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The Sixth District Court of Appeal upheld a jury verdict against appellant Fire Insurance Exchange (Fire), finding intentional misrepresentation and concealment, breach of contract, breach of the covenant of good faith and fair dealing, bad faith failure to investigate a claim, and punitive damages of $1.5 million.
On appeal, Fire contended that the judgment should be reversed because the appointment of respondent James Baron as receiver for the insured property was void or at least invalid for purposes of recovering punitive damages.
Dennis Sanfilippo ("Sanfilippo") and Carole Verni ("Verni") were engaged in a joint venture pertaining to property in San Jose. Under the terms of their agreement any disputes were to be settled by arbitration. In 2001, a dispute arose and in March they engaged an arbitrator.
On May 28, 2001, the property was extensively damaged by a fire. Verni was insured on the property through Fire. Verni filed a claim, which was assigned to an independent adjuster, Gary Corbett ("Corbett").
In July 2001 the arbitrator reached a decision in Sanfilipo's favor. In accordance with the parties' subsequent stipulation, he appointed respondent as receiver to take possession of the property, together with "any and all insurance proceeds relating to past, present, or future claims for damages to the property…including…those settlement proceeds in response to claims made against Farmers [sic]." The order also authorized respondent to "restore or sell the property and to institute, prosecute, defend, compromise, intervene in or become a party to such suits, actions or proceedings as may in his reasonable judgment be necessary or proper for the protection, maintenance, operation, preservation or enhancement of the Receivership Estate…"
Corbett was informed that respondent had been appointed as receiver to handle the insurance claim. Corbett made recommendations of 2 "approved contractors" for the repair, including Double R Construction, whom respondent agreed to use.
Double R began demolition work in March 2002. In mid-July respondent had already paid the contractor $63,361 of the amount he had received from Fire. No one associated with Fire informed respondent that as early as June 2002 the company had been sending checks to Double R. The repair did not progress expeditiously, and by September respondent was worried and determined Double R had abandoned the job. Respondent hired Sun Restoration which completed the restoration between January and June 2003 at a total cost of $258,528. Fire denied coverage for the demolition or construction initiated by the previous contractor. Corbett told respondent that there was no way Fire would pay twice or recover the money Double R had taken.
Respondent filed suit on May 13, 2003, alleging breach of insurance contract, bad faith refusal to pay policy benefits and damages caused by Double R, declaratory relief, negligence, fraudulent misrepresentation, and negligent misrepresentation. Sanfilippo thereafter filed a petition to confirm the arbitration award. Verni stipulated to the order, and the petition was granted on August 22, 2003. The court confirmed the arbitrator's award and his 2001 appointment of respondent as receiver.
At trial, the jury found in favor of respondent on all issues, and awarded punitive damages. Fire appealed on several grounds. First, Fire contended that respondent had no authority to proceed in this action because the arbitrator had no jurisdiction to appoint him as receiver. Fire argued that because that appointment was void he was not the proper real party in interest and therefore not entitled to damages. The Court of Appeal rejected Fire's argument, finding that Fire's challenge to the appointment was precluded by its failure to attack it earlier. While Fire did contest respondent's standing as a party to assert the first two contract based causes of action and disputed his right to claim punitive damages, it had not sought dismissal of the lawsuit based on the invalidity of the receivership appointment. The Court accordingly concluded that Fire forfeited its challenge to the validity of respondent's appointment by failing to raise it below.
The Court further held that to deem the judicial appointment invalid would effect an injustice not only to respondent but to the insured, who by stipulating to his appointment removed herself early from the pursuit of the policy benefits and of a remedy for the damage caused by Corbett's misconduct.
The Court also disagreed with Fire's argument that respondent was not entitled to punitive damages on behalf of the insured for purely personal tort claims, finding that the receiver's authority expressly included the right to recover any and all damages including but not limited to punitive damages. The Court also rejected Fire's argument that the appointment was of no legal effect because a claim for punitive damages is personal and not assignable as a matter of law, holding that respondent was not acting as an assignee, but rather as a receiver and therefore there was no basis for overturning that portion of the judgment.
Respondent also sought an award of attorney's fees under Brandt v. Superior Court for defending the judgment on appeal. The Court relied on McGregor v. Paul Revere Life Ins. Co., finding that the attorney's fees the insured incurred to defend a judgment against the insurer's appeal was a logical extension of the fees incurred in pursuing the recovery in the trial court. The Court held that to the extent that attorney's fees incurred on appeal reflected the continuation of services performed to obtain the rejected payment of policy benefits, they should be recoverable under the rationale of Brandt.
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