Court Opinion

ID: 8912560
Source: CourtListenerOpinion
Date Created: 2022-11-27 03:38:12.143587+00
Date Added: 2024-06-11T17:08:39.975783
License: Public Domain

POOLE, Circuit Judge,
concurring in part and dissenting in part:
I agree with the majority’s conclusion that Leslie’s loss was covered by its policy with St. Paul; that the jury could reasonably have found bad faith in St. Paul’s delay while pretending to reconsider its original denial; and that under California law, by which we are bound in this diversity action, it was error to award attorney’s fees for any portion of plaintiff’s recovery in excess of that due under the policy.
But for reasons which I shall attempt to explain, I believe that the finding that St. Paul was in bad faith in its initial denial of *663coverage simply is without support in this record and that consequently the majority has erred in affirming an award which gave Leslie an unearned windfall of damages and attorney fees, the latter of which must now be undone. Furthermore, I must disagree with the allowance in this case of calculations of inflation as an element of damages. I therefore respectfully dissent from these holdings.

Breach of Duty of Good Faith

St. Paul’s all-risk had some exceptions one of which precluded liability for:
“I) Loss or damage sustained while the property is actually being worked upon and directly resulting therefrom or caused by any repairing, adjusting or servicing.”
At trial the parties vigorously contested whether the test run of the stacker was properly to be considered part of the repairing of the track and thus whether the event which culminated in its damage fell within the exception. This was not a simple and easy issue at trial, and it has not been an easy decision for us on this appeal. Some fairly reflective analysis was required before the majority was able to reach the conclusion that testing the repaired track by running the stacker over it was not so closely a part of the process of repairing as to be deemed within the exception. Therefore, I simply cannot accept the majority’s flat assertion that “the repair exclusion clearly does not apply so the refusal was patently unreasonable * * (p. 660) Whether it does or does not apply remains a close, not a self-evident supposition, and I see no warrant for the jury’s finding that St. Paul’s initial refusal was actionable bad faith.
St. Paul’s conduct and its abuse of the “reconsideration” period is different. The trier of fact could find that the promise to reconsider denial was only a pretense to allow the insurer to prepare for trial. Even so, the most the majority opinion states is that “while the evidence of bad faith may not be overwhelming, we cannot say it is totally insubstantial.” (Id.)
But if I am correct in insisting that the single breach of St. Paul’s duty of good faith and fair dealing reasonably supported by evidence was its uncandid use of the reconsideration period, then no consideration of the years 1973 to 1978 was proper. Leslie was not by reason of that specific breach deprived of the use of the policy proceeds over that period of time. St. Paul had a plausible argument that the exclusion did apply and the right to litigate the issue. If there was a breach in pretending to reconsider, that merely delayed Leslie’s getting to the courthouse to challenge the initial denial which, I maintain, was neither unreasonable nor indicative of bad faith. This delay took approximately four months from the initial denial on September 4, 1973, until St. Paul finally reaffirmed that denial on January 8, 1974. The very most in damages which Leslie could show would have been that small amount, if any, attributable to the four-month delay, including any increase in attorney fees and litigation expenses due specifically to such delay. It was entirely improper to employ a measure of recovery premised on the unfounded assumption that this entire law suit was permeated by that single discrete lag in time.

Inflation

Because this improper use of the reconsideration period constitutes the only breach of St. Paul’s duty of good faith and fair dealing, allowing inflation of the amount due between 1973 and 1978 was improper. This particular breach did not proximately cause Leslie to be deprived of the use of the policy proceeds due for that period. Rather, it merely caused a delay in Leslie’s opportunity to sue. The delay was only about four months: from St. Paul’s initial denial of the claim on September 4, 1973, to its reaffirmation of the denial on January 8, 1974.
Moreover, I am reluctant on so insubstantial a premise to set a major and troublesome precedent for allowing inflation of past damages in this type of action (or indeed in tort actions generally) under California law. There is not presently any clear California precedent for such an open sesame to damages. Tri-Delta Engineering, Inc. v. Insurance Company of North America, et al., 80 Cal.App.3d 752, 146 Cal.Rptr. 14 (1978), relied on by the majority is not authority for an award for inflation; it does not so hold and that was not an issue on appeal. Indeed, that unique charting of trial confusion supplies doubtful help to any of our issues. The California courts have made some general statements in wrongful death and personal injury cases to the effect that the trier of fact may take into consideration the declining purchasing power of the dollar in determining compensation for loss. E. g., Rodriguez v. McDonnell Douglas Corp., 87 Cal.App.3d 626, 662, 151 *664Cal.Rptr. 399, 419 (1979); Kircher v. Atchison, etc., Ry. Co., 32 Cal.2d 176, 187, 195 P.2d 427, 434-435 (1948); Chadek v. Spira, 146 Cal.App.2d 360, 368, 303 P.2d 879 (1956); Gist v. French, 136 Cal.App.2d 247, 274, 288 P.2d 1003 (1955); Risley v. Lenwell, 129 Cal.App.2d 608, 650, 277 P.2d 897 (1954); Guerra v. Balestrieri, 127 Cal.App.2d 511, 520, 274 P.2d 443 (1954); Burke v. City and County of San Francisco, 111 Cal.App.2d 314, 320-22, 244 P.2d 708 (1952). Our circuit has acknowledged these references in the context of recognizing “two uses for which the courts have taken cognizance of changes in the purchasing power of money:” (1) comparing a damage award with previous awards in similar cases; and (2) estimating future income and expenses in arriving at a damage award. United States v. English, 521 F.2d 63, 72-73 (9th Cir. 1975).
Leslie cites Camrosa County Water District v. Southwest Welding & Manufacturing Co., 49 Cal.App.3d 951, 123 Cal.Rptr. 93 (1975) as precedent for inflating an award of past damages. But that case relied heavily on the fact that the plaintiff had not made its repairs prior to trial and allowed it to recover the cost of repair as of the trial date rather than as of the time the damage occurred. Camrosa simply allowed plaintiff to recover its actual out-of-pocket loss.
Here, Leslie replaced the stacker long before trial and, in effect, seeks compensation now for the lost use of the money it would have had if St. Paul had paid the claim then. Providing that form of compensation is the purpose of prejudgment interest, which is authorized by California statutes, Civil Code §§ 3287 and 3288. See Lineman v. Schmid, 32 Cal.2d 204, 195 P.2d 408 (1948). Allowing an augmentation of the award for inflation here circumvents the 7% legal rate of interest set by the California legislature. Leslie wrongly argues that California’s prejudgment interest statute applies only to contract cases. While Civil Code § 3287(b) expressly applies only to contract actions, § 3287(a) applies to “every person who is entitled to recover damages certain, or capable of being made certain by calculation ... upon a particular day.” And § 3288 expressly allows for interest to be given in the discretion of the jury in an action for the breach of an obligation not arising from contract.
There is, of course, an argument that allowing inflation of past damage awards may more fully compensate in certain cases, and that it may be more consistent with economic reality than the prejudgment interest rate, and less speculative than awards for future inflation. That argument is properly addressed to the California courts and legislature. We, in this diversity case are not commissioned to create the law for the state.
In English, supra, we recognized that the “issue of when, and to what extent, a court may take cognizance of inflation in making damage awards ...” is troublesome. 521 F.2d at 72. It is an important issue warranting careful and thorough consideration. Even if we deliberately intend to create a new precedent, this case is an inappropriate vehicle for doing so.
Since the district court failed to make the requisite distinctions between allowable and nonallowable attorney fees and damages, I concur in the majority’s reversal. But because of the erroneous awarding of damages on the issues of bad faith and inflation, I would also reverse and grant a new trial on these issues.