Judge Barbara M. Scheper, Case 21STCV23675 2023-03-07 Tentative Ruling

Judge: Barbara M. Scheper, Case: 21STCV23675, Date: 2023-03-07 Tentative Ruling

Case Number: 21STCV23675 Hearing Date: March 7, 2023 Dept: 30

Dept. 30

Calendar No.

Mehrabi, et. al. vs. Farmers Insurance Exchange, et. al., Case No. 21STCV23675

Tentative Ruling re: Defendants’ Motion for Summary Judgment, or in the alternative, Summary Adjudication of Issues

Defendants Farmers Insurance Exchange and Linda Kevorkian (collectively, Defendants) move for summary judgment, or, in the alternative, summary adjudication against Plaintiffs Mayis Mehrabi and Mehrabi Inc. dba Ginetun (collectively, Plaintiffs). The motion is granted.

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party can show evidentiary support for a pleading or claim and if not to enable an order of summary dismissal without the need for trial. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 (Atlantic Richfield).) Code of Civil Procedure Section 437c, subdivision (c) “requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)

Once the moving party has met that burden, the burden shifts to the opposing party to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)

Plaintiffs operate a restaurant in Glendale, California. Plaintiffs obtained a Commercial Property insurance policy (the Policy) for their restaurant from Defendant Farmers Insurance Exchange (Farmers), effective March 27, 2019, through March 27, 2020. (UMF 1; Defendants’ Exhibits (DE) Ex. 3.) The Policy provided that Farmers would pay for direct physical loss or damages to certain types of property, including damage to physical premises, damage to business personal property, and loss of business income sustained due to a suspension of operations caused by covered causes of loss. (DE, Ex. 3, pp. 1, 5.) Plaintiffs purchased the Policy through the insurance agency of Defendant Linda Kevorkian. (Kevorkian Decl. ¶ 3.)

On June 26, 2019, Plaintiffs filed a claim with Farmers for damages due to water loss. (UMF 2; DE, Ex. 4 [173].) Farmers investigated the claim and paid Plaintiffs $33,090.01 for Business Personal Property losses, $12,911.63 for Emergency Water Mitigation, and $8,500 as an advance payment for lost Business Income. (UMF 3.) Farmers ultimately denied payment for Plaintiffs’ alleged damages to an electrical panel and kitchen hood, and for additional lost business income, citing Plaintiffs’ failure to produce information and documents in support of those losses. (UMF 3; Ex. 5 [223].) Farmers’ denial of these damages is the subject of Plaintiffs’ claims in this action. (Comp. ¶¶ 23-24.)

Plaintiffs sought $8,600 for the cost to install an electrical panel that was purportedly damaged by the water leak, and submitted an invoice in support of the claim from SDS Electric Inc. (UMF 4; DE, Ex. 6 [336].) Celine Johnson, Farmers’ business income adjuster who handled Plaintiffs’ claim, states that an inspection by a third-party contractor showed that the electrical panel was operational and showed no evidence of water damages. (Johnson Decl. ¶ 8.)

With respect to the kitchen hood, Plaintiffs claimed that they were told by the City of Glendale that the hood was not code-compliant and so sought damages for replacing it. Farmers denied payment of damages to replace the hood on the basis that Plaintiffs did not provide any evidence of costs actually incurred, as required under the Policy. (UMF 5; Johnson Decl. ¶ 9; DE, Ex. 3, p. 7 [43].)

In investigating Plaintiffs’ claimed business income losses, Farmers requested that Plaintiffs produce documents including a Profit and Loss Statement prepared by a professional accountant, sales reports, tax filings, payroll documentation, the company’s lease, and rent payments. (UMF 5-7.) Plaintiffs ultimately produced a “Consolidated Income Statement,” which did not indicate who it was prepared by; a copy of the lease; three monthly bank account statements for Mehrabi, Inc., for April 2019 through June 2019; and copies of various checks. (UMF 7; DE, Ex. 6.) The income statement represents that Plaintiffs’ business lost $54,293 in April 2019, its first month of operation; earned net income of $65,049 in May 2019; and earned net income of $14,544 in June. The income statement then projected net income of $113,434 for each of the following ten months. (DE, Ex. 6 [337].)

Though Farmers sent further requests for production, Plaintiffs did not provide any other documents in support of their claimed damages. (Johnson Decl. ¶¶ 13-14.) On December 6, 2019, pursuant to a provision in the Policy, Farmers demanded that Mehrabi submit to an examination under oath (EUO) and produce documents relevant to the claims. (UMF 11; DE, Ex. 5 [202]; Ex. 7.) Mehrabi appeared for the EUO on January 30, 2020, but did not produce any additional documents. (Johnson Decl. ¶ 15.) At the EUO, Mehrabi testified as to the existence of a number of documents relevant to the claimed business losses, including records related to employees, sales, food purchases, catering orders, and credit card transactions. (DE, Ex. 3, pp. 37, 41-42, 47, 85, 90, 113.) Following the EUO, Farmers sent three additional demands for production to Plaintiffs targeted at the documents attested to, on February 21, March 13, and March 31, 2020. (UMF 12-14; DE, Ex. 10 [502].) Plaintiffs did not provide any further documents in response to these demands. (UMF 12-14; Johnson Decl. ¶¶ 15-17.)

Around this time, as part of the investigation into Plaintiffs’ claimed loss business income, Farmers’ Special Investigations Unit contacted four of the businesses identified on the cancelled checks submitted by Plaintiffs as evidence of their income from catering orders. (UMF 15; Johnson Decl. ¶ 18; DE, Ex. 4 [74].) Three of the businesses (CA Peoples Home Health, Core Home Agency, and Paradise Home Health Care Services) told Farmers’ investigators that they were home health care facilities and did not have any records of the catering orders. The fourth facility was a residential home; Farmers’ investigator was unable to contact anyone there. (Ibid.)

On April 21, 2020, Farmers notified Plaintiffs that it would not make any additional payments on the policy, citing Plaintiffs’ failure to comply with the Policy’s provisions requiring production of relevant information requested. (DE, Ex. 5 [223].)

Plaintiffs assert four causes of action against both Farmers and Kevorkian, for (1) Breach of Contract; (2) Breach of Implied Covenant of Good Faith and Fair Dealing; (3) Violation of UCL; and (4) Negligence.

As an initial matter, Plaintiffs’ claims against Kevorkian are entirely unsupported. Agents of an insurer are not parties to the insurance contract. (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 824.) Kevorkian was not a party to the Policy, and so cannot be held liable for breach of the Policy or breach of its implied covenant of good faith. (DE, Ex. 3.) While Plaintiffs argue that Kevorkian may be held liable for negligence and negligent misrepresentation, Plaintiffs have presented no evidence of any misrepresentation made by Kevorkian. Accordingly, summary judgment for Kevorkian is granted on all causes of action.

Plaintiffs’ first cause of action for breach of written contract alleges that Farmers breached the Policy by refusing to pay Plaintiffs for the contested damages related to the oven hood, fixtures, and loss of business income. (Comp. ¶¶ 23-24.)

The burden is on an insured to establish that the occurrence forming the basis of its claim is within the basic scope of insurance coverage. (Aydin Corp. v. First State Ins. Co. (1998) 18 Cal.4th 1183, 1188.) Here, Plaintiffs bear the burden to present evidence showing a triable issue of material fact as to whether the losses at issue fell within the scope of coverage. Plaintiffs have failed to meet this burden.

First, Defendants have presented undisputed evidence that the electrical panel was not damaged by the water leak, as concluded by Farmers’ third-party contractor. (UMF 4; Johnson Decl. ¶ 8.) Additionally, Mehrabi testified at his EUO that he made no changes to the restaurant’s electrical system after purchasing it and did not hire any electrician for the restaurant prior to the water loss. (DE, Ex. 7, pp. 40, 71 [461].) Mehrabi was also unfamiliar with the name of SDS Electronics, did not recognize the invoice from SDS Electronics that Plaintiffs had submitted in support of the electrical panel costs, and stated that he hired an electrician to investigate the panels only after the water damages occurred. (Id. pp. 69-71.) Plaintiffs’ only evidence submitted in opposition to these facts is an unauthenticated excerpt from Mehrabi’s deposition, in which he states that he installed an electrical panel on May 3, 2019. (UMF 4; PE, Ex. 2 [17].) This inadmissible evidence fails to present a substantive dispute of material fact as to whether the alleged damages to the electrical panel fall within the scope of coverage.

Plaintiffs’ evidence is similarly insufficient with respect to the kitchen hood. The Policy includes coverage for “increased costs incurred to comply with enforcement of an ordinance or law in the course of repair, rebuilding or replacement of damaged parts of the property, subject to the limitations stated in l.(3) through l(9) of this Additional Coverage.” (DE, Ex. 3, p. 7 [43].) The applicable limitations impose a $5,000 ceiling on Additional Coverage, and also provide that Farmers “will not pay for the Increased Cost of Construction . . . Until the property is actually repaired or replaced…” (Ibid.) Farmers’ undisputed evidence indicates that Plaintiffs never provided Farmers documentation of costs incurred from replacing the kitchen hood. (UMF 5; Johnson Decl. ¶ 9.) Plaintiffs have also presented no evidence here that they incurred such costs. Given this, Plaintiffs have not met their burden to support their entitlement under the Policy to damages related to the kitchen hood.

Finally, the Court agrees with Defendants that Plaintiffs’ claims for additional business income losses are barred due to Plaintiffs’ breach of the Policy’s provisions requiring cooperation and production of documents.

“A standard cooperation clause provides that the insured will cooperate with the insurer in the investigation, settlement, or defense of a claim or suit.” (Belz v. Clarendon America Ins. Co. (2007) 158 Cal.App.4th 615, 625.) An insurer must demonstrate that it has been “substantially prejudiced” by an insured's breach of the contractual duty to cooperate in the investigation of a claim, when the insurer is asserting such breach as a defense to an action on the policy. (Brizuela v. CalFarm Ins. Co. (2004) 116 Cal.App.4th 578, 590.) The burden of proving that a breach of a cooperation clause resulted in prejudice is on the insurer. (Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303, 306.) “Generally, in the absence of a reasonable excuse, when an insured fails to comply with the insurance policy provisions requiring an examination under oath and the production of documents, the breach generally results in a forfeiture of coverage, thereby relieving the insurer of its liability to pay, and provides the insurer an absolute defense to an action on the policy.” (Brizuela, 116 Cal.App.4th at 590 [citing Couch on Insurance (3d ed.1999), § 196:23].)

Here, the Policy covered “actual loss of Business Income you sustain due to the necessary suspension of your ‘operations’ during the ‘period of restoration.’ The suspension must be caused by direct physical loss of or damage to property at the described premises.” (DE, Ex. 3, p. 4 [40].) The Policy also imposed certain “Duties In the Event of Loss or Damage” on Plaintiffs, requiring that the insured “must see that the following are done in the event of loss or damage to Covered Property.” (DE, Ex. 3, p. 14 [50].) These duties required that Plaintiffs, “[a]t [Farmers’] request, give us complete inventories of the damaged and undamaged property”; “As often as may be reasonably required, permit us to inspect the property proving the loss or damage and examine your books and records”; and “[c]ooperate with us in the investigation or settlement of the claim.” (Ibid.)

In support of their claimed business income losses, Plaintiffs provided Farmers only the “Consolidated Income Statement,” the bank account statements for Mehrabi, Inc., a copy of the restaurant’s lease, and the cancelled checks. (DE, Ex. 6; Mehrabi Decl. ¶ 16.) Despite the various deficiencies in these records, Plaintiffs did not respond to Farmers’ further requests for documents. (UMF 12-15.) This undisputed evidence shows that Plaintiffs failed to comply with these duties under the Policy, and that Defendants were substantially prejudiced by Plaintiffs’ failure to provide the requested information. (See Abdelhamid v. Fire Ins. Exchange (2010) 182 Cal.App.4th 990, 1007 [finding that insurer “was substantially prejudiced by [insured’s] failure to produce documentation, failure to answer material questions, failure to submit a complete proof of loss with supporting documentation, and refusal to cooperate”].)

In opposition, Plaintiffs attempt to rely on Mehrabi’s declaration statement that, “[d]uring my Examination Under Oath I informed Farmers’ counsel that I had previously provided all documents in my possession that were requested by Farmers and that I had no more additional documents to provide.” (Mehrabi Decl. ¶ 34.) This statement is plainly contradicted by the transcript of Mehrabi’s EUO, in which he testified as to the existence of various relevant documents that he possessed but had not yet produced, including records related to employees, sales, food purchases, catering orders, and credit card transactions. (DE, Ex. 7, pp. 37, 41-42, 47, 85, 90, 113.) Because “[a]fter-the-fact attempts to reverse prior admissions are impermissible because a party cannot rely on contradictions in his own testimony to create a triable issue of fact,” this evidence is insufficient. (Gabrielle A. v. County of Orange (2017) 10 Cal.App.5th 1268, 1282.)

Accordingly, summary adjudication is warranted on the first cause of action for breach of contract. Because Plaintiffs have failed to show a triable dispute as to their breach of contract claim, Plaintiffs’ derivative claims for breach of implied covenant of good faith and fair dealing, violation of the Unfair Competition Law, and negligence also fail. (See Brizuela, 116 Cal.App.4th at 588 [“The reasonableness of an insurer's conduct in processing a claim may be a question of fact. But when the evidence is undisputed and only one reasonable inference can be drawn from the evidence, the issue of reasonableness is a question of law”].) Summary judgment is therefore granted in favor of Defendants.