GORDON TREWEEK v. CALIFORNIA CAPITAL INSURANCE COMPANY (2010)

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

The owners of an apartment building were sued in 47 separate small claims cases for allegedly creating a nuisance and permitting tenants to inflict emotional and mental distress on the small claims plaintiffs.   The owners sought a defense and indemnity from their business liability insurer, which denied the claim on the ground that the small claims plaintiffs had not alleged bodily injury or property damage within the meaning of the policy.

The owners retained an attorney at their own expense and settled most of the small claims cases.   They then filed this action against the insurer, alleging breach of contract and breach of the covenant of good faith and fair dealing.   Ten months into this litigation, the insurer admitted it had made a mistake in denying the claim.   It paid defense costs with respect to all of the small claims cases and indemnity with respect to six of the settlements.

The trial court, Judge Joseph F. De Vanon presiding, granted summary adjudication in favor of the insurer on the breach of contract cause of action, concluding that the owners had received all of the monetary benefits due under the policy for defense and indemnity.   The breach of covenant claim was tried to the court.   Judge De Vanon found in favor of the insurer, stating that the failure to provide a timely defense and indemnity was the result of a mistake, not deliberate unfairness.   Judgment was entered in favor of the insurer.   The owners appealed (B193242).

We concluded that summary adjudication had been improperly granted because the insurer had not paid the full amount owed for indemnity.   We also held that the breach of covenant claim should be retried to permit the trial court to consider all of the circumstances surrounding the delay in paying indemnity.   (B193242, Mar. 2, 2007 [nonpub. opn.].)

On remand, the trial court, Judge C. Edward Simpson presiding, retried the indemnity issues and the breach of covenant claim on stipulated facts.   Judge Simpson found that the insurer should have paid indemnity in 12 additional small claims cases and that the failure to make those payments breached the covenant of good faith and fair dealing.   Judgment was entered in favor of the owners in the amount of $110,472.   The insurer has appealed, contending that no additional indemnity was owed, and the covenant was not breached.   We disagree with both contentions and affirm.

I

BACKGROUND

The parties stipulated to the following facts.   Gordon and Carol Treweek (Treweeks) owned a 12-unit apartment building in Pasadena.   They sold the building in 2004.

On or about July 24, 2002, acting under the auspices of an organization named “Safe Streets Now,” around 47 people living near the Treweeks' apartment building filed separate complaints against Gordon Treweek (Treweek) in the small claims division of the Los Angeles County Superior Court in Pasadena.   (In discussing the small claims cases, we use “plaintiffs” to refer to the parties who brought the small claims cases, not the Treweeks.)   Each of the complaints alleged:  “Def. allows public nuisance to occur on his property causing me emotional and mental distress.”   Plaintiffs each sought $5,000 in damages.   Trial in all of the cases was set for September 9, 2002.

On or about August 26, 2002, several events occurred in connection with the cases.   All of the summonses and complaints were served on the Treweeks.   They contacted their insurance agent, who immediately reported the claim to the Treweeks' business liability insurer, California Capital Insurance Company, also known as CIG. At CIG's request, the Treweeks mailed copies of the summonses and complaints to CIG's Anaheim claims office.

On August 29, 2002, Catherine Baden, CIG's litigation supervisor, took a recorded statement from Treweek.   According to Baden's written summary of the statement, Treweek mentioned that in March or April 2001, two neighbors had complained that “people were playing basketball, drinking, and making loud noise at night ․ [and] throwing their empty bottles into their backyards.”   In October 2001, he had received a letter from Safe Streets Now containing complaints about “drug and alcohol use, cars speeding to and from [his] building, noise, and trash.”   Treweek took various measures in response to the complaints, including installing a gate on his property, warning and evicting some tenants, hiring a resident manager, and meeting with a representative of Safe Streets Now.

Neither Baden nor CIG interviewed anyone else or otherwise investigated the claims against Treweek.

On September 5, 2002, Baden wrote a letter to Treweek, denying coverage for the cases, stating:  “[The] Small Claims Court Actions ․ are alleging Mental and Emotion[al] Distress, which does not constitute ‘bodily injury’ as defined by the policy.   The damages being claimed by these neighbors would not constitute an ‘occurrence,’ ‘bodily injury,’ ‘property damage,’ ‘personal injury’ as defined by your policy with [CIG]. [¶] Our investigation of all of the available facts has led us to the conclusion that we have no coverage in this matter.   If you have additional information or new information regarding this claim which we do not already have and which you believe would affect our decision, please forward that information with any explanation you care to make.”

The small claims cases were initially called for hearing on September 9, 2002.   Of the 47 cases, testimony was presented in about five.   Some of the cases were dismissed.   The hearing was continued to September 24, 2002.   Several plaintiffs submitted letters to the court, describing their cases in greater detail, some alleging that they had been victims of property damage.   Treweek got a copy of the letters.

After the initial hearing, Treweek retained Herb Fox, Esq., to assist him in providing a defense and obtaining coverage from CIG. On September 18, 2002, Fox spoke with Baden by telephone and told her about the letters submitted at the hearing.   Fox faxed a confirming letter to Baden later that day, stating:  “The plaintiffs' [letters] claim damages arising from symptoms such as ‘emotional and mental distress', sleeplessness, anxiety, nervousness, stress, fright, fear of danger, and general impairment of health.”

On September 20, 2002, Fox had another telephone conversation with Baden.   In a letter to Baden of the same date, Fox confirmed that CIG still refused to provide a defense but that Baden was in the process of seeking an opinion from coverage counsel.   Fox enclosed a copy of plaintiffs' letters to the small claims court.   Baden received Fox's letter on September 23, 2002, the day before the small claims court hearings were to resume.

On September 23, 2002, Baden wrote to James Baratta, Esq., enclosing CIG's entire claim file, requesting an opinion on coverage.   Baden mentioned that several of the plaintiffs had submitted letters to the small claims court and said she would forward them to Baratta when she received them.   Baden believes she eventually did so.   According to Baratta, he never received the letters from her.

On October 3, 2002, Baratta wrote to Baden, stating that “based upon the information we have reviewed, the matter does not appear insured.”   Toward the end of the letter, Baratta commented:  “We have not been provided with evidence of physical manifestation but only allegations of emotional and mental distress.   We suggest further inquiry be made in this regard.”

The small claims court hearings took at least two more days.   Meanwhile, Fox began settlement discussions with representatives of Safe Streets Now. On October 21, 2002, he wrote to Baden, enclosing written settlement offers and counteroffers.   Fox stated that Treweek had settled with about 12 of the 47 original plaintiffs and was optimistic about settling with the remaining plaintiffs in the next two weeks.   Treweek had agreed to pay $2,500 to each of the plaintiffs, for a total of approximately $90,000.   In addition, Treweek had incurred over $15,000 in attorney fees.

On October 28, 2002, Baratta sent Fox a letter, stating that the small claims cases were not covered by CIG because “emotional and mental distress” did not constitute claims for “bodily injury,” “personal injury” or “property damage” as those terms were defined in the policy.

Ultimately, Fox managed to secure the dismissal of 14 small claims cases and settled the remaining 33 for a total of $84,500.

The Treweeks retained Paul Kremser, Esq., to pursue a bad faith claim against CIG. On April 19, 2004, the Treweeks filed this action, alleging causes of action for breach of contract and breach of the covenant of good faith and fair dealing.

The Treweeks incurred a total of $16,095 in attorney fees and costs for Fox's services, $11,780.74 of which were attributable to Fox's services beginning September 18, 2002, when Fox sent Baden a letter mentioning plaintiffs' letters to the small claims court.   Kremser's attorney fees and costs in pursuing the bad faith claim were $18,980 as of December 6, 2004.

On February 17, 2005, CIG paid the Treweeks the sum of $46,260, allocated as follows:  (1) attorney fees and costs of Fox, $11,780.74;  (2) attorney fees and costs of Kremser, $18,980;  and indemnity for the settlement of six of the small claims cases, $15,500.

In May 2005, the Treweeks moved for summary judgment and, in the alternative, summary adjudication of issues.   They argued that the duty to defend arose when they forwarded the small claims complaints to CIG, not when Fox later contacted Baden and informed her of plaintiffs' letters to the small claims court.   The motion further argued that CIG was required to indemnify the Treweeks for all 33 of the settled cases, not just six.   Finally, the Treweeks contended that CIG had breached the covenant of good faith and fair dealing by failing to satisfy its duty to provide a timely defense and indemnity.   CIG filed opposition papers.

For its part, CIG filed a cross-motion for summary adjudication as to the Treweeks' breach of contract claim.   CIG argued that the duty to defend did not arise until Baden learned of plaintiffs' letters to the small claims court;  CIG's knowledge of the substance of the complaints in small claims court, by itself, did not raise the potential for coverage.   CIG contended it had paid indemnity for all the settlements that came within coverage, specifically, six cases in which the plaintiffs' letters referred to property damage or trespass.   Thus, according to CIG, the Treweeks had received all of the monetary benefits due under the policy.   In response, the Treweeks filed opposition.

By order dated July 25, 2002, Judge De Vanon granted CIG's motion for summary adjudication and denied the Treweeks' alternative motions in their entirety.   That left the breach of covenant claim for trial.

The parties agreed that the trial would proceed on stipulated facts and evidence (depositions), supplemented with trial briefs.   The primary issue was whether CIG's delay in paying defense costs and indemnity constituted bad faith.   Judge De Vanon found in favor of CIG, concluding that the delay was attributable to Baden's failure to send Baratta a copy of plaintiffs' letters to the small claims court.   The judge explained that Baden's failure was “simply a mistake, bad judgment or negligence,” not a “ ‘conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement.’ ”   Judgment was entered in favor of CIG. The Treweeks appealed (B193242).

We rejected the Treweeks contention that they were owed additional reimbursement for defense costs, stating:  “ ‘ “[A] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity․  ‘[T]he carrier must defend a suit which potentially seeks damages within the coverage of the policy.’  ․ Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify;  an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded․” ․

“ ‘ “The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy.   Facts extrinsic to the complaint also give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy․”  ․ “[F]or an insurer, the existence of a duty to defend turns not upon the ultimate adjudication of coverage under its policy of insurance, but upon those facts known by the insurer at the inception of a third party lawsuit․  Hence, the duty “may exist even where coverage is in doubt and ultimately does not develop.’ ․” ․

“ ‘The defense duty is a continuing one, arising on tender of defense and lasting until the underlying lawsuit is concluded ․, or until it has been shown that there is no potential for coverage․’ ”  (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295 (Montrose I ), citations omitted.)

“Under the Treweeks' business liability policy, CIG agreed as follows:  ‘[The insurance company] will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury,” [or] “property damage” ․ to which this insurance applies.   We will have the right and duty to defend any “suit” seeking those damages.’  ‘Bodily injury’ was defined as ‘bodily injury, sickness, or disease sustained by a person․’  ‘Property damage’ meant ‘[p]hysical injury to tangible property, including all resulting loss of use of that property ․ [¶][and][l]oss of use of tangible property that is not physically injured.’

“We agree with the trial court that the complaints filed by the small claims plaintiffs did not give rise to a potential for coverage.   They alleged harm solely in the form of emotional and mental distress.   That type of harm does not constitute ‘bodily injury.’  (See Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 774-776;  Aim Insurance Co. v. Culcasi (1991) 229 Cal.App.3d 209, 220-222.)   Thus, Baden's knowledge and receipt of those complaints on or about August 26, 2002, did not obligate CIG to provide a defense.   Nor did Treweek's recorded statement on August 29, 2002, add anything to the mix.   He did refer to the neighbors' complaints about trash, including bottles.   But, under a reasonable interpretation of the insurance policy, we cannot say litter, by itself, is property damage, namely, physical injury to, or loss of use of, tangible property.

“CIG contends its duty to defend arose, at the earliest, on September 18, 2002, when Fox first spoke and wrote to Baden, mentioning plaintiffs' letters to the small claims court.   Some of those letters referred to property damage, for example, broken windows, theft of personal property, and physical damage to vehicles․  CIG paid all of Fox's attorney fees and costs beginning September 18, 2002.   It follows that the Treweeks have received all monetary benefits due under the policy in connection with the duty to defend.”  (B193242.)

With respect to CIG's duty to indemnify, we explained:  “ ‘The obligation to indemnify must be distinguished from the duty to defend.   The duty to defend arises when there is a potential for indemnity.’  (Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 659, fn. 9.) ‘The obligation to indemnify, on the other hand, arises when the insured's underlying liability is established․  Although an insurer may have a duty to defend, it ultimately may have no obligation to indemnify, either because no damages were awarded in the underlying action against the insured, or because the actual judgment was for damages not covered under the policy.’  (Ibid.) ‘Whether coverage is ultimately established in any given case may [also] depend on ․ the existence of express conditions or exclusions in the particular contract of insurance under scrutiny, the availability of certain defenses that might defeat coverage, and a determination of whether the facts of the case will support a finding of coverage.’  (Id. at p. 655, fn. 2.)

“CIG states that it decided to pay indemnity in only six of the 33 settled cases based on the content of the plaintiffs' letters to the small claims court.   In particular, the letters in those six cases made reference to some type of property damage or trespass.   None of the other letters, CIG argues, implicated any type of coverage.

“The Treweeks counter that, in five additional cases, the plaintiffs' letters described some type of bodily injury, such that a duty to indemnify arose.   But the record shows that those cases were dismissed, not settled.   The Treweeks further argue that CIG should have paid indemnity in another two cases, where the plaintiffs' letters alleged the suffering of anxiety, nervousness, fear, or worry.   But a reasonable interpretation of ‘bodily injury’ would not include those conditions․  Similarly, a loss of sleep due to noisy neighbors is not a ‘bodily injury’ within the meaning of the policy․  Thus, indemnity was not owed in any of the cases where the sole basis of the Treweeks' claim for reimbursement was the plaintiff's difficulty in sleeping.

“Nevertheless, CIG has made no effort to explain why it has not indemnified the Treweeks in one case in which indemnity was arguably owed.   Plaintiff Leonard Ramos stated in his August 12, 2002 letter to the small claims court, ‘I have seen occupants [of the Treweeks' building] destroy things on my property.’   The Treweeks settled with Ramos for $3,000.   Ramos's allegation of property damage may have obligated CIG to provide a defense.  (See Montrose I, supra, 6 Cal.4th at p. 295.)   Thus, for purposes of indemnity, the Treweeks may have been presumptively liable to Ramos in the amount of the settlement.   (See Isaacson v. California Ins. Guarantee Assn. (1988) 44 Cal.3d 775, 791.)   In short, CIG did not establish as a matter of law that it did not owe indemnity in the Ramos case.

“Having concluded that indemnity may still be owed in at least one of the small claims cases, we do not decide whether CIG may have owed or breached a duty to reimburse the Treweeks as to any of the other settlements.   Because CIG may not have fully paid the Treweeks what they are owed under the policy, the trial court erred in granting CIG's motion for summary adjudication on the breach of contract claim.

“Further, the error in granting CIG's motion tainted the subsequent trial of the breach of covenant claim.   In finding in favor of CIG, the trial court concluded:  (1) the delay in paying defense costs and indemnity was the result of Baden's failure to send Baratta a copy of plaintiffs' letters to the small claims court;  and (2) Baden's failure was a mistake, bad judgment, or negligence, not a conscious and deliberate act of unfairness.   But the trial court's decision was based on the two-year delay in paying six of the settlements.   We have concluded that at least one more settlement may remain unpaid, four years after the small claims cases settled and two years after CIG [reimbursed the Treweeks for] the other six settlements.   Because the trial court did not consider the additional circumstances surrounding the failure to reimburse the Treweeks for this additional settlement, the breach of covenant claim must be retried.”  (B193242.)

Accordingly, we reversed the judgment and remanded for a new trial.   On remand, the case was tried before Judge Simpson on stipulated facts and the parties' briefs.   On June 24, 2008, after hearing the arguments of counsel, the judge issued a statement of decision, finding CIG liable for indemnity in 12 additional small claims cases:  one case involving destruction of personal property ($3,000);  five cases involving theft of personal property ($12,000);  and six cases involving an inability to use real property ($16,000).   The total amount of indemnity owed but unpaid was $31,000.   Judge Simpson also found “[t]he conduct of defendant CIG in connection with its handling of this matter constitutes a breach of the covenant of good faith and fair dealing, entitling [the Treweeks] to recovery of attorney's fees and costs incurred in obtaining the benefits to which they are entitled under the policy and damages for emotional distress ․ to be determined at a later hearing.”

On or about January 7, 2009, the parties stipulated to the amount of damages due under the statement of decision:  a total of $110,472, including attorney fees, unreimbursed costs, accrued interest, and damages for the Treweeks' emotional distress.   The trial court entered judgment on the stipulation.   On January 16, 2009, the Treweeks filed an “Acknowledgment of Satisfaction of Judgment,” indicating the judgment had been paid in full.   CIG filed an appeal.

II

DISCUSSION

“Under the substantial evidence test, ‘ “[t]he power of the appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted,” to support the trial court's findings․  “We must therefore view the evidence in the light most favorable to the prevailing [parties], giving [them] the benefit of every reasonable inference and resolving all conflicts in [their] favor․” ’  ․ ‘[T]he focus is on the quality, not the quantity of the evidence.   Very little solid evidence may be “substantial,” while a lot of extremely weak evidence might be “insubstantial.” ’  ․ [T]he testimony of a single witness may be sufficient.”  (Hope v. California Youth Authority (2005) 134 Cal.App.4th 577, 589, citations omitted.)

“The rules of construction applicable to contracts govern the interpretation of insurance policies.   We interpret the words of the policy in their ordinary sense, according to the plain meaning a layperson would give them.”  (Belz v. Clarendon America Ins. Co. (2007) 158 Cal.App.4th 615, 625.)

On appeal, CIG contends:  (1) its policy did not cover theft of personal property;  (2) its policy did not cover loss of use of real property;  (3) the small claims plaintiffs sought to recover for emotional distress, not property damage, and (4) the trial court's finding of liability on the breach of covenant claim was not supported by substantial evidence.   We reject these contentions.

A. Policy Coverage for Property Damage

CIG's policy stated:  “[The insurance company] will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury,’ [or] ‘property damage’ ․ to which this insurance applies.”   The policy defined “bodily injury” as “bodily injury, sickness, or disease sustained by a person.”  “Property damage” meant “[p]hysical injury to tangible property, including all resulting loss of use of that property ․ [¶][and] [l]oss of use of tangible property that is not physically injured.”

In our prior opinion, we touched briefly on the subject of policy coverage, stating:  “CIG contends its duty to defend arose, at the earliest, on September 18, 2002, when Fox first spoke and wrote to Baden, mentioning plaintiffs' letters to the small claims court.   Some of those letters referred to property damage, for example, broken windows, theft of personal property, and physical damage to vehicles․  CIG paid all of Fox's attorney fees and costs beginning September 18, 2002.   It follows that the Treweeks have received all monetary benefits due under the policy in connection with the duty to defend.”   (B193242, italics added.)

We cannot say the plain meaning of the phrase, “[l]oss of use of tangible property that is not physically injured,” excludes stolen property as a matter of law.

Similarly, the inability to use real property constitutes a “loss of use” under the policy.   Some of the small claims plaintiffs alleged that they could not use various parts of their land - the backyard, the front yard, the driveway - because of the nuisance permitted by the Treweeks.

Thus, both types of loss of use obligated CIG to indemnify the Treweeks.   (See, e.g., Borg v. Transamerica Ins. Co. (1996) 47 Cal.App.4th 448, 456-457, 460-461 [where homeowner's deck encroached on neighbor's land, encroachment gave rise to potential liability based on neighbor's loss of use of real property];  Hogan v. Midland National Ins. Co. (1970) 3 Cal.3d 553, 557-558, 566 [loss of use occurred within meaning of policy where wood was improperly cut by insured's defective saw];  Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 861-866 [insurer liable for loss of use where insured sold defective food ingredients to cereal manufacturer];  Hendrickson v. Zurich American Ins. Co. (1999) 72 Cal.App.4th 1084, 1090-1092 [policy covered loss of use caused by insured's sale of damaged strawberry plants to third party growers];  see also Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co. (1996) 45 Cal.App.4th 1, 87-94 [asbestos manufacturer's insurer liable for diminution in market value of buildings in which asbestos used].)

CIG relies on Collin v. American Empire Ins. Co. (1994) 21 Cal.App.4th 787 (Collin ), for the proposition that its policy does not cover theft of personal property or the inability to use real property.   In Collin, the insured sought a defense under a comprehensive general liability policy in a suit alleging conversion.   The Court of Appeal concluded the policy afforded no coverage because conversion is an intentional tort, and the policy covered property damage resulting from an “occurrence,” or accident.  (Id. at pp.   804-805, 810-814.)

CIG quotes portions of Collin in its appellate briefs but never applies Collin to the facts of this action.   We do not undertake that task on its behalf.  (See Nelson v. Avondale Homeowners Assn. (2009) 172 Cal.App.4th 857, 862.)   CIG does not contend that its policy is limited to property damage caused by an occurrence or accident or that deliberate conduct is not covered.   Rather, CIG's theory of the case - at both trials and in both appeals - has focused on the policy's definition of “property damage.”   Other provisions of the policy have not been part of the argument.  (See Flatley v. Mauro (2006) 39 Cal.4th 299, 321, fn. 10;  Beyer v. Tahoe Sands Resort (2005) 129 Cal.App.4th 1458, 1471.)

Alternatively, the small claims plaintiffs did not sue the Treweeks for theft or destruction of property.   The Treweeks were sued under nuisance law.   And, unlike a claim of conversion, a suit for nuisance may be based on negligent conduct:  “ ‘ “The invasion may be intentional and unreasonable.   It may be unintentional but caused by negligent or reckless conduct;  or it may result from an abnormally dangerous activity for which there is strict liability.   On any of these bases the defendant may be liable․  [A]n actor is ․ liable ․ only for such interferences as are intentional and unreasonable or result from negligent, reckless or abnormally dangerous conduct.”  ․’ ․ ‘At first glance it may appear that our analysis blurs the distinction between negligence and nuisance and contradicts the often-stated proposition that one may be liable for a nuisance even in the absence of negligence․  However, upon closer inspection, what emerges clearly is but confirmation of a long recognized fact:  under certain circumstances, the worlds of nuisance and negligence overlap and the two become merely alternative legal theories for redressing what is really the invasion of a single primary right:  the right to the undisturbed enjoyment of one's property and land․’ ”  (Paterno v. State of California (1999) 74 Cal.App.4th 68, 108-109, italics added, citation omitted.)   CIG has cited no evidence indicating the Treweeks intentionally or knowingly created or maintained a nuisance.   The evidence is consistent with negligent conduct.¹

In sum, the trial court properly interpreted “property damage,” as used in the CIG policy, to conclude that 12 additional small claims cases gave rise to a duty to indemnify the Treweeks.

B. Liability in the Small Claims Cases

As noted, the complaints filed by the small claims plaintiffs did not make any reference to property damage but referred only to emotional and mental distress.   For that reason, CIG's duty to defend did not arise until it subsequently learned about the content of the letters submitted to the small claims court, in which the plaintiffs described their claims in more detail and included allegations of property damage.

On appeal, CIG faults the small claims plaintiffs for not seeking property damages as opposed to damages for emotional distress in their letters.   For example, one plaintiff wrote:  “We can't use our own backyard.  [¶] ․ [¶] ․ I am asking the court to reward me $5,000 for the pain and suffering this has caused over the past two years.”   Another letter read:  “Our children have had their scooters stolen out of our garage․  [¶] ․ [¶] I request that the court award me $5,000 plus court costs for all the suffering and emotional stress that this property has caused me.”   And a third said, “Since discovering the stolen items, muggings, loitering, drug selling, intimidation, gang activity and loud partying in this neighborhood, my marriage has been victimized.”

We conclude that the 12 additional small claims plaintiffs sufficiently stated a claim for property damage notwithstanding that the requested relief concerned emotional distress.   It was not necessary that the plaintiffs state the amount due for property damage.  “[T]he small claims court is a court which functions informally and expeditiously.   There are no attorneys, no pleadings and no legal rules of evidence․  The action in such court is commenced by an affidavit which states a claim for money due from the defendant, with no indication of the nature of the claim.”  (Community Nat. Bank v. Superior Court (1966) 242 Cal.App.2d 770, 772.)   We should not “apply[ ] rigid rules of pleading in a court where there are no pleadings” (id. at p. 772), and where “laymen with no skill or training in legal expression are the litigants” (id. at p. 773).

If the small claims cases had gone to trial, the judge would have read the letters submitted by the 12 additional small claims plaintiffs and would have assisted the plaintiffs in presenting their claims for property damage, including the determination of the amount of damages.  (See Cal. Judges Benchbook:  Small Claims Court and Consumer Law (CJER 2009) §§ 1.3, 2.6, pp. 3, 17-18.)

C. Sufficiency of Evidence

“An insurer that unreasonably delays, or fails to pay, benefits due under the policy may be held liable in tort for breach of the implied covenant.”   (Rappaport-Scott v. Interinsurance Exchange of the Automobile Club (2007) 146 Cal.App.4th 831, 837.)

“Insurance contracts are unique in nature and purpose․  An insured does not enter an insurance contract seeking profit, but instead seeks security and peace of mind through protection against calamity․  The bargained-for peace of mind comes from the assurance that the insured will receive prompt payment of money in times of need․  Because peace of mind and security are the principal benefits for the insured, the courts have imposed special obligations, consonant with these special purposes, seeking to encourage insurers promptly to process and pay claims.   Thus, an insurer must investigate claims thoroughly ․;  it may not deny coverage based on either unduly restrictive policy interpretations ․ or standards known to be improper ․;  it may not unreasonably delay in processing or paying claims․

“These special duties, at least to the extent breaches thereof give rise to tort liability, find no counterpart in the obligations owed by parties to ordinary commercial contracts.   The rationale for the difference in obligations is apparent.   If an insurer were free of such special duties and could deny or delay payment of clearly owed debts with impunity, the insured would be deprived of the precise benefit the contract was designed to secure (i.e., peace of mind) and would suffer the precise harm (i.e., lack of funds in times of crisis) the contract was designed to prevent.”  (Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1148, citations omitted.)

“ ‘[A]n 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.’ ”  (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 723.)

“ ‘The mistaken [or erroneous] withholding of policy benefits, if reasonable or if based on a legitimate dispute as to the insurer's liability under California law, does not expose the insurer to bad faith liability.’  ․ Without more, such a denial of benefits is merely a breach of contract.   Moreover, the reasonableness of the insurer's decisions and actions must be evaluated as of the time that they were made;  the evaluation cannot fairly be made in the light of subsequent events which may provide evidence of the insurer's errors.

“Thus, before an insurer can be found to have acted tortiously (i.e., in bad faith), for its delay or denial in the payment of policy benefits, it must be shown that the insurer acted unreasonably or without proper cause.  ․ [W]here 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․  While an insurer must give as much consideration to the interests of its insured as it does to its own ․, ‘it is not required to disregard the interests of its shareholders and other policyholders when evaluating claims․' ”  (Chateau Chamberay Homeowners Assn. v. Associated Internat.   Ins. Co. (2001) 90 Cal.App.4th 335, 346-347, citations omitted.)

At the first trial, Judge De Vanon concluded CIG had not breached the covenant of good faith and fair dealing because the delay in paying defense costs and indemnity was attributable to an honest mistake in communications between CIG's litigation supervisor (Baden) and its coverage counsel (Baratta).   The delayed payments were made on February 17, 2005 - two years late - and included indemnity for six of the 33 small claims cases, totaling $15,500.

At the second trial, Judge Simpson found CIG liable for indemnity in 12 additional small claims cases, totaling $31,000.   Thus, CIG satisfied one-third of its indemnity obligation - $15,500 - at the first trial, leaving the other two-thirds - $31,000 - to be paid nearly four years later, after a second trial.   Although the first delay - in paying the $15,500 - may have been the result of an honest mistake in communications, CIG concedes it erred by failing to pay indemnity to plaintiff Ramos, and it has not established proper cause to justify the failure to pay the other 11 small claims plaintiffs.   A delay of nearly four years in paying two-thirds of the total indemnity, absent a genuine dispute, unfairly deprived the Treweeks of the purpose of the insurance:  peace of mind and prompt payment of money in a time of need.   The evidence was sufficient to support the trial court's finding that the covenant had been breached, entitling the Treweeks to a judgment in the amount of $110,472.

III

DISPOSITION

The judgment is affirmed.

NOT TO BE PUBLISHED.

We concur:

FOOTNOTES

FN1. The distinction between a public nuisance and a private nuisance is not pertinent to the issue of intentional versus negligent conduct.  (See Monks v. City of Rancho Palos Verdes (2008) 167 Cal.App.4th 263, 300-303 [discussing similarities and differences between public and private nuisances].).  FN1. The distinction between a public nuisance and a private nuisance is not pertinent to the issue of intentional versus negligent conduct.  (See Monks v. City of Rancho Palos Verdes (2008) 167 Cal.App.4th 263, 300-303 [discussing similarities and differences between public and private nuisances].)

ROTHSCHILD, J. CHANEY, J.