Judge: Stephen P. Pfahler, Case: 21CHCV00085, Date: 2022-12-12 Tentative Ruling

Case Number: 21CHCV00085    Hearing Date: December 12, 2022    Dept: F49

Dept. F-49

Date: 12-12-22

Case # 21CHCV00085

Trial Date: 2-6-23 c/f 7-25-22

SUMMARY JUDGMENT

MOVING PARTY: Defendant, State Farm General Insurance Company

RESPONDING PARTY: Plaintiffs, Sharon Shimony, et al.

RELIEF REQUESTED

Motion for Summary Judgment/Summary Adjudication

SUMMARY OF ACTION

In 2014, plaintiff Sharon Shimony started the business, plaintiff Couture Gift Collection, LLC. Plaintiff acquired a Business Owners Policy from defendant State Farm General Insurance Company, which included a Loss of Income provision for a period of up to 12 months in case of an event covered loss.

On September 1, 2018, the business was burglarized, thereby leading to loses of merchandise inventory. Plaintiff submitted a claim, and eight months later was paid $101,400 for the stolen inventory. Plaintiff contends the payment lacked any compensation for the loss of income itself. Two years later, Defendant issued a check for $2,358 for two months of lost income.

On February 4, 2021, Plaintiff filed a complaint for Breach of Contract, and Breach of Covenant of Good Faith.

RULING: Denied.

Request for Judicial Notice: Granted.

The court takes notice of the filed pleadings, but not the content for the truth of the matter asserted.

Evidentiary Objections to Declaration of Sharon Shimony: Overruled

Evidentiary Objections to the Declaration of Gregory Goodheart: Overruled/Not Relied Upon (Code Civ. Proc., 437c, subd. (q).)

Defendant State Farm General Insurance Company (State Farm) challenges the entire complaint on grounds that it never breached the contract in that all claims were properly paid under the terms of the policy, no bad faith occurred in that the adjustment process was undertaking in good faith, and Plaintiff lacks facts in support of punitive damages. Plaintiff in opposition concedes to no issue with the handling of the personal property portion of the claim, and only focuses on the loss of income and extra expense portion of the policy. Plaintiffs counter that State Farm failed to property investigate said claims, thereby supporting triable issues of material fact on the contract, bad faith, and punitive damages claims. State Farm in reply challenges the lack of any evidence supporting any claims for loss of income following the burglary.

The purpose of a motion for summary judgment or summary adjudication “is to provide courts with a mechanism to cut through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.”  (Aguilar v. Atl. Richfield Co. (2001) 25 Cal.4th 826, 843.)  “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.)

The pleadings frame the issues for motions, “since it is those allegations to which the motion must respond. (Citation.)” (Scolinos v. Kolts (1995) 37 Cal. App. 4th 635, 640-641; FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 382-383; Jordan-Lyon Prods., LTD. v. Cineplex Odeon Corp. (1994) 29 Cal.App.4th 1459, 1472.) “On a motion for summary judgment, the initial burden is always on the moving party to make a prima facie showing that there are no triable issues of material fact.” (Scalf v. D.B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1519.) A defendant moving for summary judgment “has met his or her burden of showing that a cause of action has no merit if the party has shown that one or more elements of the cause of action . . . cannot be established.”  (Code Civ. Proc., § 437c, subd. (p)(2).) “Once the defendant . . . has met that burden, the burden shifts to the plaintiff . . . to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.” (Ibid.)

“When deciding whether to grant summary judgment, the court must consider all of the evidence set forth in the papers (except evidence to which the court has sustained an objection), as well as all reasonable inference that may be drawn form that evidence, in the light most favorable to the party opposing summary judgment.” (Avivi v. Centro Medico Urgente Medical Center (2008) 159 Cal.App.4th 463, 467; see also Code Civ. Proc., § 437c, subd. (c).) “An issue of fact can only be created by a conflict in the evidence.  It is not created by speculation, conjecture, imagination or guesswork.” (Lyons v. Security Pacific National Bank (1995) 40 Cal.App.4th 1001, 1041 (citation omitted).)

The subject action arises from the September 1, 2018, dated loss, and alleged delays in the claim adjustment process for the loss of income claim, as well as the payment amount. Again, the loss of property claims is not in dispute. State Farm Paid the policy limit of $104,341.

1^st Cause of Action: Breach of Contract

The existence and terms of the policy are not in dispute. The parties concentrate on the sequence of events leading to the adjustment of the claim and payout.

State Farm challenges the breach of contract cause of action on grounds that the delays in the adjustment process were the result of both Plaintiffs’ delayed submission of the required paperwork, and required determination from a third party forensic accounting firm regarding the disruption period and total impact. State Farm next argues that the payment complies with the terms of the contract, and Plaintiffs lack any evidence establishing an entitlement to further payment. State Farm stands by the two month business loss determination and lost income claim of $2,358. [Declaration of Adam Bals, ¶¶ 23-25; Declaration of Heather McKeon, Appendix of Exhibits: Ex. 14, 8-24-20 Letter, Ex. 15: 9-21-20 Letter.] Plaintiffs maintain State Farm underpaid on the loss of income portion and underestimated the actual lost income caused by the burglary.

State Farm opens with the argument that although it requested a police report, business returns and a profit and loss statement for two years preceding the incident on December 4, 2018, the required documentation was not submitted until May 11, 2019. The profit and loss statement shows a bump in sales from $10,158.12 to $171,537.35 from September 2018 to October 2018. Plaintiff submitted a revised statement, which listed total higher sales, albeit lower monthly sales, except for a significant increase in revenue for December 2018 to $206,457.92. State Farm subsequently retained a forensic accounting firm, who State Farm represents determined a disruption period of two months given the perceived recovery from the burglary demonstrated by the jump in revenue, and therefore calculated total value of the claim at $2,358.

Plaintiffs offer no argument over the delayed submission as a basis of the claim, but dispute the two month window for the determination of the business interruption, and the $2,358 payout from the forensic accounting firm. Plaintiffs challenge the conclusions of State Farm regarding the two month period constitutes an unsupported conclusion. Specifically, the determination of the period of restoration by the forensic accounting firm is flawed in that the accounting firm was not tasked with making such a determination. Plaintiffs therefore assert the claim should include an additional 10 months of disruption time for a total period of 12 months with a aggregate payout of $158,792.

“To state a cause of action for breach of contract, [a plaintiff] must plead the contract, his performance of the contract or excuse for nonperformance, [defendant’s] breach and the resulting damage.” (Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 458–59; Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.) In examining a breach of contract claim, the court is required to examine the terms, or at least the legal effect of the contract. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318 [“we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context”].) The complaint specifically alleges State Farm breached the contract by “failing to timely, thoroughly and fairly investigate and pay the claim in a timely manner.” [Comp., ¶ 21.]

“‘[I]nterpretation of an insurance policy is a question of law.’ (Citation.) ‘While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.’ (Citation.) … If possible, we infer this intent solely from the written provisions of the insurance policy. (Citations.) [¶] When interpreting a policy provision, we must give its terms their ‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage.’ (Citations.) We must also interpret these terms ‘in context (citation), and give effect ‘to every part’ of the policy with ‘each clause helping to interpret the other.’ (Citations.) [¶] A policy provision is ambiguous only if it is susceptible to two or more reasonable constructions despite the plain meaning of its terms within the context of the policy as a whole. (Citation.) The court may then “invoke the principle that ambiguities are generally construed against the party who caused the uncertainty to exist (i.e., the insurer) in order to protect the insured's reasonable expectation of coverage.” (Citation.)” (Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115.)

The court finds no dispute from Plaintiffs with the argument for the time taken to adjudicate the claim given the later submission of the paperwork. Regardless, the mere delay in and of itself will not support the argument for summary judgment or summary adjudication. The court therefore concentrates on the dispute over the determination for the disruption period.

The policy defines “Loss of Income” as “Net Income (net profit or loss before income taxes) that would have been earned or incurred if no accidental direct physical loss had occurred, including … total receipts and contributions (less operating expenses) normally received during the period of disruption of operations. … Continuing normal expenses incurred, including ‘ordinary payroll expenses’ … ‘period of restoration’ … begins immediately after the time of accidental direct physical loss caused by Covered Cause of Loss… Ends on the earlier of … the date when the property should be …replaced … the date when business is resumed at a new permanent location.” The insurer agrees to pay for “loss of income” during the “suspension” of “operations.”

While the insurance adjuster represents the forensic accounting firm determined the loss of income as two months [Bals Decl., ¶  24], the letter from the forensic accounting firm in fact states that State Farm takes the “position…that the period of restoration is two months,” [McKeon Decl., Appendix of Exhibits: Ex. 15: 9-21-20 Letter], which is actually confirmed in the predated referral letter [McKeon Decl., Ex. 14, 8-24-20 Letter].

Other than the apparent conclusion by the adjuster of a two month period presumably based on the initial presentation of an income boost, and no other articulated basis of reliance or demonstration of consideration of the later months or other factors potentially presented by Plaintiffs, the court finds no factual basis for a finding an unsupported breach of contract claim based on the “loss of income” language. The court declines to rely on the forensic accounting report in that the report in no way demonstrates an independent determination of the covered period and instead works within the assigned parameters in determining an adjusted income payment.

The court also acknowledges the declaration of plaintiff Shimony who represents the revenue documented in October 2018 represented sales prior to the burglary. The court therefore finds triable issues of material fact regarding the methods for determining the coverage period following the burglary and determination of “restoration.” More fundamentally, said considerations raise questions regarding demonstrated consideration of the actual method for determination of sales and revenue following the burglary compared to mere collection on receipts on pre-burglary sales. [Declarations of McKeon, Bals, and Sharon Shimony.]

2^nd Cause of Action: Breach of Covenant of Good Faith

State Farm depends on the breach of contract cause of action for the argument that Plaintiff also lacks a valid bad faith claim. Plaintiffs counter that the disputed investigation and claim adjustment in and of itself supports triable issues. To the extent Sate Farm fails to successfully challenge the breach of contract cause of action, and the court declines to rely on the findings of the accounting firm for purposes of determining a reasonable time frame, the court also finds a lack of support for the argument against a valid bad faith claim. (Racine & Laramie, Ltd. v. California Dept. of Parks & Rec. (1992) 11 Cal.App.4^th 1026, 1031-1032; Carma Developers (Cal.), Inc. v. Marathon Dev. California, Inc. (1992) 2 Cal.4^th 342, 373.) Triable issues of material fact on the same basis as the breach of contract claim.

Finally, the court finds triable issue of material fact on the punitive damages claim, as it relates to the wrongful withholding of benefits on the insurance policy.

In summary, the motion for summary judgment is DENIED. The motion for summary adjudication is also DENIED.

Trial remains set for February 6, 2023.

Defendant to give notice.