Carson v. Mercury Ins. 9/24/12 CA4/3

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State: California

Court: California Eastern District Court

Docket No: G045795

Case Date: 10/23/2012

Plaintiff: Carson

Defendant: Mercury Ins. 9/24/12 CA4/3

Preview:Filed 9/24/12; pub. order 10/23/12 (see end of opn.)

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

MELODY CARSON, Plaintiff and Appellant, v. MERCURY INSURANCE COMPANY, Defendant and Respondent. G045795 (Super. Ct. No. 30-2010-00389334) OPINION

Appeal from a judgment of the Superior Court of Orange County, Kirk H. Nakamura and Kazuharu Makino, Judge. Affirmed. Day Law Offices and Montie S. Day for Plaintiff and Appellant. OConnor, Schmeltzer & OConnor, Lee P. OConnor and Timothy J. OConnor for Defendant and Respondent.

Soon after purchasing her first new car, Melody Carson was involved in an automobile accident with a third party, who was at fault and who was insured. At the time of the accident, Carsons vehicle had a market value of $25,000. Her automobile insurance policy with Mercury Insurance Company provided it had the option of repairing or paying for Carsons vehicle, subject to several express liability limitations and exclusions. Rather than declaring the car a total loss and paying Carson $25,000 to replace the vehicle, Mercury elected to repair the car as the initial restoration estimates were approximately $8,000. During the repair process, additional damages were revealed and Mercury paid a total of $18,774 to repair the vehicle. Unhappy with Mercurys decision to repair the car, and unsatisfied with the work performed at the repair shop, Carson sued Mercury for breach of contract and breach of the implied covenant of good faith and fair dealing. She asserted Mercury should have taken into consideration her financial interests, specifically that her repaired vehicle would have a diminished stigma value (the repaired Honda was only worth approximately $8,000). In addition, she asserted her new vehicle was constructed in a way that could never be repaired to its safe preaccident condition and value. Carson alleged Mercury was obligated to declare the car a total loss and it wrongfully asserted subrogation rights against the at-fault driver. She did not prevail at the court trial. On appeal, Carson alleges the trial court wrongly eliminated most of her claims in its pretrial rulings and it failed to consider her argument the insurance policy was unenforceable as being against public policy. She also claims the courts conclusions based on the evidence presented at trial were "impossible," which we deem to be a challenge to the sufficiency of the evidence. While we are sympathetic to her situation, we conclude all her contentions on appeal lack merit, and we affirm the judgment.

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II Sixty-five-year-old Carson purchased her first new car, a 2008 Honda Accord, on September 28, 2007, for a total cost of $31,344.60. She purchased an automobile insurance policy that provided collision coverage from Mercury. Under the terms of the collision coverage portion of the policy, Mercury has the option of repairing, replacing, or paying for the 2008 Honda Accord if it was damaged in a collision. Specifically, the policy provided in "Part III," titled physical damage: "Coverage E - Collision: The company, at its option, will repair, replace or pay for the owned automobile or part thereof, for loss caused by collision but only for the amount of each loss in excess of the deductible stated in the declarations." In "Part III" the policy listed 23 exclusions to coverage, including as relevant to this appeal, the policy did not apply "to loss due to diminution in value of any motor vehicle repaired under coverages D or E." In addition, "Condition No. 3" of the policy set forth the "Limit of Liability; Settlement Options; Coverages D and E" and specified the policy would not cover depreciation: "The companys liability shall not exceed the lesser cost of the following options (1) repair or replace the motor vehicle or any part thereof, using original or non-original equipment manufactured parts, with deduction for depreciation[,] or (2) pay the agreed or appraised value of the motor vehicle." In July 2008, Carson was involved in an automobile accident while driving in Victorville, California. Her car was struck by a Ford pickup truck driven by Guy L. Anderson, who was insured with Permanent General Assurance Corporation (Permanent General). His policy provided personal injury limits in the amount of $15,000 per person and $30,000 per accident. The property damage limits were $10,000. Carson required medical attention and her car was taken to and inspected at Performance Paint & Body, a Mercury-approved repair facility in Victorville. The shop

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prepared a repair estimate in the amount of $7,918.48, and determined the actual cash preaccident value of the vehicle was $25,000. Alex Mingo, an automobile damage appraiser employed by Mercury, inspected the vehicle and prepared a repair estimate in the amount of $7,918.48. Carson made arrangements to have her vehicle taken to a repair facility of her choice, Specialty Body Works. Jimmy Patopoff at Specialty Body Works prepared his own estimate to repair the vehicle, and determined it would cost $8,603.35 to repair. During the repair process, Specialty Body Works found damage that was not visible when the original estimates were made. Patopoff prepared a supplemental estimate stating the repairs would cost $10,731.02. In the end, it cost a total of $18,773.62 to repair the vehicle, which included towing charges of $934.33. Mercury paid for the repairs, including Carsons $250 deductible. Carson made a personal injury claim against Andersons insurance. Permanent General paid her the policy limit of $15,000. Mercury pursued a subrogation claim against Permanent General for the amount it paid to repair Carsons vehicle. Permanent General paid Mercury the property damage limit ($10,000) and from this amount Carson was paid $509.91 to reimburse her for towing expenses. Carson signed Permanent Generals release form. On July 14, 2010, Carson filed a complaint against Mercury alleging causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing. She alleged the damage to her vehicle "was so substantial and major that the vehicle was unrepairable to its preaccident condition with respect to safety, reliability, mechanics and performance, and was in a condition which, for economical and practical reasons, reasonably required the vehicle to be ,,totaled. The vehicle was by any logical financial consideration a ,,total loss, meaning that the costs of repair, plus the

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post-accident and pre-repair salvage value of the vehicle, and the loss of value of the vehicle, even if repaired, would be greater than the total value of the vehicle after the vehicle was repaired." In the complaint, Carson maintained Mercury breached the terms of the policy and acted in bad faith by withholding benefits, including its failure to treat the vehicle as a total loss and paying the replacement value, failure to repair the vehicle to its preaccident condition, and asserting subrogation rights against the at-fault driver to her detriment. A. Pretrial Motions Mercury filed a motion for summary judgment, or alternatively, summary adjudication of the second cause of action for breach of the implied covenant of good faith and fair dealing. Mercury argued it was not required to declare Carsons vehicle as a total loss because the policy expressly provided it with the option of repairing or replacing the vehicle. Mercury also asserted it could not be held liable for failing to repair the vehicle to its preaccident condition because Carson selected the repair facility. Finally, Mercury alleged it properly asserted subrogation rights against Permanent General, the insurer of the driver that hit Carsons vehicle. In its tentative ruling, the trial court (Judge Kazuharu Makino) explained there was a triable issue of fact as to whether Mercury breached its duty to repair the vehicle to its preaccident safe, mechanical, and cosmetic condition, as required under Ray v. Farmers Insurance Exchange (1988) 200 Cal.App.3d 1411, 1418 (Ray). However, the court rejected Carsons assertion Mercury was required to take into account diminution in post-repair value in determining if the car was a total loss, stating, "there is a total loss only where costs of repair exceed the pre-repair value of the vehicle." (Citing Martinez v. Enterprise Rent-A-Car Co. (2004) 119 Cal.App.4th 46, 54-56.) The court denied the motion. However, in the minute order the court included a statement defining "total loss." 5

The case was assigned to Judge Kirk H. Nakamura for trial. On the first day of trial, the trial court observed that based on the prior courts ruling on the summary judgment motion, the claims for trial were limited to whether Mercury repaired the vehicle to its preaccident safe, mechanical, and cosmetic condition. Carson argued there were two additional issues: First, Carson maintained it must be determined whether Mercury breached the implied covenant of good faith and fair dealing because it was obligated to declare the vehicle a total loss. The court disagreed, citing to the prior minute order defining total loss and to the policys language giving Mercury the option to repair, replace, or pay for the automobile. Second, Carson asserted there was an issue about whether Mercury improperly asserted subrogation rights. Carson explained that because her vehicle suffered diminution in value, Mercury violated the "made whole" rule by pursuing subrogation. The court stated this claim was barred because it was undisputed Carson signed a release of her property damage claim in favor of Anderson, and therefore she could not make a claim for diminution in value against him before Mercury was entitled to subrogation. The court ruled the above two issues (the good faith and fair dealing claim and the subrogation claim) could not be raised at trial. The court then ruled on the following pretrial motions: Carson filed a motion seeking a jury instruction that Mercury breached the implied covenant of good faith and fair dealing on the grounds Mercury did not specifically deny the allegations of bad faith set forth in paragraphs 19, 20, 21, 22 and 23 of her complaint. Mercury responded that the failure to deny these allegations was an inadvertent mistake and it sought leave to file a motion for leave to file a verified first amended answer to generally and specifically deny the allegations. The court denied Carsons motion and granted Mercurys motion seeking leave to file a first amended answer. Carson also moved for an order precluding Mercury from offering any evidence that if Carson had her car repaired at a facility associated and selected by Mercury the repairs would not have been any better than those performed by Specialty 6

Body Works. The motion was made on the grounds such evidence was irrelevant because the vehicle "could never have been repaired to its ,,preaccident condition." At the hearing, Carson explained Mercury was obligated to repair her vehicle to the "manufacturing standards" of a brand new car. Carson also asserted she had a modern unibody car and "the repairs can never replicate" the manufacturers standards because the car cannot be tested for crush worthiness. Mercury replied the appropriate standard for determining vehicle repair is a comparison to industry repair standards. It also maintained that if Carson had left her vehicle at Performance Paint & Body in Victorville following the accident, Mercury would have guaranteed the repairs. It explained Performance Paint & Body is a "direct repair facility for Mercury." On the other hand, Carson was permitted by California law to select a different repair facility, Specialty Body Works. Mercury paid for those repairs and Specialty Body Works made repairs and warranted the repairs for the lifetime of the vehicle so long as Carson owned it. It asserted if the repairs were not properly made by the shop of Carsons choosing, Mercury is not responsible. Carson should take the car back to Specialty Body Works and have the repairs performed pursuant to its guarantee to her. The court agreed and denied the motion. Both parties submitted motions in limine regarding evidence of whether the vehicle should have been declared a total loss. Carsons motion requested the court exclude any evidence Mercury had the "unilateral and absolute option" to either repair or declare the vehicle a total loss (and pay Carson the cars preaccident market value). She asserted the portion of the policy giving Mercury discretion to choose repairing or replacing was unenforceable as being against public policy. The trial court denied the motion without commenting on the public policy argument. It stated Mercury could discuss at trial what its policy states, i.e., it had the option to either repair or replace the vehicle.

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Mercurys motion in limine sought to exclude evidence Carsons vehicle was a total loss on the grounds the policy gave Mercury the option to repair the car and there is no reason why it should be obligated to declare the car a total loss. Mercury explained the vehicle was valued at approximately $24,500 and the cost of repair, after deducting charges for towing, was only $17,722.29 and therefore the vehicle need not be declared a total loss. Carson opposed the motion, asserting the implied covenant of good faith and fair dealing required Mercury to calculate if the vehicle was a total loss by also considering the vehicles diminution in value after the repairs, the vehicles salvage value, and the loss of use of the vehicle while the vehicle is being repaired. The court granted Mercurys motion in limine, excluding evidence Carsons vehicle was a total loss. B. The Trial The trial court bifurcated the issues of whether Carsons vehicle could be repaired, and that it was actually restored to its preaccident safe, mechanical, and cosmetic condition from the issue of whether there was a bad faith breach of the obligation to repair the vehicle to its preaccident safe, mechanical, and cosmetic condition from the issue of punitive damages. The parties agreed to proceed with a court trial on this first issue. Carsons first witness was Rocco Avellini. He testified at length about his background and training in the automobile industry as a body shop repairman and property manager at Hertz Rent-A-Car. Avellini inspected Carsons vehicle in August 2010 when it had been driven approximately 60,000 miles. He opined the damage was "in the severe range." He discussed the areas of damage to Carsons car. Mercury objected when Carsons counsel asked Avellini to give his expert opinion about whether the repairs would have changed the deployment rate of the airbags. After considering additional testimony, the court determined Avellinis qualification as an expert on body repairs did not render him qualified to also testify about the deployment 8

rate of the airbags. For this same reason, the court also sustained Mercurys objections to questions about whether the vehicle was repaired to its preaccident safe condition and if the repairs negatively impacted the cars safety. Avellini testified the car could never have been restored to its preaccident factory designed condition. The court ruled this was not the applicable standard. It determined a vehicles repaired "preaccident condition" could not be defined by how the car looked just after it was manufactured, but rather by the repair standards prepared by the vehicles manufacturer. On cross-examination, Avellini testified the repairs had not been done properly by Specialty Body Works, but the vehicle could have been properly repaired within Hondas repair specifications. Carson testified on her own behalf. She selected Specialty Body Works to repair her vehicle on her own after calling a Honda Dealership. She testified the vehicle looked cosmetically fine when she picked it up. Specialty Body Works gave her a lifetime guarantee on the repairs. Mercury called Alex Mingo, who it employed as an estimator. He testified that he wrote a repair estimate on July 22, 2008, for $8,603.35, and he did not consider her vehicle to be a total loss. He denied being told by anyone at Specialty Body Works the vehicle should be totaled. He prepared the estimate based on the "Mitchell System," which is a computer program that contains the manufacturers guidelines for what is repairable and how much its costs. The system will also specify when a part or area of damage is "not servicable" meaning "it should be a total loss to the car, because there is nothing you can do. You cant replace that part." Mingo testified Carson authorized the repairs, Specialty Body Works controlled the manner of the repairs, and Mercury paid $18,773.62 for the repairs and towing. Mercury also called Patopoff as a witness. Patopoff worked as an estimator at Specialty Body Works and handled the repair of Carsons vehicle. He also evaluated the car using the Mitchell System, which he understood utilized the repair 9

recommendations and standards from Honda. Patopoff testified he never thought the vehicle was a total loss because it could be repaired for less than its actual cash value. Patopoff recalled Carson authorized all the repairs and the shop properly repaired the vehicle within the manufacturers standards. Patopoff testified he never advised Mercury the vehicle should be a total loss and Carson never advised Specialty Body Works that she did not want the vehicle repaired. Carson was given a lifetime guarantee on the repairs. Mercurys next witness was Robert Barney, an expert in the field of vehicle appraisals and valuations. He testified the vehicle was repaired to Hondas specifications, which were the same standards as existed before the accident. He opined Carsons vehicle could have been repaired to its preaccident safe, mechanical, and cosmetic condition. He stated Mercury paid for the replacement of the B-pillar and package tray but this work was not performed by Specialty Body Works. He also discovered there was no upper body sway after the repairs. Carson called Joseph Salguiero as her expert witness. Salguiero owns an auto dealership and a body shop repair facility. Due to the lack of his education and background in engineering or metallurgy, the court ruled he was not qualified to testify that the vehicle was not repaired to its preaccident safe condition. During closing argument, Carsons counsel conceded the vehicle was cosmetically repaired to its preaccident condition. The court ruled in favor of Mercury. It determined Carson failed to prove the vehicle could not be repaired to its preaccident safe, mechanical, and cosmetic condition. In addition, it concluded that even if the vehicle was not repaired to its preaccident safe, mechanical, and cosmetic condition, Mercury was not liable for the failure to properly repair the vehicle because Carson selected the repair facility that guaranteed the work.

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II A. Bifurcated Trial Rulings and Judgment The trial courts pretrial rulings eliminated many of Carsons claims and, consequently, the court determined Carson could proceed to trial only on the narrow issue of whether the vehicle could be restored to its preaccident safe, mechanical, and cosmetic condition. The court reasoned if it was determined the vehicle could not be repaired and was not repaired, then the jury could consider whether there was a bad faith breach of Mercurys obligation under the policy (and also whether punitive damages were warranted). Before analyzing the merits of the various pretrial rulings, we begin by addressing Carsons challenges to the trial courts ruling in Mercurys favor at the bench trial. As we will explain anon, Carsons inability to prove her vehicle could not be repaired to its preaccident condition renders moot many of her arguments regarding the pretrial rulings. The trial courts decision to focus the trial on whether the vehicle was repaired to its "preaccident safe, mechanical and cosmetic condition" was based on its understanding of well-established case law. "Collision coverage is typically limited to the cost of restoring the damaged vehicle to its preaccident condition, not to exceed the actual cash value of the car at the time of loss." (Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2012)

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