Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County, Carl J. West, Judge, Los Angeles County Super. Ct. Nos. BC189344 and BC241447
Law Offices of Derrick Fisher, Derrick Fisher and Frank Lupo for Plaintiff and Appellant.
Horvitz & Levy, Mitchell C. Tilner and Robert H. Wright; Shea Stokes, Jeffrey J. Leist and David A. Myers; Ropers, Majeski, Kohn & Bentley and Stephen J. Erigero for Defendant and Respondent.
MANELLA, J.
Appellant Encino Park West Homeowners Association, Inc. (EPW) appeals the trial court’s grant of summary judgment in favor of respondent Truck Insurance Exchange (Truck) on EPW’s claims for breach of insurance contract, bad faith breach of contract, and fraud. Truck presented evidence that the parties had executed a general release covering the claims. EPW contends on appeal that the Release should be deemed void on grounds of economic duress, undue influence, fraud in the inducement, estoppel, and unconscionability. We agree with the trial court that EPW did not present sufficient evidence to create a triable issue of fact as to any of the alleged bases for invalidating the Release, and affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
I
The Policy
Certain background facts are not disputed. Truck or its predecessor issued an insurance policy covering the condominium complex for which EPW represents the homeowners. The policy included an endorsement for earthquake damage and was in effect at the time of the Northridge earthquake in January 1994. The policy limits were just short of $10 million.
The policy language described the following basis for establishing the value of damaged property: “[A]ctual cash value at the time of loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality within a reasonable time after such loss . . . .” However, the policy also included a “Replacement Cost Coverage Endorsement,” which required the insurer to pay “replacement cost (without deduction for depreciation).” The endorsement further stated that “[Truck’s] liability for loss on a replacement cost basis, shall not exceed the smallest of the following amounts: (a) the amount of this policy applicable to the damaged or destroyed property; (b) the replacement cost of the property or any part thereof identical with such property on the same premises and intended for the same occupancy and use; or (c) the amount actually and necessarily expended in repairing or replacing said property or any part thereof” and that “[Truck] shall not be liable under the endorsement for any loss unless and until the damaged or destroyed property is actually repaired or replaced by the insured with due diligence and dispatch.”
As explained in a well-regarded insurance litigation practice guide, where a policy covering property damage states that payment of “actual cash value” is required, the measure of recovery is either (1) the fair market value at the time of the loss if the loss is total or (2) the amount needed to repair, rebuild or replace, less depreciation based on condition at the time of the injury if the loss is partial. (Croskey et al., Cal. Prac. Guide: Insurance Litigation (The Rutter Group) ¶6:281.10, p. 6B-30.) Replacement cost coverage, on the other hand, is intended to provide the cost of repair or replacement without deduction for depreciation. (Id., ¶¶6:282, 6:284, pp. 6B-32.) “A replacement cost policy . . . necessarily places the insured in a better position than actual cash value would provide.” (Fire Ins. Exchange v. Superior Court (2004) 116 Cal.App.4th 446, 464.) Replacement cost coverage can result in a “windfall” to the insured because, for example, “‘if an insured needed to replace a damaged roof, the insurer would be liable for the cost of the entire new roof, even if the damaged roof had been 10 years old.” (Fire Ins. Exchange v. Superior Court, supra, 116 Cal.App.4th at p. 464, quoting Wood, The Insurance Fallout Following Hurricane Andrew (1994) 48 U. Miami L.Rev. 949, 951-952, fn. omitted; see Croskey, Cal. Practice Guide, Insurance Litigation, supra, ¶6:283, pp. 6B-32.)
Although the language suggests that Truck would not be liable for “any loss” until repairs were completed, its claim handling guidelines stated that “Actual Cash Value” -- that is, either the fair market value or the repair and replacement cost less depreciation -- “should be paid up front on all building losses” and that only the amount attributable to depreciation would be held back until a later date. This appears to be a common practice. (See Conway v. Farmers Home Mut. Ins. Co. (1994) 26 Cal.App.4th 1185, 1188-1189; Croskey et al., Cal. Prac. Guide: Insurance Litigation, supra, ¶6:286, p. 6B-33.)
The condominium complex suffered extensive damage in the Northridge earthquake. Preston Robins was the head of EPW’s Northridge earthquake reconstruction committee. Ted Wendland, a licensed architect, and his company were hired by EPW to oversee the bid process and to provide management services throughout the period of reconstruction. EPW hired Projects West Construction (Projects West) as general contractor to undertake the majority of the repairs.
Between March 1994 and August 1995, Truck paid EPW over $5.5 million to effectuate repairs. In February 1996, the parties executed a release and settlement (the Release) and Truck made a final payment of $1.9 million. The Release stated that EPW “has made a claim for damages, costs and expenses resulting from [the Northridge earthquake] against [Truck’s] policy”; that Truck and EPW “disagree on the appropriate amount of damages to be paid by [Truck] pursuant to [EPW’s] claim”; that the Release was entered into “for the purpose of settling completely those claims of each of the parties to this [Release] with regard to the matters described . . . hereinabove”; that each party released the other from all claims “of any kind or nature whatsoever, whether known or unknown, based on, arising out of, in connection with, or relating in any way to any dealings between [EPW], on the one hand, and [Truck], on the other, prior to the effective date of [the Release] . . .”; and that the parties waived the provisions of Civil Code section 1542.
II
The Complaint
In December 2001, EPW brought suit against Truck for breach of contract, breach of implied covenant of good faith and fair dealing, and fraud in the inducement. According to the allegations of the second amended complaint -- the operative complaint for purposes of this appeal -- Truck breached the insurance contract in resolving EPW’s Northridge earthquake damage claim by, among other things, “withholding an unlawful and exorbitant depreciation in violation of California law”; “deliberately misinterpreting the insurance policies and insurance regulations”; “arbitrarily changing [its] standard methods of estimating claims without any proper notice to policy holders”; and “deliberately manipulating the unit prices and measurements [for repairs] to the advantage of [Truck] and the disadvantage of policy holders.”
The complaint further alleged that when repairs on the complex were nearing completion, Truck reneged on a promise to release held back funds. Instead, Truck advised EPW that a complete audit of the project would be undertaken, a process that would take several months. Truck offered in the alternative to pay EPW $1.9 million, which was “at least $1,391,816.92 less than what [Truck] owed [EPW].” EPW felt compelled to accept the offer because “all of the contractors, suppliers and trades-people were very upset . . . because they had not been paid due to [Truck’s] holding so much money back in purported depreciation”; because EPW owed a substantial SBA loan, and because the individual unit owners were anxious to return to their homes after two years.
The cause of action for breach of implied covenant raised similar contentions and also alleged that Truck “appl[ied] the wrong policy deductible,” “[u]tiliz[ed] deceptive practices to avoid payment of [EPW’s] claim,” “[f]ail[ed] to conduct a full, fair and prompt investigation of [EPW’s] claims at its own expense,” “[f]ail[ed] to fully, fairly and promptly evaluate and adjust [EPW’s] claims,” and “[f]ail[ed] to pay all amounts not in dispute within thirty days.” The fraud in the inducement cause of action included such allegations as: “[Truck] represented and promised that if [EPW] bought the Policy from [Truck], and paid the necessary premiums, [Truck] would pay benefits in an amount necessary to repair or replace the condominium buildings if any of them were damaged or destroyed by earthquakes”; “[Truck] made . . . promises in the Policy and in their advertising materials at the time of application for the purposes of inducing [EPW] to enter into the insurance Policy . . .”; “[Truck] . . . never at any time intended to comply with these representations and, in fact, consistently refused to do so.”
III
Motion For Summary Judgment
In February 2005, Truck moved for summary judgment based on the Release. In its statement of undisputed facts, Truck established the Release’s execution and its significant language.
Anticipating that EPW would contend the Release was the result of economic duress as alleged in the complaint, Truck also sought to establish that EPW had not expended the funds paid to it by Truck on earthquake-related repairs, and that EPW was “not in the midst of a ‘dire financial predicament’ at the time it entered into the Release” but was instead “undergoing stylish upgrading and . . . paying the unit owners tens of thousands of dollars from excess funds.” These propositions were supported primarily by excerpts from the deposition testimony of Wendland, EPW’s project manager, and documents prepared by Wendland based on his observations as project manager beginning in late 1994 and his review of the project documents. Truck also relied on an EPW document entitled “General Ledger,” covering the period from May 1994 to January 1996, which stated that net earthquake expenditures over this period totaled $4,623,678.65. To further bolster its contentions, Truck attached a March 12, 1996 memorandum from the EPW board of directors to the unit owners which referred to “the stylish upgrading that has taken place.”
The document appeared on its face to be a record of EPW’s earthquake-related repairs. The trial court misread the document as indicating that EPW had expended $5,182,846.54 on earthquake repairs during the May 1994 to January 1996 period.
Wendland testified that he reviewed all of Projects West’s requests for payment, as well as the requests of its subcontractors and other companies performing work outside the main construction contract. Wendland expressed the opinion that the construction work performed by these entities was not entirely earthquake related. He undertook to categorize each expense item and allocate it, wholly or partially, into one of four categories: earthquake or “seismic” repair, maintenance, design upgrade, and building code upgrade. He concluded that EPW spent a total of $6,846,287 on construction-related items. Of this, only approximately $3.4 million was expended on seismic repairs. He allocated the remaining expenditures as follows: approximately $2.7 million to design upgrades; $310,783.11 to maintenance; and $399,588 to building code upgrades.
EPW and the trial court mistakenly stated that Wendland calculated a total of $6,465,151. Wendland testified that $6,465,151 was a preliminary figure to which he added an additional $381,136 -- apparently representing change orders -- to reach his final tabulation.
For example, Wendland expressed the opinion that the epoxy repair of a structural slab in the garage, application of plywood sheer to the sides of the building, and most of the funds expended by the individual unit owners to complete final repairs were not related to the earthquake. He therefore allocated funds spent on these repairs to non-seismic categories. Wendland testified that the units were essentially ready for habitation by the owners without further work once Projects West fulfilled its contract.
Wendland testified that during his involvement with the project, only one subcontractor walked off the job or threatened to walk off the job. He was aware of no lawsuits filed or threatened. Some subcontractors filed documents that Wendland described as preliminary notices of intent to file mechanics’ liens, but no actual mechanics’ liens were filed. Wendland stated that such notices of intent were not unusual in large construction projects and were filed as a formality “to protect [the subcontractors’] rights.” Wendland denied ever hearing from anyone connected with EPW that it lacked funds to pay for repairs.
IV
EPW’s Opposition
In its opposition, EPW attempted to establish that the Release was void, presenting the following arguments in support of its contention: (1) the Release was the result of fraud in the inducement; (2) the Release was obtained through economic duress; (3) the Release was obtained through undue influence; and (4) the Release was not supported by valid consideration.
Because EPW does not raise the lack of consideration argument on appeal, we do not discuss it further.
The opposition was based on witness declarations and documents, many of which came from Truck’s claims file. EPW presented evidence sufficient to establish the following series of events. By the end of 1994, Truck -- or claims adjusters acting on its behalf -- estimated that the repair and replacement cost for damage to the complex would be approximately $9.74 million. This estimate was similar to one obtained from Kenco Construction, a general contractor consulted at the time. Using this figure, Truck subtracted the policy’s deductible (approximately $800,000) and calculated a “depreciation holdback” of $3.489 million. This left approximately $4.957 million to be paid upfront to EPW after deduction of approximately $500,000 in advance payments.
Truck raised objections to much of the evidence put forth by EPW in its opposition. The trial court sustained some of these objections. Except as specifically noted, we confine our discussion to the evidence admitted by the trial court.
The first adjuster was Larry Andrews. He was succeeded by Dennis Bergquist and John Bowman. Bergquist’s July 8, 1995 report was the most extensive and stated that after “several inspections and review of the engineering reports,” it was apparent that “this was a very extensive loss,” that “the building had sustained some major damage to the structure,” and that “the building failed in several areas.” In particular, “the concrete slab on the first floor area” would have to be “removed and replaced so that repairs can be made.” This would result in “losing all of the cosmetic finishes on the ground and first levels of the building.” In addition, “[t]he building will be raised and supported from the garage area [which could result in] more damages . . . in other areas . . . .”
As explained earlier, although replacement cost coverage is intended to provide the cost of repair and replacement without deduction for depreciation, the general practice is to make an early payment to the insured in the amount of the anticipated cost of repair and replacement less depreciation. This is referred to as an “actual cash value” or “ACV” payment.
This $4.957 million figure was later reduced to $4.679 million to take into account several hundred thousand dollars in advances which had been overlooked in calculating the original figure.
With regard to the “depreciation holdback,” Truck now maintains there was no duty to pay until all repairs were 100 per cent complete. However, evidence presented by EPW suggested that it was Truck’s policy to pay the holdback once approximately 75 per cent of the repairs were complete and 100 percent of the actual cash value payment had been spent. In or about October 1995, as the cost of repairs approached the amount EPW believed to be the threshold for the final payment from Truck, Robins contacted the adjuster (at that time, Bergquist) and “forcefully explained to him that [EPW] needed the holdback monies to complete the rest of the repairs and that [it was] being pressed by contractors and subcontractors for balances owed to them and they were threatening to file mechanics[’] liens against the property which would severely impact the individual unit owners, especially those who were trying to obtain loans ready for the time they would be required to carry out their own reconstruction work on the interiors of the units” and “reminded him that the majority of the unit owners were frail and elderly people who were desperate to move back into their homes and constantly calling Board and Committee Members demanding to be let back into their units.”
Among other things, a declaration from Kermith Sonnier, an insurance claims adjuster who had worked for Truck following the Northridge Earthquake, stated that Truck generally allowed the insured to recover the holdback once it completed about 75 per cent of the repairs. Sonnier also said that in August or September 1995, Truck began to require documentation for all repair work performed and that the documentation requirement became more onerous as time went on. Sonnier further stated, based on his calculations using the Truck estimation software program with which he was familiar, that the “true amount” of the depreciation holdback should have been only $849,413.06.
The court sustained Truck’s hearsay objection to the statements Robins made to Bergquist. Although the statements could not be used to support the truth of the matters asserted, they were admissible to establish that Truck was aware of EPW’s alleged problems.
In October 1995, Robins also sent a letter to Bergquist stating that Robins was “confused” as to why Truck was “holding back so much money.” The letter stated that the holdback taken was “more than . . . 40%” but that, in Robins’s experience with other similar claims, “[t]he most that has ever been held back was no more than 15%.” The letter further explained why EPW needed to have the additional funds released: “We have contracted with a general contractor and several subcontractors to do the work on the exterior of the building which also includes the common areas for approximately 5 million dollars. This does not include the interior of any unit[’]s floor and wall coverings, appliances, fixtures, cabinets etc. Basically we are bringing the building up to a ‘Vanilla’ condition. ¶ Once this has been accomplished, we will allocate funds to the homeowners to complete their units while providing us with receipts to support the[eir] expenditures. Unfortunately, without additional funds for working capitol [sic] we will not be able to advance moneys to the homeowners to fulfill the requirements of completing the interiors.”
Bergquist asked Robins for paperwork showing a breakdown of the amounts already paid on earthquake repairs. In late December 1995, Bergquist was replaced by Bowman. Bowman placed additional conditions on receipt of the funds such as personal inspection of each unit, personal review of all books and records of EPW relating to the earthquake, and preparation of a new document summarizing the costs incurred by EPW. But when documents were made available, Bowman delayed review of the paperwork and repeatedly put Robins off when Robins pressed him for resolution of the matter.
The court sustained objections to the portions of Robins’s declaration in which he set forth specific statements made by Bowman and other adjusters. However, as the adjusters were acting on Truck’s behalf, we see no reason to exclude their statements. (See State Farm Fire & Casualty Co. v. Superior Court (1989) 216 Cal.App.3d 1222, 1227 [“The insurance adjuster is the agent of the insurer.”].)
In mid-February 1996, Robins reiterated to Bowman EPW’s need for funds to pay contractors and subcontractors and the desire of the complex’s elderly residents to return home after so much time had passed. Bowman suggested that he could “possibly get some funds released . . . in the form of a settlement.” Shortly thereafter, he informed Robins that $1.9 million was all that Truck was willing to pay. Bowman further advised Robins that EPW’s only alternative was to “wait months for him [Bowman] to complete his review of all of the EPW records relating to the earthquake repairs” or “get in line” and litigate. Believing that EPW had “no alternative but to accept the $1.9 million settlement based on the position [it was] in,” Bowman and the president of EPW, Frank Whitehead, decided to accept the offer, and White executed the Release.
Robins also attested to the extensive upgrades that had been made to the common areas of the complex in the early 1990’s, prior to the Northridge earthquake. This included marble floors, hand painted wall treatments, a three-story beveled mirror, and custom designed carpeting. In addition, Robins had observed that the individual units had “virtually all been completely remodeled and upgraded to a high standard, many with custom paint, wallpaper and fabric treatments on the walls, custom high grade carpeting, marble tile and hardwood flooring, granite, marble and ceramic tile countertops, custom cabinetry and bookshelves, custom mirrors and light fittings and fixtures, and expensive window treatments.” The carpeting, fixtures, and appliances from some units had been removed and stored during reconstruction, but were lost, stolen, or damaged before they could be placed back in the units.
EPW also presented the declarations of several unit owners, who described the state of their units before and after repairs were completed by Projects West. In general, the homeowners agreed that the $20,000 allowance each of them received did not cover the repairs needed to return their units to pre-earthquake condition.
Robins’s declaration set forth his understanding that the plywood sheeting discussed by Wendland was attached to protect the integrity of the building, and not as an upgrade. He further stated that EPW paid Kenco $150,000 for temporary shoring and emergency repairs, prior to Wendland’s involvement. In addition, Robins said that Wendland’s summary did not include $23,833 used to prepare plans and drawings of the building, $33,920 for Phase I engineering, or the $633,200 cost of “destructive testing and [a] forensic engineering study,” incurred between April and September 1994.
Other evidence contesting Wendland’s calculations concerning the total expended on earthquake repairs can be found in the declaration of Steven Geoffrion, Wendland’s assistant during the project. He disagreed with many of Wendland’s conclusions concerning whether repairs to the condominium complex were legitimately connected with earthquake damage.
At his deposition, Robins testified that he had not personally reviewed the documentation indicating how much had been spent on earthquake repairs.
Both to support its fraud claim and to undermine Wendland’s calculations, EPW relied heavily on a memorandum dated March 6, 1996, written by Bowman to Truck. The memorandum stated that, based on the calculations of the original adjuster (Andrews), “[EPW] would need to substantially complete the physical repairs at the complex and expend in excess of $6,251,099.33 in qualification of any holdback release.” It further stated that Bowman had “verif[ied] expenditures to date by [EPW] in the amount of $6,200,261.28” and determined that EPW had “outstanding accounts payable on the reconstruction contract in the amount of $910,000.00.” Bowman further noted that “[EPW] is also required to proceed with an additional distribution to the unit owners to complete interior repairs . . . in the amount of $1,300,000 (65 x $20,000.00).”
Truck states that “the [trial] court sustained Truck’s objection to this memo on the ground of relevance, lack of foundation, and lack of authentication,” implying that we should disregard it. The court did sustain an objection to Robins’s attempt to authenticate the document and his characterization of it in his declaration. However, the same memorandum was attached to EPW’s attorney’s declaration and was authenticated as a document from Truck’s claim file produced during discovery. The objection to its admission was overruled, and the trial court discussed the memorandum in its order.
Finally, EPW attempted to establish its financial condition at the time of the Release. Robins’s declaration stated that at the time he was negotiating with Bowman, “EPW’s outstanding bills from contractors and subcontractors were really beginning to stack up” and that EPW was “desperately afraid that if [the] contractor and subcontractors walked off the job [it] would never get them back” due to the glut of earthquake repair work available at the time. Geoffrion stated that in November 1996, he “learned” that “EPW was having cash flow difficulties and needed to cut back on expenditures.” Geoffrion further stated that “[a]round the beginning of 1997 we started to become aware of contractors and/or subcontractors becoming unhappy about EPW’s lack of payment of their invoices, and began to receive a number of mechanics’ liens against the [complex].” He did not claim to have knowledge of EPW’s financial condition as of February 2006 when the Release was negotiated.
V
Trial Court’s Order
The trial court granted the motion for summary judgment. In its order the court observed that because Truck’s motion for summary judgment was based on the Release, the only issue was the validity of the Release. The court concluded that EPW had “failed, as a matter of law, to establish grounds to avoid the effect of the [R]elease in this case.”
With respect to the contention that EPW signed the Release under “economic duress,” the court found that “the evidence of [EPW’s] earthquake-related damages, and Truck’s payment of proceeds, belies [EPW’s] claims of ‘financial ruin. . . .’” In reaching its conclusion, the court noted that both Wendland’s statements concerning the total amount expended by EPW and the figures in the “General Ledger” established that EPW had received more than it had expended. Although EPW offered Robins’s declaration to dispute Wendland’s calculations, the court found Robins was not competent to testify on the amount of earthquake repairs, as his deposition testimony confirmed that he had not reviewed the documentation for such expenditures. The court noted that the declarations of the individual homeowners failed to establish the dollar amount of their expenditures and that “[i]n the absence of such evidence, the evidence of the amount of earthquake expenditures in the General Ledger is unrebutted.”
The court further found EPW had failed to adduce evidence that it had “‘no reasonable alternative’” other than to enter into the Release. The court noted that EPW could have commenced suit against Truck for its failure to pay the amounts allegedly owed or pursued negotiations if it was not satisfied with the offer, but declined to do so.
On the undue influence claim, the court found no evidence that the resulting bargain was unfair, no evidence that EPW lacked the ability to secure independent advice, and no evidence that anyone acting for EPW was unduly susceptible to persuasion.
Turning to the fraud claim, the court found no evidence of wrongful concealment, as Robins admitted knowing the amount of the purported holdback, as well as the amount of the settlement offer, and elected to settle rather than seek additional amounts to which he believed EPW was entitled. Nor, the court found, did EPW rely on any alleged misrepresentation or concealment by Truck, as it was EPW’s consistent position that it was entitled to more than Truck was offering in settlement.
Finally, the court found no evidence to support EPW’s estoppel claim, as there was no evidence EPW relied to its detriment on any statements by Truck. Judgment was entered on the order, and EPW filed a timely appeal.
DISCUSSION
I
Burden of Proof and Standard of Review
As the defendant in the lawsuit, Truck’s burden on summary judgment was to show that no cause of action in EPW’s complaint had merit. This could be accomplished by either: (1) demonstrating that “one or more elements of [each] cause of action cannot separately be established” or (2) “establish[ing] an affirmative defense to [each] cause of action.” (Smith v. Wells Fargo Bank, N.A. (2005) 135 Cal.App.4th 1463, 1472; accord Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) When a defense motion for summary judgment is based on an affirmative defense such as the existence of a release, once the defendant establishes all of the elements of the defense, the burden shifts to the plaintiff to present sufficient evidence to create a triable issue of fact as to the defense. (Vahle v. Barwick (2001) 93 Cal.App.4th 1323, 1328; Consumer Cause, Inc. v. SmileCare (2001) 91 Cal.App.4th 454, 468; Mirzada v. Department of Transportation (2003) 111 Cal.App.4th 802, 806.)
Here, Truck presented evidence of the execution of a release that covered the claims set forth in the complaint. Accordingly, the burden shifted to EPW to create a triable issue of fact concerning the validity of the Release. To be successful, EPW was required to produce “evidence . . . of sufficient quality to allow the trier of fact to find the underlying fact in [its] favor . . . .” (McGonnell v. Kaiser Gypsum Co. (2002) 98 Cal.App.4th 1098, 1105; accord Andrews v. Foster Wheeler LLC (2006) 138 Cal.App.4th 96, 108.)
On appeal after a motion for summary judgment has been granted, “we review the record de novo, considering all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained.” (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.) We resolve any doubts concerning the evidence in favor of the party opposing summary judgment. (Lyle v. Warner Brothers Television Productions (2006) 38 Cal.4th 264, 274.)
II
Economic Duress
“[A] written release extinguishes any obligation covered by [its] terms, provided it has not been obtained by fraud, deception, misrepresentation, duress, or undue influence” (Skrbina v. Fleming Companies (1996) 45 Cal.App.4th 1353, 1366.) The Release expressly stated that each party released the other from all claims “of any kind or nature whatsoever, whether known or unknown, based on, arising out of, in connection with, or relating in any way to any dealings between [EPW], on the one hand, and [Truck], on the other, prior to the effective date of [the Release] . . .” and waived the protections of Civil Code section 1542. Such unambiguous language acts as a bar to all pre-existing claims between the signatories, including claims unknown or unsuspected, and neither party can later protest that he or she did not intend to release certain types of claims. (San Diego Hospice v. County of San Diego (1995) 31 Cal.App.4th 1048, 1052; Winet v. Price (1992) 4 Cal.App.4th 1159, 1172-1173.) A release signed by the insured discharging the insurer from any and all claims encompasses presettlement claims of bad faith and unfair practices. (Edwards v. Comstock Insurance Co. (1988) 205 Cal.App.3d 1164, 1167-1169.)
Section 1542 provides: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the Release, which if known by him or her must have materially affected his or her settlement with the debtor.”
The doctrine of economic duress has been recognized as a basis for rescission of a settlement agreement. (See Rich & Whillock, Inc. v. Ashton Development, Inc. (1984) 157 Cal.App.3d 1154, 1158-1159, and cases cited therein.) However, “the courts, in desiring to protect the freedom of contracts and to accord finality to a privately negotiated dispute resolution, are reluctant to set aside settlements and will apply ‘economic duress’ only in limited circumstances and as a ‘last resort.’” (San Diego Hospice v. County of San Diego, supra, 31 Cal.App.4th at p. 1058, quoting Rich v. Whillock, supra, at pp. 1158-1159.) “When a party pleads economic duress, that party must have had no ‘reasonable alternative’ to the action it now seeks to avoid (generally, agreeing to contract). If a reasonable alternative was available, and there hence was no compelling necessity to submit to the coercive demands, economic duress cannot be established.” (CrossTalk Productions, Inc. v. Jacobson (1998) 65 Cal.App.4th 631, 644.)
In Rich & Whillock, Inc. v. Ashton Development, Inc., supra, the court held that the doctrine comes into play “upon the doing of a wrongful act [by the defendant] which is sufficiently coercive to cause a reasonably prudent person faced with no reasonable alternative to succumb to the perpetrator’s pressure.” (157 Cal.App.3d at p. 1158.) The “wrongful act” need be nothing more than “[t]he assertion of a claim known to be false or a bad faith threat to breach a contract or to withhold a payment” where the person subject to the act has “no reasonable alternative but to succumb” because “the only other alternative is bankruptcy or financial ruin.” (Id. at p. 1159; see San Diego Hospice v. County of San Diego, supra, 31 Cal.App.4th at p. 1058 [holding that proof of the existence of the following factors was sufficient to establish economic duress: “(1) the debtor knew there was no legitimate dispute and that it was liable for the full amount; (2) the debtor nevertheless refused in bad faith to pay and thereby created the economic duress of imminent bankruptcy; (3) the debtor, knowing the vulnerability its own bad faith had created, used the situation to escape an acknowledged debt; and (4) the creditor was forced to accept an inequitably low amount.”].)
Based on these authorities, the trial court found that EPW failed to establish an essential element of economic duress. The court concluded that evidence indicating the sums paid by Truck exceeded the amount spent on construction in the period leading up to execution of the Release “belie[d] [EPW’s] claims of ‘financial ruin,’” and that in any event, EPW failed to present evidence that there was “‘no reasonable alternative’” but to “‘succumb to the perpetrator’s pressure’” in signing the Release.
In their briefs, the parties focus on the trial court’s apparent determination that uncontested facts established that EPW recovered more than it spent on earthquake repairs. Truck contends that the $4.6 million figure in the “General Ledger” -- or the even lower figure calculated by Wendland -- should be accepted as conclusive of the monies expended by EPW by the time of the settlement. Truck contends this evidence establishes that EPW was not in dire financial straits at the time it executed the Release. Pointing to language in the policy that Truck was not liable for any loss under the replacement cost endorsement until the damaged or destroyed property was actually repaired or replaced by EPW, Truck further contends there could have been no bad faith failure to acknowledge a debt because no additional funds were yet due.
EPW concentrates on the same aspect of the court’s ruling, pointing out that Wendland was not familiar with expenditures during 1994; that Wendland’s calculations were contested in many respects by Robins, Geoffrion, and the individual unit owners; and that Bowman’s March 6, 1996 memorandum supports that EPW had incurred construction costs of more than $7 million as of that date, not including the additional $1.3 million it was obliged to distribute to the unit owners. EPW further contends Wendland’s testimony should be disregarded in its entirely because he allegedly breached a duty of loyalty owed to EPW by assisting Truck in the litigation.
Assuming the uncontroverted facts were insufficient to establish that EPW’s expenditures were significantly less than funds received from Truck, we nevertheless agree with the trial court’s ruling that EPW failed to raise a triable issue of fact as to economic duress. Even if Truck entered into negotiations with EPW believing the entire $3.5 million holdback was due and owing, bad faith alone cannot support a claim of economic duress or lead to rescission of a valid release. The party asserting economic duress must show that due to its dire financial condition, it had “no reasonable alternative” but to accept the offer. Truck’s motion for summary judgment was based on a settlement of the claims raised in the complaint. Once Truck established the existence of the Release covering any claims EPW may have had arising from Truck’s handling of EPW’s Northridge earthquake claim, it became EPW’s burden to create a triable issue of fact concerning a basis for avoiding the Release. To mount a viable claim that economic duress voided the Release, EPW bore the burden of presenting sufficient evidence of its financial condition to raise a triable issue that the doctrine could apply. It failed to do so.
As noted above, the only evidence of economic distress was found in the declarations of Robins and Geoffrion. Robins discussed contractor and subcontractor demands to be paid and threats to file mechanics’ liens, but only in the vaguest of terms. He provided no identification of the entities involved, the amounts owed, or the dates the alleged debts became due. Geoffrion’s declaration was even more nebulous. He stated that in November 1996 -- nine months after the settlement and Release -- he was “advised by EPW’s Board” that EPW was having “cash flow difficulties.” Moreover, putting aside the lack of specifics, the evidence presented by EPW was also inadequate because it concerned only one-half of EPW’s financial picture -- its debts. No witness presented evidence concerning EPW’s assets. Robins, despite having full access to EPW’s financial records, said nothing in his lengthy declaration about EPW’s bank accounts or other resources. In short, EPW failed to present evidence that it had no “reasonable alternative” than to “submit to the coercive demands.” (CrossTalk Productions, Inc. v. Jacobson, supra, at p. 644.)
Geoffrion’s declaration also discussed mechanics’ liens filed in and after January 1997, a year after the settlement and release; these were irrelevant to EPW’s financial picture in February 1996.
EPW contends that the standard applied by the trial court was too severe, and that it “should not have had to show evidence of an impending bankruptcy petition or pending creditor lawsuits.” But whether the standard is “impending bankruptcy” or something less dire, EPW presented insufficient evidence to establish the tenuousness of its financial condition. A party opposing summary judgment must present evidence “of sufficient quality to allow the trier of fact to find the underlying fact in [its] favor . . . .” (McGonnell v. Kaiser Gypsum Co., supra, 98 Cal.App.4th at p. 1105.) To raise an issue of fact concerning economic duress, a party must do more than establish that it had some unpaid debts and demanding creditors. It must show that after exhausting available resources, it had no reasonable alternative to stave off financial disaster but to acquiesce in an unreasonable settlement offer. Although the trial court’s conclusion that uncontroverted evidence supported Truck’s contention concerning EPW’s expenditures may have been erroneous, its ruling that EPW failed to present evidence that it had no reasonable alternative but to succumb was correct. Despite having the burden of proof, EPW failed to present evidence that it had no available resources at the time it executed the Release. The evidence presented was insufficient to meet EPW’s burden of establishing that it had no alternative but to accede to Truck’s offer.
Because we do not believe Wendland’s testimony was necessary to support the grant of summary judgment, we need not address EPW’s contention that the testimony should have been excluded due to his alleged breach of a duty of loyalty owed to EPW.
III
Fraud in the Inducement
EPW contends that Truck concealed facts to induce EPW to execute the Release, specifically: (1) “the fact that Truck had taken an excessive, wrongful, and illegal depreciation holdback on EPW’s claim . . . and was still wrongfully holding [onto] that sum at the time the Release was taken” and (2) the fact that “Truck had already completed its investigation and verification process and had determined that EPW had expended sufficient qualifying funds to entitle it to immediate payment of the full . . . depreciation holdback.” EPW further contends that the trial court “failed to address EPW’s claim that the Release was void and unenforceable on the grounds of fraud in the inducement.”
EPW is mistaken in part with respect to the trial court’s ruling. The court specifically addressed the contention that Truck failed to inform EPW it had taken and was “wrongfully holding [onto]” an excessive amount for the depreciation holdback. The court cited evidence that Robins was aware of the amount of the depreciation holdback and believed the amount Truck withheld was excessive. Thus, EPW could not establish the elements of wrongful concealment or justifiable reliance with respect to this alleged act of fraud.
The trial court did not specifically address the contention that Truck -- or Bowman acting on Truck’s behalf -- concealed that he had already “determined that EPW had expended sufficient qualifying funds to entitle it to immediate payment of the full . . . depreciation holdback.” But the court’s conclusion concerning the absence of a triable issue of fact on the element of justifiable reliance applies equally to this purportedly separate act of fraud.
The court’s failure to recognize this as a basis for EPW’s fraud claim can perhaps be explained by the fact that under the fraud heading in its memorandum of points and authorities below, EPW summarized nearly every act undertaken by Truck in the course of the parties’ dealings, and then simply stated: “The foregoing facts . . . prove that the purported Release was obtained through deception and fraud in the inducement” without specifying the facts on which it relied to support the claim.
Review of the facts set forth in EPW’s opposition makes clear that Truck’s figures for the estimated amount of the loss, the amount it was willing to pay up front, and the amount of the depreciation holdback had been common knowledge since at least 1995. EPW was therefore fully aware that Truck was holding back nearly $3.5 million. In addition, EPW not only knew of the possibility that the holdback was excessive, it also had reason to believe that Truck’s obligation to pay all of the held back funds -- regardless of the proper amount -- arose once EPW’s expenditures exceeded the actual cash value payment and 75 per cent of the construction work had been completed. By October 1995, Robins believed this threshold had been met and began pressing Bergquist to obtain the final payment from Truck. Thus, when Bowman became involved in late December 1995 and allegedly began adding new requirements, EPW should have been aware of the possibility that Truck was in violation of its duties under the policy and the law and subject to a breach of contract or bad faith claim. Instead of consulting an attorney and obtaining a determination of its rights, EPW’s representatives continued discussions with Bowman, eventually agreeing to settle for less than they believed was owed. That EPW was already aware of specific ways in which Truck could have violated its duty of good faith is proof that EPW’s decision to execute the Release was not the product of fraudulent inducement on Truck’s part, but rather of EPW’s reluctance to face the burdens and uncertainties of litigation.
For example, Robins stated in his declaration that Bergquist made such a representation to him in May 1995.
EPW’s brief lists numerous statutes and regulations Truck’s actions might have violated during the period leading to the execution of the Release. There is no question that an insurer owes “‘special and heightened’ duties” to the insured “because of the unique nature of the insurance contract” (Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142, 1150-1151); that insurers must “act reasonably promptly . . . with respect to claims arising under insurance policies” and “adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies” (Ins. Code, § 790.03, subd. (h)(2) and (3)); and that insurers are forbidden to “[m]isrepresent[] to claimants pertinent facts . . . relating to any coverages at issue,” “[f]ail[] to settle claims promptly, where liability has become apparent” (id., subd. (h)(1) and (12)), or attempt to settle a claim by making a settlement offer that is unreasonably low (Cal. Code Regs., tit. 10, § 2695.7 subd. (g)). It is equally true that an insured should not have its recovery limited due to depreciation under a replacement cost policy. (Cal. Code Regs., tit. 10, § 2695.9 subd. (a)(1).) But the time for the insured to raise these issues is before entering into a settlement with the insurer. As discussed, a release discharging the insurer from any and all claims encompasses presettlement claims of bad faith and unfair practices. (Edwards v. Comstock Insurance Co., supra, 205 Cal.App.3d at pp. 1167-1169.) If the Release were deemed invalid because Truck failed to concede in advance every factor that could support a bad faith claim, no settlement between an insurer and its insured would be safe from contest.
At the time it executed the Release, EPW was aware of the amount of the depreciation holdback at stake; it suspected Truck had withheld excessive funds; and it believed the preconditions to payment of the withheld funds had been fulfilled. Thus, EPW was or should have been aware of the possibility that Truck was in violation of its duty of good faith. That EPW can point to one or two matters concerning which it had imperfect knowledge does not convince us that the Release should be considered invalid. EPW had knowledge of all the material facts necessary to make an informed decision whether to proceed with settlement or institute litigation; it chose to settle.
IV
Undue Influence
EPW’s argument that the Release was obtained through undue influence is based on the same facts as its economic duress and fraud claims: the contention that Truck took advantage of the “fact” that EPW “was in dire financial straits . . . with the contractors and subcontractors threatening to walk off the job, . . . [and] threatening to sue and record mechanic’s liens against the property” and “coerce[d] EPW into accepting a sum considerably less than Truck knew it owed to EPW by failing to conduct a prompt and thorough investigation and . . . then telling EPW that it was going to be months before it could conduct its investigation, all the while knowing that EPW had satisfied Truck’s requirements to qualify for the payment of the entire depreciation holdback.”
Undue influence is not analogous to economic duress or fraud. Civil Code section 1575 provides that undue influence consists of (1) “the use, by one in whom a confidence is reposed by another, or who holds a real or apparent authority over him, of such confidence or authority for the purpose of obtaining an unfair advantage over him”; (2) “‘taking . . . unfair advantage of another’s weakness of mind’”; or (3) “taking a grossly oppressive and unfair advantage of another’s necessities or distress.” Put simply, “undue influence consists of the use of excessive pressure by a dominant person over a servient person resulting in the apparent will of the servient person being in fact the will of the dominant person.” (Keithley v. Civil Service Bd. (1970) 11 Cal.App.3d 443, 451.)
In determining whether a person’s consent was obtained by undue influence, courts generally look at “whether from the entire context it appears that one’s will was overborne and [one] was induced to do or forbear to do an act which [one] would not do, or would do, if left to act freely.” (Keithley v. Civil Service Bd., supra at p. 451.) Certain “characteristic elements”, when “simultaneously present in a significant number,” may support a claim of having one’s will overborne: “‘(1) discussion of the transaction at an unusual or inappropriate time, (2) consummation of the transaction in an unusual place, (3) insistent demand that the business be finished at once, (4) extreme emphasis on untoward consequences of delay, (5) the use of multiple persuaders by the dominant side against a single servient party, (6) absence of third-party advisers to the servient party, (7) statements that there is no time to consult financial advisers or attorneys.’” (Id. at p. 452, quoting Odorizzi v. Bloomfield School Dist. (1966) 246 Cal.App.2d 123, 133.)
The trial court reviewed these factors and found nothing to suggest the presence of undue influence here. We agree. As discussed, EPW failed to present evidence of dire economic straits. There was no evidence that the negotiations were discussed or consummated at an unusual time or place or that they were accompanied by insistent demands for immediate agreement. Although EPW did not obtain legal advice, Robins was given time and freedom to consult anyone he wished and did confer with Whitehead. Thus, there was no evidence that the will of the EPW decisionmakers -- Robins and Whitehead -- was “overborne” in a legal sense. Rather, they elected to accept EPW’s offer in lieu of filing suit.
V
Estoppel
In its memorandum below, EPW contended Truck should be estopped to deny that EPW incurred earthquake-related damage in the amount of nearly $10 million. It did not raise this contention as a basis to invalidate the Release, but in order to challenge Wendland’s conclusions concerning the necessity of certain repairs. Now, in its brief on appeal, EPW maintains that Truck should be estopped from relying on the Release. It does not, however, specify what facts support this allegation. Assuming EPW is again referring to the fact that Truck and/or its adjusters repeatedly and consistently stated that the amount of earthquake damage was in excess of $9 million, this negates any theory that estoppel invalidates the Release because it confirms that EPW was fully aware of this important fact when it chose to settle for a smaller sum.
VI
Unconscionability
For the first time on appeal, EPW contends the Release is unenforceable as against public policy and is unconscionable. Theories not raised in the trial court are not properly cognizable on appeal. (People ex rel. Dept. of Transportation v. Superior Court (2003) 105 Cal.App.4th 39, 46.) In addition, the theory lacks merit. A court may refuse to enforce an unconscionable contract, but both procedural and substantive unconscionability must be present. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.) Procedural unconscionability derives from “‘inequality of bargaining power’”; “‘the absence of real negotiation or a meaningful choice’”; and “‘surprise’” resulting from, for example, a hidden term in a lengthy contract. (American Software, Inc. v. Ali (1996) 46 Cal.App.4th 1386, 1391.) Substantive unconscionability exists where the resulting agreement is overly harsh or one-sided. (Armendariz v. Foundation Health Psychare Services, Inc., supra, at p. 114.) The only element potentially present here was inequality of bargaining power. As discussed, there was no evidence of absence of negotiation or choice, no surprise or hidden terms, and as EPW recovered a substantial portion of its construction costs, no evidence of an unduly one-sided or harsh result.
DISPOSITION
The judgment is affirmed.
We concur: EPSTEIN, P. J., WILLHITE, J.