State Farm Fire & Casualty Company v. Encino Spa; Kenco v. State Farm
Published: Sep. 4, 2002 | Result Date: Mar. 13, 2002 | Filing Date: Jan. 1, 1900 |Case number: BC186771 Bench Decision – $0
Facts
This action concerned claims by Kenco Construction for direct payment from State Farm Fire & Casualty Co. for
work which Kenco performed at the Encino Spa condominium complex in 1995 and 1996. Encino Spa is a 89-
unit complex which was constructed in 1968. It was insured by State Farm at the time of the Northridge
earthquake.
The homeowners association retained the public adjusting firm of The Greenspan Co. to represent it on the
claim. Greenspan in turn retained Kenco Construction to assist in estimating the cost of repairing earthquake
damage.
Kenco prepared a 2,000 page estimate without compensation on the hope that it would eventually secure the
association's repair contract. The estimate was incomplete and inaccurate and rejected by State Farm.
Notwithstanding this rejection, Kenco and the association entered into a written contract to perform work
according to Kenco's estimate for the amount that State Farm paid on the claim.
In addition, Kenco entered into a side agreement with the association by which Kenco agreed to credit the
association for the amounts of Greenspan's public adjustment fees and the association's $1.4 million policy
deductible, as well as to provide the association with free code upgrades.
Shortly after Kenco commenced work on the project, Kenco reported that the stucco on all of the buildings was
too thin and could not be repaired.
State Farm agreed to pay the association for the cost to remove and replace all of the stucco.
After completion of the stucco removal, Kenco reported to State Farm that the contractor that performed the
demolition (which had been hired directly by the association) had caused extensive collateral damage to
undamaged walls, floors, cabinets, counters and other finishes. Both Kenco and State Farm agreed that the
damage caused during the stucco removal was extensive and required a new scope of work.
Kenco's action against State Farm was premised on agreements which it claimed were made with Kenco in
light of this collateral damage.
Kenco claimed that its agreement with State Farm was partially verbal, partially written and partially implied.
According to Kenco, when the collateral damage occurred, Kenco had already been funding the repair project
and was not being paid by the association.
When State Farm demanded to reinspect the complex to determine the new scope of work, Kenco claimed that
it threatened to pull off the job.
Kenco further claimed that to prevent Kenco from doing so, State Farm agreed that they would be paid for the
work they performed even though there was no agreement on the scope or costs of the repairs following the
removal of stucco.
State Farm denied that there was ever any agreement with Kenco concerning repairs and contended that Kenco
needed to generate additional work in order to offset the credits and free code upgrade work that Kenco had
provided to the association. State Farm denied that there was ever any threat by Kenco to pull off the job, and
proved that its payments to the association greatly exceeded the amount that Kenco had invoiced the
association for the work that it had performed.
State Farm also demonstrated that at the time of the collateral damage, the association had paid all of Kenco's
invoices in a timely manner and that Kenco was not "funding" the repairs.
State Farm pointed out that at all times, Kenco was known to be the association's contractor of record, and was
working as an agent for the association in negotiating with State Farm on the amount it would pay on the
claim.
These "negotiations" were not successful as Kenco's demands kept changing. When challenged for an
explanation, Kenco refused to provide backup documentation to support its position.**CONTINUED IN INJURIES SECTION . . . . . .
Settlement Discussions
The first mediation session before Justice John Zebrowski, Ret., was conducted on Oct. 25, 2000. A follow up session was conducted on April 10, 2001. Kenco's settlement demand was reduced from $750,000, to $225,000, with an indication that Kenco would not go much further. No offer has been made by State Farm
Damages
Kenco's damages were $1,078,452.01.
Injuries
**CONTINUATION FROM FACTS: Correspondence from State Farm also underscored that Kenco was working for the association. State Farm's letters pointed out that Kenco's code upgrade work was not covered under the policy. State Farm further denied that it ever assured Kenco it would be paid. All of Kenco's invoices were directed to the Association, and all of State Farm's payments were issued to the association. At no time did Kenco write to either the association or State Farm to express its position that it was working for State Farm. Kenco conceded that there was never a scope of repairs that both it and State Farm agreed on. Kenco also conceded that it never provided State Farm with an estimate or scope which itemized the work that it was claiming to perform at the complex, and that it did not follow State Farm's scope in performing repair work. Negotiations between State Farm and Kenco as the association's representative never resulted in any agreement as to the value of the claim. Each time that State Farm increased the amount that it paid, the amount claimed by Kenco also increased. They were always approximately $2 million dollars apart, an amount that equaled the policy deductible and Greenspan's fees. Kenco never completed the repairs on the project. An agreement was eventually negotiated between State Farm and The Greenspan Co. on the association's behalf, concerning the value of the association's loss. After Kenco failed to staff the project, the association terminated Kenco. The repairs were then completed by another contractor for the amount paid by State Farm. After Kenco's termination, it filed suit against the Association for breach of contract. The association tendered its defense to State Farm under its insurance policy. State Farm provided a defense under reservation of rights, and filed a declaratory relief action against the association and Kenco, regarding its duty to defend against Kenco's contract claims. Kenco cross-complained against State Farm almost two years after it was fired from the project, claiming for the first time that it had an agreement with State Farm. After State Farm received summary judgment in its favor on the declaratory relief action, the association and Kenco settled their differences. Kenco's cross-complaint against State Farm for breach of contract and quantum meruit proceeded to trial. Following the presentation of Kenco's case, State Farm moved for nonsuit and judgment was granted.
Result
Nonsuit granted. State Farm was awarded costs in the amount of $73,780.69.
Other Information
Court granted nonsuit in favor of State Farm and against Cross-complainant Kenco Contruction. State Farm was subsequently awarded costs in the amount of $73,780.69.
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