While property insurance policies may vary in the type of property damage and causes of property damage that they will cover, all property insurance policies contain provisions that set forth the obligations of an insured in the event of a loss. Insureds seeking coverage for losses sustained to their property are obligated to cooperate with their insurers in order that the insurer may conduct an investigation of the insured’s claim, and this cooperation is a condition precedent to their recovery under the policy. As discussed below, recent court decisions in California and Louisiana have reinforced an insurer’s ability to deny coverage based on the insured’s failure to comply with these conditions precedent.
CALIFORNIA COURT OF APPEAL HOLDS THAT INSURED IS NOT EXCUSED FROM COMPLIANCE WITH CONDITIONS PRECEDENT WHEN INSURED’S REFUSAL IS BASED ON ADVICE OF COUNSEL
In Abdelhamid v. Fire Insurance Exchange, 182 Cal. App. 4th 990; 106 Cal. Rptr. 3d 26, 2010 Cal. App. LEXIS 314, the insured, plaintiff Zary Abdelhamid, filed a claim seeking coverage for losses sustained when a fire destroyed her home. As there was evidence of arson, during its investigation of the claim, the insurer requested a proof of loss, documents that included financial information and an examination under oath. Claiming that she was acting on the advice of counsel, the insured failed to produce requested documentation, failed to answer material questions when examined under oath, failed to submit a completed proof of loss with necessary documentation and failed to cooperate in the processing of her claim. The insurer denied the claim on the grounds that the insured’s failure to provide the information requested had breached a condition precedent to her recovery under the policy.
The insured filed suit against its insurer alleging breach of contract, breach of the duty of good faith and fair dealing, bad faith denial of claim and unfair business practices. On summary judgment, the trial court ruled in favor of the insurer. On appeal, the court made note of the conditions for coverage in the insurance contract which required the insured to submit a signed, sworn statement of loss as well as provide information specifying the damage sustained, detailed estimates for repair of the damage, inventory of damaged personal property and receipts for additional living expenses. The Court of Appeal found that the proof of loss submitted by the insured was deficient in that the insured did not provide an answer as to her residence at the time of the loss, and her response as to the value of the loss was “to be determined”. The insured also failed to provide supporting documentation. The Court held that these deficiencies were not minor defects and that no reasonable trier of fact could conclude that she substantially performed her obligations or complied with the condition of her insurance contract requiring her to provide a proof of loss with supporting documentation.
The Court then went on to address the insured’s argument that her reliance on the advice of counsel in refusing to answer questions and failing to provide requested documentation reasonably excused her failure to perform. The Court held that this excuse runs counter to California case law and is inconsistent with the California Insurance Code. With respect to California case law, the Court noted that California courts have confirmed that an insurer may contractually require, as a condition of coverage, that an insured submit to an examination under oath and answer all proper questions as part of the insurer’s investigation of the insured’s claim, and that if the insured cannot bring himself within these terms and conditions of the policy, he cannot recover. The case law reflects a strong insistence on the insured’s performance of contractual conditions required for coverage, even when the insured might have a legitimate basis for not wanting to comply. Furthermore, the Court noted that in accordance with Sections 2070 and 2071 of the California Insurance Code, the California Legislature has specifically recognized an insured’s right to withhold information on the basis of privilege or other legal obligation. However, the Legislature has also recognized such information may be necessary to the insurer’s investigation of the claim and where the failure of the insured prevents the insurer from being able to determine the validity of the claim or extent of loss, the Legislature has acknowledged that the insured’s rights under the contract may be affected. The Legislature has placed that risk on the insured. The Court held that to adopt a rule excusing insureds from complying with the contractually required conditions for coverage because they assert privilege or rely on advice of counsel would undermine this statutory scheme. Accordingly, the Court of Appeal affirmed the judgment, holding that the insurer’s denial of coverage was proper because the insured did not comply with the conditions precedent for coverage and in doing so, materially breached her obligation under the policy.
LOUISIANA DISTRICT COURT REITERATES THAT PROOF OF LOSS IS CONDITION PRECEDENT TO RECOVERY AS WELL AS LITIGATION
In Reyes, et al. v. Hartford Fire Insurance Company, 2010 U.S. Dist LEXIS 16871 (E.D. La. Feb. 24, 2010), plaintiffs filed a claim with defendant Hartford seeking coverage for losses sustained to their property as a result of Hurricane Katrina. Hartford inspected the property and assessed the damages. As a result of this assessment, Hartford made payment to the plaintiffs for damage to the dwelling and contents. The plaintiffs then filed suit alleging that Hartford had failed to pay for all of the damages sustained to their property. Hartford filed a motion for summary judgment and argued that as the plaintiffs failed to submit a timely signed, sworn statement in proof of loss, they are barred from bringing their claim.
Upon review of the motion for summary judgment, the Court referred to prior decisions in which it has made clear that a failure to provide a proof of loss is fatal to an insured’s claim. The Court noted that failure to provide a proof of loss relieves an insurer’s obligation to pay what otherwise might be a valid claim. Going further, the court noted its prior decisions in which it has held that a sworn proof of loss is a condition precedent to bringing litigation against the insurer. Accordingly, the Court held that the plaintiffs’ failure to submit a proof of loss was fatal to their action against the insurer and thereby granted the insurer’s motion for summary judgment.