Opinion
11-20-1970
SILVA & HILL CONSTRUCTION CO., Inc., Plaintiff and Appellant, v. EMPLOYERS MUTUAL LIABILITY INSURANCE COMPANY, Defendant and Respondent. Civ. 35699.
William H. Brawner and Ralph J. McGookin, Los Angeles, for appellant. Spray, Gould & Bowers, Los Angeles, for respondent.
SILVA & HILL CONSTRUCTION CO., Inc., Plaintiff and Appellant,
v.
EMPLOYERS MUTUAL LIABILITY INSURANCE COMPANY, Defendant and Respondent.
Nov. 20, 1970.
Rehearing Denied Dec. 15, 1970.
Hearing Granted and Retransferred to Court of Appeal Jan. 28, 1971.
For Opinion on Removal, see 97 Cal.Rptr. 498.
William H. Brawner and Ralph J. McGookin, Los Angeles, for appellant.
Spray, Gould & Bowers, Los Angeles, for respondent.
COMPTON, Associate Justice.
Plaintiff Silva and Hill Construction Company, Inc., commenced this action against its insurer, defendant Employers Mutual Liability Insurance Company, alleging failure to defend against and failure to pay claims covered by the terms of a liability insurance policy. Judgment was in favor of the plaintiff for $18,283.38 plus interest.
Plaintiff appeals from a portion of the judgment disallowing recovery on the amount of $31,000 for one item of alleged damage sustained by plaintiff.
Defendant has not appealed.
In early 1960, plaintiff, a licensed engineering contractor, entered into a contract with the State of California to construct a 9.8 mile strip of highway in Santa Barbara County. The state contract required plaintiff to secure liability insurance 'to pay on behalf of the insured [plaintiff] all sums which the insured shall become legally obligated to pay as damages because of physical injury to or destruction of property, including loss of use of any property due to such injury or destruction, hereinafter called 'property damage', arising out of acts or omissions at the designated job site which are related to or are in connection with the work described in [the job description] * * *'
In March of 1960, pursuant to this requirement plaintiff ordered and defendant issued its Comprehensive General Liability Policy which provided in pertinent part that defendant would '* * * pay on behalf of the insured all sums which the insured, by reason of the liability assumed by him under any written contract designated in the schedule, shall become legally obligated to pay as damages because of injury to or destruction of property including the loss of use thereof, caused by accident.'
An endorsement to the policy specifically excluded injury to property owned or occupied, or under the care, custody or control of the insured, or property over which he was exercising physical control.
In March of 1962, plaintiff, having completed the pouring of the concrete highway, engaged a subcontractor, Copp Paving Company, to pave a two-foot asphalt shoulder.
Copp Paving Company, in the course of constructing the asphalt shoulder, broke the edge of the concrete along the full length of the 9.8 mile strip of highway. The subcontractor also oversprayed the concrete with an asphaltic solution.
Copp Paving Company refused to make the necessary repairs and plaintiff as general contractor was forced to do so. As a result Plaintiff was delayed 62 calendar days in completing the project.
Plaintiff's contract with the state contained a liquidated damage clause providing that for each day delay in completing the contract beyond the established completion date, plaintiff would forfeit $500.
Consequently, the state withheld $31,000 from its payment to plaintiff.
Plaintiff sought to transfer the repair costs to Copp Paving Co. by withholding an equal amount from its final payment made to Copp.
On July 11, 1962, Copp Paving Co. filed suit in the Superior Court of Los Angeles County to recover the contract money withheld by plaintiff. Plaintiff answered Copp's complaint and filed a cross-complaint and counterclaim. Subsequently, in 1965, plaintiff settled with Copp out of court.
At the time of the damage to the concrete, plaintiff advised defendant of the damage and of the possibility of plaintiff filing a claim thereon. Prior to the Copp settlement plaintiff notified defendant that both the damage to the concrete paving and the Copp lawsuit, as far as plaintiff was concerned, were matters within the scope of its policy.
On July 20, 1965, defendant denied all coverage.
On March 29, 1966, plaintiff filed suit to recover the cost of repairing the concrete, attorney's fees paid in the litigation of the Copp suit, and the amount deducted as a late charge by the state from plaintiff's final payment.
The trial court concluded that defendant's policy of insurance provided coverage to plaintiff for the cost of repairs of the broken cement paving in the sum of $8,767.77, the costs of repair and removal of the asphalt over-spray damage in the sum of $9,515.61, the sum paid by plaintiff to Copp Paving settlement of its lawsuit against plaintiff in the sum $14,500.00 and the attorney's fees incurred by plaintiff in the defense of the Copp Paving lawsuit in the sum of $7,500.00. This total of $40,283.38 reduced by an offset in the amount of $21,305.92, the amount withheld by plaintiff from the sums originally due Copp Paving Company, resulted in a net award to plaintiff of $18,977.46.
Plaintiff does not appeal from this portion of the court's judgment.
The court further found that though the damage to the concrete caused the 62 day delay for which the plaintiff's final payment from the state was reduced by $31,000 ($500 per day), plaintiff could not recover therefor. The court based this conclusion on the finding that, 'this charge for delay was in the form of a penalty exacted by the State of California and was not in the nature of a charge for loss of use for its property namely the highway belonging to the state which was damaged.'
The trial court apparently concluded that even though the damage to the cement paving was the proximate cause of the $31,000 late charge and thus otherwise covered by plaintiff's policy, defendant was not liable therefor because the late charge was found to be (1) a penalty and (2) not a charge for loss of use of the damaged property.
Plaintiff contends that the state's contract characterization of the charge as liquidated damages is logically based on loss of use of the highway and that the trial court's finding to the contrary is not supported by the evidence.
Section 1670 of the Civil Code provides:
'Every contract by which the amount of damage to be paid, or other compensation to be made, for a breach of an obligation, is determined in anticipation thereof, is to that extent void, except as expressly provided in [section 1671].'
Section 1671 of the Civil Code provides:
'The parties to a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.'
It is well established that unless a clause providing for liquidated damages falls within the provisions of section 1671 of the Civil Code, it is invalid. (See Better Food Mkts. v. Amer. Dist. Teleg. Co., 40 Cal.2d 179, 184, 253 P.2d 10; Dyer Bros. Golden West Iron Works v. Central Iron Works, 182 Cal. 588, 593, 189 P. 445; Long Beach Etc. Dist. v. Dodge, 135 Cal. 401, 405, 67 P. 499.)
Similarly, it is settled law that 'the burden is on the party seeking to rely upon a liquidated damage provision in a contract to plead and prove facts showing impracticability.' (Better Foods Mkts. v. Amer. Dist. Teleg. Co., supra, 40 Cal.2d at p. 185, 253 P.2d at p. 14.)
It follows that 'with out an allegation bringing [the plaintiff's] case within the exception the pleading in that regard is insufficient, the presumption being, [that] in the absence of such allegation, that such agreement is void.' (Thomas v. Anthony, 30 Cal.App. 217, 220, 157 P. 823, 824.)
In the case at bar we are not presented with the same factual situation facing the court in the above cases. Plaintiff is not seeking to enforce the provisions of a liquidated or stipulated damages clause directly against a party to the original contract. However, the policy underlying sections 1670 and 1671 of the Civil Code and the rules cited above are applicable to any action in which a party relies for recovery upon a liquidated damage clause in a contract.
Plaintiff seeks to rely upon the liquidated damage provision in its contract with the state in order to recover damages from defendant. Plaintiff thus had the burden of pleading and proving that the liquidated damages clause in the contract with the state did not fall within the condemnation of section 1670 of the Civil Code. Stated affirmatively, plaintiff had the burden of bringing his case within the provisions of section 1671 of the Civil Code. Plaintiff failed to carry this burden.
The record is devoid of testimony concerning the impracticability of fixing ascertainable damages at the time plaintiff entered into its contract with the state. The only evidence produced by the plaintiff on this issue was the contract itself. The contract stipulates that damages for failure to complete the contract within 400 days were unascertainable and describes such damages as 'Liquidated Damages.' Such language is not binding on the trier of fact and, in the absence of further evidence, is mere labeling. (See Atkinson v. Pacific Extinguisher Co., 40 Cal.2d 192, 198, 253 P. 18; 1 Witken, Summary of California Law, Contract, § 173.)
As the court said in Greenbach Bros., Inc. v. Burns, 245 Cal.App.2d 767, 771, 54 Cal.Rptr. 143, 146, 'The recital of the statutory language in the liquidated damage clause of a contract is but the conclusion of the parties and does not foreclose the court from a full inquiry into the facts.'
No evidence was offered to indicate that the parties to the contract made an effort to estimate the actual damages that might be suffered by the state in the event plaintiff failed to complete the contract on time.
It is well established that the amount stipulated as liquidated damages must be a reasonable one and must represent the result of a reasonable endeavor by the parties to estimate such a reasonable compensation for possible damage. (See Caplan v. Schroeder, 56 Cal.2d 515, 15 Cal.Rptr. 145, 364 P.2d 321; Rice v. Schmid, 18 Cal.2d 382, 386, 115 P.2d 498; Greenbach Bros. Inc. v. Burns, supra, 245 Cal.App.2d at p. 772, 54 Cal.Rptr. 143.)
With only the contract in evidence the court could reasonably have concluded that plaintiff had failed to meet its burden.
With the exception of cases where the facts are not in dispute and admit to but a single conclusion, the question whether it is impracticable or extremely difficult to fix actual damages is one for the trier of fact. (McCarthy v. Tally, 46 Cal.2d 577, 583, 297 P.2d 981.)
'[I]n examining the sufficiency of the evidence to support a questioned finding, an appellant court must accept as true all evidence tending to establish the correctness of the finding as made, taking into account, as well, all inferences which might reasonably have been thought by the trial court to lead to the same conclusion. Every substantial conflict in the testimony is, under the rule which has always prevailed in this court, to be resolved in favor of the finding.' (Bancroft-Whitney Co. v. McHugh, 166 Cal. 140, 142, 134 P. 1157, 1158; see also Butler v. Nepple, 54 Cal.2d 589, 597, 6 Cal.Rptr. 767, 354 P.2d 239; Brinkmann v. Liberty Mutual Etc. Ins. Co., 63 Cal.2d 41, 44, 45 Cal.Rptr. 8, 403 P.2d 136.)
In light of plaintiff's demonstrated failure to carry its burden of defeating the presumption that the late charge was a penalty, the court's finding must be affirmed.
The court also found that the late charges were not based on loss of use of the property damaged. Thus, the court in essence found that the late charges were not damages covered by the policy.
Plaintiff offered no evidence to the contrary. Considering the plain language of plaintiff's policy and the lack of proffered evidence on the exact nature of the late charge, we cannot say as a matter of law that the $31,000 late charge was assessed by the state to compensate for the loss of use of the damaged property.
An appealing party may not complain that an adverse finding was not supported by the evidence, when the burden of proof to establish a contrary finding rested upon him and he failed to carry that burden.
Finally, plaintiff urges that the force of Arenson v. National Auto. & Cal. Ins. Co., 48 Cal.2d 528, 310 P.2d 961, compels a finding of defendant's liability.
,Arenson is cited with approval in Gray v. Zurich Insurance Co., 65 Cal.2d 263, 54 Cal.Rptr. 104, 419 P.2d 168, to the effect that an insurer who defaults in its agreement to defend its insured is bound to reimburse the insured for any obligation reasonably incurred.
Plaintiff's argument is as follows: defendant denied all coverage and as a consequence failed to defend plaintiff against the state's claim for failure to complete the contract on time. Therefore, according to plaintiff, defendant cannot now be heard to question the validity or the basis of the state's claim which plaintiff paid.
This argument, of course, is based on the fact that the trial court found that defendant's policy did cover the accident in question.
It is apparent to us that the clear intent of the state's contractual requirement of insurance coverage and the defendant's policy issued in contemplation thereof was to indemnify the state against liability to third parties.
In this regard, the court's finding that the policy covered the damage to the concrete is highly questionable. This is especially true when the above referenced exclusion of property under the control of the plaintiff is considered.
In any event, it is clear that whatever considerations led the trial judge to conclude that the policy covered the damage to the concrete, there is no basis for concluding that the policy covered plaintiff's own breach of its contract with the state.
Within the purview of section 530 of the Insurance Code, the peril insured against here could at best be said to be only a 'remote cause' of the loss.
The judgment is affirmed.
ROTH, P. J., and HERNDON, J., concur. --------------- 1 During trial plaintiff amended its complaint to conform to proof to include as damages the state's withholding of $31,000 for failure to complete the contract on time. 2 Section 530 of the Insurance Code provides: 'An insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote cause.'