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Lyons v. Wawanesa General Ins. Co.

California Court of Appeals, Fourth District, Second Division
Apr 22, 2009
E044086, E045236 (Cal. Ct. App. Apr. 22, 2009)

Opinion

NOT TO BE PUBLISHED

APPEAL from the Superior Court of San Bernardino County Nos. VCVVS043422, VCVVS03784, Kyle S. Brodie, Kurt J. Lewin and Michael A. Sachs, Judges.

Kyle S. Brodie was the judge in case No. E044086.

Kurt J. Lewin is a retired judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6, of the California Constitution. He was one of the judges in case No. E045236.

Michael A. Sachs was one of the judges in case No. E045236.

Law Offices of Brian S. Ostler, Brian Charles Ostler, Sr., and William L. Smith, Jr., for Plaintiffs and Appellants.

Law Offices of Kenneth N. Greenfield, Kenneth N. Greenfield and Alexandra N. Selfridge for Defendant and Respondent.


OPINION

Gaut J.

This is a first party insurance bad faith case, in which Richard A. Lyons and Karen M. Bligh-Lyons (plaintiffs) are claiming defendant Wawanesa General Insurance Company (Wawanesa) should have paid them additional benefits for the repair of their home, which was scorched when their neighbor’s house caught on fire. Plaintiffs filed two related lawsuits in this matter, referred to as Lyons I and Lyons II, and two appeals, which this court consolidated for purposes of briefing, oral argument and decision.

Lyons I (case No. E045236) and Lyons II (case No. E044086).

In this consolidated appeal, plaintiffs challenge three trial court orders, two entered in Lyons I and one entered in Lyons II. The first is an order in Lyons I granting Wawanesa’s motion for summary adjudication of plaintiffs’ cause of action for breach of the good faith covenant and related punitive damages claim. The second order, also in Lyons I, denied plaintiffs leave to file a supplemental complaint adding a new claim for breach of the good faith covenant. The third order is in Lyons II, wherein the trial court sustained without leave to amend Wawanesa’s demurrer to plaintiffs’ amended complaint.

Plaintiffs contend the trial court erred in granting summary adjudication in Lyons I pursuant to the genuine dispute doctrine. Plaintiffs further argue they should have been permitted to file a supplemental complaint in Lyons I, adding a new insurance bad faith claim founded on Wawanesa making an unreasonably low settlement offer under Code of Civil Procedure section 998. As to Lyons II, plaintiffs contend the trial court erred in sustaining Wawanesa’s demurrer based on the trial court’s previous ruling granting summary adjudication of plaintiffs’ insurance bad faith claim in Lyons I.

Unless otherwise noted, all statutory references are to the Code of Civil Procedure.

We conclude the trial court’s three rulings were proper. It was undisputed that under the genuine dispute doctrine plaintiffs could not prevail on their insurance bad faith claims.

Wawanesa’s motion for judicial notice filed on November 6, 2007, pursuant to Evidence Code sections 452, subdivision (d), and 459, is denied as moot. The documents which Wawanesa requests judicially noticed are already included in the record on appeal by virtue of plaintiffs filing their second appeal, which was then consolidated with the first appeal.

1. Factual Background

At all relevant times, plaintiffs were insured by Wawanesa under a homeowner fire insurance policy. On May 2, 2004, plaintiffs’ next-door neighbor’s home was destroyed by arson. The east side of plaintiffs’ home was scorched. Plaintiffs’ home sustained exterior and interior heat and smoke damage, including broken windows, discoloration of the living room acoustic ceiling, soot marks on the linoleum and carpet, damaged stucco on the east side of the house, damage to the fence on the east side of the house, and landscape damage.

Plaintiffs notified Wawanesa of the damage. On May 4, 2004, Wawanesa assigned plaintiffs’ claim to claims adjuster Gerry Tolentino, who in turn assigned investigation of the claim to independent adjuster, Janis Adam-Thayer.

On May 7, Thayer inspected plaintiffs’ home. After meeting at plaintiffs’ home, plaintiffs’ contractor, Mark White, and Thayer agreed to a scope of loss and cost of repair amount. Thayer presented Wawanesa with a scope of loss report dated May 13, 2004, containing the agreed upon losses and repair costs. The estimated costs for repairs and losses included $13,444.17, for the exterior damage (minus the $1,000 deductible); $3,914.71 for interior damage; and $4,073.62 (with a fair market value of $2,829.02) for replacement costs.

On May 24, 2004, Tolentino authorized payment of $19,188.89 in benefits, consisting of the following coverage payments: $12,444.17 for home repairs; $3,915.70 for interior cleaning; and $2,829.02 for fence repairs.

On June 7, 2004, Julia Sneddon, a public adjuster retained by plaintiffs, contacted Tolentino and demanded that all of the windows in the house be replaced so that the windows all matched; that the acoustic ceiling in the living room be scraped off and re-shot, rather than encapsulated and painted; that the entire exterior be restuccoed so that the color and texture of the stucco matched; and that all fencing and fence posts on the property be replaced.

Thayer provided Tolentino with two of plaintiffs’ landscaping bid estimates, one of which amounted to $24,000. Thayer recommended that the property be reinspected and Tolentino agreed.

In August 2004, plaintiffs’ home was reinspected. Plaintiffs, Thayer, White, and Wawanesa’s consultant, Jacob Avila of CA Construction General Contracting, were present. Avila concluded Wawanesa’s scope of loss was accurate, with the exception that the following items should be added to the scope of loss: (1) removal of several bushes and replacement of 15 sprinkler heads required in removing the bushes; (2) replacement of all wood fencing and backyard grass; and (3) repainting the patio cover.

Avila concluded that applying a smoke sealer and painting the living room ceiling was an appropriate means of repair. He also believed that the color of the exterior stucco and the design of the windows could be matched.

By letter dated September 1, 2004, Thayer reported to Tolentino that, based on contractors’ quotes, the replacement cost of the additional items Avila recommended covering totaled $9,988.20, consisting of $6,500 for replacement of plants; $2,225 for sod and sprinkler replacement; $797.17 for replacement of the fence; and $466.03 to paint the patio cover. On September 20, 2004, Tolentino sent plaintiffs payment for additional policy benefits totaling $9,988.20 for the additional repairs and replacement benefits recommended by Avila. Tolentino authorized policy benefits totaling $30,138.35.

By letter dated April 5, 2005, Sneddon demanded that Wawanesa pay additional benefits, including replacing all the windows, not just the damaged windows, and restuccoing the entire exterior of plaintiffs’ house. Sneddon also requested Wawanesa to provide the name of at least one repair person who could repair and restore plaintiffs’ home to its original condition for the amount of benefits provided.

Sneddon further demanded that, if Wawanesa failed to provide the name of such a repair person, Wawanesa must pay plaintiffs the difference between the amount of Wawanesa’s estimate and plaintiffs’ higher repair estimate. Sneddon provided Wawanesa with White’s new bid for repairing plaintiffs’ home, which increased the previously agreed upon bid of $13,447.17 to $38,348.42.

By letter dated May 13, 2005, Wawanesa denied plaintiffs’ demand for additional benefits and advised Sneddon that Wawanesa was invoking the appraisal clause of the policy, which states that, when the insured and insurer cannot agree on the amount of loss, either party may demand an appraisal. If such a demand is made, each party must choose an appraiser within 20 days after receiving a written request from the other.

2. Procedural Background

Before attempting to resolve the matter under the appraisal clause, on May 13, 2005, plaintiffs filed a complaint against Wawanesa for (1) breach of contract and (2) breach of the implied covenant of good faith and fair dealing (Lyons I). Plaintiffs prayed for punitive damages as to their insurance bad faith claim. Three weeks later, Sneddon notified Tolentino that plaintiffs had selected an appraiser under the appraisal clause. The claim, however, was not processed under the appraisal clause since plaintiffs had already filed suit.

Superior court case No. VCVVS037846.

Wawanesa filed a motion for summary judgment or, alternatively, summary adjudication. After hearing oral argument, the court took the matter under submission and issued a written order on August 2, 2006, denying summary judgment and summary adjudication of the breach of contract cause of action, but granting summary adjudication of the cause of action for breach of the good faith covenant and related punitive damages claim. The court overruled plaintiffs’ objections to Wawanesa’s supporting evidence.

On September 20, 2006, Wawanesa made two section 998 settlement offers as to the remaining breach of contract cause of action, totaling $5,002 ($2,501 as to each plaintiff). One week later, plaintiffs filed an ex parte application for leave to file a supplemental or amended complaint, adding a new cause of action for breach of the good faith covenant and a request for punitive damages, alleging Wawanesa had made unreasonably low section 998 offers.

On September 28, 2006, the trial court heard and denied plaintiffs’ motion for leave to file a supplemental complaint. That same day plaintiffs filed a second lawsuit in this matter (Lyons II) containing a single cause of action for breach of the good faith covenant and recovery of punitive damages. The new complaint included the same allegations contained in plaintiffs’ proposed supplemental complaint.

Superior court case No. VCVVS043422.

After the trial court sustained with leave to amend Wawanesa’s demurrer to plaintiffs’ insurance bad faith complaint in Lyons II, plaintiffs filed an amended complaint adding additional allegations that Wawanesa had committed insurance bad faith acts by attempting to coerce plaintiffs into settling their insurance bad faith claim for an unreasonably low amount.

Wawanesa demurred to plaintiffs’ amended complaint in Lyons II. The trial court sustained the demurrer without leave to amend.

In September 2007, plaintiffs’ breach of contract cause of action in Lyons I was tried and the jury returned a special verdict on October 9, 2007, awarding plaintiffs $15,990 in damages.

3. Summary Adjudication of the Insurance Bad Faith Cause of Action

Appellate review of a trial court’s grant of summary adjudication is governed by the rules generally applicable to summary judgment motions. (Heredia v. Farmers Ins. Exchange (1991) 228 Cal.App.3d 1345, 1353.) A defendant “has met his or her burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action... cannot be established, or that there is a complete defense to that cause of action. Once the defendant... has met that burden, the burden shifts to the plaintiff... to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto....” (Code Civ. Proc., § 437c, subd. (p)(2).) When reviewing an order granting summary judgment, we examine the facts presented to the trial court and independently determine their effect as a matter of law. (Parsons v. Crown Disposal Co. (1997) 15 Cal.4th 456, 464.)

Plaintiffs contend the trial court erred in granting summary adjudication of their cause of action for breach of the good faith covenant in Lyons I. Plaintiffs argue that Wawanesa’s refusal to cover all of their losses arising from the fire next door demonstrated bad faith. Plaintiffs assert that they provided evidence of bad faith by showing that Wawanesa unreasonably and in bad faith withheld payment of their claim, did not fully investigate their claim, did not reasonably respond to plaintiffs’ inquiries, and violated applicable insurance regulations during the handling of plaintiffs’ claim. Plaintiffs further assert that the genuine dispute doctrine is inapplicable or, alternatively, a triable issue exists as to whether it applies.

Wawanesa satisfied its burden on summary adjudication by showing that plaintiffs’ bad faith claim has no merit in that one or more of the elements of that cause of action could not be established. (Code Civ. Proc., § 437c, subd. (o)(2).) To establish a breach of an implied covenant of good faith and fair dealing, plaintiffs must show that: “(1) benefits due under the policy must have been withheld; and (2) the reason for withholding benefits must have been unreasonable or without proper cause.” (Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1151.)

Plaintiffs failed to show that Wawanesa’s conduct was unreasonable. An insurer’s conduct is unreasonable when an insurer fails to investigate thoroughly (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819), fails to evaluate objectively (Austero v. National Cas. Co. (1978) 84 Cal.App.3d 1, 35, disapproved on other grounds in Egan, supra, at p. 824, fn. 7), attempts to employ abusive practices (Delos v. Farmers Insurance Group (1979) 93 Cal.App.3d 642, 664), or participates in other improper tactics to avoid payment.

Nothing in the record indicates that Wawanesa acted unreasonably in denying plaintiffs additional benefits. Wawanesa retained an independent adjuster to investigate the claim and a construction expert to provide recommendations and estimates on repairs. (Opsal v. United Services Auto. Assn. (1991) 2 Cal.App.4th 1197, 1205 (Opsal).) Wawanesa considered plaintiffs’ demands, authorized an additional inspection and payment of additional benefits. Plaintiffs thereafter continued to make more demands, which Wawanesa rejected as groundless based on the advice and recommendations of its independent adjuster and construction expert.

Plaintiffs’ claim of bad faith appears to be solely based in large part on Wawanesa’s denial of their demand that Wawanesa replace all of the windows, restucco the entire house, and scrape and reshoot the living room acoustic ceiling. Wawanesa provided evidence that its construction expert rejected these demands because he believed the windows and stucco could be matched, and Wawanesa was only required to “replace all items in the damaged area so as to conform to a reasonably uniform appearance.” (Cal. Code Regs., tit. 10, § 2695.9, subd. (a)(2); italics added.) A perfect match was not required. As to the acoustic ceiling, Avila stated that it was unnecessary to replace it since it could be repaired by sealing and painting it.

An insurer’s liability for insurance bad faith cannot be imposed when a genuine dispute exists as to the insurer’s liability. (Opsal, supra, 2 Cal.App.4th at pp. 1205-1206.) This is commonly referred to as the genuine dispute doctrine, explained by our high court in Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713 (Wilson), as follows: “[A]n insurer’s denial of or delay in paying benefits gives rise to tort damages only if the insured shows the denial or delay was unreasonable. [Citation.] As a close corollary of that principle, it has been said that ‘an insurer denying or delaying the payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability or the amount of the insured’s coverage claim is not liable in bad faith even though it might be liable for breach of contract.’” (Id. at p. 723, quoting Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335, 347.)

In the instant case, the trial court indicated during oral argument that it intended to grant summary adjudication of plaintiffs’ insurance bad faith cause of action because there was a genuine dispute as to plaintiffs’ claim for additional benefits. The court in Wilson, supra, 42 Cal.4th 713, noted that “[a] genuine dispute exists only where the insurer’s position is maintained in good faith and on reasonable grounds. [Citations.] [Fn. omitted.] Nor does the rule alter the standards for deciding and reviewing motions for summary judgment. ‘The genuine issue rule in the context of bad faith claims allows a [trial] court to grant summary judgment when it is undisputed or indisputable that the basis for the insurer’s denial of benefits was reasonable - for example, where even under the plaintiff’s version of the facts there is a genuine issue as to the insurer’s liability under California law. [Citation.]’” (Id. at pp. 723-724, quoting Amadeo v. Principal Mut. Life Ins. Co. (9th Cir. 2002) 290 F.3d 1152, 1161-1162.) “The ‘genuine dispute’ doctrine may be applied where the insurer denies a claim based on the opinions of experts. [Citations.]” (Fraley v. Allstate Ins. Co. (2000) 81 Cal.App.4th 1282, 1292.)

We note the trial court failed to comply with section 437c, subdivision (g) by not stating either orally or in writing its statement of reasons for ruling on Wawanesa’s motion for summary judgment or, alternatively, summary adjudication. The trial court did, however, provide a tentative ruling on the motion and, before taking the matter under submission, made it fairly clear as to how it intended to rule and the reasons why it intended to grant summary adjudication of the insurance bad faith cause of action.

Here, after Wawanesa fully investigated plaintiffs’ claim, Wawanesa denied plaintiffs’ claim for additional benefits based on the opinions of experts, including an independent adjuster and construction expert. We conclude that as a matter of law the genuine dispute doctrine applied and summary adjudication of the insurance bad faith cause of action was proper. There is simply no evidence that Wawanesa acted unreasonably by refusing to pay additional benefits in excess of the benefits offered to plaintiffs.

Plaintiffs argue that denial of additional benefits was unreasonable and summary adjudication should not have been granted because Wawanesa failed to investigate fully Plaintiffs’ claims. While an insurance company is not obligated under the implied covenant of good faith and fair dealing to pay every claim, the insurer cannot deny a claim without fully investigating the grounds for its denial. (Wilson, supra, 42 Cal.4th at p. 720.) “To protect its insured’s contractual interest in security and peace of mind, ‘it is essential that an insurer fully inquire into possible bases that might support the insured’s claim’ before denying it. [Citation.]” (Id. at p. 721.)

Here, the record establishes that Wawanesa fully investigated plaintiffs’ claim, including retaining an independent adjuster and construction expert, and authorizing two inspections. Plaintiffs failed to present any evidence that Wawanesa failed fully to investigate plaintiffs’ claim.

Plaintiffs argue the trial court abused its discretion in overruling objections to Wawanesa’s supporting evidence. Plaintiffs asserted evidentiary objections to Tolentino, Avila, and Thayer’s declarations, which the trial court overruled. Although Tolentino, Avila and Thayer’s declarations contain hearsay statements from correspondence and statements made by others, such hearsay is contained in other admissible evidence in the record or simply establishes that information which formed the basis of the declarants’ actions and decisions concerning the processing and adjusting of plaintiffs’ claim. The trial court’s overruling of plaintiffs’ evidentiary objections was not an abuse of discretion and, even if overruling the objections was erroneous, such error was harmless since the facts were included in other admissible evidence.

We also reject plaintiffs’ argument that the court could not rely on Avila’s declaration because Avila did not qualify as a construction expert. Plaintiffs objected to Avila’s declaration in writing and during the hearing on Wawanesa’s motion for summary adjudication. During the hearing on Wawanesa’s motion for summary adjudication, plaintiffs’ attorney argued that there was no evidence that Avila was familiar with construction. His declaration merely stated he was an employee of a construction company. The court responded that this was sufficient, particularly since plaintiffs had not presented any evidence refuting Avila’s construction expertise.

To qualify as an expert, a witness must have “special knowledge, skill, experience, training, or education sufficient to qualify him as an expert on the subject to which his testimony relates.” (Evid. Code, § 720, subd. (a).) Whether a particular witness is qualified to give an expert opinion on a specific topic is a matter within the trial court’s discretion. (Miller v. Los Angeles County Flood Control Dist. (1973) 8 Cal.3d 689, 701.) “[W]ork in a particular field is not an absolute prerequisite to qualification as an expert in that field.” (Osborn v. Irwin Memorial Blood Bank (1992) 5 Cal.App.4th 234, 274.)

The determinative factor as to whether Avila qualified as an expert is “whether the witness has sufficient skill or experience in the field so that his testimony would be likely to assist the jury in the search for the truth, and ‘no hard and fast rule can be laid down which would be applicable in every circumstance.’ [Citation.] Where a witness has disclosed sufficient knowledge, the question of the degree of knowledge goes more to the weight of the evidence than its admissibility. [Citation.]” (Mann v. Cracchiolo (1985)38 Cal.3d 18, 38.)

Here, there was a sufficient basis for the trial court to find Avila qualified as an expert on construction restoration, scope of loss, and estimating the cost of repairs. Avila stated in his declaration that he was general manager of CA Construction Co., an insurance restoration business. As general manager, he oversaw the company’s restoration division and reviewed and prepared review scopes of loss in connection with homeowners insurance claims.

Furthermore, plaintiffs did not provide any evidence refuting a finding of expertise. On appeal plaintiffs cite various evidence in an attempt to refute Avila’s expertise but such evidence was not before the trial court when it heard Wawanesa’s summary judgment motion. Therefore, this court will not consider the evidence. (Havstad v. Fidelity National Title Ins. Co. (1997) 58 Cal.App.4th 654, 661.)

Plaintiffs further complain that Wawanesa, and in particular, Wawanesa’s adjuster, Tolentino, failed to provide complete responses to plaintiffs’ and Sneddon’s correspondence in violation of California Code of Regulations, title 10, sections 2695.5, subdivision (b) and 2695.9, subdivision (d)(2).

All references to regulations are to the California Code of Regulations, title 10.

Regulation 2695.5, subdivision (b) requires an adjuster to respond to a claimant’s communication within 15 days after receipt and to provide a complete response. (Regs. § 2695.5, subd. (b).) The record shows that there was no regulation violation that would support a finding of insurance bad faith. The declarations of Tolentino and Thayer, and a letter from Wawanesa supervisor, Carola Cort, indicate that Wawanesa delayed responding because it did not receive some of plaintiffs’ and Sneddon’s correspondence, but once Wawanesa became aware of the correspondence, Wawanesa expeditiously responded to it.

Plaintiffs also complain that Wawanesa violated regulation 2695.9, subdivision (d)(2), which provides that, when losses have settled on the basis of a written scope and/or estimate and “the claimant subsequently contends, based upon a written estimate which he or she obtains, that necessary repairs will exceed the written estimate prepared by or for the insurer, the insurer shall: [¶]... [¶] (2) if requested by the claimant, promptly provide the claimant with the name of at least one repair individual or entity that will make the repairs for the amount of the written estimate.” (Reg. 2695.9, subd. (d)(2).)

In Sneddon’s letter requesting additional benefits, dated April 5, 2005, Sneddon requested Wawanesa to provide plaintiffs with the name of at least one repair individual who would restore plaintiffs’ home to its preexisting condition for the amount provided in Wawanesa’s estimate. Tolentino responded by letter dated May 13, 2005, that Wawanesa had already addressed the same issues in previous correspondence and advised Sneddon that Wawanesa believed the only way to arrive at a reasonable settlement was by obtaining an appraisal under the appraisal clause of the policy.

Since there was no settlement of plaintiffs’ claim when Sneddon requested the name of a repair individual, Wawanesa was not required under regulation 2695.9, subdivision (d)(2) to provide the name of a repair person. There was thus no violation of regulation 2695.9, and even if there was, Wawanesa’s failure to provide the name of a repair person was not material and therefore did not constitute a sufficient basis for denying summary adjudication. Here, it is undisputed that Wawanesa fully investigated plaintiffs’ claim and there was a genuine dispute over benefits. Under such circumstances, we conclude Wawanesa had a legitimate and reasonable basis for denying plaintiffs additional benefits. (Wilson, supra, 42 Cal.4that p. 724.)

In turn, there was no error in granting summary adjudication of plaintiffs’ request for punitive damages since recovery of punitive damages was contingent upon plaintiffs’ prevailing on their insurance bad faith cause of action.

4. Supplemental Complaint and Demurrer

Plaintiffs contend the trial court abused its discretion in denying plaintiffs leave to file a supplemental complaint in Lyons I, and erred in sustaining, without leave to amend, Wawanesa’s demurrer to plaintiffs’ amended complaint in Lyons II. Plaintiffs’ proposed supplemental complaint and plaintiffs’ amended complaint both contained a new insurance bad faith cause of action. The allegations in both pleadings were essentially identical, with the exception the amended complaint contained additional bad faith allegations reflecting Wawanesa’s continuing rejection of plaintiffs’ claim for additional benefits.

A. Motion for Leave to File a Supplemental Complaint

In the instant case, shortly after the trial court entered its order granting summary adjudication of plaintiffs’ second cause of action for breach of the good faith covenant in Lyons I, Wawanesa attempted to settle the remaining breach of contract cause of action by making two section 998 offers to compromise, totaling $5,002 ($2,501 as to each plaintiff).

One week later, in response to Wawanesa’s section 998 offer, plaintiffs filed an ex parte application for leave to file a supplemental complaint, adding a new cause of action for breach of the good faith covenant and punitive damages. The proposed supplemental complaint alleged that Wawanesa acted in bad faith by making unreasonably low section 998 offers.

On September 28, the trial court heard and denied plaintiffs’ motion for leave to file a supplemental complaint. The trial court reasoned that the court had already summarily adjudicated plaintiffs’ previous insurance bad faith cause of action on the ground Wawanesa’s denial of plaintiffs’ claim was not in bad faith because there was a genuine dispute over coverage. The section 998 offer did not change anything. It merely reflected that Wawanesa continued to deny plaintiffs’ demand for more benefits, and the trial court had already ruled such denial did not constitute bad faith.

Citing White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 886 (White), plaintiffs argue that Wawanesa had an obligation to act in good faith under the policy during litigation of plaintiffs’ disputed insurance claim. Plaintiffs claim that Wawanesa’s unreasonably low section 998 settlement offer constituted admissible evidence establishing that Wawanesa did not evaluate and seek to resolve plaintiffs’ claim fairly and in good faith. (White, supra, at p. 888.)

Plaintiffs’ proposed supplemental complaint is founded on alleged insurance bad faith acts occurring during litigation of plaintiffs’ disputed insurance claim but, unlike in White, the court previously found as a matter of law that Wawanesa’s denial of plaintiffs’ insurance claim was not in bad faith under the genuine dispute doctrine and granted summary adjudication of plaintiffs’ insurance bad faith claim. Under such circumstances, in which plaintiffs could not recover on their proposed supplemental cause of action, the trial court did not abuse its discretion in denying plaintiffs leave to file their proposed supplemental complaint.

B. Demurrer to Cause of Action for Breach of the Good Faith Covenant

Likewise, the trial court did not err in sustaining Wawanesa’s demurrer to plaintiffs’ amended complaint in Lyons II, alleging a single cause of action for breach of the good faith covenant. The insurance bad faith allegations in plaintiffs’ complaint in Lyons II were almost identical to the allegations in plaintiffs’ proposed supplemental complaint, except upon amending the complaint in Lyons II, plaintiffs added allegations that Wawanesa had committed several other acts which plaintiffs claimed were an attempt to coerce them into settling for an unusually low amount.

Wawanesa demurred to plaintiffs’ amended complaint in Lyons II on the ground plaintiffs were alleging essentially the same insurance bad faith cause of action summarily adjudicated in Lyons I, as well as the same cause of action rejected by the court when denying plaintiffs’ motion to file a supplemental complaint in Lyons I. Agreeing, the trial court sustained without leave to amend Wawanesa’s demurrer on the ground that under Lincoln Property Co., N.C. , Inc. v. Travelers Indemnity Co. (2006) 137 Cal.App.4th 905, (Lincoln), plaintiffs could not split their insurance bad faith cause of action.

When reviewing on appeal a trial court ruling sustaining a demurrer without leave to amend, this court must accept all well-pleaded allegations of the operative complaint as true and determine, as an issue of law, whether they state a cause of action. (Century Surety Co. v. Crosby Insurance, Inc. (2004) 124 Cal.App.4th 116, 121-122.) The court may also consider matters which may be judicially noticed. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) We thus review the trial court’s ruling de novo as to whether the amended complaint in Lyons II stated a cause of action for breach of the good faith covenant. (Lincoln, supra, 137 Cal.App.4th at p. 911.)

In Lincoln, the plaintiff, Lincoln Property Co., N.C. , Inc. (Lincoln) brought an insurance bad faith action. The trial court sustained without leave to amend the defendant insurer’s demurrer under the doctrine of res judicata. (Lincoln, supra, 137 Cal.App.4that p. 911.) The court concluded Lincoln’s complaint impermissibly split a single cause of action by alleging breach of the duty to defend in a cross-complaint, and then filing a subsequent insurance bad faith complaint based on the same facts. (Ibid.) Before Lincoln filed its complaint, the trial court had already granted summary judgment on Lincoln’s cross-complaint. (Id. at p. 910.)

The Lincoln court concluded that since both actions involved the same primary right and same parties, it was improper to split the two claims, even if some of the alleged wrongful conduct did not occur until after the first action (the cross-complaint) was filed. (Lincoln, supra, 137 Cal.App.4that pp. 913, 916.) The Lincoln court stated that Lincoln should have amended its cross-complaint to add the insurance bad faith cause of action since it could not be litigated in a separate action. (Lincoln, supra, 137 Cal.App.4that pp. 913, 916.)

Here, under Lincoln, plaintiffs’ insurance bad faith cause of action in Lyons II could not be split and litigated separately from plaintiffs’ initial insurance bad faith cause of action alleged in Lyons I since both causes of action were founded on the same underlying insurance claim. Furthermore, as discussed above, plaintiffs’ reliance on White, supra, 40 Cal.3d 870,is misplaced. The trial court properly denied leave to file a supplemental complaint in Lyons I, adding a new insurance bad faith cause of action, since the new allegations did not support insurance bad faith liability where the court had already determined there was a genuine dispute over coverage.

Under these circumstances, the trial court properly sustained without leave to amend Wawanesa’s demurrer to plaintiffs’ amended complaint in Lyons II.

5. Disposition

The judgments are affirmed in both appeals. Wawanesa is awarded its costs on appeal.

We concur: McKinster Acting P. J., Miller J.


Summaries of

Lyons v. Wawanesa General Ins. Co.

California Court of Appeals, Fourth District, Second Division
Apr 22, 2009
E044086, E045236 (Cal. Ct. App. Apr. 22, 2009)
Case details for

Lyons v. Wawanesa General Ins. Co.

Case Details

Full title:RICHARD A. LYONS et al., Plaintiffs and Appellants, v. WAWANESA GENERAL…

Court:California Court of Appeals, Fourth District, Second Division

Date published: Apr 22, 2009

Citations

E044086, E045236 (Cal. Ct. App. Apr. 22, 2009)