Court Opinion

ID: 9398753
Source: CourtListenerOpinion
Date Created: 2023-06-01 00:03:46.112964+00
Date Added: 2024-06-11T17:19:36.018581
License: Public Domain

Filed 5/31/23 Borjon Auto Center King City v. Sentry Select Ins. Co. CA6
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                      SIXTH APPELLATE DISTRICT

 BORJON AUTO CENTER KING CITY,
 INC.,                                                               H048021
                                                                    (Monterey County
           Plaintiff and Respondent,                                 Super. Ct. No. M132410)

           v.

 SENTRY SELECT INSURANCE
 COMPANY,

           Defendant and Appellant.

 BORJON AUTO CENTER KING CITY,                                       H048084
 INC.,                                                              (Monterey County
                                                                     Super. Ct. No. M132410)
           Plaintiff and Respondent,

           v.

 SENTRY SELECT INSURANCE
 COMPANY,

           Defendant and Appellant.

                                              I. INTRODUCTION
         Appellant Sentry Select Insurance Company (Sentry) issued a property and
liability insurance policy to respondent Borjon Auto Center King City, Inc. (Borjon Auto
Center), which operated General Motors and Chrysler auto dealerships in a dealership
building located on leased premises at 905 Broadway Street in King City (hereafter
905 Broadway). The franchise agreements required Borjon Auto Center to operate at the
905 Broadway location. After the dealership building was destroyed in a fire, Borjon
Auto Center made a claim to Sentry for policy benefits, including payment under the
building coverage included in the policy. Sentry denied building coverage on the ground
that Borjon Auto Center did not have an insurable interest in a building it did not own
and was not obligated under its lease to insure.
       After building coverage was denied, Borjon Auto Center brought an action against
Sentry for breach of contract and breach of the covenant of good faith and fair dealing.
Before the matter proceeded to a jury trial, the trial court granted Borjon Auto Center’s
motion for summary adjudication and ruled that Borjon Auto Center had an insurable
interest in the dealership building located at 905 Broadway.
       At the conclusion of the jury trial, the jurors found that Sentry had breached the
insurance contract and awarded Borjon Auto Center $1,412,311 in contract damages,
reduced by an offset to $1,269,726.14. The jury also found that Sentry had breached the
covenant of good faith and fair dealing, and awarded Borjon Auto Center an additional
$152,750.00 plus punitive damages in the amount of $6,240,000.00. An amended
judgment including the awards of compensatory and punitive damages, and prejudgment
interest and costs, was filed on April 7, 2020.
       On appeal, Sentry contends that the judgment should be reversed because
(1) Borjon Auto Center did not have an insurable interest in the dealership building;
(2) Sentry did not withhold benefits owed to Borjon Auto Center under the building
coverage included in the Sentry policy; (3) the jury verdict finding that Sentry breached
the covenant of good faith and fair dealing is not supported by substantial evidence; and
(4) the award of punitive damages is not supported by clear and convincing evidence.

                                              2
For the reasons stated below, we find no merit in Sentry’s contentions and we will affirm
the judgment.1
                 II. FACTUAL AND PROCEDURAL BACKGROUND
       A. The Pleadings
       The operative pleading is the first amended complaint (complaint) brought by
plaintiff Borjon Auto Center against defendant Sentry and several other defendants not at
issue in the present appeal.
       According to the allegations in the complaint, in 2013 Borjon Auto Center’s
president executed an asset purchase agreement for the assets of South Valley Auto
Plaza, Inc. (South Valley Auto Plaza), an auto dealership located at 905 Broadway that
was owned by Vicente Lopez. The asset purchase agreement included the transfer of
three General Motors auto franchises and four Chrysler auto franchises to Borjon Auto
Center.
       The franchise agreements allegedly required Borjon Auto Center to operate the
auto dealerships from a structure that housed a show room, sales offices, and service and
parts facilities. To satisfy this requirement, Borjon Auto Center leased the dealership
premises at 905 Broadway from South Valley Auto Plaza. The lease terms included a
initial lease period of July 16, 2013, to July 16, 2018, with three five-year options to
renew the lease.
       The lease terms for 905 Broadway also provided that Borjon Auto Center could
make tenant improvements and Borjon Auto Center was required to obtain fire insurance
on its tenant improvements. South Valley Auto Plaza was allegedly obligated to obtain
fire insurance for the remainder of the dealership building.

       1
       On the court’s own motion, we ordered that the appeals in case Nos. H048021
and H048084 be considered together for the purposes of record preparation, briefing, oral
argument and disposition.

                                              3
       Borjon Auto Center’s president obtained comprehensive property and liability
insurance from Sentry, which marketed itself as a specialty insurer for auto dealerships.
The Sentry policy was renewed effective July 1, 2014 to July 1, 2015, and included,
among other coverages, building coverage providing that $2,059,000 was the agreed
value for replacement of the dealership building at 905 Broadway.
       On October 5, 2014, a fire spread from the mobile home park adjacent to
905 Broadway and allegedly caused more than $4 million in physical property damage
to Borjon Auto Center’s dealership building, tenant improvements, equipment, and motor
vehicles and parts. Borjon Auto Center reported the losses to Sentry, which opened a
claims file and began to adjust the losses. On October 14, 2014, Sentry sent a reservation
of rights letter to Borjon Auto Center, which stated that since the lease for 905 Broadway
did not require Borjon Auto Center to carry insurance for the building or repair the
building in the event of a fire, and its financial interest in the building was unclear, Sentry
could not commit to coverage.
       In November 2014 Sentry allegedly made the decision to deny coverage for
damage to the dealership building at 905 Broadway because Sentry believed that Borjon
Auto Center did not have an insurable interest in the dealership building. According to
Borjon Auto Center, the denial of building coverage prevented it from repairing or
replacing the dealership building that was essential to conducting its business. As a
result, Borjon Auto Center had to surrender its franchise agreements with General Motors
and Chrysler, and terminate its lease for 905 Broadway.
       In April 2015 counsel for Borjon Auto Center sent a letter to Sentry requesting
reconsideration of Sentry’s decision to deny building coverage. In the letter, Borjon Auto
Center’s counsel asserted that under California law Borjon Auto Center had an insurable
interest in the dealership building because it had a pecuniary interest in preserving the
dealership building to hold onto its franchises, since no other dealership building was
available in the King City area. Borjon Auto Center therefore sought payment of the full

                                              4
policy limits under the building coverage to enable it to finance construction of a new
dealership building.
       In April 2015 Sentry cancelled Borjon Auto Center’s property and liability
coverage, effective October 5, 2014. In May 2015 Sentry “ratified” its denial of building
coverage on the ground that Borjon Auto Center did not have an insurable interest in the
dealership building and therefore the building coverage was void as a matter of law. In
February 2016 Sentry attempted to return the premiums that Borjon Auto Center paid for
the building coverage.
       The causes of action asserted in the complaint against Sentry included breach of
insurance contract (refusal to pay benefits under the building coverage), insurance bad
faith (breach of the covenant of good faith and fair dealing), negligence, and declaratory
relief. Borjon Auto Center sought compensatory and punitive damages and attorney fees.
       B. Summary Adjudication Order
       The parties jointly stipulated to move for summary adjudication of the issue of
Borjon Auto Center’s insurable interest pursuant to Code of Civil Procedure
section 437c, subdivision (t).2 In the December 12, 2016 order the trial court granted the
motion and ordered that the parties were permitted to file cross-motions for summary
adjudication as to the following issue: “Whether BORJON had an insurable interest
and/or direct financial interest in the subject Building as required for Building Coverage.”

       2
         Code of Civil Procedure section 437c, subdivision (t) provides in part: “[A]
party may move for summary adjudication of a legal issue or a claim for damages other
than punitive damages that does not completely dispose of a cause of action, affirmative
defense, or issue of duty pursuant to this subdivision. [¶] (1)(A) Before filing a motion
pursuant to this subdivision, the parties whose claims or defenses are put at issue by the
motion shall submit to the court both of the following: [¶] (i) A joint stipulation stating
the issue or issues to be adjudicated. [¶] . . . [¶] (2) Within 15 days of receipt of the
stipulation and declarations, unless the court has good cause for extending the time, the
court shall notify the stipulating parties if the motion may be filed.”

                                             5
       The parties then filed cross-motions for summary adjudication as to the issue
of insurable interest. In the April 19, 2017 order the trial court granted Borjon Auto
Center’s motion and denied Sentry’s motion. The trial court stated its ruling as
follows: “After full consideration of the evidence, and the written and oral submissions
by the parties, the Court finds there is no triable issue of material fact, and that [Borjon
Auto Center] is entitled to summary adjudication of the insurable interest issue in its
favor as a matter of law. The Court finds that [Borjon Auto Center] had an insurable
interest for building coverage in the dealership building at 905 Broadway Street,
King City, California at the time SENTRY issued its insurance policy bearing policy
no. 25-53865-05 in July 2014 and at the time the dealership building was destroyed by
fire in October 2014.”
       C. Jury Trial
       The case proceeded to a jury trial that was divided into three phases: (1) Liability
and damages for breach of contract and liability for breach of the covenant of good faith
and fair dealing; (2) Damages for breach of the covenant of good faith and fair dealing
and liability for punitive damages; (3) Amount of punitive damages. The following is a
brief summary of the relevant witness testimony and other evidence presented at trial in
each phase.
              1. Phase I
                                    Borjon Auto Center
       In May 2013 Anthony Mark Borjon entered into a buy-sell agreement with Lopez
to buy for $700,000 the motor vehicle dealership that Lopez operated at 905 Broadway
with General Motors and Chrysler franchises. The buy-sell agreement obligated Borjon
to apply to General Motors and Chrysler for approval to acquire the franchises. General
Motors and Chrysler required Borjon to have a minimum five-year lease for the
dealership premises at 905 Broadway. Borjon then entered into a lease for 905 Broadway
with Lopez, who owned the property. The lease included an initial five-year lease with

                                              6
three options to renew the lease for an additional five years, for a total potential lease
term of 20 years.
       General Motors and Chrysler approved Borjon’s applications to acquire the
General Motors and Chrysler franchises for Borjon Auto Center. The franchise
agreements required Borjon to operate Borjon Auto Center at 905 Broadway and also
required the approval of General Motors and Chrysler to change the location. Borjon
Auto Center started business at 905 Broadway in August 2013.
       In the early morning hours of October 5, 2014, Borjon received a call informing
him there was a fire at Borjon Auto Center. The fire had spread from a nearby mobile
home park and destroyed the dealership building, including the showroom and service
department, at 905 Broadway. After the fire, Borjon terminated his lease because he no
longer had a dealership building at 905 Broadway.
       Fred Sherwood was a dealer network manager for Chrysler who had reached out
to Borjon to purchase the King City dealership from Lopez. Sherwood knew that Borjon
was already operating a profitable motor vehicle dealership in Paso Robles. Sherwood’s
review of Borjon Auto Center’s financial statements showed that Borjon Auto Center had
gross sales of about $3 million for the five months that Borjon Auto Center operated in
2013 and gross sales of about $10 million for the nine months of operation in 2014.
Sherwood was not surprised that Borjon Auto Center’s tax return for 2013 showed a loss
of $112,000, explaining that it usually takes three years for a new dealership to become
profitable. The financial statements also showed that Borjon Auto Center was starting to
show a profit before the fire.
       Borjon Auto Center’s forensic accounting expert testified that in his opinion, using
financial data from Borjon’s profitable dealership in Paso Robles as a yardstick, the total
of past and future profits (2016 through 2029) that Borjon Auto Center lost after ceasing
operations was $2,966,962. Sentry’s forensic accounting expert testified to the contrary
that Borjon Auto Center was not profitable, with the exception of a small profit in

                                              7
September 2014, and that Borjon Auto Center would not have been able to compete with
larger dealerships in the region.
                Sentry Insurance Policy and Borjon Auto Center’s Claim
        Borjon understood that the lease for 905 Broadway was a “triple net lease,” which
obligated him, as the lessee, to obtain fire insurance and building coverage. Borjon relied
on his longtime insurance agent, Steve Milton, to pick the right coverages for Borjon
Auto Center. Milton gave Borjon a Sentry promotional brochure that advertised Sentry
as one of the nation’s leading auto dealership insurers and stated that Sentry would
provide “[c]ustomized coverages and services, which focus on protecting your dealership
against losses that could disrupt operations or jeopardize financial well-being. [¶] . . . [¶]
[And p]rompt, fair claims administration which allows you to focus on getting back to
business.”
        Borjon told Milton that he had leased the dealership building at 905 Broadway,
and Milton reported that the building was leased on Borjon’s application for dealership
insurance coverage from Sentry. Sentry issued the original policy for Borjon Auto
Center effective August 1, 2013. The Sentry policy was renewed effective July 1, 2014,
through July 1, 2015. The renewal policy was in effect at the time of the October 2014
fire.
        Sentry’s renewal policy for Borjon Auto Center provided building coverage for
905 Broadway, which stated in part: “We will pay for direct physical loss of or damage
to Covered Property at the premises described in the Declarations caused by or resulting
from any Covered Cause of Loss.” The policy also stated: “We will not pay you more
than your financial interest in the Covered Property.” The policy limit for the building
coverage was $2,059,000.
        Borjon reported the October 5, 2014 dealership building fire to Milton, his
insurance agent, soon after learning of the fire. On October 7, 2014, Borjon met with
Sentry’s claims adjuster, Tim Romero, and gave him a copy of the lease for Borjon Auto

                                              8
Center. On October 14, 2014, Borjon received an email from Romero with Sentry’s
reservation of rights letter attached. Borjon understood the reservation of rights letter to
state that Sentry would not cover the building loss because he did not have a financial
interest in the property at 905 Broadway.
       A couple of weeks later, Romero requested that Borjon provide him with copies of
his agreements with General Motors and Chrysler, stating in an email that if Borjon Auto
Center was “unable to permanently relocate elsewhere because of these agreements that
could impact our evaluation of your insurable interest in the building.” Borjon looked for
a facility in King City that could serve as a replacement dealership, but found nothing
suitable.
       Borjon subsequently received a November 18, 2014 letter from Sentry’s counsel
that denied building coverage. He then retained counsel who made a written settlement
demand on Sentry for wrongful denial of building coverage. Borjon’s counsel explained
in the demand letter that Borjon wanted to buy property in King City and build a new
dealership building, but Borjon could not afford to construct a new dealership building
without payment under the building coverage.
       Borjon told Chrysler’s dealer network manager Sherwood that he wanted to stay in
business in King City after the fire, but Sherwood advised him that Chrysler needed a
letter of voluntary termination of his Chrysler franchise because the Borjon Auto Center
dealership did not exist anymore. However, Sherwood also told Borjon that if he
provided a written plan to Chrysler by December 1, 2014, regarding his plans to rebuild
the dealership, Chrysler would work with him to continue as a Chrysler dealer.
       Similarly, General Motor’s regional manager, Gina Toben, discussed with Borjon
that General Motors needed to know whether Borjon was going to rebuild or if he had a
plan for the King City dealership. Michael Stinson, Chevrolet zone manager, stated that
General Motors would give a dealer plenty of time to reestablish his or her business after
it was lost in a fire. The network placement manager for Chrysler, John Tangeman,

                                              9
similarly stated that Chrysler would want to give a dealer who had experienced a
devastating event the opportunity to propose a plan for another facility.
       Borjon decided to voluntarily terminate his Borjon Auto Center franchises with
General Motors and Chrysler after Sentry denied his claim for building coverage and,
as a result, he could not rebuild the dealership building. He also wanted to avoid the
“black mark” of an involuntary termination on his ability to obtain another dealership.
                          Sentry’s Denial of Building Coverage
       Sentry’s underwriter witnesses testified that Sentry’s underwriting procedures do
not include a review of a lease before approving property coverage. Sentry’s
underwriting procedures also do not include a determination of whether the policyholder
has an insurable interest in the building from which the policyholder operates. The senior
underwriter who analyzed the renewal of Borjon Auto Center’s Sentry policy did not
know whether Borjon owned or leased the dealership building.
       After Borjon notified Sentry of Borjon Auto Center’s fire loss, claims adjuster
Romero began to investigate Borjon’s claims. Romero conducted a site visit on
October 7, 2014. While at the site Romero met Lopez, the property owner, and
discovered that Borjon was a tenant at 905 Broadway. Romero then asked for a copy
of the lease and after reviewing it, determined that the landlord was responsible for
obtaining building insurance and repairing the building, and Borjon had no obligation
as a lessee to obtain building insurance.
       However, on October 8, 2014, Sentry advanced Borjon $245,000 against his
“final proven” claims under the Sentry renewal policy. Sentry also made payments
totaling nearly $2 million under other coverages in Borjon Auto Center’s policy,
including $424,963.21 under the business income coverage. Borjon was satisfied with
Sentry’s payments under the business income and personal property coverages in the
Sentry renewal policy.

                                            10
       Romero’s investigation of Borjon Auto Center’s insurable interest in the
dealership building included retaining counsel and reviewing the Sentry policy, the lease,
and the dealership agreement with General Motors. Romero also gathered information
about Borjon Auto Center’s purchase of building coverage. His investigation did not
include conducting a recorded interview with Borjon. In the October 14, 2014
reservation of rights letter Romero informed Borjon that Sentry could not commit to
coverage for the building loss because it was unclear whether Borjon had a financial
interest in the building.
       Romero had requested the dealership agreements, as stated in his October 21, 2014
letter to Borjon, to determine whether Borjon’s inability to permanently relocate the
Borjon Auto Center dealership would impact Sentry’s evaluation of his insurable interest
in the dealership building. On November 4, 2014, Borjon advised Romero that he could
not find any place to relocate Borjon Auto Center within his dealership territory. By that
time, Romero had learned that the dealership building owner, Lopez, had an insurance
policy with building coverage policy limits of approximately $870,000. Since Sentry’s
construction consultant had determined that the building loss exceeded $2.3 million,
Romero knew that there was a shortfall of $1.4 million for building repairs.
       Sentry’s decision regarding Borjon Auto Center’s claim for payment under the
building coverage in Borjon Auto Center’s policy involved several levels of Sentry
claims management as well as Romero. Two days after the fire, Mark Trautschold, vice
president of claims and chief claims officer for Sentry, received an October 7, 2014 email
regarding the insurable interest issue. The October 7, 2014 email had been sent to Sentry
senior vice president, Mark Hackl, by Dave Hartman, Sentry vice president of dealer
operations, after a conference call with Romero. In the October 7, 2014 email, Hartman
stated that Borjon was mistaken that he had a triple net lease requiring building insurance
and Borjon did not have an insurable interest in the dealership building. Hartman also

                                            11
mentioned refunding the premium for the building coverage in the October 7, 2014 email
and stated, “ ‘We may be able to walk away from the building loss.’ ”
       Sentry’s decision-making process subsequently included “VP protocol” meetings
with senior claims managers, company vice presidents, and Romero to discuss Borjon
Auto Center’s claim under the building coverage and to determine whether Borjon Auto
Center had an insurable interest in the dealership building. The VP protocol meetings did
not include review of Borjon’s dealership agreements, and no inquiry was made as to
Borjon’s reasons for buying building coverage. No written or recorded statements were
reviewed, which was contrary to Sentry’s policy manual that requires such statements
when a coverage dispute is likely.
       Trautschold, Sentry vice president of claims, did not review Borjon Auto Center’s
lease, the dealership agreements, or the purchase agreement for Borjon Auto Center, prior
to the November 18, 2014 VP protocol meeting at which the decision to deny building
coverage was made. However, Trautschold would have expected an auto dealer to be
dependent on the building the dealership occupied to maintain their dealership franchises.
       In a letter dated November 18, 2014, Sentry denied Borjon’s claim for payment
under the building coverage of Borjon Auto Center’s policy. Regarding insurable
interest, the letter states: “Mr. Borjon is under no obligation to pay for any part of the
direct physical loss to the building, which is all that the building coverage would protect.
Moreover, Sentry will ‘not pay [the insured] more than [its] financial interest in the
Covered Property.’ Borjon Auto has no direct financial interest in the building. As such,
the building coverage, which was mistakenly obtained by Mr. Borjon, is void because
Mr. Borjon has no insurable interest in the building.”
       Sentry’s decision to void the building coverage for lack of an insurable interest
was based on Borjon Auto Center’s policy and the lease between Borjon Auto Center and
the landlord. The Sentry claims managers also determined that Borjon Auto Center was

                                             12
not entitled to building coverage because “to pay a tenant for a building that he did not
own, nor was required to rebuild, would be considered a windfall.”
       Borjon’s coverage counsel sent an April 21, 2015 letter to Sentry’s coverage
counsel challenging Sentry’s denial of building coverage and explaining that Borjon
had a direct financial interest in the dealership building because he could not meet his
contractual obligations to General Motors and Chrysler without the dealership building.
The April 21, 2015 letter also stated: “It is undisputed that Borjon Auto Center had a
pecuniary interest in preserving the one and only building available to the insured for
operating its [General Motors and Chrysler] auto dealerships. Unlike an insurance
brokerage or law firm, which could relocate in short time to another fungible building,
the insured here had no alternative. Unless Sentry provided full insurance benefits to
repair, rebuild or replace the building at 905 Broadway Street, Borjon Auto Center was
out of business.” (Fn. omitted.) Further, the April 21, 2015 letter requested that Sentry
rectify its April 6, 2015 decision to terminate Borjon Auto Center’s coverage effective on
October 5, 2014, at 12:01 am, which was shortly before the fire spread to the dealership
premises.3 Sentry’s records do not show that the April 21, 2015 letter sent by Borjon’s
coverage counsel was ever discussed by Sentry’s claims management.
                                      Expert Testimony
       Timothy Lee Walker testified on behalf of Borjon Auto Center as an expert in
claims handling. Walker is a semi-retired attorney whose practice specialized in
representing insurance companies and insureds, including training claims personnel and
serving as a consultant in cases involving the issue of whether an insurance company
acted in accordance with the principles of good faith and fair dealing. To evaluate
Sentry’s claims handling with respect to Borjon Auto Center’s claim under the building

       3
           At trial, the evidence showed that Sentry rescinded only the building coverage.

                                              13
coverage, Walker reviewed the witness depositions and the thousands of documents
produced during discovery.
       In Walker’s opinion, Sentry violated the three principles that apply to insurance
claims: (1) “the insurance company has the obligation to give equal consideration to the
interest of its insured as it gives to its own;” (2) “an insurance company has a duty to
conduct a prompt, thorough, fair and unbiased investigation into the facts of each claim;”
and (3) “an insurance company similarly has a duty to diligently search for facts that
support coverage for their insured, not defeat coverage.”
       According to Walker, Sentry claims managers violated these three principles with
respect to Borjon Auto Center’s claim for building coverage by (1) failing to review
Borjon’s dealership agreements in making their determination of whether Borjon Auto
Center had an insurable interest in the dealership building; (2) conducting an
investigation that was biased and not thorough since the investigation did not diligently
search for facts that would support coverage; and (3) rescinding the building coverage
due to the terms of Borjon Auto Center’s lease after the claim was made, although Sentry
did not review the lease before issuing the policy and did not take a recorded statement
from Milton, Borjon Auto Center’s insurance agent, who procured the policy. In
Walker’s opinion, Sentry acted unreasonably in failing to pay Borjon the building
coverage’s policy limits of $2,059,000 because the dealership building was a total loss.
       Kelley Beck testified as a claims handling expert on behalf of Sentry. Beck is an
attorney who has specialized in insurance issues during his nearly 40-year legal career,
including representing numerous insurance companies. He formed his opinions about
Sentry’s claims handling with respect to Borjon Auto Center’s claim for building
coverage after reviewing the witness depositions in this case and the thousands of pages
of documents produced during discovery.
       Beck concluded that Sentry had acted reasonably and within industry custom and
practice in denying Borjon Auto Center’s claim for building coverage because Sentry’s

                                             14
investigation was fair and thorough and Borjon Auto Center did not have a financial
interest in the dealership building. Beck noted that the dealership agreements and the
lease for 905 Broadway did not obligate Borjon Auto Center to purchase fire insurance.
Also, Beck determined that the dealership agreements did not impose a monetary penalty
if Borjon failed to maintain Borjon Auto Center at 905 Broadway. Beck further
determined that Sentry claims handlers could reasonably conclude from Borjon’s
communications that Borjon was not interested in rebuilding at 905 Broadway.
                                  Jury Verdicts—Phase I
       The trial court’s jury instructions in phase I included, in part, the following
instruction regarding insurable interest: “Borjon Auto Center . . . had an insurable
interest for building coverage in the dealership building at 905 Broadway Street, King
City, at the time Sentry issued its insurance policy and at the time the dealership was
destroyed by fire. [¶] You are to decide what is the extent, if any, of Borjon’s insurable
interest in the building at the time of the fire. You are to decide the value of Borjon’s
interest and not the value of the building.”
       The special verdict forms for phase I asked the jurors to make findings regarding
the causes of action for breach of contract—duty to pay a covered claim and breach of the
covenant of good faith and fair dealing. As to breach of contract—duty to pay a covered
claim, the jurors found that Borjon Auto Center had suffered a loss covered under the
Sentry policy and the amount of the loss that Sentry had failed to pay Borjon Auto Center
was $1,412,311. As to the cause of action for breach of the covenant of good faith and
fair dealing, the jurors found that Sentry’s failure to pay policy benefits was unreasonable
or without proper cause and was a substantial factor in causing harm to Borjon Auto
Center.
              2. Phase II
       Phase II of the jury trial concerned the issues of damages for breach of the
covenant of good faith and fair dealing and Sentry’s liability for punitive damages. The

                                               15
parties’ claims handling experts, Walker and Beck, testified again as the only witnesses
in phase II.
                                     Expert Testimony
       According to Walker, Sentry did not give equal consideration to the interests of
Borjon Auto Center from the outset of its investigation, as shown by the October 7, 2014
email in which Hartman, Sentry vice president of dealer operations, stated only two days
after the fire that Borjon Auto Center did not have an insurable interest in the dealership
building and Sentry might be able to walk away from the building loss. Walker found the
failure of Trautschold, Sentry vice president of claims, upon his receipt of the October 7,
2014 email to remind everyone involved to give equal consideration to the interests of the
insured to be “offensive and reprehensible.” Walker also found the failure of Sentry’s
top claims management to review Borjon Auto Center’s dealership agreements before
making the decision to deny building coverage to be “offensive and reprehensible.”
Additionally, Walker concluded that the failure of Sentry’s top claims management to
review the April 2015 letter that Borjon Auto Center’s coverage counsel sent to Sentry
challenging the denial of building coverage constituted a “conscious disregard” of Borjon
Auto Center’s interests in making the decision to void building coverage.
       Beck, Sentry’s expert, testified that Sentry investigated Borjon Auto Center’s
possible lost profits as a result of the fire, including retaining a forensic accountant who
determined that Borjon Auto Center was operating at a loss and did not lose any profits.
Therefore, in Beck’s opinion Sentry did not knowingly disregard any amount of possible
lost profits in its decision to deny building coverage.
                                  Jury Verdicts—Phase II
       The special verdict forms for phase II asked the jurors to make findings regarding
Borjon Auto Center’s damages for breach of covenant of good faith and fair dealing and
Sentry’s liability for punitive damages. The jurors found that Borjon Auto Center’s

                                             16
damages included the amount of $152,750 for “[p]ast economic loss for lost profits” and
zero for “[f]uture economic loss for lost future profits.”
       As to liability for punitive damages, the special verdict form asked the jurors,
“Did Sentry Select Insurance, by clear and convincing evidence, engage in conduct
constituting malice, oppression, or fraud?” The jurors answered, “Yes.” The special
verdict form also asked, “Was the conduct constituting malice, oppression or fraud
committed by one or more officers, directors, or managing agents of Sentry Select
Insurance acting on behalf of Sentry Select Insurance?” The jurors answered, “Yes.”
              3. Phase III
       Phase III concerned the amount of punitive damages. No evidence was presented
except the parties’ stipulation that Sentry’s “net worth, based on its March 31, 2019,
financial statement filed with the Department of Insurance, is $229,250,319.” The trial
court informed the jurors of the stipulation as part of the jury instructions.
       After hearing counsel’s arguments, the jurors were asked the following question
on the special verdict form: “What amount of punitive damages, if any, do you award
[Borjon Auto Center]?” The jurors responded, “$6,240,00.”
       D. Posttrial Motions and Judgments
       The January 6, 2020 judgment included the trial court’s rulings on three posttrial
motions. First, the court granted Borjon Auto Center’s motion for attorney fees pursuant
to Brandt v. Superior Court (1985) 37 Cal.3d 813 (Brandt) and awarded Borjon Auto
Center $744,962.20 in Brandt fees as additional damages caused by Sentry’s breach of
the implied covenant of good faith and fair dealing.
       Second, the trial court granted Sentry’s motion for a partial offset based on a prior
settlement between Borjon Auto Center and other parties who did not participate in the
trial. The court determined that Sentry was entitled to an equitable offset of $142,584.86,
which reduced the amount of the jury’s verdict for breach of contract to $1,269,726.14.

                                              17
       Third, the trial court granted Borjon Auto Center’s motion for an award of
prejudgment interest as follows: “[T]he Court award[s] Borjon [Auto Center]
prejudgment interest at the rate of seven (7) percent per annum on the sum of
$1,269,726.14 from April 19, 2017, the date of the entry of the Court’s order granting
Borjon’s motion for summary adjudication of the insurable interest issue, through the
date of entry of judgment in the following amount . . . $240,831.39 (interest).”
       The January 6, 2020 judgment did not enter a net amount of the judgment and
reserved the amount of Borjon Auto Center’s costs. Thereafter, Sentry moved for a new
trial on the grounds that (1) the compensatory and punitive damages awards were
excessive; (2) the evidence was insufficient to support the verdict for breach of the
covenant of good faith and fair dealing; and (3) evidentiary and instructional errors. The
trial court denied the motion for new trial in the April 7, 2020 order.
       After ruling on the parties’ posttrial motions, the trial court filed an amended
judgment on April 7, 2020, that awarded the following amounts to Borjon Auto Center:
(1) compensatory damages for breach of contract in the amount of $1,269,726.14;
(2) damages for breach of the covenant of good faith and fair dealing in the amount
of $152,750.00; (3) punitive damages in the amount of $6,240,000.00; (4) Brandt
attorney fees in the amount of $716,445.23; (5) prejudgment interest in the amount of
$240,831.39; and (6) costs in the amount of $119,747.90. The amended judgment did
not set forth a net sum.
       On appeal, Sentry has not provided any argument specifically addressing the
merits of the order denying Sentry’s motion for new trial. Sentry has also not provided
any argument challenging the amounts awarded in the judgment for either Brandt
attorney fees, prejudgment interest, or costs.
                                    III. DISCUSSION
       The issues raised by Sentry on appeal include whether the April 7, 2020 amended
judgment should be reversed because (1) Borjon Auto Center did not have an insurable

                                             18
interest in the dealership building; (2) Sentry did not withhold benefits owed to Borjon
Auto Center under the building coverage included in the Sentry policy; (3) the jury
verdict finding that Sentry breached the covenant of good faith and fair dealing is not
supported by substantial evidence; and (4) the award of punitive damages is not
supported by clear and convincing evidence. We will address each issue in turn.
       A. Insurable Interest
       Sentry contends that the trial court erred in ruling that Borjon Auto Center had an
insurable interest in the dealership building at 905 Broadway and the judgment should be
reversed in its entirety for that reason alone. We understand Sentry to thereby seek
review of the trial court’s order granting summary adjudication in Borjon Auto Center’s
favor on the insurable interest issue. Although the summary adjudication order is a
nonappealable intermediate order, we have jurisdiction to review the order on appeal
from the final judgment. (Code Civ. Proc., § 906; see Travelers Casualty & Surety Co. v.
Transconinental Ins. Co. (2004) 122 Cal.App.4th 949, 952.)
              1. Background
       As we have noted, prior to trial the parties filed cross-motions for summary
adjudication as to the issue of “[w]hether BORJON had an insurable interest and/or direct
financial interest in the subject Building as required for Building Coverage.” Borjon
Auto Center argued in its motion for summary adjudication that it had an insurable
interest because it lawfully contracted for insurance to repair, rebuild, or replace the
dealership building that was essential to its franchise survival, since it had a legitimate
pecuniary interest in preserving the dealership building when it purchased the insurance
and suffered the loss. In support of its motion, Borjon Auto Center emphasized that it
was undisputed that it was the sole occupant of the building, it operated its business from
the building, its franchise rights were tied to the location and depended on the building,
and it was directly injured when the building was destroyed. Borjon Auto Center also

                                              19
argued that to prevail on its motion, Borjon Auto Center only needed to prove any
pecuniary interest in preservation of the property.
       Sentry argued in its motion for summary adjudication that Borjon Auto Center did not
have an insurable interest because it was undisputed that Borjon Auto Center did not own the
dealership building, was not required under the terms of its lease to repair the building or
procure building coverage, and its loss of business income was paid under the business income
coverage of the Sentry policy. Sentry maintained that since Borjon Auto Center lacked an
insurable interest in the building, the building coverage was void as against public policy
pursuant to Insurance Code section 280.
       In the April 19, 2017 order the trial court granted Borjon Auto Center’s motion for
summary adjudication of the insurable interest issue and denied Sentry’s motion. The
court ruled that there were no triable issues of material fact and that Borjon Auto Center
was entitled to summary adjudication of the insurable interest issue in its favor as a
matter of law, finding that Borjon Auto Center had an insurable interest for building
coverage in the dealership building at the time Sentry issued its insurance policy and at
the time the building was destroyed by fire.
       The trial court stated in the April 19, 2017 order that “[t]he following evidence is
key to the Court’s determination: [Borjon Auto Center] had seven franchise dealership
agreements, three with GM and three with Chrysler [sic], granting exclusive rights to sell
and service vehicles in the King City region. The agreements required that [Borjon Auto
Center] operate from the dealership building at 905 Broadway Street, King City,
California. [Borjon Auto Center] could not operate from another building without
permission of the franchisors. Borjon Auto Center had a right to exclusive use of the
dealership building under a lease providing an initial term of five years, plus three
options to renew, each for an additional five-year period. [Borjon Auto Center] required
a building with a show room, sales offices, and service and parts facilities to operate its
business as a GM and Chrysler franchise dealer. [Borjon Auto Center] presented

                                               20
evidence that the dealership building was the only building available to [Borjon Auto
Center] in the King City region with a show room, sales offices, and service and parts
facilities. SENTRY did not present any evidence that another building with similar traits
was available to [Borjon Auto Center] after the fire, or that GM and Chrysler would
approve of moving the dealership business to another building if one were even
available.”
       As a result of the order granting summary adjudication of the insurable interest
issue in Borjon Auto Center’s favor, the trial court instructed the jurors that Borjon Auto
Center had an insurable interest in the dealership building at 905 Broadway and they
were to determine the value of Borjon Auto Center’s insurable interest.
       Our evaluation of Sentry’s contention that the trial court erred in granting Borjon
Auto Center’s motion for summary adjudication begins with the standard of review.
              2. Standard of Review
       A party may move for summary judgment or, in the alternative, summary
adjudication. (Code Civ. Proc. § 437c, subds. (f)(1) & (2), (t)(5).) A motion, such as in
this case, under Code of Civil Procedure section 437c, subdivision (t) for summary
adjudication of a legal issue that does not completely dispose of a cause of action, an
affirmative defense, or an issue of duty “proceed[s] in all procedural respects as a motion
for summary judgment.” (Id., § 437c, subd. (t)(5).)
       The moving party “bears an initial burden of production to make a prima facie
showing of the nonexistence of any triable issue of material fact; if [the movant] carries
[this] burden of production,” the burden of production shifts to the opposing party
“to make a prima facie showing of the existence of a triable issue of material fact.”
(Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 (Aguilar).)
       In determining whether the parties have met their respective burdens, “the court
must ‘consider all of the evidence’ and ‘all’ of the ‘inferences’ reasonably drawn
therefrom [citation], and must view such evidence [citations] and such inferences

                                            21
[citations], in the light most favorable to the opposing party.” (Aguilar, supra, 25 Cal.4th
at p. 843.) “There is a triable issue of material fact if, and only if, the evidence would
allow a reasonable trier of fact to find the underlying fact in favor of the party opposing
the motion in accordance with the applicable standard of proof.” (Id. at p. 850, fn.
omitted.)
       “In reviewing a trial court’s grant of summary judgment [or summary
adjudication], . . . ‘ “[w]e take the facts from the record that was before the trial court
when it ruled on that motion” ’ and ‘ “ ‘ “review the trial court’s decision de
novo. . . .’ ” ’ ” [Citations.]” (Hughes v. Pair (2009) 46 Cal.4th 1035, 1039.)
“Furthermore, ‘[i]t is axiomatic that we review the trial court’s rulings and not its
reasoning.’ [Citation.]” (Coral Construction, Inc. v. City and County of San Francisco
(2010) 50 Cal.4th 315, 336.)
       To determine whether the undisputed facts support a finding that Borjon Auto
Center had an insurable interest in the dealership building, we first review the doctrine of
insurable interest.
              3. Doctrine of Insurable Interest
       The doctrine of insurable interest is codified in Insurance Code section 280 et seq.
“If the insured has no insurable interest, the contract is void.” (Ins. Code, § 280.) An
“insurable interest” is defined under the Insurance Code as follows: “Every interest in
property, or any relation thereto, or liability in respect thereof, of such a nature that a
contemplated peril might directly damnify the insured, is an insurable interest.” (Id.,
§ 281.) The word “damnify” has been construed by its dictionary definition to mean
“ ‘to cause loss or damage to.’ ” (Wexler v. California FAIR Plan Assn. (2021)
63 Cal.App.5th 55, 72.)
       The California Supreme Court established long ago that an insurable interest in
property may exist without the insured having legal title to the property: “[I]t is not
necessary that the insured person have a legal interest, but that an equitable interest is

                                              22
sufficient. The title, whether legal or equitable, may be defective or even bad, provided
the insured has possession and use; even a valid equitable title is not requisite. It is held
sufficient that the insured has a direct pecuniary interest in the preservation of the
property, and that he [or she] will suffer a pecuniary loss as an immediate and proximate
result of its destruction. [Citations.]” (Davis v. Phoenix Ins. Co. (1896) 111 Cal. 409,
414 (Davis).)
          Further, “[i]n common parlance, we speak of a house as being insured, but, strictly
speaking, it is not the house but the interest of the owner therein that is insured, and,
whether that interest is founded upon a legal title, an equitable title, a lien, or such other
lawful interest therein as will produce a direct and certain pecuniary loss to the insurer by
its destruction, he [or she] has an insurable interest therein.” (Davis, supra, 111 Cal at
p. 414.) Thus, it has been held that “[d]ifferent persons may have separate insurable
interests in the same property, as, for example, a mortgagor and a mortgagee, a lessor and
lessee.” (Alexander v. Security-First National Bank (1936) 7 Cal.2d 718, 723; see also
California Food Service Corp. v. Great American Ins. Co. (1982) 130 Cal.App.3d 892,
897 [restaurant operator that subleased restaurant building destroyed by fire had an
insurable interest in the building].)
          The Insurance Code further provides, with exceptions not relevant here, that
“the measure of an insurable interest in property is the extent to which the insured might
be damnified by loss or injury thereof.” (Ins. Code § 284.) Since insurance is a contract
of indemnity, the insured’s right to recover under the insurance policy is limited to the
party’s insurable interest in the property, not exceeding the limit fixed by the policy.
(Davis, supra, 111 Cal. at p. 415.) “If his [or her] interest extends to the whole of the
subject matter of the property, its value, up to the sum named in the policy, is the measure
of his [or her] right to recover. If his [or her] interest falls short of the whole, his [or her]
right is limited, not by the value of the property, but by the value of his [or her] interest.”
(Ibid.)

                                               23
       Thus, as the California Supreme Court stated, “[i]t is a principle of long standing
that a policy of fire insurance does not insure the property covered thereby, but is a
personal contract indemnifying the insured against loss resulting from the destruction of
or damage to his [or her] interest in that property. [Citations.]” (Russell v. Williams
(1962) 58 Cal.2d 487, 490.)
              4. Analysis
       Sentry contends that Borjon Auto Center did not have an insurable interest in the
dealership building at 905 Broadway for several reasons: (1) Borjon Auto Center did not
own the building; (2) Borjon Auto Center did not have a duty to repair the building or
insure the building against fire risk; (3) Borjon Auto Center housed its dealership
business in the building and did not use the building itself as its business; and (4) Borjon
Auto Center did not demonstrate a “direct pecuniary loss” from the destruction of the
dealership building. Sentry maintains that “Borjon Auto’s interest in the use of the
building for its business does not equate with an interest in the building itself.”
       Borjon Auto Center responds that the trial court correctly ruled that it had an
insurable interest because it had a direct pecuniary interest in the preservation of the
dealership building to operate its business for the following reasons: (1) Borjon Auto
Center had exclusive use of the building under a long-term lease; (2) Borjon Auto
Center’s franchise agreements with General Motors and Chrysler required that the
dealership building house a show room, sales offices, and service and parts facilities,
which the building at 905 Broadway provided; (3) the franchise agreements required
Borjon Auto Center to operate at 905 Broadway and Borjon could not conduct business
in another location without the franchisors’ approval; and (4) no other building was
available after the fire that would meet the requirements of Borjon Auto Center’s
franchise agreements.
       We determine that the undisputed facts show that Borjon Auto Center had “a
direct pecuniary interest in the preservation” of the dealership building at 905 Broadway,

                                              24
such that Borjon Auto Center would “suffer a pecuniary loss as an immediate and
proximate result of its destruction. [Citations.]” (Davis, supra, 111 Cal. at p. 414.)
Significantly, the franchise agreements with General Motors and Chrysler required
Borjon Auto Center to operate at 905 Broadway, and Borjon Auto Center could not
change the location of the dealership without their approval. Additionally, the building at
905 Broadway met the franchisors’ requirements for operation of a General Motors
dealership and a Chrysler dealership. Sentry does not dispute the fact that dealership
building at 905 Broadway was the only building available in the King City region with a
show room, sales offices, and service and parts facilities, and that no suitable replacement
building was available after the fire.
       Since it is undisputed that Borjon Auto Center operated General Motors and
Chrysler dealerships under franchise agreements that were tied to the existence of the
dealership building at 905 Broadway, Borjon Auto Center had a direct pecuniary interest
in the dealership building, such that the destruction of the dealership building due to fire
resulted in Borjon suffering the loss of his franchises and the Borjon Auto Center
business. (See Davis, supra, 111 Cal. at p. 414.) Accordingly, we conclude the trial
court did not err in ruling that Borjon Auto Center had a sufficient financial interest in the
preservation of the dealership building to support a finding of an insurable interest.
Having reached this conclusion under California law, we need not address the decisions
of other jurisdictions that are relied upon by the parties. (See People v. Troyer (2011) 51
Cal.4th 599, 610 [out-of-state decisions are not binding on California courts].)
       We next turn to Sentry’s appellate challenges to the jury verdicts in Borjon Auto
Center’s favor with respect to breach of contract and damages.
       B. Breach of Contract and Damages
       Regarding Borjon Auto Center’s claims for breach of contract--duty to pay a
covered claim and damages, which were tried in phase I, the jurors found that (1) Borjon
Auto Center had suffered a loss covered under the Sentry policy; and (2) the amount of

                                             25
the loss that Sentry had failed to pay Borjon Auto Center was $1,412,311. In the
proceedings below, the parties observed that the amount of $1,412,311 matched the
amount that Borjon Auto Center’s forensic accountant had calculated as Borjon Auto
Center’s lost profits from 2016 through 2023.
       Sentry contends that Borjon Auto Center did not prove that it was entitled to
payment under the building coverage, since the Sentry policy provided only that it would
pay for direct physical loss to the building, including paying the value of the building,
replacement cost, or the costs of repair or rebuilding. According to Sentry, the building
coverage therefore did not cover indirect losses flowing from the physical damage to the
dealership building, such as Borjon Auto Center’s lost profits. Sentry asserts that Borjon
Auto Center’s business losses were covered under the business income coverage of the
Sentry policy, and therefore nonpayment under the building coverage does not constitute
breach of contract.
       Borjon Auto Center argues to the contrary that the building coverage in the Sentry
policy was triggered by the physical damage to the dealership building, and lost profits
were recoverable under the building coverage as a measure of Borjon Auto Center’s
economic losses due to the physical damage. As we will discuss, we agree.
              1. Cause of Action for Breach of Contract
       The elements of a cause of action for breach of an insurance contract are “(1) the
contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s
breach, and (4) the resulting damages to plaintiff.” (Reichert v. General Ins. Co. (1968)
68 Cal.2d 822, 830.) The measure of damages is “ ‘the amount which will compensate
the party aggrieved for all the detriment proximately caused thereby, or which, in the
ordinary course of things, would be likely to result therefrom’ (Civ. Code, § 3300),
provided the damages are ‘clearly ascertainable in both their nature and origin’ (Civ.
Code, § 3301.)” (Erlich v. Menezes (1999) 21 Cal.4th 543, 550.) “ ‘An insurer which
denies benefits reasonably, but incorrectly, will be liable only for damages flowing from

                                             26
the breach of contract, i.e., the policy benefits.’ [Citation.]” (Mosley v. Pacific Specialty
Ins. Co. (2020) 49 Cal.App. 5th 417, 436.)
              2. Analysis
       Sentry contends that it did not breach the insurance contract because it had no
obligation under the building coverage to pay for lost profits. However, the California
Supreme Court has instructed that an intangible economic loss, such as lost profits, may
be recovered as “ ‘ “a measure of damages to physical property which is within the
policy’s coverage.” [Citations].’ [Citation.]” (Waller v. Truck Ins. Exchange, Inc.
(1995) 11 Cal.4th 1, 18 (Waller), quoting Giddings v. Industrial Indemnity Co. (1980)
112 Cal.App.3d 213, 219.) Therefore, since damage to physical property was covered by
the Sentry policy’s building coverage for 905 Broadway, Borjon Auto Center could
recover lost profits resulting from the physical destruction of the dealership building.
       Moreover, “[l]ost profits may be recoverable as damages for breach of a contract.
‘[T]he general principle [is] that damages for the loss of prospective profits are
recoverable where the evidence makes reasonably certain their occurrence and extent.’
[Citation.]” (Sargon Enterprises, Inc. v. University of Southern California (2012)
55 Cal.4th 747, 773-774.) In other words, “[t]he only prerequisite to recovery of lost
profits is proximate causation: the lost profits must be the natural and direct
consequences of the breach. This rule is to be applied in any action for damages for
breach of contract. (Civ. Code, § 3300.)” (Brandon & Tibbs v. George Kevorkian
Accountancy Corp. (1990) 226 Cal.App.3d 442, 457.) “We review a lost profits award
for substantial evidence. [Citation.]” (Orozco v. WPV San Jose, LLC (2019)
36 Cal.App.5th 375, 398.)
       In this case, the trial evidence showed that the Borjon Auto Center’s dealership
building at 905 Broadway was destroyed by fire and Borjon could not afford to rebuild
without payment under the building coverage of the Sentry policy. Lacking the
dealership building required by his General Motors and Chrysler franchise agreements

                                             27
in order to maintain his franchises, Borjon was compelled to voluntarily terminate his
franchise agreements and thereby lose the Borjon Auto Center business. The trial
evidence also included the opinions of Borjon Auto Center’s forensic accountant that the
total of past and future profits that Borjon Auto Center lost after ceasing operations due
to the fire was $2,966,962 for the period of 2016 through 2029, and $1,412,311 for the
period of 2016 through 2023. Accordingly, substantial evidence supports the jury verdict
that the amount of the loss that Sentry had failed to pay Borjon Auto Center under the
building coverage was $1,412,311.
       We are not convinced by Sentry’s argument that lost profits are not recoverable
for breach of contract based on the failure to pay benefits under the building coverage
where, as here, the policy also includes coverage for loss of business income. The
general rule is that “insurance policies are to be read as a whole. That means where
multiple coverages are afforded, they are read as covering different, separate items.
[Citation.]” (Adamo v. Fire Ins. Exchange (2013) 219 Cal.App.4th 1286, 1295.) Here,
the building coverage expressly covered a different item—damages resulting from
physical damage to the insured building—from the business income coverage, which
expressly covered the loss of business income during the suspension of the insured’s
operations due to physical damage to property during the period of restoration, not to
exceed 12 months.4 Sentry has provided no authority for the proposition that “loss of
business income” during a 12-month period of restoration is same item as lost profits due
the destruction of the building necessary to the survival of the insured’s business.

       4
         The Sentry renewal policy states in part: “We will pay for the actual loss of
Business Income you sustain due to the necessary ‘suspension’ of your ‘operations’
during the ‘period of restoration’. The ‘suspension’ must be caused by direct ‘physical
loss of or damage to property’ at premises which are described in the Declarations and
for which Business Income coverage is indicated in the Declarations.” “We will pay for
loss that occurs during the shorter of the following: [¶] a. The ‘period of restoration’ or;
[¶] b. The period that begins on the first day of the ‘period of restoration’ and continues
for the number of months shown in the Declarations [12 months].”

                                             28
       For these reasons, we find no merit in Sentry’s challenge to the jury verdicts on
breach of contract and damages.
       C. Breach of the Covenant of Good Faith and Fair Dealing
       The jurors found that Sentry’s failure to pay policy benefits was unreasonable or
without proper cause and was a substantial factor in causing harm to Borjon Auto Center,
and awarded Borjon Auto Center damages in the amount of $152,750 for “[p]ast
economic loss for lost profits” and zero for “[f]uture economic loss for lost future
profits.”
    Sentry argues on appeal that the award for breach of the covenant of good faith and
fair dealing should be reversed because perfection is not required of an insurer.
Alternatively, Sentry argues that it cannot be held liable for bad faith because there was a
genuine dispute as to whether Borjon Auto Center had an insurable interest in the
dealership building. Borjon Auto Center responds that substantial evidence supports the
jury’s findings, and there was no genuine dispute regarding insurable interest because
Sentry had an obligation to apply California’s broad insurable interest law.
              1. The Cause of Action for Breach of the Covenant of Good Faith
                  and Fair Dealing
       The general rules pertaining to a claim for breach of the covenant of good faith
and fair dealing are well established. “The law implies in every contract, including
insurance policies, a covenant of good faith and fair dealing. ‘The implied promise
requires each contracting party to refrain from doing anything to injure the right of the
other to receive the agreement’s benefits. To fulfill its implied obligation, an insurer
must give at least as much consideration to the interests of the insured as it gives to its
own interests. When the insurer unreasonably and in bad faith withholds payment of the
claim of its insured, it is subject to liability in tort.’ [Citation.]” (Wilson v. 21st Century
Ins. Co. (2007) 42 Cal.4th 713, 720 (Wilson).)

                                              29
       Thus, “when benefits are due an insured, ‘delayed payment based on inadequate
or tardy investigations, oppressive conduct by claims adjusters seeking to reduce the
amounts legitimately payable and numerous other tactics may breach the implied
covenant because’ they frustrate the insured’s right to receive the benefits of the contract
in ‘prompt compensation for losses.’ [Citation.]” (Waller, supra, 11 Cal.4th at p. 36.)
       The elements of a cause of action for breach of the covenant of good faith and fair
dealing are “(1) benefits due under the policy were withheld and (2) the reason for
withholding the benefits was unreasonable or without proper cause. [Citations.]”
(Century Surety Co. v. Polisso (2006) 139 Cal.App.4th 922, 949 (Century).) “We
evaluate the reasonableness of the insurer’s actions and decision to deny benefits as of the
time they were made rather than with the benefit of hindsight. [Citation.]” (Ibid.)
“[T]he ultimate test is whether the insurer’s conduct was unreasonable under all of the
circumstances. [Citation.]” (Graciano v. Mercury General Corp. (2014) 231
Cal.App.4th 414, 427.)
       2. Substantial Evidence
       An evidentiary challenge to a jury verdict finding that the defendant insurer
breached the covenant of good faith and fair dealing is reviewed under the substantial
evidence standard of review. (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 921-
922.) “ ‘When a finding of fact is attacked on the ground that there is not any substantial
evidence to sustain it, the power of an appellate court begins and ends with the
determination as to whether there is any substantial evidence contradicted or
uncontradicted which will support the finding of fact.’ [Citations.]” (Foreman & Clark
Corp. v. Fallon (1971) 3 Cal.3d 875, 881, original italics.) “In a substantial evidence
challenge to a judgment, the appellate court will ‘consider all of the evidence in the light
most favorable to the prevailing party, giving it the benefit of every reasonable inference,
and resolving conflicts in support of the [findings]. [Citations.]’ [Citation.] We may not
reweigh the evidence and are bound by the trial court’s credibility determinations.

                                             30
[Citations.] Moreover, findings of fact are liberally construed to support the judgment.
[Citation.]” (Estate of Young (2008) 160 Cal.App.4th 62, 76.)
       Having reviewed the trial record in its entirety, we determine that substantial
evidence supports the jury’s verdict that Sentry breached the covenant of good faith and
fair dealing by unreasonably or without proper cause failing to pay insurance benefits
under the building coverage in Borjon Auto Center’s Sentry policy, and the failure was a
substantial factor in causing harm to Borjon Auto Center.
       The evidence included the opinions of Borjon Auto Center’s claims handling
expert, Walker, that Sentry violated the three principles that apply to insurance claims
with respect to Borjon Auto Center’s claim for building coverage by (1) failing to review
Borjon’s Auto Center dealership agreements in making their determination of whether
Borjon Auto Center had an insurable interest in the dealership building; (2) conducting an
investigation that was biased and not thorough since the investigation did not diligently
search for facts that would support coverage; and (3) rescinding the building coverage
due to the terms of Borjon Auto Center’s lease after the claim was made, although Sentry
did not review the lease before issuing the policy and did not take a recorded statement
from Milton, Borjon’s insurance agent, who procured the policy.
       Additionally, the evidence showed that Sentry’s top claims management had
decided as early as two days after the fire, as shown in the October 7, 2014 email sent to
Trautschild, Sentry vice president of claims, that Borjon Auto Center did not have an
insurable interest in the dealership building. Sentry thereafter did not conduct a thorough
investigation since it had decided that Borjon did not have an insurable interest in the
dealership building based on Borjon Auto Center’s lease and the Sentry policy, without
reviewing Borjon Auto Center’s franchise agreements with General Motors and Chrysler.
Sentry also failed to review any written or recorded statements, which was contrary to
Sentry’s policy manual that required such statements when a coverage dispute is likely.
Consequently, there is substantial evidence that Sentry violated the covenant of good

                                             31
faith and fair dealing by conducting an inadequate investigation that resulted in the denial
of Borjon Auto Center’s right to receive benefits under the building coverage in the
Sentry policy. (See Waller, supra, 11 Cal.4th at p. 36.)
       We next consider Sentry’s alternative contention that it cannot be held liable for
breach of the covenant of good faith and fair dealing under the genuine dispute doctrine.
                3. Genuine Dispute Doctrine
       Under the genuine dispute doctrine, “ ‘an insurer denying or delaying the payment
of policy benefits due to the existence of a genuine dispute with its insured as to the
existence of coverage liability or the amount of the insured’s coverage claim is not liable
in bad faith[,] even though it might be liable for breach of contract.’ [Citation.] That is
because ‘whe[n] there is a genuine issue as to the insurer’s liability under the policy for
the claim asserted by the insured, there can be no bad faith liability imposed on the
insurer for advancing its side of that dispute.’ [Citation.]” (Paslay v. State Farm General
Ins. Co. (2016) 248 Cal.App.4th 639, 652-653.) In other words, “an insurer does not act
in bad faith when it mistakenly withholds policy benefits, if the mistake is reasonable or
is based on a legitimate dispute as to the insurer’s liability. [Citations.]” (Century, supra,
139 Cal.App.4th at p. 949.)
       However, “[t]he genuine dispute rule does not relieve an insurer from its
obligation to thoroughly and fairly investigate, process and evaluate the insured’s claim.
A genuine dispute exists only where the insurer’s position is maintained in good faith
and on reasonable grounds. [Citations.]” (Wilson, supra, 42 Cal.4th at pp. 723-724,
fn. omitted.)
       We find no merit in Sentry’s contention that a genuine dispute existed regarding
coverage, for two reasons. First, the coverage issue in this case regarding whether Borjon
Auto Center had an insurable interest in the dealership building could have been resolved
by applying existing California Supreme Court authority and the relevant provisions of
the Insurance Code. As we have discussed, over a century ago the California Supreme

                                              32
Court established a broad insurable interest rule: “It is held sufficient that the insured has
a direct pecuniary interest in the preservation of the property, and that he [or she] will
suffer a pecuniary loss as an immediate and proximate result of its destruction.
[Citations.]” (Davis, supra, 111 Cal. at p. 414.)
       This rule was codified in Insurance Code section 281: “Every interest in property,
or any relation thereto, or liability in respect thereof, of such a nature that a contemplated
peril might directly damnify the insured, is an insurable interest.” Moreover, our
Supreme Court in Davis, supra, 111 Cal. at page 414 clarified that ownership of property
is not required for an insurable interest in the property: “[I]t is not the house but the
interest of the owner therein that is insured, and, whether that interest is founded upon
legal title, an equitable title, a lien, or such other lawful interest therein as will produce a
direct and certain pecuniary loss to the insurer by its destruction, he [or she] has an
insurable interest therein.”
    Second, as we have discussed, the trial evidence showed that Sentry’s decision to
deny building coverage was made without Sentry complying with its “obligation to
thoroughly and fairly investigate, process and evaluate the insured’s claim.” (See Wilson,
supra, 42 Cal.4th at p. 723.) As early as two days after the fire, Sentry’s top claims
management decided that Borjon Auto Center did not have an insurable interest in the
dealership building. Sentry then failed to conduct a thorough investigation, as shown by
top claims management’s failure to review either Borjon Auto Center’s franchise
agreements with General Motors and Chrysler or any written or recorded statements,
which was contrary to Sentry’s policy manual that required such statements with respect
to a potential coverage dispute.
    Accordingly, we determine that Sentry has not shown that there was a genuine
dispute as to whether Borjon Auto Center had an insurable interest in the dealership
building that would bar Sentry’s liability for breach of the covenant of good faith and
fair dealing in denying coverage.

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       D. Punitive Damages
       Sentry contends that the award of punitive damages in the amount of $6,240,000
must be reversed because it is not supported by clear and convincing evidence of
oppression, fraud, or malice, and the amount of the punitive damages award is excessive.
              1. Rules Governing an Award of Punitive Damages
       Civil Code section 3294, subdivision (a) provides: “In an action for the breach
of an obligation not arising from contract, where it is proven by clear and convincing
evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff,
in addition to the actual damages, may recover damages for the sake of example and by
way of punishing the defendant.” “ ‘ “Malice” ’ includes “despicable conduct which is
carried on by the defendant with a willful and conscious disregard of the rights or safety
of others.” (Civ. Code, § 3294, subd. (c)(1).)’ [Citation.]” (Pilliod v. Monsanto Co.
(2021) 67 Cal.App.5th 591, 641 (Pilliod); see also City of Hope National Medical
Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 392 [punitive damages may not be
awarded for breach of contract].)
       The California Supreme Court has stated the constitutional limits on an award of
punitive damages: “The due process clause of the Fourteenth Amendment to the United
States Constitution prohibits states from imposing ‘ “grossly excessive” ’ punitive
damages awards on tortfeasors. (BMW of North America, Inc. v. Gore (1996) 517 U.S.
559, 568 (Gore).) To determine whether a jury’s award of punitive damages is grossly
excessive, reviewing courts must consider, among other factors, whether the ‘measure of
punishment is both reasonable and proportionate to the amount of harm to the plaintiff’
by comparing the amount of compensatory damages to the amount of punitive damages.
[Citation.] Absent special justification, ratios of punitive damages to compensatory
damages that greatly exceed 9 or 10 to 1 are presumed to be excessive and therefore
unconstitutional. [Citation.]” (Nickerson v. Stonebridge Life Ins. (2016) 63 Cal.4th 363,
367 (Nickerson).)

                                             34
       “In a series of cases culminating in Gore, supra, 517 U.S. 559, the court
developed a set of substantive guideposts that reviewing courts must consider in
evaluating the size of punitive damages awards: ‘(1) the degree of reprehensibility of the
defendant’s misconduct; (2) the disparity between the actual or potential harm suffered
by the plaintiff and the punitive damages award; and (3) the difference between the
punitive damages awarded by the jury and the civil penalties authorized or imposed in
comparable cases.’ [Citations.] A trial court conducts this inquiry in the first instance;
its application of the factors is subject to de novo review on appeal. [Citation.]”
(Nickerson, supra, 63 Cal.4th at pp. 371-372.)
              2. Substantial Evidence
       “ ‘ “Whether to award punitive damages and how much to award were issues for
the jury and for the trial court on the new trial motion. All presumptions favor the
correctness of the verdict and judgment.” [Citation.] We review the evidence supporting
awards of punitive damages for substantial evidence. “As in other cases involving the
issue of substantial evidence, we are bound to ‘consider the evidence in the light most
favorable to the prevailing party, giving him [or her] the benefit of every reasonable
inference, and resolving conflicts in support of the judgment.’ ” [Citation.] We are
mindful that in light of the heightened burden of proof under Civil Code section 3294,
subdivision (a) “we must review the record in support of these findings in light of that
burden. In other words, we must inquire whether the record contains ‘substantial
evidence to support a determination by clear and convincing evidence.’ ” [Citations.]’ ”
(Pilliod, supra, 67 Cal.App.5th at pp. 641-642.)
       We may also give weight to the trial court’s approval of the punitive damages
award by denying Sentry’s motion for new trial. (See Stevens v. Owens-Corning
Fiberglas Corp. (1996) 49 Cal.App.4th 1645, 1658.) In this case, the trial court denied
Sentry’s challenge to the punitive damages award in its motion for new trial in a ruling
from the bench: “Borjon had no opportunity before the fire to secure other insurance,

                                             35
due to Sentry’s behavior of renewing the contract and leading Borjon to believe that he
was fully insured. Sentry never investigated the lessee’s potential for an insurable
interest, never investigated the franchise policies and its impact on Borjon’s insurable
interest in the building. It did not review the franchise documents and determine whether
or not the franchise documents mandated a building in King City that properly housed the
franchise; and that was the basis for Borjon seeking to purchase building coverage in the
first place. [¶] The harm: Borjon lost the franchise and business due to the lack of a
building or insurance proceeds to compensate for the loss of the building. Sentry violated
the community standard of decency, fairness, and reasonableness. And the jury
determined its conduct was unreasonable without proper cause and done with malice,
oppression and fraud.”
       The trial court concluded in its ruling to deny Sentry’s motion for new trial that
“[b]alancing the reprehensible misdeeds of defendants, the amount of compensatory
damages or potential harm to plaintiff’s and defendant’s financial condition, this Court
does not find that the jury award of punitive damages in the amount of $6,240,000 was
grossly excessive, and does not exceed the State’s power to punish in light of the facts
of the case measured against all of the guideposts, as well as the three factors of the
reprehensibility of defendant’s misdeeds, the amount of compensation and potential harm
in relation to the punitive damages award and defendant’s financial condition. [¶] The
net worth of defendant was stipulated to at $229,250,319. The punitive damages was
2.7 percent of the net worth of defendant. And balancing the State’s interest and its
ability to punish conduct, this is not grossly excessive.”
              3. Analysis
       Sentry contends that there was not clear and convincing evidence of oppression,
fraud, or malice because the evidence showed that Sentry did not actually fail to conduct
an adequate investigation or fail to consider Borjon Auto Center’s interests. According to
Sentry, its claims managers had no reason to review Borjon Auto Center’s franchise

                                             36
agreements because there was no precedent for doing so; Sentry’s claims counsel
responded to the April 2015 letter from Borjon Auto Center’s claims counsel requesting
reconsideration of the building coverage denial and by implication the April 2015 letter
was reviewed by top claims management; and Borjon Auto Center never claimed lost
profits until the time of trial.
       Borjon Auto Center argues that the punitive damages award is supported by
substantial evidence supporting a finding of oppression, fraud, or malice, beginning with
Sentry’s egregious conduct in issuing a policy with building coverage without
determining whether the policyholder had an insurable interest. Borjon Auto Center also
points to Sentry’s conduct in immediately focusing on “walking away” from the Borjon
Auto Center’s building coverage claim, and failing to conduct a full and fair
investigation, as well as the failure of top claims management to consider Borjon’s
coverage counsel’s letter requesting reconsideration of the building coverage denial.
       We determine that Sentry has not met its burden on appeal to show that the award
of punitive damages is not supported by clear and convincing evidence. Sentry’s
argument is based on viewing the evidence of its conduct in the most favorable light to
Sentry, but our standard of review does not permit us to do so. To the contrary, we are
required to “ ‘ “ ‘consider the evidence in the light most favorable to the prevailing party,
giving him [or her] the benefit of every reasonable inference, and resolving conflicts in
support of the judgment.’ ” [Citation.]’ ” (Pilliod, supra, 67 Cal.App.5th at p. 641.)
       Viewing the evidence in Borjon Auto Center’s favor, we agree with the trial court
that there was clear and convincing evidence that Sentry’s conduct with respect to Borjon
Auto Center’s claim for building coverage was reprehensible and met the standard for an
award of punitive damages. In particular, we note the conduct of Sentry’s top claims
management in denying building coverage soon after the fire destroyed the dealership
building without a full and fair investigation, including their failure to review Borjon
Auto Center’s franchise agreements although Sentry’s claims adjuster, Romero, was

                                             37
aware that the franchise agreement tied Borjon Auto Center to the 905 Broadway location
and it was not possible to relocate the dealership. And the harm to Borjon Auto Center
was great, since Borjon was compelled to voluntarily terminate his General Motors and
Chrysler franchises and permanently close the Borjon Auto Center business due to the
lack of a dealership building. Accordingly, the trial evidence was sufficient to support a
finding that Sentry’s conduct was reprehensible since top claims management acted in
conscious disregard of Borjon Auto Center’s rights under the building coverage. (See
Civ. Code, § 3294, subd. (c)(1); Pilliod, supra, 67 Cal.App.5th at p. 641.)
       We are also not convinced by Sentry’s argument that the punitive damages award
of $6,240,000 was constitutionally excessive and violates the “due process norm” of
“3 or 4 to 1.” As the trial court noted, the award of $6,240,000 was 2.7 percent of
Sentry’s stipulated net worth of $229,250,319. Assuming a ratio of punitive to
compensatory damages of 7.2:1, as Sentry argues, the ratio is less than 9:1 or 10:1 and
therefore the award is not presumed to be unconstitutional. (See Nickerson, supra,
63 Cal.4th at p. 367.)
       Moreover, our Supreme Court has rejected an “ ‘outer constitutional limit’ of
approximately four times the compensatory damages.” (Simon v. San Paolo U.S.
Holding Co., Inc. (2005) 35 Cal.4th 1159, 1182-1183 (Simon) [holding ratio of punitive
damages to compensatory damages of 450 to 1 constitutionally excessive].) Instead,
“ ‘[s]ingle digit multipliers are more likely to comport with due process’.” (Id. at
p. 1183.) “The precise award in any case, of course, must be based upon the facts and
circumstances of the defendant’s conduct and the harm to the plaintiff.” (State Farm
Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 425 [holding ratio of punitive to
compensatory damages of 145 to 1 constitutionally excessive]; see also Simon, supra, at
p. 1188 [punitive damages reduced to constitutional maximum of 10 to 1 ratio of punitive
to compensatory damages]; Nickerson, supra, 5 Cal.App.5th at p. 370 [trial court’s
reduction of punitive damages award to 10 to 1 ratio of punitive to compensatory

                                             38
damages not constitutionally excessive].) In this case, we determine that the facts of
Sentry’s reprehensible conduct and the circumstances of the great harm to Borjon Auto
Center are sufficient to support an award of punitive damages in the amount of
$6,240,000 that is not constitutionally excessive.
       Finally, Sentry contends that comparison of the $6,240,000 punitive damages
award to the maximum civil penalty of $10,000 that may be imposed by the Insurance
Commissioner under Insurance Code sections 790.03 and 790.035 for unfair or deceptive
practices shows that the punitive damages are constitutionally excessive.5 Borjon Auto
Center responds that the conduct penalized under these provisions of the Insurance Code
does not provide a useful comparison in this case. We agree. Sentry’s reprehensible
conduct in this case, which resulted in the loss of the insured’s business due to Sentry’s
wrongful denial of the insured’s claim under the building coverage, is not comparable to
the conduct penalized under Insurance Code sections 790.03 and 790.035. (See, e.g,
Century, supra, 139 Cal.App.4th at p. 967; Mazik v. Geico General Ins. Co. (2019)
35 Cal.App.5th 455, 474.)
       Having considered the evidence in the light most favorable to Borjon Auto Center,
we therefore conclude there are no grounds for reversal of the award of punitive
damages. (See Pilliod, supra, 67 Cal.App.5th at pp. 641-642.)

       5
          Insurance Code section 790.03 provides in part: “The following are hereby
defined as unfair methods of competition and unfair and deceptive acts or practices in the
business of insurance. [¶] . . . [¶] (h) Knowingly committing or performing with such
frequency as to indicate a general business practice any of the following unfair claims
settlement practices. . . .” Insurance Code section 790.035, subdivision (a) provides in
part: “Any person who engages in any unfair method of competition or any unfair or
deceptive act or practice defined in Section 790.03 is liable to the state for a civil penalty
to be fixed by the commissioner, not to exceed five thousand dollars ($5,000) for each
act, or, if the act or practice was willful, a civil penalty not to exceed ten thousand dollars
($10,000) for each act.”

                                              39
       E. Attorney Fees on Appeal
       Finally, Borjon Auto Center seeks an award of Brandt attorney fees on appeal.
This court has determined that Brandt attorney’s fees are recoverable on appeal. “We
agree with the Ninth Circuit in McGregor [v. Paul Revere Life Ins. Co. (9th Cir. 2004)
369 F.3d 1099] that attorney fees the insured has incurred to defend a judgment against
the insurer’s appeal are a logical extension of the fees incurred in pursuing the recovery
in the trial court. The collection of the benefits due is not complete when the insurer
resists the judgment by challenging the judgment on appeal. Thus, to the extent that
appellate attorney fees reflect the continuation of services performed to obtain the
rejected payment of policy benefits, they should be recoverable under the rationale of
Brandt.” (Baron v. Fire Ins. Exchange (2007) 154 Cal.App.4th 1184, 1198 (Baron); but
see Burnaby v. Standard Fire Ins. Co. (1995) 40 Cal.App.4th 787, 797 [Brandt attorney’s
fees are not recoverable on appeal].)
       Since Brandt attorney’s fees “ ‘are recoverable as damages, the determination of
the recoverable fees must be made by the trier of fact unless the parties stipulate
otherwise.’ [Citations.]” (Nickerson, supra, 63 Cal.4th at p. 373.) We will therefore
remand the matter for a determination by the trial court, on appropriate motion, of the
amount of attorney’s fees on appeal to which Borjon Auto Center is entitled to under
Brandt, supra, 37 Cal.3d at pages 817-819. (See Baron, supra, 154 Cal.App.4th at
pp. 1198-1199.)
                                   IV. DISPOSITION
       In case No. H048021, the judgment is affirmed. In case No. H048084, the
judgment is affirmed. Costs on appeal are awarded to Borjon Auto Center. The matter is
remanded to the trial court for a determination, on appropriate motion, of the amount
of attorney’s fees on appeal to which Borjon Auto Center is entitled under Brandt v.
Superior Court (1985) 37 Cal.3d 813 at pages 817-819.

                                             40
                               BAMATTRE-MANOUKIAN, ACTING P.J.

WE CONCUR:

DANNER, J.

WILSON, J.

Borjon Auto Center King City Inc. v. Sentry Select Insurance Company
H048021
H048084