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An appellate court in California has affirmed a trial court’s decision granting summary judgment for an insurer that denied a claim during the pendency of the insured’s lawsuit for breach of contract and of the duty of good faith and fair dealing based on the insured’s declining to participate in a second examination under oath.

The Case

As the appellate court explained, on Sept. 22, 2013, commercial property Tomasa Munoz owned in Bellflower, California, was damaged in a fire. Munoz had owned the property for almost five months at that point, and her son, Usbaldo Munoz, was renovating it. There were three units in the building. Tomasa Munoz intended to open her own barbershop in one and lease the other two spaces.

Tomasa Munoz reported the loss to her insurer, State Farm General Insurance Co. and submitted a claim.

State Farm retained Advanced Analysis to determine the origin and cause of the fire.

On Oct. 11, 2013, an Advanced Analysis fire inspector, Dan Bonelli, issued a fire investigation report. He concluded “it was highly likely that the fire was contributed to by an unknown individual.” Information obtained during his investigation suggested that “the fire was suspicious in nature and potentially incendiary.”

The Los Angeles County sheriff’s fire investigation unit concurred to the extent the investigator determined the fire was “likely caused due to human occupancy (possible squatters).”

On Oct. 15, 2013, State Farm reassigned the claim to its special investigation unit.

On Nov. 6, 2013, State Farm took recorded statements from Tomasa Munoz and Usbaldo Munoz. Tomasa Munoz designated Usbaldo Munoz as her representative for making the insurance claim “as she had little understanding of the location or property or construction, and [did] not speak or write English well.” Usbaldo Munoz advised that he was alone on a Carnival cruise in Mexican waters at the time of the fire and unable to use his cellphone while on the ship. He said he learned of the fire when he used the ship’s phone to retrieve messages.

In January 2014, State Farm requested Tomasa Munoz’s examination under oath (EUO) and Usbaldo Munoz’s statement under oath (SUO). It also asked Tomasa Munoz to produce certain documents. Also in January, Bonelli issued his final origin and cause report. He concluded that the probable cause of the fire was “incendiary” and detailed evidence that “may have suggested the involvement of [Tomasa  Munoz] or her representatives in the ignition of the fire.”

Tomasa Munoz’s EUO and Usbaldo Munoz’s SUO took place on March 26, 2014. At her EUO, Tomasa Munoz reiterated that her son was “responsible for everything” with respect to the property and she had given him “total authority to do or take any decisions regarding any business related to [her].” She said she authorized Usbaldo Munoz to make the fire loss claim. At his SUO, Usbaldo Munoz said he did not have cell phone reception during his cruise.

After the SUO, State Farm asked Usbaldo Munoz to provide additional documents concerning the condition of the building at the time of the fire, the status of the renovations, the number and types of complaints about squatters in the building, and the anticipated lease with a restaurant tenant, “James.” In April 2014, at State Farm’s request, Usbaldo Munoz signed an authorization to permit State Farm to access his cellphone records. State Farm received Usbaldo Munoz’s cellphone records in August 2014. The call logs showed that his cellphone was used while he was on the cruise.

Over the next nine months, State Farm sought additional information and documentation to support—as well as to fill some gaps in—Usbaldo Munoz’s SUO testimony.

Usbaldo Munoz responded that some of the documentation did not exist or had been lost. Determining it needed a supplemental EUO and SUO to document Usbaldo Munoz’s responses under oath, State Farm sent Tomasa Munoz a letter on Jan. 8, 2015, advising her a second EUO and SUO were necessary.

Within days, an attorney representing Tomasa Munoz contacted State Farm to advise of his representation. State Farm renewed its request for a supplemental EUO and SUO in a letter to counsel.

Tomasa Munoz sued State Farm on Jan. 30, 2015, for breach of contract and of the duty of good faith and fair dealing.

On Feb. 10, 2015, State Farm sent a letter to Tomasa Munoz’s attorney unilaterally scheduling her EUO and Usbaldo Munoz’s SUO for Feb. 25, 2015.

Neither Tomasa Munoz nor Usbaldo Munoz appeared for their respective examinations on Feb. 25, 2015.

On March 6, March 27 and April 17, 2015, State Farm sent letters to Tomasa Munoz in care of her attorney. The letters requested that Tomasa Munoz and Usbaldo Munoz reconsider their positions and appear for the requested supplemental EUO and SUO.

On May 1, 2015, State Farm denied Tomasa Munoz’s claim for the fire loss. The denial was based on the failure of Tomasa Munoz and Usbaldo Munoz to submit to a supplemental EUO and SUO, respectively, and to provide requested documents and other supporting information.

In the lawsuit, State Farm moved for summary judgment, asserting that Tomasa Munoz failed to satisfy a condition precedent to coverage, i.e., her submission to a reasonable request for a second EUO and SUO.

The trial court granted the insurer’s motion, and Tomasa Munoz appealed.

The State Farm Policy

The State Farm policy provided that, in the event of loss, the insured:

  • if requested, [had to] permit [State Farm] to question you under oath at such times as may be reasonably required about any matter relating to this insurance of your claim, including your books and records.

The policy also provided:

  • No one may bring legal action against us under this insurance unless: a. there has been full compliance with all of the terms of this insurance.
The Appellate Court’s Decision

The appellate court affirmed.

In its decision, the appellate court explained that an insured’s compliance with a policy requirement to submit to an EUO was “a prerequisite to the right to receive benefits under the policy.”

An insurer’s right to demand an EUO, the appellate court added, “must be exercised reasonably,” but when the evidence was “undisputed and only one reasonable inference” could be drawn from the evidence, the issue of reasonableness was a question of law.

The appellate court found no triable issues of material fact as to the reasonableness of State Farm’s request for the supplemental examinations of Tomasa Munoz and Usbaldo Munoz, adding that neither the sheriff’s fire report nor State Farm’s claim file notes absolved them of involvement in setting the fire. In any event, the appellate court noted that State Farm’s requests for a supplemental EUO and SUO were not based solely on responsibility for causing the fire—State Farm also had unanswered questions concerning expenses Usbaldo Munoz had incurred both before and after the fire that impacted the value of the claim.

Because Tomasa Munoz and Usbaldo Munoz refused to sit for supplemental examinations although the policy required submission as a condition precedent to any claim being paid, the trial court’s decision was correct, the appellate court said. It concluded by noting that the issue was the reasonableness of State Farm’s request for supplemental information, not the reasonableness of Ms. Munoz’s refusal.

The case is Munoz v. State Farm General Ins., No. B279830 (Cal. Ct.App. Nov. 9, 2017). Attorneys involved include: Law Offices of Kenneth M. Stern, Kenneth M. Stern, for plaintiff and appellant. Pacific Law Partners, Michael J. McGuire, Anne M. Master and Matthew Batezel for defendant and respondent.


Steven A. Meyerowitz is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. As FC&S Legal director, Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.