Watch the full video at https://rumble.com/v1x3e74-zing-zings-owner-barbecued.html and at https://youtu.be/KQY7P3q0bCk
When the plaintiff handed over her restaurant to two restaurateurs when she became ill, they took out all the equipment in the restaurant and converted it to their property. The restaurateurs claimed they bought the equipment from the plaintiff and she claimed they took advantage of her illness and stole the property. She filed a claim with her insurer, State Farm, which denied the claim because either the alleged cause was due to a peril that was not insured or a peril that was specifically excluded.
IN Tomazina Johnson, d/b/a Zing Zing’s Wings & More, LLC v. State Farm Fire & Casualty Company, no. 2:20-cv-02912-cgc, United States District Court, WD Tennessee, Western Division (November 23, 2022), the USDC resolved the dispute by reading the entire policy and applying its language to the facts established by State Farm’s motion.
INTRODUCTION
Plaintiff’s Circuit Court Complaint asserted two claims: breach of contract and bad faith refusal to pay an insurance claim pursuant to Tennessee Code Section 56-7-105.
State Farm moved for summary judgment, arguing that plaintiff’s breach of contract claim failed as a matter of law because the policy did not provide coverage regardless of which version of the evidence an expert would choose to accredit. Specifically, the policy does not provide coverage either if the property was sold to a third party or if the property was entrusted to a third party and removed or stolen by them.
Plaintiff argued that the policy provides coverage for accidental physical loss of corporate personal property and that she has met her initial burden of establishing that it is an accidental, direct loss during the policy period.
THE INSURANCE POLICE
State Farm issued a business owner’s policy that was in full force and insured plaintiff’s restaurant business, Zing Zing’s Wings & More, LLC (“Zing Zing’s”). The policy provides that State Farm insures for “accidental direct physical loss of covered property.” In all cases, “Section I – EXCEPTIONS” and that “The property is subject to restrictions” provisions limited the coverages available to plaintiffs. The policy contained the following exceptions:
Dishonesty
(1) Dishonest or criminal acts by you, anyone else with an interest in the Property, or any of your or their partners, “members”, officers, “managers”, employees, directors, trustees or authorized representatives, whether acting alone or in collusion. with each other or with any other party; or
(2) Theft by any person to whom you entrust the property for any purpose, whether acting alone or in collusion with another party.
This exception applies regardless of whether an action occurs during your normal business hours or not.
This exception does not apply to the destruction of your employees; but theft by your employees is not covered.
With respect to accounts receivable and “securities and documents”, this exception does not apply to rental companies.
The exclusion set forth in subsection 2(g) of the policy (“False Representation Exclusion”) reads as follows:
False notion
“Voluntary parting with any property by you or anyone else to whom you have entrusted the property if induced to do so by any fraudulent scheme, trick, device or false pretense.”
Evidence of events relevant to the plaintiff’s claim
The plaintiff opened his restaurant Zing Zing’s. Its grand opening took place in February 2019. However, while the plaintiff was running the restaurant, it was running at a loss.
On the advice of counsel, the plaintiff concerned two individuals – Curtis Braden (“Braden”) and Rayford Burns (“Burns”) – who would take over Zing Zing’s while she was ill.
While the policy remained in effect, plaintiff testified that she “entrusted” her “business property and operations” to Braden and Burns, gave them keys to the business, let them temporarily operate her restaurant, let them use her property and equipment, let them sell food as she had already purchased and allowed them to use the services of her employees for at least a certain period of time. Plaintiff testified that while Braden and Burns did so, she would continue to pay her employees’ wages, utilities, and all other bills related to the business, but Braden and Burns would pay the rent and keep the profits. Under this arrangement, plaintiff did not characterize Braden and Burns as her employees.
Plaintiff testified that, after entrusting Zing Zing’s to Braden and Burns, she was contacted by the landlord of Zing Zing’s who told her that the business was closing. After receiving this phone call, Plaintiff went to Zing Zing’s and encountered two neighbors of the business who told her that the people she had allowed to operate the restaurant had removed everything from the restaurant through the back door. Plaintiff reported to State Farm that Braden and Burns stole all of her property from Zing Zings.
Braden’s version of events is significantly different. He testified that plaintiff transferred Zing Zing’s and its equipment and property to Burns by deed of sale. Braden testified that he observed plaintiff initial and sign the deed of sale and that he notarized it. Plaintiff went on to testify that she has “no idea” why her initials and signature were on the bill of sale and claims it is a fraudulent document.
Ultimately, State Farm denied the plaintiff’s claim under the policy.
Plaintiff provided an itemized list of property related to her claim totaling $20,052.48.
ANALYSIS & CONCLUSIONS OF LAW
Breach of contract claims
Plaintiff’s first claim alleges breach of contract by State Farm. There is no dispute that State Farm issued the policy and that it was always relevant to Plaintiff’s claim. Thus, the legal issue at issue here is whether State Farm failed to fulfill its obligations under the policy by denying plaintiff’s claim for coverage.
The evidence before the court did not show that there is any dispute as to who removed the property. Plaintiff informed State Farm that Braden and Burns stole the property, and she continues to personally believe that Braden and Burns are responsible. She entrusted the property to Braden and Burns if they stole the property because the alleged theft was out of the question.
Statutory bad faith claim
Plaintiff’s second claim alleges a statutory claim for bad faith refusal to pay pursuant to Tennessee Code Annotated Section 56-7-105. To prevail on such a claim, the following factors must be met:
- the policy must, according to its terms, be due for payment;
- a formal demand for payment must have been made;
- the insured must have waited sixty days after making his claim before bringing suit (unless there was a refusal to pay before the expiry of the 60 days); and,
- the refusal to pay must not have been in good faith.
The court determined that the policy did not cover the plaintiff’s claim as a matter of law because both possible causes of loss were excluded. Because plaintiff’s claim was never “due for payment,” plaintiff’s statutory bad faith refusal to pay claim fails as a matter of law.
A sad story of a person who – because she was ill – entrusted her property to two people who claimed to have bought the property and who she claimed stole the property. Unfortunately for the plaintiff, either event was specifically, clearly and unequivocally excluded.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Subscribe and receive videos limited to Excellence in Claims Handling subscribers at locals.com https://zalmaoninsurance.locals.com/subscribe.
Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications on substack at substack.com/refer/barryzalma
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 almost equally for insurers and policyholders. 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
Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published on https://zalma.substack.com. Go to the Zalma On Insurance podcast at https://anchor.fm/barry-zalma; Follow Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos on Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to Insurance Claims Library – https://zalma.com/blog/insurance-claims-library
