Henderson v. Farmers Grp., Inc., No. B236259.

CourtCalifornia Court of Appeals
Writing for the CourtEPSTEIN
Citation148 Cal.Rptr.3d 385
Docket NumberNo. B236259.
Decision Date16 January 2013
PartiesOcie E. HENDERSON et al., Plaintiffs and Appellants, v. FARMERS GROUP, INC., et al., Defendants and Respondents.

148 Cal.Rptr.3d 385

Ocie E. HENDERSON et al., Plaintiffs and Appellants,
FARMERS GROUP, INC., et al., Defendants and Respondents.

No. B236259.

Court of Appeal, Second District, Division 4, California.

Oct. 24, 2012.
Review Granted Jan. 16, 2013.

Background: Insureds brought action against fire insurers for breach of contract, breach of implied covenant of good faith and fair dealing, and unfair business practices. The Superior Court, Los Angeles County, No. BC443849,William F. Highberger, J., granted summary adjudication for one insurer on all causes of action asserted by the insureds under four policies. Insureds appealed.

Holdings: The Court of Appeal, Epstein, P.J., held that:

(1) insurer could not rely on failure to submit proof of loss as a defense absent showing of substantial prejudice;

(2) insurer's failure specifically to object to untimely notice of loss forfeited that defense;

(3) bad faith cause of action was not barred on basis that it improperly pleaded around Unfair Insurance Practices Act (UIPA); but

(4) insurer's parent company was not collaterally estopped from disputing alter ego liability.

Affirmed in part and reversed in part.

[148 Cal.Rptr.3d 388]Kabateck Brown Kellner, Brian S. Kabateck, Richard L. Kellner, Los Angeles, and Joshua H. Haffner, Marina Del Rey, for Plaintiffs and Appellants.

Tharpe & Howell, Christopher S. Maile, and Johnna J. Hansen, Sherman Oaks; Greines, Martin, Stein & Richland, Robert A. Olson and Gary J. Wax, Los Angeles, for Defendants and Respondents.


In this action arising out of insurance contracts, Ocie E. Henderson, Anthony Wallace, Roscoe and Edna M. Allen, and John and Sharon Billingslea appeal from judgments entered after the court granted motions for summary adjudication in favor of Fire Insurance Exchange (FIE), which disposed of all appellants' causes of action.1

Besides FIE, appellants sued Farmers Group, Inc. (Farmers Group); Farmers Insurance Exchange; Fire Underwriters Association (FUA); Mid–Century Insurance Company; Truck Insurance Exchange; and Truck Underwriters Association alleging that these entities collectively denied or underpaid valid claims for property damage sustained in the 2009 Southern California wildfires (Station Fire). Appellants brought causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing (bad faith), and unfair business practices under Business and Professions Code section 17200 et seq.

FIE moved for summary adjudication of breach of contract and bad faith claims by Henderson, Wallace and the Allens on the grounds that their failure to submit sworn proofs of loss, as required under their respective insurance policies, constituted a complete defense to these claims. The court granted the motions on this ground. Because Henderson and the Allens dismissed their claims for unfair business practices, the court entered a judgment. On appeal, they contend that the summary adjudication against them was erroneous because FIE cannot rely on the failure to submit a proof of loss as a defense absent a showing of substantial prejudice. We [148 Cal.Rptr.3d 389]agree and reverse since FIE does not make the requisite showing.

FIE moved for summary adjudication of the Billingsleas' claims for breach of contract and bad faith because the nine month delay by the parties in providing notice of the loss, combined with evidence that they had remodeled their home, caused substantial prejudice to FIE. The Billingsleas opposed the motion, asserting they had not remodeled the home and that FIE waived the defense since it did not object to the delayed notice of loss. The court granted the motion and entered a judgment after the Billingsleas dismissed their unfair business practices cause of action. On appeal, the Billingsleas argue that FIE cannot show prejudice from their submission of untimely notice of the claim. We reverse the judgment because FIE forfeited the defense by not specifically objecting to the untimely notice of loss.

Summary adjudication was granted on Wallace's unfair business practices cause of action on the ground that it is barred by Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58( Moradi–Shalal ). We reverse because this cause of action is not barred by Moradi–Shalal.

FIE separately moved for summary adjudication of Wallace's claims based on theories of joint venture and alter ego liability. The court granted the motion and entered a judgment. We agree with the trial court that Wallace failed to show the existence of a triable issue of material fact as to an inequitable result from treating the corporations as separate entities, as required for this cause of action. We therefore affirm the trial court's ruling in this respect.


In August 2009, the Station Fire destroyed 250 square miles of forest and 89 homes in Southern California. Appellants owned homes located near the fire line. While none of their homes was burned by the fire, they claimed their homes sustained damage from smoke, soot, and ash from the fire, requiring remediation.

Appellants were insured against first-party property loss by FIE. The policies issued to appellants provided that as a condition to coverage, appellants had to provide timely notice of loss to FIE. Henderson's policy required “immediate notice,” while the policies of the other appellants required written notice “without unreasonable delay.”

The policies also required appellants to provide a signed, sworn proof-of-loss notice within 60 days of a request by FIE. The policies provide that the insured cannot bring an action against FIE unless he or she has fully complied with all policy terms and conditions.

Appellant Ocie Henderson

On February 9, 2010, Henderson contacted FIE and informed a company representative that his house sustained damage from smoke, ash, and soot from the Station Fire. On January 30, 2010, Henderson retained Advantage Loss Group, Inc. (ALG), a public adjuster, to manage his claim.

On February 11, FIE wrote ALG that it had received Henderson's claim and needed to conduct an inspection. It requested that Henderson “submit a proof of loss in accordance with the policy conditions” and included the relevant policy language detailing the 60–day requirement. FIE also attached a proof of loss form to the letter.

On February 24, an FIE hygienist inspected Henderson's property for evidence of damage. Samples taken from the residence were tested with the result that char [148 Cal.Rptr.3d 390]was present in an amount exceeding one percent, the threshold level FIE and the hygienists used to determine whether a property required remediation.2 The hygienist recommended that the home be cleaned.

On March 12, FIE sent a second reminder about the proof of loss requirement. On April 9, it sent a third request.

On April 13, 61 days after its first letter requesting a proof of loss, FIE sent ALG a letter denying Henderson's claim. The letter stated: “Under the express policy conditions and Insurance Code § 2071, you/your client had sixty days within which to return the signed and sworn proof of loss. More than sixty days have passed, and your client [is] therefore in breach of the insurance policy conditions. [¶] Based on the foregoing, [FIE] is denying the above-referenced claim and is closing its file.” FIE did not inform Henderson that it had detected char in his home nor did it send him a copy of the hygienist's report.

Appellant Anthony Wallace

On March 28, 2010, Wallace contacted FIE, claiming damage to his house from smoke, ash, and soot. Wallace retained ALG to manage his claim.

On March 30, FIE wrote ALG that it had received notice of Wallace's claim and asked to inspect the property. FIE also asked that Wallace submit a proof of loss on the form attached to its letter.

ALG contacted FIE and set up a time for FIE to inspect Wallace's property. In advance of the inspection, FIE reminded ALG that it needed Wallace's signed and sworn proof of loss within 60 days of its first request.

FIE inspected Wallace's house on May 6. The hygienist who inspected the property found: (1) less than one percent char, with no ash or soot, on interior windowsills; (2) no detectable char, soot, or ash on interior finishes and contents; (3) no detectable char, soot, or ash in the attic; and (4) less than one percent char, with no ash or soot, on the exterior. The hygienist did not recommend that the property be cleaned.

On May 24 and June 18, FIE sent ALG letters stating that it needed additional time to make a final determination because it was awaiting test results from the inspection and it needed Wallace's proof of loss form.

On June 23, FIE notified ALG that it had denied Wallace's 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.” FIE also stated 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

On January 6, 2010, the Allens submitted a claim for smoke, ash, and soot damage to their house. The Allens also retained ALG to manage their claim. In a letter dated January 12, FIE wrote to the Allens that it had received notice of their claim and needed to inspect the property. It requested that the Allens submit a proof of loss form, which was attached to the letter.

On February 1, a hygienist retained by FIE inspected the Allens' property. The [148 Cal.Rptr.3d 391]hygienist found trace levels of soot, ash, and char, but none exceeding one percent. Cleaning of the property was not recommended.

On February 9 and March 10, FIE stated it needed additional time to reach a determination on the Allens' claim because FIE was waiting for the expert to submit a final report and for the...

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