Opinion
H042154 H042260
02-09-2017
PERRY OLSEN, Plaintiff, Cross-defendant and Respondent, v. THE STANDARD FIRE INSURANCE COMPANY, Defendant, Cross-complainant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Santa Cruz County Super. Ct. No. CV166320)
I. INTRODUCTION
Respondent Perry Olsen obtained insurance coverage for his new sailboat, the Bobby McGee, by purchasing a Travelers yacht policy from appellant The Standard Fire Insurance Company (Standard Fire), which is part of the group of Travelers Property Casualty Companies (Travelers). One night in February 2008 Olsen was sleeping on his sailboat while it was anchored in Carmel Bay. The anchor came loose and the sailboat was damaged after it grounded on rocks near Pebble Beach. Olsen made an insurance claim and a dispute arose regarding whether the yacht policy provided coverage for repairs made by KKMI to correct the faulty or inadequate repairs by Santa Cruz Yachts, the first boatyard that attempted to repair the sailboat.
Olsen filed a complaint against Standard Fire individually and doing business as Travelers and the case proceeded to a jury trial in which the jurors rendered special verdicts finding Standard Fire liable for breach of contract and breach of the covenant of good faith and fair dealing. The judgment on special verdicts filed on March 19, 2015, provides that Olsen recover $598,025.99 (which includes $121,457.78 for breach of contract damages, $325,000.00 for breach of the covenant of good faith and fair dealing damages, and prejudgment interest of $73,568.21), plus postjudgment interest.
In case No. H042154 Standard Fire appeals from the judgment, contending that the evidence shows that Standard Fire did not breach either the insurance contract or the covenant of good faith and fair dealing. Standard Fire asserts that it satisfied its obligation under Olsen's yacht policy to pay the reasonable cost of repair of Olsen's sailboat, its handling of Olsen's claim was reasonable, there was a genuine dispute regarding insurance coverage, and the award of prejudgment interest is excessive. In case No. H042260 Standard Fire appeals from the postjudgment order denying its motion for judgment notwithstanding the verdict on the ground that the cause of action for breach of the covenant of good faith and fair dealing is barred as a matter of law under the genuine dispute doctrine.
For the reasons stated below, we find no merit in Standard Fire's contentions and we will affirm both the judgment and the order denying the motion for judgment notwithstanding the verdict. We will remand the matter to the trial court for a determination, on appropriate motion, of the amount of attorney's fees to be awarded to Olsen on appeal pursuant to Brandt v. Superior Court (1985) 37 Cal.3d 813 (Brandt).
II. FACTUAL AND PROCEDURAL BACKGROUND
A. The Pleadings
1. The Complaint
In January 2010, Olsen filed a complaint naming Standard Fire individually and doing business as Travelers, Santa Cruz Yachts, Spectre Powerboats, Inc., Lance Brown, and Scot Conrad as defendants. According to the allegations in the complaint, Standard Fire issued a Travelers yacht policy to Olsen in 2006 that was renewed annually and had a policy limit of $432,000 with a deductible of $4,320. The yacht insured under the Travelers yacht policy was Olsen's 46-foot Hunter sailboat.
Only Olsen and Standard Fire are parties to this appeal. During the proceedings below, Standard Fire was sometimes referred to as Travelers. We refer to the entities as either Standard Fire or Travelers in accordance with the pleadings and evidence below.
Olsen asserted that his sailboat was damaged on February 9, 2008, when it was grounded on rocks in Carmel Bay, California. He notified Standard Fire of the loss on February 9, 2008. As instructed by Standard Fire, Olsen signed a contract with a salvage company. The Travelers claims representative who inspected the sailboat after the grounding stated that the sailboat was not a total loss and could be repaired. Olsen requested authorization from Standard Fire to hire a surveyor to oversee the repairs since Olsen was not qualified to determine the scope, cost, or quality of sailboat repairs. According to Olsen, Standard Fire refused his request and stated that their claims representative would serve as a surveyor and oversee the repairs. Olsen also alleged that Standard Fire had unreasonably delayed payment of the salvage lien holder's claim, which delayed repair of his yacht.
In March 2008, Olsen entered in a written contract with Scot Conrad of Spectre Powerboats for repair of the sailboat. Olsen alleged that the repairs were not performed in a manner that met the generally accepted standards of the sailboat repair community. He further alleged that Standard Fire had failed to pay the reasonable cost of the sailboat repairs and unreasonably failed to supervise repairs and to pay all benefits due to him under the policy. Standard Fire also unreasonably demanded that he file a second claim under the yacht policy for the costs of repairing the previous inadequate repairs, in order to obtain payment of a second deductible.
The relationship between Spectre Powerboats and Santa Cruz Yachts is uncertain from the record on appeal, but in any event is not relevant to the issues raised in this appeal. We refer to the entities as either Spectre Powerboats or Santa Cruz Yachts in accordance with the pleadings and evidence below.
Based on these and other allegations, Olsen asserted causes of action against Standard Fire for breach of contract, breach of the covenant of good faith and fair dealing, fraud, and negligence. He sought compensatory damages, punitive damages, attorney's fees, and prejudgment interest.
2. Standard Fire's Answer and Cross-Complaint
Standard Fire answered the complaint and filed a cross-complaint against Olsen. In the cross-complaint, Standard Fire alleged that Olsen had chosen to have his sailboat repaired by Santa Cruz Yachts and/or Spectre Powerboats and Standard Fire had paid the amounts due for the repairs to Olsen, who controlled the repair process. Standard Fire was informed and believed that Santa Cruz Yachts had gone out of business before completing the repairs in a satisfactory manner.
In the first cause of action for declaratory relief, Standard Fire disputed Olsen's contention that his yacht policy covered the amount he had paid another boatyard, KKMI, to correct Santa Cruz Yachts' improper repairs. Standard Fire sought a declaration of the following: (1) Olsen's yacht policy covered only losses caused by direct physical damage, which did not include the cost of correcting faulty repairs; (2) Standard Fire had fulfilled its obligations under the policy by paying the reasonable cost of repair arising from the grounding of the sailboat; (3) Olsen had breached his duty to cooperate with Standard Fire; (4) if the claim for improper repairs was covered under the policy, Standard Fire sought an appraisal to determine the amount of loss and a determination that its interpretation of the policy was reasonable; and (5) if the appraisal process showed that Olsen was overpaid, Standard Fire was entitled to reimbursement. The cross-complaint also included a cause of action for reimbursement of overpayment and a cause of action for specific performance of an appraisal as set forth in the policy.
3. Standard Fire's Federal Action
On January 6, 2010, Standard Fire filed a complaint for declaratory judgment in the United States District Court for the Northern District (Standard Fire Insurance Co. v. Olsen, No. CV 10-0056). The allegations in the federal complaint were similar to Standard Fire's allegations in the cross-complaint in the instant state court action, as was the relief sought. Standard Fire requested a declaratory judgment stating that the yacht policy did not provide coverage for the cost of completing and correcting the improper repairs of the first boatyard; Standard Fire had satisfied its obligations under the policy with respect to the claim arising from the grounding of the sailboat; Olsen's claim for policy benefits was barred by his failure to cooperate; Olsen was ordered to reimburse Standard Fire for any overpayments; and, to the extent any additional policy benefits were owed, the amount would be determined by the appraisal process. Standard Fire also sought a declaration that its interpretation of the yacht policy was reasonable as a matter of law.
In April 2010, the federal court issued an order granting Olsen's motion to stay the action pending resolution of the parties' state court litigation. In so ruling, the federal court determined that "in the absence of an applicable federal maritime rule or a novel issue of admiralty law, interpretation of the subject insurance policy necessarily will involve application of California law." The federal court further determined that the federal action was duplicative of the counter claims raised by Standard Fire in Olsen's parallel state court action.
B. The Appraisal Report
In January 2010, Standard Fire filed a motion to compel an appraisal as provided by Olsen's yacht policy. Standard Fire relied upon the following provision in the policy: "If you and we fail to agree on the amount of loss, either may demand an appraisal of loss subject to the following conditions: [¶] 1. Each party will choose a competent, impartial appraiser within 20 days after receiving written request from the other. [¶] 2. The appraisers shall appoint a competent, impartial umpire. If they cannot agree on an umpire within 15 days, you or we may ask a court judge of the state of your residence to appoint an umpire. [¶] 3. If the two appraisers cannot agree on the amount of the loss, they will ask the umpire for a decision. [¶] 4. The written agreement of any two will determine the amount to be paid. [¶] 5. Both you and we shall each pay any costs of the appraisers each has selected, plus share any expenses or costs of the umpire and court equally."
Olsen opposed the motion to compel an appraisal on the grounds that the issues raised in the case concerned Standard Fire's interpretation of the yacht policy and its claims handling, and did not concern differing estimates of repair costs. The trial court granted the motion in its August 19, 2010 order and also ordered a stay of the case pending the appraisal.
A "joint loss appraisal report" signed on March 15, 2012, was submitted by surveyors Joseph W. Rodgers (representing Olsen) and Jan T. Van Sickle (representing Standard Fire). The parties had asked the appraisers to make two determinations, which the appraisers stated in their report as follows: (1) " '. . . In determining the reasonable cost of repair, . . . identify the grounding damage and determine the amount for which the yacht could reasonably be repaired to its condition just prior to its grounding on February 9, 2008' ;" and (2) ". . . Determine the reasonable cost of the repairs and replacements of damaged or stolen property that were necessary to return Mr. Olsen's yacht to the condition it was in immediately prior to its grounding on February 9, 2008, under the facts of this case.' "
Based on their review of the paid estimates and invoices relating to work performed on the sailboat since February 2008, Rodgers and Van Sickle agreed that the "reasonable cost to repair" the sailboat and return the sailboat to its condition immediately prior to the grounding was $310,542.44 under both determinations.
The appraisal report indicated that the amount of $310,542.44 was calculated in both determinations by subtracting $491,801.53 from $802,343.97, which was the total amount billed for work on the sailboat. The amount of $491,801.53 that the appraisers subtracted from the reasonable cost of repair included the costs of (1) work and materials by Santa Cruz Yachts that were billed but not supplied; (2) "[r]e-working repairs performed by Santa Cruz Yachts"; (3) betterment; (4) "[r]e-working repairs performed by KKMI"; and (5) "[s]ervice and maintenance unrelated to the claim."
During pretrial proceedings, the parties disputed the admissibility of the appraisal report and the appraisers' deliberations by way of motions in limine. The trial court ruled on several motions in limine in the February 19, 2013 order, which states that "[t]he Court hereby rejects the Appraisal Award [the joint loss appraisal report] and excludes it and the result of the Appraisal from the trial. The appraisers did in fact resolve questions of insurance coverage and interpret provisions of the policy contrary to case law . . . . In the Court's view, the appraisers exceeded their powers by resolving questions of coverage."
Standard Fire sought review of the February 19, 2013 order by filing an appeal and a petition for writ of mandate and/or prohibition in this court. The appeal was dismissed in November 2013 as taken from a nonappealable order (Olsen v. Standard Fire Insurance Co., case No. H039481) and the writ petition was denied in January 2014 (Standard Fire Insurance Co. v. Superior Court, case No. H039514).
Standard Fire then filed a petition to confirm the appraisal award on the ground that the time to correct or vacate the appraisal award had expired, which Olsen opposed. The trial court granted the petition in the April 15, 2014 order confirming the appraisal award. After the parties submitted briefing on the effect of the appraisal award on the upcoming trial, the trial court made pretrial rulings, as stated in the June 25, 2014 order: (1) the appraisal report would be admitted into evidence but would not be submitted to the jury; (2) the trial court could consider the appraisal report to the extent relevant to legal rulings; (3) Rodgers and Van Sickle were prohibited from testifying about the appraisal report or appraisal process and the reasonable cost of repairs; and (4) the testimony Rodgers and Van Sickle was limited to their pre-appraisal observations of the sailboat and their opinions about the quality of repairs.
C. Trial Evidence
The case proceeded to a jury trial in September 2014. The following is a brief summary of the relevant witness testimony and other evidence presented at trial.
1. The Travelers Yacht Policy
After Olsen retired in 2004, he became interested in sailing and decided to purchase a sailboat that he could use for cruising. In 2005, Olsen ordered a new 46-foot Hunter sailboat with a purchase price of $433,000. The name of the sailboat was the Bobby McGee.
Before taking delivery of the sailboat in March 2006, Olsen purchased a Travelers yacht policy for the sailboat from Standard Fire. The Travelers yacht policy period was February 3, 2006, to February 3, 2007, which Olsen renewed for another year. Regarding a "partial loss" the Travelers yacht policy stated: "Unless otherwise stated in this policy, we will pay the reasonable cost of repair or replacement of damaged or stolen property, without deducting any amount for depreciation, up to the amount of coverage." As to "physical damage coverages," the policy stated in part: "We cover the following property against accidental direct physical loss or damage except as specifically excluded: [¶] 1. Your yacht scheduled in the declarations." The policy limit for property damage was $432,000 with a $4,320 deductible.
2. The Grounding Accident
In February 2008, Olsen planned to go on his dream trip of sailing the Bobby McGee down the coast from Santa Cruz County, over to Hawaii, up to Alaska, and then home to Santa Cruz County. On February 8, 2008, Olsen anchored the sailboat in Carmel Bay. He slept that night on the sailboat and woke up around 2:30 a.m. when he was thrown across his berth. The sailboat was at a 45-degree angle because it was stuck on rocks outside Pebble Beach.
Olsen called the Coast Guard and stayed on the sailboat, which he noticed was bouncing back and forth on the rocks and starting to fall apart. Eventually Olsen was rescued by Fire Department personnel and a sheriff's deputy, who took him to a nearby lodge. After arriving at the lodge, Olsen called Travelers to report the loss. The Travelers representative, Charles Westbrook, told Olsen that his insurance policy covered reasonable salvage of the sailboat. Olsen replied that he had been contacted by Pacific Salvage, which was sending a representative to meet Olsen at the lodge.
When the Pacific Salvage representative arrived at the lodge, Olsen and the representative called Westbrook. Westbrook first spoke with the Pacific Salvage representative then spoke with Olsen. Westbrook then told Olsen to sign a contract with Pacific Salvage. Olsen did so on February 9, 2008. The salvage contract allowed Pacific Salvage to remove the sailboat from the rocks, where it had been for about eight hours, and tow it to Moss Landing. Two days later, on February 11, 2008, the sailboat was taken out of the water and hauled to Gravelles' boatyard in Moss Landing. Olsen discovered at that time that the anchor had separated from its chain and that was the cause of his sailboat grounding on the rocks.
3. Repairs at Santa Cruz Yachts
On February 12, 2008, a Travelers representative named Troy Burkart came to inspect the sailboat. Burkart had experience with sailboats from working at sailboat dealerships and owning powerboats before he became a claims adjuster. In 2008, Burkart was employed as a claims adjuster for Travelers, working out of his home in Stockton.
According to Olsen, Burkart told Olsen that the sailboat could be repaired in about four months. Burkart denied he had made that statement. During their conversation about where to get the sailboat repaired Burkart mentioned KKMI in the Bay Area. However, after Burkart said he did not know if Travelers would approve KKMI's higher rates it was left to Olsen to find another place to do the repairs.
Olsen eventually chose Santa Cruz Yachts and on February 28, 2008 Burkart informed Olsen that he and Lance Brown, the president of Santa Cruz Yachts, had come to an agreement regarding the work that Santa Cruz Yachts would do and the price. Olsen wanted a written contract for the repair work and Burkart stated that Olsen would have to enter into a contract with Spectre Powerboats, which had either bought Santa Cruz Yachts or was its parent company.
Olsen then told Burkart that someone was needed to oversee the contract, inspect the damages, make sure all damages were ascertained, inspect the work before the bills were paid to make sure the repairs were done properly, and also ensure that all materials and labor had been paid. Olsen recalled that he stated to Burkart, "We need to hire a surveyor to do that." According to Olsen, Burkart replied, "I am the surveyor. The insurance company pays me to do those things. They're not going to pay a second person to do duplicative work." Burkart did not think a marine surveyor was necessary since he felt that based on his experience he could identify the damages, compare them to a repair estimate, and confirm whether the repairs were going to be completed. Burkart believed that it was the responsibility of the repair shop, not him, to make sure that the repairs were good quality.
In the meantime, Olsen had been contacted by Chelsea Wagner of Pacific Salvage, who informed him that a salvage lien had been placed on the sailboat that would prevent anyone from moving the sailboat unless the lien was removed. Within a week of the February 9, 2008 accident Olsen told Burkart about the salvage lien and Burkart indicated that the insurance company would take care of it. However, Burkart admitted that he failed to respond to Wagner after she contacted him on February 19, 2008, to advise that Pacific Salvage needed confirmation that Travelers was the insurer of record. In March 2008 Olsen informed Burkart that Olsen had received a registered letter from Pacific Salvage requiring a $150,000 bond before releasing the salvage lien.
By April 1, 2008, the salvage lien had not been removed, Travelers had not sent Olsen a check for the sailboat repairs, and no repair work had begun on the sailboat. Burkart was informed on April 1, 2008, through Travelers' claims system, that Charles Powell, the vice-president of the sailboat and yacht claims division, had authorized the initial payment for sailboat repairs and Powell was "requesting that the surveyor inspect the vessel weekly to insure repairs are consistent with the initial estimate." Burkart acknowledged that Powell was referring to him as the surveyor, but asserted that he was actually a technical specialist. Burkart admitted that he did not inspect the sailboat on a weekly basis.
After Olsen contacted Burkart's supervisor, Michael Miltenberger, Olsen received a check from Travelers on April 7, 2008, that was dated April 1, 2008. Olsen then signed a contract with Santa Cruz Yachts and gave them the first check due on the contract. However, when the truck arrived to take the sailboat for repairs, it could not be moved because the salvage lien was still in place. It was a stressful situation for Olsen because two months had passed since the accident without any repairs being done. Olsen called Miltenberger and asked him if he should hire an attorney to remove the lien so that repairs could begin. Miltenberger replied that the insurance company would take care of it since he was going to a salvage trade association meeting and the association could put pressure on Pacific Salvage to drop the lien.
On April 1, 2008, Burkart told Olsen that Travelers was meeting with a maritime attorney for advice on the salvage issue. Travelers' efforts to negotiate payment for release of the salvage lien had so far been unsuccessful. Olsen decided to hire his own attorney and made an appointment with a maritime attorney in San Francisco, George Nowell, for April 16, 2008. On April 15, 2008, the day before the appointment, Olsen called Miltenberger to check whether the salvage lien had been resolved. Miltenberger said it had not and called Olsen during his meeting with attorney Nowell to advise that the lien had still not been resolved. As a result, Olsen hired Nowell to resolve the lien and gave him a $5,000 retainer.
Nowell immediately contacted Wagner at Pacific Salvage and got a copy of the salvage contract, which Olsen had previously been unable to find when it was requested by Travelers. Nowell then told Olsen that he thought the lien could be resolved for a payment of $20,000 that day. Olsen relayed this information to Miltenberger, who told him that Travelers preferred that Olsen not pay the salvage company $20,000 because Westbrook had entered into an oral contract with the salvage company at the towing rate. Travelers' records showed that Westbrook had reported that the cost of salvage should be $7,590. On April 17, 2008, Nowell informed Olsen that the salvage lien had been released for a payment of $22,000 by the insurance company. Olsen paid Nowell's attorney's fees of $3,940. After the salvage lien was removed, a truck hauled the sailboat to the Santa Cruz Yachts boatyard.
Repair work started at the beginning of May 2008. Burkart inspected the sailboat for the second time in May 2008 and reported that the sailboat was about 80 percent disassembled. Burkart understood that he would continue to manage the repairs, meaning that he would continue to compare the repair costs to the estimate. He also believed that Santa Cruz Yachts' proposed repairs were customary boatyard repair practices.
During June 2008 through August 2008, Olsen received checks from Travelers to pay for the sailboat repairs. Whenever Olsen got a bill from Spectre Powerboats for sailboat repairs he would ask Burkart for approval before paying the bill. On July 16, 2008, Burkart inspected the repairs of the sailboat at the Santa Cruz Yachts boatyard for the third time because Brown had told him the repairs were about to be covered up. After his inspection, Burkart placed a note in the Travelers claims file that stated, "[T]he repairs look perfect." In August 2008, Burkart understood that Santa Cruz Yachts was very close to completing repairs.
4. Subsequent Repairs at KKMI and Driscoll's Boatyard
On September 29, 2008, the sailboat was put on the ground at Gravelles' boatyard in Moss Landing without the repairs being completed. Olsen described the sailboat's condition at that time as "a mess." By the beginning of November 2008, it had become apparent to Olsen that Spectre Powerboats had abandoned the sailboat and he wanted to end the Spectre Powerboats contract. Olsen spoke with Miltenberger who told Olsen that he would meet with people and call Olsen every day to let him know the status of decisions the insurance company was making. As of November 12, 2008, Miltenberger had failed to call Olsen and at that time Olsen decided to hire an attorney. He felt he had been abandoned by the insurance company as well as the sailboat repair facility.
Olsen then received a letter dated November 21, 2008, from Miltenberger. The letter informed Olsen that Travelers did not have an obligation to manage the sailboat repairs to ensure that the repairs were completed in a competent and timely manner; Travelers would not pay for Nowell, Olsen's admiralty attorney; and Travelers had paid all the money it was going to pay for the sailboat repairs. Receiving this letter was so stressful that Olsen had physical symptoms.
In November and/or early December 2008, Olsen paid out-of-pocket for the keel, a propeller, a rigger, and an electrician and hired a marine surveyor, Joe Rodgers, to manage further repairs. Olsen sent invoices for his out-of-pocket payments to Travelers requesting reimbursement, but Travelers refused to reimburse him until February 2009 when it issued a check for $5,008.86.
Olsen then retained KKMI in Point Richmond to repair the sailboat, as recommended by Rodgers. Rodgers is an independent marine surveyor who has worked as a sailboat captain and has a Merchant Marine officer's license. He is also a senior member of the American Society of Appraisers and a member of the National Association of Marine Surveyors. Rodgers inspected the sailboat with Jock MacLean of KKMI, who provided a written repair estimate. When KKMI took the sailboat apart it was discovered that the previous repairs were inadequate and, in Rodgers' opinion, below industry standards.
After KKMI began work on the sailboat, Olsen was contact by Van Sickle who was a marine surveyor retained by Travelers to represent Travelers' interests. Van Sickle has worked full-time in the sailboat business since 1971, including sailboat repair and rigging, and as a marine surveyor since 1999. He is a member of the American Society of Appraisers and the Society of Marine Accredited Surveyors. Travelers asked Van Sickle to determine if the previous repairs to the sailboat were satisfactory and to look at KKMI's repair progress. He determined that KKMI's billings included $145,000 to redo previous repairs. In Van Sickle's opinion, the "vast majority" of the work done by Santa Cruz Yachts was "poorly done" and the work done by KKMI "was of very good quality."
Travelers retained Van Sickle as a marine surveyor to reinspect the sailboat because Travelers would pay for the cost of repairs that had not been previously identified, but would not pay for the cost re-repairing the incorrect repairs. Van Sickle wanted to inspect the sailboat and review copies of repair bills, surveyor reports, and change orders. Olsen informed Van Sickle that he could inspect the sailboat anytime and obtain the bills from Travelers, and there were no surveyor reports.
KKMI continued to work on repairing the sailboat with review of the work by Rodgers until May 2009 when the sailboat was put in the water and a test sail was conducted. Additional damage was discovered as a result of the test sail and further repairs were performed by KKMI. Olsen sent copies of KKMI's invoices with his requests for reimbursement to Travelers. By that time a new claims adjuster, Don Llewellyn, had replaced Burkart and was in contact with Olsen regarding his requests for reimbursement. Llewellyn asked Olsen to file a second claim for damage caused by the earlier improper repairs, which Olsen declined to do because he believed a second claim would cause him to pay a second $3,420 deductible.
In August 2009, Olsen sent a letter to Travelers requesting reimbursement of his out-of-pocket expenses in the amount of $234,157.70 for the repairs needed to return the sailboat to its preaccident condition. In September 2009, Olsen sailed the sailboat to Bodega Bay and discovered that more repairs were needed, which KKMI performed. When Olsen sailed to San Diego in October 2009, additional repairs were performed at Driscoll's San Diego boatyard. Van Sickle visited the sailboat at Driscoll's boatyard and agreed regarding the needed repairs.
In January 2010, Travelers sent Olsen a letter enclosing a check for $145,642.61, which stated that the check represented an advance and was subject to reimbursement to Travelers in the event it was an overpayment. Olsen returned the check because he believed he could not use the money since Travelers was "going to ask for it back, and there was going to be a lawsuit where they were suing me to get it back." Olsen requested that Travelers reimburse his out-of-pocket costs of $239,162.88.
In February 2010, Rodgers inspected the sailboat and prepared a survey report for a new insurance company since Travelers had declined to reissue the yacht policy. Rodgers reported that all repairs had been done in a professional manner and the sailboat was now in sound condition.
The parties' dispute regarding the sailboat continued and after the appraisal report was completed in March 2012, Travelers sent Olsen a check for $75,006. By the time of trial in September 2014, Olsen calculated that his out-of-pocket payments relating to the repair of the sailboat, plus interest, totaled $319,955.
5. Expert Testimony
Stephen Prater is an attorney who testified as an insurance expert on Olsen's behalf. Prater was a member of the law school faculty at Santa Clara University, where he taught classes on insurance law and practice until his recent retirement. He has also worked in the insurance business and been employed by insurance companies to train claims handlers.
After reviewing Travelers' yacht policy and claims files, as well as the deposition testimony of Travelers' personnel, including Burkart, Llewellyn, Miltenberger and Powell, Prater developed several opinions regarding Travelers' handling of Olsen's claim. Prater determined that Travelers did not prepare a full evaluation of the loss at the earliest possible opportunity; Travelers underestimated the cost of repair and did a limited investigation; a surveyor should have been appointed by Travelers at the outset; Burkart was not a surveyor; Travelers wanted a cheap repair and did not treat Olsen's interest equal to its own interest; and Travelers did not act reasonably in handling Olsen's claim because Travelers took responsibility for overseeing the repairs until there were problems with the boatyard and the repairs and then told Olsen that the repairs were his responsibility.
Guy Kornblum is an attorney who testified as Standard Fire's insurance expert. He has practiced insurance litigation since 1966, almost always on the side of the policyholder, and has taught and written in the area of insurance claims handling. To determine whether Standard Fire acted reasonably with respect to Olsen's clam, Kornblum reviewed the yacht policy and Travelers' claims notes. In Kornblum's opinion, Standard Fire's duty to investigate did not require Travelers to make sure the sailboat repairs were done correctly; the salvage company's lien was resolved by Standard Fire within a reasonable time; and Standard Fire did not have a responsibility to control the repairs. Overall, in Kornblum's opinion, Standard Fire acted reasonably with respect to Olsen's claim and delivered the coverage owed under the yacht policy.
D. Special Verdicts and Judgment
The instructions given to the jury included the following "statement by the court": "This Court ordered an appraisal of the Bobby McGee in 2010 that was performed by Jan Van Sickle and Joseph Rodgers, who were selected by Standard Fire and Perry Olsen, respectively. The appraisal was completed in March 2012, and they determined the reasonable cost of repair to the Bobby McGee to be $310,542.44. The appraisers did not make any coverage determinations in conducting their joint appraisal. This Court confirmed the appraisal determination in April 2014. Standard Fire has paid Perry Olsen $310,542.44. [¶] This Court has ruled in this trial that the alleged substandard repairs of the Bobby McGee by Santa Cruz Yachts/Spectre Powerboats were a covered peril that should have been covered in the original claim number 0289, and that the grounding of the Bobby McGee was the efficient proximate cause of all damage to the sailboat. The appraisal determination by Rodgers and Van Sickle did not decide whether the alleged substandard repairs were a covered peril. The appraisal determination did not include all costs claimed by Perry Olsen for repairs to the Bobby McGee. [¶] If you decide that Standard Fire breached its contract with Perry Olsen, then you must decide how much, if any, additional monies are owed to Perry Olsen for the breach of contract."
The jury returned its "special verdict re Standard Fire Insurance Company" on October 1, 2014. The special verdict forms asked the jurors to make findings on the causes of action for breach of insurance contract, breach of the covenant of good faith and fair dealing, intentional misrepresentation, and punitive damages.
After the close of evidence, Olsen dismissed his cause of action for negligence.
As to breach of insurance contract, the jurors found that Standard Fire had failed to do something that the insurance contract required it to do and that Olsen's damages caused by that failure were "[l]oss of unreimbursed insurance benefits owed" in the amount of $121,457.78.
The jurors also found that Standard Fire had breached the implied covenant of good faith and fair dealing. Specifically, the jurors found that Standard Fire had failed to pay or delayed payment of insurance benefits, the failure was unreasonable or without proper cause, and the failure was a substantial factor in causing harm to Olsen. The jurors further found that Olsen's damages due to breach of the covenant of good faith and fair dealing included $325,000 for "[m]ental suffering, anxiety and emotional distress" and $78,000 for reasonable attorney's fees to recover the policy benefits. Punitive damages were not awarded because the jurors found that Standard Fire's conduct in failing to pay or delaying the payment of policy benefits was not due to malice, oppression, or fraud.
The jurors did not find Standard Fire liable for intentional misrepresentation. Although the jurors found that Standard Fire had made a false representation to Olsen, they also found that Standard Fire either did not know the representation was false or did not make the misrepresentation recklessly and without regard for its truth.
The judgment on special verdicts filed on March 19, 2015, provides that Olsen recover $598,025.99 (which includes $121,457.78 for breach of contract damages, $325,000 for breach of the covenant of good faith and fair dealing damages, and prejudgment interest of $73,568.21) plus postjudgment interest.
E. Posttrial Motions
Standard Fire filed a posttrial motion for a judgment notwithstanding the verdict on the grounds that the cause of action for breach of the covenant of good faith and fair dealing lacked merit as a matter of law under the genuine dispute doctrine and no damages could be awarded for Olsen's emotional distress in the absence of evidence showing he had suffered financial hardship as a result of any delay in payment of policy benefits. The trial court denied the motion in the January 28, 2015 order.
Olsen filed a posttrial motion for an award of contractual prejudgment interest in the amount of $73,568.21. The trial court granted the motion in the March 19, 2015 order after reconsideration of the court's earlier order awarding prejudgment interest and awarded prejudgment interest in the amount requested, $73,568.21.
Standard Fire filed a posttrial motion for new trial with respect to the trial court's earlier award of prejudgment interest, arguing that the amount awarded was excessive and reflected a calculation error. The trial court denied the motion in the March 19, 2015 order.
III. DISCUSSION
Standard Fire filed separate notices of appeal from the judgment (case No. H042154) and the postjudgment order denying its motion for judgment notwithstanding the verdict (case No. H042260). This court denied Standard Fire's motion to consolidate the two appeals and on its own motion ordered that the appeals in case No. H042154 and case No. H042260 be considered together for the purposes of briefing, oral argument and disposition. We will begin our discussion with the issues raised by Standard Fire in its appeal from the judgment in case No. H042154.
A. Breach of Contract
Standard Fire contends that the judgment should be reversed as to the cause of action for breach of insurance contract with directions to enter judgment in Standard Fire's favor. According to Standard Fire, the appraisal award in the amount of $310,542.44 was confirmed by the trial court and paid by Standard Fire, and therefore has a "binding res judicata effect." We understand Standard Fire to argue that it has satisfied its obligation under Olsen's yacht policy to pay the reasonable cost of repair of the sailboat due to the February 9, 2008 grounding, and therefore the cause of action for breach of contract fails as a matter of law. Standard Fire also argues that since the appraisal award is binding as to the reasonable cost of repair, the question of the reasonable amount of Olsen's loss under the grounding claim should not have been submitted to the jury. Olsen responds that appraisers may not determine questions of insurance coverage and therefore the appraisal award is not binding as to the amount of Olsen's loss that is covered by Travelers' yacht policy.
Since only legal issues are raised with respect to the judgment on the breach of contract cause of action, we will apply the de novo standard of review to the issue of whether the appraisal award constitutes a complete defense to Olsen's breach of contract claim. (See Louise Gardens of Encino Homeowners' Assn., Inc. v. Truck Ins. Exchange, Inc. (2000) 82 Cal.App.4th 648, 657 (Louise Gardens).) We will begin our analysis with an overview of insurance appraisals.
1. Insurance Appraisals
This court stated the well established rules regarding insurance policy appraisal provisions in Doan v. State Farm General Ins. Co. (2011) 195 Cal.App.4th 1082 (Doan). "An appraisal provision in an insurance policy constitutes an agreement for contractual arbitration. (Code Civ. Proc., § 1280, subd. (a) [defining arbitration agreement to include 'agreements providing for valuations, appraisals and similar proceedings']; [citation]). 'Appraisal hearings are a form of arbitration and are generally subject to rules governing arbitration.' [Citations.] [¶] Despite the fact that 'an appraisal is a special form of limited arbitration, there are significant differences between the powers of an arbitrator and those of an appraiser.' [Citation.] Appraisers' powers are far more limited. [Citation.] 'The function of appraisers is to determine the amount of damage resulting to various items submitted for their consideration. It is certainly not their function to resolve questions of coverage and interpret provisions of the policy.' [Citations.]" (Id. at pp. 1093-1094.)
However, "an appraisal panel may assign a value to items as to which coverage is disputed with the disclaimer that the award does not establish coverage or the insurer's liability to pay. The issue of whether the loss is covered under the policy is a separate, legal issue that must be resolved outside the appraisal process." (Lee v. California Capital Ins. Co. (2015) 237 Cal.App.4th 1154, 1170 (Lee).) Thus, "[i]t may be appropriate to segregate some items from the others because there is a dispute as to coverage or causation." (Id. at p. 1175.) In short, "a judgment after confirmation of an appraisal award fixing the cash value of loss does not preclude further litigation on other issues between parties to an insurance policy." (Devonwood Condominium Owners Assn. v. Farmers Ins. Exchange (2008) 162 Cal.App.4th 1498, 1507, fn. 4.)
Under Code of Civil Procedure section 1286, "if a court does not vacate or correct an award (or dismiss the proceeding), it must confirm it." (Louise Gardens, supra, 82 Cal.App.4th at p. 660.) Since an appraisal award does not determine coverage under the applicable insurance policy, confirmation of the appraisal award is binding as to the amount of the insured's loss, and does not establish the insurer's liability for payment of the loss. (Lee, supra, 237 Cal.App.4th at p. 1170.) Thus, where the appraisal includes a determination of whether certain damages are covered by the insurer, the appraisal award should not be confirmed. (Kacha v. Allstate Ins. Co. (2006) 140 Cal.App.4th 1023, 1026.)
2. Coverage Under the Travelers' Yacht Policy
In this case, the Travelers yacht policy included the following provision for "physical damage coverages": "We cover the following property against accidental direct physical loss or damage except as specifically excluded: [¶] 1. Your yacht scheduled in the declarations." "Direct physical loss" was defined as "the actual damage to your covered property resulting directly from a covered peril." The Travelers yacht policy was an all-risk policy, since it covered all risks of direct physical loss except those expressly excluded under the terms of the policy. (See Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 406 (Garvey); State Farm Fire & Casualty Co. v. Von Der Lieth (1991) 54 Cal.3d 1123, 1132 (State Farm v. Von Der Lieth).) The policy limit for property damage was $432,000 with a $4,320 deductible.
Regarding repair costs, the Travelers policy provided: "In the event of a covered loss, we will pay as follows: [¶] . . . [¶] . . . Partial loss. Unless otherwise stated in this policy, we will pay the reasonable cost of repair or replacement of damaged or stolen property, without deducting any amount for depreciation, up to the amount of coverage. [¶] . . . [¶] . . . Repairs. If your yacht needs repair after a covered loss, we will pay the reasonable costs in accordance with: [¶] (a) the manufacturer's specifications; or [¶] (b) generally accepted repair practices." The policy did not provide a definition of the "reasonable cost" of repair.
The Travelers yacht policy also included an appraisal provision that stated in part: "If you and we fail to agree on the amount of loss, either may demand an appraisal of loss . . . . [¶] . . . [¶] . . . The written agreement of any two will determine the amount to be paid." However, the parties' dispute in this case centered on whether the Travelers yacht policy provided coverage for the cost of repairing inadequate or faulty repairs (sometimes called "re-repairs" in the proceedings below), rather than a dispute regarding the amount of the loss (such as different repair estimates).
Rodgers and Van Sickle noted in their joint appraisal report that the paid repair invoices they had been asked to review in connection with work on the sailboat since February 2008 showed total billings of $802,343.97. Rodgers and Van Sickle also agreed on several categories of invoices that they had deducted as "exceptions" to the reasonable cost of repair, including $187,055.34 for "[r]e-working repairs performed by Santa Cruz Yachts" and $1,383.35 for "[r]e-working repairs performed by KKMI." The appraisers also deducted as "exceptions" $291,679.93 for "[w]ork and materials by Santa Cruz Yachts that were included in billing but not supplied," $2,706.95 for "[b]etterment," and $8,975.96 for "[s]ervice and maintenance unrelated to the claim." After deducting the "exceptions," the appraisers concluded that "[t]he reasonable cost to repair the vessel is $310 ,542.44 ."
The appraisal report therefore shows that the total cost of "re-working repairs" was $188,438.29. Since the appraisers lacked authority to determine whether the cost of "re-working repairs" was covered under the Travelers yacht policy, the appraisal report did not establish either that (1) Standard Fire was not liable for payment of the "re-working repairs"; or (2) coverage for the grounding claim was limited to $310,542.44. (See Lee, supra, 237 Cal.App.4th at p. 1170.) In other words, the appraisal report did not, and could not, resolve the parties' coverage dispute regarding whether the cost to re-repair inadequate or faulty repairs was covered under the Travelers yacht policy. (See Doan, supra, 195 Cal.App.4th at pp. 1093-1094.)
The trial court therefore properly instructed the jurors in the "statement by the court" that "[t]his Court confirmed the appraisal determination in April 2014. Standard Fire has paid Perry Olsen $310,542.44. [¶] . . . The appraisal determination by Rodgers and Van Sickle did not decide whether the alleged substandard repairs were a covered peril. The appraisal determination did not include all costs claimed by Perry Olsen for repairs to the Bobby McGee."
The trial court also instructed the jurors in its "statement by the court" that "[t]his Court has ruled in this trial that the alleged substandard repairs of the Bobby McGee by Santa Cruz Yachts/Spectre Powerboats were a covered peril that should have been covered in the original claim number 0289, and that the grounding of the Bobby McGee was the efficient proximate cause of all damage to the sailboat. . . . [¶] If you decide that Standard Fire breached its contract with Perry Olsen, then you must decide how much, if any, additional monies are owed to Perry Olsen for the breach of contract."
Under the rules governing the interpretation of insurance contracts, we agree with the trial court that Travelers' yacht policy provided coverage for the cost of repairing the substandard, inadequate or faulty initial repairs to the sailboat in order to return the sailboat to its preaccident condition after the February 9, 2008 grounding.
With regard to interpretation of an all-risk policy, such as the Travelers yacht policy in the present case, the California Supreme Court has instructed as follows: "As we explained in Garvey, supra, 48 Cal.3d at pages 406-407, the scope of coverage under an all-risk homeowner's policy includes all risks except those specifically excluded by the policy. When a loss is caused by a combination of a covered and specifically excluded risks, the loss is covered if the covered risk was the efficient proximate cause of the loss. [Citation.] As we further explained, the question of what caused the loss is generally a question of fact, and the loss is not covered if the covered risk was only a remote cause of the loss, or the excluded risk was the efficient proximate, or predominate cause. [Citation.]" (State Farm v. Von Der Lieth, supra, 54 Cal.3d at pp. 1131-1132.) "We emphasized in Garvey, supra, 48 Cal.3d at page 408, that if third party negligence is not excluded under such a policy, it is a covered peril. As we stated, third party negligence under a homeowner's policy is a 'risk of physical loss' under the policy. [Citation.]" (Id. at p. 1132.)
The Travelers yacht policy did not expressly exclude coverage for losses caused by third party negligence. Accordingly, third party negligence constitutes a direct physical loss under the policy and is thus a covered peril. (See State Farm v. Von Der Lieth, supra, 54 Cal.3d at p. 1127; Garvey, supra, 48 Cal.3d at p. 408.) Since the substandard, inadequate, or faulty repairs by Santa Cruz Yachts undisputedly constitute third party negligence, such negligent repairs were a covered peril and the cost of re-repairing them was within the scope of coverage of the Travelers all-risk yacht policy. (See State Farm. v. Von Der Lieth, supra, at pp. 1131-1132.)
We also agree with the trial court, as set forth in the "statement by the court," that "the grounding of the Bobby McGee was the efficient proximate cause of all damage to the sailboat," and therefore the substandard (or negligent) repairs should have been covered in Olsen's original claim under the Travelers' yacht policy. In Garvey, the California Supreme Court ruled that " ' "where there is a concurrence of different causes, the efficient cause—the one that sets others in motion—is the cause to which the loss is to be attributed, though the other causes may follow it, and operate more immediately in producing the disaster." ' [Citations.]" (Garvey, supra, 48 Cal.3d at p. 402.) Here, the evidence showed that it was the grounding of the sailboat that set in motion all of the repairs that were performed to return the damaged sailboat to its preaccident condition, whether the repairs were considered adequate, substandard, or a "re-repair." Accordingly, the grounding of the sailboat was the efficient cause of all repairs to the sailboat, and the cost of all those repairs was a loss that was covered under the all-risk Travelers yacht policy to the extent of the policy limits.
The jurors found that Standard Fire had breached the insurance contract by failing to do something that the insurance contract required it to do, and that Olsen's damages caused by that failure were "[l]oss of unreimbursed insurance benefits owed" in the amount of $121,457.78. When $121,457.78 is added to $310,542.44, the amount previously paid by Standard Fire for repairs to the sailboat, the total is $432,000.22, which is approximately the policy limits of $432,000 for property damage. The evidence presented to the jurors showed that Olsen's out-of-pocket payments for repairs to the sailboat that were not reimbursed by Standard Fire, including cost of the "re-repairs," greatly exceeded $121,457.78. We therefore determine that Standard Fire's obligation under the Travelers yacht policy to pay the reasonable cost of repairs attributed to the February 9, 2008 grounding was not limited to the amount of $310,542.44 that Standard Fire had paid before trial.
Standard Fire relies on the decision in Klubnikin v. California Fair Plan Assn. (1978) 84 Cal.App.3d 393 (Klubnikin) for the contrary conclusion that the confirmed appraisal award in the amount of $310,542.44 had a res judicata effect that bars Olsen's breach of contract claim, but that decision is distinguishable. The fire insurance policy at issue in Klubnikin provided that the Klubnikin's property was insured " 'to the extent of [its] actual cash value . . . at the time of loss. . . .' " (Id. at p. 395.) When the property was damaged by fire, a dispute arose as to its actual cash value and the amount of loss. Klubnikin invoked the appraisal procedure in the fire insurance policy. The appraisers determined both the actual cash value and the amount of loss, after which Klubnikin filed an action for breach of contract. The appellate court affirmed summary judgment for the insurer on the ground that Klubnikin had not either timely petitioned to vacate or correct the appraisal award or opposed the insurer's petition to confirm the appraisal award, and therefore the breach of contract action was barred by the "binding res judicata effect of the confirmed award." (Id. at p. 398.) In contrast, in this case Olsen opposed Standard Fire's petition to confirm the appraisal award and there was no dispute as to the actual cash value of Olsen's loss due to the grounding of the sailboat. Instead, the parties' dispute concerned the extent of the coverage under Travelers' all-risk yacht policy for that portion of the loss consisting of the cost of re-repairs.
For these reasons, we find no merit in Standard Fire's challenge to the jury verdict in Olsen's favor on the breach of contract cause of action.
B. Breach of the Covenant of Good Faith and Fair Dealing
As stated in the special verdict, the jurors found that Standard Fire had breached the implied covenant of good faith and fair dealing. Specifically, the jurors found that Standard Fire had failed to pay or delayed payment of insurance benefits, the failure was unreasonable or without proper cause, and the failure was a substantial factor in causing harm to Olsen. The jurors further found that Olsen's damages due to Standard Fire's breach of the covenant of good faith and fair dealing included $325,000 for "[m]ental suffering, anxiety and emotional distress" and $78,000 for reasonable attorney's fees to recover the policy benefits.
Standard Fire contends that since it is not liable for breach of contract, it cannot be liable for breach of the covenant of good faith and fair dealing. We reject this contention at the outset since we have upheld the jury finding that Standard Fire breached the insurance contract. Standard Fire also contends that the evidence shows that its handling of Olsen's claim was reasonable. In addition, Standard Fire asserts that there was a genuine dispute as to whether the Travelers yacht policy covered the cost of re-repairs because negligent repairs are not a "direct physical loss" covered under the policy, which precludes a finding of breach of the covenant of good faith and fair dealing. We will begin our analysis of Standard Fire's other contentions with an overview of the cause of action for breach of the covenant of good faith and fair dealing.
1. The Cause of Action for Breach of the Covenant of Good Faith and Fair Dealing
The general rules pertaining to a claim for breach of the covenant of good faith and fair dealing are well established. "The law implies in every contract, including insurance policies, a covenant of good faith and fair dealing. 'The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement's benefits. To fulfill its implied obligation, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. When the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.' [Citation.]" (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 720 (Wilson).)
Thus, "when benefits are due an insured, 'delayed payment based on inadequate or tardy investigations, oppressive conduct by claims adjusters seeking to reduce the amounts legitimately payable and numerous other tactics may breach the implied covenant because' they frustrate the insured's right to receive the benefits of the contract in "prompt compensation for losses.' [Citation.]" (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36.)
The elements of a cause of action for breach of the covenant of good faith and fair dealing are "(1) benefits due under the policy were withheld and (2) the reason for withholding the benefits was unreasonable or without proper cause. [Citations.]" (Century Surety Co. v. Polisso (2006) 139 Cal.App.4th 922, 949 (Century).) "We evaluate the reasonableness of the insurer's actions and decision to deny benefits as of the time they were made rather than with the benefit of hindsight. [Citation.]" (Ibid.) "[T]he ultimate test is whether the insurer's conduct was unreasonable under all of the circumstances. [Citation.]" (Graciano v. Mercury General Corp. (2014) 231 Cal.App.4th 414, 427.)
2. Substantial Evidence
An evidentiary challenge to a jury verdict finding that the defendant insurer breached the covenant of good faith and fair dealing is reviewed under the substantial evidence standard of review. (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 921-922.) "In evaluating the sufficiency of the evidence on appeal, appellate courts generally apply the familiar substantial evidence test. Under that test, an appellate court must view the evidence in the light most favorable to the court's judgment, giving it the benefit of every reasonable inference and resolving all conflicts in its favor. [Citation.] The appellate court must 'presume every fact in support of the judgment the trier of fact could have reasonably deduced from the evidence. [Citation.] If the circumstances reasonably justify the trier of fact's findings, reversal of the judgment is not warranted simply because the circumstances might also reasonably be reconciled with a contrary finding. [Citation.] "A reviewing court neither reweighs evidence nor reevaluates a witness's credibility." [Citation.]' [Citation.]" (In re R.V. (2015) 61 Cal.4th 181, 217 (R.V.).)
Standard Fire's challenge to the jury verdict in Olsen's favor on the cause of action for breach of the covenant of good faith and fair dealing sets forth the evidence that would arguably support a finding that its handling of Olsen's claim was reasonable and did not breach the covenant of good faith and fair dealing. For example, Standard Fire contends that the reasonableness of its conduct is shown by its acceptance of Olsen's claim, its payment of Spectre Powerboats' repair bills and all bills "indisputably related to the grounding," its hiring of Van Sickle to investigate the re-repairs, its invitation to Olsen to open a second claim for the re-repair costs, and its tendering of $145,642.61 in policy benefits with a reservation of rights.
Olsen argues that the evidence shows to the contrary that, among other things, Standard Fire delayed the commencement of repairs for two months, failed to conduct a thorough and fair investigation, sued Olsen in federal court in San Francisco, denied Olsen's request for a marine surveyor, represented that Burkart was a surveyor when he was not, failed to oversee the quality of repairs, and abandoned Olsen before the sailboat was returned to its preaccident condition.
In its reply brief, Standard Fire responds to Olsen's arguments regarding its claims handling, but we find its response unpersuasive because our standard of review precludes either weighing the evidence or judging the credibility of witnesses. (See R.V., supra, 61 Cal.4th at p. 217.) We must "view the evidence in the light most favorable to the court's judgment, giving it the benefit of every reasonable inference and resolving all conflicts in its favor. [Citation.]" (Ibid.) Accordingly, we do not determine, for example, whether the evidence was sufficient to show that Standard Fire's claims handling did not cause an unreasonable delay in the repairs to the sailboat or that Olsen's insurance expert's opinion that Standard Fire did not act reasonably in handling Olsen's claim was not credible. Instead, having reviewed the trial record in its entirety, we determine that substantial evidence supports the jury's verdict that Standard Fire breached the covenant of good faith and fair dealing by unreasonably or without proper cause failing to pay or delaying payment of insurance benefits, and the failure was a substantial factor in causing harm to Olsen.
Among other things, the evidence was sufficient for the jurors to find that the delay in commencing repairs was unreasonable because Olsen had to hire his own attorney to resolve the salvage lien when Standard Fire failed to do so. Also, the jurors could find that the delay was due to Burkart's failure to respond to the salvage company's request that he confirm that Travelers was the insurer. In addition, Standard Fire had refused Olsen's request for a marine surveyor and assigned Burkart to oversee repairs to the sailboat, although Burkart did not have the qualifications and experience of a marine surveyor. Further, Burkart failed to inspect the repairs to the sailboat at Santa Cruz Yachts on a weekly basis, as directed by his superior at Travelers. Perhaps most significantly, Burkart reported that Santa Cruz Yachts' repairs were "perfect" when, as testified by Rodgers and Van Sickle, the repairs were far from perfect and required re- repairs by KKMI to return the sailboat to its preaccident condition. Then, after the sailboat was left at Gravelles' boatyard without repairs being completed, Standard Fire informed Olsen that it had paid all the money it was going to pay for the sailboat repairs. Olsen had to hire his own marine surveyor and pay thousands of dollars out-of-pocket for re-repairs by KKMI to ensure that the sailboat was repaired to its preaccident condition. Travelers hired a marine surveyor at the same time, but only to protect its own interests with respect to KKMI's work.
Accordingly, we are not persuaded by Standard Fire's argument that the evidence was insufficient to support the jury's verdict that Standard Fire breached the covenant of good faith and fair dealing.
3. Genuine Dispute Doctrine
Alternatively, Standard Fire contends that there was a genuine dispute as to whether the Travelers yacht policy covered the cost of re-repairs because negligent repairs are not a "direct physical loss" covered under the policy, and that coverage dispute precludes a finding of breach of the covenant of good faith and fair dealing. Standard Fire's position is that there is no coverage unless the "poor workmanship" produced "some resulting physical damage to the yacht." Standard Fire also contends that there was a genuine dispute as to whether the appraisal conclusively resolved Olsen's claim for re-repair costs.
Under the genuine dispute doctrine, " '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.' [Citation.] That is because 'whe[n] there is a genuine issue as to the insurer's liability under the policy for the claim asserted by the insured, there can be no bad faith liability imposed on the insurer for advancing its side of that dispute.' [Citation.]" (Paslay v. State Farm General Ins. Co. (2016) 248 Cal.App.4th 639, 652-653.) In other words, "an insurer does not act in bad faith when it mistakenly withholds policy benefits, if the mistake is reasonable or is based on a legitimate dispute as to the insurer's liability. [Citations.]" (Century, supra, 139 Cal.App.4th at p. 949.)
However, "[t]he genuine dispute rule does not relieve an insurer from its obligation to thoroughly and fairly investigate, process and evaluate the insured's claim. A genuine dispute exists only where the insurer's position is maintained in good faith and on reasonable grounds. [Citations.]" (Wilson, supra, 42 Cal.4th at pp. 723-724, fn. omitted.)
We find no merit in Standard Fire's contention that a genuine dispute existed regarding coverage for re-repairs to the sailboat under Travelers' all-risk yacht policy. As we have discussed, under California Supreme Court authority the re-repairs were a covered peril since the Travelers all-risk yacht policy did not expressly exclude coverage for losses caused by third party negligence, and the re-repairs were undisputedly due to third party negligence in performing substandard, inadequate or faulty repairs. (See State Farm v. Von Der Lieth, supra, 54 Cal.3d at p. 1127; Garvey, supra, 48 Cal.3d at p. 408.) In the 1989 decision in Garvey, the plaintiff homeowners brought a bad faith action alleging that their homeowners insurance company had wrongfully denied coverage for their claim of damage to their home caused by negligent construction. (Garvey, supra, at p. 400.) In analyzing the coverage issue, the California Supreme Court stated: "[T]he Court of Appeal rejected defendant's argument that although third party negligence is not specifically excluded in an all-risk policy, it is not a covered peril because it is technically not considered a 'risk of physical loss' within the policy terms. We agree and find defendant's claim is not supported by authority. [Citation.]" (Id. at p. 408, fn. omitted.) The Supreme Court reversed the judgment in the defendant insurer's favor with a direction to the jury to determine the efficient proximate cause of the loss: "[I]f negligence was the efficient proximate cause of the loss, then coverage exists under Sabella [v. Wisler (1963) 59 Cal.2d 21].)" (Id. at pp. 412-413.)
Since the coverage issue in this case could have been resolved by applying existing California Supreme Court authority rejecting Standard Fire's determination that third party negligence is not a covered "direct physical loss" under an all-risk policy, we do not find the coverage dispute in this case to have been a genuine dispute. The decisions on which Standard Fire relies to show that its coverage dispute constituted a genuine dispute precluding breach of the covenant of good faith and fair dealing are distinguishable.
The decision in Carson v. Mercury Ins. Co. (2012) 210 Cal.App.4th 409 (Carson) concerned an automobile insurance policy and Insurance Code provisions specific to automobile insurance. The appellate court ruled that "Insurance Code section 758.5, subdivision (b)(3), provides that if an insured agrees to use an auto body shop recommended by the insurer, the insured is not liable for any further costs of repair. The insurer guarantees the repairs. The same cannot be true if the insured selects the body shop." (Carson, supra, at p. 423.) Since the insured motorist had chosen the repair shop that performed inferior repairs, the appellate court determined that "the insured can and should return to the body shop if there is a problem with the repairs. It would be unfair to allow [the insured] to select a poor repair facility and then ask Mercury to pay for a redo of the same repairs." (Ibid.) Insurance Code section 758.5 expressly applies to claims made under an automobile insurance policy and has no application to the all-risks yacht policy at issue in the present case.
Insurance Code section 758.5 provides in part: "(a) No insurer shall require that an automobile be repaired at a specific automotive repair dealer, as defined in Section 9880.1 of the Business and Professions Code. [¶] (b)(1) No insurer shall suggest or recommend that an automobile be repaired at a specific automotive repair dealer unless either of the following applies: [¶] (A) A referral is expressly requested by the claimant. [¶] (B) The claimant has been informed in writing of the right to select the automotive repair dealer. [¶] (2) An insurer may provide the claimant with specific truthful and nondeceptive information regarding the services and benefits available to the claimant during the claims process. This may include, but is not limited to, information about the repair warranties offered, the type of replacement parts to be used, the anticipated time to repair the damaged vehicle, and the quality of the workmanship available to the claimant. [¶] (3) If an insurer's recommendation of an automotive repair dealer is accepted by the claimant, the insurer shall cause the damaged vehicle to be restored to its condition prior to the loss at no additional cost to the claimant other than as stated in the policy or as is otherwise allowed by law. If the recommendation of an automotive repair dealer is done orally, and if the oral recommendation is accepted by the claimant, the insurer shall provide the information contained in this paragraph, as noted in the statement below, to the claimant at the time the recommendation is made. The insurer shall mail or provide the notice required by this paragraph within five calendar days from the acceptance of the recommendation."
The other decision relied upon by Standard Fire, Trinity Industries, Inc. v. Insurance Co. of North America (5th Cir. 1990) 916 F.2d 267 (Trinity Industries), involved a builder's risk policy that covered physical loss or damage to ships built by the insured. The federal court ruled that "[t]he language 'physical loss or damage' strongly implies that there was an initial satisfactory state that was changed by some external event into an unsatisfactory state—for example, the car was undamaged before the collision dented the bumper. It would not ordinarily be thought to encompass faulty initial construction." (Id. at pp. 270-271.) Applying Louisiana insurance law, the court further determined that "[w]hile 'all risks' policies are meant to cover a wide variety of risks, they are meant to cover those risks only with respect to a certain specific subject matter." (Id. at p. 272.) Since the Trinity Industries decision did not apply California authorities regarding the interpretation of an all-risk policy, the decision does not aid Standard Fire.
We also determine that Standard Fire's contention that a genuine dispute existed as to whether the appraisal award resolved Olsen's claim lacks merit. As we have discussed, it is well established that it is not the function of an appraiser " 'to resolve questions of coverage and interpret provisions of the policy.' [Citations.]" (Doan, supra, 195 Cal.App.4th at p. 1094.) Thus, an appraisal award does not determine coverage under the applicable insurance policy, and the trial court's confirmation of the appraisal award does not establish the insurer's liability for payment of the loss. (Lee, supra, 237 Cal.App.4th at p. 1170.) Consequently, it was unreasonable for Standard Fire to decide that its obligation under the Travelers yacht policy to pay the reasonable cost of repairs attributed to the February 9, 2008 grounding excluded the cost of re-repairs as determined by the appraisal award. (See Wilson, supra, 42 Cal.4th at p. 720 [unreasonable withholding of policy benefits constitutes breach of the covenant of good faith and fair dealing].)
For these reasons, we find no merit in Standard Fire's challenge to the jury verdict finding that Standard Fire breached the covenant of good faith and fair dealing.
C. Prejudgment Interest
Olsen filed a posttrial motion for an award of contractual prejudgment interest in the amount of $73,568.21. The trial court granted the motion in the March 19, 2015 order after reconsideration of the court's earlier order and awarded prejudgment interest in the amount requested, $73,568.21.
On appeal, Standard Fire contends that the award of prejudgment interest is excessive and should be reduced to $11,272.39, as Standard Fire calculated in its motion for new trial below that was denied by the trial court. Standard Fire asserts that its tender of $145,642.61 to Olsen exceeded $121,457.78, the amount awarded by the jury for breach of contract, and therefore prejudgment interest stopped accruing when the tender was made. We will resolve the issue under the rules governing prejudgment interest.
"The basic provision governing prejudgment interest is Civil Code section 3287, subdivision (a) of which provides: 'Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day [except when the debtor is prevented by law, or by the act of the creditor from paying the debt] . . . .' For more than a century it has been settled that one purpose of section 3287, and of prejudgment interest in general, is to provide just compensation to the injured party for loss of use of the award during the prejudgment period—in other words, to make the plaintiff whole as of the date of the injury. [Citations.]" (Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644, 663-664.)
"In an action on a contractual obligation, a party is entitled to pre-judgment interest under [Civ. Code, § 3287, subd. (a)] 'as a matter of right.' [Citations.]" (Pierotti v. Torian (2000) 81 Cal.App.4th 17, 27.) "We review the trial court's prejudgment interest award for legal error. [Citation.]" (Tenzera, Inc. v. Osterman (2012) 205 Cal.App.4th 16, 21.)
Civil Code section 1504 provides the general rule that an offer of payment stops the running of interest on an obligation. (Klinger v. Realty World Corp. (1987) 196 Cal.App.3d 1549, 1553 (Klinger); Rose v. Hecht (1949) 94 Cal.App.2d 662, 666 [valid tender of full amount of the judgment stops accrual of prejudgment interest].) "Although section 1504 provides for the stopping of interest where there has been an offer of performance, section 1494 clearly requires that the offer of performance be free from unwarranted conditions. A tender which is conditional does not come within the provisions of Civil Code section 1504. [Citations.]" (Mission Ins. Group, Inc. v. Merco Construction Engineers, Inc. (1983) 147 Cal.App.3d 1059, 1067.)
Civil Code section 1504 provides: "An offer of payment or other performance, duly made, though the title to the thing offered be not transferred to the creditor, stops the running of interest on the obligation, and has the same effect upon all its incidents as a performance thereof."
In other words, " ' "[a] tender is an offer of performance made with the intent to extinguish the obligation. (Civ. Code, § 1485.)" [Citation.] A tender must be one of full performance (Civ. Code, § 1486) and must be unconditional to be valid. [Citations.]' " (In re Marriage of Green (2006) 143 Cal.App.4th 1312, 1323.) Thus, where the defendant real estate company offered to pay the plaintiff real estate agent a commission of $7,500, conditioned upon release of the the agent's claim that he was owed a commission of $23,500, the offer was deemed a conditional tender that did not stop the running of prejudgment interest on the $7,500 judgment. (Klinger, supra, 196 Cal.App.3d at pp. 1551-1553.)
Civil Code section 1486 provides: "An offer of partial performance is of no effect."
In this case, the evidence at trial showed that Standard Fire's attorney sent Olsen's attorney a letter dated January 7, 2010, that enclosed a check for $145,642.61 and stated Travelers' reservation of rights as follows: "This check represents an advance only. It is subject to reimbursement to Mr. Olsen's insurer in the event that there is any finding that the claim it represents is not covered and/or that the insurer has overpaid Mr. Olsen on any aspect of this claim. The payment is made without prejudice to any right or defense under the policy of insurance, and all such rights and defenses are reserved. Deposit of this check will represent Mr. Olsen's agreement to those conditions of the advance." Olsen returned the $145,642.61 check without cashing it.
Olsen argues that Standard Fire's offer to pay him $145,642.61 was a conditional offer that did not stop the running of prejudgment interest since Olsen was not obligated to accept the offer. We agree. Civil Code section 1494 provides that "[a]n offer of performance must be free from any conditions which the creditor is not bound, on his part, to perform." Accordingly, where a tender of payment is subject to conditions that the judgment creditor is not obligated to satisfy, Civil Code section 1504 does not apply to stop the running of prejudgment interest. (Leatherby Ins. Co. v. City of Tustin (1977) 76 Cal.App.3d 678, 689 (Leatherby); Klinger, supra, 196 Cal.App.3d at pp. 1551-1553.) Standard Fire has not provided any authority for the proposition that an insured is obligated to accept an insurer's offer to pay policy benefits that is conditioned with a reservation of rights.
Standard Fire argues, however, that its offer of $145,642.61 in policy benefits stopped the accrual of prejudgment interest because Olsen had dominion and control over the funds. As support for this argument Standard Fire relies on the decisions in Greg Opinski Construction, Inc. v. City of Oakdale (2011) 199 Cal.App.4th 1107 (Opinski) and Buckman v. Tucker (1937) 9 Cal.2d 403 (Buckman). These decisions are distinguishable since neither decision concerned an offer of payment.
In Opinski, the trial court awarded the City of Oakdale damages for breach of contract against its general contractor, Opinski, and prejudgment interest. (Opinski, supra, 199 Cal.App.4th at p. 1109.) The appellate court determined that the award of prejudgment interest was error, noting the general rule that "if, during any prejudgment period, a party has dominion and control over money that is awarded to it as damages, it is not entitled to prejudgment interest for that period." (Id. at p. 1119.) Since the City of Oakdale had placed retention payments in an escrow account for security in the event of a breach of contract by Opinski, the appellate court found that "the city had the power to withdraw the money from the escrow account when it determined that Opinski had breached the contract." (Id. at p. 1120.) "Therefore, [the city] had dominion and control over the money from the time of the breach and was not entitled to prejudgment interest." (Ibid.) The decision in Opinski did not consider the issue of whether an insurer's conditional offer to pay policy benefits was sufficient to stop prejudgment interest from running because the insured could accept the payment and have dominion and control over the funds. "Obviously, cases are not authority for propositions not considered therein. [Citations.]" (Roberts v. City of Palmdale (1993) 5 Cal.4th 363, 372, fn. omitted.)
The decision in Buckman is similarly unhelpful to Standard Fire, since the prejudgment interest issue in that decision concerned whether the trial court had properly calculated prejudgment interest from the date the creditor had made a loan to the debtor that the debtor failed to pay. (Buckman, supra, 9 Cal.2d at p. 409.) The California Supreme Court determined that the award of prejudgment interest was error, since the creditor had executed on the judgment on the debt, and "from the date that the [creditor] thus came into possession of the money that he had dominion and control thereof, and interest should have terminated on that date." (Ibid.)
Accordingly, Standard Fire's letter dated January 7, 2010, enclosing a check for $145,642.61 and stating its reservation of rights constituted a conditional offer of payment that did not stop the accrual of prejudgment interest. (See Leatherby, supra, 76 Cal.App.3d at p. 689.) We therefore find no merit in Standard Fire's challenge to the award of prejudgment interest in the amount of $73,568.21.
D. Motion for Judgment Notwithstanding the Verdict
In case No. H042260, Standard Fire filed a notice of appeal from the January 28, 2015 order denying Standard Fire's motion for judgment notwithstanding the verdict on the cause of action for breach of the covenant of good faith and fair dealing. In its motion, Standard Fire argued that there could be no bad faith as a matter of law under the genuine dispute doctrine. Standard Fire also argued that the evidence was insufficient to support an award of damages for emotional distress. The trial court denied the motion "on the ground that there is sufficient evidence to sustain the verdict and the evidence presented questions for the jury's factual determination."
Our standard of review is well established. "A motion for judgment notwithstanding the verdict may be granted only if it appears from the evidence, viewed in the light most favorable to the party securing the verdict, that there is no substantial evidence in support. [Citation.]" (Sweatman v. Department of Veterans Affairs (2001) 25 Cal.4th 62, 68.) "As in the trial court, the standard of review is whether any substantial evidence—contradicted or uncontradicted—supports the jury's conclusion. [Citations.]" (Ibid.) "If the motion presents a legal question based on undisputed facts, however, we review the ruling de novo. [Citation.]" (Gillan v. City of San Marino (2007) 147 Cal.App.4th 1033, 1043-1044.)
Having carefully reviewed the combined opening and reply briefs that Standard Fire filed with respect to both case No. H042154 and case No. H042260, we determine that Standard Fire has not separately addressed the merits of the order denying its motion for a judgment notwithstanding the verdict. However, we understand Standard Fire's contentions regarding the genuine dispute doctrine to constitute its argument that the trial court erred in denying Standard Fire's motion for judgment notwithstanding the verdict.
As discussed above, we have concluded that there was no genuine dispute regarding whether the Travelers' yacht policy provided coverage for the cost of re-repairs to the sailboat, and therefore the genuine dispute doctrine did not preclude a finding that Standard Fire breached the covenant of good faith and fair dealing. Standard Fire has not raised any issue on appeal as to the sufficiency of the evidence to support the damages awarded for emotional distress. We will therefore affirm the January 28, 2015 order denying Standard Fire's motion for judgment notwithstanding the verdict on the cause of action for breach of the covenant of good faith and fair dealing.
E. Attorney Fees on Appeal
Olsen requests an award of attorney's fees on appeal pursuant to Brandt, supra, 37 Cal.3d 813. Standard Fire objects to an award of Brandt attorney's fees on the ground that such fees are not recoverable on appeal.
In Brandt, the California Supreme Court determined that "[w]hen an insurer's tortious conduct reasonably compels the insured to retain an attorney to obtain the benefits due under a policy, it follows that the insurer should be liable in a tort action for that expense. The attorney's fees are an economic loss—damages—proximately caused by the tort. [Citation.]" (Brandt, supra, 37 Cal.3d at p. 817.) Thus, where " 'an insurance company's refusal to pay benefits has required the insured to seek the services of an attorney to obtain those benefits . . . the insurer, because its conduct was tortious, should pay the insured's legal fees.' [Citation.]" (Ibid.) "The Brandt rule is now a well-settled but narrow exception to the general rule that each party to litigation must pay its own attorney fees." (Essex Ins. Co. v. Five Star Dye House, Inc. (2006) 38 Cal.4th 1252, 1259.)
This court has determined that Brandt attorney's fees are recoverable on appeal. "We agree with the Ninth Circuit in McGregor [v. Paul Revere Life Ins. Co. (9th Cir. 2004) 369 F.3d 1099] that attorney fees the insured has incurred to defend a judgment against the insurer's appeal are a logical extension of the fees incurred in pursuing the recovery in the trial court. The collection of the benefits due is not complete when the insurer resists the judgment by challenging the judgment on appeal. Thus, to the extent that appellate attorney fees reflect the continuation of services performed to obtain the rejected payment of policy benefits, they should be recoverable under the rationale of Brandt." (Baron v. Fire Ins. Exchange (2007) 154 Cal.App.4th 1184, 1198 (Baron); but see Burnaby v. Standard Fire Ins. Co. (1995) 40 Cal.App.4th 787, 797 [Brandt attorney's fees are not recoverable on appeal].)
Since Brandt attorney's fees " 'are recoverable as damages, the determination of the recoverable fees must be made by the trier of fact unless the parties stipulate otherwise.' [Citations.]" (Nickerson v. Stonebridge Life Ins. Co. (2016) 63 Cal.4th 363, 373.) We will therefore remand the matter for a determination by the trial court, on appropriate motion, of the amount of attorney's fees on appeal to which Olsen is entitled to under Brandt, supra, 37 Cal.3d at pages 817-819. (See Baron, supra, 154 Cal.App.4th at pp. 1198-1199.)
IV. DISPOSITION
In case No. H042154 the judgment is affirmed. In case No. H042260 the January 28, 2015 order denying Standard Fire's motion for judgment notwithstanding the verdict is affirmed. Costs on appeal are awarded to respondent Perry Olsen. The matter is remanded to the trial court for a determination, on appropriate motion, of the amount of attorney's fees on appeal to which Olsen is entitled under Brandt v. Superior Court (1985) 37 Cal.3d 813 at pages 817-819.
/s/_________
BAMATTRE-MANOUKIAN, J. WE CONCUR: /s/_________
ELIA, ACTING P.J. /s/_________
MIHARA, J.