDUCTIBLE GETS EXHAUSTED AND WHAT MONIES COUNT TOWARD THAT EXHAUSTION AND THAT MONEY SPENT AT OTHER PROPERTIES DO BECOME RELEVANT TO THE DEDUCTIBLE EXHAUSTION ISSUE.
SO THAT IS SOMETHING THAT DOES NEED TO BE ADDRESSED BY THIS COURT IN ORDER TO MAKE THAT DECISION WHETHER OR NOT THE DEDUCTIBLE HAS BEEN EXHAUSTED. (Italics added.)
And at the end of his comments, LA County’s attorney argued, as one of his colleagues had prior to Phase I, that the court had somehow lulled LA County into thinking it could have a Phase III in which it could aggregate its damages from beyond the six properties:
WITH RESPECT TO THE COUNTY HAVING THE GREEN LIGHT TO COME FORWARD AND NOW PUT ALL THIS INFORMATION INTO EVIDENCE, YOU’LL RECALL IT WAS THE COUNTY RELYING ON STATEMENTS BY THE COURT FOR THE START OF THE PHASE I TRIAL AND IN BETWEEN TRIALS ONE AND TWO THAT ISSUES OF INSURANCE POLICY INTERPRETATION WERE MATTERS THAT WERE GOING TO BE TAKEN UP BY THE COURT AT THE END OF THE MATTER.
That last comment appears to have struck a nerve with the trial court judge. In particular, it didn’t seem to square with the previous attempts to “limit the evidence” as in, for example, the bifurcation motion. In fact, he challenged LA County’s attorney to identify the facts that would allow the court to render these policy interpretations.
THE COURT: LET ME STOP YOU THERE.
MR. MASON: OKAY.
THE COURT: BECAUSE I THINK THAT’S AN IMPORTANT POINT. THAT’S INDEED, I SUPPOSE, WHAT WE’RE DOING NOW. WE’RE INTERPRETING THE POLICY AND MAKING DECISIONS ABOUT THE ALLOCATION OF THESE COVERAGE EXTENSIONS AND THE DEDUCTIBLE, AND SO FORTH. BUT ONCE WE DO THAT -- READ THE POLICY, DETERMINE HOW IT’S APPLIED, AND STUDY THE LAW AND THE LANGUAGE OF THE CONTRACT -- WE THEN PUT INTO THE FORMULA THE EVIDENCE IN THE RECORD. AND A PLAN THAT ENVISIONED LEGAL ANALYSIS AND CONTRACTUAL INTERPRETATION LATER DOESN’T SEEM TO BE A PLAN THAT LIMITS THE EVIDENCE, THE FACTUAL TIDBITS THAT WILL THEN BE USED TO IMPLEMENT THOSE CONTRACTUAL DECISIONS, THE FACTUAL BASES THAT WILL BE USED WHEN THE POLICY INTERPRETATION IS PUT INTO USE.
I THINK THERE IS DIFFERENT ISSUES. ONE ISSUE IS WHEN WILL WE DECIDE HOW TO INTERPRET THE POLICY AND APPLY THE DEDUCTIBLE. THE OTHER ISSUE IS WHAT ARE THE FACTS THAT WE WILL USE TO IMPLEMENT THAT INTERPRETATION?
AND MY QUESTION TO YOU, MR. MASON, IS WHAT ARE THE FACTS THAT WE NOW HAVE FOR THE IMPLEMENTATION OF THE DECISIONS ABOUT POLICY INTERPRETATION?
Another of LA County’s attorneys now jumped into the fray. His point was that trial was still ongoing, a de facto “Phase III”:
MR. BERGMAN: YOUR HONOR, LET ME GO FIRST AND MR. MASON CAN PICK IT UP.
THE COURT: PLEASE, MR. BERGMAN. I ALWAYS LIKE TO HEAR YOUR THOUGHTS.
MR. BERGMAN: THANK YOU.
WE RAISED THE ISSUE OF THE OTHER PORTIONS OF THE POLICIES FOR RECOVERY BEFORE THE START OF PHASE I, BEFORE THE START OF PHASE II, AND WERE TOLD YOUR HONOR WOULD DEAL WITH THOSE ISSUES AFTER SPECIFIC BUILDINGS. THERE WAS NEVER A — THE UNDERSTANDING WAS THAT AT THAT TIME YOUR HONOR WOULD THEN MAKE SOME LEGAL DETERMINATION AS TO RECOVERABILITY UNDER OTHER PROVISIONS. WE’RE STILL IN TRIAL, FOR A BETTER NAME PHASE III. THERE IS NO PRECLUSION FOR THE COUNTY TO MATCH UP — IF YOUR HONOR SAYS YOU’RE ENTITLED TO RECOVERY UNDER THE FOLLOWING PROVISIONS, FOR THE COUNTY TO THEN PRESENT ADDITIONAL EVIDENCE, WHETHER BY AFFIDAVIT, WHETHER BY LIVE WITNESSES, WHETHER BY DOCUMENTATION, AS TO ANY ADDITIONAL FACTS AS TO AREAS WHERE YOUR HONOR SAYS THAT THE COUNTY IS ENTITLED TO DIFFERENT RECOVERY. IT HAS NEVER BEEN WAIVED, GIVEN UP.
AND WE’RE STILL IN TRIAL. THIS IS START PART OF A TRIAL. I MEAN, WE’VE DONE IT IN PHASES. THE COUNTY STILL HAS THE RIGHT — AND WE BELIEVE SOME OF THE INFORMATION, IF NOT ALL, HAS ALREADY BEEN PRESENTED, EITHER BY OFFERS OF PROOF OR BY MATTERS THAT ARE IN EVIDENCE.
BUT THERE HAS BEEN NO STATEMENT WHATSOEVER BY THE COURT, BY THE DEFENDANTS, BY THE PLAINTIFF, THE COUNTY, THAT WE WERE SOMEHOW GIVING UP OUR RIGHT IN WHAT WOULD BECOME PHASE III TO BOTH HAVE A LEGAL DETERMINATION AND TO BOTH ARGUE IT LEGALLY AND FACTUALLY.
SO WE’RE STILL IN TRIAL. THAT’S WHY WE’RE SAYING IT’S TOO EARLY TO HAVE A JUDGMENT. AS LONG AS THE TRIAL IS STILL OPEN AND IN PLAY, THESE ARE LEGAL ISSUES FOR THE COURT TO DECIDE. THE COUNTY HAS THE RIGHT TO PRESENT BOTH THE LEGAL AND FACTUAL MATTERS TO THE COURT TO MAKE THOSE LEGAL COURT DECISIONS. (Italics added.)
At this point the trial judge turned to defense counsel and asked for his thoughts:
MR. RUDLOFF: DID YOU WANT TO HEAR FROM US?
THE COURT: PLEASE.
MR. RUDLOFF: YES. I THINK THAT WAS A GOOD IDEA TO PUT THE TWO TOGETHER AND PUT THE TWO OF THEM TOGETHER IN PARAGRAPH 12. WE THINK IT’S TIME FOR A JUDGMENT.
This comment prompted the trial judge to interject a thought. What LA County really wanted to do was “reopen” the case:
THE COURT: EXCUSE ME FOR INTERRUPTING, MR. RUDLOFF.
TODAY AND PREVIOUSLY, WITHOUT PRECISELY USING THE WORDS, THE NET RESULT OF WHAT THE PLAINTIFFS ARE SAYING, AT LEAST AS IT FALLS ON MY EARS, WOULD BE A MOTION TO REOPEN. THEY HAVEN’T USED THAT TERM, BUT IT HAS ALL THE INDICIA THEREOF.
SO I NEED TO HEAR YOUR THOUGHTS UNINTERRUPTED NOW.
Defense counsel pointed out the obvious prejudice from such a belated decision to reopen. Indeed, it would be “unbelievably unfair.”
THEY HAVEN’T MADE THAT MOTION. AND, TO ME, IT WOULD BE UNTIMELY TO MAKE THE MOTION. IT WOULD BE PREJUDICIAL TO MAKE THE MOTION.
THE CLASSIC EXAMPLE IS WITH RESPECT TO PHASE I, THE LARGEST PROPERTIES. WE HAD A JURY. THE JURY WAS THE FACT FINDER. TO THE EXTENT THAT THERE WOULD BE ANY OF THESE OTHER COVERAGES THAT THEY WANTED TO PUT EVIDENCE IN TO GET AN AWARD ON, THOSE WERE OUR FACT FINDERS, AND THEY WERE DISCHARGED THREE YEARS AGO.
IT WOULD BE UNBELIEVABLY UNFAIR FOR THOSE ISSUES, WITH RESPECT TO THOSE FOUR BUILDINGS, AND ANY OF THESE OTHER COVERAGES, TO BE RAISED NOW. AND THAT’S THE BEST EXAMPLE OF PREJUDICE TO ME.
WITH RESPECT TO THE LAST TWO BUILDINGS, WE TRIED THAT CASE TWO YEARS AGO, TO YOU. AND YOU GAVE THEM EVERY OPPORTUNITY TO RAISE THOSE ISSUES IF THEY WANTED TO RAISE THE ISSUES. THEY DIDN’T.
Then the insurers’ counsel also confronted the point that the possibility of asserting other “coverages” had been floated previously:
THEY CAN’T NOW COME BACK IN AND REOPEN TO ADD 21 MORE BUILDINGS. THEY JUST CAN’T DO THAT. THE TIME TO DO THAT WAS A LONG TIME AGO. THIS EARTHQUAKE HAPPENED, AS WE ALL KNOW, 12 YEARS AGO. THIS LAWSUIT WAS FILED BY THE COUNTY IN 1997 OR 1998, SOMEWHERE BACK IN THERE. IT’S NOW 2006. WE STILL HAVE ANOTHER LAWSUIT TRAILING BEHIND THIS THAT NEEDS TO BE ACCOMPLISHED.
SO MY RESPONSE IS THAT IT OCCURS TO ME IT’S TOO LATE, UNTIMELY, PREJUDICIAL TO CERTAINLY THE DEFENSE. AND THERE ISN’T ANY GOOD REASON FOR IT. THERE IS NO GOOD REASON WHY THEY DIDN’T DO THIS. THIS COURT NEVER ONCE TOLD THEM THAT THERE WOULD BE A PHASE III. NEVER ONCE.
I KNOW THAT THEY RAISED THESE SO-CALLED LEGAL ISSUES IN A BRIEF BACK IN THE END OF 2002, EARLY 2003, AS LEGAL ISSUES. BUT THE COURT WAS RIGHT ON POINT. THERE ARE CERTAIN FACTUAL ISSUES THAT NEED TO BE DETERMINED.
THE TIME TO DETERMINE FACTUAL ISSUES ARE DURING THE TRIALS THEMSELVES. WE HAD TWO TRIALS. THERE WAS A BIFURCATION. THAT’S IT. THERE IS NO THIRD TRIAL. THERE WAS NO TRIFURCATION. I KNOW THAT WORD. (Italics added.)
When LA County’s attorney got his chance to respond, his point was that LA County had already “raised” the issue of auxiliary benefits, and that was enough:
MR. MASON: THIS WENT TO YOUR LAST POINT THAT YOU RAISED, YOUR HONOR, ABOUT WHETHER OR NOT THERE WOULD BE A MOTION TO REOPEN THE CASE. IN THE COUNTY’S VIEW, IT’S NOT A MATTER OF REOPENING. IT’S AN ISSUE THAT HAS BEEN RAISED. IT’S AN ISSUE THAT HAS BEEN PRESERVED. THE BRIEFING WAS DONE PRIOR TO THE START OF THE PHASE I TRIAL ON THE ISSUE OF POLICY INTERPRETATION, A MATTER OF LAW FOR THE COURT TO PERFORM.
WE HAD SUBMITTED THE DECLARATIONS FROM MR. BERGMAN AND MR. BENYAMINI REGARDING WHAT WAS STATED AT THE APRIL12TH, 2004, STATUS CONFERENCE AND THE MAY 14, ‘04, TRIAL READINESS CONFERENCE, THAT THE ISSUES OF POLICY INTERPRETATION AND THE MATTER OF DEDUCTIBLE, LEGAL ISSUES, WOULD BE RESOLVED FOLLOWING THE CONCLUSION OF THE PHASE II TRIAL.
AND THIS WAS CONFIRMED ON OCTOBER 4, 2004, WHEN THE PARTIES WERE BEFORE YOUR HONOR TO REMIND YOUR HONOR OF THE ISSUE OF LEGAL ISSUE NUMBER SIX WHICH WAS THE MATTER OF POLICY INTERPRETATION AND THE COURT’S DUTY TO INTERPRET THE POLICY FORM. AND THAT WAS SOMETHING THAT YOUR HONOR SAID THAT WAS GOING TO BE PUT OFF FOR ANOTHER DAY.
WITH RESPECT TO PUTTING THE ATTORNEYS’ FEES AND ET CETERA BEFORE THE JURY, THAT WOULDN’T HAVE BEEN AN APPROPRIATE THING FOR THE JURY TO MAKE A DETERMINATION ON SINCE THIS IS SOMETHING THAT THE COURT, AS A MATTER OF LAW, MAKES THE DETERMINATION WHAT THE POLICIES SAY AND WHAT THE COUNTY’S ENTITLEMENT WOULD BE UNDER THE POLICY WITH RESPECT TO THE ATTORNEYS’ FEES AND WHAT THE AMOUNT OF THOSE ATTORNEY FEES WOULD BE. THAT’S SEPARATE FROM A DAMAGE CATEGORY AT A BUILDING, FOR EXAMPLE, IF BONDS ARE GOING TO HAVE TO BE PAID. THAT’S PART OF THE ASSESSMENT WITH RESPECT TO THE REPAIR OF THE BUILDING, WHICH UNDERSTANDABLY COMES UP IN THE TRIAL, BUT NOT THE ATTORNEY FEE COMPS PROVISION.
FOR EXAMPLE, WHEN YOU HAVE AN ISSUE OF BAD FAITH, WHICH WE DID HAVE IN THIS CASE — JUDGE WALDRIP HAD ISSUED A RULING THAT BAD FAITH WOULD BE FIRST RESOLVED BY THE JURY, AND THEN HE WOULD TAKE A LOOK AT, ASSUMING THERE WAS A FINDING OF BAD FAITH, WHAT THE COUNTY’S ENTITLEMENT TO ATTORNEYS’ FEES WOULD BE. THERE WOULD HAVE BEEN TIME FOR A SUBMISSION OF BILLS REVIEWED BY THE COURT AND THEN BRIEFING AND ARGUMENT BY THE PARTIES. SO THAT’S HOW IT’S NORMALLY DONE WHEN THERE IS AN ISSUE OF THE RECOVERY OF ATTORNEY FEES. YOU DON’T PUT THAT IN FRONT OF THE JURY. THAT’S SOMETHING THAT GOES TO THE COURT AND THE COURT THEN MAKES THAT DETERMINATION.
SAME THING WHEN COSTS ARE SUBMITTED AT THE END OF THE TRIAL. IF THERE IS AN ATTEMPT TO RECOVER FEES, THERE IS A SUBMITTAL AND A DECLARATION AND THE AMOUNT AND WHATEVER SUPPORTING DOCUMENTATION IS PROVIDED AT THAT T IME. IT NOT NECESSARILY HAS TO BE PUT INTO EVIDENCE AT THE TIME OF TRIAL. ONCE THERE IS A DETERMINATION MADE THAT YOU CAN RECOVER THAT, THAT INFORMATION IS THEN SUPPLIED TO THE COURT AND THEN THAT DETERMINATION IS ULTIMATELY MADE BY THE COURT.
SO WE WOULD THINK — WE SUBMIT THAT THIS MATTER IS STILL BEFORE THE COURT. IT’S NOT SOMETHING THAT HAS TO BE REOPENED, BUT IT’S SOMETHING THAT THE COURT STILL NEEDS TO ADDRESS AS PART OF THE OVERALL LEGAL INTERPRETATION OF THE POLICY, WHAT THE COUNTY’S RIGHTS AND RECOVERIES ARE, AND THEN WE SUBMIT THAT ADDITIONAL INFORMATION TO YOUR HONOR AT THE APPROPRIATE TIME.
At this point the trial judge turned to the more basic question of whether LA County had indeed already proffered evidence supporting its position in regard to the auxiliary benefits claims. Basically, the trial judge wanted to look at some exhibits before he made any decision:
THE COURT: MR. MASON, THAT’S VERY HELPFUL. IN TWO WAYS, YOU’RE GOING TO HELP ME. ONE, YOU ALREADY HAVE BY LEADING ME TO A QUESTION I WANT TO POSE TO YOU IN A MINUTE; BUT THE OTHER WAY YOU’VE BEEN HELPFUL IS BY MAKING REFERENCE, BOTH HERE THIS MORNING AND IN YOUR PAPERS, TO TWO EXHIBITS THAT YOU IDENTIFIED WITH MR. MURPHY. AND I MAY ASK YOU TO GIVE THE COURT COPIES OF THOSE. AS YOU WELL KNOW, THE EXHIBITS HAVE BEEN RETURNED TO COUNSEL. BUT THOSE TWO EXHIBITS HAVE PIQUED MY CURIOSITY TO THE EXTENT I WANT TO SEE THEM BEFORE ANY FURTHER DECISION-MAKING IN THIS CASE. AND YOU KNOW THE TWO I’M TALKING ABOUT, I’M SURE.
MR. MASON: YES. I BELIEVE IT’S EXHIBIT 1245 AND I BELIEVE IT’S 2036 FROM THE PHASE II WHERE MR. MURPHY PUT IN THE NUMBERS FOR EXTRA EXPENSE, RELOCATION-TYPE EXPENSES, PAYMENTS ON BOND INTEREST, THINGS OF THAT NATURE. THOSE ARE THE NUMBERS THAT WERE DERIVED FROM THOSE TWO TRIAL EXHIBITS.
A few minutes later (after some discussion that appears to have centered on the nature of the excess coverage) the trial judge uttered the comment summarizing LA County’s position that there was no need to “reopen” the case, and then called for comments:
THE COURT: PLEASE.
WELL, YOU MIGHT, AS A GROUP, RESPOND -- I GIVE HIGH MARKS TO PLAINTIFF’S COUNSEL FOR NOT ADOPTING MY MOTION THAT THEY DIDN’T MAKE.
IF I CAN INTERPRET WHAT I’VE JUST HEARD FROM MR. MASON, IT’S NOT NECESSARY TO MOVE TO REOPEN SOMETHING THAT’S NEVER BEEN CLOSED. THAT’S MY LOOSE WAY OF DESCRIBING WHAT HE SAID, AND I THINK HE MIGHT ADOPT MY SECOND VERSION OF HIS POINT OF VIEW. HE REJECTED MY FIRST VERSION AND I THOUGHT THAT WAS INSIGHTFUL.
ON THAT SUBJECT, ANYTHING?
The insurer’s counsel’s point was that the auxiliary benefit claims required factual determinations, and that two trials had already been held:
THESE ARE POTENTIAL COVERAGES UNDER THESE POLICIES. THEY REQUIRE A FACTUAL DETERMINATION. THAT’S WHY YOU HAVE TRIALS. AND WE HAD THE TWO TRIALS. THAT WAS THE TIME TO RAISE THOSE ISSUES, NOT NOW AFTER ALL OF THE EVIDENCE HAS BEEN IN.
In response, LA County’s attorney did not address the problem of whether factual predicates --such as actual numbers of amounts claimed for debris removal -- were needed, but wanted to talk about recovery from the excess insurers (as a quotation of all of his remarks shows):
MR. MASON: ALL RIGHT. THANK YOU, YOUR HONOR.
WITH RESPECT TO MR. PONZI’S CLAIM THAT THE EXCESS POLICIES -- THE COVERAGE EXTENSIONS UNDER THE EXCESS POLICIES AREN’T TRIGGERED UNTIL THE PRIMARY LIMIT IS EXHAUSTED, THAT IS NOT WHAT IS SET FORTH IN THE FOUR CORNERS OF THE POLICY FORMS. THERE IS NO LANGUAGE THAT SAYS YOU HAVE TO EXHAUST AN UNDERLYING AMOUNT IN ORDER TO TRIGGER THE OBLIGATION TO PAY UNDER THE EXCESS POLICY FORMS.
WHILE IT IS TRUE THERE WERE SOME SUBLIMITS IN THE PRIMARY FORM, AND WE ACKNOWLEDGE THAT, THOSE SUBLIMITS WERE NOT CARRIED OVER INTO THE EXCESS POLICY FORM. IF THAT WAS THE DEFENDANTS’ INTENT, THEY HAVE THE OBLIGATION UNDER THE LAW TO WRITE LANGUAGE THAT IS CLEAR AND UNAMBIGUOUS. TO THE EXTENT THERE IS ANY AMBIGUITY, IT WOULD BE CONSTRUED AGAINST THE INSURANCE COMPANY.
WHILE THEY CLAIM THAT IT WAS THE COUNTY’S BROKER THAT WROTE THE POLICY, THE EVIDENCE THAT CAME IN IN PHASE I OF THE TRIAL THROUGH MR. ENG WAS THAT HE SHOPPED AROUND A NEW FORM FOR THE ‘93-’94 YEAR, IT WAS REJECTED BY THE INSURANCE COMPANY DEFENDANTS. HE HAD TO GO BACK TO THE ‘92-’93 FORM.
THEY WERE IN THE DRIVER’S SEAT. THEY DICTATED THE TERMS AND CONDITIONS OF THE POLICY, NOT THE COUNTY.
However, another LA County attorney jumped into add a few more comments, which more directly confronted the auxiliary benefit claims. His point was that the issue had already been “reserved”:
THE COURT: MR. MASON, THANK YOU AGAIN.
MR. BERGMAN: THE LAST POINT WOULD BE IF YOUR HONOR HAD RULED, LET’S SAY, BEFORE PHASE I, HERE ARE MY RULINGS ON YOUR ENTITLEMENT TO THE ISSUES RAISED BY THE COUNTY AS TO THE INTERPRETATION, WHICH IS A LEGAL ISSUE FOR THE COURT, AT THAT POINT PERHAPS WE WOULD HAVE BEEN DISCUSSING, OKAY, WHAT DO WE DO NEXT? BUT IT WAS RESERVED TO DETERMINE WHAT THE LEGAL RIGHTS UNDER THE INTERPRETATION OF THE CONTRACT WAS BY THE COURT.
THAT’S A LEGAL ISSUE FOR THE COURT TO DETERMINE. WE’RE STILL IN TRIAL. AND OUR POSITION IS THAT YOUR HONOR HAS TO RULE ON IT, WE THEN WOULD PRESENT ADDITIONAL EVIDENCE, WHICH WE ARE ENTITLED TO DO, BECAUSE IT’S NEVER BEEN WAIVED, GIVEN UP, WE’RE STILL IN THE SAME TRIAL.
AND IT WOULD HAVE BEEN IRRELEVANT FOR THIS JURY, IT WOULD HAVE BEEN IRRELEVANT TO YOUR HONOR IN PHASE II UNTIL YOUR HONOR RULED ON WHAT OUR RIGHTS WERE. (Italics added.)
The trial judge then changed the subject, and asked defense counsel to discuss the issues of “interest, prevailing party.” The insurers’ attorney made the point that the insurers had clearly won:
TO ME, THAT JUST BOGGLES THE MIND AND IS ILLOGICAL TO SUGGEST THAT ANYONE OTHER THAN THE DEFENSE IS THE PREVAILING PARTY. SO I GUESS I WOULD SUGGEST THAT IF WE NEED THAT FOR THE JUDGMENT NOW, WE OUGHT TO BE THE PREVAILING PARTIES.
IT IS A DECLARATORY RIGHTS LAWSUIT. IT’S NOT ONE THAT ALLEGES BREACH OF CONTRACT. THERE SHOULD BE NO MONEY DAMAGES AWARDED, ONLY AS I THINK YOU PUT IT VERY APTLY DURING THE FIRST JURY TRIAL, THAT WHAT THIS JURY WILL DECIDE AND WHAT YOU EVENTUALLY DECIDED IS WHAT THE BUDGET WILL BE FOR THE COUNTY. HOW MUCH DO THEY HAVE? AND WE NOW KNOW THEY HAVE ROUGHLY $10 MILLION FOR THE HALL AND CIVIC CENTER AND THEY HAVE WHATEVER IT IS ON THE OTHER. NET THE DEDUCTIBLE, THEY COME UP WITH NOTHING.
I DON’T KNOW WHAT ELSE I CAN SAY ABOUT IT AT THIS POINT.
But the judge was still apparently open-minded on the subject of prevailing party:
THE COURT: OH, I LOOK FORWARD TO SEEING ANY SUCH BRIEF ON THIS SUBJECT IF WE GET TO THAT POINT. AND IT’S STILL A HYPOTHETICAL TOPIC BECAUSE THERE’S CERTAINLY REASONS THAT I’M GOING TO HEAR IN A MOMENT WHY WE’RE NOT AT THAT POINT.
Then followed a discussion on prevailing party and credits, after which the trial judge self-consciously gave LA County’s attorney a “wild card” to discuss anything “pending or unresolved”:
THE COURT: THANK YOU, MR. MASON.
LET ME NOW GO TO CATEGORY 15, AND THAT IS UNKNOWN TO ME IF THERE IS ANYTHING RELATING TO THIS LAWSUIT -- THAT IS TO SAY, THE CASE OF COUNTY OF LOS ANGELES VERSUS AETNA -- THAT IS PENDING OR UNRESOLVED OR NEEDS DISCUSSION AT THIS POINT. I GAVE YOU A WILD CARD.
MR. BERGMAN?
But LA County’s attorney did not force a ruling on any aspect of the auxiliary benefits issue, including whether there even needed to be a ruling on the issue, whether it had really been “reserved, ” or whether LA County needed to make a motion to reopen.
Rather, the hearing ended with a discussion of another case referred to as the “Agricultural case.”
c. five months later: November 15, 2006
After a few remarks from the court about the calendaring for the conference, and the point that the trial judge was now taking up the question of the statement of decision, LA County’s attorney started right in with the unresolved auxiliary benefits provisions argument. As was the case with the June 1 hearing, LA County’s position was that the auxiliary benefits issue had been “reserved.”
MR. BERGMAN: YOUR HONOR, THE ONE COMMENT I HAVE AT THIS POINT IS THAT, BEFORE WE MOVE FORWARD, I BELIEVE WE NEED THE COURT’S INTERPRETATION AND RESOLUTION OF THE PROVISIONS OF THE INSURANCE POLICIES AND WHETHER THE COUNTY OF LOS ANGELES IS ENTITLED TO ADDITIONAL RECOVERY UNDER THOSE CONTRACTUAL PROVISIONS.
THE TERMS OF THE CONTRACT WERE RESERVED FOR THE COURT TO RULE ON THOSE PROVISIONS AND WHAT THEY MEAN AND WHAT THE COUNTY’S RIGHTS ARE, AND I THINK THAT WOULD BE THE FIRST STEP THAT WOULD HAVE TO BE TAKEN BEFORE WE GET TO THE OTHER ISSUES IN THIS OR THE AGRICULTURAL CASE. (Italics added.)
The insurers counsel also reiterated his position -- there was no more need for litigation, there had already been two jury trials, and LA County had had its chance to offer evidence on those provisions:
THE COURT: MR. RUDLOFF, IF YOU WISH.
MR. RUDLOFF: WELL, JUST BRIEFLY, YOUR HONOR.
I THINK WE’VE CROSSED THAT BRIDGE PROBABLY FIVE OR SIX TIMES BEFORE TODAY; AND I DON’T BELIEVE THAT THERE IS ANY REQUIREMENT FOR ANY FURTHER LITIGATION IN CONNECTION WITH COVERAGE EXTENSIONS, OR THE LIKE.
WE HAD THE JURY TRIAL. WE HAVE A CONSTITUTIONAL RIGHT TO A JURY. THAT WAS THE TIME TO PUT IN EVIDENCE OF ANY COVERAGE EXTENSIONS. THERE WAS EVIDENCE PUT IN IN CONNECTION WITH SOME OF THEM. THERE WAS NO AWARD FOR ANY OF THEM.
AND THEN WE HAD PHASE II, AND WE MADE A MOTION IN LIMINE TO PREVENT THE COUNTY FROM OFFERING ANY EVIDENCE ON ANY OF THESE SIX VARIOUS SUBCATEGORIES. THE COURT DENIED OUR MOTION. THE COUNTY HAD EVERY OPPORTUNITY TO PUT IN WHATEVER EVIDENCE IT WANTED TO AT THAT TIME.IT DID NOT. AND WE CONCLUDED THAT TWO YEARS AGO.
There was no more discussion on the question of the resolution of supposedly unresolved issues that day. After asking for any more comments (“Anything else? [¶] All right.”) the trial judge then proceeded to deliver a lengthy statement, and eventually came around to what had been called “Phase III.”
The trial judge squarely rejected the idea that the auxiliary benefit issues had been reserved:
THE OTHER ISSUE THAT I THINK HAS BEEN OF GREAT TROUBLE TO THE PLAINTIFF IS THE ISSUE ABOUT PHASE III. AND I REMEMBER BEING TOLD — AND I ACCEPT THIS ON FAITH, BECAUSE THERE IS NO OPPOSITION ARGUMENT — TOLD BY DEFENDANTS THAT THEY SCANNED THE RECORD, SCOURED THE TENS OF THOUSANDS OF PAGES, AND NEVER FOUND THAT TERM, “PHASE III, ” SPILLED FROM THE COURT’S MOUTH. AND OTHER THAN IN ARGUMENT, I KNOW THE DEFENDANTS DIDN’T USE IT. AND IT’S MY RECOLLECTION THAT THE COURT NEVER EXPECTED, NEVER ANTICIPATED, NEVER SAID THERE WOULD BE A PHASE III OR THAT THERE IS MORE TO COME.
AND I CAN TELL YOU THAT IT WAS NEVER IN THE COURT’S MIND THAT THERE WOULD BE A PHASE III, AND THAT MAY BE AN EXPLANATION ABOUT WHY THE COURT NEVER MADE A DESCRIPTION OR MADE A SCHEDULE OR EVER EXPRESSED AN ANTICIPATION THAT THERE WOULD BE A PHASE III. THAT MAY BE SOMETHING THAT WAS IN THE MIND OF OTHERS; BUT IT WAS NOT IN THE MIND OF THE COURT, IT WAS NOT IN THE PLANS THAT WERE EVER EXPRESSED AS WE WORKED THROUGH THE EARLIER YEARS OF THIS CASE, OF SUBDIVIDING IT INTO THE DOWNTOWN ISSUES AND THE SUBURBAN ISSUES, IF YOU WILL.
I WANT TO SAY THAT, AGAIN, BECAUSE I THINK THAT IS A VERY TROUBLESOME ISSUE TO THE PLAINTIFF IN THIS CASE; BUT THE COURT’S RECOLLECTION, AND, I BELIEVE, THE RECORD, LEAD TO A CONCLUSION THAT WE HAVE, AT THIS POINT, COMPLETED ALL THE INTENDED PHASES OF THE TRIAL.
d. and finally, the motions for new trial and JNOV heard January 8, 2007
LA County made postjudgment motions for a new trial and for judgment notwithstanding the verdict, which were heard January 8, 2007. The auxiliary benefit provisions figured in considerably. LA County’s attorneys argued:
-- if investigation and emergency repair costs of $7.7 million were added in, LA County would have met the deductible.
-- LA County was still the prevailing party because “the County established that it did sustain damages.”
-- expert fees of some $8.3 million should have been added in to reach the aggregate deductible.
And on the “Phase III” problem, LA County’s attorneys argued that it was established on October 4, 2004 that they could have their Phase III, including the presentation of evidence in Phase III:
THE FOURTH ISSUE IS THE COUNTY TAKES — THAT THE COUNTY TAKES ISSUE WITH RESPECT TO THE JUDGMENT IS THAT THE COURT ERRED IN NOT ALLOWING THE COUNTY TO HAVE THE FURTHER PROCEEDING IN ORDER TO PRESENT ITS EVIDENCE IN CONNECTION WITH THE POLICY INTERPRETATION DEDUCTIBLE ISSUE.
WHILE THE COURT DID NOT USE THE WORD “PHASE III” IN SPEAKING WITH COUNSEL, IT WAS THE COURT’S STATEMENT AT THE OCTOBER 4, 2004, CONFERENCE BEFORE WE BEGAN THE PHASE II TRIAL THAT THE ISSUE OF POLICY INTERPRETATION, THIS DEDUCTIBLE ISSUE, THE LEGAL MOTION NUMBER SIX, WAS SOMETHING THAT WAS GOING TO BE PUT OFF FOR ANOTHER DAY. AND THE COUNTY TOOK THAT COMMENT TO HEART BY THE COURT, AND IT WAS CONSISTENT WITH THE COUNTY’S UNDERSTANDING WHICH IT HAD REPRESENTED TO THE COURT AT THE PRIOR STATUS CONFERENCES ON APRIL THE 12TH AND OCTOBER THE 4TH THAT THIS INFORMATION WOULD BE CONSIDERED AT THE CONCLUSION OF PHASE II AND NOT BEFOREHAND, AND THAT THE COUNTY WOULD HAVE THE OPPORTUNITY TO PRESENT THE EVIDENCE AT THAT TIME. (Italics added.)
And then LA County’s attorney asserted that it should have been allowed to bring a motion to reopen:
THE COUNTY HAD PRESENTED ITS OFFER OF PROOF TO SHOW WHAT HAD BEEN SPENT TO DATE, IN TERMS OF ATTORNEYS’ FEES AND TOTAL EXPERT AND CONSULTANTS COSTS, AND THAT THESE FIGURES WOULD HAVE TO BE LOOKED AT BY THE COURT AND DETERMINED THAT THEY WERE RECOVERABLE UNDER THE LOSS ADJUSTMENT AND/OR THE ASSISTANCE AND COOPERATION CLAUSES, AND THAT THESE NUMBERS WOULD ALSO HAVE TO BE COUNTED TOWARDS DETERMINING WHETHER OR NOT THE DEDUCTIBLE HAD BEEN EXHAUSTED, BECAUSE IF YOU — IF THE COURT DETERMINES THAT THE DEDUCTIBLE HAS IN FACT BEEN EXHAUSTED, THEN THE DEFENDANTS ARE ALL RESPONSIBLE FOR ALL RECOVERIES HAD BY THE COUNTY, BOTH IN PHASE I AND PHASE II OF THE TRIAL.
LAST TWO POINTS IS THAT THE COUNTY SHOULD HAVE BEEN ALLOWED TO BRING A MOTION TO REOPEN ITS CASE IF THERE WAS ANY CONCERNS ABOUT THE ADEQUACY OR THE LEVEL OF PROOF OR IF THE COURT WAS OF THE MIND-SET THAT THE COUNTY
The trial judge interrupted and took issue with the statement that somehow LA County had been prevented from filing a motion to reopen:
THE COURT: HAS SUCH A MOTION EVER BEEN MADE?
MR. MASON: NO. THAT IS
THE COURT: WHO PREVENTED THAT?
LA County’s attorney answer was quite a bit different from LA County’s earlier position that it didn’t need to reopen, that it was somehow agreed that issues had been reserved, or that what it wanted to litigate were strictly “legal” issues that didn’t require any further fact finding:
MR. MASON: THE WAY IN WHICH THIS CAME UP, WE ACTUALLY ASKED FIRST — IN THE LETTERS TO THE COURT, FOLLOWING THE HEARING ON JUNE 1, WE WANTED TO ADDRESS — ONE OF THE ISSUES THAT WE WANTED TO ADDRESS WAS THE MATTER OF THE NEED TO REOPEN THE CASE. AND THE COURT SAID — THE SUBJECT OF THE REQUEST, NOT JUST THE REOPENING, BUT THE OTHER POINTS RAISED BY THE COUNTY, WAS BOTH PREMATURE AND UNTIMELY, AND THAT IF THE COURT NEEDED ANY OTHER INFORMATION THAT IT WOULD SO ASK.
SECONDLY, WHEN IT BECAME APPARENT ON THE NOVEMBER 15TH HEARING, WHICH WAS THE LAST DESIGNATED STATUS CONFERENCE, THAT THE COURT WAS GOING TO SIGN THE JUDGMENT AND STATEMENT OF DECISION AS PRESENTED BY THE DEFENDANTS, THAT’S WHEN I STAND TO ADDRESS THE COURT. AT THAT POINT, — I DIDN’T GET THE WORDS OUT “I WANT TO MOVE TO REOPEN THE CASE, ” BUT THE COURT AT THAT POINT WAS -- YOU KNOW, ASKED THAT I SIT DOWN. AND THEN YOU — THE COURT WENT ON TO AGREE WITH THE DEFENDANT’S PROPOSED JUDGMENT AND PROPOSED STATEMENT OF DECISION.
IT WOULD HAVE BEEN THE INTENT OF COUNSEL TO ASK FOR A — TO REQUEST LEAVE TO REOPEN THE CASE AT THAT POINT, BECAUSE IT WAS -- UP UNTIL THAT POINT, IT WAS THE UNDERSTANDING OF THE COUNTY THAT WE WOULD HAVE THE OPPORTUNITY TO PRESENT THIS ADDITIONAL EVIDENCE AFTER THE CONCLUSION OF THE PHASE II SECTION OF THE TRIAL. (Italics added.)
When defense counsel’s turn came, he asserted that LA County had not asked for any jury instructions concerning its auxiliary benefit claims (a point that, we would note, is not contradicted in any of LA County’s briefing):
THE COUNTY OF LOS ANGELES OFFERED NO JURY INSTRUCTIONS ON EITHER THE LOSS ADJUSTMENT EXPENSE CLAUSE, NOR ON THE ASSISTANCE AND COOPERATION OF THE INSURED CLAUSE. THE COUNTY DID NOT ASK TO HAVE IT PLACED ON THE JURY VERDICT.
WE SPENT HOURS AND DAYS IN HERE TALKING ABOUT INSTRUCTIONS AND VERDICTS. NEVER ASKED FOR THAT. AND AS TYPICAL, I THINK, OF THE WAY THE COUNTY HAS TREATED THIS LITIGATION, IT’S ONLY NOW, AFTER THE RESULT IS IN, THAT THEY WANT TO FIND SOME RECORD FOR CHANGE, AND I WOULD SUGGEST TO YOU THAT THEY CAN’T.
The court took the motions under submission (they were eventually denied, of course). The trial judge made a point of noting that any intention on LA County’s part to bring a motion to reopen at the November 15 hearing was news to him:
THE COURT: THANK YOU, MR. WATERMAN.
I’M GOING TO TAKE THESE MATTERS UNDER SUBMISSION BUT LEAVE YOU TODAY WITH JUST ONE THOUGHT ABOUT THE HEARING OF NOVEMBER 15.
MR. MASON’S DECLARATION IS A MATTER OF SOME INTEREST IN WHICH HE INDICATED THAT AMONG THE TOPICS HE WAS GOING TO RAISE AT THE LAST OPPORTUNITY WAS A REQUEST TO REOPEN THE COUNTY’S CASE. AS I RECALL, HE STOOD AT THAT TIME AND ASKED TO TENDER SOME MORE ARGUMENT ON THE QUESTION ABOUT THE STATEMENT OF DECISION AND THE PROPOSED JUDGMENT, AND THE COURT THOUGHT WE HAD PRETTY THOROUGHLY REHASHED AND COVERED THOSE TOPICS AND DECLINED TO ENTERTAIN ANY THIRD LEVEL OR ADDITIONAL ARGUMENT AT THAT POINT, BECAUSE WE HAD ALL THE PAPERS, WE HAD ALL THE ARGUMENT. AND I AM NOW LEARNING FOR THE FIRST TIME THAT AMONG THE THINGS HE PROPOSED TO ADDRESS THEN WAS A MOTION TO REOPEN THE CASE.
THE “UNTRIED ISSUES” ISSUE: DISCUSSION
It is only after slogging through the record, from complaint to status conference after status conference after status conference, and only after one reads through the actual transcripts of those conferences where the auxiliary benefit “issues” were supposedly reserved (hence we have erred on the side of quoting more of each transcript than might be strictly necessary so that readers could have a more accurate flavor of what took place), that one acquires the dawning realization that LA County’s argument that the trial judge somehow deprived LA County of due process by failing to try “key issues of policy interpretation” borders on the frivolous. The most that can be said in favor of LA County’s position is that the trial judge did not go out of his way, in the course of considering two motions in limine brought by the insurers preparatory to Phase II on August 20, 2004, to immediately disabuse LA County’s counsel of his theory that somehow there was going to be a Phase III trial, or to go out of his way to reject LA County’s attorney’s (self-serving) declaration as to what had supposedly been said in an unreported status conference.
Let us now enumerate the reasons LA County’s theory -- that the trial judge somehow erred in failing to “try” issues which he was required to “try” -- must be rejected.
1. LA County never put those issues into its complaint. We have gone practically line-by-line though LA County’s never-amended complaint, and learned that it made no claims based on auxiliary benefit provisions of the insurance plan.
2. LA County raised its auxiliary benefit provisions claim way too late. Not only did LA County fail to include any such claims in its complaint, it also did not raise them in discovery, and never squarely asked the trial court to include them in its own plan for the case -- the modified bifurcation motion that determined what was to be tried.
3. LA County had numerous chances to squarely put its auxiliary benefit provision claims before the court, but it never actually did so. LA County did not press any auxiliary benefit claims in discovery. It never sought to amend its complaint. It did not seek to include any such claims in its bifurcation order. It did not present them in Phase I. Even after Phase I, there might have been a motion to include such claims in Phase II, or to modify the bifurcation order so as to schedule a Phase III. It did not do so. It never brought a motion to reopen.
4. LA County misreads the record of the hearings on which it relies: Those hearings never resulted in an agreement, much less an order, scheduling a Phase III for any auxiliary benefit claims. In examining this record, we have noticed a pattern: Attorneys for LA County would allude to possible auxiliary benefit claims in the context of some other matter (such as a motion on something else). When the trial judge would ask the insurers’ counsel for his comments, the insurers’ counsel would, in effect, scream “bloody murder” because consideration of such claims would be severely prejudicial to the insurers, not having had the opportunity to do discovery on them, and being hit with such claims very (very) late in the litigation. Counsel for LA County would then beat a graceful, face-saving retreat by indicating that LA County would consider bringing up such matters another day. For example, the fairest reading of the November 2002 and October 2004 status conferences is that LA County, faced with pointed arguments from the insurers’ counsel that the insurers were being sandbagged by the late proffering of the auxiliary benefits provisions claims, would go back and proffer something else later. In each case, the denouement was not that the claims (or “issues” as LA County wants to call them on appeal) were on the court’s docket, but that the ball was in LA County’s corner if it wanted to press those claims later.
5. LA County ignores the standard of review. In its reply brief, at page 57, LA County says that the trial court “led County to believe it had deferred resolution of the issue until after Phase II.” And yet this confident statement is based on one of its own counsel’s declaration of an unreported status conference. It contrasts starkly with the trial judge’s own, well reported and unequivocal statements that he never led LA County’s counsel to believe it could assert its “issue” (i.e., its auxiliary benefit claims) after Phase II. As between the two -- the trial judge’s unequivocal recollection and an attorney’s self-interested assertion based on an unreported status conference, this court must, of course, consider the conflict resolved in favor of the trial judge’s version. And that is particularly true when (as noted above) one realizes that LA County never presented a motion to reopen in which one of its attorney’s declarations might have been squarely addressed in an open hearing, and opposed by the insurers.
6. The incredible prejudice to the insurers that would have ensued if the trial court had indeed held a Phase III trial on the belated auxiliary benefit claims. Perhaps the strongest point for rejecting LA County’s argument is that if the trial court had somehow allowed LA County to put on its auxiliary benefit claims, and if by doing so LA County obtained any recovery at all, reversal would be in order. We could not imagine a more egregious abuse of discretion than to allow a party, after making no claims on certain matters during discovery or in its complaint for more than six years (conservatively speaking, from 1997 to 2003), or any time before the first phase of trial, to present evidence of such claims just so it could recover something. But, as noted above, LA County never even tried to present a motion that would have allowed it to press its auxiliary benefit claims because if it had made such a motion, such a motion -- given the horrendous prejudice to the insurers (who had been defending a single complaint since 1997 and had already undergone a six-month trial on the three properties mentioned in the complaint) -- have been inevitably, and properly, denied.
With that, we now turn to three remaining issues presented by the opening brief (which begin on page 84 thereof).
THE BURDEN ISSUE
The trial court gave the jury in Phase I an instruction that required LA County to carry the burden of proving that its four properties (at issue in Phase I) sustained damage from the Northridge Earthquake. While that seems intuitive -- plaintiffs usually have the burden of proving their cases -- LA County’s theory was that it was the insurers’ burden to prove that damage did not come from the Northridge earthquake.
Here is the jury instruction as given:
IN ITS CLAIM FOR DECLARATORY RELIEF AGAINST EACH INSURANCE COMPANY, THE COUNTY HAS THE BURDEN OF PROVING BY A PREPONDERANCE OF THE EVIDENCE ALL OF THE FACTS NECESSARY TO ESTABLISH THE NATURE AND EXTENT OF THE DAMAGES CLAIMED TO HAVE OCCURRED DURING THE POLICY PERIOD AND CAUSED BY THE NORTHRIDGE EARTHQUAKE.
LA County’s theory goes like this: The insurance plan was an “all-risk” first party property insurance policy; under Strubble v. United States Auto. Assn. (1973) 35 Cal.App.3d 498, 504 (Strubble), the policy is assumed to cover all damage, and it is the insurer who has the burden of showing that an exclusion applies. Hence, putting the burden on LA County to show damage from the earthquake, as distinct from preexisting damage or simple wear and tear, was erroneous.
The trial court did not err in giving the instruction. In enacting section 10088 in 1984 -- more than a decade after Strubble -- the Legislature intended that earthquake coverage be a matter of specified peril (as distinct from “all-risk”), with the burden on the insured to show damage regarding the specific peril of earthquake. But to properly explain that we must review that rather esoteric aspect of insurance law known as “concurrent causation.”
Concurrent causation is the term used to describe the problem that occurs when there are two causes of a loss, one (or more) specifically excluded by an insurance policy, but one not specifically excluded. (See Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 398 (Garvey).) The concept may be traced back to at least an 1840 insurance law treatise (see Mattis, Earth Movement Claims Under All Risk Insurance: The Rules Have Changed in California (1990) 31 Santa Clara L.Rev. 29, 33 [“Phillips’ 1840 treatise on insurance law discusses concurrent causation in connection with marine insurance.”] (“Mattis article”).) It is a concept that has been used in both first party (property) insurance cases (e.g., Garvey) and in third party (liability) cases (e.g., State Farm Mut. Auto. Ins. Co. v. Partridge (1973) 10 Cal.3d 94) (Partridge).
Concurrent causation became a hot topic in insurance law in California in the 1970’s due to three major developments:
First, in the 1940’s and 1950’s, first-party property insurers had begun to write “all risk” insurance policies covering buildings. (Mattis article, supra, 31 Santa Clara L.Rev. at p. 35.) Previously, buildings had been insured on a specifically named peril basis -- e.g., fire or lightning -- so that the burden was on the insured to show that the loss was caused by one of the named perils. (Id. at pp. 33-34.) With the proliferation of all risk policies, however, the burden shifted to the insurer to show that the cause of a loss was excluded; otherwise the loss would be covered. (Id. at pp. 34-35.) And in fact Strubble, the case now relied on by LA County, is a perfect example of this shift in burdens caused by the shift to all risk policies. There, a landslide under a house on a cliff prone to landslides combined with a small (3.1) earthquake to make the house largely unsafe (city officials were worried the entire house would slide down to the beach below). (See Strubble, supra, 35 Cal.App.3d at pp. 501-502.) In an appeal by the insurer after a judgment for much of the value of the house, the Strubble court held that the trial court correctly instructed the jury that the burden of proving that the loss was caused by “a peril excluded from coverage” under the policy, such as landslide, was properly on the insurer. (Id. at pp. 503-504.) The appellate court recognized that this burden represented an “admittedly unusual burden of proof on defendant, ” but noted that the result was required because “[t]he policy is an ‘all-risks’ policy. It is not a specific peril policy, such as a policy of fire and lightning insurance.” (Id. at p. 504; see also Croskey et al, Cal. Practice Guide: Insurance Litigation (The Rutter Group 2010) ¶¶ 6:253- 6:253.2, pp. 6B25-6B-26 [noting differences in burden of proof between all risk and specific peril insurance].)
The second development was the effect of Sabella v. Wisler (1963) 59 Cal.2d 21 (Sabella). The court there treated builder negligence as itself a nonexcluded peril -- in Sabella it was poor compaction of earth. (See Sabella, supra, 59 Cal.2d at pp. 27-28 [describing trial court’s findings of cause of loss]; Mattis article, supra, 31 Santa Clara L.Rev. at p. 36 [“This meant that losses caused by man-made or man-caused forms of earth movement were covered under the policy simply because they were risks of physical damage, and they were not specifically excepted or excluded under the policy terms.”].)
The third development was a third party case, Partridge, which at least, as later explained in Garvey, if applied to first-party property insurance, seemingly made any nonexcluded cause of loss, “no matter how minor, ” an occasion for coverage. (See Garvey, supra, 48 Cal.3d at p. 408 [“As we shall discuss, if the rule in Partridge, supra, 10 Cal.3d 94, were extended to first party cases, the presence of such a cause, no matter how minor, would give rise to coverage.”].)
It would be safe to say that, combined, these developments were loathed by insurers. Intermediate appellate courts, applying Sabella, Partridge and the doctrine of concurrent causation all together, were apt to find coverage in any situation in which a crack in a structure could be linked to builder negligence, usually (as in Sabella) bad compaction, despite language in the policy trying to exclude all losses caused by earth movement.
In the 1970’s, insurers fought back with language that excluded losses resulting even “indirectly” from earth movement, hoping that such language would exclude even “man made” earth movement, but courts held that the failure to include a reference to defective design or construction meant, under principles of concurrent causation, that earth movement (excluded) plus defective construction was still covered. (Mattis article, supra, 31 Santa Clara L.Rev. at p. 37.) “Commentators working for the insurance industry, ” says Professor Mattis, had come to believe that “the doctrine of concurrent causation constitutes a conspiracy by the courts against the industry.” (Mattis article, supra, 31 Santa Clara L. Rev. at p. 35 [Professor Mattis makes a point of expressing his rejection of this conspiracy theory: “This simply is not true.”].)
Insurers turned to the Legislature for help. (See Bragg, Concurrent Causation and the Art of Policy Drafting: New Perils for Property Insurers (1985) 20 Forum 385, 396 (Bragg article) [“Numerous industry meetings were called to discuss California judicial developments and to attempt to forge a legislative solution.”].) Practically, however, insurers could not get the whole loaf, which would have been “broad legislation” obviating the effect of the concurrent causation doctrine on ordinary earth subsidence cases. But they could obtain relief on the one area that threatened the very solvency of the industry itself -- earthquakes. The result was the legislation in 1984 that enacted sections 10081 through 10089.4 of the Insurance Code, dealing with insurance for earthquakes. Section 10088 was part of this package.
As one assistant counsel to State Farm wrote of the passage of the 1984 legislation, the point was to change the existing rule of concurrent causation as regards earthquake coverage: “[T]he insurance industry introduced several bills during the 1982 and 1983 legislative sessions which would have either repealed or amended both sections. These efforts were strongly opposed... and each of the bills died early in the legislative process. [¶] Realizing that broad legislation to resolve concurrent causation had little chance of passage, the insurance industry focused its attention on the one peril whose catastrophic potential endangered its very solvency -- the peril of earthquake. Unsuccessful efforts were made during the 1983 session to legislatively exclude earthquake losses from property insurance policies which did not specifically cover earthquakes. Finally, some relief was achieved in 1984 with the passage of Assembly Bill 2865, which became effective on January 1, 1985.” (Bragg article, supra, 20 Forum 385, 398, fn. omitted, italics added.)
Here is the complete text of section 10088: “Notwithstanding the provisions of Section 530, 532, or any other provision of law, and in the absence of an endorsement or an additional policy provision specifically covering the peril of earthquake, no policy which by its terms does not cover the peril of earthquake shall provide or shall be held to provide coverage for any loss or damage when earthquake is a proximate cause regardless of whether the loss or damage also directly or indirectly results from, or is contributed to, concurrently or in any sequence by any other proximate or remote cause, whether or not covered by the policy. The term ‘policy’ as used in this section includes all policies of any nature, including, but not limited to, business and commercial forms providing coverage against loss due to damage to the property of the insured. Nothing in this section shall operate to affect the provisions of Section 2071 or preclude an insurer from specifically providing coverage for direct loss caused by explosion, theft, or glass breakage resulting from an earthquake.” (Italics added.)
As Williams v. State Farm Fire & Casualty Co. (1990) 216 Cal.App.3d 1540 (Williams) observed about section 10088: “When the Legislature enacted the earthquake insurance law, section 10081 et seq., in 1984, it explained its intent in an uncodified section: ‘It is the intent of the Legislature in enacting this act to promote awareness of earthquake insurance by residential property owners and tenants by requiring insurers to offer that coverage. It is the intent of the Legislature to make clear that loss caused by or resulting from an earthquake shall be compensable by insurance coverage only when earthquake protection is provided through a policy provision or endorsement designed specifically to indemnify against the risk of earthquake loss, and not through policies where the peril of earthquake is specifically excluded even though another cause of loss acts together with an earthquake to produce the loss.’” (Williams, supra, 216 Cal.App.3d at pp. 1544-1545, italics added.)
And then the Williams court went on to make it very plain that, as a matter of law, all earthquake insurance coverage in California is a matter of insurance for a specific peril: “Section 10088 precludes recovery for loss caused by an earthquake, absent a policy or endorsement specifically covering earthquake loss. Other sections of the chapter require insurers either to offer earthquake coverage to a homeowner or to forego insuring the property altogether. Section 10081 provides in pertinent part, ‘No policy of residential property insurance may be issued or delivered... in this state by any insurer unless the named insured is offered coverage for loss or damage caused by the peril of earthquake as provided in this chapter....’ (See also § 10083, specifying the language of the offer.)” (Williams, supra, 216 Cal.App.3d at p. 1545, fn. quoting statute omitted, italics added.)
At this point we should also note something that might be easy to forget: The only reason for, as the Strubble court put it, the “unusual burden of proof” of requiring the insurer to prove an exclusion rather than the insured having to prove a loss is solely the result of the normal operation of all risk insurance policies in the context of the concurrent causation doctrine as applied in California at the time. And -- important to note -- at the time (1984), intermediate appellate courts were still using the third party Partridge case to find coverage even if the covered peril was minor. (See Garvey, supra, 48 Cal.3d at p. 398 [declaring that “some courts have misinterpreted and misapplied” Sabella and Partridge].)
In this case, however, the trial court, familiar with Williams, recognized that under section 10088 any “recovery for loss caused by an earthquake” was necessarily a matter of coverage for a specific peril even if the earthquake coverage was a matter of insuring against “all risks.” Thus, as is the case with all other coverage for specific perils, necessarily the insured had the initial burden of showing the loss resulted from the specific peril, here, the Northridge earthquake. Indeed, not to have done so would have nullified the intent of the Legislature in carving out earthquakes from the usual rules that apply in concurrent causation contexts. The jury instruction was therefore correct.
THE 998 ISSUE
1. Introduction
Section 998 of the Code of Civil Procedure sets forth a procedure by which expert witness costs can be shifted to a party who rejects a settlement offer made pursuant to the statute. (All references to “998” will be to section 998 of the Code of Civil Procedure.)
Section 998 is a remarkable statute: It applies equally to both plaintiffs and defendants. It allows for gradations in projected outcomes, hence the “nominal” winner of litigation can be the “998 loser” if the winner has rejected a 998 offer which was more “favorable” than the actual outcome. And in cases, like this one, which involve competing armies of expert witnesses, the consequences of not accepting a 998 offer can have a real bite. Here, about $3.88 million of the $5.9 million award of costs are attributable to LA County’s having rejected the insurers’ individually-made 998 offers.
The insurers’ offers were made in two batches, the first in September, 2001 and the second in November, 2001. Each one was for some amount between $100,000 and $500,000, and, if our math is correct and if all had been accepted, would have resulted in a payout to LA County of about $4.8 million. (Trial, remember, would not actually occur until February 2003, and LA County, as we have seen from the bifurcation motion, was still thinking in terms of how much more than the $125 million total policy limits it would recover.) The offers were made by each of the insurers sued, and were substantially the same. LA County makes no argument that any variations in wording between each insurer’s offer should make any difference.
We now quote the 998 form used by the insurers in this case:
“Defendant [insert name of insurer] hereby offers to plaintiff County of Los Angeles (“County”) in the action entitled County of Los Angeles v. Aetna Casualty & Surety Co., et al., Orange County Superior Court Case No. 785435 (“Action”), pursuant to California Code of Civil Procedure section 998, the following offer to compromise the claims raised in County’s complaint and [insert name of same insurer’s] cross-complaint pertinent to [insert name of same insurer’s policy number and limits] based on the terms and conditions stated herein.
“1. [Insurer] pays County the monetary sum of [a certain amount between $100,000 and $500,000].
“2. County will dismiss its complaint against [insert name of individual insurer] only in the above entitled Action with prejudice, and [insert name of same insurer] will dismiss its crosscomplaint with prejudice.
“3. County and defendant [insert name of insurer] shall each bear its own costs and attorneys’ fees incurred in this Action and any actual or potential rights to recover same shall be extinguished.
“This offer to compromise shall be withdrawn unless counsel for defendant [insert name of insurer and its counsel] is provided a written Notice of Acceptance by counsel of record for plaintiff County of Los Angeles within thirty-five (35) days of the date this offer is made. If not so accepted, defendant [insert name of same insurer] will seek to recover all sums incurred by it for attorneys’ fees, expert witness fees, and all other costs and penalties attendant to a statutory Offer to Compromise, in addition to all other costs permitted by law.”
On appeal, LA County argues that these settlement offers were, as a matter of law, not sufficient under section 998 because they did not properly advise LA County of what it would be “getting” if it accepted them. (LA County’s lead topic heading is: “To Be Enforceable, 998 Offers Have to Clearly Advise the Offeree What the Offeree is Getting into if the Offeree Accepts.”)
More specifically, LA County asserts that the offers were fatally uncertain by leaving a series of questions unanswered: (1) Whether the offers would bar claims on the remaining 21 properties covered by the insurance plan? (2) How much LA County would actually receive in light of the $10 million advance and the deductible provision of the insurance plan? (3) How the aggregate deductible would be affected by the settlement offers as it related to the other 21 properties covered by the insurance plan? (4) How the offers would affect another lawsuit instituted by LA County (the “Agricultural” case)? And (5) how LA County’s other rights under the insurance plan would be affected?
Readers should note at this point that LA County’s argument is one that asserts impermissible underinclusion in the insurers’ 998 offers. That is, by not including terms in their 998 offers that addressed various questions, the insurers’ 998 offers supposedly made it impossible for LA County to reasonably ascertain the effect of accepting them.
2. The Problem of 998 Offers in the Context of Multiple Claims Between Litigants
a. Overinclusion: Trying to Grab Off Too Much
LA County’s argument essentially implicates the problem of how courts should deal with 998 offers in contexts where parties have multiple and possibly interrelated claims against each other. As noted, LA County’s argument here is that the insurers’ 998 offers were underinclusive, by leaving certain questions unaddressed.
LA County, however, provides no authority for the idea that a 998 offer must, in order to susceptible of reasonable evaluation, deal with claims outside those made in the relevant pleadings, that is, underinclusion. And we are aware of no such authority. Rather, the authority LA County does provide -- mainly Valentino v. Elliott Sav-On Gas, Inc. (1988) 201 Cal.App.3d 692 (Valentino) -- is only a warning against overinclusion.
When one looks at the facts in Valentino, one realizes that the case is an object lesson to 998 offerors not to be too greedy and try to settle outstanding claims outside the pleadings. As such, it is thoroughly distinguishable from the case at hand.
The year -- 1988 -- is important to understanding Valentino. The case was decided in that window of time between Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 and Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, when a tort claimant seeking damages against an insured tortfeasor had potentially two claims: One against the tortfeasor for the tort, and another against the tortfeasor’s insurer for failing to obey a statutory duty to reasonably settle when the liability of the insured was “clear.” (See Ins. Code, § 790.03, subd. (h)(5).)
Valentino arose out of a classic tort claim: A slip and fall at a gas station. The plaintiff filed a complaint against the gas station. The gas station was insured, but the 998 offer, for $15,000, proposed to settle not only the stated claim in the complaint against the gas station, but also eliminate any potential “Royal Globe” claims against the gas station’s insurer and defense attorneys. (See Valentino, supra, 201 Cal.App.3d at pp. 694-695.) When the plaintiff only recovered $13,000, the plaintiff was hit with the gas station’s expert costs, but the appellate court reversed that award. The point was: The plaintiff could not evaluate the potential Royal Globe cause of action, outside the pleading that the 998 was explicitly asking her to give up. Said the court: “Evaluated in the light of this condition, the monetary term of the offer is not really $15,000 to settle the causes of action at issue in the instant case. Instead that $15,000 is diluted by the worth of other present and future possible causes of action Ms. Valentino must surrender in order to receive the defendant's cash.” (Id. at p. 698, original italics retained and some italics added.)
It was the extra condition of giving up more than the claim in the case before it that drew the appellate court’s peculiar disfavor: “It would be hard enough for a trial court to place a value on a condition requiring the plaintiff to dismiss a single specific lawsuit she had already filed against the defendant in another court. But when the condition mandates surrender of an array of potential lawsuits against not only the defendant but two other parties the task becomes impossible. Even if it were possible, it would not be worth the cost. Recalling the underlying purpose of section 998 is to promote judicial economy, this court is not about to encourage defendants to add conditions to their statutory offers which introduce so much uncertainty to those offers the courts must spend hours or days sorting them out to determine whether plaintiffs have achieved a more favorable result at trial.” (Valentino, supra, 201 Cal.App.3d at pp. 700-701, italics added.)
In short, if Valentino is at all apposite the case before us, it actually favors the trial court’s decision and the insurers’ position on appeal: The 998 offers here stuck solely to the complaint and cross-complaint on file, in a discrete case bounded by a certain docket number, and did not try to force LA County to settle claims outside those made in a specific complaint and a series of cross-complaints.
Barella v. Exchange Bank (2000) 84 Cal.App.4th 793 (Barella), the other major decision in the case law invalidating a 998 offer on the basis of uncertainty, slots into the same category of trying to grab off too much in the 998 offer characteristic of Valentino. Barella arose out of a defamation action by a real estate developer against a bank when an officer of the bank wrote that he had master-minded a certain fraudulent development scheme. As in Valentino, the 998 offeror tried to settle a little bit more than the claim in the complaint: The bank’s 998 offer was for $25,000, but the developer not only had to dismiss his complaint, he also had to agree to sign a confidentiality agreement as to the amount of the settlement and the settlement itself. In affirming the trial court’s order not to award costs under 998, the appellate court waxed eloquent about the additional item the plaintiff was being asked to give up: the opportunity to clear his good name. (Hence the opinion includes references to both the King James and Shakespeare (Richard II specifically) about the value of one’s reputation. (See Barella, supra, 84 Cal.App.4th at pp. 795-796, and p. 795, fn. 1.))
The Barella court recoiled at the thought that the developer’s reputation could be valued in the space between the $25,000 that the bank offered and the $10,000 the developer recovered: “[I]t is this court’s view that the trial judge cannot assess the relative importance to any individual of his or her good name in the business community or neighborhood, no matter how relatively trivial the issue may seem to a neutral, dispassionate jurist. The contention that in a defamation action a judge can attach a monetary value to an individual’s opportunity for public vindication (in matters either great or small) contains as its tacit premise the notion that ‘everyone has a price’ -- that reputations can be bought and sold like any other commodity. We are not prepared to validate that premise in the service of promoting settlements and clearing dockets.” (Barella, supra, 84 Cal.App.4th at p. 803.)
We need only note in this case that LA County makes no attempt to compare the brick and mortar (literally brick and mortar) issues in this case with -- to borrow another of Shakespeare’s phrases -- the “bubble reputation” that was so inherently hard to value in Barella.
The insurers’ 998 offers here clearly avoided the errors of those made in Valentino or Barella. The operative language here is a model of minimalist simplicity: The insurer “pays” X dollars to LA County, and LA County dismisses its complaint and the insurer dismisses its cross-complaint. There are no general releases and no grabs at outstanding claims outside of the complaint or cross-complaint. In fact, the only reference to “claims” are to those claims specifically raised in -- and therefore confined to -- the complaint. The exact language is: “to compromise the claims raised in County’s complaint.” (Italics added.) They are thus very unlike the offers that tried to encompass claims outside the discrete boundaries of litigation that offended the courts in Valentino and Barella.
b. Underinclusion: Modesty Has Its Rewards
By contrast to Valentino and Barella, 998 offerors who have simply stuck with trying to settle a discrete item of litigation in an identifiable pleading, have met with success -- even when other claims between the parties were left outstanding. (See Westamerica Bank v. MBG Industries, Inc.(2007) 158 Cal.App.4th 109 (Westamerica); Goodstein v. Bank of San Pedro (1994) 27 Cal.App.4th 899; accord, One Star, Inc. v. STAAR Surgical Co. (2009) 179 Cal.App.4th 1082 (One Star).) An examination of these cases shows that they are inconsistent with LA County’s assumed paradigm that a 998 must necessarily address all claims between two parties for a 998 offer to be intelligently evaluated.
Westamerica perfectly illustrates how a 998 need not resolve all interconnected claims arising out of a given event or transaction in order to be valid. There, a bank sued a borrower for an unpaid credit line, while the borrower cross-complained against the bank for sex discrimination. The borrower proffered a 998 offer on the complaint for the unpaid debt, but not her own sex discrimination claim. That was important because the borrower then lost her sex discrimination claim when the bank successfully brought a summary adjudication motion effectively dismissing the cross-complaint. Even so, the borrower went on to obtain a stipulated judgment that was more favorable to her than the 998 offer, and the appellate court upheld the validity of her 998 offer despite the fact that the bank had to weigh that offer against the value of the cross-complaint for sex discrimination.
The point: the court looked to the pleadings and their relative independence from each other, despite the fact that the claims were intertwined factually: “[The borrower’s] offer to settle only the amended complaint was valid to trigger the provisions of section 998, even though it would not have resulted in an appealable final judgment, because it was an offer to the other party in the separate and independent action of the amended complaint which would have allowed ‘judgment to be taken.’” (Westamerica, supra, 158 Cal.App.4th at p. 114, italics added)
Goodstein is to the same effect. It was series of disputes between a bank and a businessperson. There, three actions were eventually consolidated for trial, including the businessperson’s action against the bank for the loss of the businessperson’s investment in a certain business (the “Jook Box Corporation”), plus another action by the businessperson for abuse of process and malicious prosecution. The bank sent a 998 offer for $150,000 in exchange for a dismissal with prejudice of the action for loss of the investment, but did not include the abuse of process and malicious prosecution action. However, the bank proposed, in its 998 offer, the execution of a general release, and each party’s bearing its own costs and attorney’s fees. The 998 would be later challenged as “fatally uncertain” because it failed “to specify whether it was an offer intended to compromise all three of the actions consolidated for trial, or just [the businessperson’s] action” against the bank. (Goodstein, supra, 27 Cal.App.4th at p. 907.) The appellate court affirmed the award of costs under 998 because “the offer was clear and unambiguous and was intended to settle only [the businessperson’s] complaint against Bank.” (Ibid.)
Indeed, in distinguishing Valentino, the Goodstein court specifically rejected the idea that the outstanding abuse of process and malicious prosecution action was included in the 998 offer. The “clear and unambiguous language of the offer provides that the terms and conditions applied only ‘in full settlement of this action.’” (Goodstein, supra, 27 Cal.App.4th at p. 908, italics added.)
One Star reiterates the theme that 998 offers are analyzed in terms of the specific action sought to be settled, as distinct from the totality of claims possessed or asserted by the parties. While the facts in One Star are too complicated to explain here (the case mostly dealt with sorting through which of three separate 998 offers was operative), the court made it clear that a 998 offer need not clear up all claims flying back and forth between the parties: “‘Section 998 “does not require a [party] to make a global settlement offer to all [opponents] in an action, or to make an offer that resolves all aspects of a case....”’” (One Star, supra, 179 Cal.App.4th at p. 1096.)
The insurers’ 998 offers here are like those in Westamerica, Goodstein and One Star in confining themselves to discrete and specific items of litigation -- namely an identifiable complaint and cross-complaint in a given case with a given docket number.
3. A 998 Offer Need Not Clear Up All Uncertainties Between the Parties to be Valid
Another assumption on which LA County’s challenge to the 998 offer in this case rests on the idea that uncertainty invalidates 998 offers. To be sure, as we have seen in Valentino and in Barella, uncertainty as regards potential claims outside the litigation specifically encompassed by a 998 offer may invalidate a 998 offer. But when, as in the case before us, the 998 offer sticks to disposing of the litigation at hand, case law has affirmed its validity, despite remaining uncertainties, as illustrated by Berg v. Darden (2004) 120 Cal.App.4th 721 (Berg).
Berg is particularly instructive for the case at hand because the appellate court sized up the underlying reality of the 998, and cut through a miasma of putative uncertainties thrown up by the party as retroactive excuses for rejecting a 998 offer. In Berg, a patient filed a malpractice action against her dentist. The patient made a 998 offer (under far less formal circumstances than those before us now -- it was in the last paragraph of a letter about other things, namely discovery matters and the merits of the litigation). The 998 offer was for $225,000. The dentist’s attorney didn’t believe it was a valid 998 and never responded to it. The patient, however, recovered more than half a million dollars in the subsequent litigation, the trial court awarded her 998 fees, and that award was upheld on appeal.
The dentist argued (as LA County does here) that uncertainties in the 998 offer made it invalid. Specifically, he argued that it was unclear whether the offer would be “a final disposition of the underlying action” because it didn’t address whether there would be a judgment entered against the dentist, whether the patient would have an “‘award’ entered in her favor, ” or if the malpractice action was going to be dismissed with prejudice (an important point, we note, given the effect of a judgment for malpractice on the dentist’s professional reputation). (Berg, supra, 120 Cal.App.4th at p. 728.)
The appellate court rejected the dentist’s arguments, even though the 998 offer “could have been stated with more precision (specifically identifying entry of judgment against [the dentist] as the proposed final disposition).” (Berg, supra, 120 Cal.App.4th at p. 728.) As in Goodstein, it was enough that the 998 offer contemplated a final disposition of the lawsuit. The point was: It was enough that the 998 offer was a “‘formal, written offer’” that was “‘sufficient to show that its acceptance will result in a final disposition of the underlying lawsuit.’” (Id. at p. 729.) The uncertainties thrown up by the dentist -- would there be a judgment? a mere payment? a dismissal with prejudice? -- were nothing more than makeweight quibbles. The 998 offer clearly intended a final disposition of the lawsuit, and that was enough.
Significantly, Berg (and another case we are about to discuss) introduced the simple idea that the 998 “offeree” actually has an obligation to explore whatever uncertainties might be teased out of a 998 offer, rather than standing pat and hoping the trial or appellate court will look at those uncertainties and invalidate the section 998 offer after it is rejected. Said the court: “If the offeree is uncertain about some aspect of the offer, or would prefer the action be dismissed rather than have a judgment entered against him, he is free to explore those matters with the offeror, or even to make counterproposals during the period in which the statutory offer remains outstanding. By doing so, he will not run the risk of having the original offer revoked and may still accept that offer on the terms extended.” (Berg, supra, 120 Cal.App.4th at pp. 730-731.)
A few pages later the court reiterated the point that a 998 offeree cannot simply passively sit back and conjure phantoms of uncertainty to avoid the effect of the offer. The dentist’s attorney, said the Berg court, “was free to explore any uncertainties he had with Cohen during the period in which the offer remained open, without precipitating an automatic revocation of the offer.” (Berg, supra, 120 Cal.App.4th at p. 733.)
And the Berg court even returned a third time to the theme of encouraging talks to iron out any possible ambiguities: “It requires no statistical study to establish what every litigator knows: once a section 998 offer of compromise is extended, negotiations between parties during the 30-day period are a normal occurrence in virtually every personal injury action. Permitting, indeed encouraging, such routine exploration and discussion of settlement alternatives among parties, without endangering the viability of an extant offer, best advances the policy of encouraging settlements.” (Berg, supra, 120 Cal.App.4th at p. 731.)
In short, as every litigator knows in terms of discovery matters, sometimes picking up the phone and trying to find out some information informally is a necessary aspect of the conduct of litigation.
The same emphasis on talking about any questions a 998 offeree might have about a 998 offer, rather than hiding beyond putative uncertainty divined long after the offer has lapsed, was also made in Hartline v. Kaiser Foundation Hospitals (2005) 132 Cal.App.4th 458 (Hartline). There, Justice Cantil-Sakauye, writing for the court, flat out declared that if a 998 offeree has any uncertainties as to how the 998 offer is supposed to work, the offeree should “communicate” that “concern” to the offeror. (Id. at p. 472.)
Hartline was a case where a staff physical therapist at an orthopedics clinic struck a pedestrian and his dog as they were walking across the driveway of the clinic’s parking lot; the therapist was getting to work about half an hour early that day. The accident happened “‘just off the street.’” (Hartline, supra, 132 Cal.App.4th at p. 466.) The pedestrian sued the therapist for negligence and sued the clinic for both negligence and premises liability. The clinic, however, got out of the negligence claim in a summary adjudication motion, based on the going-and-coming rule.
Four months later, the clinic sent the pedestrian a 998, which was basically a waiver of costs in exchange for a dismissal with prejudice. The pedestrian, however, didn’t accept the offer. Later, after the pedestrian finally did dismiss the remaining claim against the clinic, the trial court awarded the clinic costs under 998. The pedestrian appealed, challenging both the summary adjudication motion and the cost award. (Hartline, supra, 132 Cal.App.4th at pp. 463-464.)
In dealing with the cost issue, the Hartline court looked at how the 998 offer logically fit in the context of the litigation: Silence was not ambiguous, but was to be augmented by the surrounding context: “At the time of the offer, there was only the second cause of action remaining for trial. Therefore, it is logical to assume the section 998 offer was referring to a dismissal with prejudice of [the pedestrian’s] second cause of action, thereby settling such claim against Kaiser without trial. The offer is silent with regard to any appellate claims involving Hartline's summarily adjudicated first cause of action. The offer was not conditioned on entry of a final judgment in favor of Kaiser, or other similar language, from which a waiver of appellate rights might be implied. [¶] [The pedestrian] however, apparently believed the offer to include a waiver of appellate rights.” (Hartline, supra, 132 Cal.App.4th at p. 472, italics added.)
And then came the punchline: In such a case, said the court: “Then the reasonable course of action for [the pedestrian] to have taken was to communicate his concern to Kaiser and to make a counteroffer.” (Hartline, supra, 132 Cal.App.4th at p. 472, italics added.)
As in Berg and Hartline, the 998 offeree here, LA County, made no effort to clear up any of the uncertainties which it belatedly raises as a reason on appeal to invalidate rejected 998 offers. We say “belatedly” because the obvious inference from the record is that uncertainty was never the reason LA County turned down the insurers’ 998 offers. Given LA County’s position at the November 4, 2002 hearing and later in its own motion for bifurcation, the trial judge could easily conclude that the real reason LA County rejected the insurers’ 998 offers was the huge gap in LA County’s opinion of its case versus the insurers’. As we have seen, at the time in late 2001 when the insurers made their 998 offers, LA County’s preoccupation was with how much it was going to win on top of the $125 million limits. There was no way at the time it was going to settle this litigation for a piddly $14.8 million (the $4.8 million offered plus being able to keep the $10 million advanced, as we show below), no matter how “clean” the offer.
That said, LA County makes no attempt to distinguish Hartline or to confront the necessity-to-communicate language from Berg. It does contend that Berg is distinguishable because: “Berg was a straightforward medical malpractice case. The only criticism of the Berg 998 was that it failed to specify that the court would enter judgment if the defendant accepted. (Id. at p. 728.) That peccadillo cannot compare to the uncertain consequences to multiple claims that County’ acceptance of these 998s could have triggered.” This attempt to distinguish Berg fails because these 998 offers were confined to the claims in LA County’s complaint. (We also address the putative uncertainties more specifically in the next section.)
4. Basic Principles and the Standard of Review
The basic principles governing appellate review of 998 offers can be found in any number of appellate decisions. Several of these have to do with the basic burdens inherent in litigation: It is the party seeking something who (usually) has the burden of showing he or she is entitled to it, hence the 998 offeror “bears the burden of assuring the offer is drafted with sufficient precision to satisfy the requirements of section 998.” (Berg, supra, 120 Cal.App.4th at p. 720.) A corollary (usually traced to the Barella case above) is that the 998 offer “must be sufficiently specific to permit the recipient meaningfully to evaluate it and make a reasoned decision whether to accept it, or reject it and bear the risk he may have to shoulder his opponent's litigation costs and expenses.” (Id. at p. 727, citing Barella, supra, 84 Cal.App.4th at p. 801.)
Most importantly, 998 offers are interpreted as contracts, and as in contracts ambiguities in 998 offers are construed against the 998 offeror, i.e., the drafter. (See T. M. Cobb Co. v. Superior Court 36 Cal.3d 273, 280 [“Since section 998 involves the process of settlement and compromise and since this process is a contractual one, it is appropriate for contract law principles to govern the offer and acceptance process under section 998.”]; Berg, supra, 120 Cal.App.4th at p. 727 [“‘a section 998 offer is construed strictly in favor of the party sought to be subjected to its operation’”]; Chinn v. KMR Property Management (2008) 166 Cal.App.4th 175, 184 [applying to 998 offers rule that “‘In cases of uncertainty not removed by the preceding rules, the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist.’”].)
As to the standard of review, we agree with LA County that the applicable standard of review for the validity of a 998 offer is de novo when the underlying facts are uncontroverted. The reason is this: the validity of a 998 offer is a matter of comparing the language in the offer with the language required by the statute. As explained by Justice Croskey in Fassberg Construction Co. v. Housing Authority of City of Los Angeles (2007) 152 Cal.App.4th 720: “Ascertaining the terms of an offer, including the determination whether the offer is sufficiently specific and certain for purposes of section 998, is a question involving the interpretation of a writing. We independently interpret a writing if the interpretation does not turn on the credibility of extrinsic evidence. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865 [(Parsons) and other cases].)” (Fassberg, supra, 152 Cal.App.4th at p. 765, italics added.)
Fassberg itself is an example, like Goodstein and Berg, of an appellate court cutting through made-up uncertainties to get to the substance of the 998 in the context of the litigation as a whole, and thereby uphold a 998 offer against a challenge to its validity. There, a construction company wasn’t paid by a housing authority, so it sued the housing authority. The housing authority cross-complained, saying the construction company hadn’t performed according to the contract The housing authority’s 998 offer contained a proposed mutual release that the trial court, relying on Valentino, thought too broad: The 998 offer (1) required the construction company to release not only its own claims but also those of ‘“a long list of other possible, ill-defined third parties’”; (2) encompassed not only claims against the housing authority but also claims against ‘“a long list of other possible, ill-defined third parties’” [we note here -- this was essentially construction defect litigation and so necessarily would have entailed subcontractors]; and (3) encompassed all possible claims pertaining to those third parties that could have been alleged in this case. (Fassberg, supra, 152 Cal.App.4th at p. 765.)
But the appellate court reversed after some high-level exegesis of the 998 offer. It noted that the proposed settlement and mutual release agreement identified only two parties to the proposed agreement (the housing authority and the construction company) described the ‘“subject matter’” of the dispute as any and all claims or causes of action ‘“which could have been alleged”’ in the action, except for any claims by the housing authority for latent defect. The Fassberg court then construed the language “as an attempt to define the subject matter of the settlement and release to encompass the whole of the action, with only the stated exception.” (Fassberg, supra, 152 Cal.App.4th at p. 767.) The language releasing claims “on behalf of” the construction company’s “numerous related persons and entities” was interpreted to be “an attempt to identify” those persons and entities who had potential claims depending on the construction company’s claims, and the reference to the release of claims against numerous persons and entities related to the housing authority” was merely “an attempt to identify any persons and entities whose potential liability may derive from or depend on that of” the housing authority. (Ibid.)
And then came the coup de grace. The court said: “Absent some indication of the existence of a valuable claim in favor of a related person or entity, independent of Fassberg’s actual and potential claims arising from the subject matter of this action, that would be extinguished by the release, we conclude that the release is not overbroad or incapable of valuation.” (Fassberg, supra, 152 Cal.App.4th at p. 767, italics added.)
The principles just noted dispose of any remaining issues in the case.
First, it is clear that the insurers have carried their burden of assuring that their 998 offers conformed to “the requirements of section 998.” While section 998 is a fairly lengthy statute, the operative language governing the necessary content of 998 offers is confined to only the first two sentences of subdivision (b), and even then mostly in the second sentence: “(b) Not less than 10 days prior to commencement of trial or arbitration (as provided in Section 1281 or 1295) of a dispute to be resolved by arbitration, any party may serve an offer in writing upon any other party to the action to allow judgment to be taken or an award to be entered in accordance with the terms and conditions stated at that time. The written offer shall include a statement of the offer, containing the terms and conditions of the judgment or award, and a provision that allows the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted.” (Italics added.)
That’s it. The offers here comply: They make a specific statement, and they contain the terms and conditions: The insurers each pay LA County a sum of money between $100,000 and $500,000, and LA County dismisses its complaint with prejudice.
As we have seen, uncertainty in a 998 offer does not necessarily invalidate it. We should note preliminarily that an important distinction should be drawn between the kind of uncertainties dealt with Hartline and Berg, on the one hand, and those in Valentino and Barella, on the other. Harmonizing all four cases gives us this rule: It is not uncertainty per se that makes a 998 offer fatally uncertain -- if so, then Hartline and Berg should have gone the opposite way. Rather, it is the difficulty of evaluating a discrete claim, outside the pleadings but encompassed within the purview of the 998 offer that can make a 998 offer fatally uncertain. There was no question -- no “uncertainty” if one pleases -- as to whether the Royal Globe claim possessed by the plaintiff in Valentino, or the right of the plaintiff to vindicate his “good name” in some public forum in Barella, were within the purview of the 998 offers in those cases. They were. The appellate courts in those cases simply balked at the idea that the offeree should have been required to put a value on those discrete claims or rights. On the other hand, uncertainties confined to the disposal of the litigation itself which can be cleared up by some simple communication between the parties do not, under Hartline and Berg, invalidate a 998 offer. The present case falls into the latter category, not the former.
That said, the basic rule that 998 offers are interpreted as contracts goes one better than Berg and Hartline and does, in this case, resolve any putative uncertainties asserted by LA County. We take these uncertainties in the order they are mentioned in the opening brief.
(1) Would acceptance of the offers bar claims on the remaining 21 properties covered by the insurance plan? No. Those claims were not part of the complaint. It is only LA County’s retroactive wishful thinking in this appeal that posits that it was asserting any claims in its complaint about those properties.
We also note here that, by offering to drop their cross-complaints, the insurers were offering to give up the contention made in those cross-complaints that alleged fraud by LA County as regarded one of the properties rendered the various policies making up the insurance plan void ab ignitio. That was a claim within the cross-complaints, and had the offers been accepted would have been the object of a dismissal with prejudice.
(2) How much LA County would actually receive in light of the $10 million advance and the deductible provision of the insurance plan? Answer: The entire half a million net, on top of the advance. “Pays” means pays; it does not mean “credit” or “offset.” To the degree that any ambiguity on the point might be teased out of the 998 offers, that ambiguity would have to be read against the insurers, and would have to be interpreted as a waiver by the insurers of any claim for credit or offset based on the $10 million advance. In that regard we note that the $10 million advance was only as regards the three properties mentioned in the complaint and not toward repair of any of the other properties.
(3) How would the aggregate deductible be affected by acceptance of the settlement offers as related to the other 21 properties covered by the insurance plan? Answer: The insurers, having failed to include language in their 998 offers that would have exempted their payments from accumulation toward the $20 million aggregate deductible, would have been stuck with the consequence, which is that the payments would count toward the aggregate deductible in relation to the other properties.
(4) How would the offers affect the separate “Agricultural” case? Answer: Not in the slightest, as not only required by construing the document against the drafter (the insurers) but by the actual holdings in Westamerica, Goodstein and Fassberg. A fortiori, if claims that were part of the same litigation were not affected by the offers in Westamerica, Goodstein, and Fassberg, which confined themselves to identifiable pleadings, claims that were outside of the litigation, like the Agricultural case here, would be even less affected.
And finally, (5) how would LA County’s other rights under the insurance plan would be affected? Answer: In the first place, LA County does not identify what “other rights” it refers to. In its brief (on page 110), LA County construes the 998 offers here as: “The offers purported to dismiss with prejudice claims and issues related to each defendants’ specific insurance policy, since the 998 offers state that the offer is pertinent to the terms and conditions of that specific defendants’ policy of insurance.” (Italics in original.) However, as we have seen, the 998 offers only mentioned those claims which were “raised in County’s complaint.”
Thus claims outside the complaint would not be affected at all. (We note here that LA County is once again insinuating the idea that the complaint encompassed more than it did.)
6. Conclusion
Overall, LA County’s arguments against the 998 rely on the assumption that LA County, and not the insurers themselves, would have all conceivable ambiguity and uncertainty construed against it. But 998 offers operate exactly the opposite way. In any event, in context, none of these uncertainties were a cause of LA County’s rejection of the 998 offers -- if LA County had been at all interested, it could have -- as the courts in Hartline and Berg instruct -- inquired about them in the period while the offers were still open.
The 998 offers here were valid. The trial court was correct to award expert costs under section 998.
THE PREVAILING PARTY ISSUE
LA County’s entire argument that somehow it was the prevailing party collapses in the wake of the Supreme Court’s decision in Goodman affirming this court’s analysis of sections 1031 and 1032 of the Code of Civil Procedure. (The same trial judge whose decision was affirmed in Goodman was the trial judge here.) It is now clear that a plaintiff who recovers nothing monetarily in the judgment from a defendant is the losing party, not the prevailing party, even if the judgment is the product of credits (for example, prior settlements with other defendants) received by the defendant offsetting an award received by the plaintiff.
We should mention one more thing, though: Section 1032, subdivision (a)(4) of the Code of Civil Procedure provides that when a party recovers “other than monetary relief” the question of which party is the “prevailing party” is left to the trial court’s discretion. Here, of course, any thought that the trial court abused its discretion, i.e., acted unreasonably, in determining that the insurers were the prevailing parties as to any issue of nonmonetary relief borders on the frivolous: As shown by the motion to bifurcate and the hearings at the time, LA County failed in its litigation objective of recovering the policy limits and obtaining bad faith damages beyond $125 million. In fact, LA County, as plaintiff, didn’t recover anything from the insurers it didn’t already have, and ended up paying their expert fees because it rejected the various 998 offers they proffered. Even the small glimmer of above-deductible damages on the Beverly Hills Courthouse was obviated in the wake that the insurers had already paid more than enough to cover those repairs.
THE CROSS-APPEAL
As noted, the insurers filed crosscomplaints for fraud, based on what they alleged to be a fraudulently inflated proof of loss for Auto Park 10. The trial court granted LA County’s nonsuit motion and directed a verdict in favor of LA County on the insurers’ fraud claim. In a cross-appeal, the insurers attack that decision. However, the insurers’ respondents’ brief says at page 4: “If the judgment is affirmed, the court need not address the cross‐appeal.” Since we are affirming the judgment (and consequent cost order) entirely, we need not address the merits of the nonsuit and directed verdict motion.
CONCLUSION AND COSTS
We have given some thought to this court’s discretionary decision regarding appellate costs. There are two independent reasons we now conclude that the insurers are to recover their costs on appeal.
First, substantively, the insurers are clearly the prevailing parties.
Second, the borderline frivolousness of LA County’s main issue, based upon distortions of the record and ignoring the standard of review as well as the basics of its own complaint, has put the insurers to unnecessary expense at the appellate level. At the most elementary, the main issue in this appeal -- 84 pages worth in the opening brief -- is as simple as pie: LA County is complaining about the fact that claims on which it did no discovery and which were never included in its complaint were erroneously not “tried” by the trial judge. That argument is an obvious loser (see generally Kozinski, The Wrong Stuff, 1992 B.Y.U.L. Rev. 325) but the unsoundness of its premises only becomes apparent after one wades into the actual text of the various hearings that made up the case and discovers that -- far from the trial judge imperiously refusing to “try” various “issues” -- time after time this trial judge bent over backwards to give LA County’s attorneys a chance to make any points they wanted and bring any motions they wanted. When one examines the actual reporter’s transcripts -- not the paraphrase in the briefs -- one finds that if there is any criticism to be made of Judge Bauer, it is that he was judicious and patient to a fault.
So, to disguise the basic fact that the supposedly untried “issues” on which this appeal is predicated were not even pleaded in the complaint, LA County has presented a record- and factually-intensive argument more closely resembling the irrational number Pi: an argument that requires going through the dispositive status conferences, hearings and motions in the course of a 104-volume reporter’s transcript to ascertain if what LA County claims happened really happened. And on that examination, one finds it didn’t.
The insurers should receive their appellate costs as a matter of justice. The judgment is affirmed in its entirety.
WE CONCUR: BEDSWORTH, J., MOORE, J.