Cheviot Vista Homeowners Assn. v. State Farm Fire and Casualty Co.

Absent Showing by Insured that Cost of Repair Exceeded Policy Deductible, Summary Judgment in Favor of Insurer is Appropriate

Submitted by Brian J. Colombana

In Cheviot Vista Homeowners Assn. v. State Farm Fire & Cas. Co., 06 C.D.O.S. 9813 (2^nd Dist. Sept. 20, 2006), the Court of Appeal affirmed summary judgment in favor of State Farm in homeowner association’s action alleging bad faith adjustment of its property damage losses from the 1994 Northridge earthquake.

State Farm issued a condominium association policy with an endorsement for earthquake coverage to the Homeowners Association insuring a 22-unit condominium building.

The Homeowners Association sued State Farm under the provisions of Code of Civil Procedure § 340.9 for breach of contract, violation of Business and Professions Code § 17200, and bad faith seeking compensatory and punitive damages. The HOA alleged that (1) State Farm’s failure to investigate its newly discovered earthquake damage constitutes a breach of the insurance contract and bad faith; (2) evidence of newly discovered earthquake damage creates a triable issue of material fact regarding whether in 1994 State Farm failed to adequately investigate and evaluate its earthquake damage claim; and (3) the methodology used by State Farm in 1994 to calculate the amount of its loss was impermissible.

The Court rejected the HOA’s initial argument that Section 340.9 created a duty for insurers to investigate newly discovered earthquake damage. Citing Lincoln Fountain Villas Homeowners Assn. v. State Farm Fire and Cas. Ins. Co. (2006) 136 Cal.App.4^th 995, 1005-1006, and 1231 Euclid Homeowners Assn. v. State Farm Fire & Casualty Co. (2006) 135 Cal.App.4^th 1008, 1020, the Court confirmed that Section 340.9 does nothing more than reopen the filing window, for a one-year period, to those otherwise viable cases that had become time barred.

In rejecting the HOA’s second argument, the Court held the HOA failed to submit compelling evidence to support its claim for newly discovered earthquake damage. Specifically, the Court stated “[o]ther than [a] bare reference to a $1 million repair estimate, the Homeowners Association proffered no evidence – not a copy of an estimate, not a declaration from someone who had inspected the property, not even a statement the property had been inspected by a qualified individual – to support its claim of newly discovered earthquake damage....Counsel’s passing reference to a $1 million cost-of-repair estimate is not a basis to defeat summary judgment.”

Lastly, the Court rejected the HOA’s final argument in that it ignores the undisputed evidence that State Farm’s estimate, even without deductions for depreciation and considering amounts for overhead and profit, was far less than the deductible under the HOA’s insurance policy. Any potential for impropriety in State Farm’s methodology was effectively mooted by the undisputed fact the HOA retained three contractors that all prepared bids that were less than State Farm’s estimate. The undisputed facts in the separate statement establish that State Farm fulfilled its duty under the insurance contract.

On October 19, 2006, the Court granted request for publication.

This newsletter and any information contained herein is intended for informational purposes only and should not be construed as legal advice. In addition, this opinion is not final and may be withdrawn from publication, modified on rehearing, or reviewed by the California Supreme Court. Any of these events would render the opinion unavailable for use as legal authority. Seek competent counsel for advice on any legal matter.