Plaintiff fails to beat carrier's 998 offer in breach of contract and bad-faith claim. $78,689. San Francisco County.

Facts and Background

• Facts and Background:

  This lawsuit stemmed from a dispute arising from plaintiff Mi Pueblito Market's insurance claim made to its insurer, defendant Leading Insurance Services, Inc., U.S. Manager for Leading Insurance Group Insurance Company, LTD., (“LIG”). The claim arose out of a fire that damaged plaintiff’s commercial property in San Francisco. Plaintiff disputed that LIG provided full benefits under the policy, and asserted causes of action against LIG for breach of contract and breach of the implied covenant of good faith and fair dealing. LIG denied all of plaintiff’s allegations.

  On August 26, 2012, a fire broke out in an outbuilding across the alley from the rear of the Mi Pueblito Market (“the Market”).  The fire reached the back of the Market, damaging a large (20 ft. x 20 ft.) assembled walk-in cooler, valued at approximately $17,000, and the not yet assembled components of another walk-in cooler, valued at approximately $12,000.  According to the report of the fire cause & origin investigator, the damage to the Market’s property was “due to radiant heat exposure.”  The investigator wrote,  “…[T]he fire damage was isolated to the walk in cooler. . . . No fire or heat damage was observed in the interior.”

  The independent adjuster who responded to the loss on behalf of LIG reported that the owner of the Market, Ibrahim Mohammed, advised that “there were fixtures, equipment, shelves, parts, a freezer (working) and another freezer that had not yet been assembled, in the area where the fire occurred.  None of his food stock was affected.”  Both the fire cause & origin investigator and the independent adjuster indicated that there was little to no damage to the building itself, and no damage of any consequence to the interior of the Market. 

  After receiving the independent adjuster’s report confirming that there was no sprinkler system or fire alarm at the insured premises — contrary to information contained in the application for the LIG policy and as required by the policy — LIG sent plaintiff a letter denying the claim because it failed to comply with requirements in the Protective Safeguards endorsement.  In that letter, LIG invited plaintiff to bring to its attention any information it thought might affect LIG’s coverage decision.  Plaintiff did not respond to this letter, and LIG subsequently closed its file.

  LIG heard nothing further about the denial until more than four months later, in January 2013, when it received a letter from plaintiff’s attorney in which she disputed the basis of the denial and contended that the denial was improper and in bad faith.  On February 5, 2013, less than two weeks after sending her letter and without waiting for a response, the attorney filed suit on behalf of plaintiff against LIG.

  After considering the attorney’s argument and the information provided by the fire cause and origin consultant (i.e., “No fire or heat damage was observed in the interior.”), LIG elected to reconsider its decision to deny the claim.   After doing so, LIG retracted its denial of the claim, despite the clear language of the policy supporting the denial.  LIG re‑opened its file and re-commenced its investigation and evaluation of this claim, and issued to plaintiff a $50,000 advance, in large part to compensate for the damage to the two walk-in coolers. 

  After LIG re-opened its file, it attempted to complete its investigation and evaluation of the claim, but it received little cooperation from plaintiff or its counsel. After all reasonable efforts to obtain relevant information and documents from plaintiff were exhausted, LIG sent its formal position letter to plaintiff’s counsel in March 2014.  In that letter, LIG communicated its determination that plaintiff had already been substantially compensated for its loss (with the $50,000 advance), but was entitled to an additional $5,349.77 in policy benefits.  Included in the total of $56,349.77 (less the $1,000 deductible) paid to plaintiff was the supported replacement cost for two damaged walk-in coolers, a fence, some meat and produce, clean-up costs, and shopping carts and food displays. 

  Plaintiff claimed in excess of $200,000 in damage to its personal property, including damage to shelving, and a meat refrigerator inside the Market.  At his examination under oath, Mr. Mohammed provided testimony relating to the equipment which was inconsistent with evidence gathered by LIG.  Virtually no documentation supporting these claims was produced by plaintiff. 

  Plaintiff’s business income loss claim was equally questionable and unsupported.  In May 2013, counsel for LIG provided to plaintiff’s counsel a blank Sworn Statement in Proof of Loss form for Mr. Mohammed to complete in support of plaintiff’s claim for business income loss. Plaintiff’s counsel returned the Proof of Loss claiming $209,252 for business income loss, but provided no supporting documentation.  When plaintiff failed to provide documentation to support the claimed figure before Mr. Mohammed’s EUO in July, 2013, LIG’s counsel inquired as to its status.  Plaintiff’s counsel advised that she had undertaken to determine the business income loss herself, and that her work had not yet been completed but she would produce the document when it was. 

  A “final” Proof of Loss was submitted in August, claiming nearly $150,000 in business income loss, but no supporting documentation was provided.  When LIG requested the promised supporting documentation for this new amount, counsel claimed that the information was privileged, and  refused to provide the information necessary to substantiate that portion of the claim.

  In the second session of Mr. Mohammed’s examination under oath in January 2014, he estimated that his loss of business income was between $175,000 and $190,000.  Again, he offered no documents or calculations to support that figure. 

   

• Plaintiff's Contentions:

  Plaintiff maintained that the initial denial of the claim was erroneous and in bad faith.  Once the initial denial was retracted, plaintiff claimed that LIG’s handling of the claim was improper and unreasonably delayed, and that it failed to pay all policy benefits due. 

• Defendant's Contentions:

  LIG maintained that its initial denial of the claim was proper and reasonable.  It also maintained that once that initial denial was retracted, it handled this claim properly and timely and that all of the issues and disputes that followed were caused by plaintiff and its attorneys, who essentially misrepresented and concealed material information throughout the process. LIG maintained that it paid all policy benefits that were due.