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Worth Bargain Outlet, Inc. v. AMCO Insurance Co.

July 21, 2010


The opinion of the court was delivered by: Hon. Dana M. Sabraw United States District Judge


Plaintiff Worth Bargain Outlet, Inc. ("Worth") brings this action against its insurer, Defendant AMCO Insurance Company ("AMCO"), for: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing ("bad faith"), and (3) violations of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200, et. seq. Defendant has filed a motion for summary judgment on all three claims, as well as on Plaintiff's claims for punitive damages. For the reasons set forth below, Defendant's motion is granted in part and denied in part.


Plaintiff is a corporation owned by Randal Goomer ("Goomer") and Seema Goomer, husband and wife. In November, 2003, Worth opened a retail discount store in San Marcos, California, on property leased from the Rite Aid Corporation ("Rite Aid"). On November 16, 2006, there was a fire at the Worth retail store, which damaged business personal property and forced Plaintiff to suspend its business operations. (See Pl.'s Statement of Genuine Issues in Support of Pl.'s Opp'n to Def.'s Mot. for Summ. J. Facts at 15, 16.)

The loss was covered by a Businessowners Insurance Policy ("the Policy") that Plaintiff obtained from Defendant in July 2006. (Kwasniewski Decl., Ex. A, p.1.) In the event of a casualty loss, the Policy provided coverage for, among other things, (1) "Business Personal Property," (2) "Business Income Loss," and (3) "Extra Expenses." "Business Personal Property" provided up to $243,000 of coverage for "[p]ersonal your business, including but not limited to furniture, fixtures, machinery, equipment, and 'stock'." (Id. at 5, 10.) "Business Income Loss" covered the "actual loss of 'business income' you sustain due to the necessary suspension of your 'operations' during the 'period of restoration.' (Id. at 15.) Business Income was further defined as the "Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred if no physical loss or damage had occurred . . . plus normal operating expenses incurred, while 'operations' are suspended, including payroll." (Id. at 36.) "Extra Expense" covered expenses incurred "[t]o avoid or minimize the suspension of business and to continue 'operations': At the described premises...."(Id. at 43.)

In the event of a loss, the Policy required Plaintiff to provide a "complete inventory of damaged and undamaged property. Include quantities, costs, values...of each item." In addition, the insurer was entitled "as often as may be reasonably required...[to] examine...books and records, including financial records and tax returns." (Id. at 33) The Policy also required the cooperation of Plaintiff in the investigation and settlement of a claim. (Id.)

After the fire, Defendant assigned Stefani Bomar as the adjustor for Plaintiff's claim. (Bomar Decl., ¶ 3.) Bomar promptly contacted Plaintiff and traveled to the property to inspect the loss. (See Pl.'s Statement of Genuine Issues in Support of Pl.'s Opp'n to Def.'s Mot. for Summ. J. Facts at 18.) On November 17, 2006, Bomar requested that Greer & Kirby ("Greer"), a salvage expert, inspect the loss and prepare an inventory listing the merchandise damaged by the fire. (Id. at 21.) Greer performed an inspection of the damaged inventory it collected and prepared an inventory list. (Bomar Decl., ¶ 5.)

Greer forwarded that list to Plaintiff and requested that Plaintiff provide the "cost value" and "back up cost invoices" for the items listed. (Bomar Decl., Ex. B, ¶ 7.)

On December 3, 2006, the store was reopened to customers. (Beck Dep.70:19-70:23; Fodera Decl., Ex. AA, GG.) On December 12, 2006, Goomer wrote a letter to Bomar requesting funds. (Kwasniewski Decl. Ex. G.) On December 15, 2006, Defendant retained the services of Kinsel Accountancy Corporation to assist in the valuation of Plaintiff's losses. (Bomar Decl., ¶ 8; Kinsel Decl., ¶ 2.) On December 18, 2006, Bomar visited the Defendant's place of business and provided him with a check for $30,000. (Goomer Decl. ¶ 34.)

On January 3, 2007, Plaintiff provided Defendant with the purchase costs for the items listed on the Greer inventory list. (Bomar Decl., ¶ 10, Ex. C.) The items listed by Plaintiff totaled $164,182.39. (Bomar Decl., ¶ 10, Ex. C.) On January 12, 2007, Plaintiff wrote a letter to Defendant asking for $676,400 in policy benefits. (Fodera Decl., Ex. M.) Plaintiff compiled a spreadsheet of costs associated with the fire, including damaged inventory, rent and payroll, and costs for cleanup. (Id.) Plaintiff informed Defendant that the $30,000 advance was insufficient, noting that Quick Dry, an emergency clean-up service company who repaired flooding caused by fire sprinklers, was threatening levies. (Id.)

On January 16, 2007, Defendant responded to Plaintiff's letter by requesting documentation to substantiate Plaintiff's demands, including an inventory of Plaintiff's goods prior to the fire and purchase invoices to confirm the purchase costs submitted earlier with the Greer inventory list. (Pl.'s Statement of Genuine Issues in Support of Pl.'s Opp'n to Def.'s Mot. for Summ. J. Facts at 33.)

Thereafter, Plaintiff hired attorney Warren Beck to assist him with his claim. (Id. at 35.) On February 23, 2007, Bomar sent a letter to Beck reiterating the information contained in the January 16, 2007 letter to Goomer. (Fodera Decl., Ex. LL.) Beck also spoke with the accountant, Kinsel, and received a letter from Kinsel requesting: (1) a detailed claim for the business interruption loss; (2) profit and loss statements (annual for 2005 and monthly for January 2005 through February 2007); (3) balance sheets as of the end of 2005, the end of 2006 and the date of loss, if available; (4) records detailing monthly sales from January 2005 through February 2007; (5) payroll records from September 2006 through February 2007; (6) a copy of the lease agreement; (7) detail of extra expenses incurred as a direct result of the fire and receipts or invoices supporting the costs of these items.(Fodera Decl., Ex. MM.) Defendant sent follow-up letters in March, April and May requesting the documentation. (Fodera Decl., Ex. BB, CC, DD.)

Plaintiff e-mailed Kinsel several financial documents on May 17, 2007 including, but not limited to, 2005 and 2006 income statements and balance sheets, profit and loss statements for 2005, 2006, and 2007, and federal tax filings. (See Kwasniewski Decl., Ex. J.) At the time, Plaintiff also forwarded a damage summary claiming $1,358,115 in past and estimated future losses. (See Pl.'s Statement of Genuine Issues in Support of Pl.'s Opp'n to Def.'s Mot. for Summ. J. Facts at 47.) On May 19, 2007, Plaintiff emailed Defendant a proof of loss statement and a series of purchase invoices to substantiate the purchase price of items listed in the Greer inventory. (Kwasniewski Decl., Ex. K.)

Upon receipt of Plaintiff's financial documents, Defendant noted several discrepancies, such as discrepancies in Plaintiff's 2006 profit and loss report calculations, inconsistences in the 2006 and 2007 beginning and ending inventory amounts, and contradictions between the tax schedules and profit and loss reports. (Fodera Decl., Ex. FF.) Additionally, Defendant noted that the 2005 and 2006 income statements prepared for tax purposes showed losses for 2005 and 2006, while the 2005 and 2006 income statements prepared by Plaintiff represented substantial profits. (Kwasniewski Decl. Ex. J p. 196, 203, 204.) On May 22, 2007, Defendant faxed Plaintiff a letter requesting clarification of the discrepancies, as well as bank statements for 2006 and 2007 and payroll reports and monthly income reports. (See Pl.'s Statement of Genuine Issues in Support of Pl.'s Opp'n to Def.'s Mot. for Summ. J. Facts at 49.) Plaintiff provided explanations for these discrepancies and provided the requested bank statements, payroll reports, and income statements. (Fodera Decl., Ex. GG.)

Defendant continued to review Plaintiff's documentation, and on July 2, 2007, Defendant contacted Plaintiff seeking supporting documentation to substantiate losses regarding computer repairs, software installation, water heater and plumbing repairs, electrical repairs, and advertising. (Bomar Decl., ¶ 24.) Plaintiff agreed to submit the requested documentation and agreed to a face-to-face meeting (Id. at 25.)

On July 26, 2007, Goomer and Beck met with Bomar and Kinsel to resolve outstanding issues related to the claim. Bomar presented Goomer with a check for $171,908, which, with the earlier payment of $30,000, brought the total payment made by Defendant to $201,908. Bomar advised Goomer that Defendant would consider additional payments for loss if additional documents were provided to substantiate Plaintiff's claims. (Bomar Decl., ¶ 26.) Goomer requested that Defendant conduct a fuller review of Plaintiff's prior sales history, which prompted a request by Kinsel to produce financial statements for 2003 and 2004, check registers, general ledgers, payroll registers and proof of advertising expenditures for the entire period of the claim in order to verify further losses claimed by Plaintiff. (Kinsel Decl., ¶ 9.) At the end of the July 26, 2007 meeting, Beck provided Defendant with a letter which detailed three points of clarification regarding the result of the meeting:

(1) "[T]he amount of $171,908 represents the minimum amount of benefits owed...and there will be further settlement discussions"; (2) Plaintiff will provide 2004 monthly income statements, check registers from 2004 to 2007, payroll register from May 2007 through July 2007, and will partake in a joint telephone conference with Defendant's accountant to confirm accounting practices utilized; (3) Rite-Aid has paid the emergency services invoice of Quick-Dry and if Rite-Aid seeks reimbursement from Plaintiff that Defendant will subrogate the claim. (Fodera Decl., Ex. R.)

On the evening of July 26, 2007, Plaintiff emailed Defendant stating that he did not agree with the calculation used by Kinsel regarding inventory calculations, seasonal revenue increases for November and December, and lack of price discounting for soiled merchandise from the fire. (Goomer Decl., Ex. 3.) In addition, the letter explained that Plaintiff was seeking an accounting professional and that Beck was no longer Plaintiff's legal representative. (Id.)

On August 3, 2007, Kinsel e-mailed Plaintiff restating their request for documents from the July 26, 2007 meeting. (Fodera Decl., Ex. S.) Kinsel and Bomar sent follow-up letters in September. (Kinsel Decl., Ex. B; Bomar Decl., Ex. E.) On September 18, 2007, Plaintiff responded by requesting that Defendant provide a written explanation of the how the $171,908 loss payment on July 26, 2007 was calculated and the basis for not paying additional loss claims requested by the Plaintiff. (Fodera Decl., Ex. T.)

On October 8, 2007, the breakdown of the $201,908 loss payment was provided to Plaintiff. The following damages were included in this payment: $64,702 for inventory loss as projected by Greer; $5,992 for employee-discarded inventory loss as projected by Defendant; $7,000 floor cleaning; $750 for plumbing repairs and hot water heater replacement; $400 for electrician costs; $2,613 for computer replacement costs; $5,795 for software reinstallation; $6,840 for front door repair; $2,250 for HVAC system cleaning; $2,200 for fire sprinkler system recharge; $6,909 for shelving repair ; and $96,457 for projected business income loss through April 2007. (Id.; see also Fodera Decl., Ex. P.) In addition, Defendant explained that the $30,000 advance payment was made under the Business Personal Property coverage for anticipate losses on items necessary to keep the business in operation. (Fodera Decl., Ex. U). Kinsel further inquired about the documentation requested at the July 26, 2007 meeting. (Kinsel Decl., Ex. E, F.)

On December 6, 2007, Defendant received a letter enclosing a handwritten inventory of all items in the store in August and September of 2007, all bank statements from 2004 through 2007, with exception of some 2003 statements lost in the fire, all cancelled checks issued by Plaintiff, photographs taken after the fire, and all bank wires to vendors and vendor invoices. (Kwasniewski Decl., Ex. U.) On December 13, 2007, Kinsel e-mailed Plaintiff advising that the documentation was not what was requested in that it lacked check registers, general ledgers, etc. (Kinsel Decl., Ex. H.) That same day Defendant informed Plaintiff that his submission of documents was non-responsive and re-requested the same documentation. (Bomar Decl., Ex. G.)

The parties continued their back and forth regarding documentation into 2008. In early 2008, Plaintiff retained Greg Stafford of Premier Claim Consultants ("Premier"), a public adjusting firm, to assist Plaintiff in managing his ongoing claim with Defendant. (Stafford Dep. 40:6 - 40:12.) Premier informed Defendant it would be representing Plaintiff as its public insurance adjustor and requested documentation and a face-to-face meeting of the parties in order to resolve any pending matters between Plaintiff and Defendant. (Kwasniewski Decl., Ex. Z.) On April 28, 2008, Premier sent Defendant a letter stating it was still awaiting: (1) clarification as to whether Plaintiff's business income claim was the only unresolved claim; (2) confirmation of covered exposures; (3) documentation as to what loss claims have been denied; (4) policy citations corresponding to factual and legal basis for the denial of claims thus far. (Kwasniewski Decl., Ex. AA.) On May 9, 2008, ...

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