KAREN SUE NAYLOR as the Chapter 7 bankruptcy trustee for Elite Aerospace Group, Inc. vs. Federal Insurance Company

On a motion for summary judgment, the pleadings define the issues. (Metromedia, Inc. v. City of San Diego (1980) 26 Cal.3d 848, 885, reversed on other grounds in Metromedia, Inc. v. City of San Diego (1981) 453 U.S. 490.) In the absence of some request for amendment, there is no occasion to inquire about possible issues not raised by the pleadings. (Ibid., internal citations and quotations omitted.) If an issue is not properly before the trial court on a motion for summary judgment, it cannot be asserted as a ground for sustaining that judgment. (Ibid.) “Summary judgment cannot be granted on a ground not raised by the pleadings. [Citation.]” (Bostrom v. County of San Bernardino (1995) 35 Cal.App.4th 1654, 1663.)

“When the defendant moves for summary judgment and makes a prima facie showing that one or more elements of plaintiff’s cause of action cannot be established, the burden shifts to the plaintiff to make a prima facie showing that the element in question can be established. [Citations.] If the plaintiff cannot do so, summary judgment should be granted. [Citation.] When deciding whether to grant summary judgment, the court must consider all of the evidence set forth in the papers (except evidence to which the court has sustained an objection), as well as all reasonable inferences that may be drawn from that evidence, in the light most favorable to the party opposing summary judgment. [Citations.]” (Avivi v. Centro Medico Urgente Med. Ctr. (2008) 159 Cal.App.4th 464, 467.)

If the defendant fails to make the initial showing, it is unnecessary to examine the plaintiff’s opposing evidence and the motion must be denied. (Stewart v. Superior Court (2017) 16 Cal.App.5th 87, 100.) “[I]f the moving papers establish a prima facie showing that justifies a judgment in the defendant’s favor, the burden shifts to the plaintiff to make a prima facie showing of the existence of a triable material factual issue. In meeting this obligation, the plaintiff may not rely on the mere allegations of its pleadings, but must set forth the specific facts showing that a triable issue of material fact exists as to that cause of action.

There is a triable issue of fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.” (Ibid., internal quotations omitted.)

In determining a motion for summary judgment, the court is “required to view the evidence and the reasonable inferences therefrom in the light most favorable to the party opposing the summary judgment motion; doubts as to whether there are any triable issues must be resolved in favor of the opposing party; and equally conflicting evidence or inferences require denial of a summary judgment motion.” (Essex Ins. Co. v. Heck (2010) 186 Cal.App.4th 1513, 1522.)

First Cause of Action for Breach of Contractual Duty to Pay

Issue No. 1: Federal is entitled to summary adjudication of Plaintiff's first cause of action for breach of contractual duty to pay a covered claim because Plaintiff is unable to establish the amount of the alleged covered claim Federal should pay.

Federal contends that Plaintiff cannot establish damages for the first cause of action for breach of contract, and therefore cannot prevail on this claim. Federal asserts that Plaintiff has failed to produce sufficient evidence to establish some reasonable basis of computation of the amount of Elite’s alleged covered loss. Specifically, Federal asserts that Plaintiff lacks evidence sufficient to calculate business income loss, has failed to present sufficient evidence or documentation to determine with any certainty Elite’s probable future sales, and provided no specific amounts or calculations for any contractual damages, as well as produced no documents that would establish Elite’s pre-loss financial condition, status of pending contracts, ledgers with breakdowns of expenses, monthly inventory balances, monthly sales reports, and budget or forecasted production and sales information.

Federal also asserts that Federal paid all amounts due for alleged extra expenses including the cost to relocate/store equipment and personal property, the lease cancellation fees for the Reynolds location, and the initial payments for the new location. Federal further asserts that Federal is entitled to a credit of $2,384,290.28 for any established covered loss as Federal has already issued payment for the equipment and machinery damaged in the loss to Big Shoulders, as the loss payee under the Policy.

Plaintiff contends that Federal owes Elite business income benefits even if Elite did not make a profit, and is entitled to recover its operating expenses. Plaintiff asserts that they have retained a certified forensic accountant that has calculated that Elite’s business income losses under the policy were $3,064,075, which is calculated from the time of the fire (April 10, 2021) to when Elite filed for bankruptcy on September 13, 2021. Plaintiff also contends that Federal owes Elite business personal property benefits, that the CNC machines damaged in the fire could not be restored or revitalized for sale, and that the total loss has been appraised at $5,675,530–$5,775,530, as well as that Elite suffered a $266,769.39 loss from damage to nonmachine business personal property.

Plaintiff asserts that any payment to Big Shoulders Capital and whether Federal is entitled to a credit is irrelevant because the cost to replace the damaged business personal property exceeds the amount that Federal paid to Big Shoulders Capital, and that Federal has not established that it is entitled to a credit, as a matter of law.

To support an action at law for breach of contract, the plaintiff must show it has suffered damage. [Citations.] “ ‘Contractual damages are “the amount which will compensate the party aggrieved for all detriment proximately caused thereby, or which, in the ordinary course of things, would likely to result therefrom.” [Citations.]’ [Citations.]” (Emerald Bay Community Assn. v. Golden Eagle Ins. Corp. (2005) 130 Cal.App.4th 1078, 1088.) This includes the “amount of the covered loss that [Defendant] failed to pay.” (California Civil Jury Instructions, 2300.)

“Damages for breach of contract must be clearly ascertainable. [Citation.]” (DuBarry Internat., Inc. v. Southwest Forest Industries, Inc. (1991) 231 Cal.App.3d 552, 562.) However, “[w]here the fact of damages is certain, . . ., the amount of damages need not be calculated with absolute certainty.” (Acree v. General Motors Acceptance Corp. (2001) 92 Cal.App.4th 385, 398.) “The law requires only that some reasonable basis of computation be used, and result reached can be a reasonable approximation.” (Ibid.)

Here, the operative First Amended Complaint (“FAC”) alleges that Federal refused to pay the insurance claim of Elite Aerospace Group, Inc. (“Elite”) after a fire damaged its state-of-the-art equipment on April 10, 2021, and crippled its business operations. (FAC, ¶ 1.) The FAC alleges that in late 2020, Elite sought to insure numerous computer-guided or “CNC” machines pursuant to its agreement with a company named Big Shoulders Capital LLC (“Big Shoulders Capital”) as in November 2019, Elite borrowed over $2 million from them, using some of the CNC machines as collateral, and that Federal bound coverage on March 10, and issued a policy (Number 36067716-NBO), effective from March 10, 2021 to March 10, 2022, which provided $12,822,871 in personal property coverage and $6,960,875 in coverage for business income with extra expense, and named Big Shoulders Capital as one of the loss payees (the “Policy”). (FAC, ¶¶ 13, 20, 34- 35.)

The first cause of action alleges that Federal refused to pay the claim and unlawfully rescinded the Policy. (FAC, ¶ 75.)

Federal asserts that Naylor has failed to produce evidence required to satisfy the elements of the cause action as to the element of damages.

“A defendant can satisfy its initial burden to show an absence of evidence through ‘admission by the plaintiff following extensive discovery to the effect that he has discovered nothing’ [citation], or through discovery responses that are factually devoid. [Citations.]” (Chavez v. Glock, Inc. (2012) 207 Cal.App.4th 1283, 1302.) “Only after the defendant’s initial burden has been met does the burden shift to the plaintiff to demonstrate, by reference to specific facts, not just allegations in the pleadings, there is a triable issue of material fact as to the cause of action. [Citations.]” (Ibid.)

“When the moving party is a defendant, it must show that the plaintiff cannot establish at least one element of the cause of action. (Aguilar, supra, 25 Cal.4th at p. 853, 107 Cal.Rptr.2d 841, 24 P.3d 493.) ‘[T]he defendant must “support[]” the “motion” with evidence including “affidavits, declarations, admissions, answers to interrogatories, depositions, and matters of which judicial notice” must or may “be taken.” (Code Civ. Proc., § 437c, subd. (b).) The defendant may, but need not, present evidence that conclusively negates an element of the plaintiff's cause of action.

The defendant may also present evidence that the plaintiff does not possess, and cannot reasonably obtain, needed evidence—as through admissions by the plaintiff following extensive discovery to the effect that he has discovered nothing.’ (Aguilar, at p. 855, 107 Cal.Rptr.2d 841, 24 P.3d 493.)” (Nicoletti v. Kest (2023) 97 Cal.App.5th 140, 143–144.)

A moving defendant needs to provide evidence, such as factually devoid discovery responses, to shift the burden when arguing that a plaintiff has no evidence and cannot reasonably obtain the needed evidence. (See Gaggero v. Yura (2003) 108 Cal.App.4th 884, 891 [finding that pointing out the absence of evidence to support a plaintiff’s claim is insufficient to meet the moving defendant’s initial burden of production and that a defendant must also produce evidence that the plaintiff cannot reasonably obtain evidence to support his or her claim].)

Federal asserts that it served Naylor with discovery seeking financial documentation related to the damage claim asserted, and that the materials provided failed to provide sufficient detailed financial information regarding the pending purchase orders, accounts payable or accounts receivable at the time of April 10, 2021, fire, or documentation of any cancelled contracts after the fire. (SSUMF, 65-66.) Federal also asserts that Naylor was asked to describe all damages attributable to “FIC’s handling of Elite’s claim, including the amount and calculation method for each category of damages. (SSUMF, 67.)

Federal further asserts that no specific amounts or calculations for any contractual damages were provided, and that when asked for documentation that would establish Elite’s pre-loss financial condition, status of pending contract, ledger with breakdowns of expenses, monthly inventory balances, monthly sales reports, and budget or forecasted production and sales information, Naylor did not produce non-privileged responsive documents that Naylor indicated would be produced. (SSUMF, 68.)

Federal asserts that certain financial documentation was provided, but that nothing within the documents produced or written discovery responses provide details of Elite’s actual pending orders or regular expenses, and that co-founder of Elite, Zeeshawn Zia explained during his Examination Under Oath (“EUO”) of 2021 that due to COVID the contracts that were in place in 2019 had reduced demands in 2020. (SSUMF, 1, 69- 71.) Federal additionally asserts that Mr. Zia testified that he could not recall what was deemed as “normal” sales for Elite in 2019, in 2020, or in early 2021; that he was not aware of any documented projections for Elite’s future sales or profits; and Elite maintained sales records (including what was ordered, the cost, and the purchaser) and that these records were provided to Naylor. (SSUMF, 72-74.)

Furthermore, Federal asserts that Naylor stated that by the time of her appointment as Trustee, Elite no longer had access to its electronically stored financial records because it had been unable to continue fees. (SSUMF, 61.)

Federal cites to Naylor’s responses to Requests for Production of Documents, Set One, including “relevant” document production as well as Naylor’s responses to Special Interrogatories, Set One. The discovery responses and deposition testimony cited do not establish, as a matter of law, that Plaintiff does not possess, and cannot reasonably obtain, needed evidence to establish the amount of the alleged covered loss. As a result, Federal fails to meet its burden to establish that Plaintiff has no evidence and cannot reasonably obtain needed evidence to establish damages.

The motion for summary adjudication as to Plaintiff’s first cause of action (Issue No. 1) is DENIED.

Second Cause of Action for Breach of the Implied Covenant of Good Faith and Fair Dealing

Issue No. 2: Federal is entitled to summary adjudication of Plaintiff's second cause of action for breach of the implied covenant of good faith and fair dealing because Plaintiff is unable to establish that Federal's conduct in the investigation and denial of coverage due to concealment was unreasonable.

Issue No. 3: Federal is entitled to summary adjudication of Plaintiff's second cause of action for breach of the implied covenant of good faith and fair dealing because it did not conduct an improper investigation into Elite's financial condition.

In the context of insurance coverage, “[t]here must be proof the insurer failed or refused to discharge its contractual duties not because of an honest mistake, bad judgment, or negligence, “but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement.” (Century Sur. Co. v. Polisso (2006) 139 Cal.App.4th 922, 949.) “To establish a bad faith claim, the insured must show that (1) benefits due under the policy were withheld and (2) the reason for withholding the benefits was unreasonable or without proper cause.” (Id.)

“The ultimate test of bad faith liability in first party cases is whether the refusal to pay policy benefits, or alleged delay in paying, was unreasonable. [Citations.]” While the reasonableness of an insurer’s claims handling conduct is ordinarily a question of fact, it becomes a question of law where the evidence is undisputed and but one inference can be drawn from the evidence. [Citation.]” (Carlton v. St. Paul Mercury Ins. Co. (1994) 30 Cal.App.4th 1450, 1456.)

It is alleged that Federal sought reasons to justify denying the claim rather than searching for evidence to support the claim, and that Federal fabricated a basis for rescinding the Policy after being unable to find any legitimate basis for rescinding the Policy. (FAC, ¶¶ 2- 3.) Plaintiff asserts that in its denial letter, Federal claimed that Elite intentionally misrepresented and concealed several material facts concerning its finances during the application process, that many of these facts were not material for deciding whether to issue coverage, and that Federal never asked about them. (FAC, ¶ 3.)

It is alleged that there was no concealment or misrepresentation as Federal was on notice of Elite’s precarious financial situation, but Federal chose to issue the Policy based on an incomplete application. (FAC, ¶ 4.) It is also alleged that Federal waived its right to rescind the Policy on any of these supposed misrepresented or concealed facts, as it had a duty to further inquire, but chose not to before issuing a Policy. (Ibid.)

The FAC alleges that Elite’s chief financial officer, Shane Cormier, completed a form needed for binding coverage, which estimated that Elite’s 2020 annual business income was negative $10 million, and that it would take nine months (after January 2021) for Elite to return to its previous level of business. (FAC, ¶¶ 25, 27-28.) The FAC also alleges that although federal knew Elite had struggled financially, and had a net annual income of negative $10 million, it asked no further questions on the topic of Elite’s financial condition, and that Federal agreed to bind coverage just 14 minutes after receiving Elite’s insurance broker’s email. (FAC, ¶¶ 31-32.)

Plaintiff alleges that Elite made a claim for the loss in accordance with the Policy; that Federal set out to deny it from the outset; and that “[a]fter its initial investigation, which ruled out any foul play or other problems with the claim, Federal sought to avoid paying the claim by other means: rescinding the Policy by conducting postclaim underwriting.” (FAC, ¶¶ 37- 38.) Plaintiff alleges that Federal’s investigation “dragged on for months” and that as part of its plan to rescind the Policy, Federal began investigating topics that had little to nothing to do with the loss, focusing its efforts on finding any information it could use to accuse Elite of misrepresenting or concealing material facts during the application process. (FAC, ¶¶ 40-41.)

It is alleged that after over a year, Federal “consummated its wrongful denial by improperly rescinding the Policy.” (FAC, ¶ 46.) Plaintiff alleges that “[t]his decision was made by David L. Massey, who authored the May 27, 2022, denial letter.” (FAC, ¶47.)

The FAC alleges that Federal identified four instances that it claimed were “intentional misrepresentations and concealment of material facts” including: “[1] The failure to fully disclose Elite’s financial condition or [2] the notice that was given that the property being sought to be insured would be the subject of a foreclosure sale, [3] the failure to disclose the pending SEC investigation into whether Elite was obtaining investors through securities fraud and [4] the misrepresentation that funding for the business was ‘secured.’” (FAC, ¶ 49.)

The FAC alleges that Federal knew that it had no basis to rescind the Policy on these grounds, and that for each of these claimed misrepresentations or concealed facts, “Federal either: knew that the charge of misrepresentation or concealment was false, knew that the misrepresented or concealed fact was not material, or waived its right to rescind based on any misrepresentation or intentional concealment of that fact.” (FAC, ¶ 50.) The Prayer for Relief alleges that Plaintiff seeks damages for Federal’s breach of contractual duty to pay a covered claim under the Policy. (FAC, Prayer for Relief, ¶ a).)

The second cause of action for breach of the duty of good faith and fair dealing incorporates the above allegations, and alleges that Federal breached its duty of good faith and fair dealing owed to Elite through the following unreasonable conduct committed without proper cause:

a) failing to affirm or deny coverage with a reasonable time after proof of loss requirements were completed and submitted;

b) conducting a biased claim investigation aimed at denial rather than a full, fair and thorough claim investigation;

c) failing to diligently search for evidence to support the claim and instead focusing exclusively on evidence to defeat the claim;

d) engaging in post claim underwriting for the sole purpose of engineering a rescission of the Policy;

e) unreasonably prolonging the claim investigation and delaying resolution of the claim;

f) rescinding the Policy based on insufficient cause;

g) misleading Elite by referring to a material misrepresentation on the application when there was no misrepresentation, let alone a material one;

h) withholding the benefit due under the Policy;

i) failing to consider Elite’s interests as much as its own in evaluating the claim;

j) denying the claim as a matter of company economics instead of based on the merits of the claim.

(FAC, ¶ 77.)

Initially, there is no dispute that Federal did not rescind the Policy but voided the Policy. “ ‘ “The burden of a defendant moving for summary judgment only requires that he or she negate plaintiff’s theories of liability as alleged in the complaint. A ‘moving party need not “. . . refute liability on some theoretical possibility not included in the pleadings.” [Citation.]’ . . . ‘ “[A] motion for summary judgment must be directed to issues raised by the pleadings. The [papers] filed in response to a defendant’s motion for summary judgment may not create issues outside the pleadings and are not a substitute for an amendment to the pleadings.” ’ ” [Citation.]’ [Citation.]” (Lockhart v. County of Los Angeles (2007) 155 Cal.App.4th 289, 304.)

At no point does the FAC allege that Federal improperly or unreasonably voided the Policy. Indeed, in footnote 2 to the Opposition, Plaintiff concedes that the FAC mentions “rescinding” the Policy and “postclaims underwriting” but asserts that “the true legal issue is whether Federal had a basis to ‘void’ the policy.” (Opposition, at p. 7, fn. 2.) However, to the extent that Federal argues that summary judgment of the second cause of action is proper based on a theory of improper rescission, Federal does not seek summary adjudication of the second cause of action on the basis that that it did not rescind the Policy.

A notice of motion must state the “grounds upon which it will be made.” (Homestead Savings v. Superior Court (1986) 179 Cal. App. 3d 494, 498 [citing Code Civ. Proc. § 1010] (“Homestead”).) “In the case of a motion for summary adjudication, the motion must at least identify the specific issues or sub issues to be adjudicated.” (Ibid.) The court has no power to adjudicate others. (Maryland Cas. Co. v. Reeder (1990) 221 Cal. App. 3d 961, 974 n. 4; Homestead, supra, 179 Cal. App. 3d at p. 498.) A party does not waive any requirement of notice for a sub issue that was not set forth in the notice by responding to the argument. (Homestead, supra, 179 Cal.

App. 3d at p. 498.)

In addition, Plaintiff does not dispute Federal’s assertion that post-claims underwriting is not applicable to commercial insurance, which is at issue here. (Colony Ins. Co. v. Crusader Ins. Co (2010) 188 Cal.App.4th 743, 746, 755 [finding post-claims underwriting has been prohibited in the context of health insurers and automobile liability insurance and that it did not apply to insurance for an apartment building].) This case does not involve a health insurer or an automobile liability insurer or the public policy of protecting injured third parties and Plaintiff does not create a triable issue of fact as to whether post-claims underwriting applies or that Federal engaged in post-claims underwriting. However, again, Federal does not seek summary adjudication of the second cause of action as to post-claims underwriting.

Despite the lack of any allegation that Federal improperly or unreasonably voided the Policy, both parties thoroughly address this point, and Federal does not demonstrate that there exists a legally significant distinction between rescinding a policy and voiding a Policy as to Plaintiff’s claims in this action.

As to whether Federal properly denied the claim and voided the Policy pursuant to the Concealment Or Misrepresentation condition, it is undisputed that the Policy contains a Concealment Or Misrepresentation provision which states: “This Insurance is void if you or any other insured intentionally conceals or misrepresents any material fact or circumstance relating to this insurance at any time.” (SSUMF, 19.)

“A fraud and concealment clause in an insurance policy generally voids the policy upon the insured’s attempts to deceive the insurer. [Citation.] Deceit may involve false representations to obtain insurance coverage or to obtain benefits after a claimed loss. [Citation.]” (Leasure v. MSI Ins. Co. (1998) 65 Cal.App.4th 244, 248.) “Neglect to communicate that which a party knows, and ought to communicate, is concealment.” (Ins. Code § 330.) “Each party to a contract of insurance shall communicate to each other, in good faith, all facts within his knowledge which are or which he believes to be material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.” (Ins.

Code § 332.) “The right to information of material facts may be waived, either (a) by the terms of insurance or (b) by neglect to make inquiries as to such facts, where they are distinctly implied in other facts of which information is communicated.” (Ins. Code § 336.)

The following asserted material facts are undisputed. Elite, though its insurance broker Acrisure of California, LLC dba Brakke-Schafnitz Insurance Brokers, LLC, submitted an Accord Commercial Insurance Application dated January 8, 2021, to Federal. (Plaintiff’s Response Separate Statement (“PSS”), 8.) The cover email for the application informed Federal that the Hartford policy had been cancelled for "non-pay (no claims). They [Elite] have since secured funding, regained sales momentum and are looking to rewrite these coverages ASAP." (SSUMF, 9.)

The application did not have a response to question no. 9 which asked, “HAS APPLICANT HAD A FORECLOSURE, REPOSSESSION, BANKRUPTCY OR FILED FOR BANKRUPTCY DURING THE LAST FIVE (5) YEARS?” (SSUMF, 10.) In February 2021, Federal asked whether Elite's operations dealt in metal or plastics, and on March 2, 2021, Federal issued an insurance proposal for Elite noting that the insurance quote would be subject to: a satisfactory Loss Control Survey; the Insured's last two fiscal Year-End Balance Sheets & Income Statements; and a signed Business Income Worksheet. (PSS, 11.)

Brakke forwarded the request for financial information to Elite, who provided him with the Business Income Worksheet and financial statements for 2018, 2019 and 2020 through November. (PSS, 12.) Brakke forwarded these same documents to Federal on March 8, 2021. (SSUMF, 13.) Federal underwriter Juliette Gamini reviewed the provided documents and did not note anything within the materials that caused concern. (PSS, 14.) She also did not make a further request for additional financial information from Elite or follow-up questions regarding the submitted worksheet. (PSS, 15.)

Gamini agreed to bind the insurance policy that same day. Federal issued insurance policy number 3606-77-16-NBO (eff. 3-10-21 to 3-10-22) to Elite. (PSS, 17.) Per Elite's request, Big Shoulders Capital was listed as a Loss Payee in regard to the Reynolds Property and the Irvine Property. (PSS, 18.)

As alleged in the FAC, one of the instances of an intentional misrepresentation or concealment upon which Federal relied to deny the claim and void the Policy was the failure to disclose notice that was given that the property sought to be insured would be the subject of a foreclosure sale. (FAC, ¶ 49.)

Federal asserts three material facts as to the failure to disclose the foreclosure sale. Federal asserts that while the application and additional documentation was under review, Big Shoulders issued a Notice of Sale advertising a foreclosure sale of Elite’s property to take place on March 5, 2021, due to Elite’s defaults on the Note, and that Elite did not inform Federal of the Foreclosure Sale notices. (SSUMF, 20-21.) It is undisputed that the foreclosure sale took place on March 12, 2021. (PSS, 22.)

In support of these assertions, Federal cites to portions of the EUO of Shane Cormier of Elite wherein Cormier states that he does not recall receiving the Notice of Public Disposition of Collateral before March 5, 2021, does not remember ever talking to Mr. Brakke about the foreclosure sale that had been noticed and does not recall. (Ex. R to Federal’s COE, Cormier EUO, 76:14- 77:10, 82:18-22, 88:6-12, 90:3-6, 91:18-23.)

Although Federal asserts that Elite had notice of the foreclosure sale while the application was under consideration, the evidence cited does not establish that Elite had notice of the foreclosure sale at that time. Separate statements are required to afford due process to the opposing party of the evidence to be disputed to defeat the motion. (Zimmerman, Rosenfeld, Gersh & Leeds LLP v. Larson (2005) 131 Cal.App.4th 1466, 1477.) Some courts apply the “Golden Rule” of summary judgment and summary adjudication which provides that if it is not contained in the separate statement, it does not exist. (Ibid.) “The corollary to [this] rule required courts to accept as true everything in the separate statement that was not disputed by the party opposing summary judgment. [Citations.]” (Ibid.)

Other courts have held that the trial court has discretion to consider evidence not referenced in the moving party’s separate statement and grant summary judgment or summary adjudication despite an inadequate separate statement. (Id. at pp. 1477-1478.) “In the exercise of this discretion, the trial court should consider whether the facts are ‘relatively simple’ and were ‘clearly called to the attention of court and counsel’; whether ‘evidence is not referenced, is hidden in voluminous papers, and is not called to the attention of the court at all’; and, most importantly, whether, despite the absence of a proper separate statement, the opposing party has sufficient notice of the evidence it must dispute to defeat the motion. [Citations.]” (Varshock v.

Department of Forestry & Fire Protection (2011) 194 Cal.App.4th 635, 653.) To the that there may be evidence elsewhere in Federal’s evidence, it was not called to the attention of the court and could and any such evidence would be hidden in voluminous papers as Federal submitted three volumes of evidence consisting of 1,166 pages with Volume 1 totaling of 452 pages, Volume 2 totaling 481 pages, and Volume 3 totaling 233 pages, while failing to fully comply with California Rules of Court, rule 3.1110(f)(4) which requires that electronic exhibits include electronic bookmarks with links to the first page of each exhibit and with bookmark titles that identify the exhibit number or letter and briefly describe the exhibit.

As Federal fails to show that Elite had notice of the foreclosure sale before the issuance of the Policy and failed to disclose the same to Federal, Federal fails meet its burden to show that Plaintiff cannot establish that Federal acted unreasonably in denying the claim and voiding the Policy on the ground that Elite failed to disclose the foreclosure sale.

With regards to the FAC’s allegations as to Federal’s ground to deny the claim and void the Policy on the basis that Elite failed to disclose the pending SEC investigation into whether Elite was obtaining investors through securities fraud, it is undisputed that in May 2018, the United States Securities and Exchange Commission (SEC) notified Elite that it was under investigation and issued a subpoena for records and a personal appearance to testify regarding the investigation on May 22, 2018. (SSUMF, 3.)

However, there is no asserted material fact that supports that this investigation was pending at the time of the application or while the application was being considered. As a result, Federal fails to meet its burden to show that Plaintiff cannot establish that Federal acted unreasonably in denying the claim and voiding the Policy on the grounds that Elite failed to disclose a pending SEC investigation.

To the extent that Federal argues that Plaintiff cannot establish that Federal’s conduct in the investigation and denial of coverage due to concealment is unreasonable as to the failure to disclose Elite’s financial condition, Federal does not seek summary adjudication of this specific ground for denial. Instead, Federal seeks adjudication as to its denial of coverage due to concealment as a whole. This fails since Federal fails to show that Plaintiff cannot establish that Federal acted unreasonably in denying the claim and voiding the Policy as at least two of the four grounds upon which Federal based its denial, as discussed above.

Based on the foregoing, Federal fails to establish that Federal is entitled to summary adjudication of Plaintiff’s second cause of action for breach of the implied covenant of good faith and fair dealing because Plaintiff is unable to establish that Federal’s conduct in the investigation and denial of coverage due to concealment was unreasonable (Issue No. 2). Federal relies on the same undisputed material facts above, and thus, fail to establish material facts supporting Issue No.

3. A moving party should “[i]nclude only those facts which are truly material to the claims or defenses involved because the separate statement effectively concedes the materiality of whatever facts are included.” (Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243, 252.) The motion for summary adjudication of the second cause of action (Issue Nos. 2 and 3) is DENIED.

Additionally, Federal seeks to resolve the entire second cause of action but does not address all the conduct that the FAC alleges is unreasonable. As noted above, the second cause of action alleges that Federal breached its duty of good faith and fair dealing owed to Elite through the following unreasonable conduct committed without proper cause:

a) failing to affirm or deny coverage with a reasonable time after proof of loss requirements were completed and submitted;

b) conducting a biased claim investigation aimed at denial rather than a full, fair and thorough claim investigation;

c) failing to diligently search for evidence to support the claim and instead focusing exclusively on evidence to defeat the claim;

d) engaging in post claim underwriting for the sole purpose of engineering a rescission of the Policy;

e) unreasonably prolonging the claim investigation and delaying resolution of the claim;

f) rescinding the Policy based on insufficient cause;

g) misleading Elite by referring to a material misrepresentation on the application when there was no misrepresentation, let alone a material one;

h) withholding the benefit due under the Policy;

i) failing to consider Elite’s interests as much as its own in evaluating the claim;

j) denying the claim as a matter of company economics instead of based on the merits of the claim.

(FAC, ¶ 77.)

The party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 849-850.) Where a moving parties’ separate statement does not address a material fact in the complaint, it does not assert a prima facie case of entitlement to summary judgment and does not shift the burden to plaintiff to file an opposing separate statement. (Teselle v. McLoughlin (2009) 173 Cal.App.4th 159, 160.) “A summary judgment may not be granted when the moving party has failed to ‘refute [a] tenable pleaded theor[y].’ [Citation.]” (Id. at pp. 161-162.)

Further, Federal does not address the allegations in the FAC concerning waiver in its moving papers and does not present as an issue for adjudication that it did not waive its right to void the Policy or deny coverage to establish that it is entitled to summary adjudication of the second cause of action. In order to be entitled to summary judgment, a moving party must defeat all theories asserted as to a cause of action alleged in a complaint. (Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 613 [“in order to be entitled to summary judgment, respondent had to defeat that theory [fraud based on concealment] in addition to the fraud based on affirmative misrepresentation” and the burden is on respondent to negate at least one element of the action for fraud based on concealment].)

Claim for Punitive Damages

Issue No. 4: Federal is entitled to summary adjudication of Plaintiff's claim for punitive damages because Federal's officer, director or managing agent did not act with malice, oppression or fraud.

The FAC alleges that Federal’s claims handling was conducted in bad faith and that its rescission of the Policy was malicious, oppressive and fraudulent. (FAC, ¶ 5.)

It is alleged that the decision to deny Elite’s claim and rescind the Policy was made by David L. Massey. (FAC, ¶ 47.) As to Massey, the FAC alleges the following: “As indicated in the denial letter, Massey is an ‘Executive General Adjuster, AVP’ at Federal. In this high-ranking role, Massey is responsible for, among other things, large-loss claims for an entire multi-state region and has the authority to settle these claims, as well as other lower-value claims. Although Massey reports to the “Vice President, Claims Leader” at Federal, he receives no day-to-day oversight and little-to-no supervision over his claims-handling decisions.

In fact, it is Massey who oversees and supervises the “Senior General Adjusters” and other lower-ranking adjusters within his region. These lowerranking adjusters need Massey’s authority to settle claims over a certain dollar value and seek Massey’s direction on various claims-handling issues. Because Massey exercises substantial independent authority and judgment in corporate decision-making, as explained above, his decisions ultimately determine corporate policy, including the settlement standards within his region.” (Ibid.)

Plaintiff seeks punitive damages for Federal’s alleged breach of the duty of good faith and fair dealing. (FAC, Prayer for Relief, ¶ c).)

Civil Code section 3294(b), provides: “An employer shall not be liable for damages pursuant to subdivision (a), based upon acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director or managing agent of the corporation.”

“When the defendant is a corporation, ‘[a]n award of punitive damages against a corporation . . . must rest on the malice of the corporation’s employees. [¶] But the law does not impute every employee’s malice to the corporation.’ [Citation.] Instead, oppression, fraud, or malice must be perpetrated, authorized, or knowingly ratified by an officer, director, or managing agent of the corporation. [Citation.] ‘ “[M]anaging agent” . . . include[s] only those corporate employees who exercise substantial independent authority and judgment in their corporate decision making so that their decisions ultimately determine corporate policy.’ [Citation.]” (Wilson v.

Southern California Edison Co. (2015) 234 Cal.App.4th 123, 164.) “A company ratifies a managing agent’s decision when it knows about and accepts the decision. [Citations.]” (Tilkey v. Allstate Insurance Co. (2020) 56 Cal.App.5th 521, 554.)

Federal submits evidence that at the time of the loss, David Massey was an Executive General Adjuster, AVP; that in this role, Massey is part of a team that is assigned to claims with exposure of $5 million or more that reported to the Vice President of Large Loss; that Massey’s duties did not include the development of claims handling guidelines or Federal’s policies for the application of policy language or corporate standards; that Massy was first assigned to the claim on May 19, 2022; and that between his assignment to the claim and the issuance of the denial letter on May 27, 2022, Massey’s involvement with Elite’s claim was limited to confirming whether the Claims Department had received all outstanding reports and that all consultants had been paid, to confer with the SIU field and management teams regarding the basis for the denial, and to issue the final denial letter approved by upper management (SSUMF, Nos. 79, 80, 82, 83, 85.) Plaintiff does not dispute these facts.

In opposition, Plaintiff does not address the actual allegations contained in the FAC with regards to Massey and the claim for punitive damages, and instead, appears to now assert that Dan Jaeger is the one responsible for the denial letter, and is a “managing agent.” In so doing, Plaintiff fails to dispute, and implicitly concedes that Massey is not an officer, director, or managing agent such that punitive damages could not be imposed against Federal. The motion for summary adjudication as to the claim for punitive damages (Issue No. 4) is GRANTED.

To the extent that Plaintiff seeks punitive damages against Federal based on Jaeger’s acts, “. . . summary judgment cannot be denied on a ground not raised by the pleadings. [Citations.]” (Bostrom v. County of San Bernardino (1995) 35 Cal.App.4th 1654, 1663.)

Federal’s Evidentiary Objections

“In determining if the papers show that there is no triable issue as to any material fact, the court shall consider all of the evidence set forth in the papers, have been made and sustained by the court, . . ..” (Code Civ. Proc. § 437c(c).) “In granting or denying a motion for summary judgment or summary adjudication, the court need rule only on those objections to evidence that it deems material to the disposition of the motion.” (Code Civ. Proc. § 437c(q).)

Objections to Declaration of Karen Sue Naylor

Objection Nos. 1-3 are OVERRULED.