Abdelhamid v. Fire Insurance Exchange (182 Cal. App. 4th 990, 2010)

Opinion

CANTIL-SAKAUYE, J.

Fire Insurance Exchange (FIE) denied insurance coverage to Zary Abdelhamid for the fire that burned her house down, claiming she had (1) failed to produce requested documentation, (2) failed to answer material questions when she was examined under oath, (3) failed to submit a completed proof of loss with necessary documentation, and (4) failed to cooperate in the processing of her claim. The trial court granted summary judgment for FIE on Abdelhamid’s complaint alleging FIE’s breach of contract, breach of the duty of good faith and fair dealing, bad faith denial of claim, and unfair business practices. We affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

A. Abdelhamid’s Purchase of the Kincaid Home and Events Before the Fire

Abdelhamid purchased a house located on Kincaid Way in Sacramento in January 2005, for $729,000. She obtained insurance from FIE to cover the house. Her sole source of income at the time was from a new restaurant she had recently opened in 2004.

In April 2005, Abdelhamid contracted with a company called Crate America for nearly $100,000 to remodel several rooms in the Kincaid house. She also entered into another contract with a company called Gourmet Kitchen for nearly $40,000 worth of kitchen cabinets. At the beginning of the contracts Abdelhamid paid the contractors $87,000 in cash.

In June 2005, Abdelhamid was able to sell her home in Elk Grove, California. Up until that time, she had been forced to carry three mortgages on her two properties with monthly payments totaling approximately $6,800. When Abdelhamid sold her Elk Grove home, she paid off the second mortgage on the Kincaid home, leaving her with a variable rate first mortgage on the home. Abdelhamid had moved her family into a one bedroom apartment because she wanted to finish the remodel of the Kincaid house before moving into it. She was unhappy with the apartment.

On June 27, 2005, the City of Sacramento stopped the remodel work because the contractors had not obtained the necessary permits to do the work. Abdelhamid was unable to get her money back from the contractors or to compel them to obtain the permits and complete the job. During the renovation, the contractors had discovered the ceilings in the Kincaid home contained asbestos.

B. The Fire and Initial Investigation

The Kincaid home burned to the ground on July 14, 2005.

Abdelhamid reported the fire to the issuing agent for FIE. FIE assigned the claim to its senior adjuster Guy Lyons.

Lyons conducted an initial investigation and learned Abdelhamid was a relatively new policyholder; she contracted for a remodel shortly after her purchase of the property; the remodel was stopped by the city because of the lack of permits; the fire consumed the house more rapidly than would be expected in the absence of accelerants; and the home was vacant, so there was nothing inside the house that could have caused a fire. Lyons learned from the Sacramento Fire Department that it concluded the fire was the result of arson and that Abdelhamid appeared to have paid more for the property than it was worth. Lyons learned Abdelhamid had paid 80 percent of the contract price of her remodel, but less than half of the work was complete when the city stopped the work. Abdelhamid had filed suit against Crate America a week before the fire started.

FIE retained a company to investigate the cause and origin of the fire. In its report, the company also concluded the fire was deliberately set (a flammable liquid was poured throughout every room of the house) and confirmed the Sacramento Fire Department investigator considered Abdelhamid to be a possible suspect. The fire department investigator indicated the house was open and unsecured at the time of the fire and that a large outdoor security light, which was normally on at night, was off the night of the fire.

Linda Lynch, coverage counsel for FIE, conducted further investigation. Lynch contacted the attorney representing Abdelhamid in her action against Crate America. The attorney, Mark Kassenbrock, told Lynch that Abdelhamid had been defrauded into the purchase of the Kincaid home by a real estate agent who, among other things, forged her name on documents to consummate the purchase, including on financing documents, which resulted in 100 percent financing on unfavorable terms. According to Kassenbrock, Abdelhamid was also convinced not to get a home inspection. Kassenbrock indicated Abdelhamid would either have paid less for the house or not purchased it at all if she had known about the problems with it. He was representing Abdelhamid in litigation against the agent and against Crate America.

The agent who issued the insurance policy to Abdelhamid told Lynch that his first contact with Abdelhamid was two days before the fire when she called to ask that certain mortgagee provisions be changed. Abdelhamid called the day before the fire to confirm the change had been made. The next day she reported the fire.

Lynch also discovered Abdelhamid had paid a gardener $4,000 in cash to clear overgrown trees and bushes from around the house less than two days before the fire.

Lynch learned Abdelhamid had filed for divorce in October 2004, and that there was a stipulated property settlement giving Abdelhamid the property in Elk Grove and her (former) husband property in New York. The dissolution was effective in April 2005.

C. FIE’s Request for Proof of Loss, Request for Documents, and the Examination of Abdelhamid Under Oath

In August 2005, Lynch wrote Abdelhamid advising her that FIE did not have sufficient information to accept her claim for loss. FIE, through Lynch, requested Abdelhamid to submit a completed proof of loss, produce 11 categories of documentation pertinent to either substantiation of the claim or FIE’s investigation of the claim, and appear for an examination under oath (EUO).

Meanwhile Lynch’s continued investigation disclosed that in 2002 Abdelhamid had filed for bankruptcy under her maiden name and had received a bankruptcy discharge in 2003. The paperwork Abdelhamid had filed in the bankruptcy showed Abdelhamid’s only income at that time was less than $1,000 per month in government assistance. She had debt in excess of $174,000, primarily from credit cards and a personal loan. In the bankruptcy papers, declarations by Abdelhamid regarding her property ownership were inconsistent with the distribution of property in her dissolution proceeding.

Abdelhamid, working with a public adjuster named Joseph Ranciato, 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. The documentation Abdelhamid supplied in support of her proof of loss and in response to the request for documents related only to the sale of her home in Elk Grove, and an unrelated withdrawal of a claim for a purported theft or vandalism loss following the fire.

Lynch spoke with Ranciato about the deficiencies in the materials provided and was informed that Abdelhamid did not wish to produce any additional documentation and wanted to simply proceed with her EUO. In a letter confirming their conversation, Lynch again requested the documentation, reiterating that FIE wanted to conduct a financial evaluation of Abdelhamid, including her business, “to determine whether Ms. Abdelhamid had any financial incentive or motive to stage the loss.” Lynch stated it was “disingenuous” to claim the requested documents could not be produced because they had been stolen from the detached garage at the property, as duplicate copies should readily be available. Lynch also noted that even the documentation produced appeared to be incomplete. Lynch disputed the contention that the missing financial material constituted “confidential tax records.” She, nevertheless, acknowledged FIE could not compel the disclosure of the requested data, but cautioned that the failure to produce the material could be taken into consideration in making the final claims decision. Lynch noted her offer to contact Abdelhamid’s attorney Kassenbrock to discuss the matter and Ranciato’s direction that there be no contact because it would increase Abdelhamid’s attorney fees. Lynch was also informed Kassenbrock was not retained to address the insurance claim. Lynch expressed her dissatisfaction with Ranciato’s representation that Abdelhamid would not have her damages assessment complete until the middle of November 2005. She was particularly concerned about Abdelhamid’s claim for additional living expenses and fair rental claims.

In the middle of November 2005, and although a substantial amount of requested documentation was still missing, Lynch scheduled and took the EUO’s of Abdelhamid and her ex-husband. Abdelhamid did not have legal counsel present with her at her EUO, but was accompanied by Ranciato. During her EUO, Abdelhamid repeatedly refused to answer any questions about her business or personal finances based on purported legal advice that the questions were not related to her homeowner’s claims. However, she did claim to always pay her bills on time and asserted this had been true since she came to California in 2000. But, when questioned about her bankruptcy in 2002/2003, Abdelhamid only answered a few questions and then refused to discuss the matter further. Abdelhamid refused to answer questions regarding her receipt of government assistance before the fire. Lynch cautioned that Abdelhamid’s refusals to answer could be considered by FIE in coming to a decision on her claim.

D. Denial of Claim and Subsequent Events

After the EUO’s, Lynch concluded Abdelhamid’s “failure to provide documentation reasonably requested and which should be reasonably available and further [her] failure to answer even basic questions with respect to her finances . . . constitute[] material policy breaches.” Specifically, Lynch concluded Abdelhamid’s failure to produce requested documentation and her refusal to answer questions during her EUO breached a condition precedent to her recovery under the policy. Lynch concluded Abdelhamid had also failed to comply with the condition of the policy that required her to submit a complete and conforming proof of loss. In addition, Lynch opined Abdelhamid’s failure to cooperate was an independent basis for denying the claim. Lynch recommended FEE deny Abdelhamid’s claim on these grounds. She recommended FEE reserve its right to deny the claim based on concealment or fraud.

In January 2006, FIE formally denied Abdelhamid’s claim in its entirety based on the four grounds outlined by Lynch and reserved its right with respect to concealment or fraud. In its letter denying Abdelhamid’s claim, FEE made the following statement: “If you believe our analysis or decision is incorrect, or if you wish for us to consider additional information or documentation, please forward a written statement as to the basis for your position and any additional information or documentation you wish for us to consider. Rest assured that all information or material you provide will be given careful consideration.”

In February 2006, Ranciato responded to FIE disagreeing that Abdelhamid had either breached the insurance contract or failed to cooperate. He asserted: “We have both additional information and documentation that may resolve the coverage issue.” He promised to submit an updated proof of loss, a detailed repair estimate and a detailed loss inventory by the end of the month.

Ranciato subsequently submitted (1) a notarized proof of loss form, (2) a dwelling repairs report apparently prepared on November 16, 2005, (3) a repairs report for other structures apparently prepared on the same November date, (4) a loss inventory report, (5) a receipt for an oriental rug, (6) a copy of Abdelhamid’s ex-husband’s 2005 federal tax form (Schedule C) for the operation of a Sacramento restaurant, (7) an unsigned copy of the 2005 joint federal tax return filed by Abdelhamid and her ex-husband, (8) partial copies (the right side cut off) of two pages of a bank account statement for Abdelhamid, (9) copies of cellular telephone bills for dates prior to the fire, but not covering the requested 24-hour period before and after the fire, (10) a letter from Abdelhamid’s ex-husband’s lender confirming the loan on the Elk Grove home had been paid off along with a copy of the loan documents, (11) the Sacramento County Fire Investigation Report, (12) a CD-ROM of photographs of the fire damage, and (13) a prefire video of the home taken by Abdelhamid.

Lynch forwarded all of the documentation to FIE, while reserving FIE’s rights and defenses and expressly stating the insurer did not waive any previous or existing policy breaches by Abdelhamid. FIE authorized Lynch to conduct a second EUO based on the new information, even though Lynch expressed the opinion that the documents provided were not all of the materials requested.

Neither Abdelhamid nor Ranciato responded to FIE’s request for a second EUO until the middle of May 2006 when Ranciato wrote to advise FIE that Abdelhamid had a new attorney and that the request for an additional EUO should be addressed by him.

In June 2006, Lynch responded to several letters received from a third attorney for Abdelhamid. Among other things, Lynch confirmed FIE’s denial of Abdelhamid’s claim effective January 2006 and that the basis for the denial was not arson, but Abdelhamid’s refusal to cooperate with FIE’s investigation. FIE’s request for a second EUO went unanswered.

Abdelhamid filed suit against FIE, ultimately alleging, in a second amended complaint, causes of action for breach of contract, breach of the duty of good faith and fair dealing, bad faith denial of claim, and unfair business practices.

DISCUSSION

I

Standard of Review

Although Abdelhamid asserts on appeal that the trial court erred in granting summary judgment, and requests the judgment be overturned in its entirety, she argues errors only in the trial court’s grant of summary adjudication of her first cause of action for breach of contract. She does not dispute FIE’s understanding of her appeal as raising no separate issues regarding her causes of action for bad faith or unfair business practices. We similarly understand the appeal and, therefore, limit our review only to whether the trial court properly granted summary adjudication of Abdelhamid’s breach of contract claim.

The standard of review for a trial court’s decision to grant summary adjudication is well established. “A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.” (Code Civ. Proc., § 437c, subd. (f)(1).) A moving defendant has met its burden of showing that a cause of action has no merit by establishing that one or more elements of a cause of action cannot be established or that there is a complete defense. (Code Civ. Proc., § 437c, subd. (