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IN Mama K’s Diner, LLC v. AMCO Insurance Company, F082800, California Court of Appeals, Fifth District (Jan. 17, 2023), the court granted summary judgment to AMCO Insurance because the insured failed to maintain a promised automatic fire alarm system. Mama K has appealed.
FACTS
Mama K’s Diner, LLC (Mama K’s) appealed a grant of summary judgment for defendant AMCO Insurance Company (AMCO). The case involved a dispute over insurance coverage for Mama K’s restaurant, which was damaged by fire.
Mama K sued AMCO for breach of contract and breach of the implied covenant of good faith and fair dealing, claiming that the damage was covered by the insurance they purchased from AMCO. AMCO denies that there is coverage because Mama K’s did not have an automatic fire alarm as required by the policy. The district court granted summary judgment for AMCO, concluding that the damage was not covered because undisputed evidence showed that Mama K’s failed to maintain an automatic fire alarm required for fire coverage.
Mama K’s operated a restaurant called Mama K’s Diner from a building on Main Street in Visalia, California from April 2016 to December 26, 2018 (the day of the fire). As part of the insurance application, the broker submitted a form that falsely stated that Mama K had a fire alarm at the central station. AMCO issued Mama K’s an insurance policy with a “Protective Safeguards” endorsement to cover fire damage to Mama K’s maintenance of an automatic fire alarm that protects the entire building. The policy insured Mama K’s personal property. The policy included a “protective safeguards” recommendation that states:
FIRE PROTECTION
We will not pay for loss or damage caused by or as a result of fire if, before the fire, you:
….
Failed to maintain any safeguard specified in each premises with symbol in the declarations and over which you have control, in full working order.
Support for “Protection Protection” also included the following “NOTE” in bold:
‘YOU RISK LOSS OF CERTAIN INSURANCE COVERAGE AT PREMISES IDENTIFIED IN THE STATEMENTS IF YOU FAIL TO COMPLY WITH ANY OF THE APPLICABLE PROTECTION REGULATIONS, LISTED BY SYMBOLS IN THE STATEMENTS FOR EACH PREMISES.’
On December 26, 2018, a fire caused extensive damage to the restaurant. Mama K’s filed a claim with AMCO. The owner, Huff, spoke with an AMCO adjuster and told him the restaurant did not have an automatic fire alarm. In fact, the restaurant never had an automatic fire alarm. Instead, the restaurant only had an automatic burglar alarm monitored by a security company. The burglar alarm system keypad had a button labeled “fire,” but that button had to be pressed by someone to trigger an alarm. The fire occurred at 1 a.m. when no one was inside the restaurant to press the “fire” button on the keypad.
DISCUSSION
Breach of contract Cause of action
The Court of Appeals concluded that the grant of summary judgment on the first cause of action was properly based on the theory of infringement alleged in the complaint. In the context of insurance, condition precedent refers to an act, a condition or an event that must occur before the insurance contract comes into force or binds the parties.
ANALYSIS
The undisputed evidence in the record showed that the policy contained an endorsement requiring Mama K’s to have an automatic fire alarm to be covered for fire damage, and that Mama K’s failed to maintain an automatic fire alarm. Therefore, AMCO was not obligated under the policy to pay any benefits on Mama K’s claim. The maintenance of the automatic fire alarm was a condition precedent to fire coverage that Mama K’s could not meet, and therefore Mama K’s cannot maintain its action against AMCO for breach of contract.
The most important fact remains that the cause of action for breach of contract clearly states that Mama’s K’s theory of tort is that the express terms of the policy provide coverage and refused to accept the requirements of the indemnification endorsement.
The bad faith cause of action
The law implies in every contract, including insurance, a covenant of good faith and fair dealing. A breach of the implied covenant of good faith and fair dealing involves something more than a breach of contract or misjudgment.
To establish a bad faith claim, the insured must show that (1) benefits due under the policy have been withheld and (2) the reason for withholding the benefits was unreasonable or without proper cause. Because the summary judgment was correct on all causes of action against AMCO, there was no basis for compensatory or punitive damages against AMCO.
The verdict was upheld.
Conditions precedent are important promises made by an insured. In this case, Mama K’s promised to maintain an automatic fire alarm system as a condition of fire coverage. Mama K’s failed to do that, it only had an automatic burglar alarm and didn’t deliver on its promise. People who are insured, like insurance companies, must keep the promises they make. Mama K’s found out what happens when they failed to keep the promises made when they got the policy.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud for insurers and policyholders alike. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and zalma@zalma.com
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