Insurance is a Contract of Personal Indemnity

Who’s on First or Only Person Insured May Collect on a Fire Policy

It is axiomatic that first party property insurance is a contract of personal indemnity. It does not follow title to the land and only pays those who are named on the policy as an insured and have an insurable interest. Someone who has an insurable interest but is not named has no right to the policy.

Konstantinos Kapnisis (Kapnisis) appealed from the judgment after the trial court granted summary judgment in favor of Colony Insurance Company (Colony). In Konstantinos Kapnisis v. Colony Insurance Company, B308056, California Court of Appeals, Second District, Fourth Division (January 19, 2022) the California Court of Appeals resolved an issue regarding that an insurer only needs to pay he who is insured.

Contents

FACTUAL BACKGROUND

Kapnisis wanted to buy a restaurant called Big Oaks. Kapnisis signed a purchase agreement and a month-to-month lease to rent Big Oaks pending the close of escrow. The lease required him to pay Big Oaks’ insurance premium in order to operate the restaurant. Colony subsequently issued a policy naming Big Oaks as the insured. Two weeks later, a fire destroyed Big Oaks. Colony issued checks payable to “Big Oaks” and sent payment to the mailing address listed in the insurance policy.

Big Oaks was a restaurant located on land owned by the United States Forest Service. In 2012, Hitendra Golakiea and his wife, Ila Patel, purchased Big Oaks. Golakiea and Patel decided to sell, and Kapnisis offered to purchase, Big Oaks for $220,000. The parties signed a Commercial Property Purchase Agreement and Joint Escrow Instructions (Purchase Agreement). The Purchase Agreement stated, among other things, that the offer was contingent upon Kapnisis obtaining:

a special use permit from the United States Forest Service; and
a permanent liquor license from the California Department of Alcohol Beverage Control.

The title of Big Oaks would be conveyed through a grant deed “at the close of escrow.” On the same day that he signed the Purchase Agreement, Kapnisis signed a month-to-month Commercial Lease Agreement (Lease) with Golakiea and Patel to lease Big Oaks. Kapnisis signed the Lease in order to begin operating Big Oaks before the sale of the property closed. The lease required Kapnisis, as the tenant, to pay the operating expenses and utilities, insurance premiums, and real property taxes. As of July 2017, Kapnisis managed Big Oaks and lived on the property.

Kapnisis never obtained either the special use permit from the United States Forest Service nor the requisite liquor license. Because of his failure to obtain the required documents, escrow never closed. Therefore, title to Big Oaks did not transfer to Kapnisis.

INSURANCE POLICY

Under the terms of the Lease, Kapnisis was responsible for paying the insurance on Big Oaks. In June 2018, Kapnisis received a call from Big Oaks’ insurance broker, Huntington Pacific Insurance Agency, and learned that the insurance policy on Big Oaks was up for renewal.

On June 17, 2018, the insurance broker, through an intermediary, obtained a quote for Big Oaks from Colony. The quote included $255,000 in building coverage and $100,000 in contents coverage, for a premium of $4,145.54. The application for insurance for Big Oaks, was signed by Kapnisis. The only applicant listed was “Big Oaks Lodge,” with a handwritten address of 33101 Bouquet Canyon Road, Saugus CA 91390, which was the physical address of the restaurant. Colony then issued its Policy, listing “Big Oaks” as the insured. The listed mailing address was 2533 North Lamer Street, Burbank CA 91504 (the North Lamer address). This mailing address was also Patel’s residential address.

Kapnisis paid the insurance broker the premium and received a receipt from the insurance broker with his name handwritten on it.

THE FIRE

On August 11, 2018 a fire broke out at Big Oaks and the entire building burned down. Kapnisis and Patel each made claims with Colony for policy benefits as a result of the fire. Patel told Colony that she was the owner of Big Oak and Kapnisis was the tenant. Kapnisis also claimed he was the owner of Big Oaks; however, he did not provide Colony with any documentation proving he owned Big Oaks at the time of the fire.

In September 2018, Colony issued a series of checks made payable to “Big Oaks” for the fire loss. Colony paid a total of $335,368.76. Colony sent the checks to the North Lamer address.

THE LAWSUIT

Kapnisis initiated this lawsuit against Colony for breach of contract, breach of implied covenant of good faith and fair dealing, unfair competition, negligence, and declaratory relief. He also sought punitive damages against Colony. Colony filed a motion for summary judgment or summary adjudication, arguing that there was no breach of contract because it complied with the express terms of the Policy by writing checks to “Big Oaks” and mailing those checks to the address listed on the Policy. The trial court granted the summary judgment motion as to all causes of action and entered judgment in favor of Colony.

DISCUSSION

The standard elements of a breach of contract claim are:

the existence of a contract,
the plaintiff’s performance or excuse for nonperformance,
the defendant’s breach, and
resulting damage to the plaintiff. (Abdelhamid v. Fire Ins. Exchange (2010) 182 Cal.App.4th 990, 999.)

The interpretation of an insurance policy is a question of law and follows the general rules of contract interpretation.

Since Kapnisis did not dispute that “Big Oaks” was the named insured on the Policy and that the insurance proceeds were mailed to the address listed on the Policy; and that neither Kapnisis nor his address were listed on the Policy; Colony satisfied its contractual obligations to pay policy benefits to “Big Oaks” at the address listed on the Policy.

Colony followed the express terms of the Policy and any dispute beyond that, such as Patel’s authority to cash those checks, is not between Kapnisis and Colony but potentially between Kapnisis and Patel. Colony complied with its contractual obligations to pay the insurance proceeds to the listed insured and corresponding address in the Policy.

Kapnisis failed to submit evidence sufficient to establish a triable issue of material fact as to Colony’s alleged breach of contract. Absent a breach of contract, Colony did not breach the implied covenant of good faith and fair dealing. T

It is rare, in my experience, for people who purchase insurance to actually read the policy acquired. At the time Colony’s policy was issued Kapnisis had an insurable interest in the property that held the Big Oaks restaurant and lodge but had no ownership interest in an entity called “Big Oaks.” He never asked Colony, or his broker, to name him as an insured on the policy because he did not read it – and probably did not read the application either – he was not an insured of the policy and it only insured the risks faced by the actual owner of “Big Oaks” Ms. Patel. Insurance only pays the person insured as long as that person has an insurable interest in the property. Patel, as the owner of Big Oaks had that interest and was named; Kapnisis had an insurable interest but was not named.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma; you can follow Mr. Zalma on Twitter at; you should see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims–library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/