Opinion
NOT TO BE PUBLISHED
Super. Ct. No. 71450
BUTZ, J.Plaintiff Donald E. Hudson appeals after a summary judgment in favor of defendant Fire Insurance Exchange (FIE) in an action for damages for bad faith denial of insurance policy coverage in a property insurance dispute. He contends the trial court erred in: (1) overruling his objections to FIE’s evidence, (2) determining as a matter of law that FIE’s duty to investigate the claim reasonably was satisfied, and (3) denying his motion to amend the complaint to plead a cause of action for breach of contract in failing to pay the claim. We shall conclude the trial court erred in denying Hudson’s motion to amend his first amended complaint. We shall therefore reverse the judgment.
FACTS AND PROCEDURAL BACKGROUND
The facts adduced in the summary judgment proceedings are stated in the requisite light, most favorably to the opponent of summary judgment. (See, e.g., Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 768 [“In performing our de novo review, we must view the evidence in a light favorable to plaintiff as the losing party (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107[, disapproved on a different ground in Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 853, fn. 19]), liberally construing her evidentiary submission while strictly scrutinizing defendants’ own showing, and resolving any evidentiary doubts or ambiguities in plaintiff’s favor”].)
In April of 2004, Hudson bought a tractor to use in developing a lot he owned. Hudson’s insurance agents, William and Stacey Knuedeler, the principals of Knuedeler Insurance Agency (collectively, Knuedeler), told him they obtained coverage for damage to the tractor when he purchased it. While operating the tractor on September 14, 2005, Hudson lost control of it, it crashed through a concrete wall and into a house and was heavily damaged. After the accident Knuedeler told Hudson they had not obtained the requested insurance.
On November 21, 2005, Hudson’s counsel wrote to Knuedeler explaining Hudson’s claim. Knuedeler referred the claim to FIE. Hudson did have a homeowner’s policy with FIE, obtained via Knuedeler. On November 28, FIE’s assigned claims representative, Eric Metz, discussed the facts on which Hudson’s claim was based with Hudson’s counsel. On December 13, 2005, Metz contacted the Department of Motor Vehicles (DMV). He was told the tractor would be required to be registered under “‘Special Equipment’ Regulation 88.”
On December 16, 2005, by telephone call with and by letter to Hudson’s counsel, FIE denied coverage for damage to the tractor under the homeowner’s policy. The ground for denial stated in the letter is a policy exception for vehicles subject to registration by DMV, “based on Reg. #88” of the DMV “which would define the tractor as a motor vehicle.”
The coverage of personal property in the homeowner’s policy is subject to an exception for “motor vehicles.” Motor vehicle is defined as follows: “Motor vehicle--means: [¶] a. motorized land vehicle . . . designed for travel on public roads. [¶] . . . [¶] None of the following is a motor vehicle. . . . [¶] b. a motorized land vehicle, not subject to motor vehicle registration, used only on an insured location.”
In April of 2006, Hudson sued Knuedeler (and DOES) for negligence in failing to obtain coverage and for misrepresentation in asserting that it had.
Thereafter, Hudson learned that FIE had required Knuedeler to maintain errors and omissions liability insurance for its acts as an FIE agent. Hudson believed this insurance policy would require FIE to indemnify Knuedeler for any loss Knuedeler suffered as a result of failing to obtain the personal property coverage for Hudson. On June 15, 2006, Hudson amended his complaint to include FIE, adding a third cause of action alleging, in pertinent part, as follows:
“(Breach [o]f Implied Covenant [o]f Good Faith [a]nd Fair Dealing Against [FIE])
“20. Plaintiff realleges and incorporates by reference paragraphs 1 through 13 of the complaint as though fully set forth at this point.
“21. Plaintiff has performed all conditions of the [aforementioned homeowner’s] Policy to be performed on his part in accordance with the terms of the Policy.
“22. Defendant has breached its duty of good faith and fair dealing owing the plaintiff in at least the following respects:
“(a) failing to promptly and adequately investigate the plaintiff[’s] claim against Knuedeler;
“(b) misrepresenting pertinent facts in relation to the applicable law;
“(c) failing to give the plaintiff’s financial interests equal consideration to it[s] own interests;
“(d) concealing from the plaintiff that it had the obligation to honor plaintiff’s claim arising from Knuedeler’s errors and omissions.”
On December 11, 2006, FIE moved for summary judgment. FIE asserted that the fact it had a contract of insurance with Knuedeler for errors and omissions was immaterial. As to the homeowner’s policy, FIE argued that as a matter of law there was no coverage or, alternately, there was a genuine dispute over coverage, hence there could be no recovery for bad faith denial under that policy.
FIE relied upon a declaration of Metz, in pertinent part as follows: Metz was told by Hudson’s counsel that Hudson purchased the tractor to assist in preparing a vacant lot he owned for the construction of a home. On December 13, 2005, Metz contacted the DMV to determine whether the tractor “would be subject to registration.” He was told that the tractor “would be required to be registered under ‘Special Equipment’ Regulation 88.” Based on this he denied the claim.
On January 19, 2007, Hudson filed his opposition to the motion for summary judgment. He did not address any claim on the insurance contract between FIE and Knuedeler. He argued, in pertinent part, that FIE’s investigation and rejection of the claim under the homeowner’s policy could be found not reasonable because FIE’s evidence failed to show with whom Metz had spoken or what information he had provided to DMV about how the tractor would be used. Hudson objected to the evidence of Metz’s investigation on the same grounds. Moreover, when, on December 1, 2006, “in an effort to support its denial of coverage” FIE deposed a DMV registration specialist, the specialist testified that the tractor did not have to be registered and there was no regulation No. 88, only a form No. 88, that would only apply if the tractor were required to be registered.
The objection in full was: “Mr. Metz has not laid a foundation as to who[m] he talked to at the [DMV] and whether that person was qualified to answer his questions concerning the registration of the Tractor. Further, Mr. Metz has not laid a foundation as to what questions he asked of the DMV, so it is impossible to determine whether the information allegedly provided by the DMV is even applicable to this case. For example, if Mr. Metz indicated that the Tractor would be driven on a public road or highway to get from place to place (which is not a fact present [in] this case) the DMV’s answer to the registration question might have been different than if Mr. Metz would have advised the DMV that the Tractor would only be used on private property. As such, any opinions that Mr. Metz formed regarding the purported registration requirements for the Tractor are improper.”
In the course of Hudson’s opposition memorandum he requested leave to amend his first amended complaint to plead a breach of contract claim against FIE. The minute order reflects that the motion for summary judgment was granted and the court directed FIE to prepare a formal order. The minute order also notes that the court declined to rule on the aforementioned request to amend Hudson’s complaint. “If plaintiff wishes to amend his complaint, he must file a properly noticed and timely motion.”
In essence, the trial court opined that FIE’s investigation was reasonable, because there was a genuine dispute over coverage and Metz’s reliance on the opinion he received from the DMV employee to deny coverage was reasonable.
The trial court reasoned that, based on the opinion from the DMV that the tractor had to be registered, Metz could reasonably conclude that the tractor would have to be registered. Thus, FIE’s interpretation of the insurance provision was not arbitrary or unreasonable and there was a genuine dispute regarding the existence of coverage at the time of denial of Hudson’s claim such that FIE could not be found liable for breach of the covenant of good faith and fair dealing, as a matter of law.
On February 8, 2007, FIE submitted a proposed order granting the motion for summary judgment. On February 9, 2007, the trial court approved an order shortening time for hearing a motion by Hudson for leave to file a second amended complaint. On February 15, the court signed the order granting the motion for summary judgment and it was filed the same day.
On February 26, 2007, Hudson’s motion for leave to amend was heard by the court. The record does not include a minute order concerning the hearing. However, the court apparently tentatively ruled in favor of FIE and directed FIE to prepare an order denying Hudson’s motion to file a second amended complaint. The same day (February 26, 2007) the court signed the summary judgment in favor of FIE and the judgment was filed the next day.
On March 12, 2007, the court signed and filed an order denying Hudson’s motion to amend the complaint. The order explains the denial as follows:
“The Motion was brought two weeks before trial and trial would need to be continued to allow additional discovery on any breach of contract claim. Discovery on a bad faith claim is not the same as discovery on a breach of contract claim. Further, plaintiff should have been alerted to the fact that the tractor could be potentially covered as personal property under his homeowner’s policy if it was not a motor vehicle within the definition of that policy as of the time of the denial letter of December 16, 2005. Thus, the argument that plaintiff did not learn of the possible breach of contract claim until the December 1, 2006 deposition of the DMV employee is unpersuasive. Finally, breach of contract causes of action are routinely alleged at the same time as bad faith causes of action.”
On April 10, 2007, Hudson filed his notice of appeal.
DISCUSSION
I. Motion for Summary Judgment
A. Court Did Not Err in Overruling Objections to FIE’s Evidence
Hudson contends that the trial court erred in overruling his evidentiary objection to the declaration of Metz concerning Metz’s investigation of the issue of whether the tractor was within the homeowner’s policy exception to coverage for motor vehicles. He renews his trial argument that this part of Metz’s testimony lacked foundation. The trial court did not err in overruling the objection.
Preliminarily, we note that this is yet another case in which the pleadings have been employed “as a ticket to the courtroom which may be discarded after admission.” (FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 381.)
As Hudson unabashedly stated in the trial court, and repeats in his brief on appeal: “The original bad faith claim was not based on [FIE’s] obligations under the homeowner’s policy.” That is to say, his complaint did not tender any claim of breach of a duty to investigate reasonably a claim under the homeowner’s policy. The only such claim remotely tendered in the pleadings was that FIE breached a duty to investigate Hudson’s claim against Knuedeler, i.e., for Knuedeler’s failure to obtain property insurance. In these circumstances, the issue of fact claimed as preventing summary judgment, or more accurately a motion for judgment on the pleadings, was not triable under the allegations of Hudson’s first amended complaint. Assuming arguendo that Hudson can complain of such an error, the trial court did not err in admitting the evidence of Metz.
The objection of no foundation is that the proffered evidence is not admissible, for some reason, in the absence of proof of some preliminary fact. (Evid. Code, §§ 400, 401.) This can cover a wide range of potential shortcomings. “It does not necessarily follow that the bare statement ‘no proper foundation laid’ . . . is specific and sufficient to raise any failure to establish the conditions for admissibility of evidence conditionally admissible. The various foundation requirements are so dissimilar that such statements are, in some instances, no more informative than the general objection.” (3 Witkin, Cal. Evidence (4th ed. 2000) Presentation at Trial, § 380, pp. 471-472.)
Evidence Code section 400 states: “As used in this article, ‘preliminary fact’ means a fact upon the existence or nonexistence of which depends the admissibility or inadmissibility of evidence. The phrase ‘the admissibility or inadmissibility of evidence’ includes the qualification or disqualification of a person to be a witness and the existence or nonexistence of a privilege.”
Here Hudson’s specification (fn. 3, ante) of the lack of foundation suggests: (1) Metz’s statement was inadmissible as opinion evidence of the DMV employee without a showing of the qualification of the employee (“whether that person was qualified to answer his questions concerning the registration of the Tractor”) and (2) Metz’s statement was inadmissible as irrelevant without a showing of what he told the employee about the use of the tractor to elicit the response.
Metz’s statement about the opinion of the DMV employee would not be admissible for the truth of that opinion, both on hearsay and the lack of showing of qualification grounds. However, it was admissible to show how Metz investigated and why he denied the claim. Thus, the trial court did not err in failing to exclude it for lack of foundation.
Nor was the fact that the DMV employee opined that the tractor was subject to registration inadmissible as irrelevant without a detailed showing of the identity of the employee and the information that Metz gave the employee about the tractor. Hudson’s argument suggests that Metz’s reliance on the opinion he was given could only be reasonable if the employee was qualified to give an opinion and only if he was given full and complete information. Hudson concludes the opinion is irrelevant without a showing of these matters.
We do not applaud the use of minimal declarations in summary judgment proceedings. However, the trial court considers the matter based on the evidence actually put before it and inferences reasonably deducible from that evidence. (Code Civ. Proc., § 437c, subd. (c) [unless contradicted by other inferences or evidence].) It is reasonable to infer from Metz’s declaration that he spoke with an employee of the DMV, truthfully provided that employee with the information he had about the tractor, and that the employee answered the question without demurring that the question could not be answered without further information or that the employee was not the proper person to answer such a question. (Cf. Evid. Code, § 664; Civ. Code, § 3546.) Thus, Metz’s account of his communication with the DMV employee, though sparse, was not subject to exclusion for irrelevancy.
We note that where there is a genuine issue concerning facts that could defeat the motion which cannot be presented, e.g., because of insufficient opportunity for discovery, such as to depose Metz, the opponent of summary judgment may move to continue the summary judgment, ex parte, until the time the opposition response is due. (Code Civ. Proc., § 437c, subd. (h).) No such motion was made in this case.
B. Court Did Not Err in Its Determination That, as a Matter of Law, FIE’s Duty to Investigate the Claim Reasonably Was Satisfied
Hudson contends that the trial court erred in granting the summary judgment because it rests on the insupportable premise that FIE’s duty to investigate his claim reasonably was satisfied. He submits that, as is generally the case (see, e.g., McCormick v. Sentinel Life Ins. Co. (1984) 153 Cal.App.3d 1030, 1038 (Sentinel Life)), whether FIE acted reasonably in investigating the claim was a question of fact and thus a question for a trier of fact. In the circumstances of this motion for summary judgment, we see no such triable issue of fact presented.
Once again, preliminarily, for the reasons previously given, Hudson’s first amended complaint did not tender any claim of breach of a duty to investigate reasonably a claim under the homeowner’s policy. Thus, the issue of fact claimed as preventing summary judgment was not triable under the allegations of his first amended complaint. Assuming arguendo that he can complain of such an error, had the issue been proffered by the first amended complaint, it would not have been triable on the evidence adduced in the summary judgment proceedings.
The questions are: Were there “triable issues of fact as to whether, before rejecting [Hudson’s claim, FIE] thoroughly investigated and fairly evaluated the claim[?] [Did Hudson] present[] sufficient evidence for a jury to find [FIE’s] decision was ‘“prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement[?]”’ (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. [(2001)] 90 Cal.App.4th [335,] 346.)” (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 726.)
Where the denial of coverage turns on a matter of fact, there is a duty to conduct a reasonable investigation into that fact. (See, e.g., Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819.) A failure of an insurer to properly investigate the insured’s claim can constitute a breach of the implied covenant of good faith and fair dealing. (Id. at pp. 818-819.) The paradigms in the cases for unreasonable or improper investigation are evidence of failure to investigate matters that “would ordinarily have been made by a claims adjuster” (id. at p. 816; see also Sentinel Life, supra, 153 Cal.App.3d at p. 1038 [expert opinion evidence that no independent investigation contrary to accepted practice in the insurance industry]) and failure to conduct investigations reasonably suggested by experts or the claimant (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1074-1075).
Here, no evidence was adduced by Hudson that the manner of FIE’s investigation departed from standard procedures in the industry or that FIE failed to take any investigative measures suggested by Hudson or others. Indeed, Hudson asserted in the trial court that there was nothing about the denial of his claim, which revealed the manner in which FIE investigated, that would have put him on notice that the denial was erroneous.
The sole fact that Hudson adduced, upon which his argument hinges, is that in preparing for summary judgment, FIE obtained a second opinion from DMV which contradicted the opinion it obtained in the investigation. This fact called into question the outcome of the claims investigation. However, it did not raise a triable issue of fact concerning whether the claims investigation had been reasonable or proper.
The fact that the answer was different would not support a finding that the claims investigation was unreasonably conducted. Indeed, the evidence that FIE sought the second opinion from DMV belies any implication that it mistrusted the adequacy of the first investigation. The kind of investigation FIE conducted which led to the discrepant second opinion was different from the first investigation. However, investigation using discovery statutes after litigation commenced, by deposition requesting that DMV provide the person most knowledgeable on this subject, was not a technique easily, if at all, available in an informal insurance claims investigation.
For all the foregoing reasons, in all the circumstances of this case, we agree with the trial court’s determination that there was no triable issue of fact concerning bad faith by FIE premised on the manner of its investigation.
II. Motion to Amend the First Amended Complaint
Hudson contends that the trial court erred in denying his motion to amend the first amended complaint to plead a cause of action for breach of contract in failing to pay the claim under the homeowner’s policy. He argues that the trial court abused its discretion under Code of Civil Procedure section 473 because there was no unreasonable delay nor would the continuance of trial that would have been occasioned been prejudicial to FIE. FIE replies that the trial court did not abuse its discretion in denying leave to amend and that, in any event, there is no prejudice because Hudson could not have prevailed on a claim of breach of contract. As we will show, the trial court acted outside the range of discretion afforded concerning the proposed amendment, and FIE’s various claimed defenses to a breach of contract claim cannot be determined on this appeal.
The trial court may, in its “discretion,” allow amendments “in furtherance of justice.” (Code Civ. Proc., § 473, subd. (a)(1).) “The scope of discretion always resides in the particular law being applied, i.e., in the ‘legal principles governing the subject of [the] action . . . .’ Action that transgresses the confines of the applicable principles of law is outside the scope of discretion and we call such action an ‘abuse’ of discretion. (See Hurtado [v. Statewide Home Loan Co. (1985) 167 Cal.App.3d 1019,] 1022[, disapproved on a different ground in Shamblin v. Brattain (1988) 44 Cal.3d 474, 479, fn. 4].) . . . [¶] The legal principles that govern the subject of discretionary action vary greatly with context. (See Hurtado, supra, 167 Cal.App.3d at p. 1023.) They are derived from the common law or statutes under which discretion is conferred.” (City of Sacramento v. Drew (1989) 207 Cal.App.3d 1287, 1297-1298.)
Here the confines of the applicable principles of law are provided by case law requiring great liberality in permitting amendments at any stage of the proceeding. This policy “was declared at an early date and has been repeatedly restated.” (5 Witkin, Cal. Procedure (4th ed. 1997) Pleading, § 1126, p. 581 (5 Witkin).) The reason for this liberality is the policy favoring trial on the merits.
However, “even if a good amendment is proposed in proper form, unwarranted delay in presenting it may be a reason for denial.” (5 Witkin, supra, § 1133, p. 587.) The trial court, in essence, decided that Hudson was not diligent in discovering that FIE had incorrectly denied coverage under his homeowner’s policy on the theory it was not a motor vehicle within the policy definition. For this reason, the court concluded: “[T]he argument that plaintiff did not learn of the possible breach of contract claim until the December 1, 2006 deposition of the DMV employee is unpersuasive.” The party that profits from a finding of lack of diligence in these circumstances is FIE, Hudson’s insurer. We do not believe that an insurance company that, innocently or not, misinforms its insured about possible coverage under the policy should be able to fault the insured for a lack of diligence in discovering he has been misinformed. Thus, we conclude that the trial court erred in relying on Hudson’s failure to second-guess what FIE had told him as a basis for the required conclusion that his delay in presenting the amendment was unwarranted.
The only additional consideration concerning lack of diligence noted by the trial court is that breach of contract causes of action are routinely alleged at the same time as bad faith causes of action. However, the same objection to this rationale applies. An insured relying on a representation by the insurer that he has no coverage cannot be faulted for failing to allege the breach of contract allegation.
As Hudson notes, only 11 months had elapsed since the action began. In these circumstances, the trial court erred in denying the motion to grant leave to amend the first amended complaint.
FIE argues that we should uphold the judgment in any event because, regardless of the viability of the claim of the tractor policy’s motor vehicle exclusion, there was no coverage under the policy as a result of other claims of exclusions, hence no purpose would be served by reversal to allow the second amended complaint. FIE implicitly relies on the doctrine of harmless error, pursuant to which an order will be affirmed if any ground exists which supports it, irrespective of an erroneous theory advanced by the trial court. It is proper to deny leave to amend when the proposed amended pleading is insufficient to state a cause of action. (5 Witkin, supra, § 1130, p. 585.) However, these claims were not advanced in FIE’s opposition to Hudson’s motion to amend.
“While usually an order will be affirmed if any ground exists which supports it, irrespective of the reason advanced by the trial court [citation], this is not so where it appears that the trial court has declined to pass upon the merits of a motion.” (Gosnell v. Webb (1943) 60 Cal.App.2d 1, 5.) Entertaining FIE’s new “no coverage claims” places this court in the position of ruling on the merits of a general demurrer to the amended pleading, sustained without leave to amend, when no such demurrer was raised or tested in the trial court. To the extent there is a prospect that discretion might have been exercised by the trial court, e.g., in entertaining further amendments, or deferring a determination until presented with a more fully developed factual showing, this situation is analogous to Gosnell. Thus, unless the new no coverage theories of FIE are plainly and indisputably correct, the matter should be returned to the trial court.
FIE argues that the damage was not caused, as required, by a named peril, specifically, not by a vehicle. Hudson replies the tractor itself was a vehicle and caused the damage. FIE replies this is “implausible” because the other perils named in the policy are external forces acting upon covered property. Uncertainties must be resolved in favor of the insured, and the policy provisions interpreted according to the layman’s reasonable expectations. (See, e.g., Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 271; Meraz v. Farmers Ins. Exchange (2001) 92 Cal.App.4th 321, 324.) Given this interpretive stance, FIE’s argument on this point is not plainly and indisputably correct. (See generally Vetrano v. Aetna Life & Casualty (1981) 612 S.W.2d 689, 693.)
FIE also argues that coverage is necessarily excluded as caused either by an excluded “design” defect in the tractor or excluded by reason of Hudson’s neglect to “use all reasonable means to protect covered property at and after the time of loss,” as the accident was either caused by a defect in the tractor or negligence by Hudson. It suffices to say that there is a factual component, capable of dispute, to this claim.
DISPOSITION
The judgment is reversed. The order denying leave to amend is reversed. The trial court is directed to grant Hudson leave to file a second amended complaint against FIE alleging a single count for breach of the homeowner’s policy in failing to pay for damage to the tractor. The parties shall bear their own costs of this appeal. (Cal. Rules of Court, rule 8.278(a)(2), (5).)
I concur: MORRISON, J.
I concur in the majority opinion.
I write separately to state that in my view, plaintiff’s first cause of action, for bad faith against Fire Insurance Exchange, does not state a cause of action as a matter of law, either as pleaded or as represented by plaintiff on appeal.
Here is the way plaintiff describes his first cause of action in his opening brief: “The original bad faith claim was not based on the respondent’s obligations under the homeowner’s policy, rather it was based on its obligation to indemnify the Knuedelers under the parties’ captive agency agreement. Pursuant to its captive agency agreement contract with the Knuedeler Insurance Agency, the respondent was obligated to defend and indemnify the Knuedeler Insurance Agency for its [Knuedeler’s] errors and omissions relative to its dealings with the appellant. [¶] Based on that relationship, the captive agency relationship between the respondent and Knuedeler, not the contractual relationship between the appellant and the respondent created by the homeowner’s policy-the appellant asserted that the respondent owed him a duty of good faith and fair dealing to settle the E&O claim made against the Knuedeler Insurance Agency.”
Under current California law, as announced by our Supreme Court in Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, there simply is no cause of action for any bad faith investigation of a claim involving a third party who is not a party to an insurance contract. (See also McMillin Scripps North Partnership v. Royal Ins. Co. (1993) 19 Cal.App.4th 1215, 1221.) At oral argument, plaintiff conceded that his bad faith claim against FIE, pleaded in his first amended complaint, was barred by Moradi-Shalal.
SIMS, Acting P.J.