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1 ROBERT H. ROE, SBN 091041
15651 Dickens Street, No. 104
2 Encino, CA 91436-3133
Tel: (760) 443-0984 - Fax: (818) 235-0172
3 Email: rroe231@gmail.com
4 DANIEL D. HOLLINGSWORTH, SBN 304617
5 Hollingsworth Law Firm
550 Figueroa Street, Suite F
6 Monterey, CA 93940
Tel: (831) 920-0777 - Fax: (831) 920-0840
7 E-mail: daniel@hollingsworthlegal.com
8 Attorneys for plaintiffs Robert Clampett
and Marianna Clampett
9
10 SUPERIOR COURT OF THE STATE CALIFORNIA
11 FOR THE COUNTY OF MONTEREY – MONTEREY COURTHOUSE
12
ROBERT CLAMPETT and CASE NUMBER: 21CV001804
13 MARIANNA CLAMPETT,
Assigned to Hon. Carrie M. Panetta
14 Plaintiffs, Department 14
15 v. MANDATORY SETTLEMENT
CONFERENCE BRIEF FILED BY
16 HOMESITE INSURANCE PLAINTIFFS ROBERT AND MARIANNA
COMPANY OF CALIFORNIA, et al., CLAMPETT
17
Defendants. MSC date: August 1, 2023
18 Time: 1:30 p.m.
Dept: 14
19
Action filed: June 3, 2021
20 Trial Date: September 18, 2023
21
22
23 Plaintiffs Robert Clampett and Marianna Clampett respectfully submit the
24 following brief for the Court’s use during the mandatory settlement conference
scheduled for August 1, 2023 in this case.
25
26
27
///
28
///
1
PLAINTIFFS’ MSC BRIEF
1 I. INTRODUCTION
2 This lawsuit concerns a claim for insurance benefits under a homeowners
3 insurance policy issued by defendant Homesite Insurance Company of California
4 (“Homesite”) to plaintiffs Bobby and Marianna Clampett (the “Clampetts” or
“plaintiffs”). The claim is based upon wind damage to windows on the side of the
5
Clampetts’ Carmel Valley home facing Monterey Bay and water damage to the
6
interior of the home caused by wind-driven rain that penetrated broken window
7
seals. The dates of loss are November 28 and 29, 2018.
8
Defendant Homesite Insurance Company of California (“Homesite”) issued
9 homeowners insurance policy number 35116833 (the “policy”) to the Clampetts in
10 January 2018. The policy provided replacement cost benefits for dwelling damage
11 up to a stated limit of $1,099,000. The policy also provided coverage for loss of use
12 (additional living expenses and/or lost rental value) up to a stated limit of
13 $219,800. Homesite investigated the claim, acknowledged coverage under the
14 terms of the policy, and paid the Clampetts a total of $10,389.27.
Plaintiffs submitted supplemental proofs of claim showing the cost of
15
repairing damage to their residence caused by wind and water damage totaled at
16
least $500,000. Homesite ignored those supplemental proofs of claim. Plaintiffs
17
then demanded an appraisal under the terms of their policy and Insurance Code
18
section 2071. On May 6, 2021, the three-member appraisal panel issued a
19 unanimous written award totaling $555,070.63 in favor of plaintiffs. Plaintiffs
20 sought judicial confirmation of the appraisal award, and the Court entered a
21 judgment confirming the appraisal award in December 2021.
22
23 II. PARTIES.
24 Plaintiffs: Robert Clampett & Marianna Clampett
Plaintiff’s Counsel:
25
Robert H. Roe – 15651 Dickens Street, No. 104
26
Encino, CA 91436-3133
27
Daniel D. Hollingsworth – Hollingsworth Law Firm
28
550 Figueroa St., Ste F – Monterey, CA 93940
2
PLAINTIFFS’ MSC BRIEF
1 Defendant: Homesite Insurance Company of California
2 Defendant’s Counsel:
3 Barbara J. Mandell – Coleman Perkins Law Group
4 500 N. Brand Blvd., Ste 2200 – Glendale, CA 92103
5
III. SUMMARY OF MATERIAL FACTS.
6
1. The Wind/Rain Loss.
7
The Clampetts are married and own a single-family home located at 27467
8
Schulte Road, Carmel, California 93923 (the "subject property”). Bobby Clampett
9 is a former professional golfer and television commentator. He and his wife divide
10 their time between their home in Carmel and another home in Florida, where they
11 operate a golf-related business.
12 Homesite’s “all risk” or “open peril” policy provided replacement cost
13 coverage for all risks of direct physical loss to the Clampetts’ dwelling not
14 specifically excluded or excepted under the terms of the policy, including physical
loss or damage caused by wind or rain. In late November 2018, while the policy
15
was in force, the Clampetts arrived home during a heavy rainstorm to find a
16
substantial amount of water pouring into the interior of their garage and entryway
17
to the home. A number of interior rooms also showed water damage. They
18
immediately started mopping up water they could see and put down buckets to
19 capture additional water that might enter the home.
20 The Clampetts initially thought they could hire a contractor to repair the
21 wind and rain damage and did not immediately notify Homesite they had a claim.
22 They worked with a retired local contractor named David Parker to tarp the areas
23 where they thought the leaks might be originating. They also opened up interior
24 ceilings in the garage (where most of the flooding was seen) to drain those areas
and allow the interior walls to dry out. Finally, they set up waterproof containers
25
inside the home to capture any water that might enter the building during future
26
rainstorms.
27
The Clampetts subsequently hired a well-respected local contractor named
28
Tom Long – who specializes in construction and renovation of high-end homes -- to
3
PLAINTIFFS’ MSC BRIEF
1 investigate the cause of the water intrusion and repair the damage. Over the next
2 few months, Long performed leak tests on the exterior of the home and opened up
3 additional walls to trace the source of the water leaks. Long eventually found the
4 leaks were coming from several wind-damaged window units on the west side of
the home facing Monterey Bay. Long determined that strong winds had damaged
5
some of the wood window units, breaking window seals and allowing wind-driven
6
rainwater to penetrate through the window units. He put together a repair plan
7
that replaced all of the window units in the home 1 and some of the exterior doors
8
that were damaged by wind. Portions of the exterior stucco needed to be
9 demolished in order to remove the window units from the home and replace them
10 with new window units. Water-damaged walls, ceilings, floors, framing and
11 interior finishes were also repaired.
12 In mid-August 2019, shortly after Long began his investigation, he advised
13 the Clampetts the repair costs might exceed $500,000, and he recommended the
14 Clampetts submit a claim to their insurance company. The Clampetts notified
Homesite immediately.
15
2. Homesite’s Claim Investigation.
16
Homesite assigned an independent adjuster named Charles Linard to
17
investigate the claim. Linard admitted in his deposition that he has no formal
18
training and does not consider himself to be an expert in either construction or
19 engineering. He also admitted to knowing nothing about the requirements of
20 California’s Fair Claims Settlement Practices Regulations.
21 Linard met with the insureds and Tom Long on August 26, 2019 to inspect
22 the home. His inspection lasted less than two hours. He took some photos of the
23 exterior stucco and cracks and water stains in the interior of the home. Linard’s
24 initial report to Homesite stated:
I found water was entering along the rear elevation of the home. All door
25
and window openings throughout the house have some sort of cracking. The
26
27 1
The original window manufacturer was no longer in business; so the damaged windows could not be
replaced with matching windows. Long testified he was required to replace all of the windows in the home
28 in order to maintain a reasonable uniform appearance.
4
PLAINTIFFS’ MSC BRIEF
1 exposed rear elevation has mold and rot. All window framing is expected to
require replacement. A good section of the stucco may have to be pulled.
2
This is a high end home. The cost of repairs could be around $250,000.
3
4 (Emphasis added.)
Linard prepared a written scope of loss and repair estimate in early
5
September 2019 in which he itemized repairs for covered wind and water damage
6
totaling $7,976.25. He noted these line items related to “water leaks and new
7
stains . . . in the dining room, center hall, living room, side entry, garage, and
8
master bedroom.”
9
Linard also estimated repairs for mold and dry rot would total $5,905.54 but
10 failed to document what specific parts of plaintiffs’ home actually incurred damage
11 from mold or dry rot; and he failed to document what specific repairs were
12 included in the $5,905.54 estimate. Linard applied the policy’s $2,500 mold
13 sublimit to the $5,905.54 mold repair portion of his estimate. 2
14 Homesite issued a check to the Clampetts for a total of $10,389.27.
15 Homesite wrongly applied a $1,000 policy deductible to the net claim amount owed
to Clampetts rather than absorbing the deductible in the non-covered portion of
16
the loss that exceeded the $2,500 mold limit.
17
3. Supplemental Proofs of Claim.
18
In mid-December 2019, Clampetts submitted a supplemental proof of claim
19
for $492,903.70 with a letter that read in part: “[Tom Long] and his crew have
20 been working on the project for the past 3 months. There has been a lot more
21 wind/rain damage than originally thought. Apparently, the wind/rain has
22 damaged a majority of the windows and doors, requiring replacement.” Clampetts
23 included a lengthy repair estimate prepared by Tom Long, which showed the total
24 cost of repair to be just under $500,000.
25 Homesite assigned the supplemental request to adjuster Jacob Lee for
26
2
Linard admitted in his deposition that he never saw a copy of the Clampetts’ policy. Homesite’s in-house
27 adjuster, Jacob Lee, coached him on coverage issues. Lee also dictated part of Linard’s report, even though
Lee was in New York and never saw Clampetts’ home. Linard was neither “independent” nor an “expert,”
28 and Homesite cannot claim it reasonably relied on him.
5
PLAINTIFFS’ MSC BRIEF
1 review; but Lee never investigated or adjusted the supplemental estimate, and
2 Homesite never accepted or denied any portion of the supplemental claim.
3 After getting no response from Homesite to their supplemental claim,
4 Clampetts retained attorney David Hollingsworth in early April 2020 to assist
them with the claim. Once an attorney became involved, Homesite suddenly
5
became a bit more responsive. Homesite transferred the claim to their “large loss
6
unit” and the claim was subsequently handled by adjuster Tammy Brown.
7
Brown retained Donan Engineering to further investigate the claim in late
8
April 2020.
9 Donan Engineering assigned a civil engineer named Phu T. Nguyen to
10 inspect the Clampetts’ home in May 2020. Nguyen prepared a written report,
11 dated May 20, 2020, in which he concluded that cracks in the stucco covering the
12 exterior walls were caused by “normal expansion and contraction of the materials
13 as a result of long-term weather exposure.” He further concluded that the cracks
14 “contributed to the water intrusion around the wall openings”, and that dark
stains on the wood framing indicated long-term water intrusion rather than a one-
15
time leak event. He stated without any explanation, and based only on having
16
conducted a visual observation of the residence that the cracks in interior drywalls
17
were caused by hygrometric expansion of the materials.
18
Based upon Nguyen’s report, Homesite concluded the additional water
19 damage claimed by Clampetts was caused by long-term water intrusion and
20 therefore not covered by the policy. 3
21 4. Appraisal of the Loss.
22 On November 19, 2020, while the insurance company’s investigation of the
23 claim was still pending, the Clampetts demanded an appraisal of the amount of
24 loss pursuant to the terms of their policy and Insurance Code section 2071.
25
26 3
The policy does not define or exclude ”long term weather exposure” or “long term damage.” Homesite
concedes it has no evidence of any damage to the Clampett home predating the subject loss on
27 November 28, 2018. Its claim denial was therefore based upon a completely false written report by Nguyen
that violates Penal Code section 530(b) [which makes it a felony to submit a false report either in support
28 of or in opposition to an insurance claim].
6
PLAINTIFFS’ MSC BRIEF
1 Clampetts named Andrew J. Fraraccio as their appraiser. Homesite named
2 Thomas E. Anderson as its appraiser. The two appraisers chose Ted S. Merrill as
3 the panel’s neutral umpire.
4 On May 6, 2021, the appraisal panel issued a unanimous award in favor of
plaintiffs in the total amount of $555,070.63, which represented both the
5
replacement cost and actual cash value of plaintiffs’ total loss. The appraisal
6
panel specifically stated that the award was made without consideration of any
7
coverage issues, policy limits, deductible amount, prior payments by the insurer,
8
non-covered items or other policy provisions. The panel also stated the award was
9 made without consideration to any cause of loss.
10 The Clampetts petitioned the Monterey Superior Court for an Order
11 confirming the $555,070.63 appraisal award. The award was confirmed and a
12 final judgment entered by the Court on December 6, 2021.
13
14 IV. LEGAL CONTENTIONS,
1. Contract Liability.
15
The basic insuring language set forth in Homesite’s policy makes it an “open
16
peril” or “all-risk” policy (rather than a “defined peril” policy) with respect to
17
damage suffered by the insureds’ dwelling. The basic coverage provision, which
18
makes the Homesite policy “all risk,” reads as follows: “We insure against direct
19 loss to property described in Coverages A and B only if that loss is a physical loss
20 to property.” The policy lists a number of exclusions, none of which bar the
21 Clampetts’ claim.
22 In an all-risk first-party property insurance policy, an insured does not have
23 to prove that a peril proximately causing the dwelling loss was covered by the
24 policy; instead, the policy covers all risks of physical loss save for those risks
specifically excluded or limited by the policy’s terms. Benavides v. State Farm
25
General Ins. Co., 136 Cal.App.4th 1241, 1247 (2006).
26
Homesite conceded coverage for damage caused by wind and wind-driven
27
rain by paying $7,889.27 for interior water damage under Coverage A (dwelling
28
loss); but the company denied the balance of Clampetts’ claim on the false ground
7
PLAINTIFFS’ MSC BRIEF
1 the damage was “long-term” and fell within an exclusion for “cracking.”
2 We do not insure, however, for loss: . . . 2. Caused by: . . . (e) any of the
following: . . . (6) Settling, shrinking, bulging or expansion, including
3
resultant cracking, of pavements, patios, foundations, walls, floors, roofs or
4 ceilings. . . . Under items 1. And 2., any ensuing loss to property described in
Coverages A and B not excluded or excepted in this policy is covered.
5
6
There are several points to be made regarding Homesite’s coverage defense.
7
First, neither the independent adjuster (Linard) nor the engineer (Nguyen)
8 documented in writing what specific damage to the Clampetts’ home was caused
9 by settling, shrinking, bulging or expansion, including resultant cracking, of . . .
10 walls, floors, roofs or ceilings. . . .” Homesite also failed to document what specific
11 damage to Clampetts’ home was caused by mold or dry rot.
12 Clampetts submitted two supplemental proofs of claim -- (Tom Long’s
$500,000 repair estimate) and the $555,070.63 appraisal award – both of which
13
provided detailed written line item estimates showing damage to the exterior and
14
interior of plaintiffs’ home, including replacement of all exterior windows.
15
Homesite never addressed any of these specific line items as required by
16
California’s Fair Claims Settlement Practices Regulations (10 Cal. Code Regs.
17
Section 2695.7); therefore, under the basic insuring clause of Homesite’s “all-risk”
18 policy, all damages listed in those two proofs of claim are covered.
19 Second, all of the damage shown in the appraisal award is due to water loss
20 resulting from wind damage to the windows and wind-driven rain penetrating
21 those damaged windows, which Homesite concedes is a covered cause of loss.
22 Clampetts did extensive renovations and repairs to the roof and upper part of their
home in 2011 to 2013. They had no significant leaks or water-related damage
23
between 2013 and November 2018.
24
Plaintiffs’ experts will testify the Clampetts’ home is situated at the top of a
25
mountain overlooking Monterey Bay. Winds accelerate as they travel up the
26
adjacent canyon toward the Clampett home. What might register as a 35 mph gust
27
at sea level can reach 70 to 80 mph a thousand feet higher once it passes through
28 the funnel of the canyon. Local weather records show substantial wind gusts in
8
PLAINTIFFS’ MSC BRIEF
1 late November 2018 and January 2019 approaching 40 mph, which Clampetts
2 contend damaged the windows of their home and allowed wind-driven rain to
3 penetrate the building envelope. Clampetts’ experts have traced the path of the
4 water from the windows to various parts of the house, and that mapping
corresponds to the repairs called for in the appraisal award. This is simply not a
5
case involving old damage to the structure unrelated to the November 2018 storm.
6
Homesite cannot prove otherwise.
7
Third, neither the Tom Long estimate nor the appraisal award contain any
8
line items showing repair costs attributed to “mold remediation” or “dry rot repair”
9 or crack repairs. The removal and replacement of window units was necessitated
10 by wind damage to certain units. The California Fair Claims Settlement Practices
11 Regulations (10 Cal. Code Regs. Section 2695 (a)) require that replacement
12 windows match the rest of the windows in the home. If matching is not possible,
13 then all of the windows in the home need to be replaced to maintain a reasonable
14 uniform appearance. In addition, the same regulations require that, if it is
necessary to tear out any undamaged portion of the structure in order to repair
15
damaged portions of the structure, then the tear out and replacement of the
16
undamaged areas is also covered under the policy, and the insurer is not allowed
17
to depreciate the undamaged areas that are torn out and replaced. What this
18
means in terms of the Clampett case is that removing the windows requires
19 demolishing and replacing large areas of stucco on the exterior of the Clampetts’
20 home. Any cracking in that stucco is irrelevant to coverage because the
21 regulations require the insurer to pay for all stucco repairs on a replacement cost
22 basis (meaning no deduction for prior cracking or other damage).
23 Fourth, neither the insureds nor Homesite incurred any extra repair
24 expense relating to mold or dry rot. Tom Long will testify that any mold or dry rot
he saw was found in the window framing; by removing the entire window unit to
25
repair wind-related damage, any mold or dry rot would have been removed as well.
26
No extra expense was incurred to remove any mold or dry rot. Therefore, any
27
policy limitation on such expense is irrelevant to the Clampetts’ claim.
28
Fifth, wind damage to the window units and subsequent water damage from
9
PLAINTIFFS’ MSC BRIEF
1 rain are the efficient proximate causes of plaintiffs’ loss. Wind damage to the
2 window units is what caused cracking in the stucco at the corners of the windows.
3 Even if Homesite contends the cracking somehow contributed to plaintiffs’ loss, the
4 entire loss is nevertheless covered under California’s “efficient proximate cause”
doctrine, which is incorporated into California Insurance Code section 530:
5
An insurer is liable for a loss of which a peril insured against was the
6
proximate cause, although a peril not contemplated by the contract may
7 have been a remote cause of the loss; but he is not liable for a loss of which
the peril insured against was only a remote cause.
8
9 California case law applying the efficient proximate cause doctrine was
10 reviewed at length by the Court in Vardanyan v. AMCO Insurance Company, 243
11 Cal.App.4th 779 (2015). The Court in Vardanyan stated: “In California, the
efficient proximate cause doctrine is ‘the preferred method for resolving first party
12
insurance disputes involving losses caused by multiple risks or perils, at least one
13
of which is covered by insurance and one of which is not.’ ” Id. at 786. “Policy
14
exclusions are unenforceable to the extent that they conflict with [Insurance Code]
15
section 530 and the efficient proximate cause doctrine.” Julian v. Hartford
16
Underwriters Ins. Co., 35 Cal.4th 747, 754 (2005). “Thus, an insurer cannot
17 contract around the efficient proximate cause doctrine to give broader effect
18 to its policy exclusions.” Vardanyan v. AMCO Insurance Co., supra, 243
19 Cal.App.4th at 787; emphasis added.
20 The general rule for determining what is the efficient proximate cause of a
21 loss was stated in Sabella v. Wisler, 59 Cal.2d 21, 31-32 (1963): “ ‘[I]n determining
whether a loss is within an exception in a policy, where there is a concurrence of
22
different causes, the efficient cause—the one that sets others in motion—is the
23
cause to which the loss should be attributed, though the other causes may follow
24
it, and operate more immediately in producing the disaster.’ ”
25
Thus, even if Homesite could prove cracks in the exterior stucco contributed
26
in some minor way to water damage observed at the Clampett home, the primary
27 cause of such water damage would necessarily be wind and wind-driven rain, both
28 of which Homesite concedes are covered causes of loss.
10
PLAINTIFFS’ MSC BRIEF
1 Finally, Homesite apparently contends the Clampetts’ claim is barred
2 because it was not timely reported to Homesite until eight months after the loss
3 occurred. This argument lacks merit because in California the insurance company
4 has the burden of proving prejudice from a delay in reporting of the claim.
Homesite cannot show it was denied a full and fair opportunity to investigate the
5
Clampetts’ claim. Lat v. Farmers New World Life Ins. Co., 29 Cal.App.5th 191,
6
196-197 (2018) [“The burden of establishing prejudice is on the insurance company
7
. . . and prejudice is not presumed by delay alone . . . to establish prejudice, the
8
insurer must show it lost something that would have changed the handling of the
9 underlying claim.”].
10 2. Tort Liability for Breach of the Implied Covenant of Good Faith and
11 Fair Dealing.
12 An insurer has a duty to thoroughly investigate a claim by fully inquiring
13 into all possible bases that might support the insured’s claim. Egan v. Mutual of
14 Omaha, 24 Cal.3d 809, 819 (1979); Shade Foods, Inc. v. Innovative Products Sales
& Marketing, Inc., 78 Cal.App.4th 847, 879 (2000) [adequacy of investigation is
15
“among the most critical factors bearing on the insurer’s good faith”]. The duty to
16
investigate goes beyond the facts and coverage theories asserted by the insured.
17
The insurer’s duty extends to whatever facts or coverage theories would support
18
recovery under the policy. Jordan v. Allstate Ins. Co., 148 Cal.App.4th 1062, 1072-
19 1073 (2007).
20 In Jordan, an insurer denied a homeowner’s claim for damage to a building
21 based upon a policy exclusion for wet or dry rot. The appellate court found the
22 insurer’s reliance on the exclusion, although erroneous, was reasonable; however,
23 the Court also found the insurer had acted unreasonably (and therefore potentially
24 breached the implied covenant of good faith and fair dealing) when it failed to fully
investigate the insured’s claim for coverage under the policy’s “collapse” provision.
25
Id. at 1072-1074.
26
The erroneous withholding of benefits based upon a failure to thoroughly
27
investigate a claim breaches the implied covenant. To protect the insured’s peace
28
of mind and security, “an insurer cannot reasonably and in good faith deny
11
PLAINTIFFS’ MSC BRIEF
1 payments to its insured without thoroughly investigating the foundation for its
2 denial.” Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at 809; Wilson v. 21st
3 Century Ins. Co., 42 Cal.4th 713, 721 (2007).
4 The duty to investigate continues even after a lawsuit is filed. The fact that
an insured has initiated a lawsuit does not excuse the insurance company’s duty to
5
investigate. “[A]n insurer’s duty of good faith and fair dealing does not evaporate
6
after litigation has commenced. To hold otherwise would effectively encourage
7
insurers to induce the early filing of suits . . . The policy of encouraging prompt
8
investigation and payment of insurance claims would be undermined.” Jordan v.
9 Allstate Ins. Co., supra, 148 Cal.App.4th at 1076.
10 Proof that an insurer ignored evidence in its file that supported a claim,
11 while focusing on facts justifying denial of the claim – or failed to utilize objective
12 standards in making its claims decisions – are important factors in establishing a
13 breach of the implied covenant. Wilson v. 21st Century Ins. Co., supra, 42 Cal.4th
14 at 721; Tomaselli v. Transamerica Ins. Co., 25 Cal.App.4th 1269, 1281(1994)
[searching for ways to avoid paying claims breaches the insurer’s duty to
15
investigate claims fairly]. “An insurance company may not ignore evidence which
16
supports coverage. If it does, it acts unreasonably towards its insured and
17
breaches the covenant of good faith and fair dealing.” Mariscal v. Old Republic
18
Life Ins. Co., 42 Cal.App.4th 1617, 1624 (1996); see Hughes v. Blue Cross of
19 Northern Calif., 215 Cal.App.3d 832, 845-846 (1989) [insurer relied exclusively on
20 its own consultant who had not thoroughly investigated the claim and ignored
21 opinions by other doctors].
22 Homesite cannot argue that Clampetts’ tort cause of action for bad faith is
23 barred by the “genuine dispute” rule: “The genuine dispute rule does not relieve an
24 insurer from its obligation to thoroughly and fairly investigate, process and value
the insured’s claim. A genuine dispute exists only where the insurer’s position is
25
maintained in good faith and on reasonable grounds. Wilson v.21st Century Ins.
26
Co., supra, 42 Cal.4th at 723-724.
27
In footnote 7 on page 724 of its opinion, the California Supreme Court in
28
Wilson further explained:
12
PLAINTIFFS’ MSC BRIEF
1 In this connection, we find potentially misleading the statements in some
decisions to the effect that under the genuine dispute rule bad faith cannot
2
be established where the insurer’s withholding of benefits “is reasonable or
3 is based on a legitimate dispute as to the insurer’s liability.” [citations
4 omitted.] In the insurance bad faith context, a dispute is not
“legitimate” unless it is founded on a basis that is reasonable under
5 all the circumstances.
6
7 (Emphasis added.)
An insurance company is not immune from a bad faith claim simply because
8
it thinks it has a “reasonable basis” for interpreting the policy in a way that
9
justifies denial of a claim. In Jordan v. Allstate Insurance Company, supra, 148
10
Cal.App.4th at 1075-1076, the Court stated:
11
As we made clear in Chateau Chamberay Homeowners Assn. v. Associated
12 Internat. Ins. Co., supra, 90 Cal.App.4th 335, where an insurer denies
13 coverage but a reasonable investigation would have disclosed facts showing
the claim was covered, the insurer’s failure to investigate breaches its
14 implied covenant. The insurer cannot claim a “genuine dispute” regarding
15 coverage in such cases because, by failing to investigate, it has deprived
itself of the ability to make a fair evaluation of the claim. Thus, although
16
Allstate’s interpretation of the policy was reasonable, it also had a duty to
17 investigate Jordan’s coverage claim that was based on the “additional
coverage” provisions relating to an “entire collapse,” which we held in
18
Jordan I, was also reasonable and consistent with Jordan’s objectively
19 reasonable expectations.
20 Id. at 1075-1076 (citations omitted).
Here, Homesite intentionally ignored the $500,000 Tom Long estimate sent
21
to it in December 2019 as well as the $555,070.63 written appraisal award served
22
on the parties in May 2021. Homesite failed to thoroughly investigate both
23
supplemental proofs of claim. Homesite also failed to accept or deny, in whole or
24
in part the Tom Long estimate. Homesite denied the appraisal award after failing
25 to reopen its claim investigation and conduct a further investigation into the
26 specific line items of damage shown in that award.
27 As noted above, Homesite also violated several sections of California’s Fair
28 Claims Settlement Practices Regulations. Evidence that an insurer has violated
13
PLAINTIFFS’ MSC BRIEF
1 such administrative regulations does not give rise to a private statutory cause of
2 action against the insurer. (Moradi-Shalal v. Fireman’s Fund Ins. Co. (1988) 46
3 Cal. 3d 287, 292.) Such administrative violations do, however, provide evidence of
4 an insurer’s lack of reasonableness in handling a claim and thus support a first
party common law claim for breach of the implied covenant of good faith and fair
5
dealing. (Jordan v. Allstate Ins. Co., supra, 148 Cal. App. 4th at 1077-1078; Spray,
6
Gould & Bowers v. Associated Int’l Ins. Co. (1999) 71 Cal. App. 4th 1260, 1271 fn.
7
10 [regulations may establish “prudent norms and customs, and standard of care”
8
in lawsuits asserting breach of the implied covenant of good faith and fair dealing];
9 see also Croskey, et al., Cal. Practice Guide: Insurance Litigation (2003) sections
10 14:45:20 to 14:45:24 [“Violation of the UIPA apparently creates a rebuttable
11 presumption of breach of the implied covenant of good faith and fair dealing,
12 shifting to the insurer the burden of proving some excuse or justification for its
13 conduct.”].)
14 3. Liability for Punitive Damages.
The purpose of punitive damages is to punish the defendant, to make an
15
example, and thereby to deter others from similar conduct. Neal v. Farmers Ins.
16
Exch., 21 Cal.3d 910, 928 (1978); see Civil Code section 3294 subd. (a) ("for the
17
sake of example and by way of punishing the defendant").
18
In order to support an award of punitive damages, plaintiffs must prove
19 that defendants' conduct goes beyond bad faith; there must be clear and convincing
20 evidence of "oppression, fraud, or malice. California Civil Code section 3294(a). A
21 favorable finding on any one of these three elements establishes a basis for an
22 award of punitive damages. Pistorious v. Prudential Ins. Co. of America, 123
23 Cal.App.3d 541, 556 (1981). Occasionally, the same conduct establishes all three
24 elements. See Tibbs v. Great American Ins. Co., 755 F.2d 1370, 1375 (9th Cir.
1985) (applying California law).
25
"Oppression" means despicable conduct that subjects a person to cruel and
26
unjust hardship in conscious disregard of that person's rights." California Civil
27
Code section 3294(c)(2). Conduct by an insurer seeking to reduce policy amounts
28
legitimately payable constitutes oppression. Amerigraphics, Inc. v. Mercury
14
PLAINTIFFS’ MSC BRIEF
1 Casualty Co., 182 Cal.App.4th 1538, 1559 (2010).; Waller v. Truck Ins. Exch., Inc.,
2 11 Cal.4th 1, 36 (1995); Richardson v. Employers Liab. Assur. Corp., 25 Cal.App.3d
3 232, 246 (1972) ["Oppression" means subjecting a person to cruel and unjust
4 hardship in conscious disregard of his rights]. "A careless disregard for the rights
of an insured and an obstinate persistence in an ill-advised initial position" on the
5
part of an insurer may amount to "oppression" under Civil Code section 3294.
6
Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., supra, 78
7
Cal.App.4th at 892.
8
Conscious disregard of an insured's rights may be found where an insurer
9 denies a claim by adopting a plainly unreasonable interpretation of its policy and
10 deliberately restricts its investigation in a bad faith attempt to deny benefits due
11 the insured. Such evidence supports a punitive damages award because it shows
12 "a conscious course of conduct, firmly grounded in established company policy."
13 Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152, 1165 (9th Cir. 2001)
14 (applying California law).
"Despicable" conduct has been found where an insurer engaged in
15
protracted, aggressive, non-meritorious litigation against its insured that
16
devastated his health, business and family. The insurer knew it was harming its
17
insured, whether it desired that result or not: "[T]he jury was free to conclude on
18
this evidence that the protracted degradation of an honest and hard working
19 businessman, and the conscious indifference to his suffering, was despicable."
20 George Hillenbrand, Inc. v. Insurance Co. of No. America, 104 Cal.App.4th 784,
21 818 (2002).
22 For purposes of a punitive damages award, “fraud” is defined by statute as
23 “an intentional misrepresentation, deceit, or concealment of a material fact known
24 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. Civil
25
Code section 3294(c)(3). In the punitive damages context all that is required is
26
that the fraudulent conduct relate to the conduct giving rise to bad faith liability,
27
i.e., that in breaching the implied covenant, the insurer acted fraudulently
28
(misrepresenting or concealing essential facts). See Notrica v. State Compensation
15
PLAINTIFFS’ MSC BRIEF
1 Ins. Fund, 70 Cal.App.4th 911, 948 (1999).
2 An insurer can also be guilty of promissory fraud where it issues a policy
3 with the intent not to pay benefits, and this intent can be proven by inferences
4 raised by its subsequent conduct. The fact that the insurer ultimately denied the
claim without reasonable grounds may furnish an inference that it never intended
5
to pay and thus was guilty of fraud for punitive damages purposes. Wetherbee v.
6
United Ins. Co. of America, 265 Cal.App.2d 921, 932 (1968). “An absolute
7
unwillingness ‘even to attempt (a promised performance gives rise to an inference
8
of fraudulent intent.” Diamond Woodworks, Inc. v. Argonaut Ins. Co., 109
9 Cal.App.4th 1020, 1050 (2003); Miller v. National American Life Ins. Co. of Calif.,
10 54 Cal.App.3d 331, 339 (1976).
11
12 V. PLAINTIFFS’ DAMAGES
13 1. Contract Damages.
14 Plaintiffs are owed the difference between the amount of the appraisal
award ($555,070.63) and the amount Homesite initially paid them ($10,389.27).
15
That net claim for dwelling damage comes to $544,681.36. Pre-judgment interest
16
at the legal rate from the date of the appraisal award (May 6, 2021) comes to
17
$130,873.
18
Plaintiffs were also forced to leave their Carmel home for eighteen months
19 while repairs were being made. The policy provides loss of use coverage for the
20 additional cost required for plaintiffs to maintain the lifestyle they enjoyed
21 immediately prior to the loss. That means they were entitled to rent another home
22 in or near Carmel Valley while their damaged home was being repaired. Evidence
23 at trial will establish the monthly fair rental value of the Clampetts’ home was
24 $10,000 at the time the repairs began in August 2019 (and somewhat higher
during the period of the Covid pandemic). Eighteen months times $10,000/month
25
is $180,000.
26
Plaintiffs therefore claim contract damages plus interest in a total amount
27
of $855,554.
28
2. Tort Damages for Bad Faith.
16
PLAINTIFFS’ MSC BRIEF
1 Plaintiffs are entitled to an award of emotional distress damages in a ratio
2 of one-to-one up to two-to-one the sum of their economic damages set forth above.
3 ($855,554 to $1,711,108). Major v. Western Home Ins. Co., 169 Cal.App.4th 1197,
4 1216 (2009) [approving an emotional distress award in a bad faith insurance case
equal to two times the plaintiff’s economic damages, including attorney fees].
5
Plaintiffs are also entitled to receive compensation for their attorney fees
6
paid to collect these contract benefits. Using the formula outlined in Cassim v.
7
Allstate Ins. Co., 33 Cal.4th 780 (2004), plaintiffs calculate their attorney fees at
8
this point in the case (based on a 40% contingency fee agreement) to be 25% of
9 their compensatory damages or $427,777.
10 Plaintiffs also seek consequential tort damages for their appraisal costs
11 ($11,295.90).
12 The total amount of all compensatory damages claimed by plaintiffs under
13 their bad faith tort cause of action ranges from $1,294,627 to $2,138,885.
14 3. Punitive Damages.
A jury may award punitive damages up to a Constitutional limit of ten-to-
15
one times the amount of compensatory tort damages. Simon v. San Paolo U.S.
16
Holding Co., 35 Cal.4th 1159, 1182 (2005). The United States Supreme Court has
17
indicated that an award of more than four-to-one might be the limit in a “normal”
18
case. State Farm Mut. Auto. Ins. Co. v. Campell, 538 U.S.408, 425 (2003). Where
19 compensatory damages are substantial, a lesser ratio, perhaps only equal to
20 compensatory damages, may be appropriate. Id.
21 Accordingly, the amount of punitive damages in this case that could be
22 awarded, using a conservative estimate for tort damages, ranges from $1,294,627
23 to $5,178,508.
24
VI. PRIOR SETTLEMENT OFFERS AND DEMANDS
25
In March of 2023, Plaintiff issued a 998 offer for $1,499,999.00. That offer
26
was not accepted by Defendant. Private mediation with Ralph Williams was
27
attempted but was unsuccessful. Plaintiffs’ settlement demand for the purposes of
28
this settlement conference is $2,500,000.
17
PLAINTIFFS’ MSC BRIEF
1 VII. IMPEDIMENTS TO SETTLEMENT
2 Plaintiff is aware that Defendant may request a trial continuance based on
3 supposed unavailability of counsel. The Court continued the trial in this matter
4 previously and Plaintiff has expended much effort in preparing for the present
trial date. Plaintiff is not willing to stipulate to a further continuance.
5
6
ROBERT H. ROE
7
Dated: July 26, 2023
8
By: Robert H. Roe
9
Attorney for plaintiffs Robert
10 Clampett and Marianna Clampett
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PLAINTIFFS’ MSC BRIEF
Preview
1 ROBERT H. ROE, SBN 091041 15651 Dickens Street, No. 104 2 Encino, CA 91436-3133 Tel: (760) 443-0984 - Fax: (818) 235-0172 3 Email: rroe231@gmail.com 4 DANIEL D. HOLLINGSWORTH, SBN 304617 5 Hollingsworth Law Firm 550 Figueroa Street, Suite F 6 Monterey, CA 93940 Tel: (831) 920-0777 - Fax: (831) 920-0840 7 E-mail: daniel@hollingsworthlegal.com 8 Attorneys for plaintiffs Robert Clampett and Marianna Clampett 9 10 SUPERIOR COURT OF THE STATE CALIFORNIA 11 FOR THE COUNTY OF MONTEREY – MONTEREY COURTHOUSE 12 ROBERT CLAMPETT and CASE NUMBER: 21CV001804 13 MARIANNA CLAMPETT, Assigned to Hon. Carrie M. Panetta 14 Plaintiffs, Department 14 15 v. MANDATORY SETTLEMENT CONFERENCE BRIEF FILED BY 16 HOMESITE INSURANCE PLAINTIFFS ROBERT AND MARIANNA COMPANY OF CALIFORNIA, et al., CLAMPETT 17 Defendants. MSC date: August 1, 2023 18 Time: 1:30 p.m. Dept: 14 19 Action filed: June 3, 2021 20 Trial Date: September 18, 2023 21 22 23 Plaintiffs Robert Clampett and Marianna Clampett respectfully submit the 24 following brief for the Court’s use during the mandatory settlement conference scheduled for August 1, 2023 in this case. 25 26 27 /// 28 /// 1 PLAINTIFFS’ MSC BRIEF 1 I. INTRODUCTION 2 This lawsuit concerns a claim for insurance benefits under a homeowners 3 insurance policy issued by defendant Homesite Insurance Company of California 4 (“Homesite”) to plaintiffs Bobby and Marianna Clampett (the “Clampetts” or “plaintiffs”). The claim is based upon wind damage to windows on the side of the 5 Clampetts’ Carmel Valley home facing Monterey Bay and water damage to the 6 interior of the home caused by wind-driven rain that penetrated broken window 7 seals. The dates of loss are November 28 and 29, 2018. 8 Defendant Homesite Insurance Company of California (“Homesite”) issued 9 homeowners insurance policy number 35116833 (the “policy”) to the Clampetts in 10 January 2018. The policy provided replacement cost benefits for dwelling damage 11 up to a stated limit of $1,099,000. The policy also provided coverage for loss of use 12 (additional living expenses and/or lost rental value) up to a stated limit of 13 $219,800. Homesite investigated the claim, acknowledged coverage under the 14 terms of the policy, and paid the Clampetts a total of $10,389.27. Plaintiffs submitted supplemental proofs of claim showing the cost of 15 repairing damage to their residence caused by wind and water damage totaled at 16 least $500,000. Homesite ignored those supplemental proofs of claim. Plaintiffs 17 then demanded an appraisal under the terms of their policy and Insurance Code 18 section 2071. On May 6, 2021, the three-member appraisal panel issued a 19 unanimous written award totaling $555,070.63 in favor of plaintiffs. Plaintiffs 20 sought judicial confirmation of the appraisal award, and the Court entered a 21 judgment confirming the appraisal award in December 2021. 22 23 II. PARTIES. 24 Plaintiffs: Robert Clampett & Marianna Clampett Plaintiff’s Counsel: 25 Robert H. Roe – 15651 Dickens Street, No. 104 26 Encino, CA 91436-3133 27 Daniel D. Hollingsworth – Hollingsworth Law Firm 28 550 Figueroa St., Ste F – Monterey, CA 93940 2 PLAINTIFFS’ MSC BRIEF 1 Defendant: Homesite Insurance Company of California 2 Defendant’s Counsel: 3 Barbara J. Mandell – Coleman Perkins Law Group 4 500 N. Brand Blvd., Ste 2200 – Glendale, CA 92103 5 III. SUMMARY OF MATERIAL FACTS. 6 1. The Wind/Rain Loss. 7 The Clampetts are married and own a single-family home located at 27467 8 Schulte Road, Carmel, California 93923 (the "subject property”). Bobby Clampett 9 is a former professional golfer and television commentator. He and his wife divide 10 their time between their home in Carmel and another home in Florida, where they 11 operate a golf-related business. 12 Homesite’s “all risk” or “open peril” policy provided replacement cost 13 coverage for all risks of direct physical loss to the Clampetts’ dwelling not 14 specifically excluded or excepted under the terms of the policy, including physical loss or damage caused by wind or rain. In late November 2018, while the policy 15 was in force, the Clampetts arrived home during a heavy rainstorm to find a 16 substantial amount of water pouring into the interior of their garage and entryway 17 to the home. A number of interior rooms also showed water damage. They 18 immediately started mopping up water they could see and put down buckets to 19 capture additional water that might enter the home. 20 The Clampetts initially thought they could hire a contractor to repair the 21 wind and rain damage and did not immediately notify Homesite they had a claim. 22 They worked with a retired local contractor named David Parker to tarp the areas 23 where they thought the leaks might be originating. They also opened up interior 24 ceilings in the garage (where most of the flooding was seen) to drain those areas and allow the interior walls to dry out. Finally, they set up waterproof containers 25 inside the home to capture any water that might enter the building during future 26 rainstorms. 27 The Clampetts subsequently hired a well-respected local contractor named 28 Tom Long – who specializes in construction and renovation of high-end homes -- to 3 PLAINTIFFS’ MSC BRIEF 1 investigate the cause of the water intrusion and repair the damage. Over the next 2 few months, Long performed leak tests on the exterior of the home and opened up 3 additional walls to trace the source of the water leaks. Long eventually found the 4 leaks were coming from several wind-damaged window units on the west side of the home facing Monterey Bay. Long determined that strong winds had damaged 5 some of the wood window units, breaking window seals and allowing wind-driven 6 rainwater to penetrate through the window units. He put together a repair plan 7 that replaced all of the window units in the home 1 and some of the exterior doors 8 that were damaged by wind. Portions of the exterior stucco needed to be 9 demolished in order to remove the window units from the home and replace them 10 with new window units. Water-damaged walls, ceilings, floors, framing and 11 interior finishes were also repaired. 12 In mid-August 2019, shortly after Long began his investigation, he advised 13 the Clampetts the repair costs might exceed $500,000, and he recommended the 14 Clampetts submit a claim to their insurance company. The Clampetts notified Homesite immediately. 15 2. Homesite’s Claim Investigation. 16 Homesite assigned an independent adjuster named Charles Linard to 17 investigate the claim. Linard admitted in his deposition that he has no formal 18 training and does not consider himself to be an expert in either construction or 19 engineering. He also admitted to knowing nothing about the requirements of 20 California’s Fair Claims Settlement Practices Regulations. 21 Linard met with the insureds and Tom Long on August 26, 2019 to inspect 22 the home. His inspection lasted less than two hours. He took some photos of the 23 exterior stucco and cracks and water stains in the interior of the home. Linard’s 24 initial report to Homesite stated: I found water was entering along the rear elevation of the home. All door 25 and window openings throughout the house have some sort of cracking. The 26 27 1 The original window manufacturer was no longer in business; so the damaged windows could not be replaced with matching windows. Long testified he was required to replace all of the windows in the home 28 in order to maintain a reasonable uniform appearance. 4 PLAINTIFFS’ MSC BRIEF 1 exposed rear elevation has mold and rot. All window framing is expected to require replacement. A good section of the stucco may have to be pulled. 2 This is a high end home. The cost of repairs could be around $250,000. 3 4 (Emphasis added.) Linard prepared a written scope of loss and repair estimate in early 5 September 2019 in which he itemized repairs for covered wind and water damage 6 totaling $7,976.25. He noted these line items related to “water leaks and new 7 stains . . . in the dining room, center hall, living room, side entry, garage, and 8 master bedroom.” 9 Linard also estimated repairs for mold and dry rot would total $5,905.54 but 10 failed to document what specific parts of plaintiffs’ home actually incurred damage 11 from mold or dry rot; and he failed to document what specific repairs were 12 included in the $5,905.54 estimate. Linard applied the policy’s $2,500 mold 13 sublimit to the $5,905.54 mold repair portion of his estimate. 2 14 Homesite issued a check to the Clampetts for a total of $10,389.27. 15 Homesite wrongly applied a $1,000 policy deductible to the net claim amount owed to Clampetts rather than absorbing the deductible in the non-covered portion of 16 the loss that exceeded the $2,500 mold limit. 17 3. Supplemental Proofs of Claim. 18 In mid-December 2019, Clampetts submitted a supplemental proof of claim 19 for $492,903.70 with a letter that read in part: “[Tom Long] and his crew have 20 been working on the project for the past 3 months. There has been a lot more 21 wind/rain damage than originally thought. Apparently, the wind/rain has 22 damaged a majority of the windows and doors, requiring replacement.” Clampetts 23 included a lengthy repair estimate prepared by Tom Long, which showed the total 24 cost of repair to be just under $500,000. 25 Homesite assigned the supplemental request to adjuster Jacob Lee for 26 2 Linard admitted in his deposition that he never saw a copy of the Clampetts’ policy. Homesite’s in-house 27 adjuster, Jacob Lee, coached him on coverage issues. Lee also dictated part of Linard’s report, even though Lee was in New York and never saw Clampetts’ home. Linard was neither “independent” nor an “expert,” 28 and Homesite cannot claim it reasonably relied on him. 5 PLAINTIFFS’ MSC BRIEF 1 review; but Lee never investigated or adjusted the supplemental estimate, and 2 Homesite never accepted or denied any portion of the supplemental claim. 3 After getting no response from Homesite to their supplemental claim, 4 Clampetts retained attorney David Hollingsworth in early April 2020 to assist them with the claim. Once an attorney became involved, Homesite suddenly 5 became a bit more responsive. Homesite transferred the claim to their “large loss 6 unit” and the claim was subsequently handled by adjuster Tammy Brown. 7 Brown retained Donan Engineering to further investigate the claim in late 8 April 2020. 9 Donan Engineering assigned a civil engineer named Phu T. Nguyen to 10 inspect the Clampetts’ home in May 2020. Nguyen prepared a written report, 11 dated May 20, 2020, in which he concluded that cracks in the stucco covering the 12 exterior walls were caused by “normal expansion and contraction of the materials 13 as a result of long-term weather exposure.” He further concluded that the cracks 14 “contributed to the water intrusion around the wall openings”, and that dark stains on the wood framing indicated long-term water intrusion rather than a one- 15 time leak event. He stated without any explanation, and based only on having 16 conducted a visual observation of the residence that the cracks in interior drywalls 17 were caused by hygrometric expansion of the materials. 18 Based upon Nguyen’s report, Homesite concluded the additional water 19 damage claimed by Clampetts was caused by long-term water intrusion and 20 therefore not covered by the policy. 3 21 4. Appraisal of the Loss. 22 On November 19, 2020, while the insurance company’s investigation of the 23 claim was still pending, the Clampetts demanded an appraisal of the amount of 24 loss pursuant to the terms of their policy and Insurance Code section 2071. 25 26 3 The policy does not define or exclude ”long term weather exposure” or “long term damage.” Homesite concedes it has no evidence of any damage to the Clampett home predating the subject loss on 27 November 28, 2018. Its claim denial was therefore based upon a completely false written report by Nguyen that violates Penal Code section 530(b) [which makes it a felony to submit a false report either in support 28 of or in opposition to an insurance claim]. 6 PLAINTIFFS’ MSC BRIEF 1 Clampetts named Andrew J. Fraraccio as their appraiser. Homesite named 2 Thomas E. Anderson as its appraiser. The two appraisers chose Ted S. Merrill as 3 the panel’s neutral umpire. 4 On May 6, 2021, the appraisal panel issued a unanimous award in favor of plaintiffs in the total amount of $555,070.63, which represented both the 5 replacement cost and actual cash value of plaintiffs’ total loss. The appraisal 6 panel specifically stated that the award was made without consideration of any 7 coverage issues, policy limits, deductible amount, prior payments by the insurer, 8 non-covered items or other policy provisions. The panel also stated the award was 9 made without consideration to any cause of loss. 10 The Clampetts petitioned the Monterey Superior Court for an Order 11 confirming the $555,070.63 appraisal award. The award was confirmed and a 12 final judgment entered by the Court on December 6, 2021. 13 14 IV. LEGAL CONTENTIONS, 1. Contract Liability. 15 The basic insuring language set forth in Homesite’s policy makes it an “open 16 peril” or “all-risk” policy (rather than a “defined peril” policy) with respect to 17 damage suffered by the insureds’ dwelling. The basic coverage provision, which 18 makes the Homesite policy “all risk,” reads as follows: “We insure against direct 19 loss to property described in Coverages A and B only if that loss is a physical loss 20 to property.” The policy lists a number of exclusions, none of which bar the 21 Clampetts’ claim. 22 In an all-risk first-party property insurance policy, an insured does not have 23 to prove that a peril proximately causing the dwelling loss was covered by the 24 policy; instead, the policy covers all risks of physical loss save for those risks specifically excluded or limited by the policy’s terms. Benavides v. State Farm 25 General Ins. Co., 136 Cal.App.4th 1241, 1247 (2006). 26 Homesite conceded coverage for damage caused by wind and wind-driven 27 rain by paying $7,889.27 for interior water damage under Coverage A (dwelling 28 loss); but the company denied the balance of Clampetts’ claim on the false ground 7 PLAINTIFFS’ MSC BRIEF 1 the damage was “long-term” and fell within an exclusion for “cracking.” 2 We do not insure, however, for loss: . . . 2. Caused by: . . . (e) any of the following: . . . (6) Settling, shrinking, bulging or expansion, including 3 resultant cracking, of pavements, patios, foundations, walls, floors, roofs or 4 ceilings. . . . Under items 1. And 2., any ensuing loss to property described in Coverages A and B not excluded or excepted in this policy is covered. 5 6 There are several points to be made regarding Homesite’s coverage defense. 7 First, neither the independent adjuster (Linard) nor the engineer (Nguyen) 8 documented in writing what specific damage to the Clampetts’ home was caused 9 by settling, shrinking, bulging or expansion, including resultant cracking, of . . . 10 walls, floors, roofs or ceilings. . . .” Homesite also failed to document what specific 11 damage to Clampetts’ home was caused by mold or dry rot. 12 Clampetts submitted two supplemental proofs of claim -- (Tom Long’s $500,000 repair estimate) and the $555,070.63 appraisal award – both of which 13 provided detailed written line item estimates showing damage to the exterior and 14 interior of plaintiffs’ home, including replacement of all exterior windows. 15 Homesite never addressed any of these specific line items as required by 16 California’s Fair Claims Settlement Practices Regulations (10 Cal. Code Regs. 17 Section 2695.7); therefore, under the basic insuring clause of Homesite’s “all-risk” 18 policy, all damages listed in those two proofs of claim are covered. 19 Second, all of the damage shown in the appraisal award is due to water loss 20 resulting from wind damage to the windows and wind-driven rain penetrating 21 those damaged windows, which Homesite concedes is a covered cause of loss. 22 Clampetts did extensive renovations and repairs to the roof and upper part of their home in 2011 to 2013. They had no significant leaks or water-related damage 23 between 2013 and November 2018. 24 Plaintiffs’ experts will testify the Clampetts’ home is situated at the top of a 25 mountain overlooking Monterey Bay. Winds accelerate as they travel up the 26 adjacent canyon toward the Clampett home. What might register as a 35 mph gust 27 at sea level can reach 70 to 80 mph a thousand feet higher once it passes through 28 the funnel of the canyon. Local weather records show substantial wind gusts in 8 PLAINTIFFS’ MSC BRIEF 1 late November 2018 and January 2019 approaching 40 mph, which Clampetts 2 contend damaged the windows of their home and allowed wind-driven rain to 3 penetrate the building envelope. Clampetts’ experts have traced the path of the 4 water from the windows to various parts of the house, and that mapping corresponds to the repairs called for in the appraisal award. This is simply not a 5 case involving old damage to the structure unrelated to the November 2018 storm. 6 Homesite cannot prove otherwise. 7 Third, neither the Tom Long estimate nor the appraisal award contain any 8 line items showing repair costs attributed to “mold remediation” or “dry rot repair” 9 or crack repairs. The removal and replacement of window units was necessitated 10 by wind damage to certain units. The California Fair Claims Settlement Practices 11 Regulations (10 Cal. Code Regs. Section 2695 (a)) require that replacement 12 windows match the rest of the windows in the home. If matching is not possible, 13 then all of the windows in the home need to be replaced to maintain a reasonable 14 uniform appearance. In addition, the same regulations require that, if it is necessary to tear out any undamaged portion of the structure in order to repair 15 damaged portions of the structure, then the tear out and replacement of the 16 undamaged areas is also covered under the policy, and the insurer is not allowed 17 to depreciate the undamaged areas that are torn out and replaced. What this 18 means in terms of the Clampett case is that removing the windows requires 19 demolishing and replacing large areas of stucco on the exterior of the Clampetts’ 20 home. Any cracking in that stucco is irrelevant to coverage because the 21 regulations require the insurer to pay for all stucco repairs on a replacement cost 22 basis (meaning no deduction for prior cracking or other damage). 23 Fourth, neither the insureds nor Homesite incurred any extra repair 24 expense relating to mold or dry rot. Tom Long will testify that any mold or dry rot he saw was found in the window framing; by removing the entire window unit to 25 repair wind-related damage, any mold or dry rot would have been removed as well. 26 No extra expense was incurred to remove any mold or dry rot. Therefore, any 27 policy limitation on such expense is irrelevant to the Clampetts’ claim. 28 Fifth, wind damage to the window units and subsequent water damage from 9 PLAINTIFFS’ MSC BRIEF 1 rain are the efficient proximate causes of plaintiffs’ loss. Wind damage to the 2 window units is what caused cracking in the stucco at the corners of the windows. 3 Even if Homesite contends the cracking somehow contributed to plaintiffs’ loss, the 4 entire loss is nevertheless covered under California’s “efficient proximate cause” doctrine, which is incorporated into California Insurance Code section 530: 5 An insurer is liable for a loss of which a peril insured against was the 6 proximate cause, although a peril not contemplated by the contract may 7 have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote cause. 8 9 California case law applying the efficient proximate cause doctrine was 10 reviewed at length by the Court in Vardanyan v. AMCO Insurance Company, 243 11 Cal.App.4th 779 (2015). The Court in Vardanyan stated: “In California, the efficient proximate cause doctrine is ‘the preferred method for resolving first party 12 insurance disputes involving losses caused by multiple risks or perils, at least one 13 of which is covered by insurance and one of which is not.’ ” Id. at 786. “Policy 14 exclusions are unenforceable to the extent that they conflict with [Insurance Code] 15 section 530 and the efficient proximate cause doctrine.” Julian v. Hartford 16 Underwriters Ins. Co., 35 Cal.4th 747, 754 (2005). “Thus, an insurer cannot 17 contract around the efficient proximate cause doctrine to give broader effect 18 to its policy exclusions.” Vardanyan v. AMCO Insurance Co., supra, 243 19 Cal.App.4th at 787; emphasis added. 20 The general rule for determining what is the efficient proximate cause of a 21 loss was stated in Sabella v. Wisler, 59 Cal.2d 21, 31-32 (1963): “ ‘[I]n determining whether a loss is within an exception in a policy, where there is a concurrence of 22 different causes, the efficient cause—the one that sets others in motion—is the 23 cause to which the loss should be attributed, though the other causes may follow 24 it, and operate more immediately in producing the disaster.’ ” 25 Thus, even if Homesite could prove cracks in the exterior stucco contributed 26 in some minor way to water damage observed at the Clampett home, the primary 27 cause of such water damage would necessarily be wind and wind-driven rain, both 28 of which Homesite concedes are covered causes of loss. 10 PLAINTIFFS’ MSC BRIEF 1 Finally, Homesite apparently contends the Clampetts’ claim is barred 2 because it was not timely reported to Homesite until eight months after the loss 3 occurred. This argument lacks merit because in California the insurance company 4 has the burden of proving prejudice from a delay in reporting of the claim. Homesite cannot show it was denied a full and fair opportunity to investigate the 5 Clampetts’ claim. Lat v. Farmers New World Life Ins. Co., 29 Cal.App.5th 191, 6 196-197 (2018) [“The burden of establishing prejudice is on the insurance company 7 . . . and prejudice is not presumed by delay alone . . . to establish prejudice, the 8 insurer must show it lost something that would have changed the handling of the 9 underlying claim.”]. 10 2. Tort Liability for Breach of the Implied Covenant of Good Faith and 11 Fair Dealing. 12 An insurer has a duty to thoroughly investigate a claim by fully inquiring 13 into all possible bases that might support the insured’s claim. Egan v. Mutual of 14 Omaha, 24 Cal.3d 809, 819 (1979); Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., 78 Cal.App.4th 847, 879 (2000) [adequacy of investigation is 15 “among the most critical factors bearing on the insurer’s good faith”]. The duty to 16 investigate goes beyond the facts and coverage theories asserted by the insured. 17 The insurer’s duty extends to whatever facts or coverage theories would support 18 recovery under the policy. Jordan v. Allstate Ins. Co., 148 Cal.App.4th 1062, 1072- 19 1073 (2007). 20 In Jordan, an insurer denied a homeowner’s claim for damage to a building 21 based upon a policy exclusion for wet or dry rot. The appellate court found the 22 insurer’s reliance on the exclusion, although erroneous, was reasonable; however, 23 the Court also found the insurer had acted unreasonably (and therefore potentially 24 breached the implied covenant of good faith and fair dealing) when it failed to fully investigate the insured’s claim for coverage under the policy’s “collapse” provision. 25 Id. at 1072-1074. 26 The erroneous withholding of benefits based upon a failure to thoroughly 27 investigate a claim breaches the implied covenant. To protect the insured’s peace 28 of mind and security, “an insurer cannot reasonably and in good faith deny 11 PLAINTIFFS’ MSC BRIEF 1 payments to its insured without thoroughly investigating the foundation for its 2 denial.” Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at 809; Wilson v. 21st 3 Century Ins. Co., 42 Cal.4th 713, 721 (2007). 4 The duty to investigate continues even after a lawsuit is filed. The fact that an insured has initiated a lawsuit does not excuse the insurance company’s duty to 5 investigate. “[A]n insurer’s duty of good faith and fair dealing does not evaporate 6 after litigation has commenced. To hold otherwise would effectively encourage 7 insurers to induce the early filing of suits . . . The policy of encouraging prompt 8 investigation and payment of insurance claims would be undermined.” Jordan v. 9 Allstate Ins. Co., supra, 148 Cal.App.4th at 1076. 10 Proof that an insurer ignored evidence in its file that supported a claim, 11 while focusing on facts justifying denial of the claim – or failed to utilize objective 12 standards in making its claims decisions – are important factors in establishing a 13 breach of the implied covenant. Wilson v. 21st Century Ins. Co., supra, 42 Cal.4th 14 at 721; Tomaselli v. Transamerica Ins. Co., 25 Cal.App.4th 1269, 1281(1994) [searching for ways to avoid paying claims breaches the insurer’s duty to 15 investigate claims fairly]. “An insurance company may not ignore evidence which 16 supports coverage. If it does, it acts unreasonably towards its insured and 17 breaches the covenant of good faith and fair dealing.” Mariscal v. Old Republic 18 Life Ins. Co., 42 Cal.App.4th 1617, 1624 (1996); see Hughes v. Blue Cross of 19 Northern Calif., 215 Cal.App.3d 832, 845-846 (1989) [insurer relied exclusively on 20 its own consultant who had not thoroughly investigated the claim and ignored 21 opinions by other doctors]. 22 Homesite cannot argue that Clampetts’ tort cause of action for bad faith is 23 barred by the “genuine dispute” rule: “The genuine dispute rule does not relieve an 24 insurer from its obligation to thoroughly and fairly investigate, process and value the insured’s claim. A genuine dispute exists only where the insurer’s position is 25 maintained in good faith and on reasonable grounds. Wilson v.21st Century Ins. 26 Co., supra, 42 Cal.4th at 723-724. 27 In footnote 7 on page 724 of its opinion, the California Supreme Court in 28 Wilson further explained: 12 PLAINTIFFS’ MSC BRIEF 1 In this connection, we find potentially misleading the statements in some decisions to the effect that under the genuine dispute rule bad faith cannot 2 be established where the insurer’s withholding of benefits “is reasonable or 3 is based on a legitimate dispute as to the insurer’s liability.” [citations 4 omitted.] In the insurance bad faith context, a dispute is not “legitimate” unless it is founded on a basis that is reasonable under 5 all the circumstances. 6 7 (Emphasis added.) An insurance company is not immune from a bad faith claim simply because 8 it thinks it has a “reasonable basis” for interpreting the policy in a way that 9 justifies denial of a claim. In Jordan v. Allstate Insurance Company, supra, 148 10 Cal.App.4th at 1075-1076, the Court stated: 11 As we made clear in Chateau Chamberay Homeowners Assn. v. Associated 12 Internat. Ins. Co., supra, 90 Cal.App.4th 335, where an insurer denies 13 coverage but a reasonable investigation would have disclosed facts showing the claim was covered, the insurer’s failure to investigate breaches its 14 implied covenant. The insurer cannot claim a “genuine dispute” regarding 15 coverage in such cases because, by failing to investigate, it has deprived itself of the ability to make a fair evaluation of the claim. Thus, although 16 Allstate’s interpretation of the policy was reasonable, it also had a duty to 17 investigate Jordan’s coverage claim that was based on the “additional coverage” provisions relating to an “entire collapse,” which we held in 18 Jordan I, was also reasonable and consistent with Jordan’s objectively 19 reasonable expectations. 20 Id. at 1075-1076 (citations omitted). Here, Homesite intentionally ignored the $500,000 Tom Long estimate sent 21 to it in December 2019 as well as the $555,070.63 written appraisal award served 22 on the parties in May 2021. Homesite failed to thoroughly investigate both 23 supplemental proofs of claim. Homesite also failed to accept or deny, in whole or 24 in part the Tom Long estimate. Homesite denied the appraisal award after failing 25 to reopen its claim investigation and conduct a further investigation into the 26 specific line items of damage shown in that award. 27 As noted above, Homesite also violated several sections of California’s Fair 28 Claims Settlement Practices Regulations. Evidence that an insurer has violated 13 PLAINTIFFS’ MSC BRIEF 1 such administrative regulations does not give rise to a private statutory cause of 2 action against the insurer. (Moradi-Shalal v. Fireman’s Fund Ins. Co. (1988) 46 3 Cal. 3d 287, 292.) Such administrative violations do, however, provide evidence of 4 an insurer’s lack of reasonableness in handling a claim and thus support a first party common law claim for breach of the implied covenant of good faith and fair 5 dealing. (Jordan v. Allstate Ins. Co., supra, 148 Cal. App. 4th at 1077-1078; Spray, 6 Gould & Bowers v. Associated Int’l Ins. Co. (1999) 71 Cal. App. 4th 1260, 1271 fn. 7 10 [regulations may establish “prudent norms and customs, and standard of care” 8 in lawsuits asserting breach of the implied covenant of good faith and fair dealing]; 9 see also Croskey, et al., Cal. Practice Guide: Insurance Litigation (2003) sections 10 14:45:20 to 14:45:24 [“Violation of the UIPA apparently creates a rebuttable 11 presumption of breach of the implied covenant of good faith and fair dealing, 12 shifting to the insurer the burden of proving some excuse or justification for its 13 conduct.”].) 14 3. Liability for Punitive Damages. The purpose of punitive damages is to punish the defendant, to make an 15 example, and thereby to deter others from similar conduct. Neal v. Farmers Ins. 16 Exch., 21 Cal.3d 910, 928 (1978); see Civil Code section 3294 subd. (a) ("for the 17 sake of example and by way of punishing the defendant"). 18 In order to support an award of punitive damages, plaintiffs must prove 19 that defendants' conduct goes beyond bad faith; there must be clear and convincing 20 evidence of "oppression, fraud, or malice. California Civil Code section 3294(a). A 21 favorable finding on any one of these three elements establishes a basis for an 22 award of punitive damages. Pistorious v. Prudential Ins. Co. of America, 123 23 Cal.App.3d 541, 556 (1981). Occasionally, the same conduct establishes all three 24 elements. See Tibbs v. Great American Ins. Co., 755 F.2d 1370, 1375 (9th Cir. 1985) (applying California law). 25 "Oppression" means despicable conduct that subjects a person to cruel and 26 unjust hardship in conscious disregard of that person's rights." California Civil 27 Code section 3294(c)(2). Conduct by an insurer seeking to reduce policy amounts 28 legitimately payable constitutes oppression. Amerigraphics, Inc. v. Mercury 14 PLAINTIFFS’ MSC BRIEF 1 Casualty Co., 182 Cal.App.4th 1538, 1559 (2010).; Waller v. Truck Ins. Exch., Inc., 2 11 Cal.4th 1, 36 (1995); Richardson v. Employers Liab. Assur. Corp., 25 Cal.App.3d 3 232, 246 (1972) ["Oppression" means subjecting a person to cruel and unjust 4 hardship in conscious disregard of his rights]. "A careless disregard for the rights of an insured and an obstinate persistence in an ill-advised initial position" on the 5 part of an insurer may amount to "oppression" under Civil Code section 3294. 6 Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., supra, 78 7 Cal.App.4th at 892. 8 Conscious disregard of an insured's rights may be found where an insurer 9 denies a claim by adopting a plainly unreasonable interpretation of its policy and 10 deliberately restricts its investigation in a bad faith attempt to deny benefits due 11 the insured. Such evidence supports a punitive damages award because it shows 12 "a conscious course of conduct, firmly grounded in established company policy." 13 Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152, 1165 (9th Cir. 2001) 14 (applying California law). "Despicable" conduct has been found where an insurer engaged in 15 protracted, aggressive, non-meritorious litigation against its insured that 16 devastated his health, business and family. The insurer knew it was harming its 17 insured, whether it desired that result or not: "[T]he jury was free to conclude on 18 this evidence that the protracted degradation of an honest and hard working 19 businessman, and the conscious indifference to his suffering, was despicable." 20 George Hillenbrand, Inc. v. Insurance Co. of No. America, 104 Cal.App.4th 784, 21 818 (2002). 22 For purposes of a punitive damages award, “fraud” is defined by statute as 23 “an intentional misrepresentation, deceit, or concealment of a material fact known 24 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. Civil 25 Code section 3294(c)(3). In the punitive damages context all that is required is 26 that the fraudulent conduct relate to the conduct giving rise to bad faith liability, 27 i.e., that in breaching the implied covenant, the insurer acted fraudulently 28 (misrepresenting or concealing essential facts). See Notrica v. State Compensation 15 PLAINTIFFS’ MSC BRIEF 1 Ins. Fund, 70 Cal.App.4th 911, 948 (1999). 2 An insurer can also be guilty of promissory fraud where it issues a policy 3 with the intent not to pay benefits, and this intent can be proven by inferences 4 raised by its subsequent conduct. The fact that the insurer ultimately denied the claim without reasonable grounds may furnish an inference that it never intended 5 to pay and thus was guilty of fraud for punitive damages purposes. Wetherbee v. 6 United Ins. Co. of America, 265 Cal.App.2d 921, 932 (1968). “An absolute 7 unwillingness ‘even to attempt (a promised performance gives rise to an inference 8 of fraudulent intent.” Diamond Woodworks, Inc. v. Argonaut Ins. Co., 109 9 Cal.App.4th 1020, 1050 (2003); Miller v. National American Life Ins. Co. of Calif., 10 54 Cal.App.3d 331, 339 (1976). 11 12 V. PLAINTIFFS’ DAMAGES 13 1. Contract Damages. 14 Plaintiffs are owed the difference between the amount of the appraisal award ($555,070.63) and the amount Homesite initially paid them ($10,389.27). 15 That net claim for dwelling damage comes to $544,681.36. Pre-judgment interest 16 at the legal rate from the date of the appraisal award (May 6, 2021) comes to 17 $130,873. 18 Plaintiffs were also forced to leave their Carmel home for eighteen months 19 while repairs were being made. The policy provides loss of use coverage for the 20 additional cost required for plaintiffs to maintain the lifestyle they enjoyed 21 immediately prior to the loss. That means they were entitled to rent another home 22 in or near Carmel Valley while their damaged home was being repaired. Evidence 23 at trial will establish the monthly fair rental value of the Clampetts’ home was 24 $10,000 at the time the repairs began in August 2019 (and somewhat higher during the period of the Covid pandemic). Eighteen months times $10,000/month 25 is $180,000. 26 Plaintiffs therefore claim contract damages plus interest in a total amount 27 of $855,554. 28 2. Tort Damages for Bad Faith. 16 PLAINTIFFS’ MSC BRIEF 1 Plaintiffs are entitled to an award of emotional distress damages in a ratio 2 of one-to-one up to two-to-one the sum of their economic damages set forth above. 3 ($855,554 to $1,711,108). Major v. Western Home Ins. Co., 169 Cal.App.4th 1197, 4 1216 (2009) [approving an emotional distress award in a bad faith insurance case equal to two times the plaintiff’s economic damages, including attorney fees]. 5 Plaintiffs are also entitled to receive compensation for their attorney fees 6 paid to collect these contract benefits. Using the formula outlined in Cassim v. 7 Allstate Ins. Co., 33 Cal.4th 780 (2004), plaintiffs calculate their attorney fees at 8 this point in the case (based on a 40% contingency fee agreement) to be 25% of 9 their compensatory damages or $427,777. 10 Plaintiffs also seek consequential tort damages for their appraisal costs 11 ($11,295.90). 12 The total amount of all compensatory damages claimed by plaintiffs under 13 their bad faith tort cause of action ranges from $1,294,627 to $2,138,885. 14 3. Punitive Damages. A jury may award punitive damages up to a Constitutional limit of ten-to- 15 one times the amount of compensatory tort damages. Simon v. San Paolo U.S. 16 Holding Co., 35 Cal.4th 1159, 1182 (2005). The United States Supreme Court has 17 indicated that an award of more than four-to-one might be the limit in a “normal” 18 case. State Farm Mut. Auto. Ins. Co. v. Campell, 538 U.S.408, 425 (2003). Where 19 compensatory damages are substantial, a lesser ratio, perhaps only equal to 20 compensatory damages, may be appropriate. Id. 21 Accordingly, the amount of punitive damages in this case that could be 22 awarded, using a conservative estimate for tort damages, ranges from $1,294,627 23 to $5,178,508. 24 VI. PRIOR SETTLEMENT OFFERS AND DEMANDS 25 In March of 2023, Plaintiff issued a 998 offer for $1,499,999.00. That offer 26 was not accepted by Defendant. Private mediation with Ralph Williams was 27 attempted but was unsuccessful. Plaintiffs’ settlement demand for the purposes of 28 this settlement conference is $2,500,000. 17 PLAINTIFFS’ MSC BRIEF 1 VII. IMPEDIMENTS TO SETTLEMENT 2 Plaintiff is aware that Defendant may request a trial continuance based on 3 supposed unavailability of counsel. The Court continued the trial in this matter 4 previously and Plaintiff has expended much effort in preparing for the present trial date. Plaintiff is not willing to stipulate to a further continuance. 5 6 ROBERT H. ROE 7 Dated: July 26, 2023 8 By: Robert H. Roe 9 Attorney for plaintiffs Robert 10 Clampett and Marianna Clampett 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18 PLAINTIFFS’ MSC BRIEF