Insurance Using Unqualified Contractors In Restoration of Property Damages Claim
In Murphy v. Allstate Ins. Co. (1978), 83 Cal. App. 3d at page 44, the plaintiffs brought an action against their insurance company for fraud, conspiracy to defraud, bad faith and intentional infliction of emotional distress. They claimed the insurer had wrongfully withheld payments for their fire loss, and caused additional damage to their home by using unqualified contractors to repair the property.
The complaint alleged that these unqualified contractors:
(1) failed to cover the plaintiff's roof so that the home and contents were further damaged by the elements;
(2) performed the reconstruction so poorly that others had to be employed to correct the work;
(3) returned carpeting from the home in damp, moldy and insect-infested condition;
(4) failed to return various items of personal property and home furnishings, or returned them to the home in worse condition. ( Id. at p. 42, fn. 1.)
Division Two of the Fourth District Court of Appeal concluded these claims were not barred by the policy's one-year statute of limitations because they did not constitute an action on the insurance policy. (Murphy, supra, 83 Cal. App. 3d at p. 46.)
The Murphy court explained, "For the most part, the conduct complained of is alleged wrongful conduct of [the insurer] with respect to the repair and restoration of the damaged property and the employment of persons to do that work and the allegedly unjustified initiation and prosecution by [the insurer] of the interpleader action with its attendant delay of several years in payment to plaintiffs of even those moneys admittedly owing under the appraisal award.
The damages sought are not for any loss covered by the insurance policy but for damage to plaintiffs' home and personal property resulting from the untimely and unworkmanlike efforts of the persons and firms [the insurer] either employed or caused plaintiffs to employ, for the expenses incurred by plaintiffs in connection with the interpleader action and the suit by [one of the contractors] against plaintiffs allegedly resulting from [the insurer's] failure to make prompt payment, and for plaintiffs' emotional distress resulting from all of the foregoing." (Ibid.)
With regard to the plaintiff's tort claims based on breach of the duty of good faith and fair dealing, the Murphy court rejected the insurer's contention that because the duty arises from the insurance contract, such claims necessarily constituted an action on the policy. (Murphy, supra, 83 Cal. App. 3d at pp. 48-49.)
It opined that the insurer's tort duty to act fairly and in good faith "is not strictly a contractual obligation" such as the requirements "mandated by the terms of the policy itself--to defend, settle, or pay." (Ibid.)
Instead, it is a separate and distinct obligation "imposed by law which governs a party to a contract in discharging its contractual responsibilities." (Id. at p. 48.)
The Murphy court explained, "there is a significant difference between 'arising out of the contractual relationship' and 'on the policy.'
In a broad sense, all of plaintiffs' alleged causes of action may be said to 'arise out of the contractual relationship' but as we have seen, they are not actions 'on the policy.'
Much of the conduct complained of in the third and fourth causes of action occurred long after the fire loss and related to the repair and restoration of plaintiffs' home and personal property and the employment of persons and firms to do that work, the institution and prosecution of the interpleader action.