469_C370
Confusion
Caused By Treatment of Proofs of Loss
|
Homeowners |
Proofs of Loss |
|
Bad
Faith |
Breach of Contract |
In August 2009, a wildfire destroyed 89 houses
in Southern California. Homeowners filed claims with their respective insurers,
one of which was Fire Insurance Exchange (FIE). After their claims were denied,
the homeowners sued FIE, alleging that it collectively denied or underpaid
valid claims. Their causes of action were for breach of contract, bad faith,
and unfair business practices. The lower court found in favor of FIE, and the
insured parties appealed.
The policies at issue provided that, as a
condition of coverage, the insured parties had to provide timely notice of loss
to FIE. One policy required “immediate notice,” and the others required written
notice “without unreasonable delay.” The policies also required a signed, sworn
proof of loss notice within 60 days of a request by FIE. Insured parties were
precluded from bringing actions against FIE unless they had fully complied with
all policy terms and conditions.
Appellant Ocie Henderson retained a public
adjuster to manage his claim for damages and notified FIE of his loss on
February 9, 2010. On February 11 and March 12, FIE sent
written reminders of the proof of loss requirement. Having received no
proof of loss 61 days after the first reminder letter FIE sent a letter to the
public adjuster denying Henderson’s claim.
Appellant Anthony Wallace contacted FIE on
March 28, 2010. He retained ALG to manage his claim. On March 30, FIE sent a
letter to ALG asking to inspect the property and requesting it to submit a
proof of loss. FIE inspected the property on May 6, and then sent a letter to
ALG asking for additional time to make a final determination. In those letters, FIE reminded ALG of the proof of loss form
requirement.
FIE had not received a proof of loss form by
June 23, at which time FIE notified ALG that it denied the Wallace claim on the
ground that “there were insufficient levels of smoke, ash and/or soot related
to the August 2009 wildfires to require any remediation” and stating that it
was “not waiving any of the terms or conditions of the applicable insurance
policy, or any defenses now or hereafter available under the policy or at law,
all of which are being expressly reserved and retained.”
Appellants Roscoe and Edna Allen submitted
their claim to FIE on January 6, 2010. They also retained ALG to manage their
claim. On January 12, FIE sent a letter to the Allens asking to inspect the
property and requesting the proof of loss form. On February 9
and March 10, FIE asked for additional time to make a determination because it awaited
an expert's report as well as the Allens’ proof of loss form. On March 15, FIE denied the Allens’ claim, as it had with Wallace,
and stated that it was “not waiving any of the terms or conditions of the
applicable insurance policy, or any defenses now or hereafter available under
the policy or at law, all of which are being expressly reserved and retained.”
Finally, on June 2, 2010, John and Sharon
Billingslea submitted a claim to FIE through their representative, also ALG. On June 24 and July 16, FIE sent letters advising that it needed
additional time because it was awaiting the inspector’s report and the proof of
loss form. On July 27, it sent a letter to ALG denying the Billingsleas’
claim on the ground that there was insufficient damage to warrant a claim. The
Billingsleas sued for breach of contract, breach of the implied covenant of
good faith and fair dealing, and unfair business
practices.
The lower court found that because Henderson,
Wallace, and the Allens did not submit proofs of loss, they were barred from
bringing suit against FIE. The primary issue on appeal was whether, in order to
sustain a defense based on the failure of each of the insured parties to submit
a sworn proof of loss, FIE was required to show substantial prejudice. The
Court of Appeal, Second District, Division 4, California, concluded that
because FIE was the moving party and asserted a defense based on the lack of timely
proof of loss, it had the burden to show prejudice. The court said that because
FIE presented no legal argument or any evidence of prejudice as to Henderson,
Wallace, and the Allens, it was not entitled to a decision in its favor. The
decisions of the lower court in favor of FIE were reversed, and the cases were
remanded for further discussion.
As to the Billingsleas, the lower court found
that their delay in reporting their loss breached their policy’s requirement
that they give notice “without unnecessary delay,” and that FIE was prejudiced
by this delay. On appeal, the Billingsleas argued that FIE waived its defense
based on delayed notice because it did not specifically object to the delayed
notice until the lawsuit was filed. The Court of Appeal found that this
argument required a factual determination. As a result, it overturned the lower
court’s decision and remanded the case for further discussion.
Court
of Appeal, Second District 4, California. Henderson
v. Farmers Group, Inc. No. B236259. October 24,
2012-2012 WL 5246912 (Cal App. 2 Dist.)