Ivers v. Allstate Ins. Co.
Filed 12/12/08 Ivers v. Allstate Ins. Co. CA3
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
THOMAS J. IVERS,
Plaintiff and Appellant,
ALLSTATE INSURANCE COMPANY,
Defendant and Respondent.
(Super. Ct. Nos. PV003182, PV005595)
After the home of plaintiff Thomas J. Ivers was destroyed in a fire, his homeowners insurer, defendant Allstate Insurance Company (Allstate), denied coverage, asserting the fire had been deliberately set by plaintiff. Plaintiff initiated this action against Allstate and others and ultimately prevailed against Allstate on his claims for breach of contract and tortious breach of the covenant of good faith and fair dealing. However, the trial court denied plaintiffs request for attorney fees on his bad faith claim and declined to award prejudgment interest. Plaintiff appeals, challenging these rulings as well as a decision to exclude evidence of alleged misconduct by an investigator hired by Allstates attorneys. We conclude plaintiff failed to meet his burden of showing the amount of fees attributable to his contract recovery, so that the trial court properly denied attorney fees and prejudgment interest, and any error in excluding the indicated evidence was harmless. We therefore affirm the judgment.
Facts and Proceedings
On January 14, 1997, plaintiffs home in Shingle Springs, California, was destroyed in a fire. At the time, the home was covered by a policy of homeowners insurance written by Allstate. In light of the issues raised by the parties in this appeal, a detailed description of the circumstances surrounding the fire and Allstates investigation thereof is unnecessary. Allstate eventually concluded the fire had been deliberately set by plaintiff and denied coverage.
Plaintiff initiated this action against Allstate and others. After consolidation with a subsequently-filed action that alleged misconduct after the first complaint was filed, plaintiff filed a second amended complaint containing six causes of action: (1) breach of the insurance contract; (2) tortious breach of the covenant of good faith and fair dealing; (3) trespass; (4) conversion; (5) unfair business practices; and (6) conspiracy. The matter went to trial, and the jury found in plaintiffs favor on the breach of contract claim, awarding him damages in the amount of $676,532.80, which consisted of $506,532.80 for the structure and $170,000 for its contents. However, the jury deadlocked on the tortious breach claim.
The matter was retried on the tortious breach claim, and a second jury found in plaintiffs favor. However, the jury also concluded the tortious breach did not cause any emotional distress and awarded no additional compensatory damages. The jury further concluded Allstate had not acted with malice, oppression or fraud and denied punitive damages.
Plaintiff moved for an award of attorney fees as damages on his tortious breach claim. The trial court denied the motion. The court also declined to award prejudgment interest on the jury award. The court entered judgment for plaintiff in the amount of $361,696, representing the total amount awarded by the jury less amounts already paid by Allstate on the claim.
In Brandt v. Superior Court (1985) 37 Cal.3d 813 (Brandt), the California Supreme Court held that when an insurer tortiously withholds benefits under an insurance policy, attorney fees reasonably incurred to compel payment of such benefits are recoverable as an element of damages. (Id. at p. 815.) Such attorney fees must be distinguished from attorneys fees qua attorneys fees attributable to bringing the bad faith action itself. (Id. at p. 817.) These latter fees, under the American rule, are not recoverable. Thus, where an insured asserts a contract claim for breach of the insurance policy and a claim for tortious breach in the same action, [t]he fees recoverable . . . may not exceed the amount attributable to the attorneys efforts to obtain the rejected payment due on the insurance contract. Fees attributable to obtaining any portion of the plaintiffs award which exceeds the amount due under the policy are not recoverable. (Id. at p. 819.)
Plaintiff contends that because he entered into a contingency agreement entitling counsel to 40 percent of any recovery, and because the jury awarded only contract benefits, he is entitled to Brandt fees equal to 40 percent of the entire award. He argues the trial court erred in concluding otherwise based on a misconception that the jury in the second trial had not awarded any damages on his tortious breach claim. Plaintiff asserts the jury in the second trial was told he had been awarded the policy benefits in the first trial. Therefore, in the second trial, the jury merely failed to award additional damages. Nevertheless, plaintiff argues, the damages awarded on the breach of contract claim are also damages on the tortious breach claim.
Assuming plaintiff is correct as to the nature of the damages attributable to his tortious breach claim, he is incorrect as to the basis of the trial courts ruling. In its written decision, the trial court noted that plaintiff failed to prove damages as a result of the tortious breach. However, this was not the basis for the courts denial of Brandt fees. Instead, the court analyzed the materials submitted in support of and in opposition to plaintiffs motion and concluded plaintiff failed to establish the proper allocation of attorney fees between his breach of contract and tort claims. As noted above, the insured is entitled to Brandt fees only for attorney work in connection with the breach of contract claim. He is not entitled to such fees for time spent in connection with proving his tortious breach claim or any other claim.
In Cassim v. Allstate Insurance Company (2004) 33 Cal.4th 780 (Cassim), the California Supreme Court considered the proper method of allocating attorney fees where a plaintiff pursues both a breach of contract and other claims in the same action and recovers on multiple claims. In Cassim, as here, the plaintiffs had entered into a 40 percent contingency agreement with counsel. The jury awarded the plaintiffs a combined $3,594,600 in compensatory damages and $5 million in punitive damages. Based on the evidence presented at trial, the court surmised approximately $40,000 of the compensatory damages represented unpaid policy benefits. The court awarded the plaintiffs $1,193,533 in Brandt fees. (Id. at pp. 805, 807.)
On appeal, the insurer argued the plaintiffs were entitled to Brandt fees equal to 40 percent of the contract recovery alone, i.e., 40 percent of $40,000, or $16,000, because Brandt fees are allowed only on the breach of contract claim. The plaintiffs in turn argued they were entitled to 40 percent of the entire compensatory damages recovery, because all of the causes of action in the case were intertwined. (Cassim, supra, 33 Cal.4th at p. 807.)
A majority of the high court disagreed with both. The court concluded the insurers theory was based on a false assumption that when plaintiffs agreed to pay a 40 percent contingent fee, they were agreeing to pay separately 40 percent of the contract recovery and 40 percent of the tort recovery. (Cassim, supra, 33 Cal.4th at p. 808.) Instead, according to the court, plaintiffs agreed, as is generally the case, to pay their attorney an unallocated and undifferentiated 40 percent of their total recovery, whatever that might be. (Ibid.)
By the same token, the court concluded an award of fees based on the entire recovery in a case involving mixed contract and tort damages would not be consistent with Brandt. (Cassim, supra, 33 Cal.4th at p. 811.) Instead, the trial court is required to apportion the fees according to the amount of work done on the contract and tort claims respectively. (Ibid.)
In the case of a contingent fee arrangement, the court provided the following formula: To determine the percentage of the legal fees attributable to the contract recovery, the trial court should determine the total number of hours an attorney spent on the case and then determine how many hours were spent working exclusively on the contract recovery. Hours spent working on issues jointly related to both the tort and contract should be apportioned, with some hours assigned to the contract and some to the tort. This latter figure, added to the hours spent on the contract alone, when divided by the total number of hours worked, should provide the appropriate percentage. (Id. at p. 812.)
Plaintiff contends apportionment is not appropriate here, because the jury awarded no tort damages. According to plaintiff, the amount of work performed by [his] attorneys to prove tort claims is . . . irrelevant to the fee award because, [r]egardless of the amount of time they spent, [plaintiff] is obligated to pay 40% of the benefit award as attorney fees and [a]ny Brandt award of less than 40% of this amount will therefor mean that [plaintiff] would not be made whole, a result that Cassim expressly forbids.
Plaintiffs argument is inconsistent with Cassim. As noted above, the insurer in Cassim argued the plaintiffs were entitled to 40 percent of the contract recovery of $40,000, or $16,000. A majority of the Supreme Court disagreed, explaining that a typical contingency fee agreement does not provide for payment of 40 percent of any contract recovery and 40 percent of any other recovery but instead provides for 40 percent of an undifferentiated total recovery. (Cassim, supra, 33 Cal.4th at p. 808.)
The court further explained: Allstates proposed method of calculating Brandt fees also erroneously assumes that a client who agrees to pay a 40 percent contingent fee will never pay more than 40 percent of the contract recovery to obtain that recovery. But a client paying his or her lawyer an hourly fee may choose to pay more than 40 percent (or even more than 100 percent) of an anticipated contract recovery in order to obtain that recovery. The same is true for a client operating under a contingent fee agreement.
Certainly nothing in Brandt limits the amount of fees awarded as damages to a percentage of the contract benefits. We held in Brandt only that such fees may not exceed the amount attributable to the attorneys efforts to obtain the rejected payment due on the insurance contract. [Citation.] That amount, even in a contingency fee case, could exceed a set percentage of the contract benefit. Indeed, in either an hourly or a contingent fee case, the amount attributable to the attorneys efforts to obtain the contract benefits could conceivably exceed those benefits entirely. (Id. at p. 809.)
However, as a matter of consistency, Brandt fees could also be less than a percentage of the contract recovery in an appropriate case. As the high court explained: Theoretically, the opposite could also be true. That is, the amount of legal fees attributable to the contract might be less than 40 percent of the contract recovery. Were we to preclude defendant Allstate from attempting to prove the damages flowing from its breach were less than 40 percent of the contract recovery, we arguably would deprive it of important rights as well. (Cassim, supra, 33 Cal.4th at p. 810.) Plaintiffs argument to the contrary is essentially one of heads the insured wins, tails the insurer loses.
If the contract portion of damages is small in comparison to the overall compensatory damages award, plaintiff would have the court compute Brandt fees by apportioning the overall recovery in accordance with the percentage of time spent by his attorneys on the contract claim, as in Cassim. However, if only contract damages are awarded, or the contract portion of damages is large in comparison to the overall award, plaintiff would have the court award Brandt fees based on the contract award alone, without apportionment. We conclude Cassim mandates apportionment in either case.
Plaintiff bears the burden of proving by a preponderance of the evidence both the existence and the amount of damages proximately caused by Allstates tortious breach. (Cassim, supra, 33 Cal.4th at p. 813.) This includes the burden of demonstrating how the fees for legal work attributable to both contract and tort claims should be apportioned. (Ibid.)
In support of his motion for attorney fees, plaintiff submitted billing statements prepared by his attorneys. Allstate submitted opposition which included a list of depositions and court hearings with an indication of whether they pertained to the contract or tort claims. In his reply brief, plaintiff argued he was not requesting fees for work done prior to the denial of benefits or any hourly fees. Thus, he argued, attorney billing records are immaterial.
During a conference call among counsel and the court concerning a request by Allstate for a continuance of the attorney fee hearing, Allstates counsel pointed out that plaintiff had not satisfied his burden of establishing a basis for apportioning attorney fees between contract and tort claims. The trial court encouraged plaintiff to take the opportunity occasioned by the continuance to satisfy his burden. However, plaintiff submitted no further evidence.
In its ruling denying attorney fees, the trial court indicated plaintiff submitted $22,000 in attorney billing statements of which $21,000 was for work preceding the denial of his insurance claim. Plaintiff submitted an additional $72,000 in attorney billing statements, but a substantial amount of this work was for matters other than plaintiffs breach of contract claim. Finally, the court pointed out that plaintiff failed to take advantage of the opportunity to submit evidence to provide a basis for apportionment.
We agree with the trial court that plaintiff failed to satisfy his burden of establishing the amount of attorney fees due on his breach of contract claim. Plaintiff does not attempt to argue otherwise. Instead, plaintiff asserts he is entitled to fees equal to 40 percent of the entire compensatory damage award, inasmuch as he was awarded only contract damages. However, as we have explained, apportionment is required even under these circumstances.
The jury in the first trial awarded plaintiff damages in the amount of $676,532.80, consisting of $506,532.80 to rebuild the home and $170,000 for lost personal property. The parties thereafter agreed Allstate owed plaintiff $361,699 after deducting for amounts advanced by Allstate to plaintiffs mortgagees. The trial court awarded plaintiff postjudgment interest from the date the judgment was recorded, but denied prejudgment interest.
Plaintiff contends the court erred in denying prejudgment interest, because the primary dispute between the parties was over liability and the amount owed by Allstate was reasonably subject to calculation. Allstate counters that the amount owed on the insurance policy was uncertain and had to be resolved at trial. Allstate has the better argument.
Civil Code section 3287, subdivision (a), reads in relevant part: Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day . . . . (Further undesignated section references are to the Civil Code.)
Two competing considerations inform a decision whether to award prejudgment interest. First, interest traditionally has been denied on unliquidated claims because of the general equitable principle that a person who does not know what sum is owed cannot be in default for failure to pay. (Chesapeake Industries, Inc. v. Togova Enterprises, Inc. (1983) 149 Cal.App.3d 901, 906.)
On the other hand, injured parties should be compensated for the loss of the use of their money during the period between the assertion of a claim and the rendition of judgment. (Ibid.) These competing policy considerations have led the courts to focus on the defendants knowledge about the amount of the plaintiffs claim. (Id. at p. 907.)
The test for recovery of prejudgment interest under section 3287, subdivision (a) is whether defendant actually know[s] the amount owed or from reasonably available information could the defendant have computed that amount. (Cassinos v. Union Oil Co. (1993) 14 Cal.App.4th 1770, 1789.) [I]f damages may be determined by reference to reasonably ascertainable market values, they are capable of being made certain by calculation within the meaning of section 3287 supra. [Citation.]  The mere fact that proof is required to determine the market value of property on a designated date, will not prevent the allowance of interest under section 3287 . . . . (Ibid.)
Damages are typically considered certain or capable of being made certain within the meaning of section 3287 where the dispute between the parties is over the issue of liability and there is essentially no dispute over the basis for computing damages. (Esgro Central, Inc. v. General Ins. Co. (1971) 20 Cal.App.3d 1054, 1060.) Where, instead, there is no dispute over liability, but the determination of damages depends upon a judicial determination based upon conflicting evidence and is not ascertainable from truthful data supplied by the claimant to his debtor, prejudgment interest is inappropriate. (Id. at p. 1062.)
In the present matter, there was a dispute over both liability and damages.
Soon after the fire, Allstate requested a real estate appraiser, Patti Delzer, to prepare an estimate of the fair market value of the property before the fire. Delzer came up with an appraisal of $300,000 after deducting for the value of the land. Allstate also requested a bid from Tudor Construction Restoration Company (Tudor) to rebuild plaintiffs home. Tudor submitted an estimate of $409,501.04 to rebuild the home.
On March 1, 1997, plaintiff hired Robert Johnson as his adjustor. On April 10, 1997, Johnson submitted to Allstate a statement of plaintiffs losses totaling $847,400, consisting of the following items: (1) $792,650 for structural repairs; (2) $36,750 for debris removal; and (3) $18,000 for landscaping. Johnson also included a claim of $230,167.04, later increased to $329,250, for lost personal property.
On October 17, 1997, Tudor submitted a revised estimate to rebuild plaintiffs home of $506,532.80. On December 12, 1997, Allstate obtained a separate estimate of plaintiffs personal property loss in the amount of $99,252.94.
As noted above, the jury ultimately awarded plaintiff $506,532.80 to rebuild the home and $170,000 for his personal property loss.