Amer. Modern Home Ins. Co. v. Fahmian 4/8/11 CA4/3

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Laws-info.com » Cases » California » 4th Appellate District Division 3 » 2011 » Amer. Modern Home Ins. Co. v. Fahmian 4/8/11 CA4/3

State: California

Court: California Eastern District Court

Docket No: G042799

Case Date: 04/08/2011

Plaintiff: Amer. Modern Home Ins. Co.

Defendant: Fahmian 4/8/11 CA4/3

Preview:Filed 4/8/11

CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE

AMERICAN MODERN HOME INSURANCE COMPANY, G042799 Plaintiff and Appellant, (Super. Ct. No. 05CC12158) v. OPINION SOHAIL FAHMIAN et al., Defendants and Respondents.

Appeal from a judgment of the Superior Court of Orange County, Franz E. Miller, Judge. Reversed. Haight Brown & Bonesteel, David W. Evans and Bruce Cleeland for Plaintiff and Appellant. Maziar Mafi for Defendants and Respondents.

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INTRODUCTION Sohail Fahmian was sued for injuries suffered by a worker on a residence Fahmian and his company were building. Fahmian tendered the matter to his homeowners insurance company, American Modern Home Insurance Company (American Modern), which accepted the defense of the personal injury lawsuit, subject to a reservation of rights. American Modern later determined a policy limits settlement demand of $300,000 by the injured worker was reasonable, and notified Fahmian in writing, pursuant to Blue Ridge Ins. Co. v. Jacobsen (2001) 25 Cal.4th 489 (Blue Ridge), that it intended to accept the settlement demand unless Fahmian would either take over his own defense, or waive any later bad faith claim based on the failure to settle the action. Fahmian did not respond to American Moderns offer. American Modern then settled the underlying action with the worker and sued Fahmian for reimbursement. A jury found there was no coverage for the personal injury action under the American Modern insurance policy. The jury also found that Fahmian did not have sufficient time to make a reasoned reply to American Modern. Based on this finding, the trial court denied American Moderns claim for reimbursement, and entered judgment in favor of Fahmian. We reverse. Under binding California Supreme Court authority, an insurance company may obtain reimbursement from its insured for a policy limits settlement, when it is determined the underlying claim was not covered by the policy, if the insurance company (1) made a timely and express reservation of rights, (2) provided express notification to the insured of the insurers intent to accept the proposed settlement offer, and (3) made an express offer that the insured could assume its own defense. In this case, American Modern did all of the foregoing. We decline to add any additional requirements. This conclusion is mandated by the Blue Ridge opinion itself because of 2

its analysis and because the timing of the insurers offer to the insureds and the deadlines given by the insurer in Blue Ridge were essentially the same as in this case. As Blue Ridge makes clear, it is a timely and express reservation of rights letter that is determinative. For the reasons we discuss, we hold the trial court erred by imposing an additional requirement, not authorized by the Supreme Courts opinion or rationale, that the insured have "sufficient" time to respond to the insurers offer.

STATEMENT OF FACTS AND PROCEDURAL HISTORY Fahmian is the owner of Provident Housing, Inc. (Provident). American Modern provided a homeowners insurance policy to Fahmian (the policy). The policy specifically excluded coverage for any liability arising out of Fahmians business. On April 5, 2005, Rudy Montoya sued Fahmian and Provident for injuries suffered as the result of being shot in the eye with a nail gun (the Montoya action). The accident occurred on the premises where Fahmian and Provident were building a house for the purpose of selling it. Fahmian tendered the lawsuit to American Modern, which accepted Fahmians defense under a reservation of rights. Fahmian did not read the reservation of rights letter. Montoyas attorney presented a settlement demand to American Modern for the policy limits--$300,000. On July 1, 2005, American Modern informed Fahmian in writing that it intended to accept the policy limits settlement demand unless Fahmian either agreed to undertake his own defense in the Montoya action, or waive any potential claims based on the failure to settle the Montoya action within the policy limits (the settlement advisement letter). The settlement advisement letter informed Fahmian that Montoyas settlement demand would expire by its terms on July 8, 2005, and American Modern therefore required Fahmians response to the settlement advisement letter by 4:00 p.m. on July 6, 2005. The settlement advisement letter was delivered via Federal

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Express at 10:42 a.m. on July 2, and was signed for by "S. Fahmian." Fahmian, however, testified he never read it. On July 5, 2005, Fahmian telephoned American Moderns coverage counsel, David Evans, and requested that the settlement advisement letter and its attachments be transmitted to him via electronic mail, so he could forward the documents to his counsel. The requested documents were transmitted electronically the same day. During that telephone conversation, Evans told Fahmian he could call Evans until the morning of July 8 with his decision. American Modern did not receive any communication from Fahmian or any attorney purporting to represent him after July 5. Because American Modern did not hear from Fahmian by July 8, 2005, it accepted the policy limits settlement demand in the Montoya action. On November 14, 2005, American Modern sued Fahmian for declaratory relief, seeking a declaration that the Montoya action was excluded under the policy, and for reimbursement of the monies it had paid to settle that action. The case proceeded to a jury trial, after which the jury completed a special verdict form. After posttrial hearings, the trial court concluded, based on the jurys findings, that although the Montoya action was not covered under the policy, and American Modern had made a timely and express reservation of rights, American Modern was not entitled to reimbursement because it had not provided Fahmian "sufficient time" to make a reasoned reply to the offer to assume his own defense if he disagreed with the decision to settle. It is especially noteworthy that the trial court did not make any declaration of rights as requested in the complaint and as it should have adjudicated. In our disposition, we direct the trial court how to declare those rights. Judgment was entered on August 25, 2009; American Modern timely appealed.

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DISCUSSION I. STANDARD OF REVIEW The issue on appeal involves pure questions of law, and is reviewed de novo. (Farm Raised Salmon Cases (2008) 42 Cal.4th 1077, 1089, fn. 10.)

II. SPECIAL VERDICT FORM A. Contents of the special verdict form and the jury's answers The jury answered the 13 questions on the special verdict form, as follows: "1. On July 11, 2004, was the home at 29119 Avenida de las Flores connected to all utility services? "Yes No X

"2. On July 11, 2004, was 29119 Avenida de las Flores the primary residence of Sohail Fahmian? "Yes No X

"3. Did American Modern make a timely and express reservation of rights? "Yes X No

"4. Did American Modern expressly notify Sohail Fahmian of American Moderns intent to accept the settlement offer made on behalf of Mr. Rudy Montoya? "Yes X No

"5. Did American Modern make an express offer to Sohail Fahmian that he could assume his own defense should American Modern and Sohail Fahmian disagree w[h]ether to accept the proposed settlement made on behalf of Mr. Rudy Montoya? "Yes X No

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"6. Did Sohail Fahmian timely instruct American Modern not to pay the $300,000 ,,policy limits demand and confirm that by his decision he would waive any claim against American Modern arising from his instruction not to pay Mr. Rudy Montoya? "Yes No X

"7. Did Sohail Fahmian, before or after the injuries to Mr. Rudy Montoya, intentionally conceal or misrepresent any material fact or circumstance; engage in fraudulent conduct; or make false statements relating to the insurance contract? "Yes X No

"8. If your answer to question no. 7 is yes, what was the statement(s) or conduct? "Mr. F did not inform American Modern of the incident that happened on his property on 7/11/06[.] "9. Was Lamborn Insurance Services an agent of American Modern? "Yes X No

"10. Did American Modern give Sohail Fahmian reasonably sufficient information for Sohail Fahmian to make a reasoned decision based on the options provided in the July 1, 2005 letter? "Yes X No

"11. Under all circumstances, did American Modern provide sufficient time for Sohail Fahmian to make a reasoned reply? "Yes No X

"12. Did Sohail Fahmian build the 29119 Avenida de las Flores address for a business purpose? "Yes X No

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"13. Did Sohail Fahmian build the 29119 Avenida de las Flores address for his personal residence? "Yes No X "

B. What was the jury's role as described on the record? Given that the only claims asserted in the complaint were equitable in nature, why was a jury empanelled? Before trial, the parties and the trial court discussed the possibility that Fahmian might raise as a defense that American Modern had been negligent, and agreed that the factual issues presented by such a defense required a jury. During posttrial hearings, American Moderns counsel stated, "the jury is to decide questions of fact which were extremely limited in the case. The court then takes those facts and applies them to the law. That was the purpose of the paperwork. And we believe that the facts that the court needed were there and are there. And the finding of the jury on that question, I believe question number 11, is irrelevant to the law and was requested by the court, not defense counsel, and was requested after the close of evidence, after the resting of the case in chief by all parties and the close of evidence." The trial court expressed its opinion as to the procedural status of the jurys special verdict, as follows: "I think this is a slightly different animal, theoretically, since the action is for declaratory relief, something or other that typically does not allow for a jury determination. [

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