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Frank BURNABY, Plaintiff and Respondent, v. STANDARD FIRE INSURANCE COMPANY, Defendant and Appellant.
Defendant Standard Fire Insurance Company (hereinafter “Standard”) appeals from the judgment of October 31, 1989, and from an order of December 19, 1989.
FACTS
Frank Burnaby is the owner of a home located in the Big Rock Mesa area of Malibu, California, which he purchased in October 1979. Burnaby purchased two homeowner's insurance policies from Standard which had effective dates of November 28, 1981, to November 28, 1982, and December 20, 1983, to December 20, 1984, the latter having a $160,000 policy limit for the dwelling and $16,000 for other structures on his property. The policy contained a subrogation clause which provided that the insurer had the right to require an assignment of rights for recovery for a loss to the extent that payment has been made by the company.
Burnaby leased the home to a tenant from June 1982 to June 1983. There was no insurance coverage on the property from November 28, 1982, to December 20, 1983.
On September 9, 1983, the County of Los Angeles sent notices to certain homeowners in the Big Rock Mesa area warning that the county had detected significant evidence that a landslide was developing in the area and advising of a public meeting on September 19, 1983. Burnaby, who did not receive a notice of the meeting, learned of it from a neighbor and attended. At the meeting, there was a map indicating the tentative boundaries of the landslide and Burnaby learned that his home was outside of those boundaries. Subsequent to this meeting on December 19, 1983, Burnaby followed the advice he ascertained had been given to neighbors and submitted claims to the County of Los Angeles and other governmental agencies asserting that his house had been damaged in the amount of $1.1 million. He indicated the damage had commenced on or about September 19, 1983, and was continuing. He also made claims against the Flood Control District, the State of California and the Coastal Commission.
Subsequently, Burnaby purchased through his insurance agent, Richard Poast, a Standard homeowner's policy covering the period December 20, 1983, to December 20, 1984. Poast filled out the application for insurance for Burnaby and checked the box “no losses prior to the application.”
On May 9, 1984, Burnaby wrote to Standard's parent company, Aetna Life and Casualty, claiming property damage to his home due to destabilization of land resulting in a progressive and continuing landslide. Burnaby gave to the insurance company three statements under oath.
Standard did its investigation of Burnaby's claim and on August 7, 1985, by letter from attorney Jay Robinson, denied Burnaby's claim. Burnaby subsequently filed his complaint for damages. Although Burnaby's complaint alleged six causes of action, by the time of commencement of trial, there remained only causes of action for breach of contract, breach of the covenant of good faith and fair dealing and breach of fiduciary duty. Prior to trial, the cause of action for violation of section 790.03 of the Insurance Code had been eliminated by a favorable ruling on Standard's motion for summary adjudication.1 At the same time, the court had ruled that Burnaby's claim for damages under the 1981–1982 policy of insurance was time barred by the applicable one year statute of limitations, consequently, no coverage existed under that policy.
Standard contended at the trial, which commenced August 21, 1989, that the damage to Burnaby's property had commenced before December 20, 1983, the effective date of his policy of insurance, and that Burnaby, at the time he applied for the policy, had misrepresented to or concealed from Standard significant facts concerning the condition of his property.
Three weeks into the trial, on September 13, 1989, Division Seven of this court issued its order staying the trial until October 1, 1989, and notifying the trial court and parties that the court was considering a peremptory writ of mandate and directing Standard, as real party in interest, to file its opposition to the petition. On September 25, 1989, this court issued its order that the trial court reinstate the cause of action based upon breach of Insurance Code section 790.03, subdivision (h) or, alternatively, show cause why the cause of action should not be reinstated. On September 29, the trial court reinstated the cause of action and the trial resumed on October 2, 1989.
The jury returned a special verdict on October 27, 1989, finding that Standard had breached the terms of the insurance contract and had acted in bad faith in doing so. The jury awarded damages and prejudgment interest in the sum of $235,990.86 and extracontractual damages in the amount of $600,000. On October 31, 1989, the jury returned its verdict awarding $500,000 as punitive damages. The jury answered a series of questions in rendering its verdict which included the following findings: that Burnaby had not concealed from Standard any material fact he had a duty to disclose; that Standard did not properly deny Burnaby's claim by virtue of the latter's concealment of material facts in his policy application; that the property damage to Burnaby's house first occurred between December 20, 1983, and December 20, 1984, and not prior thereto; that such damage was an unanticipated fortuitous external event; that Standard breached its duty to Burnaby to deal fairly and in good faith and breached the fiduciary duty it owed to Burnaby; that Standard knowingly committed one or more of the unfair and deceptive practices prohibited by Insurance Code section 790.03; and, that Standard was “guilty” (sic ) of fraud but was “not guilty” (sic ) of malice or oppression.
Standard's motion for a new trial was granted on the basis of excessive compensatory damages and provided that the motion would be denied if Burnaby consented to a reduction in the amount of such damages from $600,000 to $200,000. Burnaby consented and judgment was entered in the total sum of $1,014,990.31, including interest, costs and disbursements.
Standard timely appealed from the judgment and Burnaby appealed from the conditional order for a new trial.2
Subsequent to the entry of the jury verdict, Standard filed a motion to amend the judgment to provide for Standard's right of subrogation.3 On December 19, 1989, that motion was denied on the rationale that any subrogation rights were forfeited when Standard breached the contract and acted in bad faith.
DISCUSSION
I
Standard's first contention is that there was no insurance coverage for the loss suffered by Burnaby. Standard's argument is that Burnaby's loss is due to earth movement which occurred no later than December 19, 1983. It urges that its contention is borne out by the sworn statements of Burnaby in his loss claim submitted to the government entities. In those statements, Burnaby's claim is that his home was a total loss and that there were cracks in his driveway. Accordingly, urges Standard, the date of loss, for insurance purposes, was in 1983 when Burnaby was without insurance coverage. Standard exhorts this court to so rule “as a matter of law,” thus, negating the jury's verdict awarding general and punitive damages to Burnaby. Standard importunes us to, in the alternative, “correct the error of the jury” and determine as a matter of law that the insurance policy should be rescinded due to misrepresentation and concealment by Burnaby on the application for the policy. Specifically, avers Standard, the application did not reveal that Burnaby had made the claim of loss to the government and stated affirmatively that there had been “no losses” within the preceding three years when in fact, there had been cracks in the earth around Burnaby's property. Standard points us to Imperial Casualty & Indemnity Co. v. Sogomonian (1988) 198 Cal.App.3d 169, 243 Cal.Rptr. 639, as authority for his stance.
Sogomonian is a case in which the court ruled that the trial court should have entered an order granting summary adjudication of issues establishing that the insurer was entitled to rescission of a policy of insurance on the grounds of concealment and misrepresentation. The case before this court, however, is factually and procedurally very different. In Sogomonian, the issue before the court was the propriety of a summary judgment ruling as to undisputed facts. This case was before the court for determination of factual matters in a trial. In Sogomonian, there was no factual dispute regarding concealment of various material facts by the insured such as subsidence and earth movement which culminated in a landslide onto the property of a downhill neighbor. In the case before the bar, a principal factual issue tried to the jury was whether or not there had been concealment by Burnaby of material facts from the insurer regarding earth subsidence and movement and Burnaby's knowledge thereof. Sogomonian is, accordingly, inapposite.
It is well established that material misrepresentation or concealment of material facts such as those recited herein is a proper basis for the rescission of a policy of insurance. (See Cohen v. Penn Mut. Life Ins. Co. (1957) 48 Cal.2d 720, 727, 312 P.2d 241.) In this case, however, the jury, after listening to protracted conflicting testimony, made specific factual findings that Burnaby had not concealed material facts; that his home had not been damaged by earth movement prior to the issuance of the homeowner's insurance policy; and that the damage did occur during the time period that the policy was in force. The scope of the power of review of this court is to ascertain whether there is substantial evidence to support the finding of the jury. “When two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the trial court. [Citations.]” (Green Trees Enterprises, Inc. v. Palm Springs Alpine Estates, Inc. (1967) 66 Cal.2d 782, 784–785, 59 Cal.Rptr. 141, 427 P.2d 805.)
In this case, there is substantial evidence to support the jury verdict. For example, evidence was presented to the jury that when Burnaby first inquired about insurance, he advised Standard's agent, Poast, that there were some cracks on his property which was located near the Big Rock Mesa slide area. Evidence was presented that Poast was not concerned because he assumed that landslides were not covered in the policy. In addition, evidence was presented that Aetna, the parent of Standard, knew about and was investigating the landslide before Burnaby's homeowner's policy was issued. Moreover, evidence was presented that Burnaby never saw an insurance application, that the “no losses” box on the application was unanswered when submitted to the insurance company by Poast and an underwriter checked the “no losses” box on the application after she received it from agent Poast. Further, the jury was presented evidence that Standard had a previous policy file from 1978 to 1981; had an inspection report for 1982 on the Burnaby home which was prepared by Standard's investigator; and that the home was not damaged by the Big Rock Mesa slide before the policy was issued. Uncontroverted testimony was presented to the jury by an expert witness that the landslide manifested itself in the area of Burnaby's home in 1984 and that the cracks in the driveway were probably caused by tree roots. As to the government claim letter and the claims file, Burnaby presented a reasonable and plausible explanation to the jury.
It is well established that the findings of a jury must be given a liberal construction to the end of supporting a judgment. (Snapp v. State Farm Fire & Cas. Co. (1962) 206 Cal.App.2d 827, 831, 24 Cal.Rptr. 44.) Also, it is established that the question of when appreciable damage occurs to place one on notice of a potentially insured loss is a factual matter for the trier of fact. (Prudential–LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674, 687, 274 Cal.Rptr. 387, 798 P.2d 1230; San Jose Crane & Rigging, Inc. v. Lexington Ins. Co. (1991) 227 Cal.App.3d 1314, 1318, 278 Cal.Rptr. 301.) Standard asserted it would not have issued a policy of insurance to Burnaby if it had known about the cracks in his home. The obvious answer to such an assertion is that the jury determined there was no misrepresentation or concealment. “[A jury] is not required to believe the ‘post mortem’ testimony of an insurer's agents that insurance would have been refused had the true facts been disclosed. [Citation.]” (Thompson v. Occidental Life Ins. Co. (1973) 9 Cal.3d 904, 916, 109 Cal.Rptr. 473, 513 P.2d 353.) We are unable to say that the trier of fact in this case indulged in any unreasonable inferences which were unsupported or rebutted by clear, positive and uncontradicted evidence so that its factual findings may not stand.
II
Standard argues that inadmissible prejudicial evidence led to the adverse verdict. In point of fact, Standard says that Richard Leabow, “a purported expert witness,” should not have been permitted to testify that it was improper to deny a claim on the basis of nondisclosure of cracks because Leabow was not experienced in and had no knowledge of underwriting. Standard states twice in its opening brief that Leabow and “purported legal expert” Kenneth Chiate were permitted to testify “to the requirements of the law. Neither ․ was qualified to tell the jury that an insurance company must pay a claim if only 20% of the evidence favors a finding of coverage.” And again, “[t]he most interesting, and bizarre, testimony of Mr. Leabow dealt with the duty of an insurer to pay a claim․ In quantitative terms, a claim should be paid even if 80% of the evidence supports its denial. [Citation.]” Having perused the record carefully, this court is perturbed that Standard should so glaringly misstate the testimony of these two witnesses. The essence of Leabow's testimony on cross-examination follows:
“Q. ․
“If ․ the evidence showing lack of coverage appears to be stronger than the evidence showing coverage, do you think an insurer is entitled to deny that claim?
“A. ․ there would have to be a great preponderance of evidence in favor of there being no coverage before you would deny your insured the benefit.
“․
“Q. ․ does it have to be 90 to 10, or what percentage would you say?
“A. ․ I am not an expert to, you know, to make that determination.
“․
“Q. How preponderant in your opinion does lack of coverage have to be in order to properly deny a claim where there are dispute[ ]d facts respecting coverage?
“․
“A. If the evidence lends itself clearly to percentages, I might suggest something like 80/20.
“I don't think most evidence lends itself to that type of analysis.”
Later in cross-examination, in answer to the same question, Leabow stated: “I couldn't give you a percentage․ [¶] [I]f they were out looking for facts to deny the claim and they built 80 percent of the facts in their favor and disregarded the information that was available to support the claim, then I would say 80 percent wasn't enough because they haven't done the right investigation.”
Leabow testified to his qualifications at length. He attended Harvard University and UCLA and earned both B.A. and M.B.A. degrees with concentration in finance and insurance. He graduated first in his class and was the recipient of several honors while in college, including being a Ford Foundation Fellow. Leabow spent his life's work in the insurance field in many capacities, from chartered property and casualty underwriter to lecturer in insurance, business, law and economics at the university level. As the trial judge said in a sidebar colloquy: “He's a competent guy.” Attorney Chiate's qualifications may be summed up by restating his testimony that he had spent 23 years specializing in insurance and numerous years advising insurance companies regarding legal claims.
“A person is qualified to testify as an expert if he has special knowledge, skill, experience, training, or education sufficient to qualify him as an expert on the subject to which his testimony relates.” (Evid.Code, § 720, subd. (a).) It is well established that an expert may give his opinion based upon facts he has not personally observed but which are put to him in the form of hypothetical questions. The value of any opinion of an expert depends, of course, upon the reliability of the source of the facts assumed. (See Evid.Code, § 801.) The qualification of an expert witness is within the sound discretion of the court and its ruling will not be disturbed in the absence of clear abuse. (Chadock v. Cohn (1979) 96 Cal.App.3d 205, 208, 157 Cal.Rptr. 640.) And, indeed, the exclusion of admissible expert testimony may constitute reversible error. (See Lunghi v. Clark Equipment Co. (1984) 153 Cal.App.3d 485, 490, 200 Cal.Rptr. 387.)
The determinative issue in this case is whether the two witnesses possessed sufficient skill or experience in the fields of their testimony so that the testimony would be likely to assist the jury in its search for truth. (Brown v. Colm (1974) 11 Cal.3d 639, 645, 114 Cal.Rptr. 128, 522 P.2d 688.) We hold that the record establishes that Leabow had sufficient education and experience that there was no abuse of discretion by the court in permitting his testimony. The same is true as regards Chiate. The weight to be given the testimony of each is, of certainty, within the province of the jury.
III
Standard complains that Dennis Evans, a geologist, was not designated as an expert witness yet was permitted to give expert testimony over Standard's objection and in this regard, the trial court erred. Counsel for Burnaby has not made any effort to respond to this contention in even the most cursory fashion, thus, necessitating a search of the record by this court. Our perusal reveals that counsel for Standard has again mischaracterized the testimony of the witness as well as its significance. It appears that Evans was called as a lay witness for the purpose of impeaching, pursuant to Code of Civil Procedure section 2034, subdivision (m),4 certain assumptions held by Standard's expert witness, Janice Ramsay, regarding Evans' conclusions. The court specifically directed that “[Mr. Evans is] not going to express an opinion. [¶] He's going to be asked if he reached a certain conclusion, yes or no.” The record reflects that the questions were put to the witness as directed by the court and his answers were all either “yes” or “no.” We find no error.
Standard further urges that it was error “to allow attorney Marlena Mouser ․ to testify concerning an alleged statement by Mr. Richard Poast to her.” It argues the testimony was not impeachment testimony, was clearly hearsay and lacked foundation. Standard does not cite this court to any objection reflected in the record which was made on any of those three grounds. This court's search of the record reveals no such objections. It is elementary that where inadmissible evidence is offered, the party who wishes to raise the admission as a point of error on appeal must object at the trial stating specifically the grounds of the objection and directing the objection to the particular evidence the party seeks to exclude. A failure to object waives the defect. (See Haskell v. Carli (1987) 195 Cal.App.3d 124, 129, 240 Cal.Rptr. 439; Estate of Silverstein (1984) 159 Cal.App.3d 221, 225, 205 Cal.Rptr. 294.) It follows that even if there were valid grounds at trial for objecting to the testimony of attorney Mouser, which issue we do not reach, Standard failed to preserve it for appeal by making a timely and specific objection.
IV
Standard contends that Burnaby's attorney engaged in conduct and made comments during the trial and at final argument which were prejudicial to Standard's case. It points to the allegedly improper placement of enlargements before the jury, to questions characterized as “argumentative” and to comments to the jury at closing to the effect that the insurance company had destroyed evidence and language which Standard asserts implied that insurance companies generally do not pay claims.
It is elementary that a claim of attorney misconduct will not be considered on appeal unless there is demonstrated in the record a timely and proper objection coupled with a request that the jury be admonished. (Sabella v. Southern Pac. Co. (1969) 70 Cal.2d 311, 318, 74 Cal.Rptr. 534, 449 P.2d 750; Menasco v. Snyder (1984) 157 Cal.App.3d 729, 732, 203 Cal.Rptr. 748.) Standard, here, has made no such showing. Inasmuch as the adverse effect of misconduct can generally be emasculated by an admonition and/or instruction to the jury to disregard it, it is essential that the trial court be given, by proper objection, an opportunity to act. Failure to do so waives review of the alleged misconduct on appeal. Our own review of the instant record reveals zealous and aggressive conduct by both sides, rather than prejudicial misconduct. Standard's counsel, who raises the issue of attorney misconduct, did, himself, assert in closing argument that Burnaby had committed perjury and indicated that one of Burnaby's expert witnesses was “a professional witness” whose “livelihood is ․ trying to hoodwink people․”
It is also axiomatic that a judgment will not be disturbed on appeal on the basis of attorney misconduct unless, from the entire record, it appears that the misconduct resulted in a miscarriage of justice. (O'Neil v. Spillane (1975) 45 Cal.App.3d 147, 157, 119 Cal.Rptr. 245.) Standard has not pointed us to instances in the record and our independent perusal has not revealed any situations in which the nature and seriousness of any remarks or misconduct establish the requisite prejudice. We note that this was a lengthy trial which was aggressively litigated by both sides. An experienced and capable trial judge fairly, impartially and competently controlled the proceedings. We cannot say from our search of this record that there was misconduct, and if there was, that it rose to the level that but for that conduct, a different result would have been probable. We, therefore, hold to be meritless Standard's claim that prejudice resulted from attorney misconduct.
V
Standard claims that the “interruption of the defense” by a stay order and alternative writ from the Court of Appeal was “gravely prejudicial.” It argues that, “[c]learly, the trial judge had no jurisdiction to overturn the ruling made by the earlier judge. [Citations.] Rather, the proper remedy of the plaintiff was to appeal from the judgment after trial.” Standard argues further that the decisions are in conflict as to whether there exists a cause of action for violation of Insurance Code section 790.03, hence, “[n]onetheless, when one judge has made an order granting summary adjudication of an issue, no other judge has jurisdiction to disturb that order except upon a later appeal after trial ․,” citing Conway v. Bughouse, Inc. (1980) 105 Cal.App.3d 194, 202–203, 164 Cal.Rptr. 585.
Standard's argument addresses the reinstatement on September 19, 1989, of a cause of action for violation of the Unfair Practices Act, Insurance Code section 790.03. The cause of action had been dismissed at law and motion and a later request for reconsideration of the dismissal had been denied. Burnaby sought reinstatement by writ of mandate and on September 25, 1989, an alternative writ was granted ordering reinstatement of the cause of action by the trial court or a showing of why it should not be reinstated. Apparently, Standard's argument is that the trial court, notwithstanding the writ issued to it by this court, was without jurisdiction to reinstate the previously dismissed cause of action and by doing so committed reversible error. In other words, a pretrial error may not be corrected by means of an extraordinary writ. An argument which urges that a case be tried with a known reversible error in place defies logic and is unmeritorious. The trial judge is duty bound to follow the directive of the appellate court. Moreover, the case cited by Standard for the principle it espouses, Conway v. Bughouse, Inc., supra, 105 Cal.App.3d 194, 164 Cal.Rptr. 585, is not authority for that principle. Quite the contrary. “In any case, ․ the party who feels that an injustice has been done by the granting of a partial summary judgment ․ may petition for a writ of mandate․” (Id., at p. 203, 164 Cal.Rptr. 585.) Clearly, the trial court acted properly in following the directive of the appellate court.
VI
Standard claims “the trial court prejudicially erred in submitting the case to the jury on the theory of breach of fiduciary duty.” We disagree.
As noted by the trial court and conceded by Standard during a colloquy on jury instructions, at the time this case was tried, “a lot of dicta” existed which at least implied that an insurance company stands in a fiduciary relationship with its insured. (See, e.g., Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 768, 206 Cal.Rptr. 354, 686 P.2d 1158.) In accordance with such dicta, Burnaby proposed four special jury instructions on the subject of fiduciary duty. The trial court modified the proposed instructions in several respects and, as modified, read these instructions to the jury over Standard's objection.5
As noted by Standard in its opening brief, since the time of trial, several appellate cases have specifically held that an insurer is not a fiduciary of its insured. (See, e.g., Thompson v. Cannon (1990) 224 Cal.App.3d 1413, 1418, 274 Cal.Rptr. 608; Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1148–1149, 271 Cal.Rptr. 246.) However, even assuming that such cases require that we deem the instructions under review to have been error, Standard has not suffered any prejudice which requires that it be accorded relief on appeal. (See Williams v. Carl Karcher Enterprises, Inc. (1986) 182 Cal.App.3d 479, 489, 227 Cal.Rptr. 465.)
The only actual description of a fiduciary set forth in the instructions is the proviso that an insurance company “may not put its own interest above that of the insured's interest.” This, however, is clearly a proper statement of law. (See, e.g., ibid., citing Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818–819, 169 Cal.Rptr. 691, 620 P.2d 141.) Thus, although it may have been error to instruct that Standard was a “fiduciary,” no prejudice resulted because the jury was not told that Standard should be held to a higher standard than the one actually imposed by law.
The final instruction placed the burden on Standard to prove that it did not breach any fiduciary duties to Burnaby, and specified that the shift in burden did not apply to other causes of action or to the determination of damages. However, the special verdict form establishes that the jury found Standard liable and awarded extracontractual damages on theories of breach of the duty to deal in good faith, commission of unfair and deceptive acts, and breach of fiduciary duty. Because, as discussed above, an insurance company's obligation was properly defined, we see little harm that could have been done by shifting the burden of proof on that one cause of action.
VII
We turn to the issue of whether there was substantial evidence to uphold the jury award of damages in the context of examining Standard's argument that its denial of Burnaby's claim of loss was reasonable and, therefore, the award of damages was improper. We summarize the substantial evidence which was before the jury to support its finding of a bad faith breach of duty to deal reasonably and in good faith with Burnaby rendering Standard liable for compensatory and exemplary damages.
Evidence was presented that in 1983, Burnaby's house was not a part of the Big Rock Mesa slide area which was slow moving and progressive. In December 1983, when he applied for hazard insurance, Burnaby advised Standard's agent, Poast, that his home was near the landslide and that there were cracks on his property. Poast told Burnaby that his proximity to the slide was not a problem. Although at trial, Poast testified he was unaware of the landslide problems, the internal records of Standard revealed that Gus Pelligrino, the insurance company property specialist, had determined in May 1985 that Poast said he did know about the landslide when the policy was applied for. Also before the jury was testimony that the parent insurance company, Aetna, had 13 other insureds in the slide area. Moreover, before the policy was issued, an Aetna underwriter had called Poast for cross streets so that he could inspect the property. The jury heard testimony that Burnaby had never seen an application for insurance. The application was filled out by Poast and submitted to the insurance company with the question box regarding “no losses” left blank. Ramirez, an Aetna underwriter, who inexplicably had two applications, checked the “no losses” box herself after she received the application from Poast. Also, there was no question on the application regarding whether other claims had been made. In addition, the jury heard evidence that Burnaby previously had hazard insurance with Standard which he had not renewed for a period when the property was occupied by lessees.
The jury had before it evidence from the County Improvement District geologic expert, Dennis Evans, as well as Dr. Atwar Singh, another expert, that it was not until 1984 that the landslide expanded westward to the area where Burnaby's home was located. Moreover, the jury had before it evidence that Standard's own expert, Frederich Gebhardt of Leighton and Associates, advised Standard to the same effect in its report to Standard and in addition, advised that the cracks at Burnaby's property were not caused by the landslide and that they, the experts, were unable to determine if Burnaby's property had suffered any landslide damages before the policy was issued. Regarding the investigation of Burnaby's claim of loss, evidence was presented that Robert Donnelly, the insurance claims investigator who first investigated the claim, reported to Standard on August 10, 1984, that the loss of Burnaby's property was a “delayed reaction” to the slide to the east of Burnaby's property and the repairs would exceed the policy limits. The claim was then reassigned to Donnelly's supervisor, Pelligrino, whose report to the insurance company was that the company might be able to compromise the claim if they received a favorable geologic report from Leighton and Associates. He set the estimated settlement value at $80,000. Evidence was presented to the jury that in April 1985, Pelligrino's report indicated that Leighton and Associates could not determine a date when Burnaby's loss manifested. The jury heard evidence that Pelligrino, on September 24, 1984, sent a notice to his superior, George Spilios, the claims department manager, showing Burnaby's loss date as December 20, 1983, but sent a letter one week later to Burnaby's attorney indicating the company was of the opinion the loss date was September 10, 1983, a date outside of the insurance policy period. The jury heard the testimony of Standard's insurance expert, Bernard Feldman, to the effect that if the insurance company knew of an expert, Dennis Evans, and of his extensive information regarding the landslide, it would be bad faith not to contact and talk to him. The jury further heard Standard's attorney, Jay Robinson, describe Evans as “a geotechnic expert who probably has more knowledge about Big Rock than any of the other experts․” Evidence was presented that Standard did not contact Evans although Standard knew about him and although he was available to Standard and had been contacted by other insurers. The evidence of these facts is a sufficient underpinning, we hold, in support of the award by the jury of damages.
VIII
Standard argues that “it was manifest error for the trial judge to submit the claim for punitive damages on a fraud theory to the jury” because it was based upon a jury finding of the tort of fraud. Standard argues that Civil Code section 3294, subdivision (e), is a codification of the common law tort of fraud which was not pleaded by Standard, hence, no judgment could be returned on that theory. Although novel, Standard's argument is specious. First, Standard does not point this court to a timely and specific objection made to any evidence presented, any jury instructions given or any argument made to the jury on this issue. On that sole basis, we need not address the issue. Nonetheless, we observe the jury verdict is not a product of improper instruction to the jury or submission to the jury on a theory of fraud. The jury considered, inter alia, the cause of action pleaded for violation of Insurance Code section 790.03. The jury concluded that there was no “malice” or “oppression” but that Standard was “guilty” of fraud. Civil Code section 3294, subdivision (a), provides for sanctions by way of exemplary damages where bad faith conduct occurs in a context of malice, fraud or oppression. (Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at p. 820, 169 Cal.Rptr. 691, 620 P.2d 141.) The term “fraud” under Civil Code section 3294, subdivision (c)(3), means “an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.” This is not fraud in the common law tort context. It is not a codification of the tort of fraud. There is no necessity for Burnaby to plead and prove, as Standard asserts, all of the elements of a tort cause of action for fraud, including detrimental reliance.
Where an action is ex delicto in nature, exemplary damages are properly awardable. An action is ex delicto if it arises out of fault, misconduct or malfeasance and includes the wrongful taking of a person's property or injury to it. (See 1A C.J.S., Actions, § 4, subd. (b), p. 309; Black's Law Dict. (5th ed. 1979) p. 509, col. 1.) In the case of Haigler v. Donnelly (1941) 18 Cal.2d 674, 117 P.2d 331, plaintiffs did not plead a cause of action in fraud. Rather, their first cause of action was a common count for money had and received and the second was for conversion. Our Supreme Court held at page 681: “Exemplary damages are properly awardable [under Civil Code section 3294] in an action for conversion, given the required showing of malice, fraud or oppression. [Citations.]” The conversion in the Haigler case was the withholding from plaintiffs by defendant of a sum of money claimed by defendant-broker to be a commission to which she was entitled. The evidence was sufficient, said the court, to uphold the trial court's conclusion that the defendant's refusal to account was not made in good faith and was, instead, a ploy to obtain plaintiffs' money by trickery and falsehood. Similarly, in the case of Arzaga v. Villalba (1890) 85 Cal. 191, 24 P. 656, a father was held to have committed the tort of conversion by refusing to return to his daughter her furniture and clothes upon her demand. Our Supreme Court held that exemplary damages were properly awarded to plaintiff in the fraud context of Civil Code section 3294. Both Haigler and Arzaga, supra, accordingly are illustrative of the principle that no cause of action for the tort of fraud need be pleaded and proved as a condition precedent to an award of damages pursuant to Civil Code section 3294. Similarly in this case, there is ample evidence, which is reviewed hereinafter, to justify the jury award of exemplary damages on the basis of intentional misrepresentation and/or concealment of a material fact with intent to deprive respondent of property, to wit, insurance proceeds, thereby constituting fraud within the meaning of Civil Code section 3294, subdivision (a).
IX
We are called upon to determine the issue of whether an insurer who is determined at trial to have unreasonably and in bad faith declined to pay a claim of loss by its insured is entitled to assert subrogation rights after the insured has successfully sued on that claim of loss and recovered from a third party tortfeasor. We hold in the negative.
Subrogation is the right of an insurer to substitute itself in place of its insured to seek recovery from the legally responsible third party tortfeasors for loss paid by the insurer to the insured. (Kardly v. State Farm Mut. Auto. Ins. Co. (1989) 207 Cal.App.3d 479, 488, 255 Cal.Rptr. 40.) That is to say, an insurer, upon paying a loss, is subrogated in a corresponding amount to the insured's right of legal action against any other person whose tortious action has caused the loss. (See 16 Couch on Insurance (2d ed. 1983) § 61:1, p. 75.)
In the instant case, Standard contends that it is entitled to subrogation rights by virtue of the contract of insurance between Burnaby and itself and/or by operation of law. Standard urges that if its right to subrogation is not protected, Burnaby will receive a windfall in the form of a double recovery.
The right to subrogation arises by contract and upon equitable principles. In this case, the subrogation clause in the insurance policy provided that: “Any insured may waive in writing before a loss all rights of recovery against any person. IF NOT WAIVED, WE MAY REQUIRE AN ASSIGNMENT OF RIGHTS OF RECOVERY FOR A LOSS TO THE EXTENT THAT PAYMENT IS MADE BY US. [¶] IF AN ASSIGNMENT IS SOUGHT, ANY INSURED SHALL SIGN AND DELIVER ALL RELATED PAPERS AND COOPERATE WITH US IN ANY REASONABLE MANNER.” (Original emphasis.)
The general rule is that an insurer is subrogated in an amount equivalent to that which it has paid. Until the insurer has paid the claim under the policy, no rights accrue to it. (Hausmann v. Farmers Ins. Exchange (1963) 213 Cal.App.2d 611, 615, 29 Cal.Rptr. 75; see also Patent Scaffolding Co. v. William Simpson Constr. Co. (1967) 256 Cal.App.2d 506, 509, 64 Cal.Rptr. 187.) Thus, the right of subrogation does not arise until there has been a payment by the insurer under the policy of insurance. It is undisputed that in the instant case, no payment has been made by Standard. Moreover, the language of assignment in the contract of insurance may be reasonably interpreted to hold that payment of benefits for a loss covered under the policy is a condition precedent to the insurer requiring the execution by the insured of documents of assignment of rights against the tortfeasor. It is basic that when the insurer and insured accept the policy, each accepts the conditions imposed by the terms of the policy. If one party fails in some substantial respect to comply with the terms, that party cannot, in the absence of waiver, demand performance by the other.
It is undisputed that Standard, in this case, (1) was presented a claim of loss and declined to honor it; (2) was informed and invited to participate in the prosecution of the suit against the tortfeasors; (3) provided no aid to Burnaby in his prosecution of the claim; (4) took no affirmative steps such as intervention to protect its interest; and (5) was determined by the jury to have acted unreasonably and in bad faith in denying its insured's claim of loss. Under this set of facts, we find no merit to Standard's claim that it possesses a right of contractual subrogation that may be asserted. Standard has no right, moral or equitable, to lie quiescent and require that another protect its rights. A subrogation right may be waived expressly or by implication. (Lossman v. City of Stockton (1935) 6 Cal.App.2d 324, 332, 44 P.2d 397.) We hold that the conduct of Standard in this instance constituted a failure to properly assert its right of subrogation in compliance with the policy of insurance thus waiving that right. On the rationale that failure to make payment is a waiver, we hold that subrogation does not apply in an instance, as here, where the insurer has refused to pay a claim of loss subsequently judicially determined to be appropriate.
Standard may not, moreover, assert a right of subrogation upon equitable principles. Although the policy of insurance determines the rights of the insurer regarding subrogation, in the absence of a contract of insurance, the right arises pro tanto upon payment. In the instant case, there was no payment. Accordingly, there is no subrogation right. (See Kardly v. State Farm Mut. Auto. Ins. Co., supra, 207 Cal.App.3d at pp. 488–489, 255 Cal.Rptr. 40.) This principle is particularly applicable considering the jury determination of Standard's lack of good faith dealing. The essential underlying philosophy of subrogation is to do justice vis-a-vis the parties by requiring payment from the person primarily responsible for the loss. (See 16 Couch on Insurance, supra, § 61:18, p. 93.)
In Kardly, supra, where an insurer's subrogation rights were held to have been lost with respect to certain of the insured's losses which were not paid, the court discussed Powers v. Calvert Fire Ins. Co. (1950) 216 S.C. 309, 57 S.E.2d 638 to which Burnaby refers. In that case which involved an auto collision, the insured's claim was denied by the insurer. The insured sued the alleged tortfeasor, as in this case, and terminated its suit by settlement as occurred in the instant case. The insurer, as here, took no part in the insured's action notwithstanding its subrogation rights pursuant to a clause in the policy of insurance. As in this case, the insured sued the insurer for damages for breach of the policy of insurance. On the issue of subrogation, the court observed that an insurer “cannot sit down and hold its hands and purse and thereafter escape liability for fulfillment of its contract by reason of the insured's effort, after fair notice, to recoup his loss by litigation against a wrongdoer.” (Id., at p. 642, 57 S.E.2d 638.) The court held that subrogation arises upon payment and in default of that is not available where there is conduct which amounts to breach of the contract of insurance inasmuch as it results in a waiver of the right of subrogation.
We observe, finally, that there has been in this case no showing of a specific sum of money paid by tortfeasors to Burnaby. The evidence makes clear there has been some pecuniary recovery by Burnaby from a third party and to that extent, perhaps, a “double recovery” in contravention of public policy. Nonetheless, by our holding in this case, we endorse the countervailing policies of good faith and fair dealing and proper attention to and assertion of legal rights, inter alia. Accordingly, we hold the trial court properly ruled that Standard forfeited its subrogation rights given the jury determination that Standard had breached its contract of insurance with Burnaby and had engaged in tortious conduct justifying an award of exemplary damages.
X
We find the other brief contentions of Standard unmeritorious.
DISPOSITION
The judgment and the order under review are affirmed.
FOOTNOTES
1. At law and motion, the court ruled that the case of Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58, mandated dismissal of this cause of action.
2. Burnaby has abandoned his appeal.
3. The record reflects that certain governmental entities posted a substantial sum of money to be divided among the Big Rock Mesa claimants, including Burnaby. The record does not indicate the amount, if any, which Burnaby actually received.
4. Code of Civil Procedure section 2034, subdivision (m), reads in pertinent part:“A party may call as a witness at trial an expert not previously designated by that party if: ․ (2) that expert is called as a witness to impeach the testimony of an expert witness offered by any other party at the trial. This impeachment may include testimony to the falsity or nonexistence of any fact used as the foundation for any opinion by any other party's expert witness, but may not include testimony that contradicts the opinion.”
5. As given to the jury, the instructions read as follows:“Another reason Mr. Burnaby seeks benefits from Standard Fire is breach of the fiduciary duties owed by Standard Fire and its agent to its insured.”“An insurance company is a supplier of a vital public service. As a supplier of a public service the obligations of insurers go beyond meeting reasonable expectations of coverage and encompass the responsibilities of a fiduciary.”“A fiduciary owes loyalty and good faith to those who repose trust and confidence in it. [¶] As a fiduciary, an insurance company may not put its own interest above that of the insured's interest.”“Because of the existence of the fiduciary relationship between Mr. Burnaby and Standard Fire, the burden of proof relating to the cause of action of breach of fiduciary duty partially shifts so that Standard Fire has the burden of proving by a preponderance of the evidence that it did not breach its fiduciary duties owed to Mr. Burnaby. This shift in the burden of proof applies only to the cause of action for breach of fiduciary duty and does not apply to the determination of damages.”
DUNN, Associate Justice, Assigned.** FN** Assigned by the Chairperson of the Judicial Council.
ORTEGA, Acting P.J., and MASTERSON, J., concur.
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Docket No: No. B047665.
Decided: June 01, 1993
Court: Court of Appeal, Second District, Division 1, California.
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