Highlights

• Cummins & White, LLP effectively represented Wellington Foods, Inc. in a purchase transaction that included a building, manufacturing equipment, and permits.
• Cummins & White also worked with the Western Municipal Water District of Riverside County for assignment of important industrial wastewater rights.
• Additionally, the firm obtained reimbursements of up to $30,000 for flood damages sustained just 10 days prior to closing.
• By quickly and efficiently handling all facets of the purchase, counsel skillfully diminished the buyer’s transactional risks and successfully closed escrow by the goal date, qualifying the client for a buyer’s credit of $150,000.

Attorneys

• Fred M. Whitaker
• Lynn Lee

Case Study

Fred Whitaker and Lynn Lee of Cummins & White, LLP guided Wellington Foods, Inc. in the successful purchase of a commercial building, manufacturing equipment, permits, and industrial wastewater rights from a worldwide conglomerate, Unilever Supply Chain, Inc.  This work also included handling fallout from a flood at the property just 10 days prior to the close of escrow.  The attorneys quickly negotiated with the Seller to obtain reimbursement for flood damage repair without impacting the schedule.  In the end, the attorneys skillfully executed and closed the $6.75 million transaction in less than three months, thereby qualifying the client for a buyer’s credit of $150,000.

Background

Wellington Foods, Inc. a custom contract formulator, manufacturer, and packager of nutritional supplements based in Long Beach, CA was interested in purchasing a new manufacturing plant in Corona, CA from Unilever Supply Chain, Inc. a worldwide conglomerate.

The $6.75 million purchase also included the manufacturing equipment inside the building, the company’s permits, and Santa Ana Regional Interceptor (SARI) industrial wastewater discharge rights.  These discharge rights were important for Wellington Foods because the SARI line provides industrial users in the Santa Ana River watershed with an environmentally friendly and convenient way to dispose of high saline waste.  This helps industry meet discharge requirements and keeps added salts out of the municipal sewer systems and out of the watershed.

Legal Strategy

Fred Whitaker and Lynn Lee of Cummins & White, LLP, handled all aspects of the transaction for Wellington Foods, Inc., ensuring that the sale closed as planned within three months.

As part of the transaction, the attorneys:

• Formed a new LLC for the purpose of holding the real property for Wellington Foods.
• Negotiated an agreement indemnifying the Seller from any issue connected to the property excluding pre-closing incidents of personal injury or related damages.
• Worked both with the Seller and the Western Municipal Water District of Riverside County for the assignment of the industrial wastewater rights to Wellington Foods—critical to ensure uninterrupted manufacturing capabilities.

In addition, Mr. Whitaker and Ms. Lee worked on behalf of Wellington Foods when a flood occurred at the subject property just 10 days prior to closing.  Utilizing estimates obtained by their client, the attorneys negotiated with the Seller for reimbursement for costs of clean up, repairs, and potential municipal fines up to $30,000—all without delaying the final close of escrow.

Result/Implication

Based on their expertise in real estate transactions, the attorneys at Cummins & White quickly and effectively handled the purchase of a commercial property, including the building, manufacturing equipment, permits, and wastewater discharge rights, as well as reimbursement for damages and clean up costs associated with a flood at the subject property.  Importantly, they also minimized the client’s contractual risks and assisted Wellington Foods in reaching its goal of completing the sale by December 31, 2009.  By successfully closing escrow by the end of 2009, the client received a credit of $150,000 against the purchase price.

“I was very pleased with the counsel and guidance that Cummins & White provided during this process,” said Tony Harnack, President for Wellington Foods.  “This real estate transaction was fairly complicated, involving land and building, personal property, and municipal wastewater discharge rights.  The negotiations were time-sensitive and detailed.  The team at Cummins & White made themselves available to accommodate the short time frame and consistently provided the experienced guidance that I needed to close this deal on time.  Their professionalism and attention to detail were a great benefit throughout.  I have a great deal of confidence in this team and would recommend them for this type of commercial real estate transaction.”

Highlights

• Cummins & White, LLP, successfully represented a media manufacturing firm in an IRS audit, appeal, and court case involving the proper accrual of royalties paid for using patented technology in the duplication of DVDs and CDs.
• Cummins & White’s in-depth knowledge of IRS administrative and Tax Court procedures, as well as substantive rules regarding deductions by accrual basis taxpayers helped the Client avoid a $1 million tax bill.

• The firm also helped the Client avoid future exposure by filing a case in Tax Court.  As part of the proceedings, the IRS issued a final letter of determination, effectively exempting the Client from repeat audits of the same tax years.
• The two-year process involved sorting through a significant documentation—much of it in disarray—that accumulated when the Client acquired a similar firm that also paid royalties as part of technology license agreements.

Attorneys

• Thomas R. Lamons
• Robert J. Lamm

Case Study

Cummins & White, LLP, worked with a manufacturer of DVDs and CDs in an Internal Revenue Service audit, appeal, and court case.  The company utilized proprietary technology and paid layered royalties to patent holders.  During the tax years in question, the company merged with a similar manufacturing firm, requiring that royalties be calculated for both entities and creating a complex tax situation.  Because of the merger transaction, the company’s books were in disarray, making it difficult to prove its business expenses.  Following its audit, the IRS claimed that the company had improperly accrued royalty obligations and other deductions.  In response, attorneys for Cummins & White filed a Tax Court proceeding and then sought to negotiate a resolution with the IRS Appeals Office.  The attorneys collected critical documentation to prove the company’s business expenses and then presented a persuasive case before the IRS Appeals Office.  The IRS accepted most evidence and agreed that the company did not owe additional income tax, saving the Client more than $1 million in proposed income tax deficiencies.  Moreover, the Tax Court case was designed to discourage the IRS from raising additional issues and prevent it from opening future audits of the same tax years.

Background

The Client, a manufacturer of DVDs and CDs, licenses technologies used in the duplication process and pays royalties to the patent holders.  As per its license agreements, the company pays a fixed price for each disc manufactured and sold and layers royalties to several companies.  These royalties are routinely deducted on its yearly federal income tax return.  In 2005, the company merged with a similar manufacturing firm, complicating the royalty payment process because royalties had to be calculated for both groups.  Because of the merger, the company’s books for this period were in disarray.

Subsequently, the Internal Revenue Service audited the company, examining income tax returns for 2005 (the year it entered the merger agreement) and 2006.  The IRS proposed significant changes, claiming that the company did not properly accrue royalty obligations.  Specifically, the IRS requested a reduction in accruals (deductions) by several million dollars, stating that the company did not show sufficient evidence of how much royalty it owed.  The IRS also disallowed other expense deductions for lack of proof.  The IRS income tax audit was further complicated by a simultaneous sales tax audit conducted by the State of California.

Legal Strategy

The company retained Thomas Lamons and Robert Lamm of Cummins & White, LLP, toward the end of the audit when it became clear that it needed help organizing information.  The attorneys deployed a multi-pronged approach.  First, they filed a Tax Court case on behalf of the company to discourage the IRS from raising additional issues.  This was critical as the notice of deficiency issued by the IRS raised a new subject of concern—whether the company had sufficient basis to claim the losses reported.  Second, Mr. Lamons and Mr. Lamm waded through significant documentation in order to prove that the company did in fact have basis and that it borrowed money (loans), which increased that basis.  Finally, because the IRS had made its recommendations based on only one technology contract, the attorneys reviewed all royalty contracts with the goal of demonstrating that four, rather than one company, received royalty payments.

Result/Implication

Based on their expertise in federal tax return audits and the appeal process, Cummins & White presented a detailed and persuasive case to the IRS Appeals Office.  The detailed case included:

• Proving that the company had basis.
• Demonstrating that because the company had four royalty contracts in place and had paid royalties to all patent holders, it has accurately accrued royalty obligations.
• Presenting documentation supporting additional liabilities for deductions.

After a two-year process, Mr. Lamons and Mr. Lamm negotiated a settlement with the IRS Appeals Office, as a result of which the IRS agreed that the Client did not owe any income tax deficiencies, saving the Client more than $1 million.

In addition, the strategic decision to file a Tax Court case to discourage the IRS from raising further issues was equally as important.  Normally in an audit, the taxpayer must prove that the IRS is wrong.  By filing a Tax Court case, the attorneys shifted the burden of proof to the IRS for any new issues raised after the audit concluded and exempting the Client from repeat audits of the same tax years.

Highlights

• Cummins & White, LLP, successfully represented a manufacturer of DVDs and CDs in a California State Board of Equalization sales tax audit and Appeals Conference involving the acquisition of manufacturing equipment as part of a complex merger transaction with an out-of-state company. 
• Cummins & White’s in-depth knowledge of Board of Equalization procedures and sales and use tax regulations, including occasional sales rules, saved the Client $1.1 million in sales tax. 
• The firm also helped the Client successfully claim that certain products it purchased (e.g., mercury) were incorporated into the finished products and therefore not subject to sales or use tax. 
• At the same time, Cummins & White worked with the Client to successfully resolve a separate federal income tax audit, appeal, and Tax Court case that also had potential negative financial implications for the Client. 

Attorneys

• Thomas R. Lamons
• Robert J. Lamm

Case Study

Cummins & White, LLP, worked with a manufacturer of DVDs and CDs, on a California State Board of Equalization sales tax audit.  The tax board was reviewing the company’s sales tax returns for 2005 and 2006 during which the company was involved in a complex merger transaction and acquired substantial valuable equipment.  The tax board claimed that the company had “purchased” the equipment valued at approximately $11 million and subsequently owed $1.2 million in sales tax.  Attorneys for Cummins & White worked for two years with the Client’s in-house accounting department organizing documentation and successfully showed that the equipment had been acquired through a merger transaction and was not subject to sales or use tax.  At the end of the proceedings, the Client’s sales tax bill was reduced from $1.2 million to $130,000. 

Background

Our client manufactures DVDs and CDs on behalf of publication companies that market them for sale or rental.  In 2005 and 2006, the company was involved in a complex merger transaction that included the acquisition of valuable manufacturing equipment from an out-of-state company. 

 Subsequently, the California State Board of Equalization (SBE) audited the Client’s sales tax returns for 2005 and 2006 and issued a preliminary audit report, ruling that the Client had, in fact, “purchased” $11 million worth of equipment from an out-of-state vendors and was required to pay the state use tax on 100 percent of the purchase price.  (The SBE assumed that the asset purchases did not qualify for a partial use tax exemption.)  The tax bill totaled more than $1.2 million.  The Client’s ability to deal with the SBE sales tax audit was further complicated by a simultaneous federal income tax audit. 

Legal Strategy

The company retained Thomas Lamons and Robert Lamm of Cummins & White, LLP, to assist its accountant in responding to the sales tax audit.  The attorneys worked closely with the Client’s in-house accounting department to review and organize financial records that were in disarray.  Their strategy was to present a case that:

• Unequivocally demonstrated that the equipment in question was acquired as part of a complex merger transaction and so was not subject to use tax. 
• Convinced the SBE that other items purchased out of state, such as mercury, were incorporated into Client’s final product, and therefore not subject to sales or use tax (because the end products are sold to wholesale customers). 
• Established that certain manufacturing equipment purchased by the client from foreign sellers qualified for an industry-based partial sales tax exemption, further reducing the Client’s sales tax obligation. 

Result / Implication

After a two-year process, Mr. Lamons and Mr. Lamm presented a detailed and persuasive case to the auditors working for the tax board.  Based on their expertise with the California State Board of Equalization procedures, sales and use tax regulations, and knowledge about consumable goods, the attorneys negotiated a favorable decision for the Client, with the proposed sales tax deficiency liability dropping from $1.2 million to $130,000. 

Highlights

• Cummins & White’s expertise in criminal defense helped with the successful representation of a young man charged with three counts of felony assault with intent to commit great bodily injury after his girlfriend falsely accused him of breaking her nose.  The young man faced a maximum penalty of up to seven years in state prison.
• Thorough investigation into the alleged victim’s allegations revealed considerable discrepancies in the various accounts she told the police, hospital staff, and at trial.
• Presentation at trial of illicit photographs the alleged victim had taken of herself, as well as letters she had written helped document her obsessive, controlling, and bizarre conduct.
• Mr. Spagnola’s thorough research and skillful cross examination during trial exposed the alleged victim’s spiteful nature and proved that her accusations were triggered by the young man’s attempt to terminate their relationship.  The jury found the young man not guilty of all charges.

Attorney

• Charles Spagnola
  

Case Study

Charles Spagnola of Cummins & White, LLP successfully defended a young man charged with three counts of felony assault after his girlfriend falsely reported to police that he punched her in the face and broke her nose after an argument.  The alleged victim also obtained a restraining order after telling police that the young man had abused her several times over the previous two years.  However, at trial Mr. Spagnola elicited key testimony from a nurse who stated that the former girlfriend denied abuse during a hospital intake interview, and from a restaurant worker who observed the couple soon after the alleged assault and did not notice an injury or anything unusual.  Mr. Spagnola’s skillful cross-examination showed that the alleged victim’s claims were provoked by the young man’s attempt to end their relationship and that the alleged punch to the face was accidental.  The jury found the young man not guilty of all charges.

Background

A 20-year-old man was charged with domestic violence after his girlfriend accused him of punching her in the face and breaking her nose.  Their two-year relationship was chaotic, with the couple repeatedly breaking up and then reconciling due to the alleged victim’s frequent indiscretions and infidelity, followed by dozens of her handwritten letters of apology and erratic and sometimes violent behavior.

Less than a year after the couple began dating, the alleged victim became pregnant and miscarried.  This event caused a negative change in her behavior.  Soon after the miscarriage, the young man moved to another city, and the alleged victim became obsessive, controlling, and possessive of the young man.  She also started behaving promiscuously.

The couple still spent time together.  A few days before the incident, while playing a game on the alleged victim’s phone, the young man read a flirtatious text message from another man.  On the date of the incident, he confronted the alleged victim, attempted to end the relationship, and an argument ensued.  The next day, the alleged victim accused the young man of breaking her nose, telling police that he punched her in the face as they were driving in his car.  She then obtained a restraining order, claiming that the young man had beaten her five times over the previous two years.  The young man was formally charged with domestic violence, including:

• Felony assault with intent to commit great bodily injury [P.C. 245 (a)]
• Felony enhancement of causing great bodily injury

If convicted, the young man faced a maximum penalty of seven years in state prison.

Legal Strategy

Mr. Charles Spagnola of Cummins & White, LLP  was retained to represent the young man.  As part of his defense efforts, Mr. Spagnola thoroughly investigated the validity of the claims against his client, discovering substantial inconsistencies among the different accounts the former girlfriend told to the police, hospital staff, and at trial.  This research included monitoring her Twitter page and other social networking sites on which were found posts about her actions that she later denied in court.

At trial, Mr. Spagnola also presented a series of illicit photographs the alleged victim had taken of herself the night of the incident after engaging in sexual relations with the client and after the alleged assault had occurred, as well as a tattoo attesting to her obsession with the client.  Together, this evidence clearly documented her obsessive, controlling, and promiscuous conduct.  Mr. Spagnola also interviewed witnesses familiar with the former girlfriend.  Their testimony further supported claims of her consistent and frequently vindictive and outlandish behaviors directed toward the Defendant.

Result/Implication

Mr. Spagnola’s presentation of detailed evidence and skillful questioning of witnesses during trial convinced the jury that the Defendant had been falsely accused and that the alleged victim’s accusations were in retaliation for the Defendant’s efforts to terminate their relationship.  After a 6-day trial, Mr. Spagnola’s client was acquitted of all charges.

In this employment case filed in Orange County Superior Court, the Plaintiff claimed that she was sexually harassed and constructively discharged from her position with Hospital Foundation (Client) because of a hostile work environment. Karen Taillon successfully stayed the Superior Court action and enforced the Employee Handbook requirement for binding arbitration. We prevailed in arbitration on all of the claims and obtained an award for costs in excess of $20,000 which the Plaintiff paid in full after we instituted collection proceedings. This case was filed on the heels of another similar case which Hospital and Hospital Foundation settled. The benefit to the hospital and the Hospital Foundation of our handling of this matter was that it effectively put a stop to these types of frivolous sexual harassment claims being filed against the Hospital and Hospital Foundation.

DEFENSE OF CONSTRUCTIVE DISCHARGE/AGE DISCRIMINATION CLAIMS

In this employment case filed in Orange County Superior Court, the Plaintiff claimed that she was demoted and constructively discharged from a position in the Hospital’s employee health department and discriminated against because of her age. Karen Taillon stayed the Superior Court action, enforced the Employee Handbook requirement for arbitration, and prevailed on all claims. In post-arbitration proceedings, we obtained an award of costs of approximately $7500 and entered judgment in the Superior Court. The benefit to the client was that it was able to preserve the “at will” nature of its employment relationships, confirm the enforceability of the binding arbitration provisions of the Employee Handbook, and confirm through the Arbitrator’s findings that Hospital was an equal opportunity employer.

Four Adventist Health/West hospitals sued Kaiser Permanente, Kaiser Foundation Health Plan, and Multiplan Inc. for damages resulting from the way in which Kaiser adjudicated and paid claims for Kaiser senior enrollees receiving services at these Hospitals through the Multiplan network of providers. After extensive discovery and multi-part mediation, the Karen Taillon successfully settled the case on behalf of all hospitals by confidential agreement with Kaiser, and subsequently with Multiplan.

HOSPITAL/PHYSICIAN RISK POOL LITIGATION

Hospital sued PacifiCare (Plan/payor) and Monarch Health Care (medical group) primarily seeking a declaration from the court that the Hospital’s managed care contracts had not been amended to limit the medical group’s obligation to pay deficits resulting from hospital commercial and Medicare risk pool agreements. The Hospital also sought damages for breach of those contracts. The case was filed in the Orange County Superior Court as a Complex Case. In litigation, we obtained a summary adjudication in the Hospital’s favor determining that an undertaking entered into between the PacifiCare (relating to its acquisition of FHP) and the California Department of Managed Healthcare (formerly the DOC) did not automatically amend the “Risk Pool” agreements. Consequently, the case was successfully settled through confidential mediation immediately prior to trial, resulting in a multi-million dollar payment to South Coast.

INSURER/TPA’S REFUSAL TO PAY CLAIMS

AMN was an employer whose employees accessed inpatient services of the Hospital through a self-insured plan administered by Great West Health Plan which held a contract with the Hospital. When AMN retroactively terminated an employee who had received hundreds of thousands of dollars in care, Great West stopped payment on funds paid to the Hospital for those services. We filed an action against the Plan, the employer, and the employee. At the defendants’ request, we stayed the action pending negotiations and were able to satisfactorily resolve the case within a few short months with payment to the Hospital through confidential settlement agreement.

HOSPITAL’S CLAIMS FOR UNDERPAYMENT ON HOSPITAL SERVICE CONTRACT

Our client (managed care contracting are of Hospital System) sued to collect underpayments for hospital services rendered to Medi-Cal/Health Families enrollees under a Hospital Services Agreement with payor Molina Healthcare of California, a Knox Keene Plan. Molina disputed that the contract with Sharp Health Systems for the Medi-Cal lives had been assigned to Molina during the sale of Sharp’s business, and disputed that a 2004 rate schedule amendment applied. With limited discovery, the matter was heard in binding arbitration, and resulted in a final award to Client finding that the contract was assigned, the 2004 amendment applied, and awarding Client damages plus costs of arbitration. The award was entered as a judgment and has been paid.

PHYSICIAN’S BREACH OF CONTRACT

A staff physician contracted with Hospital to provide physician services at Hospital’s facilities. Part of the agreement required the physician to pay Hospital a monthly rate for using Hospital’s facilities when the technical portion of the cost of the services was not reimbursable (generally from commercial payors). After several issues with the physician arose, the physician’s agreement was terminated by Hospital and when the physician refused to pay the remaining contractual facility fees, we took the matter to binding arbitration and obtained an award for the full amount due, including interest, which has been paid in full.

140 Cal.Rptr. 143
ROBERT QUEVEDO et al., Plaintiffs and Appellants,
v.
EMILY D. BRAGA, Defendant and Respondent
SUMMARY
In an action by a tenant against his landlord for breach of implied warranty of habitability of the premises, the trial court dismissed following the sustaining of a demurrer to the complaint without leave to amend. The complaint alleged that plaintiffs had occupied an apartment for about 11 months, that defendant knowingly neglected and failed to maintain the premises in a habitable condition, that the failure and refusal of defendant to repair the premises constituted a breach of the implied warranty of habitability, that due to such conditions plaintiffs were unable to remain and that the condition of the premises reduced the fair rental value to half of the agreed rental payment. Plaintiffs’ complaint stated two causes of action, the first of which sought retroactive rent abatement for the alleged overpayment of rent, and the second of which sought damages for discomfort and annoyance. The trial court determined that a breach of the implied warranty of habitability could only be raised as a defense in an unlawful detainer action and could not be relied upon to establish a cause of action against a landlord. (Municipal Court for the Alhambra Judicial District of Los Angeles County, No. 034256, John R. Stanton, Jr., Judge.)
The appellate department of the superior court affirmed the order of dismissal as to the second cause of action, but reversed as to the first cause of action for retroactive rent abatement and directed the municipal court to allow defendant a reasonable period of time to answer the first cause of action. The court held that the doctrine of implied warranty, which already applied to contractual relationships created by the lease of a dwelling, would support an independent cause of action for damages. *2 The court further held that a cause of action for breach of an implied warranty of habitability should allege facts which show that a materially defective condition existed which affected habitability, that the defective condition was unknown to the tenant at the time of occupancy, that the effect on habitability of the defective condition was not apparent upon a reasonable inspection, that notice was given to the landlord within a reasonable time after the tenant discovered or should have discovered the breach of warranty, and that the landlord was given a reasonable time to correct the defect while the tenant remained in possession. The court further held that damages for a breach of implied warranty of habitability should be limited to a refund of an amount which reflects the difference between the rent paid during the duration of the unfit condition and the rent which would have been reasonable, taking into account the extent to which the rental value of the property was reduced by virtue of the existence of the defect. (Opinion by Alarcon, J., with Cole, P. J., and Wenke, J., concurring.)
HEADNOTES
Classified to California Digest of Official Reports
(1a, 1b) Landlord and Tenant § 148–Remedies of Tenant–Rights of Action–Retroactive Rent Abatement Action Based on Breach of Implied Warranty of Habitability. 
The doctrine of implied warranty will support an independent cause of action by a tenant against his landlord for damages for breach of the implied warranty of habitability. Thus, in an action by a tenant against his landlord for damages for alleged overpayment of rent, the trial court erred in dismissing after sustaining the landlord’s demurrer to the complaint without leave to amend, where the complaint alleged that the landlord failed to maintain the premises in a habitable condition, that the landlord knew of the existence of such conditions and failed to repair them despite the tenant’s repeated requests, that the landlord’s failure to repair the premises constituted a breach of the implied warranty of habitability, and that the condition of the premises reduced the fair rental value of the property to half of the agreed rental price during the period in which the tenants occupied the premises.
[See Cal.Jur.2d, Landlord and Tenant, § 314; Am.Jur.2d, Landlord and Tenant, § 841.] *3 
(2) Landlord and Tenant § 150–Remedies of Tenant–Pleadings–In Cause of Action for Breach of Implied Warranty of Habitability. 
A cause of action by a tenant against a landlord for breach of an implied warranty of habitability should allege facts which show that a materially defective condition existed affecting habitability, that the defective condition was unknown to the tenant at the time of occupancy, that the effect on habitability of the defective condition was not apparent upon a reasonable inspection, that notice was given to the landlord within a reasonable time after the tenant discovered or should have discovered the breach of warranty, and that the landlord was given a reasonable time to correct the defect while the defendant remained in possession.
(3) Landlord and Tenant § 153–Remedies of Tenant–Damages–In Action for Breach of Implied Warranty of Habitability. 
Damages awarded to a tenant for breach of an implied warranty of habitability by the landlord should be limited to a refund of an amount which reflects the difference between the rent paid during the duration of the unfit condition and the rent which would have been reasonable, taking into account the extent to which the rental value of the property was reduced by virtue of the existence of the defect.
(4) Judgments § 69–Res Judicata–Identity of Issues. 
Neither the principle of res judicata nor collateral estoppel would lie to defeat the tenants’ claim in their action against the landlord for retroactive rent abatement based on breach of an implied warranty of habitability, despite the fact a judgment in a small claims court action seeking money for back rent and property damage had been awarded to the landlord, where none of the records pertinent to the small claims action disclosed whether the judgment was for rent alone, for property damages alone, or for a combination of the two.
(5) Landlord and Tenant § 148–Remedies of Tenant–Rights of Action– Damages for Discomfort and Annoyance Due to Breach of Implied Warranty of Habitability. 
A tenant may not recover damages for discomfort and annoyance in an action for breach by the landlord of an implied warranty of habitability. An action that constitutes a breach of a contract may also be tortious. Thus, the complaint of the tenants of an apartment did not make allegations sufficient to state a cause of action against the landlord for damages for discomfort and annoyance due to the landlord’s breach of an *4 implied warranty of habitability, where the tenants’ action did not sound in tort, but rather was simply based on breach of the contract.
COUNSEL
Benjamin Aranda III for Plaintiffs and Appellants.
Cummins, White & Breidenbach and James R. Robie for Defendant and Respondent.
ALARCON, J.
The plaintiffs have appealed from an order of dismissal following an order of the trial court sustaining a demurrer to the complaint without leave to amend.
The Pleading
The plaintiffs alleged in their complaint for “retroactive rent abatement” that on or about April 18, 1974, they leased a residence from the defendant by written agreement on a month-to-month basis for a rental payment of $160 per month. The complaint states that in leasing the premises the defendant impliedly warranted that the premises were habitable and fit for residential use and that the plaintiffs relied upon such warranty. Pursuant to the lease agreement plaintiffs took possession of the premises on or about April 22, 1974, and remained in occupancy until on or about March 31, 1975. The complaint further alleges that commencing “at the time the lease was entered into and throughout the time plaintiffs occupied the apartment, defendant knowingly neglected and failed to maintain said premises in a habitable condition, to wit, said premises were infested with various vermin, including but not limited to cockroaches, and certain plumbing facilities were not in proper working condition, including but not limited to the bathroom facilities.”
The pleading alleges that the defendant knew of the existence of such conditions in violation of state and local housing codes and failed to remedy or repair them despite the plaintiffs’ repeated requests. As a result of these conditions the premises were unsafe, unhealthy and *5 substantially uninhabitable. It is further alleged that the failure and refusal of the defendant to repair the premises constituted a breach of the implied warranty of habitability. Because of the continued existence of these conditions plaintiffs were unable to remain in the premises. Plaintiffs moved out on March 31, 1975. Plaintiffs alleged that the condition of the premises reduced the fair rental value to “eighty dollars ($80.00), if anything, a month.”
Based on these allegations, plaintiffs prayed for damages for the alleged overpayment of rent in the amount of $910. A second cause of action is set forth in the complaint which incorporates the foregoing allegation and prays for damages for discomfort and annoyance in the amount of $3,000.
The trial court sustained the demurrer to each cause of action and filed a memorandum setting forth its reasons. In essence, the trial court determined that a breach of the implied warranty of habitability may only be raised as a defense in an unlawful detainer action and cannot be relied upon to establish a cause of action against a landlord.
Issue on Appeal
(1a) Appellants contend that a breach of implied warranty of habitability gives rise to an affirmative cause of action for damages including retroactive rent abatement. Respondent landlord argues that as a matter of public policy a tenant should be required to seek his remedy for a breach of implied warranty while he is a tenant.
Discussion
In the case of Hinson v. Delis (1972) 26 Cal.App.3d 62 [102 Cal.Rptr. 661] the court held that a warrant of habitability is implied by law in residential leases. In Hinson the tenant withheld the payment of rent until the landlord finally heeded his complaints and repaired a number of defects in the premises. The landlord brought an unlawful detainer action to recover the amount of rental payments which were withheld. The tenant filed an action for declaratory relief to determine whether a tenant is obligated to pay full rent where the landlord has failed to comply with the housing codes. The trial court in Hinson held that although the evidence showed the presence of substantial defects in the premises a “tenant had no legal or equitable right to unilaterally withhold rent” (26 Cal.App.3d at p. 66). The Court of Appeal held that *6 the tenant, while not absolved from all liability for the payment of rent, was required to pay only the reasonable rental value of the premises for such time as the defective condition persisted (26 Cal.App.3d at p. 70).
In Green v. Superior Court (1974) 10 Cal.3d 616 [111 Cal.Rptr. 704, 517 P.2d 1168], the California Supreme Court approved of the decision in the Hinson case and held that breach of the implied warranty of habitability could be raised as a defense in an unlawful detainer action.
There is no published opinion of any California appellate court concerning the question of whether a tenant may bring an action for damages for rent paid while he was in possession of defective residential premises. [FN1] There is, however, case authority for the maintenance of a cause of action by a tenant for a breach of the implied warranty of habitability in other jurisdictions. In fact, the California Supreme Court refers us to some of these decisions in footnote 1 of theFN1 Candor requires us to disclose that we are aware that this issue was presented to Division Three of the Court of Appeal for the Second District in 1972. For reasons not apparent to us the opinion was not published. The 
opinion is cited in Hluchan, Publish or Perish: The Destiny of Appellate Opinions in California, 13 Santa Clara Law. 756. Green case, (10 Cal.3d at p. 619).In Lemle v. Breeden (1969) 51 Hawaii 426 [462 P.2d 470, 40 A.L.R.3d 637], the Hawaiian Supreme Court affirmed a judgment awarding the plaintiff- tenant damages in an action brought to recover deposit and rent payment. The complaint sought recovery based on constructive eviction and breach of an implied warrant of habitability. The evidence showed that the tenant occupied the premises without knowledge that the premises were infested with rats. Upon discovery of the condition on the first evening on the day the tenant took possession, the landlord’s rental agent was notified. The tenant and the landlord’s agent were unsuccessful in their efforts to exterminate the rodents. On the third day after occupying the premises the tenant vacated the dwelling after notifying the agent of his intention to do so and demanded return of all the money previously paid.
The Hawaiian Supreme Court abandoned the common law principle that a lessee of land took possession subject to the doctrine of caveat emptor as to any condition which could have been discovered by inspection prior to occupancy. Instead, the court adopted the theory, borrowed from the law of sales of chattels, that in a lease of premises the landlord impliedly warrants suitability and fitness. *7 
Other states which have applied the doctrine of implied warranty to actions brought by tenants for the recovery of rent include Wisconsin (Pines v. Perssion (1961) 14 Wis.2d 590 [111 N.W.2d 409]); Massachusetts (McKenna v. Begin (1975) Mass. [325 N.E.2d 587]); Iowa (Mease v. Fox [(Iowa 1972) 200 N.W.2d 791]); New Jersey (Berzito v. Gambino (1973) 63 N.J. 460 [308 A.2d 17]); and New Hampshire (Kline v. Burns (1971) 111 N.H. 87 [276 A.2d 248]).
Respondent has urged this court to limit the doctrine of implied warranty of habitability to actions brought by tenants while in possession or who assert this remedy as a defense to an unlawful detainer action. He argues that the assertion of such a cause of action by a tenant after a prolonged delay presents problems of proof. Problems of proof are present in any case filed two years after the operative facts have occurred. However, if a complaint states a cause of action arising within the applicable statute of limitations, demurrer is an inapplicable remedy.
The effect of our opinion in this matter is to recognize that the doctrine of implied warranty already applied by our higher courts to the contractual relationship created by the lease of a dwelling will support an independent cause of action for damages. The relevant requirements for pleading and proof of a cause of action for breach of implied warranty of fitness and merchantability should be applied to a rental agreement with appropriate modifications. (See Pollard v. Saxe & Yolles Dev. Co. (1974) 12 Cal.3d 374, 377-378 [115 Cal.Rptr. 648, 525 P.2d 88].) (2) A cause of action for breach of an implied warranty of inhabitability should allege facts which show the following:
One. The existence of a materially defective condition affecting habitability. (See Hinson v. Delis, supra, 26 Cal.App.3d 62, 70.) [FN2]FN2 Some of the criteria for determining materiality were discussed in Hinson, supra, on page 70, where the court said: “In considering the materiality of an alleged breach, both the seriousness of the claimed defect and the length of time for which it persists are relevant factors. Minor housing code violations standing alone which do not affect habitability must be considered de minimis and will not entitle the tenant to reduction in rent; and likewise, the violation must be relevant and affect the tenant’s apartment or the common areas which he uses.”Two. The defective condition was unknown to the tenant at the time of occupancy. (See Pollard v. Saxe & Yolles Dev. Co., supra, 12 Cal.3d 374, 379.) *8 
Three. The effect on habitability of the defective condition was not apparent upon a reasonable inspection. (See Square Deal Mach. Co. v. Garrett Corp. (1954) 128 Cal.App.2d 286, 290-292 [275 P.2d 46, 52 A.L.R.2d 893].)
Four. Notice was given to the landlord within a reasonable time after the tenant discovered or should have discovered the breach of warranty. (See Pollard v. Saxe & Yolles Dev. Co., supra, 12 Cal.3d 374, 380.)
Five. The landlord was given a reasonable time to correct the defect while the defendant remained in possession. (See Pollard v. Saxe & Yolles Dev. Co., supra, 12 Cal.3d 374, 380; see also Hinson v. Delis (1972) 26 Cal.App.3d 62, 70 [102 Cal.Rptr. 661].)
(3) Damages for a breach of implied warranty of habitability should be limited to a refund of an amount which reflects the difference between the rent paid during the duration of the unfit condition and the rent which would have been reasonable, taking into account the extent to which the rental value of the property was reduced by virtue of the existence of the defect.
Res Judicata
(4) Respondent contends that on June 25, 1975, he filed suit in small claims court against the tenants, seeking $106.35 for rent from April 1 to April 13, 1975, plus property damage. The trial court took judicial notice of such lawsuit in the municipal court action below. Judgment in the small claims action was awarded to the landlord in the sum of $69.04 plus costs.
Respondent contends that the judgment for landlord in the small claims action necessarily resolved the issue of the reasonableness of the rental price and tenant’s liability therefor. However, California decisions are to the contrary.
The trial court, in the ruling on demurrer, correctly concluded:
“However, none of the Court’s records pertinent to such Small Claims action discloses whether said judgment was for rent alone, for property *9 damages alone, or for a combination of the two. Assuming that rental at the rate of $170.00 per month served as the basis for any rental calculation made by the Court and assuming further that no error was made in the computation, it is to be noted that the foregoing sum of $69.04 could not represent damages for rental alone.
“By reason of the foregoing the principal case falls within the perimeters of Stout v. Pearson (1940) 180 Cal.App. (2) 211, and neither the principle of res judicata nor collateral estoppel will lie to defeat plaintiffs’ claim.” (See also Thompson v. Quan (1959) 167 Cal.App.2d Supp. 825 [334 P.2d 1074]; Sanderson v. Niemann (1941) 17 Cal.2d 563 [110 P.2d 1025].)
Second Cause of Action for Discomfort and Annoyance
(5) Plaintiffs allege in the second cause of action of their complaint that by reason of the breach of implied warranty of habitability, they suffered discomfort and annoyance, to their detriment in the amount of $3,000.
In support of this cause of action, appellants cite cases allowing recovery for discomfort and annoyance suffered by occupants of land, regardless of whether they also suffered physical injury. However, those cases involve actions sounding in tort, for trespass or nuisance. No authority has been cited to us, and we know of none, allowing such recovery in an action for breach of an implied warranty in a contract.
While it is true that “[a]n act that constitutes a breach of contract may also be tortious …” (Acadia, California, Ltd. v. Herbert (1960) 54 Cal.2d 328, 336 [5 Cal.Rptr. 686, 353 P.2d 294]), the plaintiffs here did not bring an action sounding in tort, but sued rather for breach of contract.
Therefore, the order sustaining the demurrer as to this cause of action was proper.
Conclusion
The order of dismissal is affirmed as to the second cause of action of plaintiffs’ complaint. *10 
(1b) The order is reversed with respect to plaintiffs’ first cause of action for retroactive rent abatement, and the court is directed to allow defendant a reasonable period of time to answer the first cause of action.
Appellants to recover costs on appeal.
Cole, P. J., and Wenke, J., concurred. *11 
Cal.Super.App.,1977.
Quevedo v. Braga
END OF DOCUMENT
Copr. (C) Bancroft-Whitney and West Group 1998

268 Cal.Rptr. 559
ERNEST MARSHALL et al., Plaintiffs and Appellants,
v.
DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES, Defendant and
Appellant
SUMMARY
Several property owners and insurers filed suits against a city department of water and power alleging that a fire that damaged the property owners’ property was caused by the department’s downed power lines. With the exception of the inverse condemnation cause of action, the matter was tried to a jury, which found for the department and against plaintiffs. The trial court found for plaintiffs on the inverse condemnation cause of action. A second jury was empaneled to determine the amount of damages to be awarded to plaintiffs, and the trial court awarded varying amounts of attorney fees. (Superior Court of Los Angeles County, No. NWC 89152, Diane Wayne, Judge.)
The Court of Appeal affirmed, except that it remanded the matter as to two plaintiffs so that the trial court could reconsider its award of attorney fees. The court held that the trial court did not err in denying the department’s request for a jury trial on the issue of causation on plaintiffs’ inverse condemnation cause of action, even though the issue was a purely factual one. The court also held that substantial evidence supported the trial court’s finding that the downed power lines caused the fire. The trial court did not err in discharging the original jury and empaneling a new jury to decide on compensation. Further, the jury was free to disbelieve evidence presented by one plaintiff that he suffered losses totaling $549,700 and award him instead compensation of only $1 (which by means of additur was increased to $100,001), and disbelieve the evidence of two other plaintiffs that their losses were $168,299 and award them only $1, even though the department of water and power presented no countervaluation evidence. The trial court, in awarding attorney fees on a percentage basis to plaintiffs, did not abuse its discretion in refusing to include prejudgment interest in the calculation of the fee award. Finally, the court held, the trial court abused its discretion by applying a uniform standard to all plaintiffs’ requests for attorney fees as to their cause of action for inverse condemnation and disregarding the *1125 actual dollar impact on the individual plaintiffs. (Opinion by Goertzen, J., with Woods (A. M.), P. J., and George, J., concurring.)
HEADNOTES
Classified to California Digest of Official Reports
(1) Eminent Domain § 132–Remedies of Owner–Inverse Condemnation–Nature and Basis of Action. 
An action for inverse condemnation is an eminent domain proceeding initiated by the property owner rather than the condemner. The principles that affect the parties’ rights to an inverse condemnation suit are the same as those in an eminent domain action. The authority for prosecution of an inverse condemnation proceeding derives from the just compensation guaranty of Cal. Const., art. I, § 19. Under that section, a public entity may be liable in an inverse condemnation action for any physical injury to real property proximately caused by a public improvement as deliberately designed and constructed, whether or not that injury was foreseeable, and in the absence of fault by the public entity. Inverse condemnation applies to personal as well as real property.
[See Am.Jur.2d, Eminent Domain, § 478.]
(2) Eminent Domain § 132–Remedies of Owner–Inverse Condemnation–Nature and Basis of Action–”Taking.” 
The primary question in an inverse condemnation action is whether there has been a “taking” in terms of property damage, destruction, depreciation in market value, or dispossession of the owner. Any governmental entity may be liable for inverse condemnation, even agencies that lack eminent domain authority. In order to establish an actionable taking, the plaintiff must demonstrate a causal relationship between governmental activity and the property loss complained of. Typically, this element is referred to as “proximate cause.” Unlike the corresponding element in negligent cases, however, foreseeability is not a consideration for inverse condemnation. Instead, a governmental entity may be held strictly liable, irrespective of fault, where a public improvement constitutes a substantial cause of the plaintiff’s damages, even if only one of several concurrent causes.
(3) Eminent Domain § 71–Condemnation Proceedings–Jury Trial. 
When an eminent domain proceeding comes on for hearing all issues except the sole issue relating to compensation are to be tried by the *1126 court and, if the court does not make special findings on those issues, its findings thereon are implicit in the verdict awarding compensation. It is only the compensation-the award-that is constitutionally required to be found and fixed by a jury. All other questions of fact, or of mixed fact and law, are to be tried without reference to a jury. The right to a jury trial on the issue of compensation applies as well in an inverse condemnation proceeding.
[See Cal.Jur.3d (Rev), Eminent Domain, § 334.]
(4) Eminent Domain § 136–Remedies of Owner–Inverse Condemnation–Jury Trial on Causation. In consolidated actions by property owners and insurers against a city department of water and power arising from a fire allegedly caused by the department’s fallen power lines, the trial court did not err in denying the department’s request for a jury trial on the issue of causation on plaintiffs’ inverse condemnation cause of action, even though the issue was a purely factual one. The parties in an inverse condemnation proceeding have a right to a jury trial solely on the issue of compensation; all other determinations related to the inverse taking, whether purely factual or a mixture of factual and legal, are nonjury questions. Generally, absent a specific statutory or constitutional requirement for a jury trial, there is no such right in a special proceeding. The doctrine of inverse condemnation is derived from the Constitution and is a special proceeding, implemented by specific statutory regulations.
(5) Appellate Review § 148–Questions of Law and Fact–Sufficiency of Evidence–General Principles. 
In resolving the issue of the sufficiency of the evidence, a reviewing court is bound by the established rules of appellate review that all factual matters will be viewed most favorably to the prevailing party and in support of the judgment. All issues of credibility are likewise within the province of the trier of fact. The appellate court ordinarily looks only at the evidence supporting the successful party, and disregards the contrary showing. All conflicts therefore must be resolved in favor of the respondent.
(6) Eminent Domain § 146–Remedies of Owner–Inverse Condemnation– Evidence–Sufficiency–Cause of Fire. 
In consolidated actions by property owners and insurers against a city department of water and power, substantial evidence supported the trial court’s finding, on plaintiffs’ cause of action for inverse condemnation, that downed, arcing wires started the fire that damaged plaintiffs’ property. Several residents in the area heard loud noises caused by the downed wires, saw them sparking, and witnessed the fire. A fire captain and a *1127 private fire investigator concluded that the fire was the direct result of the downed wires. An arson investigator for the city fire department reached the same conclusion, although by the time of trial he had changed his opinion, believing instead the statements of a prisoner who had written a letter to the Secret Service admitting he had set various fires, including the one in question.
(7) Eminent Domain § 136–Remedies of Owner–Inverse Condemnation–Jury Trial–Empanelment of New Jury for Compensation Phase. 
In consolidated actions by property owners and insurers against a city department of water and power arising from a fire allegedly caused by fallen power lines, in which actions the cause of action for inverse condemnation was tried to the court, which found in favor of plaintiffs, and the other causes were tried to a jury, which found in favor of the department of water and power, the trial court did not err, after receiving a negative response to its question as to whether the jury would be available to remain for the second phase of the trial (compensation/damages for inverse condemnation), in discharging the jury and empaneling a new jury. Bifurcation is a common and appropriate practice in inverse condemnation trials. Were it not for the fact that there was a negligence cause of action to be tried, there would not have been a jury present during the liability phase of the inverse condemnation proceeding. Normally, a “fresh” jury would have been selected to fix the proper amount of compensation in any event, which is exactly what occurred here.
(8a, 8b) Eminent Domain § 142–Remedies of Owner–Inverse Condemnation– Damages–Measure and Elements–Jury’s Discretion Where Only Plaintiff Presents Valuation Evidence. 
In consolidated actions by property owners and insurers against a city department of water and power arising from a fire allegedly caused by fallen power lines, the jury was free to disbelieve evidence presented by one plaintiff that he suffered losses totaling $549,700 and award him instead compensation of only $1 (which by means of additur was increased to $100,001), and disbelieve the evidence of two other plaintiffs that their losses were $168,299 and award them only $1, even though the department of water and power presented no countervaluation evidence. While a jury cannot disregard the valuation testimony presented at trial, this rule applies only to competent evidence. The trier of fact is not stripped of its role as the arbiter of a witness’s credibility merely because the trial is one to set compensation in an inverse condemnation hearing. The jury must first determine whether or not the witness is credible and thereafter determine the weight to be given to the *1128 testimony. By awarding a token $1, the jury was sending an unmistakable message that it did not believe plaintiffs’ testimony.
(9) Eminent Domain § 142–Remedies of Owner–Inverse Condemnation– Damages–Measure and Elements. 
In inverse condemnation proceedings, the usual measure of just compensation is the fair market value of the real or personal property taken, which is generally defined as the highest dollar price that the property would bring if exposed for sale in the open market, with a reasonable time allowed in which to find a purchaser, buying with knowledge of all of the uses and purposes to which it was adapted and for which it was capable.
(10a, 10b) Eminent Domain § 149–Remedies of Owner–Inverse Condemnation–Appeal–Harmless Error–Instructions–Fair Market Value. 
In consolidated actions by property owners and insurers against a city department of water and power arising from a fire allegedly caused by fallen power lines, the trial court did not commit reversible error in modifying a pattern jury instruction on arriving at the fair market value of the damaged property so that it referred only to real property. Plaintiffs contended that this alteration coupled with a failure to instruct on the difference between real and personal property confused the jury into awarding them $1 each. Since the jury returned more favorable verdicts for some of the plaintiffs, in some cases for the exact amount to which they testified, the awards indicated that, independent of the alleged error, the jury understood and applied the correct criteria to compensate for real and personal property losses. Further, even if the modification of the instruction was improper, the error was corrected by the remaining instructions, where the term “property” was used.
(11) Appellate Review § 183–Harmless and Reversible Error–Instructions. 
In determining whether the probable effect of a jury instruction was to mislead the jury and was so prejudicial as to require reversal, the appellate court reviews all circumstances of the case, including the evidence and the other instructions given. There are no precise formulas to follow.
(12a, 12b) Eminent Domain § 148–Remedies of Owner–Inverse Condemnation–Attorney Fees–Inclusion of Prejudgment Interest in Calculation. 
In consolidated actions by property owners and insurers against a city department of water and power arising from a fire allegedly caused by fallen power lines, the trial court, in awarding attorney fees on a percentage basis to plaintiffs after the jury awarded them $1 each (which in one case was increased to $100,001 by means *1129 of additur) on their inverse condemnation cause of action, did not abuse its discretion in refusing to include prejudgment interest in the calculation of the attorney fee award.
(13) Eminent Domain § 148–Remedies of Owner–Inverse Condemnation– Prejudgment Interest. 
The underlying rationale for an award of prejudgment interest in an inverse condemnation setting is to provide constitutionally mandated just compensation to persons whose property has been taken or damaged by the government. The right to prejudgment interest accrues on the date of the taking or damaging. If a government pays compensation to a property owner before or at the time property is taken or damaged, no interest is due. But if disbursement of the award is delayed, the owner is entitled to interest thereon sufficient to ensure that he is placed in as good a position pecuniarily as he would have occupied if the payment had coincided with taking.
(14) Eminent Domain § 148–Remedies of Owner–Inverse Condemnation– Judgment–Attorney Fees. 
The allowance of attorney fees and witness fees in an inverse condemnation proceeding is not required by the just compensation clause (Cal. Const., art. I, § 19) and is merely permitted by statute. The constitutional mandate to make whole a property owner does not translate into a basis for enriching an attorney fee award.
(15) Eminent Domain § 148–Remedies of Owner–Inverse Condemnation– Judgment–Attorney Fees–Application of Uniform Standard to Fee Requests of All Plaintiffs. 
In consolidated actions by property owners and insurers against a city department of water and power arising from a fire allegedly caused by fallen power lines, the trial court abused its discretion by applying a uniform standard to all plaintiffs’ requests for attorney fees as to their cause of action for inverse condemnation and disregarding the actual dollar impact on the individual plaintiffs. Two of the plaintiffs had a 33 1/3 percent contingency fee agreement with their attorneys. As it did with several other plaintiffs, the trial court awarded attorney fees of 30 percent of the jury verdict to the two plaintiffs. Since these plaintiffs were awarded $1 by the jury, the attorney fee totaled 30 cents. A court is free to award reasonable attorney fees notwithstanding a contract for a contingency fee, and the outcome of the trial is only one of the factors to be considered. An attorney should not be punished for the unbelievability of his or her clients. The fact alone that the trial lasted three weeks indicated that the court could not have exercised its discretion as to the two plaintiffs’ request with an awareness of the fractional dollar amount being awarded. However, attorney fees may not be awarded for services on appeal. *1130 
COUNSEL
Pat K. Bowen, Cummins & White, Marshall W. Vorkink and Kent M. Bridwell for Plaintiffs and Appellants.
James K. Hahn, City Attorney, Edward C. Farrell, Assistant City Attorney, and Roberta Scharlin Zinman, Deputy City Attorney, for Defendant and Appellant.
GOERTZEN, J.
After the 1981 Chatsworth fire, several property owners and insurance companies filed suits against the Department of Water and Power of the City of Los Angeles (DWP) and the City of Los Angeles. [FN1] Pursuant to written stipulation, the actions were consolidated. Included in the various causes of action was one for inverse condemnation. With the exception of the inverse condemnation cause of action, the matter was tried to a jury, which found for DWP and against the plaintiffs. Simultaneously, the inverse condemnation cause of action was tried to the court, which found for the plaintiffs. A second jury was impaneled to determine the amount of damages to be awarded to the plaintiffs. The court awarded varying amounts of attorney fees.FN1 Subsequently, the City of Los Angeles was dismissed as a defendant.The DWP appeals, contending that substantial evidence is lacking; that the trial court erred when it refused to allow a jury trial on the issue of causation and when it impaneled a second jury to determine the amount of damages. We reject each of these contentions.
The Ransbottom Limited Partnership (Ransbottom) and Ernest and Nelda Marshall (the Marshalls) appeal. Together they assert that the compensation awarded by the jury was inadequate as a matter of law, and prejudgment interest should have been included in the calculation of attorney fees. The Marshalls additionally argue that the court awarded inadequate attorney fees and request that we award attorney fees on appeal. [FN2] With the exception of the Marshalls’ contention related to the adequacy of the attorney fees award, we also reject these assertions of error. *1131 FN2 Initially 12 plaintiffs appealed. After reaching settlement of their claims, 10 of these appeals have been dismissed.

Underlying Facts
Plaintiffs’ Case. The Chatsworth fire broke out at approximately 11 a.m. on October 31, 1981. It started in a field near the intersection of Plummer Avenue and Rudnick Avenue.
A series of power poles were located along the northerly edge of Plummer Avenue, including two poles near Rudnick Avenue which were designated 12-West and 13-East, respectively. Those poles were spaced approximately 160 feet apart and each supported 3 primary conductors (wires) which were designed to carry 4,800 volts of electricity. Those wires were part of a power distribution circuit, the purpose of which was to provide electricity to consumers in the northwest section of Los Angeles City. This public improvement was undertaken by DWP, a governmental agency.
Angela Rasmussen and her three children witnessed the fire because they were tending their horses, which were corralled on the property adjacent to where the fire started. The day was windy, very dry and hot. Mrs. Rasmussen heard a zapping sound in the area of Plummer and Rudnick and within 10 to 15 seconds heard her daughter yell, “Fire!” Ms. Rasmussen immediately ran to get the water hose and, when she reached the hose, noticed that the power lines were down and jumping in the street. She saw white, blue, and yellow sparks coming from the wires. The fire was located inside the fence of the adjacent property, running parallel to Plummer Avenue. After the fire was underway, Ms. Rasmussen noticed marks on the pavement made by the downed electrical wires. The fire went across the open field and up the hill. Immediately prior to the fire starting, Ms. Rasmussen did not see anyone either in the open field or in the surrounding area.
Erik Rasmussen was 10 years old at the time of the fire. He was grooming his horse when he heard a loud booming sound. He looked toward the sound, and saw a wire down in the street. Two wires were jumping around in the street and sparking. After he heard his sister yell “Fire,” Erik looked back to where the wires were. They were no longer both in the street; one was inside the field, next to the fire. When he first saw the fire, it was just starting and was a circle of about three feet in diameter. The wire was inside the circle of fire. Erik did not see the spark that set the fire. He attempted to smother the fire by shoveling dirt on it.
Monique Rasmussen was 14 years old on the day of the fire. As she was grooming her horse, she heard a big boom or snapping sound coming from behind her. She turned and saw the wires over Plummer Street had broken and were down in the street. Within 15 seconds she saw the fire on the adjacent property. Monique estimated the fire to be about five feet in *1132 diameter when she first saw it. She noticed that the winds made the wires move, causing them to create a noise, and that the wires would occasionally spark when hitting the ground. Monique never saw a power line in the street showering sparks across into a grassy field. She attempted to fight the fire by shoveling dirt on it.
Several residents of the area heard the sounds made by the downed wires, saw the wires sparking, and witnessed the fire.
Captain Bruce Frashure of the Los Angeles City Fire Department was in command of the first fire engine to arrive at the scene. At that time, he had been employed by the fire department for 12 years, working mostly in fire suppression. Upon arrival at the fire, he noticed “a hot wire down in the street.” He also observed burn marks on the pavement. “It appeared that the wires had arced in the street and left … the mark on the asphalt.” He recalled seeing one mark that “resembled a snake going across Plummer from what appeared to be a hot wire” toward the place where the fire had started. Based upon his observations, Captain Frashure believed that the fire had originated near the corral fence at Plummer and Rudnick, in the brush about five to ten feet from the edge of the roadway surface on Plummer.
At two different times that day, Captain Frashure examined the area to determine where the fire had started. On both occasions, he searched for possible sources of fireworks, flammable liquids, incendiary devices or “anything that could possibly ignite a fire.” He found none. Finding no source of ignition and hearing no one describe any suspicious activity, Captain Frashure made the initial determination that the fire probably had been caused by the arcing wires. This remained his opinion at the trial.
With regard to flammable liquids, Captain Frashure “kicked up the dirt looking for every possibility of moist spots underneath the area” and also used his nose. He explained, “[i]f they had used incendiary flammable liquids in the area, I am pretty sure I would be able to smell it.” Based on his experience, Captain Frashure opined that the fire’s origin, within a five-foot radius, was near the corral at Plummer and Rudnick, placing it off the pavement and in the grassy area. He also determined that the broken power line was long enough to reach into the area.
Cyrillis W. Holms, Jr., is a private fire investigator with substantial experience in his field. He was retained by Cummins & White, the law firm representing the insurance plaintiffs, to conduct an investigation of the Chatsworth Fire. He personally examined the scene on two occasions, taking photographs, checking for burn patterns, and identifying the structure *1133 which had been consumed in the fire. He began walking along Plummer and worked his way back and forth across the field.
At about 30 or 40 locations, he got down and looked for “burn indicators.” These are minor obstructions, such as dirt clods, cans, fence posts, or other objects, which tend to protect adjacent material from the advancing flames. These create a “shadow” effect or difference of heat intensity, thereby leaving telltale evidence of the fire’s direction.
Mr. Holms identified and interviewed several witnesses, including residents of the fire area and the Rasmussen family. In addition, he reviewed the transcript of Captain Frashure’s deposition, as well as the report of the Fire Department arson investigator.
Based upon his investigation and prior experience, Mr. Holms concluded that the fire “was a direct result of the downed power lines generating the heat to cause ignition of the grass.” In his opinion, it did not make any difference whether the heat had been caused by sparking or arcing. He noted that either end of the broken power line could have produced an electrical arc. He opined that the fire had originated in the northeast corner of the field, spreading west and south from there.
William Cass was employed as an arson investigator for the Los Angeles City Fire Department and was assigned to investigate the Chatsworth fire of October 31, 1981. At the time of trial, he had investigated in excess of 2,300 fires for cause and origin. On November 3, 1981, he and his partner examined the scene. They walked through the area, looking for possible sources of ignition. They examined the probable area of origin, walked back to the base of the hill, and found no possible sources of ignition.
Investigator Cass observed some apparent burn or scorch marks within two distinct areas of the pavement on Plummer Avenue. With the use of a measuring tape, he further determined that the broken wire from pole 12-West was long enough to reach into the adjacent field where the fire had apparently started. He also interviewed two witnesses. Based upon these inquiries, Inspector Cass formed the opinion that “a downed power line had started the fire.”
When he was called to testify at trial, Inspector Cass had changed his opinion. He testified that the fire had been deliberately set by one Douglas Ray Mordue (Mordue). [FN3] In July 1986, his office received information that *1134 Mordue, who was then serving a prison sentence for forgery, had written a letter to the Secret Service, admitting that he had set various fires, including the Chatsworth fire.FN3 Until Inspector Cass’s testimony, the plaintiffs did not know of the existence of Mordue. The court asked the DWP counsel when DWP had first learned about Mordue and was informed that DWP knew of him since September 25, 1986, almost two years before trial. DWP did not believe it had a duty to disclose the existence of Mr. Mordue to the plaintiffs. The court was not in accord.Investigator Cass interviewed Mordue in prison on two occasions. Mordue confessed to having set the Chatsworth brushfire. However, Cass was skeptical about the truth of Mordue’s claims because some of Mordue’s statements proved to be false, and his story changed between the first and second interviews. At times, Investigator Cass doubted Mordue’s truth and veracity. Nonetheless, he believed Mordue with respect to the Chatsworth fire because of his “detailed information” and his “familiarity with the area and the terrain.” However, Mordue’s family home was in nearby Canoga Park, south of the Chatsworth Reservoir. Apparently, Mordue had attended both church and school in the area and had lived there for approximately 18 years. Mordue previously worked at a location due east of where the fire occurred.
During the course of his confessions, Mordue repeatedly expressed a desire to remain in an institutional setting. Investigator Cass believed Mordue was telling him about the fires to “make sure he stayed within the prison system.” Mordue confessed to Investigator Cass that he had falsely confessed to brushfires in the past. He also described himself as a “paranoid schizophrenic,” and he reportedly heard “voices.”
Douglas Mordue was called as a witness. According to his testimony, he set four fires in the brush area near Plummer on October 31, 1981. During his earlier confession, Mordue had mentioned setting five different fires. He claimed to have set four separate fires along the base of the hill then walked down and started the fifth at a point close to the corral, using gasoline each time. At trial, Mordue testified that he used a special “chemical” that he had obtained from a friend. Unlike every other percipient witness, Mordue described the wind on that day as not very strong. Originally, Mordue had told Investigator Cass that he had been accompanied by a Luke Decinso when he set the fires. He also told a friend about having helped to save his grandmother’s house from the fire. Investigator Cass eventually determined that no person named Luke Decinso actually existed, and that Mordue’s grandmother did not live in the vicinity of the fire.
Frank D’Andrea, a resident of Rudnick Avenue on the day of the fire, lived across the street from where the fire started. He had a panoramic view of the fire scene. Other than the one fire near his home, Mr. D’Andrea did not see any smoke or fires at any other location. *1135 
Steven Lang lived next door to Mordue on the day of the fire. He had known Mordue for about 18 years and was familiar with Mordue’s reputation for not telling the truth. According to Mr. Lang, “[Mordue] likes to tell tall tales.”
Mordue’s mother described Mordue as a “pathological liar” and testified that he had been diagnosed as such by a doctor.
DWP Defense. Benjamin Renfro, a retired fireman with over 30 years experience, was hired by DWP to investigate the fire scene. After visiting the location and interviewing witnesses, he was unable to form an opinion as to the exact point where the fire started. He opined that the cause was incendiary and not related to the downed wires.
Lee Lawhead, a DWP employee, testified about the behavior of the downed wires, concluding that it was unrealistic and not in conformance with physical evidence to conclude that the wire from pole 12-West could have come down in the field in the grassy area. Based on tests that Mr. Lawhead had performed, he opined that it was not possible that sparks created at the subject site could have caused a fire.
Patrick McGuiness, a self-employed fire consultant who had been a fire fighter for 23 years, was hired by DWP. In July 1985, he began his investigation. He read reports, interviewed witnesses, listened to fire department tapes to check time sequences, and formed the opinion that there was more than one area of origin of the fire.
Dr. Cheng, a 12-year employee of the University of Southern California electrical engineering department, was retained by DWP in July 1985. He testified about the effect of gravity upon the direction in which pole wires would fall. He opined that it was not possible for the wire to have reached beyond the fence to the field, nor did he believe that the wire from a 4,800- volt line could create a fire or that the temperature from a spark would be hot enough to create a fire.
As a consequence of the fire, real and personal property was destroyed. A more complete description of these losses will be included below in the discussion of the plaintiffs’ appeals.
Procedural History
As noted above, two separate actions were filed against DWP. The first complaint, filed on September 13, 1982, was a joint pleading on behalf of, among others, the Marshalls and Ransbottom. In addition to specified *1136 actual damages, each of the plaintiffs sought to recover prejudgment interest, costs of suit and, with respect to the inverse condemnation, litigation expenses including attorney fees. The second action commenced on April 13, 1983.
After consolidation, the complaint alleged causes of action for “dangerous condition” under the Tort Claims Act; product liability; inverse condemnation; dangerous condition, failure to discharge mandatory duties; nuisance; and “public employee or independent contractor.”
On October 14, 1986, several plaintiffs filed a motion to sever the inverse condemnation matter from all other issues. The motion was denied. On October 23, 1986, DWP requested a jury trial on the issue of proximate causation during the inverse condemnation trial. The court denied this request.
On October 14, 1986, the trial began. A jury was impaneled to hear the issues relating to the tort causes of action while the court heard the inverse condemnation cause of action.
On October 31, 1986, after presentation of evidence and argument, outside the presence of the jury, the court ruled against DWP on the issue of the inverse condemnation. [FN4] *1137 FN4 In making its ruling, the court commented as follows: “[Counsel], you say that this is a case of coincidences. I think it would have to be the most incredible coincidence for this fire to have started at Plummer and Rudnick at that corral near downed power lines that was [sic] sparking and arcing, leaving arc marks that were seen in the field for it to have been caused by any other source than those downed power lines. [¶] It is not just wires down and the conclusion, then, that wires started the fire, as you suggest, but, in fact, it is wires down, it is a fire, and an investigation that concludes that there is no other cause of that fire. [¶] This court concludes that the plaintiffs have proved their case by the preponderance of the evidence. I am satisfied that the fire, in fact, began at the point of origin – or area origin [which] was the southeast [sic] corner of the field adjacent to the corral and that the fire was caused by electrical sparks emanating from the downed power lines owned and maintained by the Department of Water and Power. The fire then spread due to the prevailing wind conditions. [¶] The plaintiffs have satisfied me from their evidence that the fire started from those downed power lines. Three persons who were closest to the fire were the three Rasmussens. 
Although Mrs. Rasmussen indicated … she saw – first saw the fire 41 feet inside the field, her daughter Monique, who was the first person to see the fire, testified that the fire started 10 feet from the field. Whether it is 10 or 41, I don’t think is that terribly significant. I believe that Erik Rasmussen was telling the truth when he said he saw the wire go into the field. [¶] Dr. Cheng did not convince me that it was impossible for that to happen. I thought his [Erik's] testimony was credible. There was absolutely no reason for him to make that up. [¶] As I indicated to you earlier, what D’Andrea saw, what Mrs. Nottoli saw, and what Mr. Soltis saw are not inconsistent with the Rasmussens, but rather they saw the fire and the activity of the wires sometime after the fire had begun. Immediately after Captain Frashure arrived, who was the first expert to arrive on the scene, he also indicated that the area of origin of the fire was in the southeast [sic] corner of the field, that he saw the downed power lines on the south side of the street. [¶] …. [¶] Northeast corner of the field. … [¶] I just made a mistake. … [¶] His testimony was that he made an investigation and his investigation was not a casual investigation. He investigated that entire area, could find no other source of or cause of the fire. [¶] …. [¶] Cass also immediately investigated the fire, it was within days, and he also concluded that the fire was caused by the downed 
power lines. His opinion did not change for some five years, until he interviewed Mr. Mordue. And, as I indicated before, he relied on Mr. Mordue’s confession for the following reasons: One, Mordue was familiar with the area. Two, he presented a knowledge of the weather conditions, although his knowledge, at least in court, was inconsistent with what I think is true, and that is that there was heavy winds that day. He [Cass] also was impressed that he had specific knowledge of the distance between houses, that he knew the dairy was open and that he had knowledge of the location and types of fences around the area of Plummer and Rudnick. [¶] All of that can be explained by the fact that Mr. Mordue lived in the area and, in fact, went to school near this area and apparently passed it often. [¶] As I indicated, his testimony is inherently incredible. … [¶] And there is certainly testimony from his mother that he is not a truthful person. [¶] His demeanor was not truthful. He was inconsistent with what he had told Mr. Cass, and I think he’s lying. [¶] …. [¶] The experts’ opinion as to the cause of the fire, I am impressed with the people that were there immediately following the fire, and it seems to me that it could not have come from any other source but those downed power lines.”The trial continued on the issue of dangerous condition. The jury returned a verdict in favor of DWP. After the jurors had been polled, they were informed that a second phase of the trial was scheduled to commence on the issue of damages on the inverse condemnation action. The court inquired if the jurors would be available to sit during the second phase; they responded negatively. The jury was dismissed without objection.
The second phase of trial commenced and a new jury was impaneled. In pertinent part, the jury awarded $1 in damages to the Marshalls. The jury also awarded $1 to Ransbottom, which by means of additur was increased to $100,001 after he moved for a new trial.
In response to the various memoranda submitted for awards of costs and attorney fees, the court refused to include prejudgment interest as part of the judgment when it calculated the amount of attorney fees. In pertinent part, the court awarded Ransbottom attorney fees in an amount representing 25 percent of the judgment and the Marshalls attorney fees in an amount representing 30 percent of the judgment. [FN5] *1138 FN5 In pertinent part, the order awarding prejudgment interest and attorney fees provided: “With respect to attorneys’ fees, the plaintiffs have requested the court to award fees pursuant to C.C.P. § 1036, based on either their hourly rate, as applied to actual hours spent, or upon 
their contingency fee contract, as applied to the damages awarded by the jury, plus prejudgment interest. Each set of plaintiffs filed with the court, and the court has considered, for each plaintiff, one or more declarations setting forth the following information: [¶] 1. The number of hours actually expended by each lawyer and others at his law firm, [¶] 2. The reasonable hourly rate normally charged by said attorneys, [¶] 3. The novelty and difficulty of the issues involved in this case, [¶] 4. The skill and experience of each attorney, [¶] 5. The extent to which working on this litigation precluded other employment by the attorney, [¶] 6. The terms of the contingent fee arrangement between each attorney and his client(s), and; [¶] 7. The result obtained by the attorney. [¶] In addition, the court considered the fact that three days of the trial did not involve the issue of inverse condemnation. [¶] …. [¶] Plaintiffs are not entitled to have the percentage of attorneys’ fee awarded herein applied to the amount of prejudgment interest awarded herein. Such an award would result in an enormous and inequitable windfall to the attorneys.”

The DWP Appeal
Issues on Appeal
DWP contends that: (1) the trial court erred when it denied DWP’s request for a jury trial on the issue of causation on the inverse condemnation cause of action; (2) substantial evidence is lacking to support the court’s determination that the fire was started by the downed power lines; and (3) it was error to impanel a second jury to decide the issue of damages. We reject each of these assertions of error and affirm the judgment against DWP.
Discussion
We begin with a brief overview of applicable law. (1) An action for inverse condemnation “is an eminent domain proceeding initiated by the property owner rather than the condemner. The principles which affect the parties’ rights in an inverse condemnation suit are the same as those in an eminent domain action. [Citations.]” (Breidert v. Southern Pac. Co. (1964) 61 Cal.2d 659, 663, fn. 1 [39 Cal.Rptr. 903, 394 P.2d 719].) “The authority for prosecution of an inverse condemnation proceeding derives from article I, section 19, of the California Constitution.” (Holtz v. San Francisco Bay Area Rapid Transit Dist. (1976) 17 Cal.3d 648, 652 [131 Cal.Rptr. 646, 552 P.2d 430].) [FN6] The doctrine has been summarized as follows: “Article I, section 19 (formerly art. I, § 14) of the California Constitution requires that just compensation be paid when private property is taken or damaged for public use. Therefore, a public entity may be liable in an inverse condemnation action for any physical injury to real property proximately caused by a public improvement as deliberately designed and constructed, whether or not that injury was foreseeable, and in the absence of fault by the public entity. [Citations.]” (Souza v. Silver Development Co. (1985) 164 Cal.App.3d 165, 170 [210 Cal.Rptr. 146].)FN6 In pertinent part, article I, section 19, provides: “Private property may be taken or damaged for public use only when just compensation, ascertained by a jury unless waived, has first been paid to, or into court for, the owner.”Although historically stated in terms of real property, inverse condemnation also has been extended to compensate for the loss of personal property. (Aetna Life & Casualty Co. v. City of Los Angeles (1985) 170 Cal.App.3d 865, 877-878 [216 Cal.Rptr. 831].) (2) The primary question is whether *1139 there has been a “taking” in terms of property damage, destruction, depreciation in market value, or dispossession of the owner. (Olson v. County of Shasta (1970) 5 Cal.App.3d 336, 341 [85 Cal.Rptr. 77].) This includes losses due to fire. (Aetna Life & Casualty Co. v. City of Los Angeles, supra, 170 Cal.App.3d at pp. 873-874.) Any governmental entity may be liable for inverse condemnation, even agencies which lack eminent domain authority. (Baker v. Burbank-Glendale-Pasadena Airport Authority (1985) 39 Cal.3d 862, 866-867 [218 Cal.Rptr. 293, 705 P.2d 866], cert. den. (1986) 475 U.S. 1017 [89 L.Ed.2d 314, 106 S.Ct. 1200].)
In order to establish an actionable “taking,” the plaintiff must demonstrate a causal relationship between governmental activity and the property loss complained of. (Souza v. Silver Development Co., supra, 164 Cal.App.3d at p. 171.) Typically, this element is referred to as “proximate cause.” Unlike the corresponding element in negligence cases, however, foreseeability is not a consideration for inverse condemnation. Instead, a governmental entity may be held strictly liable, irrespective of fault, where a public improvement constitutes a substantial cause of the plaintiff’s damages even if only one of several concurrent causes. (Belair v. Riverside County Flood Control Dist. (1988) 47 Cal.3d 550, 558-559 [253 Cal.Rptr. 693, 764 P.2d 1070].)
With this summary as background, we turn to the issues before us.
1. Jury Trial and Issue of Causation. As noted in footnote 6, ante, article I, section 19, of the California Constitution provides that in an eminent domain proceeding the just compensation to be awarded is “ascertained by a jury unless waived.” Either party has right to demand a jury trial on the ultimate issue of “just compensation.”
Eminent domain proceedings often present issues of fact in addition to the question of whether there has been a “taking.” (See Salton Bay Marina, Inc. v. Imperial Irrigation Dist. (1985) 172 Cal.App.3d 914, 964 [218 Cal.Rptr. 839].) (3) The role of a jury and the court in an eminent domain proceeding where issues of fact arise was explained in People v. Ricciardi (1943) 23 Cal.2d 390, 402 [144 P.2d 799], as follows: “When the proceeding comes on for hearing all issues except the sole issue relating to compensation, are to be tried by the court, and if the court does not make special findings on those issues its findings thereon are implicit in the verdict awarding compensation. [Citations.] …. ‘It is only the “compensation,” the “award,” which our constitution declares shall be found and fixed by a jury. All other questions of fact, or of mixed fact and law, are to be tried, … without reference to a jury. [Citation.]“‘ (Italics added.) *1140 
The right to a jury trial on the issue of compensation applies as well in an inverse condemnation proceeding. (Highland Realty Co. v. City of San Rafael (1956) 46 Cal.2d 669, 683 [298 P.2d 15].) Various cases have held that where determination of liability involves a mixed question of law and fact, the “Eminent Domain Rule” applies, and the only issue to be determined by the jury is compensation. (Orpheum Bldg. Co. v. San Francisco Bay Area Rapid Transit Dist. (1978) 80 Cal.App.3d 863, 868 [146 Cal.Rptr. 5].)
(4) The question presented by this appeal is: In an inverse condemnation proceeding where liability is completely a factual question, does the plaintiff have a right to a jury trial on the issue of liability? We answer, “No.”
DWP objects, arguing that while causation is never an issue in eminent domain proceedings, it is the critical question in this inverse condemnation proceeding; that the eminent domain legal question, “Is there a taking?,” differs from the factual inverse condemnation question, “What caused the fire?” This difference, DWP insists, mandates a jury trial. We acknowledge that the questions are distinct but cannot accept the result which DWP proposes. A myriad of cases exists where the trial court has decided other factual issues arising in eminent domain and inverse condemnation proceedings. (See, e.g., People v. Ricciardi, supra, 23 Cal.2d 390; Belair v. Riverside County Flood Control Dist., supra, 47 Cal.3d 550; Redevelopment Agency v. Contra Costa Theatre, Inc. (1982) 135 Cal.App.3d 73 [185 Cal.Rptr. 159]; Orpheum Bldg. Co. v. San Francisco Bay Area Rapid Transit Dist., supra, 80 Cal.App.3d 863.)
The rule was succinctly stated in Redevelopment Agency v. Tobriner (1984) 153 Cal.App.3d 367, 376 [200 Cal.Rptr. 364], certiorari denied (1984) 469 U.S. 882 [83 L.Ed.2d 187, 105 S.Ct. 250]: “The determination of whether an inverse taking has occurred is a nonjury question, even when there are factual questions involved. [Citation.]” (Italics added.) Nothing DWP argues convinces us that this rule should not apply even when the factual issue is causation. Time and again, our trial courts act capably and fairly as triers of fact.
We are aware of several inverse condemnation cases where the jury was allowed to determine factual issues other than compensation. (See, e.g., Tri-Chem, Inc. v. Los Angeles County Flood Control Dist. (1976) 60 Cal.App.3d 306 [132 Cal.Rptr. 142]; Stone v. City of Los Angeles (1975) 51 Cal.App.3d 987 [124 Cal.Rptr. 822].) Pointing to Stone, DWP contends that the appellate court specifically approved of this procedure. Our reading of the Stone case does not lead us to the same conclusion. The Stone court did not *1141 directly discuss the propriety of the trial court submitting factual issues, other than compensation, to the jury. Instead, the procedure seems to have been accepted as a fait accompli, and the court proceeded to address the admissibility of certain evidence and whether certain considerations were taken into account. The court’s silence does not support the giant step proposed by DWP, that is, a holding that a plaintiff has a right to a jury determination of factual issues other than compensation.
We hold that in an inverse condemnation proceeding, the parties have a right to a jury trial solely on the issue of compensation. All other determinations related to the inverse taking, whether purely factual or a mixture of factual and legal, are nonjury questions. If the trial court is so inclined and the parties agree, or if the parties so stipulate and the court agrees, other factual issues may be submitted to the jury. (See discussion in Orpheum Bldg. Co. v. San Francisco Bay Area Rapid Transit Dist., supra, 80 Cal.App.3d at p. 868.)
Our holding is further supported by the general rule that absent a specific statutory or constitutional requirement for a jury trial, there is no such right in a special proceeding. (Taliaferro v. Hoogs (1965) 236 Cal.App.2d 521, 529 [46 Cal.Rptr. 147].) The doctrine of inverse condemnation is derived from the constitution and is a special proceeding, implemented by specific statutory regulations. (County of San Diego v. Miller (1980) 102 Cal.App.3d 424, 432-433 [162 Cal.Rptr. 480].)
2. Substantial Evidence. In propounding its contention that substantial evidence is lacking to support the trial court’s conclusion that the downed power lines caused the fire, DWP focuses solely on evidence which it presented in defense. The rules on appeal render this focus totally inappropriate.
(5) “In resolving the issue of the sufficiency of the evidence, we are bound by the established rules of appellate review that all factual matters will be viewed most favorably to the prevailing party [citations] and in support of the judgment. [Citation.] All issues of credibility are likewise within the province of the trier of fact. [Citation.] ‘In brief, the appellate court ordinarily looks only at the evidence supporting the successful party, and disregards the contrary showing.’ [Citation.] All conflicts, therefore, must be resolved in favor of the respondent. [Citation.]” (Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 925-926 [101 Cal.Rptr. 568, 496 P.2d 480], italics in original.) (6) Without repeating it all, we conclude that the evidence summarized above provides the requisite substantial evidence to support the court’s determination that the downed, arcing wires started the fire. *1142 
3. Impaneling the Second Jury. (7) DWP asserts that the same jury panel which heard the first phase of the trial should have been retained to hear evidence on the issue of compensation/damages.
As noted above, the original jury was impaneled to determine the issue of liability for “dangerous condition.” It returned a verdict in favor of the DWP on that issue. Afterwards, the trial court asked if those jurors would be available to remain for the second phase of the trial. The record indicates a negative response; consequently, the jury was discharged.
We fail to see what prejudice, if any, DWP suffered. Bifurcation is a common and appropriate practice in inverse condemnation trials. (Redevelopment Agency v. Contra Costa Theatre, Inc., supra, 135 Cal.App.3d at p. 80.) Were it not for the fact that there was a negligence cause of action to be tried, there would not have been a jury present during the liability phase of this inverse condemnation proceeding. Normally, a “fresh” jury would have been selected to fix the proper amount of compensation in any event, which is exactly what occurred here. There was no error.
Ransbottom and Marshall Appeal
Issues on Appeal
On appeal, Ransbottom and the Marshalls assert that the compensation awarded was inadequate as a matter of law and that prejudgment interest should have been included in the calculation of the award of attorney fees. The Marshalls further assert that the trial court awarded inadequate attorney fees and request that we award attorney fees on appeal.
Facts Related to Damages
The Ransbottom Property. Jack G. Ransbottom is a builder and developer and has been in the construction business for 30 years. Over approximately a nine-month period, he had purchased six lots, totalling fifty-eight acres, in the fire area. He planned to subdivide the parcel into 70 separate lots, 24 for horsekeeping and 46 as “estates.” There were several homes on the property at the time of the fire. The fire destroyed 50 percent of the property, including trees and homes.
With regard to the 9435 Shoup Avenue property losses, Mr. Ransbottom testified as follows: residence replacement – $277,682; cost of landscaping – $168,924, with the oak trees valued at $39,747; metal horse stable value – $3,500; wood fencing value – $4,080 and 1,500 feet of burned barbed wire value – $2.50 a lineal foot; office fixtures stored in the house value – *1143 $11,500; personal property and furnishings estimate value – $5,000. The total amount claimed for this property was $520,183. Mr. Ransbottom had received a $100,000 policy limit payment from his insurance company.
With regard to the 22350 Plummer Street property, Mr. Ransbottom testified as follows: no replacement cost as the building did not burn down; smoke damage – $3,500, of which $1811.80 was paid by his insurance company; landscaping cost – $64,788; damage to the oak trees – $22,670; 1540 feet of burned barbed wire value – $2.50 a lineal foot. The total net damage was $92,996.20.
With regard to the 22506 Plummer Street property, the only claim was for $12,551 for damage to oak trees.
With regard to the 22522 Plummer Street property, the only damage was to oak trees in the amount of $23,970.
The value of the raw land before the fire was valued by Mr. Ransbottom at $6 million.
James Shanahan, a consulting arborist, worked for the DWP from 1946 until his retirement in 1980. He had previously been called upon to testify as to the value of trees. In December of 1981, Mr. Ransbottom contacted Mr. Shanahan and asked him to evaluate the trees on his property. Mr. Shanahan formulated a list showing salvageable and damaged trees. The estimate to the damage to all the trees on the Shoup property was $102,338. The value of the trees lost at 22350 Plummer was $38,231. As to the 22522 Plummer location, the value of the trees lost was $36,210, and as to the 22506 Plummer property, the fire loss was estimated at $12,551.
On cross-examination, Mr. Shanahan admitted that he had presumed the trees to be healthy because he had not received information to the contrary. Based on new information, he adjusted some of the values downward. [FN7]FN7 The value figures related above reflect this adjustment.Efraim Donity, a landscape consultant and horticultural and irrigation consultant, was hired by Mr. Ransbottom to evaluate damages to landscaping and houses after the fire. He did not include the evaluation of damaged oak trees in his study. As to the 9435 Shoup Avenue property, he estimated $300 to prune back damaged bushes, $60,000 to replace three acres of shrubbery, and miscellaneous charges, all of which totalled $151,174. On 22350 Plummer property, he estimated a total of $61,358. *1144 
At the time of the fire, Roger Rudenbush lived in the guest house at 9435 Shoup and served as a caretaker for the property. He had noticed that office furniture, such as desks, chairs and typewriters, and lumber were stored in the main residence.
The Marshalls’ Property. On the day of the fire, the Marshalls lived at 22719 Michale Street, Canoga Park. Their home was burned down to the foundation, and all of their personal property was destroyed. A workshop and its contents were also destroyed as were trees and other landscaping. The Marshalls had lived in their home less than one year prior to the fire. The Marshalls’ insurance company paid the cost of rebuilding their residence and their excess living expenses. This figure totalled $213,529. They testified to uninsured losses totalling $165,728.59.
On cross-examination, Mr. Marshall stated that the house which was destroyed was about 1,800 square feet and included 3 bedrooms, 2 1/2 baths, a living room, a dining room, kitchen, service porch and garage. He claimed to have lost hundreds of books, which he valued at $10,000.
Mrs. Marshall owned several collections, including silver spoons, stamps (valued at $500), coins (valued at $500), thimbles (valued at $350), and antique napkin holder rings (valued at $500). After the fire, she attempted to locate her jewelry, but it was either lost or found in pieces. Pieces of the 100-piece spoon collection were also found in the ashes. She estimated their losses, over and above the insurance, at $165,728.59.
On cross-examination, Mrs. Marshall testified that she had purchased the living room furniture in 1980, prior to moving into the house. The furniture had an estimated value of $11,500. She could not recall where she had purchased the furniture or if it came from more than one store. She probably paid for it both with cash and on credit. Mrs. Marshall estimated the value of the dining room furniture at $10,700. She purchased it in 1979 but could not recall where or how much she had paid for it. The family room furniture, purchased in 1977 at an unknown location, was estimated at $8,000. Mrs. Marshall could not recall if she paid cash or charged it. She estimated the television room furnishings to be valued at $8,500, the guest bedroom furnishing at $6,900, and the master bedroom furnishings at $8,800. Mrs. Marshall had prepared an extensive list of items lost in the kitchen, including $250 for “kitchen gadgets” and $200 for vitamins. She valued a loss of over 300 records at $3,410. She also claimed to have lost 50 pairs of shoes.
Chris Verhaegh, a professional numismatist (rare coin dealer), appraised some French 20-franc gold coins which were like those claimed as lost by *1145 the Marshalls. A less valuable coin had a “melt” value of $150. In 1981, the catalog value of the coins was from $150 to $175 each.
DWP presented no affirmative defense as to the value of the property loss suffered either by Ransbottom or the Marshalls.
The Marshalls’ motion for a directed verdict was denied as was their motion for a new trial.
Discussion
Adequacy of the Compensation Award. According to the uncontradicted evidence adduced at trial, Ransbottom suffered losses totalling $549,700. The jury awarded Ransbottom $1, which by means of additur was increased to $100,001. According to the uncontradicted evidence adduced at trial, the Marshalls suffered losses totalling $168,299. The Marshalls were awarded $1, and their motion for a new trial was denied. Both Ransbottom and the Marshalls argue that their respective damage awards are inadequate as a matter of law. Alternatively, they assert that prejudicial instructional error occurred when the court, sua sponte, modified an instruction.
(8a) The question presented by this appeal is: In an inverse condemnation proceeding, when the government agency has presented no counter valuation evidence, is a jury free to disbelieve a plaintiff’s valuation testimony and award compensation in an amount less than the losses testified to by the plaintiff?
(9) Both Ransbottom and the Marshalls cite cases which hold that in an inverse condemnation action, the promise of “just compensation” is constitutional in origin; the usual measure of just compensation is the fair market value of the real or personal property taken, which is generally defined as the highest dollar price which the property “would bring if exposed for sale in the open market, with reasonable time allowed in which to find a purchaser, buying with knowledge of all of the uses and purposes to which it was adapted and for which it was capable.” (Sacramento etc. R.R. Co. v. Heilbron (1909) 156 Cal. 408, 409 [104 P. 979]; see also Holtz v. Superior Court (1970) 3 Cal.3d 296, 303-304 [90 Cal.Rptr. 345, 475 P.2d 441]; Klopping v. City of Whittier (1972) 8 Cal.3d 39, 43 [104 Cal.Rptr. 1, 500 P.2d 1345].) No one disputes the validity of these holdings.
(8b) Disagreement ensues with the next part of the argument. Ransbottom and the Marshalls further contend that in an inverse condemnation suit, the plaintiff sets the ceiling of compensation and the government agency, through the presentation of counter evidence, sets the floor. Here, they *1146 assert, the government agency failed to set the floor because it presented no affirmative evidence about the value of the property lost; consequently, the jury could do nothing but award them the amount of losses to which they testified. To support this proposition, Ransbottom and the Marshalls, among other cases, cite Aetna Life & Casualty Co. v. City of Los Angeles, supra, 170 Cal.App.3d 865.
The Aetna case involved a suit brought by property owners and their respective insurance companies against the DWP for property losses suffered as a consequence of the 1978 Mandeville Canyon fire. (170 Cal.App.3d at p. 872.) After the DWP failed to present affirmative evidence on valuation, the trial court granted the plaintiffs’ motion for directed verdict. Among other things, on appeal DWP argued that the granting of the motion was erroneous. Writing for division 2 of this court, Justice Compton reiterated the rule governing the granting of a motion for a directed verdict [FN8] and affirmed the trial court’s action, stating: “A jury hearing a condemnation action may not disregard the evidence as to value and render a verdict which either exceeds or falls below the limits established by the testimony of the witnesses. [Citations.] The trier of fact in an [inverse condemnation] action is not an appraiser, and does not make a determination of market value based on its opinion thereof. Instead it determines the market value of the property, based on the opinions of the valuation witnesses. [Citation.] [¶] … [¶] Any deviation from the evidence by the jury would have been improper.” ( Id., at pp. 877-878.) The Aetna court did not discuss credibility as it apparently was not an issue.FN8 As stated by the Aetna court, the rule is: “A directed verdict is proper only when, after disregarding conflicting evidence and giving the opposing party’s evidence every legitimate inference which may be drawn therefrom, there remains no evidence of sufficient substantiality to support a verdict in favor of the opposing party. [Citation.] Unless it can be said as a matter of law that no other reasonable conclusion is legally deducible from the evidence and that any other holding would be so lacking in evidentiary support that a reviewing court would be compelled to reverse on appeal, or a trial court to set it aside, the trial court is not justified in taking the issue from the jury. [Citation.]” ( Id., at p. 876.)In support of their assertion that a jury cannot disregard the valuation testimony presented at trial, Ransbottom and the Marshalls also cite County of Los Angeles v. Kling (1972) 22 Cal.App.3d 916, 923 [99 Cal.Rptr. 642]; Ventura County Flood Control Dist. v. Security First Nat. Bank (1971) 15 Cal.App.3d 996, 1002 [93 Cal.Rptr. 653]; Redevelopment Agency v. Modell (1960) 177 Cal.App.2d 321, 326-327 [2 Cal.Rptr. 245]; and People ex rel. D. of P. Wks. v. McCullough (1950) 100 Cal.App.2d 101, 105 [223 P.2d 37].
The language in the Aetna case stressed by Ransbottom and the Marshalls was stated in the context of the granting of a motion for a directed verdict. Here, the court denied the Marshalls’ motion for a directed verdict *1147 and commented: “I think there is certainly enough examination of your clients to indicate that it is a triable issue of fact as to whether or not all their property was, in fact, in the house and the value of that property, and the motion is denied.” In other words, the court could not make the required findings to support a directed verdict. (See fn. 8, ante.)
We do not argue with the validity of the rule defining the limits within which the jury must set compensation as stated in Aetna and the other cases cited. We point out, however, that as stressed by Ransbottom and the Marshalls, one part of the rule is missing. That is: the only evidence which the jury is not free to disregard is competent evidence. (County of Los Angeles v. Kling, supra, 22 Cal.App.3d at p. 923.) Moreover, “[w]here it appears that the opinion of a valuation witness is based upon considerations which are proper as well as those which are not, the testimony may be admitted and the trier of fact shall determine its weight and credibility. [Citation.]” (Ventura County Flood Control Dist. v. Security First Nat. Bank, supra, 15 Cal.App.3d at p. 1004, italics added.) Plainly stated, the trier of fact is not stripped of its role as the arbiter of a witness’s credibility merely because the trial is one to set compensation in an inverse condemnation hearing. The jury must first determine whether or not the witness is credible and thereafter determine the weight to be given to the testimony. (San Gabriel Valley Water Co. v. City of Montebello (1978) 84 Cal.App.3d 757, 765.)
The jury was instructed that it could disregard the testimony of a witness that it did not believe. The DWP’s failure to present affirmative evidence, in effect, set a floor of $0. By awarding the token $1, the jury was sending an unmistakable message – it did not believe the testimony either of Ransbottom or the Marshalls. When the court offered additur of $100,000 to Ransbottom and not the full amount testified to during trial, it was sending the same message. [FN9]FN9 Regarding the additur, the court offered the following reasons: “I am considering an additure [sic] for plaintiff Ransbottom in relationship to the house. [¶] I am considering an additure [sic] of a hundred thousand dollars. … [¶] I think he did lose something in the house. I think he has increased it somewhat. [¶] I am not prepared to make any findings that – for anything he presented regarding the landscaping, the stables, the fencing, the wire and the wood fencing. He didn’t present enough evidence by a preponderance of the evidence to show me what the value of that was. [¶] But I think an additure [sic] for the residence of a hundred thousand 
dollars is appropriate, and I think there was enough evidence on the house alone. It’s clear that the house was there and had gone. I am not sure about the fencing.”(10a) Alternatively, Ransbottom and the Marshalls argue that BAJI No. 11.80, modified by the court sua sponte, prejudicially confused the jury. [FN10] The court substituted the terms “real property” for the original *1148 language, “subject property,” because it believed that the instruction applied solely to real property. Ransbottom and the Marshalls argue that this alteration coupled with a failure to instruct on the difference between “real” property and “personal” property confused the jury into awarding $1 to each of them. We do not find that the trial record supports this contention.FN10 BAJI No. 11.80, as modified, provides: “You must determine the fair market value of real property only from the opinions of the witnesses who have testified. [¶] You may not find the market value of property to be any less or more than that testified to by any witnesses. [¶] While owners and expert witnesses may express opinions on the issue of value, those opinions are worth no more than the reasons and factual data upon which they are 
based. [¶] Evidence has been received from witnesses of the reasons for their opinions of value, and all other evidence concerning the real property is to be considered only for the limited purpose of enabling [you] to understand and [weigh] the opinions of the witnesses regarding market value, if any. [¶] You must resolve any conflict in the testimony of the witnesses by weighing each opinion against the others, the reasons given for each opinion, the facts relied upon and the credibility and the qualifications of each witness.”To prevail on the basis of an alleged instructional error, a party must establish that but for the instructional error, a different result would have occurred. (Code Civ. Proc., § 475.) (11) “In determining whether the probable effect of a jury instruction was to mislead the jury and was so prejudicial as to require reversal, we review all circumstances of the case, including the evidence and the other instructions given. There are no precise formulas to follow. [Citations.]” (Maupin v. Widling (1987) 192 Cal.App.3d 568, 572 [237 Cal.Rptr. 521].)
(10b) One of the circumstances of this case which we find most telling is that the jury returned favorable verdicts for the other individual plaintiffs, some for the exact amount to which they testified. [FN11] The awards indicate that, independent of the alleged error, the jury understood and applied the correct criteria to compensate for real and personal property losses. In addition, even if the trial court improperly modified this instruction, the error was corrected by the remaining instructions where the term “property” was used. In defining just compensation, the court charged the jury that it included “reasonable compensation for property lost or destroyed in, or because of, the fire. That amount is the fair market value of such property at the time of its loss or destruction.”FN11 Other individual plaintiffs were awarded the following damages: Farrens – $78,000; Corliss – $39,652.15; Pincus – $81,186.67; Winners – $11,522; and Romero – $68,755.17.Prejudgment Interest. (12a) Both Ransbottom and the Marshalls contend that in awarding reasonable attorneys’ fees on a percentage basis, the trial court should have taken prejudgment interest into account as part of the underlying recovery.
In pertinent part, Code of Civil Procedure section 1036 provides: “In any inverse condemnation proceeding brought for the taking of any interest in *1149 real property, the court rendering judgment for the plaintiff by awarding compensation for such taking, … shall determine and award or allow to such plaintiff, as a part of such judgment … such sum as will, in the opinion of the court … reimburse such plaintiff for his reasonable costs, disbursements, and expenses, including reasonable attorney, appraisal, and engineering fees, actually incurred because of such proceeding.” When we review this exercise of the discretionary judgment of the trial court, the well- established principles dealing with discretion and its abuse apply. (San Gabriel Valley Water Co. v. City of Montebello, supra, 84 Cal.App.3d at p. 769.)
When ruling that it would not include prejudgment interest in the award of attorney fees, the court commented, “[The attorney fee award] will not include pre-judgment interest. It is an interesting issue that I wish you would take up on appeal, but it seems to me that the purpose of the prejudgment interest is really to protect the private citizen against the taking of his or her property by the government, and really would result in an enourmous [sic] windfall to the attorneys, which I think would be inequitable.” We are in accord with the court’s view.
(13) The underlying rationale for the award of prejudgment interest in an inverse condemnation setting was explained in Aetna Life & Casualty Co. v. City of Los Angeles, supra, 170 Cal.App.3d at pages 878-879: “The purpose of an award of prejudgment interest is to provide constitutionally mandated just compensation to persons whose property has been taken or damaged by the government. [Citation.] The right to prejudgment interest accrues on the date of the taking or damaging. [Citation.] [¶] …. [¶] If a government pays compensation to a property owner before or at the time property is taken or damaged, no interest is due. [Citation.] But if disbursement of the award is delayed, … the owner is entitled to interest thereon sufficient to ensure that he is placed in as good a position pecuniarily as he would have occupied if the payment had coincided with the taking. [Citations.]“
These considerations are markedly different from those underlying an award of attorney fees. (14) As stated in Holtz v. San Francisco Bay Area Rapid Transit Dist., supra, 17 Cal.3d at page 658, the allowance of witness fees and attorney fees is not required by the just compensation clause of the California Constitution and is merely permitted by statute. The constitutional mandate to make whole a property owner does not translate into a basis for enriching an attorney fee award.
We are aware of Parker v. City of Los Angeles (1974) 44 Cal.App.3d 556 [118 Cal.Rptr. 687], where this court affirmed an attorney fee award which *1150 was based upon a contingency fee agreement and included prejudgment interest in the calculation. The Parker court did not specifically discuss the propriety of including the prejudgment interest in the award and based its affirmance on an abuse of discretion standard. We do likewise. (12b) Here, in the exercise of its discretion, the trial court refused to include the prejudgment interest in the calculation of its attorney fee award. We cannot conclude that this decision constituted a manifest abuse of discretion. [FN12]FN12 In its reply brief, Ransbottom states that the court failed to exercise its discretion, believing it had no choice. The court’s comments, quoted ante, indicate the contrary.(15) The Marshalls alone assert two further contentions. They argue that the trial court abused its discretion by applying a uniform standard to all plaintiffs’ requests for attorney fees and disregarding the actual dollar impact on the individual plaintiffs. They further request that we award them attorney fees on appeal.
The Marshalls had a 33 1/3 percent contingency fee agreement with their attorneys. As it did with several other plaintiffs, the court awarded attorney’s fees of 30 percent of the jury verdict to the Marshalls. Since the Marshalls were awarded $1 by the jury, the attorney fee totals $.30. The paltriness of this award leads us to accept the Marshalls’ contention.
The court’s order awarding attorney fees, quoted ante in footnote 5, indicates that the court appropriately considered the number of hours expended by each lawyer, the reasonable hourly rate normally charged, the novelty and difficulty of the issues, the skill and experience of each attorney, the extent to which this litigation had precluded other employment by the attorney, the terms of the contingent fee arrangement, and the result obtained by the attorney. (See Aetna Life & Casualty Co. v. City of Los Angeles, supra, 170 Cal.App.3d at pp. 880-881.)
“The contingent nature of the fee contract is only one element of evidence of the value of the attorney’s services; it is not controlling. [Citation.] A court is free to award reasonable attorney fees notwithstanding the contract for a contingent fee. [Citations.]” (170 Cal.App.3d at p. 881.) Moreover, the outcome of the trial is only one of the factors to be considered. An attorney should not be punished for the unbelievability of his or her clients. This was a three-week trial. This fact alone leads us to find that the court could not have exercised its discretion as to the Marshalls’ request with an awareness of the fractional dollar amount being awarded. Thus, we remand to the trial court for a reconsideration of the award of attorney fees to the Marshalls.
Lastly, we consider and deny the Marshalls’ request that we award them attorney fees on appeal. No authority has been cited for this proposition. In *1151 fact, Holtz v. San Francisco Bay Area Rapid Transit Dist., supra, 17 Cal.3d at page 658, held that under the predecessor statute to Code of Civil Procedure section 1036, attorney fees should not be awarded in connection with prosecuting an appeal of an inverse condemnation action.
Disposition
As to the DWP appeal, the judgment is affirmed.
As to the Ransbottom appeal, the judgment is affirmed.
As to the Marshalls’ appeal, the matter is remanded to allow the court to reconsider its award of attorney fees. In all other respects the judgment is affirmed.
Each party to bear its own costs on appeal.
Woods (A. M.), P. J., and George, J., concurred.
The petition of all appellants for review by the Supreme Court was denied July 11, 1990. Lucas, C. J., did not participate therein. *1152 
Cal.App.2.Dist.,1990.
Marshall v. Department of Water and Power of City of Los Angeles
END OF DOCUMENT
Copr. (C) Bancroft-Whitney and West Group 1998

133 Cal.Rptr. 107
DOROTHY AUSTERO, Plaintiff and Appellant,
v.
NATIONAL CASUALTY COMPANY OF DETROIT, MICHIGAN et al., Defendants and
Respondents
SUMMARY
In an action instituted against an insurance company and its claims representative by the wife of an incompetent as guardian ad litem of her husband and individually on her own behalf seeking compensatory and punitive damages for defendants’ refusal to pay the husband benefits allegedly due under policies of disability insurance and for alleged breach of the implied covenant of good faith and fair dealing arising out of the policies, the trial court sustained defendants’ demurrer with leave to amend insofar as the amended complaint attempted to state causes of action for infliction of emotional distress in favor of plaintiff in her individual capacity. No further amendment was made and a judgment of dismissal was entered as to the individual causes of action. The husband, a practicing attorney who had paid the premiums on the policies with community funds, had allegedly become totally disabled from the practice by reason of a serious disease causing progressive deterioration of his mental processes. (Superior Court of Orange County, No. 220770, H. Walter Steiner, Judge.)
The Court of Appeal affirmed, holding that liability for “bad faith” is strictly tied to the implied-in-law covenant of good faith and fair dealing arising out of an underlying contractual relationship, and that, since the complaint showed that the wife was not a party to the insurance contracts and, except as to the death benefit, which was not involved, was not an expressly named beneficiary, she could not maintain an action based on breach of the implied covenant. In conclusion, the court rejected plaintiff’s attempt to predicate liability on a theory that the policies and their proceeds were community property. (Opinion by Kaufman, J., with Gardner, P. J., and Morris, J., concurring.) *512 
HEADNOTES
Classified to California Digest of Official Reports
(1) Pleading § 22–Demurrer to Complaint–As Admission. 
In testing the legal sufficiency of a pleading against a general demurrer, all properly pleaded allegations, including those that arise by reasonable inference, are deemed admitted regardless of the possible difficulty of proof at trial.
(2a, 2b) Insurance Contracts and Coverage § 123–Actions–Parties– Action for Breach of Implied Covenant of Good Faith and Fair Dealing. 
The trial court properly sustained the demurrers of defendants, an insurance company and its claims representative, to causes of action claiming emotional distress on the part of the insured’s wife resulting from defendants’ alleged breach of the implied covenant of good faith and fair dealing in refusing to pay disability benefits under policies issued to the husband and paid for with community funds, where the claims representative was not alleged to be a party to the insurance contract but an employee acting in the scope of his employment, and where the wife was not a party to the contract and, except as to the death benefit, which was not involved, was not an expressly named beneficiary. Though emotional distress to the wife from the insurer’s action was reasonably foreseeable, liability for “bad faith” is strictly tied to the implied-in-law covenant of good faith and fair dealing arising out of an underlying contractual relationship and if no such relationship exists, no recovery for “bad faith” may be had.
[Insurer's liability for consequential or punitive damages for wrongful delay or refusal to make payments due under contract, note, 47 A.L.R.3d 314. See also Cal.Jur.2d, Insurance, §§ 166, 554; Am.Jur.2d, Insurance, § 194.]
(3) Insurance Contracts and Coverage § 137–Actions–Damages–Breach of Implied Covenant of Good Faith and Fair Dealing. 
The unreasonable and bad faith refusal of an insurer to pay the valid claim of its insured gives rise to the insurer’s liability in tort not only for the insured’s pecuniary loss but also for his consequential emotional distress. Liability is predicated on the theory that such conduct constitutes a tortious breach of the implied-in-law duty of good faith and fair dealing arising out of the insurance policy. *513 
(4) Insurance Contracts and Coverage § 123–Actions–Parties–Action for Breach of Implied Covenant of Good Faith and Fair Dealing. 
Although an action for an insurer’s bad faith breach of the implied covenant of good faith and fair dealing sounds in tort, the duty of good faith and fair dealing derives from and exists solely because of the contractual relationship between the parties. Thus, one who is not a party to the underlying contract may not be held liable for breach of an implied covenant of good faith and fair dealing for as to him no such implied covenant exists.
COUNSEL
Burton, Blodgett & Austero and Wayne J. Austero for Plaintiff and Appellant.
Cummins, White & Breidenbach, Howard D. Swainston and James R. Robie for Defendants and Respondents.
KAUFMAN, J.
Dorothy Austero (hereafter “plaintiff”), the wife of Julius S. Austero, an incompetent, instituted this action as guardian ad litem of her husband and individually on her own behalf seeking compensatory and punitive damages for defendants’ refusal to pay to Julius disability benefits allegedly due under policies of disability insurance and for defendants’ alleged breach of the implied covenant of good faith and fair dealing arising out of the insurance policies.
The trial court sustained defendants’ demurrer with leave to amend to plaintiff’s first amended complaint insofar as it attempted to state causes of action in favor of plaintiff in her individual capacity. No further amendment to the complaint having been made, the court entered judgment dismissing the sixth and seventh counts in which plaintiff sought recovery in her individual capacity. The action remains pending on the several counts seeking recovery on behalf of Julius, and Julius is not a party to this appeal.
Notwithstanding the possibility that both plaintiff’s complaint and her appellate brief are susceptible to the interpretation that plaintiff attempted to state a cause of action for intentional infliction of emotional distress, at oral argument plaintiff’s counsel unequivocably disavowed *514 any attempt to establish liability on that theory. The sole question presented, therefore, is whether the wife of an insured can recover for emotional distress emanating from a bad faith breach of the implied covenant of good faith and fair dealing arising from a disability insurance policy. We have concluded that she may not, and, accordingly, we affirm the judgment of the trial court.
Alleged Facts
(1) In summarizing the pertinent facts we bear in mind that in testing the legal sufficiency of a pleading against a general demurrer, all properly pleaded allegations, including those that arise by reasonable inference, are deemed admitted regardless of the possible difficulty of proof at trial. (Alcorn v. Anbro Engineering, Inc., 2 Cal.3d 493, 496 [86 Cal.Rptr. 88, 468 P.2d 216]; Saxer v. Philip Morris, Inc., 54 Cal.App.3d 7, 18 [126 Cal.Rptr. 327].)
Plaintiff is the wife of Julius S. Austero who, prior to becoming totally disabled, was an attorney licensed to practice law in California and was actively engaged in the practice of law in Orange County.
Sometime in 1971 Julius became afflicted with a serious disease causing progressive deterioration of his mental processes. By May 5, 1972, his condition had deteriorated to the point that he was totally disabled from practicing law.
On May 5, 1972, Julius was insured by policies of disability insurance issued by defendant National Casualty Company of Detroit (hereafter “National”) pursuant to which National agreed to pay Julius $300 per month for a maximum period of seven years should he, by virtue of illness, become totally disabled. One policy also provided for a $2,000 death benefit. Plaintiff, designated as the insured’s wife, was the named beneficiary of the death benefit. Until Julius became disabled he paid all premiums due under the policies with funds which were community property of Julius and plaintiff.
Soon after Julius became totally disabled, notice of claim was submitted to National on his behalf. National was also provided with medical proof that Julius was unable to perform each and every duty pertaining to his profession since May 5, 1972. National, acting through its claims representative, defendant H. Gerald Commons, failed to *515 accept the submitted proofs of disability, and without further investigation or inquiry, unreasonably denied Julius’ claim and refused payment thereof, knowing all the while that Julius was then entitled to payment of disability benefits.
When defendants rejected Julius’ claim they did so with the intent to vex and annoy plaintiff and knowing that as a result thereof plaintiff would suffer extreme physical and emotional distress and discomfort. As a proximate result of defendants’ said conduct, plaintiff did suffer physical and emotional distress and discomfort.
Contentions, Discussion and Disposition
(2a) Plaintiff contends that her complaint alleges facts sufficient to entitle her to recover damages for emotional distress she allegedly suffered as the result of defendants’ alleged breach of the implied-in-law duty of an insurer to act fairly and in good faith toward its insured. We cannot agree.
(3) It is now established that the unreasonable and bad faith refusal of an insurer to pay the valid claim of its insured gives rise to the insurer’s liability in tort not only for the insured’s pecuniary loss but also for his consequential emotional distress. (Silberg v. California Life Ins. Co., 11 Cal.3d 452, 460-461 [113 Cal.Rptr. 711, 521 P.2d 1103]; Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 573-575 [108 Cal.Rptr. 480, 510 P.2d 1032]; Fletcher v. Western National Life Ins. Co., 10 Cal.App.3d 376, 401-402 [89 Cal.Rptr. 78, 47 A.L.R.3d 286]; see also Merlo v. Standard Life & Acc. Ins. Co., 59 Cal.App.3d 5, 16 [130 Cal.Rptr. 416].) The theory upon which liability is predicated is that such conduct constitutes a tortious breach of the implied-in-law duty of good faith and fair dealing arising out of the insurance policy. ( Silberg v. California Life Ins. Co., supra; Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at pp. 573-574; Fletcher v. Western National Life Ins. Co., supra.) (4) Although an action for bad faith breach of the covenant of good faith and fair dealing sounds in tort, the duty of good faith and fair dealing derives from and exists solely because of the contractual relationship between the parties. ( Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at pp. 576, 577-578; Truestone, Inc. v. Travelers Ins. Co., 55 Cal.App.3d 165, 170 [127 Cal.Rptr. 386].) Thus, one who is not a party to the underlying contract may not be held liable for breach of an implied covenant of good faith and fair dealing for as to him no such implied covenant exists. ( Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at p. 576.) *516 
(2b) The foregoing is dispositive of the case so far as defendant H. Gerald Commons is concerned. He was allegedly National’s employee acting within the scope of his employment. He is not a party to the insurance contract and, thus, cannot be held liable for tortious breach of an implied-in-law covenant of good faith and fair dealing. ( Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at p. 576.)
Plaintiff seems to acknowledge that she is not a party to the contract of insurance. She is not an insured, and, except as to the death benefit, she is not an expressly named beneficiary. She argues, however, that she is a foreseeable plaintiff, that is, that a reasonable man in the position of defendant National would have foreseen that its unreasonable, bad faith refusal to pay Julius’ valid claim for disability would result not only in emotional distress to Julius, but also to his spouse.
National’s answer to this argument is that emotional distress on the part of plaintiff was not reasonably foreseeable inasmuch as it did not know of her existence. This answer is devoid of merit. Plaintiff’s existence and her relationship to Julius were disclosed on the face of one of the insurance policies where plaintiff, as Julius’ wife, was named as beneficiary of the policy’s death benefit.
We agree with plaintiff that emotional distress on her part was reasonably foreseeable, but our question is, “So what?” Foreseeability of harm is an important factor in fixing liability for negligently caused injury and may be an important factor in establishing tort liability generally, but it is only one of a number of policy factors to be considered. (See Rowland v. Christian, 69 Cal.2d 108, 113 [70 Cal.Rptr. 97, 443 P.2d 561, 32 A.L.R.3d 496]; Amaya v. Home Ice, Fuel & Supply Co., 59 Cal.2d 295, 309-310 [29 Cal.Rptr. 33, 379 P.2d 513] [overruled on other grounds by Dillon v. Legg, 68 Cal.2d 728, 748 (69 Cal.Rptr. 72, 441 P.2d 912, 29 A.L.R.3d 1316)]; Lucas v. Hamm, 56 Cal.2d 583, 588 [15 Cal.Rptr. 821, 364 P.2d 685]; Biakanja v. Irving, 49 Cal.2d 647, 650 [320 P.2d 16, 65 A.L.R.2d 1358]; Commercial Standard Ins. Co. v. Bank of America, 57 Cal.App.3d 241, 248 [129 Cal.Rptr. 91]; Derrick v. Ontario Community Hospital, 47 Cal.App.3d 145, 153 [120 Cal.Rptr. 566].)
Whether for better or worse, the historical development of a tort is an important factor in determining its scope (see Prosser, Law of Torts (4th ed. 1971) pp. 19-21), and, thus far, liability for “bad faith” has been strictly tied to the implied-in-law covenant of good faith and fair dealing *517 arising out of an underlying contractual relationship. Where no such relationship exists, no recovery for “bad faith” may be had. ( Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at p. 576.)
Finally, plaintiff urges that the disability policy premiums were paid with community funds, that the policies and their proceeds constitute community property and that National’s bad faith refusal to pay disability benefits under the policies constituted an invasion of her community property interest in the policies and their proceeds, entitling her to recover. [FN1]FN1 To the extent it may be pertinent we note that the acts here involved occurred and this action was instituted prior to January 1, 1975, the effective date of the legislation giving wives equal control over community property, i.e., Civil Code sections 5125 and 5127. (See Stats. 1973, ch. 987, § 20, p. 1905; Stats. 1974, ch. 1206, § 7, p. 2610.)As we have already explained, an insurer’s duty of good faith and fair dealing is owed solely to its insured and, perhaps, any express beneficiary of the insurance policy. Whatever plaintiff’s property rights with respect to the policies and their proceeds may be, the fact remains that she is not a party to the contracts. As to disability benefits, plaintiff is at most an incidental or remote beneficary, and, as such, can state no cause of action against National for breach of a duty, express or implied, arising from the contractual relationship. (Cf. Fryer v. Kaiser Foundation Health Plan, 221 Cal.App.2d 674, 678-679 [34 Cal.Rptr. 688]; Chamberlin v. City of Los Angeles, 92 Cal.App.2d 330, 332-333 [206 P.2d 661].)
The judgment is affirmed.
Appellant’s petition for a hearing by the Supreme Court was denied December 22, 1976. Tobriner, J., and Mosk, J., were of the opinion that the petition should be granted. *518 
Cal.App.4.Dist.,1976.
Austero v. National Cas. Co. of Detroit, Mich.
END OF DOCUMENT
Copr. (C) Bancroft-Whitney and West Group 1998