Not Wise to Burden Appellate Court with Multiple Frivolous Motions

Barry Zalma
Nov 3, 2023

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After appellant Donya Entertainment, Inc. noticed a “very significant . . . water intrusion” in a restaurant it had owned and operated for several months, Donya submitted a claim to its insurer, respondent Farmers Insurance Exchange. Farmers denied the claim, asserting it was not covered under Donya’s policy. Donya sued Farmers alleging Farmers insufficiently investigated the claim before denying it. Farmers moved for summary judgment, arguing that the policy excluded claims for water seepage that had been occurring for 14 days or more, and the undisputed evidence demonstrated the water seepage had been occurring for at least a year. The trial court granted Farmers’ motion, holding there could be no liability for a defective investigation if there was no coverage under the policy.

In Donya Entertainment, Inc. v. Farmers Insurance Exchange, B315381, California Court of Appeals (October 27, 2023) the Court of Appeals dealt with multiple incompetent appellate motions and ruled in favor of Farmers.

FACTUAL BACKGROUND

In May 2020, Donya sued Farmers, alleging that Donya operated a franchise restaurant in Rancho Cucamonga. Donya claimed it purchased the operation from Bacon-Up Corporation in July 2019. Donya alleged Bacon-Up had an insurance policy issued by Farmers when it operated the restaurant, and that Donya had also insured itself with Farmers “under policy number 0606749543,” which “provided coverage for Donya with respect to losses caused by water intrusion.”

Several months after Donya began operating the restaurant, “a very significant experience of water intrusion occurred [,] adversely affecting the kitchen and dining areas.” Donya submitted a claim to Farmers. Donya also alleged that “during this time,” it learned the restaurant “had experienced similar water intrusion during the ownership and operation” of Bacon-Up, and that Bacon-Up “had made alterations to the physical structure of the flooring in relation to that previous water intrusion.”

In July 2020, Farmers filed its verified answer.

Farmers Moves for Summary Judgment

In February 2021, Farmers moved for summary judgment. As to Donya’s claim on its own insurance policy, Farmers contended “[t]here can be no tort liability in the absence of coverage” and “the undisputed material facts establish that no coverage exists under the Policy” for Donya’s claim. Farmers claimed that the water leaking had been going on for at least a year before Plaintiff reported it.”

As to Donya’s claim against Farmers on Bacon-Up’s policy, Farmers argued the obvious: that “a third-party claimant cannot sue the insurer of its litigation adversary for breach of contract or bad faith, or failure to properly investigate.”

Relevant here are the “Back Up of Sewers or Drains Coverage Endorsement” and the “Limited Coverage for Fungi, Wet Rot, Dry Rot and Bacteria.” The former added coverage for “water that . . . backs up or overflows from your sewer or drain” and deleted a provision in the “Exclusions” section excluding such coverage. The latter added an exclusion for “Continuous or repeated seepage or leakage of water . . . that occurs over a period of 14 days or more.”

Farmers also submitted declarations from three employees of the restaurant who had been employed when it was operated by Bacon-Up. Each of these employees attested that Bacon-Up had concealed from Donya “physical defects that existed at the franchise location, including a very serious water leak coming up from under the slab in the kitchen area going out to the first table in the dining area.” These declarations corroborated allegations in Donya’s federal complaint that, prior to Donya’s purchase of the restaurant, the “restaurant building was contaminated from sewage spills through failing plumbing” and such defects were concealed from Donya.

In its sworn pleading, Donya admitted that the claim it submitted on its own policy “alleged that the previous owner of the restaurant location intentionally tampered with the subject restaurant location’s plumbing . . . causing the dysfunction resulting in the loss suffered by Donya,” but claimed this would be a “covered loss.” That sworn statement worked to prove the exclusion applied.

The court granted Farmers’ motion. Finally, the court found Donya provided no evidence to support a claim against Farmers for denying its claim on Bacon-Up’s policy.

DISPOSITION

The judgment was affirmed. Respondent was awarded its costs on appeal. Respondent was additionally awarded $6,466 in sanctions against Donya’s counsel, Amir Pasha Vafaei, only for filing frivolous motions to the Court of Appeals.

ZALMA OPINION

When I was a young adjuster in 1967-1972 I had to advise insureds there could be no coverage for losses due to water intrusion that had continued for more than 14 days. It was a logical exclusion to help an insured understand the need to properly maintain their property. No one was happy with the decision. Donya admitted in its pleading, plus the testimony of three employees, that the water leaks had been going on for more than a year before the claim was made. The decision of the trial court was affirmed and because Donya’s counsel was punished for using frivolous or inept motions to the court of appeal on a case where the insured and insurer obviously knew there was no coverage.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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