An insured’s failure to answer questions at an examination under oath (even on advice of counsel), combined with failure to submit a complete and supported proof of loss form, defeated the insured’s suit for breach of contract and bad faith. ( Abdelhamid v. Fire Ins. Exchange (2010) 182 Cal.App.4th 990)
Facts
Zary Abdelhamid purchased a house. Thereafter, she purchased a homeowner’s insurance policy from Fire Insurance Exchange (FIE). A fire damaged Abdelhamid’s house, and a subsequent investigation revealed the fire was intentionally set. In addition, investigation revealed a number of circumstances that suggested Abdelhamid herself might have been responsible for starting the fire.
In particular, FIE uncovered information that Abdelhamid: (1) believed the seller had defrauded Abdelhamid into paying too much for the residence; (2) had been forced to carry three mortgages, amounting to sizeable monthly payments, for the five or six months prior to the fire; (3) had paid a large sum of money upfront to contractors for a remodel job that the building department ultimately halted because of failure to obtain permits; and (4) had been unable to get the contractors to complete the remodel or return her money.
FIE also learned Abdelhamid had filed bankruptcy a few years before the fire. At the time she filed the bankruptcy, she had sizeable debt and minimal income. In addition, Abdelhamid’s sole source of claimed income at the time of the fire was a restaurant she recently had opened.
FIE requested Abdelhamid to submit a completed proof of loss form, produce various categories of documentation and appear for an examination under oath (EUO). Abdelhamid, working with a public adjuster, submitted a proof of loss to FIE. The proof of loss claimed a building loss in the amount of $459,000 and listed losses for contents, separate structures and additional living expenses in amounts “to be determined.” The proof of loss failed to state where Abdelhamid was residing at the time of the claimed loss, and the proof of loss did not include much of the necessary supporting documentation.
Abdelhamid appeared at her EUO with her public adjuster, but not an attorney. During her EUO, Abdelhamid repeatedly refused to answer any questions about her business or personal finances. She asserted her refusals to answer were based on legal advice that the questions were not reasonably related to her claims. FIE’s counsel specifically cautioned Abdelhamid that her refusals to answer could constitute a basis for FIE to deny the claim.
Ultimately, FIE denied Abdelhamid’s claim because of her: (1) failure to produce requested documentation; (2) failure to answer material questions when examined under oath; (3) failure to submit a completed proof of loss with necessary documentation; and (4) general failure to cooperate in the processing of her claim. Although FIE denied the claim, FIE offered to consider any additional information or documentation Abdelhamid might submit in the future.
After FIE denied the claim, Abdelhamid submitted a proof of loss form and some (but not all) of the documents FIE previously had requested. Upon receipt of this new information, FIE sought to conduct a second EUO, but Abdelhamid did not respond to this request and, instead, filed suit for breach of contract and bad faith.
The trial court granted summary judgment in favor of FIE on the grounds that Abdelhamid had not complied with the conditions of the policy. Abdelhamid appealed.
Holding
The Court of Appeal affirmed the summary judgment, holding that Abdelhamid’s purported reliance on advice of counsel in refusing to answer FIE’s questions and failing to supply requested documentation did not excuse her failure to comply with the policy conditions. In addition, the Court held that the proof of loss forms that Abdelhamid submitted were incomplete and lacked all necessary supporting documentation.
The Court concluded that FIE was substantially prejudiced by Abdelhamid’s failure to produce documentation, failure to answer material questions at the examination under oath, failure to submit a complete proof of loss with supporting documentation, and general refusal to cooperate. These material breaches of the policy conditions precluded coverage for Abdelhamid’s contract claim which, in turn, defeated her bad faith claim.
Comment
This case is another in a growing body of cases in which California appellate courts have firmly held that a first-party insurer can deny coverage to an insured that does not reasonably cooperate in the investigation of the claim. The Court provided a detailed explanation of the circumstantial evidence that suggested the insured was responsible for the arson. Based on this circumstantial evidence, the Court concluded that the insurer was entitled to conduct a detailed investigation into the insured’s background, including her finances.
An insurer that intends to require the insured to submit a proof of loss form should bear in mind several points. First, the Fair Claims Settlement Practices Regulations require that an insurer provide necessary claim forms within fifteen days after receiving notice of the claim. Second, Insurance Code section 554 provides that, if an insured fails to submit a proof loss within the time required, the insurer must object “promptly and specifically” or will waive the defense.