CLEVELAND v. FIRE INSURANCE EXCHANGE

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Court of Appeal, Second District, California.

A. Barton CLEVELAND, Plaintiff and Respondent, v. FIRE INSURANCE EXCHANGE and Farmers Group, Inc., Defendants and Appellants.

No. B062941.

Decided: March 28, 1994

Joseph C. Girard, Horvitz & Levy, Barry R. Levy and Lisa R. Jaskol for Defendants and Appellants. Kussman & Whitehill and Michael H. Whitehill for Plaintiff and Respondent.

OPINION

INTRODUCTION

A jury found defendant insurers guilty of bad faith conduct and liable for punitive damages in their wrongful handling of the claim of an insured.

Defendants and appellants Fire Insurance Exchange (Exchange) and Farmers Group, Inc. (Farmers Group) (collectively defendants) appeal from the judgment in favor of plaintiff and respondent A. Barton Cleveland (Cleveland) on his first-party insurance bad faith action arising out an insurance claim for damage sustained to a rental home in an arson fire. Exchange and Farmers Group were found jointly and severally liable for $167,000 in compensatory damages. In addition, Exchange was found liable for $3,000,000 in punitive damages and Farmers Group was found liable for $9,000,000 in punitive damages.

Defendants challenge the judgment on numerous grounds.1 Exchange relies primarily on the fact that Cleveland did not attend an examination under oath (EUO) and contend, as a consequence, he was not entitled to indemnity under his policy, and therefore could not maintain a bad faith action or obtain punitive damages. Farmers Group's primary argument is that it was not a party to the insurance contract and therefore was not liable under any circumstances.

We affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

In February 1987, Cleveland completed the purchase of residential property in Manhattan Beach, California, and obtained a policy of fire insurance from Exchange. The property was directly behind “Mr. Pockets,” commercial property owned by Cleveland, and would act as a buffer to minimize residents' complaints about noise. Cleveland planned to rent the property to his son, a UCLA student, at the end of the school year in June. During the summer the son would be working next door at Mr. Pockets and would commute to UCLA in the fall.

On June 3, 1987, the home was damaged by fire. Cleveland was vacationing in Hawaii at the time and learned of the fire when he called his answering machine in California. Cleveland reported the fire to Mr. Hebson, the Farmers Group agent through whom Cleveland had obtained his policy. Mr. Hebson transferred the claim to the Farmers Insurance Group property office in Long Beach. Steven Alexander of that office immediately called Cleveland in Hawaii. On June 10, 1987, contractors visited the loss site to provide cost estimates to repair the home. Mr. Alexander inspected the home on June 16, 1987, and prepared a scope of loss for the damage. He set a reserve of $60,000 for repairs and $4,800 for loss of rents.

The Manhattan Beach Fire Department report suggested the fire was intentionally started by unknown person or persons. The police department report indicated that there were no known arson suspects.

Farmers Group referred the matter to Counterforce Investigations, a company specializing in arson investigations. Cleveland was the only subject of its investigation, even though, as acknowledged by Mr. Alexander, there was some indication the fire may have been started by vandals. Mr. Lawrence Jones of Counterforce performed a complete background investigation of Cleveland, including a review of his voter registration records, fictitious business name filings, DMV records, statewide property records and the UCC filings index. Counterforce interviewed neighbors, officials of the Manhattan Beach Building Department and representatives of the Manhattan Beach police and fire departments.

On June 25, Alexander tape recorded a statement from Cleveland over the telephone. Cleveland answered all of Alexander's questions, and indicated he did not know what caused the fire. After the tape recorder was stopped, Cleveland asked Alexander about resolution of his claim. Alexander explained Cleveland could use the insurer's contractor but that the recovery would not include the cost of upgrades required to bring the structure into compliance with current codes and would not cover contractor's overhead and profits. If Cleveland simply tore down the structure, Exchange would deduct 20 percent. Cleveland became frustrated with Alexander's responses. Alexander told Cleveland, “This is the way it is, and you better get use [sic ] to it.” Cleveland said, “It's one hell of a note for you to put me in this kind of a position.”

Alexander hung up, and Cleveland called him back. Alexander told him that the on-going arson investigation would include Cleveland. Cleveland said, “Wait a minute. You are accusing me of arson.” Alexander told Cleveland he could take it or leave it, and hung up again. Cleveland called Mr. Loden, in charge of the office, and told him Alexander had been abrupt and rude. Loden told Cleveland he would look into it and get back to him, but he never got back to him nor did anyone else from the company. Alexander had a history of behavior and attitude problems with insureds. Within the previous two months, three out of five customer complaints lodged against the 13 claims adjusters in his office were lodged against Alexander.

Within minutes of hanging up on Cleveland the second time, Alexander called Jones of Counterforce Investigations.

On June 30, Exchange sent Cleveland copies of contractors' bids, and asked him to forward any bids which he wished to be considered within the next five working days. On July 7, Exchange sent Cleveland a proof of loss form.

Counterforce completed its investigation of Cleveland on July 8. There was no information indicating that Cleveland was involved in the fire in any way. Nevertheless, Mr. Jones's log contained an entry made during a telephone conversation with Mr. Pape, the fire investigator, a few days after Alexander had called Jones: “Want to get him to think that if he collects, we can nail him.”

On July 31, Cleveland returned the notarized proof of loss form, along with two detailed contractors' bids. The form as submitted filled in blanks regarding the cause of the loss, the date, time and address of the loss, the identity of the lender, and the type of occupancy (“Residence Rental”). The form claimed $58,422.00 for building loss only. The bids Cleveland submitted were never analyzed by the defendants nor was any effort made to analyze Cleveland's loss of rent claim submitted later.

Exchange responded to Cleveland's claim by letter dated August 4, indicating that it was “taking exception” to the proof of loss for two reasons: the amount claimed, and the proof of loss form was incomplete. Cleveland sent Exchange a letter dated August 5, 1987, stating that he was willing to provide any and all information needed and asked to be informed specifically what they were questioning about the amount claimed and how the form was incomplete.

Exchange's response was strong and threatening. Contrary to the company's general policy that an investigation of a claim be completed within 30 days of notification, the next correspondence received by Cleveland was a letter dated August 12, 1987, more than two months after the notice of claim, from a law firm retained by Exchange, Zalma, Berard & Moragos Inc. The letter reported the “stated reasons for the Exchange's position are that (1) the proof of loss is incomplete, in that the form fails to provide the following information: (a) the policy number; (b) type of property insured; (c) the name of the insured; (d) the amount of insurance, value, loss amount, and claim amount relative to the building; (e) the amount of insurance, value, loss amount, and claim amount of the contents of the insured's dwelling; (f) the amount of insurance, value, loss amount, and claim amount of any additional living expenses associated with the loss referenced herein; and (2) the total amount of the claimed loss relative to the actual cost value of the insured's premises on the date of loss is disputed by the Exchange.”

The letter from the law firm declared that Exchange “in exercise of its contractual obligation, is taking this opportunity to point out to you that you have failed in your duty, under the terms and conditions of the policy, to completely prove your loss to the Exchange.” Exchange required Cleveland to submit to an examination under oath on September 10, and to produce numerous documents no later than September 5.2 The letter informed Cleveland that his failure to produce the documents on that date could “in and of itself, be construed as the breach of a material condition of the policy of insurance sufficient to void any rights you may have to the benefits of the policy.”

Cleveland attempted to comply reasonably with Exchange's demands. He sent a letter to the law firm on August 15, which enclosed a completed proof of loss form, explaining that the additional information requested in the August 12 letter was already in the possession of the insurer. Cleveland explained that he had already allowed Farmer's to examine the property on each occasion requested and subjected himself to oral examination which was tape recorded and in which he answered every question asked. He enclosed a copy of the policy, even though he believed Farmers must already have a copy in its possession, and enclosed a copy of the previously submitted construction bids. Cleveland also enclosed a completed loss of claim form which included the policy number and added $6,600 in lost rent during construction.

Cleveland was “appalled” by the law firm's suggestion that he have his attorney call. “I was not told, nor was I ever made aware, that in order to submit a claim under a Farmer's or Fire Insurance Exchange policy, that I had to obtain an attorney. Frankly, attorneys are expensive and, if I have to pay an attorney, I will not receive all of the benefits to which I am entitled to under the insurance policy. Yet, I am not so naive as to believe that I should go to an examination at your office without an attorney especially given the tenor of your letter of August 12, 1987 and your request for obviously irrelevant documents.”

Cleveland stated he stood ready and willing to submit any relevant information, but he did “not enjoy being harassed and delayed by Farmer's and Fire Insurance Exchange.”

The insurers' law firm responded to Cleveland's letter, stating that the purpose and intent of its letter was not to intimidate or harass him, but to advise him of his obligations. The letter “strongly suggest[ed]” that Cleveland reconsider because his refusal to produce the documents demanded or to submit to examination under oath could be considered a breach of a material condition of the policy, thereby absolving Exchange of any obligation to indemnify him for his loss. The letter “demanded” the production of the requested documents by September 5, 1987, and rescheduled the examination under oath for September 10.

Cleveland received the lawyer's letter of August 21, postmarked August 25, on August 27. By letter dated September 1, Cleveland wrote back explaining he could not understand the difference between a recorded statement in which he answered all questions regarding the property and his ownership and an examination under oath. “To me it appears you are requesting the same information and using the request to further delay my claim.” Cleveland stated he would not appear for the examination, and would make “one last attempt to supply you with all the information you could possibly need to pay my claim,” by addressing each document request (“to avoid the costly step of having to hire an attorney to receive what I am rightfully owed”), either providing information or pointing out that it was information in the insurer's possession. He stated that his house was deteriorating and becoming a public nuisance and the Exchange's delay was causing him stress and anxiety. If he did not receive payment by September 30, he would seek legal action.

Except for the lawyer's request, the company never requested additional information from Cleveland nor did it seek to obtain a second recorded statement.

Cleveland did not attend the EUO on September 10, and Exchange rescheduled it for October 13, 1987. On September 30, Cleveland wrote Mr. Beamon of the law firm a letter, informing him he was seeking legal assistance. Cleveland stated Exchange was treating him “unfairly” and its actions were causing him to be “worried, anxious and exasperated.”

By letter, Beamon strongly recommended that Cleveland attend the EUO and produce the requested documents and warned him that his refusal may be considered a breach of the policy, which “may be sufficient, in and of itself, to absolve the Fire Insurance Exchange of any obligation to indemnify you for the above referenced loss.” Despite the threats, Cleveland did not attend the EUO scheduled for October 13.

On October 16, Cleveland filed a complaint against Exchange and Farmers Group for breach of contract, breach of the covenant of good faith and fair dealing, violation of Insurance Code section 790.03, subdivision (h), intentional misrepresentation, negligent misrepresentation and conspiracy. By letter dated November 9, 1987, Exchange “unconditionally and irrevocably” rejected Cleveland's claim in its entirety, for failure to attend the EUO which was characterized as “an intentional breach of a material condition precedent to recovery” under the policy.

Exchange and Farmers Group answered the complaint and then moved for summary adjudication of certain issues on all causes of action based on Cleveland's failure to appear for the EUO. Citing Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, the trial court denied the motion. Defendants' petition for writ of mandate challenging the denial was summarily denied by Division 7.

Cleveland's motion for summary adjudication of issues was granted, the trial court finding the following issues without substantial controversy: “1. On November 9, 1987 Fire Insurance Exchange unconditionally and irrevocably denied Mr. Cleveland's claim for policy benefits on the sole ground that Mr. Cleveland failed to show up for an examination under oath. [¶] 2. It is the policy of Fire Insurance Exchange to deny claims where an insured fails to show up for an examination under oath.”

Defendants again moved for summary adjudication of issues, this time limiting the motion to the second cause of action for breach of contract only. As so limited, the trial court found the following issues without substantial controversy: “a. Examination under oath is a permissible condition precedent to indemnity in a California fire policy. [¶] b. Once demanded, an examination under oath is a material condition precedent to indemnity under a fire policy. [¶] c. The Fire Insurance Exchange, as permitted by the policy, required an examination under oath of plaintiff in this arson loss. [¶] d. By refusing or failing to attend scheduled examinations under oath, plaintiff breached a material condition precedent to indemnity under this policy.”

Cleveland dismissed, without prejudice, the breach of contract, intentional infliction of emotional distress and conspiracy causes of action.

The remaining causes of action proceeded to trial. The jury, by special verdict, found Cleveland was entitled to recover against both defendants for breach of the covenant of good faith and fair dealing, for violation of Insurance Code section 790.03, subdivision (h), and for fraud. The jury found the total amount of economic damages was $117,000 and the total amount of non-economic damages was $50,000, for a total sum of $167,000, without taking into consideration any reduction due to comparative fault. The jury found Cleveland did not breach the covenant of good faith and fair dealing and defendants engaged in malice, oppression or fraud.

Thereafter upon trial on the issue of punitive damages the jury found Exchange liable in the amount of $3,000,000 and Farmers Group in the amount of $9,000,000.

Judgment was entered in accordance with the special verdicts with interest of 10 percent per annum from the date of the jury verdict until paid.

Defendants filed motions for a new trial and for judgment notwithstanding the verdict. Both motions were denied, and defendants appealed.

CONTENTIONS

Exchange contends:

1. “There can be no breach of the covenant of good faith and fair dealing as a matter of law because Cleveland breached a material condition precedent to indemnity under the policy.”

2. “The trial court erred in refusing to instruct the jury that Cleveland breached a material condition precedent to indemnity under the policy.”

3. “In any event, the verdict on Cleveland's bad faith claim was not supported by the evidence.”

4. “An insurer which owes no benefits to the insured cannot be liable for violating Insurance Code section 790.03.”

5. “There is insufficient evidence to support the jury's statutory bad faith verdict.”

6. “The trial court improperly instructed the jury that the insurer must place the interests of its insured ‘above those of the insurance company.” ’

7. “The trial court improperly instructed the jury that an insurer's unreasonable failure to make efforts toward ‘settlement’ constitutes a breach of the duty of good faith.”

8. “The jury's award of non-economic damages based on Cleveland's purported emotional distress must be reversed.”

9. “The compensatory damages award must be reversed because the jury was improperly instructed on prejudgment interest.”

10. “The trial court erroneously instructed the jury on the meaning of ‘clear and convincing evidence.” ’

11. “Even under the standard embodied in the erroneous instruction, the punitive awards are unsupported by the evidence.”

12. “The punitive awards are excessive as a matter of law.”

Group incorporates Exchange's contentions and arguments and also contends:

1. “There is insufficient evidence to support the jury's verdict on Cleveland's cause of action for fraud.

2. “There is insufficient evidence to support a finding that Fire Insurance Exchange or any persons involved in handling Cleveland's claim were actual [or ostensible] agents of Farmers Group, Inc.”

3. “The jury's verdict on Cleveland's statutory bad faith claim must be reversed because there is no substantial evidence Farmers Group, Inc. was engaged in the business of insurance.”

4. “The trial court's denial of defendants' motion in limine to require Cleveland's counsel to distinguish between Farmers Group, Inc. and Fire Insurance Exchange and to preclude indiscriminate references to ‘Farmers' constituted prejudicial error.”

5. “The punitive award against Farmers Group, Inc. must be reversed.”

DISCUSSION

1. Breach of the Implied Covenant of Good Faith

Defendants contend a bad faith claim, either common law or statutory, cannot be maintained because of the trial court's pretrial determination that Cleveland breached a material condition precedent to indemnity under the policy, which means “he was not entitled to indemnity under the contract. ” (Emphasis in original.) This is not the law.

While the duty under the implied covenant of good faith “arises from the contractual relationship between the parties, it is not strictly a contractual obligation. Rather, it is one ‘imposed by law which governs a party to a contract in discharging its contractual responsibilities.’ (Murphy v. Allstate Ins. Co. (1978) 83 Cal.App.3d 38, 48[ ].) [¶] ․ This duty is unconditional and independent of the performance of the insured's contractual obligations. [Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 578.]” (Mock v. Michigan Miller Mutual Ins. Co. (1992) 4 Cal.App.4th 306, 324, original italics.)

Defendants reliance on contractual coverage cases, not bad faith cases, is misplaced. In Hickman v. London Assurance Corp. (1920) 184 Cal. 524, relied upon by defendants, judgment in favor of the insured was reversed where the insured refused to answer questions at an EUO while criminal charges of arson were pending. The Court based its decision on contract law: the insured could not recover on his insurance policy because he was in default-he failed to comply with the contract condition that he submit to examination and thus terminated the policy.

In West v. State Farm Fire and Cas. Co. (9th Cir.1989) 868 F .2d 348, also relied upon by defendants, the court affirmed summary judgment in favor of West's insurer in regard to a burglary claim. The trial court ruled that the insurers' requests that West and his family submit to examinations under oath were reasonable as a matter of law, and the requirement to do so was a condition precedent to the insurer's duty to pay. The appellate court affirmed the summary judgment, finding that West's contention that reasonableness is always a question of fact which precludes summary judgment was meritless. (Id., at p. 350.) The evidence in that case supported the conclusion that the requirement was reasonable as a matter of law.

These cases support the general proposition that under contract law principles, an insured cannot collect benefits under a policy unless he complies with reasonable conditions precedent. However, they do not address the issue of tortious liability based upon the implied covenant of good faith and fair dealing implied in every insurance policy.

In Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, the California Supreme Court reversed the trial court's sustaining of a general demurrer of three insurers to the complaint of the owner of a bar and restaurant damaged by fire. The complaint alleged that the defendants encouraged criminal charges by implying that the owner had a motive to commit arson, and in knowing he would not appear for an examination under oath as required by the policies during the pendency of the criminal charges against him.

The Court held the plaintiff's duty was not a dependent condition to the insurers' duty of good faith. It stated that the insurer's duty of good faith and fair dealing, implied by law, “is unconditional and independent of the performance of plaintiff's contractual obligations.” (Id., at p. 578, fn. omitted.) “At the same time, we do not say that the parties cannot define, by the terms of the contract, their respective obligations and duties. We say merely that no matter how those duties are stated, the nonperformance by one party of its contractual duties cannot excuse a breach of duty of good faith and fair dealing by the other party while the contract between them is in effect and not rescinded.”3 (Ibid.; emphasis added.)

Defendants emphasize the premise that Cleveland was not entitled to benefits under the policy.4 From that premise, they conclude Cleveland could not maintain a bad faith action against them. There are cases where the absence of a contract claim necessarily results in the lack of a bad faith claim. For example, in Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, the court ruled the Loves could not maintain a cause of action for bad faith for conduct of the insurer which occurred after the statute of limitations on claims on the policy had expired-i.e., policy benefits were not due .5

However, this is not such a case. It is undisputed that there existed a valid contract, the insurance agreement, between Cleveland and Exchange during the relevant period. Their denial of benefits rested entirely on Cleveland's failure to attend an EUO.6 This event occurred after and evidently in response to Cleveland's position that defendants were delaying the processing of his claim and harassing him with burdensome and unnecessary requests-i.e., were acting in bad faith. The jury also found Cleveland himself did not act in bad faith. Substantial evidence supports the jury verdict and the conclusion that defendants committed bad faith before Cleveland's refusal to attend an EUO. Indeed, the very fact that the complaint was filed before defendants irrevocably denied Cleveland's claim is consistent with that conclusion.

The question of whether benefits were due under Cleveland's policy was not determined by the special verdict but is implicit in the jury's award of compensatory damages arising from defendants' tortious conduct which denied Cleveland policy benefits. There is no question that there was in fact policy coverage. (Cf. California State Auto. Assn. Inter-Ins. Bureau v. Superior Court (1986) 184 Cal.App.3d 1428, 1433; Brodkin v. State Farm Fire & Casualty Co. (1989) 217 Cal.App.3d 210, 218.)

2. Refusal to Instruct on Breach of Material Condition

Consistent with the principle discussed in Gruenberg and Hickman, the trial court granted defendants' motion for summary adjudication only when it was properly limited to the cause of action for breach of contract.

Defendants requested instructions to inform the jury that Cleveland's failure to attend the EUOs constituted a breach of a material condition precedent to indemnity under his policy.7

Defendants claim that the refusal to so instruct “prevented the jury from considering whether, having breached his own contractual obligations, Cleveland was entitled to recover for the alleged bad faith of defendants.”

The requested instructions all concerned the right to indemnification under the contract. They did not accurately reflect the trial court's earlier rulings, as these were expressly limited to the cause of action for breach of contract. Since the breach of contract cause of action was dismissed and not tried, such instructions were not only irrelevant, but potentially misleading, confusing policy benefits with liability under other causes of action.

And contrary to defendants' claim of prejudice, they were not denied the affirmative defense of plaintiff bad faith. Instructions expressly addressed that defense and the proportionate share of bad faith attributable to plaintiff, as well as plaintiff's duty of good faith. The court instructed, in part, as follows: “To prove the affirmative defense of comparative bad faith, defendant must prove: [¶] 1. Plaintiff breached his duty of good faith and fair dealing by refusing to sit for an examination under oath. [¶] 2. The breach caused plaintiff damage.”

“In order to determine the proportionate share of the bad faith, if any, attributable to the plaintiff, you will of necessity be required to evaluate the combined bad faith of the plaintiff and of the defendant[s], if any, whose bad faith [legally] contributed to plaintiff's injury. [¶] In comparing the bad faith, if any, of such persons you should consider all the surrounding circumstances as shown by the evidence.” (BAJI 1491.)

“Implied by law into Plaintiff's insurance policy with Defendants is a covenant of good faith and fair dealing. This implied covenant of good faith and fair dealing is a ‘two-way street,’ binding Plaintiff as well as Defendants. Its purpose is to protect the reasonable expectations of each party under the contract. The insurer has a reasonable expectation that the insured will promptly and adequately furnish all known information pertinent to any claim made under the policy.”

The trial court properly denied defendants' requests for additional instructions on the EUO condition.

3. Jury Instructions on Insurer's Duty

Upon Cleveland's request, the jury was instructed as follows: “An insurer's conduct is judged based on whether, given the circumstances, the insurer unreasonably withheld benefits due under the policy. That conduct is unreasonable if inconsistent with placing the insured's interests above those of the insurance company .”

On appeal, defendants contend this instruction resulted in prejudicial error. Although defendants did not object to the instruction at trial and it was not the subject of review by the judge and counsel when they discussed “disputed” instructions, the instruction is “deemed excepted to” by the provisions of Code of Civil Procedure section 647, and defendants are not precluded from asserting the instructions misstates the law. (Mock v. Michigan Millers Mutual Ins. Co., supra, 4 Cal.App.4th at pp. 333-334.)

The requested instruction was based upon language in McCormick v. Sentinel Life Ins. Co. (1984) 153 Cal.App.3d 1030: “Obviously the duty of good faith and fair dealing does not require an insurer to honor ‘every claim presented to it.’ (Austero [v. National Cas. Co. (1978) 84 Cal.App.3d 1,] 30.) Nor does it require an insurer to pay ‘meritless claims.’ (Blake [v. Aetna Life Ins. Co. (1979) 99 Cal.App.3d 901,] 924.) However, Egan [v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809] makes it clear the duty does require an insurer to place the interests of its insured above its own or its stockholders' ‘interest [s] in maximizing gains and limiting disbursements.’ (24 Cal.3d 809, 820-821.)” (Id., at p. 1043; emphasis added.)

The challenged instruction concerns the withholding of “benefits due under the policy” and correctly reflects the law as pronounced by courts in regard to the tension between contractual obligations and the welfare of the insurer's business.8 The construction of the instruction may be awkward and is possibly misleading regarding the insurer's duty of good faith generally. As stated in Egan, supra: “For the insurer to fulfill its obligation not to impair the right of the insured to receive the benefits of the agreement, it ․ must give at least as much consideration to the latter's interests as it does to its own. [Citation.]” (24 Cal.3d at pp. 818-819; see, also, Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 460.)

However, the jury was also instructed, “The insurer is obligated to give the interests of the insured at least as much consideration as it gives its own interests and not to withhold payment of claims unreasonably.” The jury was instructed, “The filing of the Complaint did not make Farmers and Cleveland adversaries so as to eliminate Farmer's duty to consider the insured's interests on a level equal to its own and to inquire fully into any possible basis that might support the insured's claim.”

The jury's determination of liability did not likely depend on subtle weighing of the parties' relative interests. Taking into account the instructions as a whole and the finding of malice, oppression or fraud, it cannot be said that this one instruction was so misleading as to result in prejudicial error. (Jones v. Toyota Motor Co. (1988) 198 Cal.App.3d 364, 371.)

Similarly, defendants' contention that the instruction mentioning “settlement” obligations was improper and prejudicial is meritless .9 Although there exists a difference between the insurer's duty to pay policy benefits in first party cases and the duty to settle in third party cases, the fact that the jury received instructions employing the term “settle” or “settlement” at the most was harmless. In the context of the case and the evidence, these instructions correctly represented insurers' duties to Cleveland. Obviously settling a claim is common parlance in this context. The challenged instruction was not inconsistent with the insurer's duty in first party cases “not to withhold unreasonably payments due under a policy.” (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at p. 573.) The simple language of the instruction would not be likely to raise issues of liability beyond policy limits, as suggested by defendants.

4. Substantial Evidence of Bad Faith and Violation of Insurance Code section 790.03, subdivision (h).10

When a judgment or finding of fact is attacked on the ground that there is insufficient evidence to sustain it, the power of the appellate court begins and ends with the determination of whether there is any substantial evidence, contradicted or uncontradicted, which will support the finding or judgment. (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.) The trier of fact is free to believe or disbelieve any witness, and the testimony of one witness, even that of the party, can be sufficient to support a judgment. (In re Marriage of Mix (1975) 14 Cal.3d 604, 614.)

The testimony regarding telephone conversations as well as the content of the parties' correspondence, including that of defendants' counsel, wove a picture of claim-handling which was less than friendly and fair.11 Include evidence of broad investigation into numerous aspects of Cleveland's affairs, by an outside agency, with an agent whose notes suggests an intention to intimidate Cleveland, whether communicated to Exchange or not, and the jury has ample basis to conclude there was a breach of the covenant of good faith and fair dealing. Evidence of other consumer complaints regarding the behavior, especially the temper, of the agent who spoke with Cleveland substantiated Cleveland's account and reinforced this picture. Substantial evidence includes the fact that Exchange employees were unable to articulate convincing reasons for the necessity to conduct an EUO, after Cleveland had submitted to a recorded interrogation and Exchange admitted it had no evidence that Cleveland had committed arson. Both the bad faith verdict and the finding of violation of Insurance Code section 790.03, subdivision (h) are supported by the record.

5. The General Verdict for Compensatory Damages

The judgment for compensatory damages was entered on a general jury verdict included in the special verdict format. “․ [A] general verdict will be sustained if any one count is supported by substantial evidence and is unaffected by error, despite possible insufficiency of evidence as to the remaining counts. The rule is based on the assumption ‘that the jury found on the cause of action or theory which was supported by substantial evidence and as to which there was no error,’ an assumption that may be proven incorrect by the special verdict or response to special interrogatories.” (Tavaglione v. Billings (1993) 4 Cal.4th 1150, 1157, citation omitted.)

Here the jury made a single determination of compensatory damages, breaking them down into non-economic and economic damages, but not attributing any specific amount or portion to any one of the causes of action for which the jury found defendants liable. “Thus, our review in this appeal is narrowly circumscribed: we are merely required to find one of the ․ causes of action alleged by respondent is supported by substantial evidence and is unaffected by error to uphold the general verdict of compensatory damages.” (Liberty Transport, Inc. v. Harry W. Gorst Co. (1991) 229 Cal.App.3d 417, 427, disapp. on other grounds in Adams v. Murakami (1991) 54 Cal.3d 105.)

Finding no error in the verdict for bad faith and violation of the Insurance Code, we need not address defendants contentions regarding the fraud verdict.

6. Prejudgment Interest

Defendants contend the jury was improperly instructed on prejudgment interest and therefore the entire compensatory damage award must be reversed because the jury may have included such interest.

The jury was instructed as follows: “Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest from that day. [¶] In every case of malice, fraud or oppression interest may be given in the discretion of the jury.”

These instructions are derived from Civil Code sections 3287 and 3288.12 Defendants complain that not only were there no bases for the interest award, the instructions were erroneous because they did not limit the interest to the constitutional limit of 7 percent, did not inform the jury it could not be awarded for emotional distress, and did not instruct the jury how to calculate the interest.

Any deficiency in this regard was waived by the failure of defendants to request clarifying instructions. “It is settled that a party may not complain on appeal that an instruction correct in law is too general or incomplete unless he had requested an additional or qualifying instruction. [Citations.]” (Agarwal v. Johnson (1979) 25 Cal.3d 932, 948-949; citations omitted.) The instructions stated the law correctly and were potentially applicable in the instant case. “․ [P]rejudgment interest pursuant to Civil Code section 3287, subdivision (a), is available as a matter of law in tort actions for property damages from the date when the defendant has notice of an amount certain or capable of being made certain.” (Levy-Zentner Co. v. Southern Pac. Transportation Co. (1977) 74 Cal.App.3d 762, 769.) Section 3287 applies when damages are “certain, or capable of being made certain by calculation,” while section 3288 makes no reference to a requirement of certainty. (Id., at pp. 795-796.)

The verdict does not reveal whether any interest was included in the compensatory damage award, or, if included, what interest rate was employed. This uncertainty, however, does not render the verdict invalid. “Where several counts or issues are tried, a general verdict will not be disturbed by an appellate court if a single one of such counts or issues is supported by substantial evidence and is unaffected by error, although another is also submitted to the jury without evidence to support it and with instructions inviting a verdict upon it.” (Posz v. Burchell (1962) 209 Cal.App.2d 324, 335-336.) Also, “if the verdict is in accord with the evidence and the law, it is not subject to attack on the ground that it is contrary to an erroneous instruction. Disregard of the erroneous instruction is not prejudicial, and the error in the instruction is cured by the verdict.” (7 Cal.Proc., Trial § 334, p. 334, original italics.)

Substantial evidence supports a compensatory damage award of $117,000 for economic damages, and $50,000 in non-economic damages, without the inclusion of possibly inappropriate prejudgment interest, based upon evidence of the estimated costs of repair to the property and lost rents and the jury finding of malice, oppression or fraud.13

7. Non-Economic Damage Award

Defendants contend Cleveland is not entitled to emotional distress damages because Exchange did not act in bad faith in handling his claim, or violate the Insurance Code or commit fraud. The jury decided otherwise.

Defendants also contend such damages are unavailable due to any accusation or suggestion Cleveland was an arsonist. They argue that Cleveland's reaction of outrage does not provide a basis for emotional distress damages, which they contend must be based upon anxiety arising from the financial deprivation traceable directly to nonpayment of his claim.

The record contains substantial evidence of the stress, frustration, irritation and anxiety created by defendants' conduct of the investigation and delay of his claim and the non-payment of benefits. Whether or not defendants accused Cleveland of arson, there is evidence that defendants' conduct caused emotional distress. Defendants' assertion that Cleveland's behavior caused his own distress is simply a reiteration of defendants' claim of nonliability and is contrary to the jury's verdict in this case.

8. Instructions on Punitive Damages

Exchange contends the trial court erroneously instructed the jury on the meaning of “clear and convincing evidence” in regard to punitive damages.

Civil Code section 3294, which provides for award of punitive damages, was amended in 1987 to provide specific definition for the terms “malice” and “oppression” which, if established by “clear and convincing evidence,” would be sufficient to support a claim for punitive damages. (Mock v. Michigan Millers Mutual Ins. Co., supra, 4 Cal.App.4th at pp. 327-328.) BAJI No. 2.62 was added in 1988, to reflect this change.14

The trial court instructed the jury as set forth in BAJI No. 2.62, as follows: “ ‘Clear and convincing’ evidence means evidence of such convincing force that it demonstrates, in contrast to the opposing evidence, a high probability of the truth of the facts for which it is offered as proof. Such evidence requires a higher standard of proof than proof by a preponderance of the evidence.”

This instruction was requested in writing by both Cleveland and defendants. Defendants now contend the instruction was improper. During the trial court's conference with counsel regarding all the proposed jury instructions and objections, defendants' counsel stated he thought the BAJI instruction was not adequate and that there should be additional instruction that the evidence “must be so clear as to leave no substantial doubt sufficiently strong to command the unhesitating assent of every reasonable mind. Proof by clear and convincing evidence is a higher standard of proof than proof by a preponderance of the evidence.” Counsel presented no further argument and cited no authority. The trial court overruled the objection stating, “I think that's for argument.”

Defendants did not withdraw their original request based on BAJI No. 2.62, but advised the trial court that there should be “additional instruction.” Defendants failed to preserve the right to raise the issue on appeal under the circumstances of a belated oral suggestion that the instruction should be augmented. (Mock v. Michigan Millers Mutual Ins. Co., supra, 4 Cal.App.4th at p. 333, fn. 29; Gaspar v. Georgia Pac. Corp. (1967) 248 Cal.App.2d 248, 251.) The proposed instruction was never put on the record as such. “On appeal, a party cannot predicate error on the refusal to give an instruction unless the proposed instruction is made part of the record. [Citations.]” (Gaspar v. Georgia Pac. Corp., supra, at p. 251.)

Defendants request for additional instruction failed to fulfill a requirement of section 607a of the Code of Civil Procedure, which directs in part “[a]ll proposed instructions, shall be typewritten ․” Because the proposed language varied from the standard BAJI instruction, the lack of a writing to consider its import, was more than a “trivial inconvenience” justifying a finding of waiver of the requirement by the court. (Cf. Ng v. Hudson (1977) 75 Cal . App.3d 250, 257.) This factor, along with the lack of any supporting authority and notice to opposing counsel, resulted in an absence of argument to aid the trial court in its ruling and a summary denial of the request.

In Hudspeth v. Jaurequi (1965) 234 Cal.App.2d 526, 528, relied upon by defendants, the court held the lack of written instructions did not prevent appellant from raising the instructional error on appeal. The court reasoned submittal of a written instruction would have been an idle act in that case where the court reaffirmed its view expressed earlier that the instruction was not applicable to the case. However, in the instant case, defendants' delay in bringing up the subject of additional language and failure to put the proposed instruction in writing constituted a waiver barring the issue on appeal. (Gaspar, supra, at p. 252)

Error in the “clear and convincing evidence” instruction, if any, was in these circumstances invited error.

9. Punitive Damages: Reasonableness

Defendants contend their conduct was not reprehensible, justifying punitive damages. This contention is the reiteration of their meritless claim that the demand for an EUO and the denial of Cleveland's claim was proper, and conflicts with the express findings of the jury that defendants engaged in malice, oppression or fraud. As explained elsewhere, substantial evidence supports this finding.

They also contend the punitive damage awards bear no reasonable relation to the total compensatory award. As made clear in the recent United States Supreme Court opinion in TXO Production Corp. v. Alliance Resources Corp. (1993) 61 U.S.L.W. 4766, 125 L.Ed.2d 366, “it is appropriate to consider the magnitude of potential harm that the defendant's conduct would have caused to its intended victim if the wrongful plan had succeeded, as well as the possible harm to other victims that might have resulted if similar future behavior were not deterred.”

Thus defendants' argument that the ratios of punitive to compensatory damages awarded demonstrate a violation of their federal due process rights is meritless, as long as there was evidence of the potential harm to Cleveland and possible harm to others-i.e., defendants' insureds. The harm to Cleveland was established by the award of compensatory damages. The potential harm to others is reflected in the size of defendants as indicated by their financial reports.

The factors outlined by the California Supreme Court are consistent with the due process requirement set forth in TXO. In Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, the Court explained that the purpose of punitive damages is the public goal to punish wrongdoing and thereby to protect itself from future misconduct, either by the same defendant or other potential wrongdoers. (Id., at p. 928.)

“․ [T]he most important question is whether the amount of the punitive damages award will have deterrent effect-without being excessive. Even if an award is entirely reasonable in light of the other two factors in Neal, supra, 21 Cal.3d 910 (nature of the misconduct and amount of compensatory damages), the award can be so disproportionate to the defendant's ability to pay that the award is excessive for that reason alone.” (Adams v. Murakami (1991) 54 Cal.3d 105, 111.) Thus, the financial condition of the defendants is highly relevant to a determination of the amount of punitive damages in a particular case and evidence of the defendant's financial condition provides a basis for meaningful appellate review. (Id., at pp. 115-116.)

10. References to “Farmers”

Defendants contend the trial court erred in denying Farmers Group's motion in limine to require Cleveland's counsel and witnesses to refer to either Fire Insurance Exchange, Farmers Group, Inc., or Farmers Insurance Group of Companies, to preserve the separate identity of the two defendants. Also, they contend, this error set the stage for the additional error, an instruction which referred to “Farmers” which “reinforced the jury's mistaken belief that ‘Farmers' referred to both defendants and that Farmers Group, Inc. could be found liable based entirely on testimony and evidence concerning ‘Farmers.” ’15

On appeal, Farmers Group continues to contend it is not an agent of Exchange and is not in the insurance business.

In their own papers, Exchange and Farmers Group refer to Stephen Alexander and Larry Loden as “Farmers employees” and to Mark Hebson as “Farmers agent.” Correspondence regarding Cleveland's claim under his Exchange policy was under the Farmers Insurance Group letterhead.

Any confusion regarding the difference between Farmers Insurance Group of Companies and defendant Farmers Group, Inc., to the jury resulted, if at all, from the manner in which the persons involved, especially including defendants, referred to the entities and treated their relationships. In other words, the parties evidenced an understanding that the entities were in fact significantly intertwined.

The jury was instructed that in order to prove violation of the Insurance Code section 790.03, subdivision (h), Cleveland had to prove, among other elements, that defendants were engaged in the business of insurance.

Testimony supports the conclusion that Farmers Group, Inc. was responsible for advertising Farmers policies including Fire Insurance Exchange policies and employed the Farmers Insurance Group of Companies logo.16 Testimony regarding “Farmers” reasonably applied to Farmers Group, Inc., one of the defendants. The Group made no effort to clarify such ambiguous use by witnesses when it occurred, nor made any effort before the jury to separate the Group from Farmers generally.17 While the absence of controverting evidence is not proof of a fact and does not meet the plaintiff's burden to establish the elements of his case, confusing and ambiguous evidence, susceptible to differing inferences, is sufficient to support a jury's finding. (Evid.Code, § 550.) Certainly, nothing compels the contrary conclusion.

DISPOSITION

Judgment affirmed. Cleveland is awarded costs on appeal.

NOT TO BE PUBLISHED

I respectfully dissent.

In this appeal this court was confronted with the question of whether a bad faith action may be maintained by an insured following a first party property loss where it had already been established, as a matter of law, that there was no coverage and that the loss of coverage was due to the insured's breach of a material condition of the policy. In affirming a judgment against the defendants and appellants, entered after a jury verdict awarding over $12 million in compensatory and punitive damages, the majority has misapplied or ignored the relevant authorities and, as a consequence, has sanctioned an injustice.

In my view, the controlling authority is not, as the majority insists, Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566 (“Gruenberg ”). That case, which does nothing more than affirm the principle that an insured's breach of a policy provision will not excuse an insurer's bad faith conduct, simply has no application to the facts of this case. Rather, the issue raised here should be resolved under the principles set forth in Opsal v. United Services Auto. Assn. (1991) 2 Cal.App.4th 1197 and Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136.

Based upon Opsal and Love, and the other authorities discussed below, I would hold that where an insurer in a first party case has no liability to pay policy benefits due to the insured's breach of a material condition of the policy, and such breach by the insured was not brought about or induced by any unreasonable acts or conduct of the insurer, then there can be no claim of bad faith for the insurer's refusal to pay policy benefits.

The conclusion that the principles of Opsal and Love should control the outcome in this case necessarily depends upon a careful examination of the acts and conduct of the parties. I will therefore take the time to set forth the relevant chronology of events in somewhat more detail than has the majority opinion.

FACTUAL AND PROCEDURAL BACKGROUND 1

On June 3, 1987, an unoccupied parcel of residential property,2 which Cleveland had purchased in the City of Manhattan Beach three months earlier, was badly damaged by fire. Arson investigators from the Manhattan Beach Fire Department subsequently determined that the fire was of an incendiary origin.3

At the time of the fire, Cleveland was vacationing in Hawaii. He learned of his fire loss shortly after it happened and immediately telephoned his insurance agent to commence the claims process. He had purchased a fire policy from Exchange contemporaneously with the close of the escrow on the property on February 24, 1987.4

On June 8, 1987, Exchange received its first direct notice of the fire loss and assigned Stephen Alexander, an adjuster employed by the Farmers Insurance Group of Companies (“FIGCO”),5 to investigate and adjust Cleveland's claim. On the same day, Alexander spoke by telephone with Cleveland (who was still in Hawaii) and visited the site of the fire. Two days later, contractors selected by Alexander inspected the loss site in order to prepare estimates of the cost to repair the damage. On June 16, Alexander again visited the property and then prepared a scope of loss report describing the damage to the property. He set a reserve of $60,000 for such repairs and $4,800 for loss of rents.

On June 17, 1987, Alexander's superiors at FIGCO retained Counterforce Investigations (“Counterforce”), an outside agency which specialized in arson investigations, to conduct an investigation into this fire. Alexander acknowledged at trial that Cleveland was the only subject of this investigation even though there was some indication that the fire may have been started by vandals.6

As is common in the adjustment of first party losses such as that involved here, Alexander, on June 25, 1987, took a recorded, but unsworn, telephonic statement from Cleveland. Cleveland answered all of Alexander's questions, and indicated he did not know what caused the fire. After the tape recorder was stopped, Cleveland asked Alexander about resolution of his claim. Alexander explained Cleveland's options and indicated that policy benefits would not include the cost of upgrades required to bring the structure into compliance with current building codes7 and the final damage estimates would have to be reduced by 20% (reflecting 10% for contractor overhead and 10% for contractor profit) if Cleveland decided to tear down the structure. This exchange resulted in some acrimony between Cleveland and Alexander which, as this record suggests, may have contributed to Cleveland's belief that he was being unfairly and unreasonably treated by his insurer.8

On June 30, 1987, Exchange sent Cleveland copies of two contractor bids which had been prepared as a result of the contractors' inspection of the property on June 10. These bids were for $43,764 and $47,265, respectively. In its cover letter, Exchange emphasized that “these estimates have not yet been evaluated or adjusted. This process will be completed at a later date in order to reach a settlement amount.” The letter went on to invite Cleveland to submit any separate bids “from a licensed general contractor that you wish to be considered.” Exchange requested that such further bids be submitted within five days. A week later, on July 7, 1987, Exchange sent Cleveland a proof of loss form with a request that he complete and return it, signed and notarized.

Cleveland did not respond to these requests within the requested five days. Indeed, it was not until July 31, 1987, that he submitted two contractor bids of his own, together with a partially completed proof of loss.9 The amounts reflected on the bids were $53,611 and $58,422, respectively; these bids represented an approximate 25% increase over the bids submitted by the contractors selected by Exchange. The largest of these bids was from a Balian Construction Company whom Cleveland described as “a contractor who will do the best work based on previous construction he has performed for me.” Cleveland claimed this larger amount in his proof of loss.

Exchange responded to Cleveland by certified letter on August 4, 1987. The letter advised Cleveland that Exchange took exception to the proof of loss which Cleveland had submitted on two grounds: (1) the amount claimed and (2) the proof of loss form was incomplete.10

Cleveland's response to Exchange's letter was to offer “to provide any and all information” which Exchange might require. In his own letter, dated August 5, 1987, he expressed this view and requested to be informed as to what specific problem Exchange had with the amount claimed and just what specific additional information was required in order to make the proof of loss complete. He concluded the letter by stating, “I am looking forward to a quick settlement at this time since the damage was reported to my Farmers Insurance agent over two months ago.”

Exchange asked its attorneys to respond to Cleveland's letter. They wrote to him on August 12, 1987 and informed him specifically of the items on the proof of loss form which were incomplete.11 As Cleveland contended (see fn. 10, ante ), some of these requests were arguably unnecessary.12 However, a specific statement from Cleveland was justifiably required as to the value of the property destroyed or damaged. Cleveland had failed to provide any value or cost information. He simply had attached two contractor bids and claimed the highest of the two estimates as his loss. It is clear from this record that, as far as he was concerned, nothing further was required.

In addition to its problems with the omissions in the proof of loss, Exchange also was unwilling to accept the amount of Cleveland's damage claim which was nearly 25% higher than the repair estimates obtained by Exchange in its initial investigation. As Exchange's attorney's letter of August 12 stated, “the total amount of the claimed loss relative to the actual cost value of the insured's premises on the date of loss is disputed by [Exchange].”13 Given these unresolved matters, the attorney's letter advised Cleveland that Exchange desired to exercise its right under the policy14 to demand that Cleveland submit to an examination under oath (sometimes referred to as the “examination”) and to provide certain documents.15 The document production was scheduled for September 5 and the examination for September 10, 1987. If these dates were inconvenient, Cleveland was advised that they could be adjusted to suit his convenience.

Cleveland's response was one of outrage. In his letter dated August 15, 1987, he expressed the view that Exchange needed nothing further to adjust and pay his claim. He asserted that the request for the examination would unnecessarily require him to hire an attorney and that the documents requested were irrelevant to the resolution of his claim; however, to the extent that he had any of the requested documents he claims to have enclosed them with his letter along with a revised and fully completed proof of loss. He concluded his letter with a second ultimatum to Exchange.16 Exchange's attorneys responded to this letter with their own of August 21 in which they renewed their request for Cleveland's cooperation in participating in the examination and a reminder about his obligations under the terms of the policy (see fn. 14, ante ). They also emphasized that Exchange's final adjustment of his claim depended on Cleveland's submission to the examination.

On September 1, 1987, Cleveland wrote that while he was willing to provide all “relevant information” he saw no reason to submit to the examination. He expressed the view that the recorded telephonic statement which he had given Alexander on June 25 should be sufficient for Exchange's needs in adjusting the claim.17 He referred to each of Exchange's document requests and indicated that either they did not exist or had been supplied to Exchange previously or were enclosed with the letter. However, he made it clear he still would not attend the examination. He gave no reason except his view that Exchange had no need for it. He concluded his letter with another ultimatum and threat of possible legal action.18

Cleveland was as good as his word. He did not appear at the scheduled examination on September 10. In a second effort to obtain his cooperation, Exchange's attorneys wrote to him on September 23 and again emphasized the nature of his duty of cooperation under the policy and advised him that Exchange intended to insist on its contractual right to require the examination. That examination was rescheduled for October 13, 1987, in the offices of the Exchange's attorneys. Cleveland was given until October 5 to supply those documents requested in the attorneys' letter of August 21 which were actually in his possession and had not already been produced. As before, he was invited to suggest alternative dates if the ones proposed were inconvenient.19

Again, Cleveland did not appear. Instead, on October 16, 1987, he filed this action against Exchange and Farmers Group, alleging in his complaint claims for breach of contract, breach of the implied covenant of good faith and fair dealing (common law bad faith), breach of Insurance Code section 790.03, subdivision (h) (statutory bad faith), intentional and negligent misrepresentation20 and conspiracy. Exchange, recognizing that it was not going to receive Cleveland's cooperation with respect to the examination, wrote to him on November 9, 1987, stating that “your failure to submit to an Examination under Oath on October 13, 1987, can only be construed as an intentional breach of a material condition precedent to recovery. Therefore, you are hereby advised that your claim for damages resulting from the fire on June 3, 1987 is hereby unconditionally and irrevocably rejected in its entirety.”21

Exchange and Farmers Group answered the complaint and moved for summary adjudication of certain issues on all causes of action based on Cleveland's failure to appear for the examination. Citing Gruenberg, supra, 9 Cal.3d 566, the trial court denied the motion. However, two subsequent summary adjudication motions were granted. First, on Cleveland's motion, the court found the following issues were without substantial controversy: “1. On November 9, 1987 Fire Insurance Exchange unconditionally and irrevocably denied Mr. Cleveland's claim for policy benefits on the sole ground [that] Mr. Cleveland failed to show up for an examination under oath. [¶] 2. It is the policy of Fire Insurance Exchange to deny claims where an insured fails to show up for an examination under oath.”

Exchange and Farmers Group then sought summary adjudication of certain issues with respect to Cleveland's breach of contract claim. On May 23, 1989, the trial court granted their motion finding the following issues to be without substantial controversy: “a. Examination under oath is a permissible condition precedent to indemnity in a California fire policy. [¶] b. Once demanded, an examination under oath is a material condition precedent to indemnity under a fire policy. [¶] c. The Fire Insurance Exchange, as permitted by the policy, required an examination under oath of plaintiff in this arson loss. [¶] d. By refusing or failing to attend scheduled examinations under oath, plaintiff breached a material condition precedent to indemnity under the policy.”

After vigorously, but unsuccessfully, resisting the summary adjudication of these four critical issues, Cleveland, on July 29, 1990 and prior to the commencement of trial, voluntarily dismissed his causes of action for breach of contract, negligent misrepresentation and conspiracy.

The case went to trial on August 19, 1991 on Cleveland's claims of common law and statutory bad faith and fraud. Although the defendants asserted that it was relevant not only to Cleveland's bad faith claims but also to their defense of comparative bad faith, the trial court refused to instruct the jury that it had already been determined, as a matter of law, that Cleveland had breached a material condition of the policy by his refusal to attend the scheduled examinations under oath. Specifically, the trial court refused to instruct the jury that, “Once demanded, an Examination Under Oath is a material condition precedent to indemnity under a fire policy” (Special Jury Inst. No. 31); “A material condition precedent is a promise that matters and that must be fulfilled before an insurer has any obligation to pay benefits under the contract” (Special Jury Inst. No. 33); and “By refusing and failing to attend scheduled Examinations Under Oath, Plaintiff breached a material condition precedent to indemnity under his policy.” (Special Jury Inst. No. 34.)22

The jury returned a verdict on all three causes of action in favor of Cleveland against both defendants. The jury found the total amount of economic damages was $117,000 and the total amount of non-economic damages was $50,000, for a total sum of $167,000. The jury found Cleveland did not breach the covenant of good faith and fair dealing (i.e., there was no comparative bad faith on his part) and that defendants had engaged in malice, oppression or fraud. Thereafter, after a trial on the issue of punitive damages, the jury found Exchange liable in the amount of $3,000,000 and Farmers Group in the amount of $9,000,000.

Judgment was thereafter entered in accordance with these verdicts. Defendants' motions for a new trial and judgment notwithstanding the verdict were denied. This timely appeal followed.

CONTENTIONS

The principal contention asserted by both defendants is that, since it had been determined, as a matter of law, that no benefits were due to Cleveland under his policy as a direct result of Cleveland's own voluntary and intentional acts, there can be no breach of either the implied covenant of good faith and fair dealing nor any violation of Insurance Code section 790.03, subdivision (h) arising from the failure to pay policy benefits. They also assert that this record demonstrates that their insistence that Cleveland submit to the examination was reasonable as was the denial of policy benefits when he refused to do so. Finally, they assert that, for the same reasons, there can be no liability for fraud as the alleged misrepresentations on which Cleveland relies did not cause his alleged damages; those damages resulted entirely from Cleveland's own refusal to comply with his duty of cooperation under the express terms of his fire policy.

Cleveland counters these arguments by claiming that his material breach of the policy impacted only his contract claim which he had dismissed. Relying almost entirely on Gruenberg, he asserts that his breach of the policy in no way impaired his ability to proceed on his common law and statutory bad faith claims. Cleveland also contends that the defendants required him to submit to the examination for an “improper purpose”; and this was bad faith conduct on their part which excused his failure to comply with such request.

I agree with defendants on these particular issues. As my views on these points would be dispositive of defendants' appeal, I will not address the many other arguments which they have also raised.23

DISCUSSION

1. Standard of Review.

In this case, it is necessary to determine the impact, on Cleveland's bad faith and fraud claims, of the trial court's summary adjudication of issues upon which coverage for Cleveland's fire loss depended. That adjudication was not attacked by timely writ review; therefore, it was binding on the trial court.24 The effect of that ruling on the issues raised on appeal presents a pure question of law which is independently reviewed on appeal. (Stratton v. First Nat. Life Ins. Co. (1989) 210 Cal.App.3d 1071, 1083.)

It is also necessary to consider whether, under the circumstances of this case, there was any substantial evidence of bad faith conduct by the defendants. In undertaking such a review an appellate court is bound by the substantial evidence standard. Such a task “begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, which will support the conclusion reached by the jury․ All conflicts must be resolved in favor of the respondent, and all legitimate inferences indulged in to uphold the verdict if possible.” (Crawford v. Southern Pacific Co., supra, 3 Cal.2d at p. 429; see also Nestle v. City of Santa Monica, supra, 6 Cal.3d at p. 925.)

However, substantial evidence is not synonymous with “any” evidence. “Substantial evidence must be of ponderable legal significance ․ reasonable in nature, credible and of solid value.” (Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 51; Estate of Teed (1952) 112 Cal.App.2d 638, 644.)

2. As a Matter of Law There Was No Coverage For Cleveland's Fire Loss.

It is first necessary to discuss the loss of coverage under the policy which resulted from Cleveland's breach of his contractual duty of cooperation. Pursuant to the summary adjudication of issues pressed by both sides, the trial court ruled prior to trial that: (1) when Exchange “unconditionally and irrevocably” denied Cleveland's claim on November 9, 1987, it did so “on the sole ground ” that Cleveland had failed to show up for an examination under oath and it was Exchange's policy to deny claims in such circumstances (this ruling was made on Cleveland's motion); and (2) with respect to the examination under oath requested by Exchange and repeatedly rejected by Cleveland, the following facts were established: (a) Examination under oath is a permissible condition precedent to indemnity in a California fire policy; (b) Once demanded, an examination under oath is a material condition precedent to indemnity under a fire policy; (c) The Fire Insurance Exchange, as permitted by the policy, required an examination under oath of plaintiff in this arson loss; and (d) By refusing or failing to attend scheduled examinations under oath, plaintiff breached a material condition precedent to indemnity under this policy.

As already noted, this determination of issues was binding at trial and they were deemed established.25 The legal consequences of one party's breach of a material condition precedent of a contract is to excuse the performance by the other party of its obligation under the agreement. (Civ.Code, §§ 1436 and 1439; 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, §§ 721-726 at pp. 653-658.) Thus, Cleveland's breach of the policy relieved Exchange of any liability to pay benefits which otherwise might have been due. Put another way, the pre-trial rulings of the trial court established, as a matter of law, that there was no coverage under the policy. Exchange's duty to pay benefits never arose.

This brings me to the principal issue of whether, in the total circumstances of this case, the conduct of the defendants, as a matter of law, amounted to bad faith.

3. General Principles Applicable to Bad Faith Claims Against Insurers.

“A “ ‘breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself” and it has been held that “[b]ad faith implies unfair dealing rather than mistaken judgment․ [Citation.]” [Citation .]’ (Congleton v. National Union Fire Ins. Co. (1987) 189 Cal.App .3d 51, 59.) For example, in the context of the insurance contract, it has been held that the insurer's responsibility to act fairly and in good faith with respect to the handling of the insured's claim “ ‘is not the requirement mandated by the terms of the policy itself-to defend, settle or pay. It is the obligation ․ under which the insurer must act fairly and in good faith in discharging its contractual responsibilities.” [Citation.]’ [ ] [Citations.]” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394-1395.)

In insurance cases it has long been recognized that a tort remedy is available for breach of the implied covenant. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 684.) A review of those cases demonstrates that the existence of this remedy has been justified by the “special relationship” which exists between an insurer and an insured and which is characterized by elements of public interest, adhesion and fiduciary responsibility. (Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 768-769; Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 820.) However, before such a remedy can be successfully asserted by an insured it must be proven that the insurer, in delaying or denying performance of any of its obligations under the policy, acted unreasonably (Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at p. 818) or without proper cause (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 920; Gruenberg, supra, 9 Cal.3d at p. 575). Of course, the converse is also true. If an insurer declines to perform a claimed contractual obligation and, in doing so, is acting reasonably or with proper cause, then there can be no breach of the implied covenant of good faith. (California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 54-55.) Citing Gruenberg, the California Shoppers court stated that, “before an insurer can be found to have acted tortiously, i.e., in bad faith, in refusing to bestow policy benefits, it must have done so ‘without proper cause.” ’ (Ibid.)

It is also true that an insurer is entitled to “․ give its own interests consideration equal to that it gives the interests of its insured [citation]; it is not required to disregard the interests of its shareholders and other policyholders when evaluating claims [citation]; and it is not required to pay noncovered claims, even though payment would be in the best interests of its insured [citation].” (Love v. Fire Ins. Exchange, supra, 221 Cal.App.3d at pp. 1148-1149; hereinafter “Love.”)

These principles have equal application to claimed violations by an insurer of Insurance Code section 790.03, subdivision (h). The conduct proscribed by those statutory provisions has been held to be merely a codification of the tort of breach of the implied covenant of good faith and fair dealing as that tort has been defined and applied in insurance cases. (General Ins. Co. v. Mammoth Vista Owners' Assn. (1985) 174 Cal.App.3d 810, 822-823; Richardson v. GAB Services, Inc. (1984) 161 Cal.App.3d 519, 524.) I therefore treat Cleveland's common law and statutory bad faith claims together. The following discussion applies to both.

4. The Bad Faith Claims Asserted by Cleveland.

Essentially, Cleveland asserts that the defendants committed four acts of bad faith: (1) the examination was requested for three improper purposes: (a) to make Cleveland think that if he collected on his claim he would be prosecuted for arson, (b) to punish Cleveland for lodging a complaint about Anderson's rude behavior and (c) to delay the final resolution and payment of the claim; (2) payment of policy benefits was improperly conditioned upon Cleveland's compliance with his contractual obligation under the policy; (3) Cleveland's claim was denied as a punishment for his filing of this lawsuit; and (4) there was an unreasonable delay and refusal to pay policy benefits without probable cause.26

The short answer to all but two of these contentions is that, apart from raw speculation and the conclusionary arguments of counsel, there is simply no direct evidence to support any of them nor is there any reasonable inferences which can legitimately be drawn which will support them.27 I briefly discuss each of these contentions in turn.

First, there is no direct evidence that Exchange had any other purpose in mind than completing a proper investigation and adjustment of Cleveland's fire loss. Cleveland's contention that the examination was requested in order to make him believe that he would be prosecuted for arson if he collected on his claim is simply made up out of whole cloth. The only evidence in the record relates to a note made by an outside investigator during a telephone conversation with a Manhattan Beach Fire Department investigator (see fn. 6, ante.) It would be the grossest form of speculation to conclude, from that single piece of evidence, that Exchange's purpose in requesting the examination was to create a fear of prosecution in Cleveland. There was no evidence that Exchange ever became aware of the investigator's note or that its sentiments were ever shared or acted upon. Counsel for Cleveland justifies his contention by simply claiming that the jury could infer all of that from the fact that it was the investigator's ultimate duty to submit a report to Exchange on the outcome of his investigation.

The error of this argument is underscored by the comments of the court in California Shoppers, Inc. v. Royal Globe Ins. Co., supra, 175 Cal.App.3d 1: “․ ‘It is axiomatic that “an inference may not be based on suspicion alone, or on imagination, speculation, supposition, surmise, conjecture or guess work” [Citation.]. “ ‘ [¶] “ ‘․ ‘A finding of fact must be an inference drawn from evidence rather than on a mere speculation as to probabilities without evidence. A majority of chances never can suffice alone to establish a proposition of fact, since the slightest real evidence would outweigh all contrary probabilities. [Citation.]” ” ” [Citation.]” (Id., at p. 45.) Nor is this a matter which may simply be left to the jury to decide. “[W]hether a particular inference can be drawn from certain evidence is a question of law for determination by the court, but whether the inference shall be drawn, in a given case, is a question of fact for determination by the trier of fact.” (Marshall v. Parkes (1960) 181 Cal.App.2d 650, 655, citing Blank v. Coffin (1942) 20 Cal.2d 457, 461; emphasis added.) These principles apply with equal force to those other contentions asserted by Cleveland which are based upon speculation and surmise.

It is true that Cleveland made a complaint to Anderson's superior on or about June 25, 1987, in which he objected to Anderson's abrupt and rude manner during their telephone conversation of that date. But that is the only evidence in the record from which Cleveland asks us to conclude that sufficient evidence was offered to prove that Exchange's request for the examination was motivated by a desire to punish Cleveland for that act. There is nothing but a speculative bridge which can connect the evidence with that conclusion. Nor can it be said that sufficient evidence exists that Exchange requested the examination in order to delay the claims process. A review of the chronology of events, which I have already set forth in some detail, demonstrates the contrary. Exchange moved promptly, after finally receiving Cleveland's higher damage estimates, to request the examination. Furthermore, all Cleveland had to do was submit to it and the claims investigation would have been completed in early September 1987, a period of just over three months after the fire loss occurred; he had a timely resolution of the entire process within his sole control.

One of Cleveland's three remaining contentions can be dismissed out of hand. Cleveland argues that his claim was denied as punishment for his having filed this action. Apart from the fact that there is nothing but raw speculation to support such a contention, it is contrary to the ruling of the trial court which summarily adjudicated, on Cleveland's motion, that Exchange denied his claim on the sole ground that he had failed to appear for the examination.

I now turn to Cleveland's final two contentions that defendants unreasonably delayed or denied payment of policy benefits and improperly conditioned payment of policy benefits on Cleveland's performance of his contractual obligations. Or, to put it another way, Cleveland contends that the defendants acted unreasonably and without proper cause in their insistence that he submit to an examination under oath and in denying his claim when he refused to do so. These two contentions are at the heart of this case.

5. The Conduct of the Defendants Did Not Amount to Bad Faith

Prior to trial, Cleveland abandoned his contract claim. Apparently acquiescing in the trial court's pre-trial summary adjudication rulings, he determined to proceed only on his bad faith and fraud causes of action.28 In taking this tack, he successfully argued to the trial court that the rulings relative to the examination related only to his dismissed contract claim and were simply not relevant to his tort claims based on common law and statutory bad faith. In this, both he and the trial court were, in my judgment, wrong.

a. Exchange Was Entitled to Demand that Cleveland Submit to an Examination Under Oath and Acted Reasonably in So Doing

Not long ago, this court had occasion to address a similar question in Globe Indemnity Co. v. Superior Court (1992) 6 Cal.App.4th 725. There, the insured father sought to recover under the uninsured motorist provisions of his automobile policy for injuries sustained by his daughter Aimee while she was riding as a passenger on the back of a stolen motorcycle involved in a high speed police chase. Since a policy provision would have excluded coverage if Aimee had been riding on the motorcycle “without a reasonable belief” that she was entitled to do so (i.e., if she “knew” at the time that it had been stolen), the insurer requested that Aimee submit to an examination under oath. On the advice of an attorney hired by her father, Aimee refused to submit to such an examination for nearly 18 months, thus impeding the insurer's ability to determine if there was any coverage. We held that the insurer was entitled to summary judgment on the bad faith claim filed by Aimee's father based on the insurer's alleged delay in adjusting and paying the uninsured motorist claim. We held that whatever delay there was in processing the claim was reasonable as a matter of law due to the insured's unilateral refusal to provide the information which the insurer, under the policy, had the right to require.

In language of equal application here,29 we stated: “The right to require the insured to submit to an examination under oath concerning all proper subjects of inquiry is reasonable as a matter of law. The contractual duty to pay policy proceeds did not arise until plaintiffs provided the information necessary to allow Globe to determine whether the accident on the stolen motorcycle was covered under the terms of the policy. An insurer has a duty to act fairly and in good faith in discharging its contractual responsibility to the insured and may not unreasonably withhold payments due under the policy. [Citations.] There can be no ‘unreasonable delay’ until the insurer receives adequate information to process the claim and reach an agreement with the insureds.” (Globe Indemnity, supra, 6 Cal.App.4th at p. 731, emphasis added .)

In Globe Indemnity, we relied upon two earlier cases which are in point here as well. In Hickman v. London Assurance Corp. (1920) 184 Cal. 524, our Supreme Court addressed and expressly approved the right of an insurer to require an insured to submit to an examination under oath. The court stated, “ ‘As the facts with respect to the amount and circumstances of a loss are almost entirely within the sole knowledge of the insured, ․ it is necessary that it have some means of cross-examining, as it were, upon the written statement and proofs of the insured, for the purpose of getting at the exact facts before paying the sum claimed of it. Such considerations justify the provision ․ requiring the insured as often as demanded to submit to an examination under oath touching all matters material to the adjustment of the loss, and provisions of that character are held to be reasonable and valid .’ (Id. at pp. 529-530.) ․ ‘There may be logic in plaintiff's argument that defendant was not conducting the examination in good faith, but the fact still remains that defendant was acting within the terms of an expressed stipulation found in the policy, which gave it the right to demand such an examination, and it is not for the insured to inquire into the motive actuating the company in exacting the examination, but on his part to comply therewith and to answer all material questions, notwithstanding he may believe that the principal object of the company is to find some loophole whereby it might evade payment of the policy.” ’ (Id. at p. 530; see also Robinson v. National Auto. etc. Ins. Co. (1955) 132 Cal.App.2d 709, 716; Bergeron v. Employers' Fire Ins. Co. (1931) 115 Cal.App. 672, 675.)

In West v. State Farm Fire and Cas. Co. (9th Cir.1989) 868 F .2d 348, the insured likewise had refused to answer questions under oath. Like Cleveland, the insured in West had argued that he was not required to do so because he had previously given an informal statement. Applying California law to policy language substantially identical to that before us, the court held that the insurer's request for a statement under oath was entirely reasonable and that the insurer could not be expected to properly process the claim until the insured had complied with the terms of the policy. The court stated: “For West to claim that the scheduled examination under oath was unreasonable is tantamount to a claim that insurance companies are always required to pay claims at their face value on the basis of a preliminary interview.” (Id., at p. 351.)

The majority dismiss these authorities on the ground that they did not involve bad faith claims. This is true; it is also irrelevant. The pivotal question here is whether Exchange's insistence that Cleveland submit to the examination was reasonable. The significance of Hickman and West is that they both underscore (1) the importance of an examination under oath, (2) the insurer's right to require that an insured submit to such an examination even if one of the insurer's motives is to develop evidence which might be used to defeat or reduce the claim and (3) that an insured is not permitted to unilaterally determine that he or she will not comply with the insurer's request simply because the insurer may have other sources of information. Thus, the holdings of these two cases fully support defendants' argument that Exchange acted reasonably and with proper cause in (1) making its request that Cleveland submit to such an examination and then (2) denying the claim when he refused to do so.

The record before us provides an excellent example of why the courts have repeatedly sustained an insurer's right to enforce policy provisions calling for examinations under oath. It reflects several undisputed facts of legitimate concern as to which no insurer, in the proper discharge of its obligations to its shareholders and other policyholders, should be required to accept an insured's unsworn word: (1) this was an arson fire, (2) apparently, easily rentable property had been left vacant since Cleveland had purchased it three months earlier, (3) Cleveland had a motive for demolition (a vacant lot next to his billiard parlor might provide valuable parking space for that business enterprise); indeed, prior to the fire, he had unsuccessfully sought official permission to demolish the structure in order to construct a parking lot, (4) Cleveland had not been examined about any of the documents he had produced, and (5) Cleveland was setting deadlines and threatening litigation in addition to refusing to provide any sworn testimony.30

It cannot reasonably be argued that Exchange did not proceed in a timely manner to request the examination. It was not until July 31, 1987, nearly two months after the fire, that Cleveland returned the proof of loss statement and his own contractor estimates. These estimates reflected support for a claim nearly 25% higher than the amount Exchange's own investigation had revealed. Exchange's request for the examination under oath came almost immediately (i.e., in the August 12 letter to Cleveland). The resolution of this conflict was an issue which was important to a determination of the proper amount of the claim (and had not been discussed in the recorded statement of June 25, 1987).

In my view, all of these circumstances demonstrate that a reasonable basis existed for Exchange's insistence that Cleveland provide a sworn statement.31 Indeed, they are clearly sufficient to raise the reasonable suspicion that Cleveland's repeated refusal to cooperate indicated that he had something to hide. At a minimum, they demonstrate a legitimate basis for dispute as to the liability of Exchange under the policy. It is now clear under California law that, in the case of a first party loss, an insurer may not be found to have acted in bad faith where policy benefits are denied or delayed due to the existence of a legitimate issue as to the insurer's liability under the policy. (Opsal v. United Services Auto. Assn., supra, 2 Cal.App.4th at pp. 1205-1206; hereinafter “Opsal ”.)32 In Opsal, the court held that the insurer's erroneous refusal to pay policy benefits based on its then view of the applicable law (which was ultimately rejected in a subsequent Supreme Court decision) would not support a bad faith claim. This was so because the insurer had a legitimate, arguable basis for the legal position on which its refusal to pay had been based. Here, the terms of the policy conditioned Exchange's liability on Cleveland's performance of his contractual duty of cooperation. If, as I believe, Exchange had a reasonable basis for insisting that Cleveland fulfill his obligations under the policy, it must follow that his refusal to do so created a legitimate issue as to Exchange's liability within the meaning of Opsal.

b. There Can Be No Bad Faith For Refusal To Pay Policy Benefits Which Are Not Due

As I have already emphasized, due to Cleveland's voluntary and unilateral refusal to submit to an examination under oath, there was no coverage under the policy.33 It is now settled in California that where there is no coverage under a first party policy and there are no benefits due, there can be no claim for bad faith based on the insurer's withholding of such benefits or for the insurer's tardy or inadequate investigation of the insured's claim. (Love, supra, 221 Cal.App.3d 1136, 1151; Murray v. State Farm Fire & Casualty Co. (1990) 219 Cal.App.3d 58, 65-66; Brodkin v. State Farm Fire & Casualty Co. (1989) 217 Cal.App.3d 210, 218.)

“Tort liability for breach of the implied covenant of good faith and fair dealing has been variously measured. The primary test is whether the insurer withheld payment of an insured's claim unreasonably and in bad faith. [Citation.] Where benefits are withheld for proper cause, there is no breach of the implied covenant. [Citation.] The duty imposed by law is not unreasonably to withhold payments due under the policy. [Citation.] [¶] Thus, there are at least two separate requirements to establish breach of the implied covenant: (1) benefits due under the policy must have been withheld; and (2) the reason for withholding benefits must have been unreasonable or without proper cause. [Citations.]” (Love, supra, 221 Cal.App.3d at p. 1151.)

In Love, the insureds had failed to comply with the contractual limitations provisions in the policy which required them to file their claim within 12 months; thus, no benefits were due under the policy. Because no award for bad faith can be made “without first establishing that coverage exists” (California State Auto. Assn. Inter-Ins. Bureau v. Superior Court (1986) 184 Cal.App.3d 1428, 1433), the insurer's motion for summary judgment was properly granted.

The Love court explained its conclusion that a bad faith claim cannot be maintained unless policy benefits are due by emphasizing that such a result is in accord with the policy in which the duty of good faith is rooted. The court stated: “The covenant of good faith and fair dealing is implied in law to assure that a contracting party ‘refrain[s] from doing anything to injure the right of the other to receive the benefits of the agreement.’ [Citation.] In essence, the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party's rights to the benefits of the contract. Thus, when benefits are due an insured, delayed payment based on inadequate or tardy investigations, oppressive conduct by claims adjusters seeking to reduce the amounts legitimately payable and numerous other tactics may breach the implied covenant because it frustrates the insured's primary right to receive the benefits of his contract-i.e., prompt compensation for losses. Absent that primary right, however, the auxiliary implied covenant has nothing upon which to act as a supplement, and should not be endowed with an existence independent of its contractual underpinnings.” (Love v. Fire Ins. Exchange, supra, 221 Cal.App.3d at p. 1153; emphasis added.)

I believe that this analysis by the Love court exactly explains why Cleveland's bad faith claims have no legal merit.34 By his voluntary act, Cleveland unilaterally sought to deprive Exchange of an essential part of a proper claim investigation. (Prudential-LMI Com. Insurance v. Superior Court, supra, 51 Cal.3d at p. 680.) His stated reasons for the repeated refusals to cooperate were that he had already provided all necessary information by an informal statement and that Exchange had an improper motive for requesting the examination. However, that was not his decision to make.

As the court pointed out in West v. State Farm Fire and Cas. Co ., supra, 868 F.2d at p. 351, the acceptance of such an argument would effectively deprive a first party insurer of any opportunity to conduct a thorough and formal investigation and would leave the question of whether an examination under oath would take place solely up to the whim of the insured. This would be an intolerable result. The right to such an examination is one for which the insurer has contracted and, as already noted, is one which our Supreme Court has expressly validated.

c. Gruenberg Has No Application To This Case

The majority dismiss all of this by relying on the Supreme Court's decision in Gruenberg, supra, 9 Cal.3d 566. In that case, the insured had failed to submit to an examination under oath following a fire loss; the defendant insurer, Aetna Insurance Company, then refused to pay any policy benefits. In its opinion, the Gruenberg court stated, “while it may be argued that defendants would be excused from their contractual duties (e.g., obligation to indemnify) if plaintiff breached his obligations under the policies, we do not think that plaintiff's alleged breach excuses defendants from their duty, implied by law, of good faith and fair dealing. In other words, the insurer's duty is unconditional and independent of the performance of plaintiff's contractual obligations.” (Id., at p. 578.)

Gruenberg was a pleading case in which it was alleged that the insurer had itself suggested to the public authorities that the insured was guilty of arson. When criminal proceedings were commenced, Aetna demanded an examination under oath knowing that the insured could not give such a statement while the criminal action was pending. Aetna, relying on the insured's anticipated refusal, denied liability under the policy. Subsequently, after the criminal charges were dismissed, the insured offered to submit to the required examination under oath. However, Aetna took the position that it was too late and reaffirmed its denial of the claim based on the insured's earlier refusal.

Based on such an alleged factual scenario, the Gruenberg court rightly concluded that the insured's failure to perform a contractual obligation could not excuse Aetna's breach of the implied covenant of good faith. Aetna, by inducing the situation where the insured had to chose between waiving his Fifth Amendment right not to incriminate himself and breaching a term of his insurance policy, clearly acted in bad faith; this was only compounded by Aetna's refusal to permit the insured to give the requested sworn statement after the criminal action had been resolved in his favor.

The principal holding of Gruenberg, and the one which both the majority and Cleveland repeat like a mantra, is that the insured's breach of the policy will not excuse a breach by the insurer of its duty of good faith and fair dealing. “We conclude, therefore, that the duty of good faith and dealing on the part of defendant insurance companies is an absolute one. At the same time, we do not say that the parties cannot define, by the terms of the contract, their respective obligations and duties. We say merely that no matter how those duties are stated, the nonperformance by one party of its contractual duties cannot excuse a breach of the duty of good faith and fair dealing by the other party while the contract between them is in effect and not rescinded.” (Gruenberg, supra, 9 Cal.3d at p. 978.)

I certainly do not question that that is an accurate statement of the law. But how does it help decide this case? It merely says that an insurer's duty of good faith is not excused by the insured's breach of a policy term. Defendants here do not argue that their bad faith conduct should be excused by Cleveland's failure to submit to the examination. They contend that there is no evidence of any bad faith on their part at all. That is an issue which, as I have explained in some detail, can be resolved on this record as a matter of law. Exchange had a contractual right to demand the examination; it made such a demand in a timely manner; and the undisputed circumstances reflected by its own arson investigation provided a reasonable basis for requesting the sworn statement of their insured. Thus, the request for the examination could not be said to have been made in bad faith. When Cleveland rejected multiple opportunities to provide his statement for what the West case demonstrates was a legally insufficient reason, Exchange was legally excused from performing under the policy. Thus, the refusal to pay policy benefits was not in bad faith. What then was the defendant's supposed bad faith activity? As I have explained, when the smoke and mirrors of counsel's accusatory and conclusionary arguments are ignored, there was none. This case should have been decided in the defendants' favor on summary judgment. On this record, nothing in Gruenberg compels a different result.

Moreover, Gruenberg's holding that Aetna's duty of good faith was absolute rather than dependent on the insured's performance of his contractual obligations under the policy, must be read in light of the sordid facts from which the case arose. It can have little application here where Cleveland's failure to provide the requested statement was due to his own voluntary act; it was not induced in any way by Exchange. Indeed, it is unchallenged in the record that Exchange made multiple attempts to get Cleveland to cooperate and live up to his contractual obligations.

It was Cleveland's repeated refusal to comply with the request for the examination which resulted in the loss of coverage under the policy. It was Cleveland, not Exchange, which brought this about. Exchange did not by its conduct seek to keep him from submitting to the examination so it could find a legal ground to avoid liability under the policy. Payment of policy benefits was not unreasonably delayed or denied by reason of any act of Exchange. That result, for which Cleveland seeks redress in this action, was due entirely to Cleveland's own conduct. It was his refusal to cooperate which resulted in both the delay and ultimate denial of benefits. At least until the time Cleveland filed this action and Exchange formally denied his claim, he had it within his power, by simply performing his obligations under the policy, to prevent the loss of coverage.

d. Conclusion

I believe that Gruenberg has no application to this case and the majority's heavy reliance thereon is misplaced. Rather, this case is controlled by the rules announced in Opsal and Love. There can be no claim for bad faith in the delay or nonpayment of policy benefits where there is no coverage under the policy as a direct result of the voluntary and unilateral acts (or omissions) of the insured and where the insurer in no way induced or caused the insured's breach or failure to comply with a material policy condition. Thus, payment of the policy benefits were not improperly conditioned upon Cleveland's performance of his contractual obligations; and there was no (1) unreasonable delay or (2) refusal to pay policy benefits without proper cause. Indeed, this record demonstrates beyond dispute that there was no delay which was not directly attributable to Cleveland's own acts or omissions; and there were no documentary or testimonial demands made on Cleveland which did not have a reasonable basis, at least based on the information then available to the defendants. Therefore, Cleveland was not entitled to recover on his bad faith claims.

6. There Could Be No Fraud Without Proof of Damage Caused by Reliance on the Alleged Misrepresentation.

Whatever the merits of Cleveland's arguments about misrepresentations in the advertising by the defendants with respect to their “fast, fair and friendly” claims settlement and adjustment practices, it is clear that Cleveland suffered no damages by any reliance on such representations. His damage arose entirely from Exchange's denial of coverage; and, as we have exhaustively explained, this resulted entirely from his own acts. Neither of the defendants did anything to cause Cleveland to breach the policy and lose insurance coverage for his fire loss.

If the claim of damage (i.e., the loss of policy benefits) was clearly not caused by reliance on the allegedly false representation, there can be no cause of action for fraud. (Commonwealth Mortgage Assurance Co. v. Superior Court (1989) 211 Cal.App.3d 508, 520-521.)

I would reverse the judgment and remand the matter with instructions to enter judgment for the defendants.

FOOTNOTES

1.  Exchange obtained permission to submit a brief exceeding the page limitation specified in the California Rules of Court, and submitted a printed opening brief of 71 pages plus incorporating a portion of Farmers Group's brief. Farmers Group, represented by the same counsel, incorporated in turn extensive portions of Exchange's brief.

2.  These were the items demanded:“1. The original Fire Insurance Exchange policy No. 29-90553-45-78, and any changes, modifications, additions or endorsements thereto;“2. In the event the property, the loss of which forms the basis for your claim, was appraised by any person either before or after the date of loss, all reports of such appraisers no matter when such appraisals were written;“3. Each and every policy of insurance, including, but not limited to, homeowners insurance, fire insurance or insurance of similar nature naming you as a named insured or causing you to be an insured, which policies were in full force and effect for the period from June 6, 1985 to and including June 3, 1987;“4. Your federal and state income tax returns for the years 1983, 1984, 1985 and 1986, if you are willing to provide them[;]“5. Any and all photographs showing or depicting the dwelling, the loss of which forms the basis of this claim;“6. As to any insurance claim made by you during the five year period immediately preceding the date of loss, any document showing or tending to show the name of the insurer, the number of the policy, the date of the loss, the claim number assigned by the insured, correspondence between the insurer and you, and all proofs of loss submitted by you in connection with said claim(s);“7. Each and every document in writing received by you from the Fire Insurance Exchange and/or any of its agents and/or representatives with regard to the acquisition of the policy of insurance or the payment of premiums for the policy of insurance captioned above;“8. Each and every note, note secured by deed of trust, UCC financial statement, security agreement, bulk sale note, or other evidence of debt secured by any of the real property that is the subject of the claim;“9. Copies of any and all applications to the City of Manhattan Beach for use permits and/or variance use permits for the insured's premises;“10. Copies of any and all construction bids for the rebuilding of the insured's premises which have not been previously submitted to the Exchange;“11. A fully completed sworn statement in proof of loss as required by the policy, setting forth all of the facts of that section of policy entitled ‘Your Duties After Loss.’ You may choose to use the enclosed form, or you may employ the use of a form of your own choosing, as long as it is sworn to under oath and provides all of the information required by the policy.”

3.  Defendants attempt to distinguish Gruenberg on the basis that Gruenberg alleged the insurers induced his refusal to appear at an EUO and encouraged the bringing of criminal charges. However, the Gruenberg court referred to these actions only in the hypothetical situation in which the insurers' duty of good faith and fair dealing were construed as a dependent condition, pointing out that Gruenberg's obligation to appear could nevertheless be seen as excused by insurers' alleged breach. [“Even if defendants' duty were construed as a dependent condition, i.e., dependent on plaintiff's performance of his obligations under the policies, we think that plaintiff's failure to appear would still not be fatal to his cause of action.” (Gruenberg, supra, at p. 578, fn. 9, original italics.) ] The Court held that the insurers' duty was, in fact, not dependent, but an absolute duty.Defendants also submit that if Gruenberg permits Cleveland to recover for bad faith despite the trial court's determination that he breached a material condition precedent to indemnity, the Gruenberg case was incorrectly decided.The principle urged by defendants, that a breach of a material term of the contract deprives one of the benefits, would also operate to excuse Cleveland from submitting to an EUO.

4.  Defendants' tortured interpretation of footnote 9 of the Gruenberg opinion is to no avail. The Court clearly states the insurer's duty is unconditional and independent of the performance of plaintiff's contractual obligations. In the footnote, the Court addresses the fact that an insured would be excused from policy obligations in any event by the insurer's breach.“Even if defendants' duty were construed as a dependent condition, i.e., dependent on plaintiff's performance of his obligations under the policies, we think that plaintiff's failure to appear would still not be fatal to his cause of action. That is, the allegations of the complaint demonstrate that plaintiff's failure to appear was induced by defendants' conduct, in breach of their duty of good faith and fair dealing. Therefore, plaintiff's obligation to appear may be seen as excused by defendants' alleged breach. (See 3 Witkin [Cal. Proc. (2d ed.1971) ] § 406, pp.2063-2064.)” (Ibid.)Contrary to defendants' assertions, the allegations of inducement are not a necessary prerequisite to a bad faith action. The Court presented an alternative analysis “even if” the insured's duty was dependent on plaintiff's performance, which it clearly held it was not. Furthermore, under the evidence brought out at trial, Cleveland's nonappearance at the EUO was in direct response to the defendants' conduct which constituted bad faith.

5.  Defendants point out that the court in Gruenberg did not overrule Hickman v. London Assurance Corp., supra, 184 Cal. 524. The court however reversed the trial court's ruling sustaining the demurrers, which had been based solely upon Hickman. (9 Cal.3d 566, 572-573, fns. 3-4.)

6.  There is no evidence of a basis for denial of benefits under the policy for any other reason. Although the insurers seem to imply that Cleveland may have caused the arson fire, they do not contend Cleveland did so and there is no evidence to support such speculation. The insurers' reason for requesting an EUO was stated to be Cleveland's “lack of cooperation,” despite the fact that he had provided all requested claim information and answered all questions during the recorded statement.

7.  The requested instructions were as follows:“Once demanded, an Examination Under Oath is a material condition precedent to indemnity under a fire policy”; “A material condition precedent is a promise that matters and that must be fulfilled before an insurer has any obligation to pay benefits under the contract”; and “By refusing and failing to attend scheduled Examinations Under Oath, Plaintiff breached a material condition precedent to indemnity under his policy.”Defendants also requested, and the court refused to give, Special Jury Instruction No. 11, which stated:“The following issues have been determined as a matter of law: [¶] 1. An Examination Under Oath is a permissible condition precedent to indemnity in a California fire policy; [¶] 2. Once demanded, an Examination Under Oath is a material condition precedent to indemnity under a fire policy; [¶] 3. Fire Insurance Exchange, as permitted by the policy, required an Examination Under Oath of plaintiff in this arson loss; and [¶] 4. By refusing or failing to attend scheduled Examination Under Oath, plaintiff breached a material condition under this policy.”The court also refused to give Special Jury Instruction No. 20, requested by defendants, which would have informed the jury, inter alia, that “[o]nce demanded, an Examination Under Oath is a material condition precedent to indemnity under a fire policy” and that “[b]y refusing or failing to attend scheduled Examinations Under Oath, Plaintiff breached a material condition to indemnity under this policy.”

8.  Cleveland points out that the instruction was a “verbatim quotation” from two other opinions in addition to McCormick: Fleming v. Safeco Ins. Co. (1984) 160 Cal.App.3d 31, 40 and Congleton v. National Union Fire Insurance Co. (1987) 189 Cal.App.3d 51, 59.)In Egan, supra, the court, observing that the “relationship of insurer and insured is inherently unbalanced,” quoted from a commentary as follows: “ ‘The insurers' obligations are ․ rooted in their status as purveyors of a vital service labeled quasi-public in nature. Suppliers of services affected with a public interest must take the public's interest seriously, where necessary placing it before their interest in maximizing gains and limiting disbursements․' [Citation.]” (Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at p. 820.)

9.  The challenged instruction read, “An unreasonable failure to make any efforts toward settlement is sufficient to constitute a breach of the duty of good faith.”

10.  Insurance Code section 790.03, subdivision (h) provides, in part, as follows: “(h) Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices:“(1) Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.“(2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.“(3) Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.“(4) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured.“(5) Not attempting in good faith to effectuate prompt, fair, and equitable settlement of claims in which liability has become reasonably clear.“(6) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds, when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered.“(7) Attempting to settle a claim by an insured for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application.“(8) Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured, his or her representative, agent, or broker.“(9) Failing, after payment of a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under which payment has been made.“(10) Making known to insureds or claimants a practice of the insurer of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.“(11) Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either, to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.“(12) Failing to settle claims promptly, where liability has become apparent, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.“(13) Failing to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.“(14) Directly advising a claimant not to obtain the services of an attorney.“(15) Misleading a claimant as to the applicable statute of limitations.“(16) Delaying the payment or provision of hospital, medical, or surgical benefits for services provided with respect to acquired immune deficiency syndrome or AIDS-related complex for more than 60 days after the insurer has received a claim for those benefits, where the delay in claim payment is for the purpose of investigating whether the condition preexisted the coverage. However, this 60-day period shall not include any time during which the insurer is awaiting a response for relevant medical information from a health care provider.”

11.  Farmers Group advertisements declare it provides friendly and fair service.

12.  Civil Code section 3287, subdivision (a) provides: “(a) Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor from paying the debt. This section is applicable to recovery of damages and interest from any such debtor, including the state or any county, city, city and county, municipal corporation, public district, public agency, or any political subdivision of the state.”Section 3288 provides: “In an action for the breach of an obligation not arising from contract, and in every case of oppression, fraud, or malice, interest may be given, in the discretion of the jury.”

13.  Estimates of repairs were $47,000 to $58,000. The estimated lost rent was $1000 to $1500 per month for four years.

14.  The adequacy of the BAJI instruction has been criticized. (See In re Marriage of Weaver (1990) 224 Cal.App.3d 478, 487, fn. 8.) However, it has been held it is a correct statement of the law (Roberts v. Ford Aerospace & Communications Corp. (1990) 224 Cal .App.3d 793, 804) and it is not error to give the BAJI No. 2.62 instruction in the absence of a request for a different instruction. (Mock v. Michigan Millers Mutual Ins. Co., supra, 4 Cal.App.4th at pp. 332-333.)

15.  The instruction was: “The filing of the Complaint did not make Farmers and Cleveland adversaries so as to eliminate Farmer's duty to consider the insured's interests on a level equal to its own and to inquire fully into any possible basis that might support the insured's claim.”

16.  The witness was called by Cleveland under the provision of Evidence Code section 776, and was identified by the Group as the person qualified to testify regarding advertising.

17.  Cleveland had demanded production of certain financial documents of the Group for trial. The Group failed to produce these until after the liability portion. The 1990 annual report for the Group, identified only, displays the Farmers Insurance Group logo and states, “Farmers [Group, Inc.] and its wholly-owned subsidiaries, Truck Underwriters Association and Fire Underwriters Association, serve as attorney-in-fact for Farmers Insurance Exchange, Truck Insurance Exchange and Fire Insurance Exchange, respectively.”The report continues, “As compensation for managing the activities of the Exchanges, Farmers and its subsidiaries received management fees amounting to $809,863,000, $743,963,000 and $680,632,000 for 1990, 1989 and 1988, respectively.” Contrary to defendants' construction, this official statement is substantial evidence that Farmers Group, Inc., managed the activities of the Exchange through its wholly-owned subsidiary, Fire Underwriters Association. Defendants argue that the word “respectively” requires a different conclusion. If Farmers wholly owns the attorneys-in-fact, it is of no consequence which of the subsidiaries acts in that capacity for the Exchange. (See Delos v. Farmers Group, Inc. (1979) 93 Cal.App.3d 642, 653.)

1.  In accordance with the usual rules on appeal, I, of course, view the facts and all reasonable inferences therefrom in the light most favorable to Cleveland as the party who prevailed in the jury trial below. (Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 923; Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429.)

2.  This property was directly adjacent to a parcel of commercial property owned by Cleveland on which he operated a billiard parlor called “Mr. Pockets.”

3.  The report of the Fire Department had concluded that the fire was intentionally set by unknown person or persons. The Police Department's report indicated that there were no known arson suspects.

4.  Cleveland only purchased insurance to cover the building, not the contents. In his testimony, he explained that he had no need for personal property insurance since he intended to use the building as a rental. However, the record, including his own testimony, reflects that he had originally intended to demolish the building and use it for additional parking for his adjacent billiard parlor. This proposal was apparently rejected or opposed by city officials.

5.  Both Exchange and Farmers Group are members of FIGCO which itself was not named as a defendant in this action and is obviously not a party to this appeal.

6.  Lawrence Jones of Counterforce performed a complete background investigation of Cleveland, including a review of his Cleveland's voter registration records, fictitious business name filings, DMV records, statewide property records and the UCC filings index. Counterforce interviewed neighbors, officials of the Manhattan Beach Building Department and representatives of the Manhattan Beach Police and Fire Departments. Counterforce completed its investigation on July 8, 1987. There was no information developed which indicated that Cleveland was involved in the setting of the fire. Jones's log contained an entry made during a telephone conversation with one Barry Pape, the Manhattan Beach fire investigator. It stated, in part: “want to get him to think that if he collects-we can nail him.” Although Jones disputed the point at trial, the jury was certainly entitled to conclude that the word “him” was a reference to Cleveland.I call special attention to this particular notation from Jones's log as it serves, inappropriately in my view, as the centerpiece of Cleveland's claim that Exchange and Farmers Group were guilty of both bad faith and malice. As I discuss below, this is a fragile and speculative underpinning for such serious charges given that Cleveland actually presented no direct evidence whatever that either of the defendant insurers were ever made aware of the remark, much less that they ever encouraged or shared its sentiments.

7.  Ordinarily, coverage for such matters is the subject of a special policy endorsement for which an extra premium must be paid. Apparently, Cleveland's policy did not contain such an endorsement.

8.  Cleveland became frustrated with Alexander's responses and used profanity. Alexander hung up, and Cleveland called him back. Alexander told him that the on-going arson investigation would include Cleveland. Cleveland said, “Wait a minute. You are accusing me of arson.” Alexander hung up again. Cleveland called Larry Loden, Exchange's property claims manager who was in charge of the office, and told him Alexander had been abrupt and rude. Loden told Cleveland he would look into it and get back to him, but he never did. However, Loden discussed Cleveland's complaint with the branch claims supervisor on the same day. Cleveland contends that one of the reasons Exchange subsequently requested the examination under oath was to “punish” him from making this complaint to Alexander's superior.

9.  Somewhat surprisingly, in view of his own month long delay in responding to Exchange's letter of June 30, Cleveland took this opportunity to commence what became an escalating series of demands for immediate action on his claim and self-serving accusations of insurer misconduct. In his cover letter of July 31, he stated: “As of this date I have not received a settlement amount from Farmers for the fire loss on June 3, 1987 to my property at 1120 6th Street, Manhattan Beach․ [¶] ․ I feel it is time this claim was settled and I expect settlement no later than August 10, 1987.”

10.  Cleveland vigorously asserts that Exchange's claim that the proof of loss was incomplete is disingenuous as the only information which he did not include was that which was already possessed by Exchange (e.g., the form used is a standard FIGCO proof of loss form which requests that the insured supply such information as the name of the insurance company, the policy number, the type and location of the property insured and the name of the insured). This assertion by Cleveland is only partly true. There was additional information requested by the form which was relevant and was not necessarily in Exchange's possession and which Cleveland either omitted or only partially supplied.

11.  Specifically, Exchange's attorneys stated that the proof of loss was incomplete in that it failed to provide: (a) the policy number; (b) type of property insured; (c) the name of the insured; (d) the amount of insurance, value, loss amount, and claim amount relative to the building; (e) the amount of insurance, value, loss amount, and claim amount of the contents of the insured's dwelling; (f) the amount of insurance, value, loss amount, and claim amount of any additional living expenses associated with the loss.

12.  Although, given the bureaucratic claims adjustment processes with which large insurance companies must necessarily operate, it does not seem totally unreasonable to ask that an insured include some basic identifying information on the proof of loss form so as to assist the insurer's employees in completing the adjustment process as quickly as possible.

13.  The attorneys explained Exchange's position with respect to its objection to the proof of loss in the following terms:“By taking exception to the purported proof of loss, [Exchange] is not refusing to provide payment to you, its insured. Rather, [EXCHANGE], in exercise of its contractual obligation, is taking this opportunity to point out to you that you have failed in your duty, under the terms and conditions of the policy, to completely prove your loss to [Exchange].”

14.  The policy in pertinent part provided:“CONDITIONS ․“4. Your duties After Loss. In case of a loss to which this insurance may apply, you [the insured] shall see that the following duties are performed: ․“d. as often as we reasonably require: ․“(2) provide us with records and documents we request and permit us to make copies; and“(3) submit to examination under oath and subscribe the same.” (Emphasis added.)With respect to his contractual obligation to provide documents and submit to an examination under oath, Cleveland was advised by the Exchange attorneys' letter of August 12:“You should understand, however, that your failure to produce the documents required to be produced on the date set forth can, in and of itself, be construed as the breach of a material condition of the policy of insurance sufficient to void any rights you may have to the benefits of the policy.“If the dates specified are inconvenient to you, please call, or have your attorney call, and we will change the dates of the production of documents and the examination under oath to dates mutually convenient to all parties concerned.“If any of the documents demanded in this letter have already been presented to a representative of [Exchange], you need not present an additional copy to this office. You should have available, however, at the time of the examination under oath, the original of each document.”

15.  The documents demanded by Exchange were:“1. The original Fire Insurance Exchange policy No. 29-90553-45-78, and any changes, modifications, additions or endorsements thereto;“2. In the event the property, the loss of which forms the basis for your claim, was appraised by any person either before or after the date of loss, all reports of such appraisers no matter when such appraisals were written;“3. Each and every policy of insurance, including, but not limited to, homeowners insurance, fire insurance or insurance of similar nature naming you as a named insured or causing you to be an insured, which policies were in full force and effect for the period from June 6, 1985 to and including June 3, 1987;“4. Your federal and state income tax returns for the years 1983, 1984, 1985 and 1986, if you are willing to provide them[;]“5. Any and all photographs showing or depicting the dwelling, the loss of which forms the basis of this claim;“6. As to any insurance claim made by you during the five year period immediately preceding the date of loss, any document showing or tending to show the name of the insurer, the number of the policy, the date of the loss, the claim number assigned by the insured, correspondence between the insurer and you, and all proofs of loss submitted by you in connection with said claim(s);“7. Each and every document in writing received by you from the Fire Insurance Exchange and/or any of its agents and/or representatives with regard to the acquisition of the policy of insurance or the payment of premiums for the policy of insurance captioned above;“8. Each and every note, note secured by deed of trust, UCC financial statement, security agreement, bulk sale note, or other evidence of debt secured by any of the real property that is the subject of the claim;“9. Copies of any and all applications to the City of Manhattan Beach for use permits and/or variance use permits for the insured's premises;“10. Copies of any and all construction bids for the rebuilding of the insured's premises which have not been previously submitted to [Exchange];“11. A fully completed sworn statement in proof of loss as required by the policy, setting forth all of the facts of that section of policy entitled ‘Your Duties After Loss.’ You may choose to use the enclosed form, or you may employ the use of a form of your own choosing, as long as it is sworn to under oath and provides all of the information required by the policy.”

16.  Cleveland concluded his letter of August 15:“As a result, you have left me with no other option but to request that you pay my claim in full as indicated on the Proof of Loss by August 31, 1987. I stand ready and willing, as I have throughout the course of this claim, to submit to you any information which is relevant to determine the loss to my property.“I do not enjoy being harassed and delayed by Farmer's and Fire Insurance Exchange. My house is a mess and the neighbors are complaining. Please treat me fairly and reasonably compensate me for the insurance loss which I have incurred. At the very least please tell me the reason you are refusing to pay my claim.“If the claim is not paid by August 31, 1987, I will turn the matter over to an attorney. However, I very much desire this matter be resolved without further delay or attorneys and if there is any additional information which is relevant to my claim which you still need, please feel free to write or call me․”

17.  Specifically, Cleveland stated:“It appears you are attempting to use your status as an attorney to mislead me. I simply cannot understand the difference between a ‘recorded statement’ in which I answered all questions regarding the property and my ownership of the property and ‘an examination under oath.’ To me [it] appears you are requesting the same information and using the request to further delay my claim. [¶] As a consequence, I can not agree to appear at your offices on September 10, 1987 for the claimed ‘statement under oath’. Obviously, if I were to appear I would have to hire an attorney because it appears you are attempting to mislead me.”

18.  Cleveland's letter concluded:“I have done everything in my power to assist you in paying me what I am owed. Rather than help me you have stonewalled and delayed my claims. Despite all the legalese in your letters about what obligation I owe Fire Insurance Exchange, you never set forth the obligation which Fire Insurance Exchange owes me under the insurance policy. I thought an insurance policy was to provide coverage and help to the insured in time of need. I am experiencing my time of need and Fire Insurance Exchange has refused to pay what I am owed. As I have previously indicated to your agent, as well as you, my house is deteriorating and becoming a public nuisance as a result of your action. Moreover, your delay is causing me stress and anxiety.“Despite my reluctance to do so, I will hire an attorney if I must to obtain what is rightfully mine. I will give you, Farmer's Insurance Exchange, and Fire Insurance Exchange one last chance to resolve this claim without resorting to litigation. If I do not received payment by September 30, 1987, however, I will seek legal action.“Please govern your actions accordingly.”

19.  The letter concluded with these cautionary instructions to Cleveland:“As [was explained in our] letter of August 21, 1987, the obligation of the [Exchange] to indemnify you for the above-referenced loss, is predicated and dependent upon your compliance with the provision of the policy. In this regard, if you choose, as you have to date, to disregard and ignore your obligation under the policy, [Exchange] will be forced to exercise those measures available to it, under the terms of the policy, and California law ․ [¶] ․ We implore you to reconsider, and set aside the position which you have taken in this matter thus far, and to lend us your full cooperation in bringing this matter to a expedited resolution, by simply complying with the terms and conditions of the policy. We can assure you that upon your doing so, that this claim will be resolved in a prompt, reasonable and fair manner. However, should you choose to stand firm in your disregard of the terms and conditions of the policy, such a stance can only result in impeding the resolution of this matter.”

20.  The causes of action for intentional and negligent misrepresentation were based upon Cleveland's claim that defendants had broadcast and published misleading advertisements about their “fast, fair and friendly” service to insureds.

21.  Use of unconditional language in denying a first party property loss claim is routinely used as it is necessary in order to ensure the running of the 12 month contractual limitations period set forth in the provisions of a standard fire policy. (See, e.g., Prudential-LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674, 692; State Farm Fire & Casualty Co. v. Superior Court (1989) 210 Cal.App.3d 604, 609.)

22.  Defendants also requested, and the court refused to give, Special Jury Instruction Number 11, which stated:“SPECIAL JURY INSTRUCTION NO. 11 ISSUES WITHOUT CONTROVERSY“The following issues have been determined as a matter of law:“1. An Examination Under Oath is a permissible condition precedent to indemnity in a California fire policy;“2. Once demanded, an Examination Under Oath is a material condition precedent to indemnity under a fire policy;“3. Fire Insurance Exchange, as permitted by the policy, required an Examination Under Oath of plaintiff in this arson loss; and“4. By refusing or failing to attend scheduled Examination Under Oath, plaintiff breached a material condition under this policy.”

23.  For example, defendants also argue that the trial court improperly instructed the jury with respect to several critical issues relating to both liability and damages. While I do not discuss such issues directly, I would note parenthetically that the trial court's refusal to give certain of these instructions was, in my view, error. The special instructions requested by the defendants relating to (1) Cleveland's conduct in breaching a material condition of the policy, (2) the loss of coverage resulting therefrom and (3) the summary adjudication rulings of the court were clearly relevant to Cleveland's contention that defendants were guilty of bad faith as well as the defendants' claim of comparative bad faith. “[A] party has a right to have the jury instructed on his [or her] theory of the case, if it is reasonable and finds support in the pleadings and evidence or any inference which may be properly drawn from the evidence.” (7 Witkin, Cal. Procedure (3d ed.1985) Trial, § 240 at p. 246, emphasis in the original; see also Byrum v. Brand (1990) 219 Cal.App.3d 926, 939.)In addition, the views I express below as to the absence of bad faith would necessarily preclude any ground for punitive damages. As I conclude that, as a matter of law, defendants acted reasonably and with probable cause in demanding that Cleveland submit to the examination and, when he refused, in denying policy benefits, I obviously would conclude that there was no evidence of malice, oppression or fraud. (See, e.g., Stewart v. Truck Ins. Exchange (1993) 17 Cal.App.4th 468, 481-484; Mock v. Michigan Millers Mutual Ins. Co. (1992) 4 Cal.App.4th 306, 327-333.)

24.  I have no doubt that the issue determinations made here on the separate motions for summary adjudication were binding on the court at the time of trial. However, the Legislature has not contributed much clarity to this question. At the time that these issues were adjudicated in this case, Code of Civil Procedure section 437c, subdivision (f) read, in pertinent part, “․ at the trial of the action the [summarily adjudicated] issue so specified shall be deemed established and the action shall proceed as to the issues remaining.” In 1990, the Legislature amended section 437c to delete this language. In 1992, subdivision (m) was added to 437c to provide, “If a motion for summary adjudication is granted, at the trial of the action, the cause or causes of action within the action, affirmative defense or defenses, claim for damages, or issue or issues of duty as to the motion which has been granted shall be deemed to be established and the action shall proceed as to the cause or causes of action, affirmative defense or defenses, claim for damages, or issue or issues of duty remaining.”

25.  Cleveland, in his respondent's brief on appeal, appears to question these rulings of the trial court. However, he did not challenge them when they were made as he could have by petition for writ of mandamus nor has he filed a cross-appeal to raise the issue. He may not do so now. (California State Employees' Assn. v. State Personnel Bd. (1986) 178 Cal.App.3d 372, 382, fn. 7; Central Manufacturing District Inc. v. Board of Supervisors (1960) 176 Cal .App.2d 850, 857.)

26.  Before the trial court, Cleveland characterized defendants' alleged bad faith conduct somewhat differently. In his trial brief, he stated: “In this case Farmers is guilty of multiple acts of bad faith. [1] Farmers consciously delayed the adjustment and payment of the claim. [2] Farmers attempted to persuade Mr. Cleveland that if he made a claim on the policy he would be prosecuted for arson even though there was no evidence that Cleveland was involved in any respect with the fire. [¶][3] Farmers requested Mr. Cleveland to produce unnecessary and harassing information. [4] Farmers refused to make any attempt to gain the information it was requesting from any source other than the EUO. [5] Finally, Farmers chose to punish Cleveland for filing his lawsuit by unconditionally and irrevocably denying his claim even though it knew it could obtain whatever information it desired from Cleveland through his deposition.”

27.  For example, I entirely reject the opinion expressed by Cleveland's expert that if the examination under oath was requested for an improper purpose it would excuse Cleveland's policy obligation to submit to such an examination. First of all, such an opinion assumes that there was an improper purpose; as I discuss below, there simply is no substantial evidence of such fact. Second, such an opinion is really a legal conclusion. Finally, such an opinion is wrong, as a matter of law; in this case, the trial court determined that Cleveland's repeated failure to attend the scheduled examinations constituted a material breach of the terms of the policy. The expert's expressed opinion thus directly contradicts a binding pretrial ruling of the court.

28.  I focus on the bad faith claims as their viability is the critical question on which this appeal should turn. As I conclude that the fraud claim must necessarily also fail, given my views as to the bad faith claims, I will only briefly discuss it at the conclusion of this dissent.

29.  The policy language granting the insurer the right to demand an examination under oath in Globe Indemnity was substantially identical to the policy language in this matter.

30.  Exchange's Regional Property Claims Manager, Larry Loden, described these obvious concerns in a declaration filed with the trial court explaining why Exchange wanted Cleveland to submit to the examination.

31.  It is not sufficient for Cleveland to argue, as he does here, that Exchange had no right to insist on the examination because he had already given an informal statement or could be deposed in this action. First, Exchange was legally entitled to have the sworn testimony as part of its claims investigation even though it had already received an informal one. (West v. State Farm Fire & Cas. Co., supra, 868 F.2d at p. 351.) Second, Cleveland's suggestion that his availability for deposition in this action could substitute for the contractually required examination under oath is not persuasive. Well before pretrial discovery ever commenced in this case Cleveland had breached his contractual duty under the policy and his claim had been denied. Thus, the events determining the rights of the parties in this action had already occurred.

32.  See also a number of federal cases, applying California law, which have reached a similar result: Slottow v. American Cas. Co. (9th Cir.1993) 1 F.3d 912; Hanson v. Prudential Ins Co. of America (9th Cir.1985) 783 F.2d 762; Safeco Ins. Co. of America v. Guyton (9th Cir.1982) 692 F.2d 551; Safeway v. National Union Fire Ins. Co. (N.D.Cal.1992) 805 F.Supp. 1484; Clemco Industries v. Commercial Union Ins. Co. (N.D.Cal.1987) 665 F.Supp. 816.

33.  Incredibly, however, the majority opinion (at slip opn. pp. 21-22) seems to suggest that because the jury's award of compensatory damages included a sum for Cleveland's fire loss, “[t]here is no question that there was in fact policy coverage.” To the extent that the majority relies on such circular reasoning to justify the result in this case, it rivals Lewis Carroll at his best.

34.  Cleveland relies on such cases as McCormick v. Sentinel Life Ins. Co. (1984) 153 Cal.App.3d 1030, Travelers Ins. Co. v. Lesher (1986) 187 Cal.App.3d 169 and Liberty Transport Inc. v. Henry W. Gorst Co. (1991) 229 Cal.App.3d 417 (disapproved on other grounds in Adams v. Murakami (1991) 54 Cal.3d 105, 116) to support his argument that the fact that no policy benefits were due was immaterial to his bad faith claim. However, such reliance is misplaced; none of these three cases support his position. In McCormick, the court at all times assumed that benefits were due under the policy; it addressed only the viability of a bad faith claim based on a lengthy delay in processing a claim where benefits were otherwise due. (Id., at pp. 1048-1051.) In Lesher (a third party liability case), the court held that when a liability insurer provides a defense to its insured, that insurer can be held liable in bad faith if the defense it provides is inadequate and the insured thereby suffers a loss which could have averted by a proper defense even though there is an ultimate determination that the insurer had no duty to indemnify or defend. (Id., at pp. 180-187 .) Such a result, of course, is a logical outgrowth of the rule that a liability insurer owes a duty of defense as long as there is any potential for coverage even though it is ultimately determined that there is no coverage under the policy. In Liberty Transport, the court held that a 15-month delay in advising an insured of the denial of a claim could be a violation of Insurance Code section 790.03, subdivision (h). (Id. at p. 435.) However, in order to support such a claim it would probably be necessary for the insured to demonstrate a consequential loss resulting from the delay. (Murray v. State Farm Fire & Cas. Co., supra, 219 Cal.App .3d 58, 66, fn. 5.) There are no such facts here; thus, Liberty Transport is of no assistance to Cleveland.

CROSKEY, J.

KLEIN, P. J., concur.