Failure to Prove Loss by a Named Peril Destroys Breach of Contract Suit
Barry Zalma
Jul 10, 2023
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Modern science allows an embryo to be created outside the body of a woman and later implanted and grown to term. The in vitro fertilization process allows more than one viable embryo to be created and they can be stored for use later in a cryogenic tank.
Sherlene and Lawrence Wong (the Wongs) had stored some embryos at a facility that kept them in a cryogenic tank that failed to maintain the temperature necessary to store the embryos, following which the Wongs’s fertility doctor told them they should consider the embryos “compromised” and “no longer viable, and lost.”
In Sherlene Wong et al. v. Stillwater Insurance Company, A162893, California Court of Appeals, First District, Second Division (June 30, 2023) the Wongs attempted to recover the value of the embryo’s from a homeowners insurance policy they maintained with Stillwater Insurance (Stillwater). The policy was a specified perils policy that only insured for “direct physical loss” that was “caused by any of the following perils,” going on to list 16 specified perils. The Wongs made a claim for property damage, which Stillwater denied.
The Wongs sued, and Stillwater moved for summary judgment, on two bases: the Wongs could not submit evidence of (1) “direct physical loss” or (2) that “one of the sixteen specified perils occurred.” The trial court granted summary judgment.
BACKGROUND
Beginning in 2014, the Wongs pursued in vitro fertilization, working with Aimee Eyvazzadeh, M.D., as their doctor. In 2015, the Wongs completed an in vitro fertilization (IVF) cycle, and obtained four viable embryos, one of which was implanted. As to the other three, as Dr. Eyvazzadeh put it, after discussion with the Wongs they determined to “bank the rest,” which they did at Pacific Fertility Center (Pacific Fertility or PFC), a facility in San Francisco that included several cryogenic storage tanks that used liquid nitrogen to store human embryos at very low temperatures. Specifically, the embryos were stored in Tank 4, which also contained embryos belonging to other people.
On or about March 4, 2018, Tank 4 failed to maintain the temperature necessary to store embryos, as a result at least some (and possibly all) of the embryos stored in that tank partially or totally thawed.
The Stillwater policy provided coverage for personal property the Wongs “owned or used” while “anywhere in the world,” with policy limits for personal property of $502,720. The policy was a “specified perils” policy, the significance of which is that in order to demonstrate a covered loss the insured has the threshold burden of proving the loss was caused by a specifically enumerated peril.
On August 3, attorney Michelle Burton outlined her coverage evaluation to Stillwater, which among other things concluded that she “cannot ascertain from the file whether the insured’s zygotes were compromised, whether they are still viable or whether there has been a determination either way.” And, she further concluded, there was no evidence the claimed damage resulted from any of the 16 perils that apply to personal property as set forth in the policy. The claim was eventually denied and the Wongs sued the insurer.
The Proceedings Below
Stillwater filed a motion for summary judgment. The fundamental argument was that the Wongs “cannot establish essential elements” of the breach of contract claim because “the policy covers personal property only for ‘direct physical loss’ caused by one . . . of the [16] specified perils.” No proof of any specified peril was ever provided Stillwater with evidence of why Tank 4 failed to maintain proper temperature.
The opposition was accompanied by declarations of both of the Wongs, their attorney, Mr. Rosenberg-Wohl, and their fertility doctor, Dr. Eyvazzadeh who declared that as a result of this disaster, the Wongs’ embryos became worthless. “No responsible fertility physician would use them; I certainly would not.”
Eventually, the trial court filed its order granting the motion for summary judgment concluding that Stillwater met its burden of demonstrating that the causes of action alleged in the Wongs’ complaint cannot be established, and the Wongs have not raised a triable issue of material fact as to any of those causes of action.
Judgment was entered in favor of Stillwater, from which the Wongs filed an appeal.
DISCUSSION
The burden is on the insured to prove facts establishing the claimed loss falls within the coverage provided by the policy’s insuring clause.
The Wongs failed to demonstrate a direct “physical loss.” Dr. Eyvazzadeh testified that she had requested Pacific Fertility to conduct a test of one of the Wongs’s embryos, but that Pacific Fertility declined; and, she went on, there is “no way to know” whether the Wongs’s embryos actually sustained physical damage. That does not create a triable issue of material fact as to “physical loss.”
Dr. Eyvazzadeh’s concession there is “no way to know” whether the Wongs’s embryos had actual physical damage was devastating to the Wongs’s claim. And her conclusion that she deemed the embryos to be “worthless” was not a substitute for evidence that any of the embryos actually had undergone a physical change. The mere possibility that the embryos had suffered physical damage was insufficient to create a triable issue of fact to trigger coverage
No Evidence of Any Specified Peril
The Stillwater policy was, as noted, a “specified perils” policy. The Wongs presented no evidence that the cause of the alleged damage to the embryos was caused by one of the named perils and as a result the Court of Appeal concluded that the judgment was affirmed.
ZALMA OPINION
Stillwater conceded that the embryos were “personal property” that could be insured under the homeowners policy, although arguments could have been made that they were not property any more than a child born from the embryo would be property. Regardless, it effectively argued that there was no evidence that the embryos were damaged or destroyed when the temperature in the cryogenic chamber rose nor was there evidence that the embryos suffered direct physical damage only that they were “worthless” to an IVF doctor.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Can read and understand the insurance policies issued by the insurer.
Understands the promises made by the policy.
Understand their obligation, as an insurer’s claims staff, to fulfill the promises made.
Are competent investigators.
Have empathy and recognize the difference between empathy and sympathy.
Understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
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When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
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