Appellants, surety and contractor, sought review of a judgment from the Superior Court of Los Angeles County (California), that held appellants liable for damages resulting from their respective breaches of a performance bond and construction contract, and awarded compensatory and punitive damages against appellant surety for its breach of the covenant of good faith and fair dealing implicit in the performance bond.

Appellants, surety and contractor, sought review of a judgment that awarded damages for appellant surety's breach of its performance bond and appellant contractor's breach of its construction contract, and awarded compensatory and punitive damages for appellant surety's breach of the implied covenant of good faith and fair dealing. The court held appellant surety was liable, under its performance bond, for damages caused by appellant contractor's delay where the bond incorporated, by reference, the construction contract, and that contract was clear in that the time of performance was of the essence. The court held compensation for the breach of the covenant of good faith and fair dealing, which was implicit in the performance bond, was limited to contract remedies. Because respondent company could not recover in tort for appellant surety's breach of the implied covenant of good faith and fair dealing, the court held the award of punitive damages was improper. Accordingly, the judgment was reversed and remanded for further proceedings, insofar as it affirmed the award of tort damages for breach of the implied covenant, and permitted an award of punitive damages. The parties were represented by their respective business attorney.

The judgment that held appellant surety liable for its breaches of a performance bond and an implied covenant of good faith and fair dealing, and held appellant contractor liable for its breach of a construction contract, was affirmed, except to the extent it awarded tort damages for breach of the implied covenant and permitted an award of punitive damages, because breach of that implied covenant was limited to contract remedies.

Plaintiff homeowners association sued for breach of contract and breach of the implied covenant of good faith and fair dealing. Defendant insurer moved for summary adjudication as to the bad faith claim. The Superior Court of Los Angeles County (California) granted the motion. The case went forward on the breach of contract claim. The claim went to arbitration, and the arbitrator's award to the insurer was confirmed. The association appealed.

Following an earthquake, the association submitted a claim of loss to the insurer. During the investigation process, the insurer paid to the association several interim payments, which together represented the total amount the insurer believed was due. A subsequent stipulated arbitration determined that the insurer had underpaid the total amount of covered loss, and ordered that the insurer pay an additional amount, plus interest. The superior court determined that the insurer could not be found liable in bad faith for its adjustment activities and the resulting delayed payment of the claim. The court of appeals found that there was a genuine dispute as to just what portion of the claimed loss was actually covered under the policy, and the proper amount of the covered loss. Also, there was no factual support for the conclusion that the insurer acted unreasonably or without proper cause in its adjustment of the claim. Thus, as a matter of law, the insurer could not be found liable in bad faith. As a result, the superior court did not err in summarily adjudicating the bad faith claim.

The judgment was affirmed.