Vallejo v. Fire Ins. Exch.

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JOSE VALLEJO, Plaintiff and Appellant, v. FIRE INSURANCE EXCHANGE, Defendant and Appellant

C091547

California Court of Appeals, Third District, San Joaquin

November 21, 2022

NOT TO BE PUBLISHED

Super Ct. No. STKCVUIC20140008644

HULL Acting P. J.

SUMMARY OF THE APPEAL

In 2013, Jose Vallejo sought payment from Fire Insurance Exchange (Fire) of a default judgment he had secured against Fire's insureds, Marsha and Franklin Savoy. Vallejo had secured the default judgment in 2009, in a personal injury action he had brought against the Savoys and Marsha's father, Manual C. De La Garza. Fire denied Vallejo's claim, and Vallejo filed this action, alleging he was entitled to benefits under Insurance Code section 11580, a breach of contract cause of action, and that Fire had breached the covenant of good faith and fair dealing when it denied his claim. A jury found in Vallejo's favor, and the trial court awarded Vallejo contract damages in the form of the amount due to him under the policy plus interest, damages for emotional distress, and attorney fees expended to collect the amount he was due under the policy under Brandt v. Superior Court (1985) 37 Cal.3d 813 (Brandt).

On appeal, Fire argues that the Insurance Code section 11580 and breach of contract causes of action were time-barred by the time Vallejo filed this action. Central to Fire's position is its argument that a bankruptcy proceeding the Savoys filed after Vallejo secured his personal injury judgment but before he submitted a claim to Fire did not toll the statute of limitations applicable to the filing of Vallejo's claim under Insurance Code section 11580. On this point we agree with Fire. Because Vallejo secured a judgment against the Savoys before they filed for bankruptcy the bankruptcy stay did not prevent him from filing an Insurance Code section 11580 or breach of contract action to collect funds from Fire during the pendency of the bankruptcy proceeding.

Fire also argues that Vallejo should not have been able to maintain an action alleging Fire breached the covenant of good faith and fair dealing when it denied his claim. On this point, we disagree with Fire, because while the statute of limitations on the Insurance Code section 11580 and contracts causes of action lapsed before Vallejo filed this action that statute of limitations had not passed at the time Fire denied his claim. Vallejo has raised a convincing argument that the statute of limitations on his bad faith cause of action is different than the one that applied to the other two causes of action, and Fire has not made a convincing argument that it acted reasonably at the time it denied Vallejo's claim.

In this appeal, we also consider two arguments regarding the calculation of damages owed to Vallejo: one raised by Fire and the other raised in a cross-appeal by Vallejo. We will conclude that Fire correctly argues that the contract damages award needs to be recalculated, and that Vallejo correctly argues the Brandt award ought to have included litigation costs.

FACTS AND HISTORY OF THE PROCEEDINGS

Fire Issued a Policy on the Savoys' Real Property covering the period from April 27 2006, to April 27, 2007

In March 2005, De La Garza transferred interest in a house he owned (the property) to the Savoys. De La Garza continued to reside at the property after the transfer.

Fire, a Farmers Insurance entity, issued a landlord's protector insurance package (the policy) on the Savoy's property which covered the period of April 27, 2006, to April 27, 2007. Though De La Garza was not specifically named as an insured under the policy, the jury found that he was an insured under the policy and neither party has challenged the jury's finding on appeal. The policy included business liability coverage, under which Fire would pay "all damages from an occurrence which an insured is legally liable to pay because of bodily injury [or] personal injury . . . arising out of the ownership, maintenance, or use of the insured location covered by this policy."

The business liability coverage terms included a "Suit Against Us" provision, which stated, "[Fire] may not be sued unless there has been full compliance with the terms of this policy. No one shall have any right to make [Fire] a party to a suit to determine the liability of a person [Fire] insure[s]. [Fire] may not be sued under" the business liability coverage policy, "until the obligation of the insured has been determined by [a] final judgment or agreement signed by [Fire]." Under the terms of the business liability coverage, the "[b]ankruptcy of an Insured . . . will not relieve [Fire] of [their] duties under this policy."

The policy also contained liability coverage designated as "medical pay to others" coverage with a $1,000 per person limit. With certain qualifications, this coverage would be used to pay, "the necessary medical expenses incurred by a person other than an insured within three years from the date of an occurrence causing bodily injury" if the bodily injury, "arises from a condition on the insured location, and [¶] . . . arises from an occurrence for which an insured is covered under this policy."

According to the policy, the Savoys resided in Las Vegas at the time the policy was issued.

Vallejo's Injury in May 2006, the Personal Injury Action, and Default Judgments

During the policy coverage period, in May 2006, Vallejo was injured when he fell off a ladder while helping De La Garza remove a tree from the property.

According to Vallejo, after the injury, De La Garza would go along with Vallejo to medical visits to treat the injury, and he visited Vallejo at home. Though De La Garza told Vallejo he had insurance that could cover Vallejo's medical expenses, De La Garza told Vallejo he would pay for treatment, because De La Garza did not want to report the incident to the insurer and have the cost of insurance increase. When Vallejo needed to make a $300 deposit for surgery related to the injury, De La Garza covered the deposit with a credit card. When Vallejo received a medical bill showing a balance owing of over $14,000, he showed it to De La Garza, and De La Garza ceased contact with Vallejo and stopped paying for Vallejo's medical bills.

In July 2006, Vallejo retained an attorney, Jeffrey Silvia, to assist him in obtaining compensation for medical expenses incurred to treat the injuries he suffered. Vallejo represented to Silvia that De La Garza owned the property and had a homeowner's insurance policy. Silvia's office contacted De La Garza, who acknowledged that the policy existed but refused to provide the identity of the insurer.

On October 10, 2006, Vallejo filed a personal injury action against De La Garza for damages related to his injuries (underlying action). De La Garza did not file an answer, and on June 28, 2007, the trial court entered a default judgment in Vallejo's favor against De La Garza awarding total damages of $125,184.84 (De La Garza judgment).

When Silvia sought to record an abstract of judgment against the property, he learned that the Savoys owned the property at the time Vallejo was injured. As a result, in November 2007 Vallejo filed an amended complaint in the underlying action naming the Savoys as defendants.

A process server served the Savoys at the property using substitute service on De La Garza who told the process server the Savoys lived at the property with him, but worked long hours; and then De La Garza represented to the process server that he would give the documents to the Savoys. The record does not tell us what, if anything, De La Garza, who died in September 2009, ever told the Savoys about the personal injury action.

The Savoys did not file an answer, and on January 28, 2009, the trial court entered a default judgment in Vallejo's favor against the Savoys awarding total damages of $125,184.84 (Savoy judgment). In 2009 and 2010, Silvia made various efforts to identify the property insurer to no avail.

We note that in its opening brief, Fire describes these efforts-including how those efforts related to Vallejo's own chapter 7 bankruptcy proceedings-in more detail. Fire then argues that Vallejo and his counsel's alleged "diligence" did not toll the statute of limitations in this action. In his responsive brief, Vallejo does not argue that anything other than the Savoys' bankruptcy proceedings and Fire's representations regarding the impact of those proceedings tolled the statute of limitations. Additionally, we find persuasive Fire's argument that Vallejo did not need to know the name of the insurer to bring the action because (1) he was aware there was a liability insurer and that the predicate requirement-a judgment against the insured-for an Insurance Code section 11580 cause of action against that liability insurer existed when he secured the default judgments; and (2) he could have filed a timely action naming the insurer as a Doe defendant. (See Bernson v. Browning-Ferris Industries (1994) 7 Cal.4th 926, 932; see also Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807 ["The discovery rule, as described in Bernson, allows accrual of the cause of action even if the plaintiff does not have reason to suspect the defendant's identity.... As the court reasoned in Norgart[ v. Upjohn Co. (1999) 21 Cal.4th 383, 399], '[i]t follows that failure to discover, or have reason to discover, the identity of the defendant does not postpone the accrual of a cause of action, whereas a like failure concerning the cause of action itself does' "].) Thus, the minute details of Vallejo's efforts to identify Fire are not important for our analysis.

According to the trial court's ruling on a motion for summary judgment in the instant action, "[t]he parties agree...