Marissa Janney v. CSAA Insurance Exchange

• Published date: 30 December 2021
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Lewis Brisbois Bisgaard & Smith LLP
• Author: Mr Michael Velladao

Insurer's Payment of Actual Replacement Cost of Home Bars Claim for Bad Faith

(December 2021) - In Janney v. CSAA In. Exch., 70 Cal.App.5th 374 (October 15, 2021), the California Third District Court of Appeal affirmed a summary judgment in favor of CSAA Insurance Exchange ("CSAA") in connection with a breach of contract and bad faith lawsuit filed by Peggy Baltar in connection with CSAA's adjustment of a property loss involving the destruction of Baltar's home as result of the Boles fire in September 2014. Baltar purchased a homeowner's policy from CSAA that afforded dwelling coverage for property loss. Baltar contended that CSAA acted in bad faith by (1) failing to pay the total available policy limits available for the replacement of her home based on an estimate for rebuilding the home that exceeded the total available limits, (2) failing to timely pay for landscaping damages, and (3) failing to pay for the entire cost of debris removal covered by the policy.

The trial court granted CSAA's motion for summary judgment. The trial court held that since CSAA paid the actual replacement cost of Baltar's home, as well as the cost of landscaping after receiving information clarifying the amount owed, CSAA did not breach its contract with Baltar, and acted reasonably in adjusting her claim such that Baltar's claim for bad faith failed as a matter of law. The trial court also found that that Baltar's claim for additional debris removal costs was barred because the City of Weed (where the home was located) agreed to waive costs of debris removal.

The California Court of Appeal affirmed the trial court's entry of summary judgment in favor of CSAA. The Court of Appeal reasoned as follows in connection with each of Baltar's claims of bad faith:

• Replacement Cost Estimate

Baltar argues disputed issues of material fact exist with respect to whether CSAA breached the insurance policy by failing to provide a complete and accurate estimate of replacement cost or adjust Baltar's replacement cost estimate. We are not persuaded. As stated previously, the loss settlement provisions of Baltar's policy entitled her to recover the "'replacement cost'" of the dwelling "subject to the following: we will pay the cost of repair or replacement, without deduction for depreciation, but not exceeding the smallest of the following amounts: (a) The limit of liability under this policy applying to the 'building structure'; (b) The 'replacement cost' of that part of the 'building structure' damaged for equivalent construction and use on the same premises; or (c) The amount actually and necessarily spent to repair or replace the damaged 'building structure.'"

In Conway v. Farmers Home Mut. Ins. Co. (1994) 26 Cal.App.4th 1185 [31 Cal. Rptr. 2d 883] (Conway), the court interpreted an identical provision. The court first explained, relying on Hess v. North Pacific Ins. Co. (1993) 122 Wash.2d 180 [859 P.2d 586], that "the genesis" of such provisions was the recognition that an insured covered by a traditional policy, providing only for payment of actual cash value of the property, '"might not be made whole because of the increased cost to repair or to rebuild. Thus, replacement cost coverage became available. ...' [Citation.]" (Conway, atp. 1189.) The court also adopted the Hess court's interpretation of the various measures of loss settlement: '""The first measure, of course, limits the amount available for replacement to policy limits, while the second relates to a theoretical or hypothetical measure of loss: that is, the replacement cost of rebuilding the identical structure as one limit of the company's liability. This particular limitation does not require repair or replacement of an identical building on the same premises, but places that rebuilding amount as one of the measures of damage to apply in calculating liability under the replacement cost coverage. The effect of this limitation comes into play when the insured desires to rebuild either a different structure or on different premises, in those instances, the company's liability is not to exceed what it would have cost to replace an identical structure to the one lost on the same premises. Although liability is limited to rebuilding costs on the same site, the insured may then take that amount and build a structure on another site, or use the proceeds to buy an existing structure as the replacement, but paying any additional amount from his or her own funds.

""'Finally, the third limitation of liability strengthens the requirement that liability of the company does not exist until repair or replacement is made. The purpose of this limitation is to limit recovery to the amount the insured spent on repair or replacement as yet another...