Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_05-cv-04762/USCOURTS-cand-4_05-cv-04762-4/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1331 Fed. Question: Insurance Contract

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

In their combined reply to Defendant's opposition to their

motion for partial summary judgment and opposition to Defendant's

cross-motion for summary judgment, Plaintiffs attempt to cross-move

for additional partial summary judgment. Because such motion comes

after the scheduled cut-off date for case dispositive motions and

violates the Court's briefing order, the Court will not consider

Plaintiffs' cross-motion. 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

BERTHA MONCADA, INDIANA BERRENECHEA,

and EDDA NIX,

Plaintiffs,

v.

ALLSTATE INSURANCE COMPANY, and DOES

1 through 10,

Defendants.

 /

No. C 05-4762 CW

ORDER DENYING

PLAINTIFFS'

MOTION FOR

PARTIAL SUMMARY

JUDGMENT AND

GRANTING IN PART

DEFENDANT'S

CROSS-MOTION FOR

SUMMARY JUDGMENT

Plaintiffs move for partial summary judgment on their claims

of breach of express warranty and breach of implied warranty. 

Defendant Allstate Insurance Company opposes the motion and crossmoves for summary judgment on all claims. Plaintiffs oppose

Defendant's cross-motion.1 The matter was heard on December 1,

2006. Having considered all of the papers filed by the parties,

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 1 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

Aspegren is the structure adjuster, in charge of the claims

related to the building itself. In addition, two other adjusters

worked on the claims, Richard Reney, the contents adjuster and Amy

Patton, the Additional Living Expense (ALE) adjuster (who was also

the inside coordinator).

2

the evidence cited therein and oral argument on the motions, the

Court denies Plaintiffs' motion for partial summary judgment and

grants in part Defendant's cross-motion for summary judgment. 

BACKGROUND

This action on a homeowner's insurance policy arises out of a

fire loss at Plaintiffs' home at 190/192 Albion Street in San

Francisco. Plaintiffs are Bertha Moncada, her living trust and two

of her adult daughters, Edda Nix and Indiana Berrenechea. They

have sued their insurer, Allstate, for breach of contract, bad

faith and breach of express and implied warranties and seek

compensatory and punitive damages. At the time of the fire, title

to the property was held by Moncada's trust, of which Nix is the

trustee. Moncada was living in the upstairs unit of the building

with two of her children and Berrenechea lived in the lower unit

with two of her children and one grandchild. Moncada's son lived

in the garage. Nix did not live at the property, but she and

Moncada were the named insureds under the homeowner's policy. 

Berrenechea is considered an "insured person" under the policy

because she lived in the insured building. 

On January 26, 2004, a fire broke out at the home.

Firefighters responded and put out the fire using water. 

Plaintiffs reported the fire to Allstate that day. Andrew

Aspegren, an Allstate claims adjuster,2

 met with Nix and her

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 2 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 3

husband that day and determined that the fire and the resulting

water damage were covered under the terms of the insurance policy. 

Plaintiffs were entitled to three categories of coverage under

their policy: "Dwelling Protection," which insures the structure

itself, "Personal Property Protection," which insures the contents

of the home, and "ALE," which covers increased living expenses

while the house is uninhabitable. The terms of the policy provide

that there is no monetary limit on the ALE coverage, but it is

limited to twelve months of expenses.

During the initial meeting with Nix, Aspegren informed her

that she could hire a contractor on her own to complete the

repairs, or she could hire one through Allstate's preferred

contractor and vendor program operated by Alacrity Services, LLC. 

Nix elected to hire one of the preferred contractors through

Alacrity. Once she made that decision, Aspegren called Patton, the

Inside Coordinator at Allstate, and informed her that Nix wanted to

hire a contractor through Alacrity. Nix recalls that Aspegren told

Patton "she has decided to go with Allstate." Nix Decl. ¶ 4.

After receiving the phone call, Patton entered the claim into

the Alacrity computer system to have a vendor assigned to the job. 

The computer program assigned V&M Restoration and the Restoration

Cleanup Company to the job, with V&M working on the structural

repairs and Restoration Cleanup working on smoke and water

remediation. The next day, Nix signed a "Work and Pay

Authorization," authorizing V&M to begin emergency repairs at the

home, and Aspegren met with a V&M estimator to begin evaluating the

scope of the loss. 

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 3 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 4

On March 18, 2004, Nix called Aspegren to discuss having V&M

complete all of the repairs at the home. According to Allstate's

log, Nix stated that she wanted to use V&M to complete all of the

repairs "if we're OK with it." Aspegren Decl. Ex. G. Aspegren

recorded that he "explained that we (Allstate) would recommend them

and there is a 3 yr guarantee on their work, but decision to sign

them up was hers as it is her house." Id. 

After negotiations between Aspegren and V&M and some delays

attributable to V&M's lack of familiarity with Allstate's required

estimate generating software, the final estimate of $181,599 was

completed on May 20, 2004. Pursuant to Plaintiffs' policy,

Allstate issued a check to Plaintiffs for $140,029.39, representing

the actual cash value (ACV) of the repairs based on the estimate

less depreciation. The check was sent with a copy of the estimate

and a cover letter explaining that Plaintiffs could recover the

amount withheld as depreciation when the repairs were completed.

V&M began work on the house, but Plaintiffs became

dissatisfied with some of V&M's decisions during the process as

well as with the speed and quality of the work. Nix communicated

directly with V&M at times and often asked Aspegren to intervene on

her behalf. Aspegren testified that he usually acted as an

intermediary, relaying information back and forth between Nix and

V&M. 

By November, 2004, Plaintiffs were so frustrated with V&M that

Nix informed Aspegren that she wanted to fire V&M. Aspegren

testified that he advised Nix that she could fire them but that his

recommendation was "to stay the course with V&M, to try and see it

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 4 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 5

through." Aspegren Deposition at 102:17-18. He based that

recommendation on his belief that it would take even longer to

complete the job if Nix had to hire a new contractor. Not only

would she have to hire the contractor and have it start from the

beginning in learning about the project, but she would have to work

with Allstate and V&M to determine how much work V&M had completed

and the payment to which it was entitled. Based on that advice,

Nix decided not to fire V&M from the job. 

After her conversation with Aspegren, Nix received by mail a

copy of a document entitled "Quality of Assurance Program." The

title of the document appears directly below Alacrity's logo on the

page. The document states that, in the event the repairs fall

below the standard of the warranty, "Alacrity Services, LLC through

the contractor or other designee will remedy any departures from

such standard." FAC, Ex. B. Further, it is signed by Alacrity's

president and instructs that if the insured is concerned about the

quality of the materials or work being done, she should "report it

promptly to Alacrity." Id. The document was printed on a piece of

paper containing Allstate's logo. However, the document is printed

sideways on the page and the Allstate logo appears at the bottom

right-hand corner of the page, perpendicular to the text of the

document. 

Plaintiffs continued to complain to V&M and Allstate about the

quality and pace of the work, but did not fire V&M. V&M continued

to work on the house and when Moncada and Berrenechea were unable

to move back into the house in January, 2005, at the time their

Allstate ALE coverage expired, V&M agreed to pay for their

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 5 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 6

temporary living costs. Moncada and Berrenechea moved back into

the house in the spring of 2005, but Plaintiffs were still

dissatisfied with the ongoing work at their home. Plaintiffs fired

V&M from the job in June, 2005. V&M filed a mechanic's lien

against the property and sued Plaintiffs to recover the unpaid

contract balance; Plaintiffs inform the Court that they have filed

a counterclaim.

Allstate has paid Plaintiffs $187,677.60 for structural

repairs, which includes the entire V&M contract price as well as

$5,036.15 for additional items during the course of the repairs;

$88,739.41 for the year of ALE benefits; and $104,984.72 for the

repair or cash value of the contents of the home. Although

Allstate informed Plaintiffs that they could receive the difference

between the cash value and the replacement cost of any items they

chose to replace, Plaintiffs have not filed any such receipts. 

Allstate has no outstanding claims from Plaintiffs. Plaintiffs

filed this suit in San Francisco Superior Court on October 21,

2005, and Allstate removed it to this Court based on diversity

jurisdiction. Plaintiffs filed their FAC on February 21, 2006. 

LEGAL STANDARD

Summary judgment is properly granted when no genuine and

disputed issues of material fact remain, and when, viewing the

evidence most favorably to the non-moving party, the movant is

clearly entitled to prevail as a matter of law. Fed. R. Civ. P.

56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986);

Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir.

1987).

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 6 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 7

The moving party bears the burden of showing that there is no

material factual dispute. Therefore, the court must regard as true

the opposing party's evidence, if supported by affidavits or other

evidentiary material. Celotex, 477 U.S. at 324; Eisenberg, 815

F.2d at 1289. The court must draw all reasonable inferences in

favor of the party against whom summary judgment is sought. 

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

587 (1986); Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d

1551, 1558 (9th Cir. 1991). 

Material facts which would preclude entry of summary judgment

are those which, under applicable substantive law, may affect the

outcome of the case. The substantive law will identify which facts

are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986).

Where the moving party does not bear the burden of proof on an

issue at trial, the moving party may discharge its burden of

production by either of two methods. Nissan Fire & Marine Ins.

Co., Ltd., v. Fritz Cos., Inc., 210 F.3d 1099, 1106 (9th Cir.

2000). 

The moving party may produce evidence negating an

essential element of the nonmoving party’s case, or,

after suitable discovery, the moving party may show that

the nonmoving party does not have enough evidence of an

essential element of its claim or defense to carry its

ultimate burden of persuasion at trial. 

Id. 

If the moving party discharges its burden by showing an

absence of evidence to support an essential element of a claim or

defense, it is not required to produce evidence showing the absence

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 7 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 8

of a material fact on such issues, or to support its motion with

evidence negating the non-moving party's claim. Id.; see also

Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 885 (1990); Bhan v.

NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991). If the

moving party shows an absence of evidence to support the non-moving

party's case, the burden then shifts to the non-moving party to

produce "specific evidence, through affidavits or admissible

discovery material, to show that the dispute exists." Bhan, 929

F.2d at 1409. 

If the moving party discharges its burden by negating an

essential element of the non-moving party’s claim or defense, it

must produce affirmative evidence of such negation. Nissan, 210

F.3d at 1105. If the moving party produces such evidence, the

burden then shifts to the non-moving party to produce specific

evidence to show that a dispute of material fact exists. Id.

If the moving party does not meet its initial burden of

production by either method, the non-moving party is under no

obligation to offer any evidence in support of its opposition. Id.

This is true even though the non-moving party bears the ultimate

burden of persuasion at trial. Id. at 1107.

Where the moving party bears the burden of proof on an issue

at trial, it must, in order to discharge its burden of showing that

no genuine issue of material fact remains, make a prima facie

showing in support of its position on that issue. UA Local 343 v.

Nor-Cal Plumbing, Inc., 48 F.3d 1465, 1471 (9th Cir. 1994). That

is, the moving party must present evidence that, if uncontroverted

at trial, would entitle it to prevail on that issue. Id.; see also

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 8 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 9

Int’l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1264-65 (5th

Cir. 1991). Once it has done so, the non-moving party must set

forth specific facts controverting the moving party's prima facie

case. UA Local 343, 48 F.3d at 1471. The non-moving party's

"burden of contradicting [the moving party's] evidence is not

negligible." Id. This standard does not change merely because

resolution of the relevant issue is "highly fact specific." Id.

DISCUSSION

I. Breach of Contract

Plaintiffs' first claim is based on their allegation that they

have performed each of the conditions required of them by the

insurance policy while Allstate has not performed its obligations. 

Allstate moves for summary judgment on this claim, arguing that

Plaintiffs have not identified any outstanding claims and have made

various admissions that Allstate has responded positively to each

of their claims. Plaintiffs counter that they "provided Allstate

with both actual and constructive notice of additional claims of

damage," which they allege triggered Defendant's obligation to

investigate. Plaintiffs' Opposition at 16-17. 

To prevail on a claim for breach of contract, a plaintiff must

demonstrate (1) the existence of a contract, (2) the plaintiff's

performance or excuse for non-performance, (3) the defendant's nonperformance, and (4) the resulting damages. See Regan Roofing Co.,

Inc. v. Superior Court, 24 Cal. App. 4th 425, 435 (1994). 

Although Plaintiffs argue that the record demonstrates that

Allstate improperly withheld at least six categories of policy

benefits, they do not point to any evidence in the record that

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 9 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

Moncada elected to stay with Nix and to have Allstate "cash

out" her ALE benefits, by paying her a monthly amount estimating

the fair rental value of her unit per month. Plaintiffs generated

this underpayment figure based on the difference between the

monthly cash out rate paid to Moncada and the actual fair market

value of the property as a rental unit. 

10

Allstate was or should have been aware that Plaintiffs were

claiming those benefits. Nor can the Court locate any such

evidence. After the hearing on this motion, the Court allowed

Plaintiffs to submit supplemental citations to the record to

support their claims. However, the citations provided by

Plaintiffs do not support their position that they made Allstate

aware that they were claiming the benefits related to the alleged

additional damages.

Plaintiffs first claim that Allstate withheld $18,750 in "ALE

payments on the water loss claim" and $3,850 in "ALE underpayments

on the fire loss claim." Plaintiffs' Opposition at 16. However,

Plaintiffs do not demonstrate how they calculated the $18,750

figure, nor do they provide evidence that they made a claim for ALE

due to a water loss claim. Further, it is undisputed that Allstate

paid Plaintiffs' ALE benefits for the entire year provided for in

the policy. Plaintiffs' $3,850 claim for underpayments likewise

does not establish a claim for breach of contract.3 As Defendant

points out, under Plaintiffs' policy either party may request that

disputes over the amount of a loss be decided by appraisal by an

independent umpire. This provision is required by California law. 

See Cal. Ins. Code § 2071. California law also requires that

Plaintiffs comply with all of the provisions of the policy before

filing a lawsuit for recovery of any claim. Id. Defendant argues

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 10 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 11

that this lawsuit is premature because it has not had an

opportunity to seek appraisal of these recently-surfaced claims. 

Defendant points out that as late as September, 2006, Plaintiffs

stated in depositions that Allstate had paid their claims in full. 

Plaintiffs next allege that Allstate improperly deducted

$13,587.31 in depreciation from its structure payments and

underpaid the structure benefits by $153,395.46. However, neither

amount supports a claim for breach of contract. Nix stated in her

declaration that Allstate has already fully paid the amount held

back for depreciation and, as stated above, any disputes regarding

underpayments must be submitted to appraisal if requested by either

party. Further, the $153,395.46 figure represents the amount that

a contractor "retained by plaintiffs to conduct an investigation

and assessment of the repair and reconstruction work that was

performed at their house after the fire loss" estimated was

necessary for "additional reconstruction and repair at the subject

property as a result of the fire loss and subsequent water

intrusion." Jackowitz Decl. ¶¶ 3, 8. Therefore, the alleged

underpayment is based on either the work completed by V&M before it

was fired from the job, or the additional amount Plaintiffs believe

is necessary to pay for work to fix V&M's faulty repairs or to fix

damage that has not yet been fixed. Neither of these constitute

damages for a claim against Allstate. Plaintiffs have not produced

any evidence that they made claims for further repairs after firing

V&M. Further, as discussed below, the Court finds that Allstate

did not guarantee V&M's work. Therefore, any faulty work completed

by V&M cannot be held against Allstate.

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 11 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

Plaintiffs allege that they "reported the existence of indoor

mold growth on the flooring in both flats." Plaintiffs' Opposition

at 9. However, the citations provided discuss only stains and preexisting dry rot in the floors. Further, it appears that Allstate

replaced or repaired the wood floors in each of the rooms where

there was water damage. 

12

Plaintiffs' third claim of withheld benefits is based on

"personal contents that were valued at $0.00." Plaintiffs'

Opposition at 16. However Plaintiffs testify that they have not

made any further claims to Allstate based on the ACV assigned to

the items they mention. Therefore, this is also an allegation that

Allstate undervalued some of Plaintiffs' property in paying their

claim rather than an allegation that Allstate refused to pay

benefits claimed. Defendant must be given an opportunity to seek

to have this allegation as well decided by appraisal. 

Plaintiffs next allege that Allstate withheld payment for

abatement and remediation of asbestos, lead paint and mold. 

However, Plaintiffs did not make any claims against their policy

based on the existence of asbestos, lead paint or mold.4

Therefore, Plaintiffs cannot support a breach of contract claim on

this basis. Plaintiffs argue that Allstate had constructive notice

of the mold problem and the presence of lead paint and asbestos and

that it therefore had a duty to investigate, to inform Plaintiffs

of the existence of any problem and to abate and remediate the

problem. However, Plaintiffs neither identify any such duty in

their policy nor identify any claim made for such abatement and

remediation since the time of the loss.

Similarly, Plaintiffs claim that Allstate improperly withheld

"payment for the personal property currently contaminated with

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 12 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 13

lead, asbestos, mold, and bacteria, including payments for the

original packed-out personal property on the lower flat that was

never cleaned or paid for by Allstate," Plaintiffs' Opposition at

16, but do not provide any evidence that they made a claim for such

payment. Further, to the extent that Plaintiffs characterize this

withheld payment as an underpayment for their personal belongings,

the dispute is subject to appraisal as discussed above.

Finally Plaintiffs claim that Allstate improperly withheld

"payment for the full extent of water damage, including the water

damage from the second rainstorm claim." Plaintiffs' Opposition at

16. Again, Plaintiffs allege damages from the underpayment of a

claim and from the denial of a claim that they never made, the

second rainstorm claim. As discussed above, disputes about the

amount of coverage are subject to appraisal and Allstate is not

obliged to pay claims that have never been submitted.

Plaintiffs fail to demonstrate that there is a triable issue

of fact with respect to their breach of contract claim. Each of

the claims on which they allege Allstate improperly denied benefits

concerns either an alleged underpayment on a claim that was paid or

the non-payment of a claim that was never made. As discussed above

both California law and Plaintiffs' policy require that any

disputes regarding underpayment of a claim that was paid be

submitted to binding appraisal. 

Further, Allstate's failure to pay claims that were never made

cannot establish a breach of contract. Plaintiffs argue that, even

if they never made formal claims for policy benefits, they are

entitled to those benefits because Allstate had constructive notice

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 13 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 14

of their claims. Plaintiffs first cite California Shoppers, Inc.

v. Royal Globe Ins. Co., 175 Cal. App. 3d 1 (1975), to support

their argument that Allstate should have investigated Plaintiffs'

needs more thoroughly because the fire loss put it on constructive

notice of each of Plaintiffs' other "claims." However, California

Shoppers is not analogous to this case. There, Royal received, in

an Adco envelope, a copy of a complaint brought by its insured,

Adco, against California Shoppers. There was no cover letter

accompanying the letter. Royal assumed that the "claim" came from

Adco and sent it a letter informing it that its decision to bring a

suit was not covered by its policy. However, the adjustor who

processed the claim did not check and was unaware that California

Shoppers was also insured by Royal and that the complaint was sent

on behalf of California Shoppers. The California court held that

given the circumstances under which the insurance company received

the copy of the complaint, it should have investigated further to

discover that it had a duty to defend California Shoppers. 

However, unlike California Shoppers, Plaintiffs submitted no

documentation that could be considered a claim that was denied in

this case. The only claim that it made, for the initial loss from

the fire, was paid by Allstate. Further, California courts

recognize that "it is important to distinguish between the limited

scope of the coverage provided by first party property policies and

the broad scope of third party liability policies from which many

implied rights may be found." McMillin Scripps North Partnership

v. Royal Ins. Co., 19 Cal. App. 4th 1215, 1220 (1993). 

Plaintiffs also cite McCormick v. Sentinel Life Insurance Co.,

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 14 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 15

153 Cal. App. 3d 1030 (1984), for the proposition that an insured

need not comply with "technical policy provisions" and that

"Allstate cannot ignore its obligations under the policy on the

sole ground that plaintiffs failed to provide 'documentation' of

additional damage claims." Plaintiffs' Opposition at 17. However,

McCormick presupposes the existence of a stated claim and holds

only that an insurer "does not have the right to insist the claim

be proved only through certain types of evidence. Nor does it

exhibit good faith in denying a claim merely because an insured

failed to dot the i's or cross the t's on a claim form or other

submission." 153 Cal. App. 3d at 1046. Here Plaintiffs did not

make a claim that was denied because they failed to comply with a

formality. Rather, Plaintiffs did not make any claims that were

denied at all. 

Therefore, the Court grants Defendant's cross-motion for

summary judgment on Plaintiffs' claim for breach of contract except

to the extent the claim is based on alleged underpayment of

benefits. If Defendant wishes to pursue appraisal to resolve the

disputed amounts of payment, it shall file by January 3, 2007, a

properly noticed motion seeking court-ordered appraisal. If

Plaintiffs wish to oppose such motion, they shall do so by January

10, 2007. Any reply from Defendant shall be due by January 15,

2007. The parties should address the disposition that should be

made of this case if appraisal is ordered, and what further

litigation, in any, could follow the appraisal. The matter will be

decided on the papers. If Defendant does not file a motion seeking

appraisal, the case will proceed to pretrial conference and jury

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 15 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 16

trial to resolve Plaintiffs' breach of contract claims that are

based upon alleged underpayment of benefits.

II. Breach of Implied Covenant of Good Faith and Fair Dealing

Allstate moves for summary judgment on Plaintiffs' claim for

breach of the implied covenant of good faith and fair dealing,

arguing that Plaintiffs cannot establish that it unreasonably

withheld policy benefits. 

A covenant of good faith and fair dealing is implied in every

insurance contract. Egan v. Mutual of Omaha Insurance Co., 24 Cal.

3d 809, 818 (1979), cert. denied, 445 U.S. 912 (1980); see also,

Gourley v. State Farm Mutual Auto. Insurance Co., 53 Cal. 3d 121,

127 (1991). "An insurer, like any other party to a contract, owes

a general duty of good faith and fair dealing. . . . There are at

least two separate requirements to establish breach of the implied

covenant: (1) benefits due under the policy must have been

withheld; and (2) the reason for withholding benefits must have

been unreasonable or without proper cause." Love v. Fire Ins.

Exch., 221 Cal. App. 3d 1136, 1147, 1152 (1990). 

Allstate argues that Plaintiffs' cause of action must fail

because they have not established that it withheld any benefits

claimed. Plaintiffs counter that Allstate had a duty to

investigate their claim more thoroughly, that if it had it would

have provided more coverage, and that its failure to do so breached

the covenant of good faith and fair dealing. 

However, as Defendant notes, it had no duty to anticipate that

Plaintiffs might be able to make additional claims or to inform

Plaintiffs of those potential claims. Rather, Allstate fulfilled

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 16 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 17

its duty by establishing the scope of Plaintiffs' loss at the time

of the fire and providing payment based on Plaintiffs' contractor's

estimate of the amount of work that needed to be done to restore

the property to its pre-fire condition. 

The implied covenant of good faith and fair dealing acts as a

"supplement to express contractual covenants, to prevent a

contracting party from engaging in conduct that frustrates the

other party's rights to the benefits of the agreement." Waller v.

Truck Ins. Exchange, Inc., 11 Cal. 4th 36, 44 (1995). "Absent [a]

contractual right, however, the implied covenant has nothing upon

which to act as a supplement, and 'should not be endowed with an

existence independent of its contractual underpinnings.'" Id.

(quoting Love, 221 Cal. App. at 1153). 

Because Plaintiffs are unable to establish that there is a

triable question with respect to the withholding of benefits that

were not claimed, as discussed above with respect to their claim

for breach of contract, their claim for breach of the implied

covenant of good faith and fair dealing necessarily fails as well. 

Further, because any disputes over alleged underpayments were not

raised until after this litigation began, the Court finds that even

if Plaintiffs establish that Allstate underpaid them, such actions

cannot create liability for bad faith. 

Plaintiffs also attempt to argue that their claim for a breach

of the covenant of good faith and fair dealing is supported by

Allstate's supervision of V&M's faulty repair of the home. 

Allstate cites Rattan v. United Servs. Auto. Ass'n, 84 Cal. App.

4th 715 (2000), to support its argument that it cannot be held

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 17 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 18

liable for violating the covenant of good faith and fair dealing

based on the performance of the contractor performing the repairs. 

Plaintiffs attempt to distinguish Rattan by arguing that Allstate

"'managed the project' including controlling every aspect of its

preferred vendors' work" and was therefore more involved with the

contractor's work than was the insurer in Rattan. Plaintiffs'

Opposition at 22. However, Plaintiffs have provided no evidence

demonstrating that Allstate managed V&M's work. Rather, the

evidence produced demonstrates that Allstate sought to act as an

intermediary between its insureds and the contractor selected

through its preferred vendor program in order to facilitate the

completion of the job. Further, the insurer in Rattan itself

guaranteed the work done by its preferred vendors and still was not

held responsible for the work completed. 84 Cal. App. 4th at 722. 

As discussed below, Alacrity, not Allstate, issued the guarantee

for V&M's work in this case. Therefore, Rattan does not support

Plaintiffs' position that Allstate was responsible for V&M's work.

The Court grants Defendant's cross-motion for summary judgment

on Plaintiffs' claim for breach of the implied covenant of good

faith and fair dealing.

III. Breach of Express Warranty

Plaintiffs next claim that Allstate provided an express

warranty guaranteeing V&M's work on the house. Plaintiffs move for

summary judgment on the issue, arguing that the undisputed evidence

establishes such a warranty. Defendant cross-moves for summary

judgment arguing that the warranty Plaintiffs rely upon was issued

by Alacrity rather than Allstate. 

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 18 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 19

In their first amended complaint (FAC), Plaintiffs identify a

document as "Allstate's 'Assurance of Quality'" and state that

their claim for breach of express warranty is based on the fact

that the repairs completed by V&M do not meet the standard in the

warranty. FAC at ¶ 11, 31. Defendant counters, and the Court

agrees, that the plain terms of the document demonstrate that the

warranty is issued by Alacrity rather than Allstate. The title of

the document "Quality Assurance Program" appears directly below

Alacrity's logo on the page. FAC, Ex. B. Further, the document

states that, in the event the repairs fall below the standard of

the warranty, "Alacrity Services, LLC through the contractor or

other designee will remedy any departures from such standard," it

is signed by Alacrity's president, and it instructs that if the

insured is concerned about the quality of the materials or work

being done, she should "report it promptly to Alacrity." Id. 

The only reference to Allstate on the document is a statement

that the work is being done in relation to a claim brought under an

Allstate policy. Id. It is true that the copy of the certificate

provided to Plaintiffs was printed on a piece of paper which also

contained the Allstate logo. However, Aspegren testified that the

fact that the document was printed on the Allstate paper was a

clerical error. Aspegren Deposition at 215:5-11. This is

supported by the fact that the document, with its Alacrity logo, is

printed sideways on the page and the Allstate logo appears at the

bottom right-hand corner of the page, perpendicular to the text of

the document.

In their motion, Plaintiffs point to various documents

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 19 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 20

provided by Allstate to other customers, statements on its website,

and internal Allstate documents to establish that Allstate, not

Alacrity guaranteed V&M's work. However, as Allstate points out,

those documents are not mentioned as the source of an express

warranty in the operative complaint and Plaintiffs have not

demonstrated that they were aware of any of the documents or that

they even had access to most of them. The website is the only

source of information aside from the Quality Assurance document

that Plaintiffs might have seen. Yet they have presented no

evidence that they actually read or relied upon the representations

on the site. See Tacata Declaration (Allstate website accessed by

litigation secretary). California courts have held that "[u]nder

the law relating generally to express warranties a plaintiff must

show reliance on the defendant's representation." Kazerouni v. De

Satnick, 228 Cal. App. 3d 871, 873 n.3 (1991). Therefore, the

Court denies Plaintiffs' motion for partial summary judgment and

grants Defendant's cross-motion for summary judgment on this claim.

IV. Breach of Implied Warranty

Plaintiffs' final claim is that "[b]y and through their

conduct of evaluating, coordinating, arranging, and contracting

for, the repair of Plaintiffs' dwelling and structure, Allstate 

. . . impliedly warranted to Plaintiffs that the repair work and

materials used for that work would be of merchantable quality." 

FAC ¶ 35. In their motion for partial summary judgment, Plaintiffs

simply argue that their claim "for breach of implied warranty is

broader than a claim for breach of express warranty." Plaintiffs'

Motion for Partial Summary Judgment at 13. 

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 20 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5Defendant's objections to evidence submitted by Plaintiffs

(Docket Nos. 68, 88) are DENIED as moot. The Court did not

consider any improper or inadmissible evidence in deciding these

motions.

21

However, as Defendant points out, "Privity of contract is a

prerequisite in California for recovery on a theory of breach of

implied warranties of fitness and merchantability." All West

Electronics, Inc. v. M-B-W-, Inc., 64 Cal. App. 4th 717, 726

(1998). There was no contract between Plaintiffs and Allstate with

respect to V&M's work. Plaintiffs' existing contract with Allstate

covered the fire damage to their home, but all of the repairs were

made pursuant to a separate contract between Plaintiffs and V&M. 

Therefore, the Court denies Plaintiffs' motion for partial summary

judgment and grants Defendant's motion for summary judgment on this

claim.

CONCLUSION

For the foregoing reasons, the Court DENIES Plaintiffs' motion

for partial summary judgment (Docket No. 39) and GRANTS in part

Defendant's motion for summary judgment (Docket No. 53).5

 

IT IS SO ORDERED.

Dated: 12/20/06 

CLAUDIA WILKEN

United States District Judge

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 21 of 22
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 22

Case 4:05-cv-04762-CW Document 84 Filed 12/20/06 Page 22 of 22