Asuncion T. YAP, Plaintiff and Respondent, v. INDUSTRIAL INDEMNITY COMPANY, Defendant and Appellant.
Industrial Indemnity Company (Industrial) appeals from a judgment for damages arising from a breach of the duty to defend a wrongful eviction suit brought against its insured Asuncion Yap. Industrial argues that since Yap's liability policy did not cover wrongful eviction it could not be found liable for refusal to defend or failure to adequately investigate the claim. We will find substantial evidence to support the trial court's determination that Industrial wrongfully refused to defend Yap. However, we conclude Industrial can only be liable for the costs of defending the wrongful eviction case and not the amount paid to the tenant to settle the claim. Thus, we will modify the judgment.
On or about November 15, 1983, Asuncion Yap and her partner Julieta Cuaton 1 acquired an apartment building in San Francisco. Yap executed the documents necessary to close the transaction under a power of attorney executed by Cuaton while she was in the Philippines on business. They acquired the property by exchanging it for a warehouse they owned in San Francisco. Prior to the exchange, the warehouse had been insured by Industrial under a liability policy. Shortly before the exchange, Yap phoned her insurance broker Aine Dalton of Roanoke Insurance, and instructed her to delete the coverage on the warehouse property and to add coverage on the apartment building. Roanoke issued her the same Owners', Landlords' and Tenants' (OLT) policy which had previously been issued to cover the warehouse.2
The OLT policy required Industrial to defend Yap against all suits premised upon any “occurrence” arising from her ownership, maintenance or use of the apartment. “Occurrence” was defined as “an accident ․ which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.” There was no specific exclusion for wrongful eviction.
After acquiring title to the property, Yap served one of the tenants, Alfredo Marenco, with an eviction notice so that her partner Cuaton could move into the unit upon her return from the Philippines. The San Francisco Rent Ordinance, which forbids evictions without just cause, makes an exception in cases where the owner intends to occupy the rental unit for a period of at least 12 months. (S.F.Admin.Code, § 37.9(a), subd. (8).)
On December 5, 1983, Cuaton returned to San Francisco, but did not readily agree to move in. The eviction proceeded while Cuaton weighed her options, and Marenco vacated the premises. In February 1984, Cuaton decided not to move into the apartment. The unit was then re-rented to a person unrelated to either Yap or Cuaton.
On September 4, 1984, Marenco filed suit against Yap and Cuaton for wrongful eviction, alleging that they either intentionally or negligently violated his rights under the San Francisco Rent Ordinance. Yap immediately tendered the suit to Industrial for defense.
Industrial claims examiner Robert Lewis was assigned to decide whether the company had a duty to defend Marenco's suit. After reviewing Marenco's complaint and doing some legal research, Lewis concluded that as long as Yap had intended to evict Marenco, the eviction was neither an “accident” nor an “occurrence” as defined in the policy. Although he had not seen or heard of any case in California or elsewhere holding that wrongful eviction is not a covered event under an OLT policy, Lewis analogized the case to wrongful termination cases holding that the intent to terminate the employee negates the element of “accident” and therefore wrongful termination is not a covered occurrence under such policies.
Lewis telephoned Yap and confirmed that she had intended to evict Marenco. He also consulted Industrial's legal counsel who concurred that the claim was not covered. On March 22, 1985, Lewis sent Yap's attorney a letter declining the tender of defense based on the fact that an eviction is not an “occurrence” under the policy.
On May 1, 1985, Yap's attorney wrote Lewis, requesting reconsideration of the denial. He pointed out that the policy did cover negligence which formed the basis for Marenco's first and second causes of action, and demanded that Industrial defend the suit on that basis. After reviewing the case again, Lewis sent a second letter of denial on July 16, 1985.
On May 29, 1986, a new attorney for Yap wrote Industrial asking that its refusal to defend be reconsidered. This time Lewis assigned the claim to another claims examiner, Lynn Peterson. Peterson conducted her own investigation, conferred with superiors and met with Yap's new attorney, but denied the re-tender of defense. Her denial was based on the same analysis employed by Lewis, i.e., by analogy to wrongful termination cases, the intent to evict negated the element of accident.
Yap settled Marenco's suit on the eve of trial for $25,000. By then she had incurred defense costs of $5,020. Yap then filed a complaint against Industrial alleging breach of duty to defend and indemnify, bad faith, misrepresentation and violation of Insurance Code section 790.03.
The case was tried without a jury. The trial court ruled that Industrial breached a duty to defend the Marenco suit because there were facts which suggested potential coverage under the policy. It awarded Yap her costs to defend the suit as well as the $25,000 settlement she paid to Marenco, plus prejudgment interest. The court found that Industrial was not guilty of malice and that Yap was entitled only to contractual damages. In a written decision denying Industrial's motion to vacate judgment, the trial court further noted that had Industrial fulfilled its duty to defend or conducted an adequate investigation of the claim, it “likely would have prevailed” on the issue of coverage. Industrial appeals.
IBreach of Duty to Defend **
Measure Of Damages
Industrial argues that the court's finding that it breached the duty to defend cannot justify the court's award of both defense and settlement costs. We agree.
In its statement of decision, the trial court cited Mullen v. Glens Falls Ins. Co., (1977) 73 Cal.App.3d 163, 140 Cal.Rptr. 605, to support its conclusion that Yap was entitled to both defense and settlement costs as a result of Industrial's refusal to defend. In Mullen the court held that an insured's son was entitled to a defense of a personal injury complaint brought by a third party arising from the son's alleged assault and battery. The court held that the insurer should have defended based on the potential for coverage even though the ultimate judgment was based on (noncovered) willful and deliberate conduct. Without discussing the measure of damages, the court reversed and remanded to the trial court to take evidence on the issue of damages including the amount of the judgment in the underlying action. (Id., at p. 174, 140 Cal.Rptr. 605.) To the extent that Mullen can be read for the proposition that the measure of damages for wrongful refusal to investigate and defend includes both the cost of the insured's defense and the amount of any judgment or settlement he or she was required to pay, it is wrong.
The measure of damages for breach of an insurer's contractual obligation is that amount which will compensate the insured for that harm or loss caused by the breach. (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 661, 328 P.2d 198.) Where, as here, the only breach found is a breach of the duty to defend, the harm suffered is the cost incurred by the insured to defend the third party suit. Settlement or judgment costs are not properly an element of compensable damage.
Our conclusion finds support in the California Supreme Court case of Hogan v. Midland National Ins. Co. (1970) 3 Cal.3d 553, 91 Cal.Rptr. 153, 476 P.2d 825. In Hogan, the court held that damages for breach of the duty to defend were limited to defense costs and to those damages in fact covered under the policy. The court rejected the argument that the insurer was barred from denying any coverage at all simply because it wrongfully refused to defend the action. On the contrary, the court held that the insurer could be held accountable only for the damages actually caused by its breach of the insurance contract. Since the Mullen disposition ignores both Hogan and settled law on the measure of damages for breach of contract, the trial court erred in relying on it as controlling precedent.4
We hold that,5 absent a finding of coverage, Industrial cannot be liable for Yap's settlement costs but only for the costs incurred in defending Marenco's suit. In its statement of decision, the trial court specifically determined that those costs were $5,020. The judgment must be modified accordingly. A new evidentiary hearing is not required, since we can readily ascertain the exact amount of damages properly awardable. (See, e.g., Sagadin v. Ripper (1985) 175 Cal.App.3d 1141, 1170, 221 Cal.Rptr. 675.)
The judgment is reversed. The cause is remanded to the trial court to enter a new judgment in favor of plaintiff for $5020 plus prejudgment interest as fixed by the court. Each party shall bear its own costs on appeal.
1. Cuaton was a plaintiff below, but dismissed her case prior to entry of judgment.
2. Roanoke was named as a codefendant in the action below and obtained a judgment in its favor in the trial court. It is not a party to this appeal.
FOOTNOTE. See footnote *, ante.
4. Yap cites Rankin v. Curtis (1986) 183 Cal.App.3d 939, 946, 228 Cal.Rptr. 753, Samson v. Transamerica Ins. Co. (1981) 30 Cal.3d 220, 239, 178 Cal.Rptr. 343, 636 P.2d 32, Paramount Properties Co. v. Transamerica Title Ins. Co. (1970) 1 Cal.3d 562, 570, 86 Cal.Rptr. 394, 463 P.2d 746, and Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 433, 58 Cal.Rptr. 13, 426 P.2d 173, to support the argument that she was entitled to settlement as well as defense costs on a finding of breach of duty to defend. None of these authorities stand for that proposition.The cited passage in Crisci sets forth the measure of damages in tort for bad faith refusal to settle. In Rankin, the court speaks of the measure of damages if the insured prevails on the coverage issue. And in both Paramount and Samson the courts found there was coverage, and thus the damages discussed are based on breach of the duty to indemnify.
5. Yap maintains that the case was tried strictly as a duty-to-defend case and that she never claimed that Marenco's suit was actually covered. While this appears to be an overstatement in light of the record below, Yap has clearly manifested an intent to abandon any claim on appeal that coverage for Marenco's suit existed under the OLT policy.
SMITH, Acting Presiding Justice.
BENSON and PHELAN, JJ., concur.