Case Name: Stanley Friedman, et al. v. Douglas Walter Petroskey, et al.
Case No.: 2014-1-CV-261360

I. Background

This is an action for breach of a construction contract brought by plaintiffs Stanley Friedman and Sylvia Ann Friedman (“Plaintiffs”) against defendants Douglas Walter Petroskey and Tanya M. Petroskey (doing business as D.P. Construction and Douglas Development, Inc.) (“the Petroskeys”) and American Contractors Indemnity Company (“ACIC”).

According to the allegations in the first amended complaint (“FAC”), Plaintiffs hired the Petroskeys to install hardwood flooring in their home. The Petroskeys were licensed contractors and posted a contractor’s license bond executed by ACIC with the Contractors State License Board. The Petroskeys improperly installed the hardwood flooring in their home because it buckled. The Petroskeys attempted to repair defects in some rooms where the hardwood flooring was installed, but eventually refused to continue working on the project. As a result of the Petroskeys’ poor workmanship, Plaintiffs had to completely remove the hardwood flooring and have new flooring installed. While Plaintiffs do not allege a claim for recovery against the bond was ever submitted to ACIC, they allege ACIC failed to investigate and process their purported claim.

Plaintiffs assert causes of action for: (1) breach of contract against the Petroskeys; (2) recovery of the contractor’s license bond against ACIC; and (3) bad faith against ACIC. Currently before the Court is ACIC’s motion for judgment on the pleadings as to the third cause of action.

II. Discussion

ACIC moves for judgment on the pleadings as to the third cause of action on the ground Plaintiffs failed to state a claim for bad faith based on the contractor’s license bond. (See Code Civ. Proc., § 438, subd. (c)(1)(B)(ii).) ACIC argues Plaintiffs’ cause of action is defective because a contractor’s license bond is not an insurance contract and does not give rise to a contractual relationship with Plaintiffs.

Plaintiffs’ third cause of action is presented like a cause of action for bad faith denial of insurance coverage. In the context of insurance contracts, there is an implied covenant of good faith and fair dealing. (Rappaport-Scott v. Interinsurance Exchange of Auto. Club (2007) 146 Cal.App.4th 831, 836-37.) The implied covenant requires an insurer to act in good faith with respect to its insureds and third parties making claims against its insureds. (Ibid.) When an insurer fails to do so, the insured may maintain a cause of action for bad faith against the insurer. (Ibid.)

Entering into a contract for insurance and posting a contractor’s license bond are distinct acts. A contractor must post a bond in the amount of $15,000.00 with the Contractors State License Board in order to maintain a contractor’s license in California. (Bus. & Prof. Code, § 7071.6, subd. (a).) A bond is not an insurance policy. (Cates Construction, Inc. v. Talbot Partners (“Cates”) (1999) 21 Cal.4th 28, 60.) “Nor is it a contract otherwise marked by elements of adhesion, public interest or fiduciary responsibility, such that an extracontractual remedy is necessitated in the interests of social policy.” (Ibid.) A plaintiff may not, therefore, recover in tort against a surety for bad faith based on a construction bond. (Id. at p. 61.)

Plaintiffs allege D.P. Construction was a licensed contractor and that ACIC “executed a Contractors license bond to Defendant Douglas Walter Petroskey dba D.P. Construction.” (FAC, ¶¶ 1, 4.) Plaintiffs do not otherwise allege they purchased an insurance policy from ACIC or any contract existed between them and ACIC. Plaintiffs therefore failed to allege an underlying insurance policy or contract upon which their bad faith claim could be based.

In opposition to the motion, Plaintiffs assert a contractor’s license bond is distinguishable from the construction bond at issue in Cates, but fail to articulate any material distinctions. None of the cases cited by Plaintiffs directly support this assertion. While Plaintiffs cite cases discussing the relationship between the bond surety and the contractor, none of the cases address the relationship between the bond surety and the party purchasing the contractor’s services. Plaintiffs do not explain and it is not otherwise apparent to the Court how these cases lend support for their position that a contractor’s license bond is distinguishable in any meaningful way from a construction bond such that they may assert a bad faith claim against ACIC. Plaintiffs therefore have not substantiated their position that a cause of action has been stated.

In conclusion, Plaintiffs failed to state a viable bad faith claim against ACIC because their claim may not be based on the contractor’s license bond.

ACIC asks the Court to deny Plaintiffs leave to file a second amended complaint. A court may deny leave to amend if the plaintiff cannot demonstrate any reasonable possibility of curing the defect in the pleading through amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) “If there is no liability as a matter of law, leave to amend should not be granted.” (Schonfeldt v. State of California (1998) 61 Cal.App.4th 1462, 1465, citing Baughman v. State of California (1995) 38 Cal.App.4th 182, 187.) Here, Plaintiffs’ cause of action is defective as a matter of law. Plaintiffs do not assert and the Court cannot see how they could cure this defect through amendment. The motion for judgment on the pleadings is therefore GRANTED WITHOUT LEAVE TO AMEND.