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Breach of Contract - Bad Faith

December 3, 1999


Breach of Contract Bad Faith

SETTLEMENT: $289,786 total (including costs, sanctions and interest).

CASE/NUMBER: Case I.D. Confidential.

COURT/DATE: Los Angeles Superior Central / July 16, 1999.

JUDGE: Hon. Gregory C. O'Brien, Jr.

ATTORNEYS: Plaintiff - Mark B. Wilson (Klein & Wilson, Newport Beach).

Defendant - Jeffrey Horowitz, Joshua Solomon (DuBois, Billig, Loughlin, Conaty & Weisman, Los Angeles); Marten E. Rosen, Russell H. Birner (Barger & Wolen, Los Angeles); Maryann R. Marzano, Julia Swanson (Bailey & Marzano, Santa Monica); John H. Shim (Law Offices of John H. Shim, Los Angeles); Mario M. Dela Rosa (Van Nuys).

FACTS: A Los Angeles oil company awarded a contract to plaintiff, a general contractor ("the contractor") to construct a building. In October 1995, the contractor entered into a subcontract with a subcontractor to install a holding tank, fuel system, and vapor piping system at the project site.

Under the subcontract, the subcontractor was required to secure insurance covering itself, the contractor and the oil company, and to insure that each of the subcontractors had insurance naming the contractor and the oil company as additional insureds.

During the construction project, the subcontractor and the sub-subcontractors damaged a fuel system with a backhoe. The contractor filed a claim against the subcontractor and its insurance carrier. The contractor believed he was an additional insured under the subcontractor's policy based on the certificates provided by the subcontractor's broker.

The subcontractor's insurance company denied the claim based on its position that the contractor was not an additional insured under its policy. It alleged the insurance broker had no authority to write the coverage as set forth in the certificate of insurance and the subcontractor lied on its application.

The insurance company rescinded its insurance policy issued to the subcontractor. The insurance carrier for the contractor also denied the coverage.

PLAINTIFF CONTENTIONS: The contractor alleged that the work done by the subcontractor was substandard, which violated certain provisions of the Business and Professions Code.

Accordingly, the company that issued the surety bond for the subcontractor was required to pay the entire amount of the bond.

DEFENDANT CONTENTIONS: The contractor alleged fraud against the insurance broker and alleged breach of contract and bad faith against the subcontractor's insurance company and against its own insurance carrier.

The contractor claimed he had first party coverage with both insurance companies.

The subcontractor's insurance company contended its rescission of the policy was proper. Nevertheless it settled. The contractor's carrier denied coverage based on several policy exclusions. It also settled.

The defendant broker contended it did have authority to issue a policy of insurance but stopped defending itself, resulting in a default judgment against it.

DAMAGES: The contractor incurred $177,000 in damages caused by the subcontractors. The contractor recovered damages in excess of this amount because it received payments from its insurance carriers and other defendants were not entitled to set off those amounts pursuant to the collateral source rule.

SETTLEMENT DISCUSSIONS: The court later entered judgment against the insurance broker for $165,327 in damages, $46,562 in interest, $1,500 in sanctions, and $396 in costs.

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Klein & Wilson

Klein & Wilson
4770 Von Karman Avenue
Newport Beach, CA 92660

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