Auburn Woods I Homeowners Assn. v. State Farm General Ins. Co.
Annotate this CaseAuburn Woods I Homeowners Association (HOA) and its property manager Frei Real Estate Services (FRES), tendered the defense of two lawsuits filed against them by a member of HOA under HOA’s condominium/association policy. HOA’s insurer, State Farm Insurance Company (State Farm), denied the tender for the first lawsuit, but accepted defense of the second lawsuit as to HOA only. HOA and Al Frei, individually and doing business as FRES, sued State Farm and its agent Frank Lewis for, among other things, breach of contract and breach of the implied covenant of good faith and fair dealing. The trial court entered judgment in favor of State Farm and Lewis after a bench trial. HOA and Frei appealed, contending: (1) the trial court erred in concluding that State Farm did not owe a duty to defend HOA and FRES against the first lawsuit; (2) HOA had a reasonable expectation that FRES would be covered under the directors and officers liability provision of its policy; (3) State Farm failed to reimburse HOA for post-tender expenses related to the second lawsuit; (4) Lewis breached his contract with HOA by failing to include FRES as an additional insured and failing to alert HOA and Frei that itwas not possible to include FRES under the directors and officers liability provision; (5) State Farm breached the covenant of good faith and fair dealing implied in HOA’s policy; and (6) the trial court erred in denying HOA and Frei’s motion to tax the expert witness fees State Farm and Lewis sought to recover under Code of Civil Procedure section 998. After review, the Court of Appeal concluded: (1) State Farm did not have a duty to defend HOA and FRES against the first lawsuit; (2) HOA and Frei failed to establish that FRES should have been deemed an insured under the directors and officers liability provision; (3) substantial evidence supported the trial court’s finding that HOA did not present State Farm with a clear statement of the amount of attorney’s fees and costs HOA incurred in defending against the second lawsuit; (4) HOA and Frei did not establish the alleged contract between Lewis and HOA; (5) HOA and Frei failed to demonstrate error with regard to their breach of implied covenant cause of action; and (6) State Farm and Lewis’s pretrial offer to compromise was effective to trigger cost shifting under section 998.
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