2015-00178516-CU-BT

Akram Zawaydeh vs. Farmers Insurance Exchange

Nature of Proceeding: Motion for Summary Judgment and/or Adjudication

Filed By: Moore, Valerie A.

Defendant Farmers Insurance Exchange (“Farmers’”) motion for summary judgment is denied. Farmers’ motion for summary adjudication is denied.

Farmers’ objections to Plaintiffs’ Additional Disputed Facts (“ADF”) nos. 1-5 are SUSTAINED. Plaintiffs present five ADFs in support of their opposition. However, as Farmers note, none of the ADFs are supported by any evidence, in violation of California Rule of Court, Rule 3.1350(f)(3). As a result, the Court has not considered the purported ADFs in ruling on the instant motion.

Farmers’ request for judicial notice is unopposed and is granted.

FACTS

Plaintiff Francesca Zawaydeh (“Francesca) and Akram Zawaydeh (“Akram”) (together, “Plaintiffs”) bring this action for breach of an insurance contract and breach of the implied covenant of good faith and fair dealing against Farmers. Francesca owned and operated the restaurant Crepe Escape LLC (“Crepe Escape”), formerly located at 5635 H Street in Sacramento. (UMF 1.) Plaintiffs leased the Crepe Escape commercial building and premises from landlords Jeffrey Tu and Shih Ying and the Tu Family Living Trust (together, “Tu”). (UMF 2.) On November 11, 2012, Plaintiffs consulted with defendant Ophelia Riego (“Riego”), an insurance agent for Farmers, who prepared a Businessowners Policy (“Policy”) issued by Farmers. (UMF 3.) The Policy provided for coverage for loss to property, business personal property, and business income and extra expense caused by fire. (UMF 3.) Plaintiffs and Crepe Escape were the named insureds. (UMF 4.)

On March 3, 2013, Tu filed an unlawful detainer complaint (“UD Action”) against Akram and Crepe Escape, based on Plaintiffs’ failure to pay rent, property taxes, and insurance premiums. (UMF 5.) Brian Stone (“Stone”) served as Plaintiffs’ advisor, giving them advice regarding the eviction proceeding and insurance. (Def. Ex. 12 at

pp. 53.) Stone also referred Plaintiffs to attorney Terence Kilpatrick (“Kilpatrick”), who represented Plaintiffs in the UD Action, and Stone served as an intermediary of sorts between Plaintiffs and Kilpatrick. (Pl. Ex. F at pp. 58.) The UD Action alleged that Plaintiffs failed to provide insurance for the leased premises in accordance with the lease. (UMF 10.)

On April 2, 2013, at the request of Stone, Plaintiffs’ insurance agent Riego prepared , signed and issued a certificate (“4/2/13 Certificate”) and three policy changes: (1) $500,000 in building coverage was added, (2) Tu was added as a loss payee for

business personal property, and (3) the tenants improvement and betterment coverage was increased to $350,000. (UMF 12-16.) Riego gave the 4/2/13 Certificate to Stone, who then met with Akram and Kilpatrick on April 2. (UMF 17-18.) Kilpatrick received the 4/2/13 Certificate from either Stone or Plaintiffs and then submitted the 4/2/13 Certificate to Tu’s counsel as part of pretrial efforts to resolve the UD Action. (UMF 11, 19.)

On April 10, 2013, again at the request of Stone, Riego prepared, issued, and signed a Certificate of Insurance (“4/10/13 Certificate”), which showed that the policy had commercial general liability coverage of $2 million and that Tu were Certificate Holders. (UMF 20.) Riego gave the 4/10/13 Certificate to Stone. (Id.) On that same date, Riego issued a letter (the “4/10/13 Letter” or “Letter”) to Crepe Escape listing Tu as additional insureds and loss payees and stating that Crepe Escape should mark anyone it wishes to have removed from the policy and return the Letter to Riego. (UMF 21, 22, 23.) Crepe Escape did not return the Letter. (Id.) Also on April 10, Riego prepared and issued a letter regarding coverage amounts, and listing Tu as the 1st mortgagee (loss payee) on the policy (“Interim Certificate.”) (UMF 24.) The 4/10/13 Certificate, Interim Certificate, and Letter were given from Riego to Stone to Kilpatrick, who then met with Plaintiffs and Stone on that same date. (UMF 25, 26.)

Kilpatrick then prepared a draft Offer of Proof for Francesca, which stated that the policy names the Tu Trust as “additional insured and loss payee for personal property”. (UMF 28) Kilpatrick emailed the Offer of Proof to Francesca, who emailed back an hour and a half later. (UMF 29-30.)

On April 11, 2013, the UD Action went to trial. (UMF 31.) At the end of trial, Kilpatrick submitted a closing brief on Plaintiffs’ behalf that included the 4/10/13 Certificate, Interim Certificate, and Letter as exhibits. (UMF 35, 36.) The closing brief and exhibits were sent to Stone. (UMF 37.) On April 24, judgment in the UD Action was entered against Plaintiffs and in favor of Tu, for possession of the Crepe Escape premises, cancellation of the rental agreement and an award of Tu’s costs. (UMF 38.)

On April 29, 2013, an intentionally set fire at Crepe Escape damaged the building and its contents, and Plaintiffs submitted a claim to Farmers for the fire. (UMF 39, 40.) Farmers investigated and then issued a check for $226,138.63, jointly payable to Plaintiffs and Tu as insureds on the policy. (UMF 42.) Plaintiffs and Tu could not agree to allocation, so Farmers interpled the funds to Sacramento Superior Court. (UMF 43.) Plaintiffs and Tu ultimately settled whereby Tu received $142,141.12 and Plaintiffs received $83,002.50. (UMF 44.)

Additionally, under the terms of the Policy, Farmers was required to pay for the actual loss of business income sustained due to the necessary suspension of business operations during the “period of restoration” that resulted from the “direct physical loss of or damage to the property.”(UMF 46.) In other words, Farmers was obligated under the Policy to pay Plaintiffs’ income – if any – that was lost as a result of the fire, as they worked to restore the building. As noted above, Plaintiffs had lost the UD Action on April 24, five days prior to the fire. However, Crepe Escape was still in operation on the date of the fire. (Pl. Ex. L.)

Plaintiffs then filed this action against Farmers and Riego, alleging that Riego and Farmers added Tu to the Policy as additional insureds and loss payee without notice to Plaintiffs and without their knowledge or consent and that Farmers failed to pay any

benefits for loss of business income under the Policy. Riego and Plaintiffs have since settled and Riego has been dismissed from the action. This motion from Farmers now follows.

ISSUES 1 & 2: DUTY TO INDEMNIFY OR PAY

Plaintiffs’ SAC allege causes of action against Farmers for (1) breach of insurance contract, (2) breach of the implied covenant of good faith and fair dealing, (3) bad faith, and (4) unfair competition under the Unfair Competition Act, Business & Professions Code §17200 et seq. (Farmers RJN Ex. A.) It is unclear from the instant motion whether the third and fourth causes of action are still at issue, as Farmers’ motion moves for summary judgment, or in the alternative, summary adjudication, but only expressly addresses the first two causes of action. (See MPA at p. 1:4-5, 14:4-21; See also, Issue nos. 1-4.) Indeed, nowhere in Farmers’ papers do they address the third and fourth causes of action.

Farmers’ motion is not clearly broken down by issue. Nonetheless, Farmers appears to generally argue that Plaintiffs’ breach of contract claim fails because (1) Plaintiffs had knowledge and/or notice that Tu was added as a loss payee before the fire occurred, and (2) Farmers was not required to pay lost business income to Plaintiffs because they were evicted from the building prior to the fire. Farmers then argues that because there was no breach of contract, there can be no breach of the implied covenant of good faith and fair dealing as a matter of law. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36.)

However, Farmers frames Issue 1 as follows: Farmers has no duty to indemnify or pay to Plaintiffs’ additional policy benefits under the business personal property coverage of the Policy. (emphasis added.) Farmers frames Issue 2 as follows: Farmers has no duty to indemnify Plaintiffs under the Business Income coverage of the Policy. (emphasis added.) Farmers argues that the issue of whether a duty exists can be summarily adjudicated, and that here, Farmers has shown that it has no duty to indemnify Plaintiffs under the Policy. (See Reply at p. 7.)

While it is true that the Courts are empowered to adjudicate issues of duty (CCP §437c (f)(1)), there are no allegations regarding a duty to indemnify in the operative complaint

. (RJN Ex. A.) The duty to indemnify is the insurer’s obligation to compensate the insured for judgments rendered against it in a third-party action. Generally, the insurer’s duty to indemnify extends to the limits of the policy, and includes all amounts the insured is legally obligated to pay as a result of conduct which (1) injures a third party, and (2) falls within the scope of the policy. (See, e.g., Blue Ridge Ins. Co. v. Jacobsen (2001) 25 Cal. 4th 489, 497; 4-52 California Insurance Law & Practice § 52.08 (2017).)

The pleadings define the scope of the issues on a motion for summary judgment or summary adjudication. (FPI Dev. Inc. v. Nakashima (1991) 231 Cal. App. 3d 367, 381-382.) Here, Plaintiffs do not allege that Farmers breached its duty to indemnify Plaintiffs in the SAC. Rather, as stated above, Plaintiffs’ plead claims based on breach of contract. A cause of action for breach of contract requires allegation of four elements: (1) a contract, (2) plaintiff’s performance, (3) defendant’s breach, and (4) damages. (Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 Cal. App. 4th 1106, 1112.) There is no duty element, nor is indemnification at issue here.

Accordingly, Issues nos. 1 and 2 as framed by Farmers cannot be summarily adjudicated. To the extent Farmers frames Issue no. 1 as stating that Farmers has no duty to pay (rather than indemnify) Plaintiffs’ additional policy benefits under the Policy, Farmers still does not explain how an alleged “duty” fits into the breach of contract analysis, as the elements for breach of contract set forth above do not include a duty. Indeed, Farmers provides no legal framework for its “duty” argument (or indemnity argument) whatsoever.

Farmers further does not explain how the element of “duty” fits into any other analysis or cause of action. While Issue nos. 1 and 2 appear to solely address the breach of contract cause of action, the Court notes that breach of the implied covenant of good faith and fair dealing is also a contractual claim where duty is not at issue. Specifically, the essential elements of breach of the implied covenant of good faith and fair dealing are: (1) the parties entered into a contract, (2) the plaintiff did all or substantially all of the significant things that the contract required, (3) all conditions required for the defendant’s performance occurred, (4) the defendant unfairly interfered with the plaintiff’s right to receive the benefits of the contract, and (5) the plaintiff was harmed by the defendant’s conduct. (See CACI Instr. No. 325 [collecting authorities].) Again, there is no requirement of duty in the analysis. Moreover, as stated, there are no allegations regarding a duty to indemnify or regarding indemnification whatsoever in the SAC.

Based on the foregoing, the Court finds that Farmers has failed to meet its initial burden as to Issues -nos. 1 and 2, and the motion for summary adjudication of Issues no. 1 and 2 is denied.

ISSUE 3: BREACH OF CONTRACT

Farmers’ Issue no. 3 asserts that “Plaintiffs’ first cause of action for breach of contract has no merit and Farmers has a complete defense thereto as a matter of law.” Nowhere in the moving papers or reply does Farmers clearly reference, define, or otherwise specify the “complete defense” that is referenced in the issue to be summarily adjudicated. Indeed, Farmers does not expressly reference Issues 3 (or 4) in its moving papers or reply whatsoever. Accordingly, the very basis of Farmers’ argument in Issue no. 3 is unclear. As a result, the Court cannot grant summary adjudication, as it is unclear what “defense” is meant to be summarily adjudicated.

Even if the Court did attempt to summarily adjudicate Issue no. 3, Plaintiffs’ breach of contract cause of action appears to be based on multiple theories. (See RJN Ex. A at ¶¶14-17, 23.) Specifically, Plaintiffs allege that Farmers added Tu to the policy without Plaintiffs’ knowledge or consent, that Farmers then paid Tu without Plaintiffs’ consent, and that Farmers failed to pay out Plaintiffs’ business income loss to Plaintiffs as provided for under the Policy. (Id.) Farmers would need to present a complete defense to all of Plaintiffs’ theories (or show that all theories lack merit) in order for the Court to find that Plaintiffs’ entire cause of action for breach of contract fails. Here Farmers has not done so.

Moreover, Farmers presents 47 purported undisputed material facts in support of Issue no. 3. Through these facts and in its papers, Farmers argues in part that Plaintiffs’ breach of contract cause of action fails because Plaintiffs authorized the addition of Tu to the Policy. (Mot. p. 7:16-18.) Specifically, Farmers contends that both (1) Plaintiffs

authorized the addition of Tu, and (2) Plaintiffs had notice that Tu was added to the Policy prior to the fire but failed to request Tu’s removal. As a result, Farmers contends that the breach of contract claim must fail.

Plaintiffs spend much of their opposition arguing that there is a dispute of fact as to whether they authorized Farmers to add Tu to the Policy. There is no dispute that Stone, rather than Plaintiffs, requested Riego add Tu as a loss payee to the Policy, and that Riego did. However, Farmers contends that Plaintiffs authorized Stone to act on their agent, and that Stone was therefore acting on Plaintiffs’ behalf when he requested the addition of Tu. In support of its contention that Stone was Plaintiffs’ agent, Farmers cites to deposition testimony from Kilpatrick, in which he states that Stone was serving “as an intermediary [between the Plaintiffs and Kilpatrick] in some respects” and because Plaintiffs “appeared to acquiescing him acting as such.” (UMF 9; Def. Ex. 13.)

In opposition, Plaintiffs argue that they did not authorize Stone to add Tu or to act on their behalf. Plaintiffs provide a declaration from Francesca in which she attests that she never authorized Stone to act as her representative in any way, that she was the sole person who could authorize a representative to engage with insurance companies on behalf of Crepe Escape, and that she never authorized Stone to add or ratified the addition of Tu to the Policy. (Francesca Decl. ¶¶2-6.) Francesca further attested at her deposition that she never gave Stone power of attorney. (Pl. Ex. B at p. 82:5-10.)

Accordingly, there is a dispute as to whether Stone had the authority to act as Plaintiffs’ agent, such that he could request and/or authorize Tu’s addition to the Policy from Riego. (UMF 9; Pl. Ex. B at p. 82:5-10, Francesco Decl. ¶2-6.) As a result, UMF no. 9 is in dispute, and the motion must be denied on this basis.

While Farmers argue in reply that the question of whether Stone was authorized to add Tu to the policy is “moot,” because Plaintiffs had notice that Tu was on the Policy after Tu was added to the policy, and did not object, this argument lacks merit. First, Farmers include the following fact as UMF 9 in its separate statement: “Brian Stone was acting as an agent and representative of the Plaintiffs.” Having identified said fact as material to the resolution of the motion, Farmers cannot argue that, where Plaintiffs have successfully disputed one of Farmers’ factual assertions, that the disputed fact is not truly material. (See Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243, 252 [citing Weil & Brown, Civ. Proc. Before Trial, ch. 10:95.1].)

As the Nazir court noted, the facts enumerated in a moving separate statement have a due-process dimension in that they define for the opposing party the facts which, if disputed with admissible evidence, result in the motion being denied. (Nazir, supra, 178 Cal.App.4th at 252 [citation omitted].) In reliance on the universe of facts in the moving separate statement, a party opposing a summary judgment motion is entitled to stop working on the opposition once (s)he has produced admissible evidence demonstrating that a single fact presents a triable issue. Here, Plaintiffs clearly relied on Farmers’ representation that whether Plaintiffs authorized the addition of Tu to the Policy was material, as they dedicated much of their opposition to this issue.

Additionally, the SAC alleges that Farmers added Tu “without Plaintiffs’ knowledge or consent.” (RJN Ex. A ¶17(a).) Thus, the addition of Tu without Plaintiffs’ knowledge appears to be a basis for the breach of contract claim that Farmers has not negated. The pleadings define the scope of the issues on a motion for summary judgment or

summary adjudication. (FPI Dev. Inc. v. Nakashima (1991) 231 Cal. App. 3d 367, 381-382.)

Finally, Farmers appears to argue that Plaintiffs’ notice after the fact – i.e., Plaintiffs’ knowledge that Tu had been added to the Policy after he was added – constitutes a waiver of sorts, even if Plaintiffs never authorized the addition of Tu in the first place. Nonetheless, Farmers fails to provide any legal analysis regarding the effects of Plaintiffs’ knowledge or consent in this context. Farmers has not shown that Plaintiffs’ knowledge that Tu had been added to the Policy without their consent, and failure to immediately object thereto, constitutes a complete defense to Plaintiffs’ breach of contract claim.

Based on the foregoing reasons, summary adjudication of Issue no. 3 is denied.

ISSUE 4: BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

Farmers argue in Issue no. 4 that Plaintiff’s second cause of action for breach of the implied covenant of good faith and fair dealing “has no merit and Farmers has a complete defense thereto, as a matter of law.” Again, Farmers does not brief this issue in the papers and does not specify the “complete defense thereto,” and thus Farmers fails to meet its burden.

Moreover, Farmers argues with respect to the second cause of action that it necessarily fails because the breach of contract claim fails. It is true that where there is no breach of contract, there can be no breach of the implied covenant of good faith and fair dealing as a matter of law. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36.) But as Farmers has failed to show that there is no breach of contract, Farmers has also failed to show that there is breach of the implied covenant as a matter of law.

Finally, the Court notes that Issues 1-4 all rely on the same 47 UMFs. Accordingly, they all contain UMF no. 9, which the Court finds is disputed. The motion must be denied as to Issues 1-4 on these grounds as well.