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Patel v. American Economy Insurance Co.

United States District Court, N.D. California

May 8, 2014



WILLIAM H. ORRICK, District Judge.

On October 14, 2009, a fire in the basement of a commercial building caused smoke damage to the dental office of plaintiff Namrata Patel. She had an insurance policy with defendant American Economy Insurance that covered, among other things, direct physical damage, loss of business income for twelve months after the date of the loss, and necessary extra expenses. Patel seeks current loss of business income because she was forced to relocate her business when the building closed for repairs in 2014. She also claims coverage of $50, 275 for a feng shui consultant she hired before reopening the office after the fire. Because any lost business income suffered more than twelve months after the fire is not covered by the policy, and because feng shui services are not covered since they are not a direct physical loss or damage nor a necessary "extra expense, " I will GRANT American Economy's motion for partial summary judgment.[1]


After discovering the smoke damage caused by the fire, Patel submitted claims to American Economy in 2009 and 2010 for various items, including damage to dental and electronic equipment, cleaning and repair costs, inventory replacement, and lost business income. Atwood Decl. Exs. D, I, L. One of the items claimed was "Five Elements Feng Shui Invoice" in the amount of $50, 275 for a feng shui consultant who "had to come in and change crystals and perform additional cures to help to restore the location to its original condition." Id., Ex. L. American Economy investigated Patel's claims and determined that some claims were covered by the policy, but that other claims were not covered or were not valid. See Id. Exs. M, S (detailing approved and rejected claims). American Economy determined that the feng shui consultant costs were not covered by the policy because "it is not a necessary expense to restore the premises to its pre-loss condition" and "does not meet the definition of direct physical loss of or damage to covered property." Id., Ex. M. American Economy paid Patel a total of $114, 703.29 under the policy, consisting of $74, 950.50 for business personal property and $39, 752.79 for business income loss. Id. ΒΆ 26.

On December 30, 2011, Patel filed this action alleging causes of action for breach of contract for American Economy's failure to pay amounts allegedly due under the policy, and breach of the implied covenant of good faith and fair dealing for American Economy's alleged mishandling of Patel's claims. See Notice of Removal, Dkt. No. 1.

On January 8, 2013, Patel received a notice from the building owner regarding its plan to replace the building's air ducts due to damage caused by the fire, which would require each tenant to temporarily vacate the premises for several months in 2014. Cogan Decl., Ex. KK. On July 8, 2013, Patel presented a supplemental claim to American Economy for additional business personal property, business income loss, and extra expenses that she anticipated incurring as a result of vacating the premises and potentially relocating to another building. Atwood Decl. Ex. T. The claim also contends that American Economy knew, but failed to disclose, that Patel would be required to vacate the premises and would incur further losses. Id. American Economy denied the new claim on the basis that the policy limits coverage to losses that occur "within 12 consecutive months after the date of direct physical loss or damage." Id. Ex. U.


Summary judgment on a claim or defense is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). In order to prevail, a party moving for summary judgment must show the absence of a genuine issue of material fact with respect to an essential element of the non-moving party's claim, or to a defense on which the non-moving party will bear the burden of persuasion at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has made this showing, the burden then shifts to the party opposing summary judgment to identify "specific facts showing there is a genuine issue for trial." Id. The party opposing summary judgment must then present affirmative evidence from which a jury could return a verdict in that party's favor. Anderson v. Liberty Lobby, 477 U.S. 242, 257 (1986).

On summary judgment, the Court draws all reasonable factual inferences in favor of the non-movant. Id. at 255. In deciding a motion for summary judgment, "[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge." Id. However, conclusory and speculative testimony does not raise genuine issues of fact and is insufficient to defeat summary judgment. See Thornhill Publ'g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979).


American Economy moves for partial summary judgment and asserts that: (i) the claim for anticipated future business income losses in 2014 is not covered under the terms of the policy; (ii) the claim for feng shui consultant fees is not covered under the policy; and (iii) Patel's second cause of action for breach of the implied covenant of good faith and fair dealing fails because it acted reasonably when it denied parts of Patel's claims and because a "genuine dispute" existed as to the amounts due under the policy. Dkt. No. 47. I will address each argument in turn.


The insurance policy American Economy issued to Patel states, in pertinent part:


A. Coverage

We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.

1. Covered Property
Covered Property includes Buildings as described under Paragraph a. below, Business Personal Property as described under Paragraph b. below, or both, depending on whether a Limit of Insurance is shown in the Declarations for that type of property.


b. Business Personal Property located in or on the buildings at the described premises or in the open (or in a vehicle) within [1, 000] feet1 of the described premises, including:
(1) Property you own that is used in your business;


(3) Tenant's improvements and betterments. Improvements and betterments are fixtures, alternation, ...

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