Hartford Fire Insurance v. Himelfarb

RODOWSKY, Judge. This is an action under a commercial property policy by insureds against the insurer to recover for loss due to theft. The sole issue before us is whether the circuit court erred in granting summary judgment for the insurer based on the insurer’s contention that the insured had failed to comply with the sixty day time limit on filing a proof of loss that is provided by ¶ E.3.a(7) of the policy. Paragraph E.3.a(7) is set ⁶⁷⁴ forth below, in the context of related provisions on which the insurer also relies. “E. LOSS CONDITIONS “The following conditions apply in addition to the Common Policy Conditions and the Commercial Property Conditions. “3.

Duties In The Event Of Loss Or Damage a. You must see that the following are done in the event of loss or damage to Covered Property: (7) Send us a signed, sworn proof of loss containing the information we request to investigate the claim. You must do this within 60 days after our request. We will supply you with the necessary forms. “4.

Loss Payment (f) We will pay for covered loss or damage within 30 days after we receive the sworn proof of loss, if: (1) You have complied with all of the terms of this Coverage Part; and (2) (a) We have reached agreement with you on the amount of loss; or (b) An appraisal award has been made.” The insurer is the petitioner, Hartford Fire Insurance Company (Hartford). The insureds are the respondents, Herbert and Frances Himelfarb, husband and wife (the Himelfarbs). The Himelfarbs reside in Potomac, Maryland in the Washington, D.C. metropolitan area. The insured premises are a warehouse at 1327 Bayard Street (the Premises) in an industrial area in southern Baltimore City.

In April 1992 the Himelfarbs had leased the Premises for ten years to Baltimore Woodworks, Inc. (Woodworks), and, as part of the transaction, the Himelfarbs had loaned $100,000 to Wood-works to be used for tenant improvements to the Premises and to buy equipment to be used in the tenant’s operations. ⁶⁷⁵ The loan was secured, but the nature and extent of the security interest does not appear in the record. Hartford issued a policy containing commercial property coverage to the Himelfarbs for the year beginning March 20, 1994. An endorsement in May 1994, for which the Himelfarbs paid an additional premium, increased insurance on the contents of the Premises from $700 to $100,700. Sometime in the spring of 1994 the business of Woodworks failed, and Woodworks was placed in bankruptcy.

At about that time counsel for the Himelfarbs inventoried the personal property of Woodworks located on the Premises and at another location at which Woodworks operated, but which is not involved in the instant claim. Counsel’s inventory listed twenty-six items or categories including “[assorted] desks, cabinets, chairs” and a “[large assortment] of laminate, wood products, cabinets, worktables.” The Himelfarbs placed a month-to-month tenant in the Premises, but that tenant did not pay the rent for September, October, and November of 1994. On Saturday, November 19, 1994, a person or persons unknown broke into the Premises. The break-in was discovered by the Baltimore City Police.

Within a short period of time after learning of the theft, Mrs. Himelfarb, in late 1994 or early 1995, reported the theft to the agent through whom the Himelfarbs had obtained the Hartford policy. 1 At some point the Himelfarbs engaged public adjusters, The Goodman-Gable-Gould Company (GGG), to determine the extent of the loss and to negotiate settlement of their claim. The bankruptcy trustee’s auction sale of the property of Woodworks was held on February 8, 1995. The auctioneer’s inventory of machinery and equipment lists 109 items or lots that were sold for the trustee from the Premises and approxi ⁶⁷⁶ mately 300 items or lots that were sold from the other location at which Woodworks operated. The next relevant event is, in the language of the policy, a request by Hartford to be sent “a signed, sworn proof of loss containing the information [Hartford] requests] to investigate the claim” within sixty days of the request.

Remarkably, that document is not to be found in the record. The record does contain a letter of November 28, 1995, from GGG to Hartford which reads as follows: “In compliance with the policy requirement that the Proof of Loss must be filed within 60 days upon request, we are enclosing a Compliance Proof and reserving the right to file an amended Proof of Loss at such time as the loss can be consummated satisfactorily.” The “Compliance Proof’ is a printed form headed, “SWORN STATEMENT IN PROOF OF LOSS (For Use With Replacement Cost Coverages),” and containing blanks into which information was typewritten, including the name of the insurer. 2 No schedules identifying stolen property were attached. In both the space for full cost of replacement and in the line for actual cash value was typed “To be determined.” By their signatures and their oath before a notary public, the Himelfarbs made the following representations, which were preprinted on the “Compliance Proof’: “The said loss did not originate by any act, design or procurement on the part of your insured, or this affiant; nothing has been done by or with the privity or consent of your insured or this affiant, to violate the conditions of the policy, or render it void; no articles are mentioned herein or in annexed schedules but such as were destroyed or damaged at the time of said loss; no property saved has in any manner been concealed, and no attempt to deceive the said ⁶⁷⁷ company, as to the extent of said loss, has in any manner been made. Any other information that may be required will be furnished and considered a part of this proof.” Counsel for Hartford replied by letter dated November 30, taking the position that the “Compliance Proof’ did not comply with the Policy provision requiring “ ‘a signed, sworn statement of loss containing the information we request to investigate the claim’” (emphasis added by counsel).

The letter set a deadline of December 4, 1995, and stated that the “proof must include the necessary supporting documentation, including the documents the Hartford has previously requested.... ” As noted above, that which was previously requested by Hartford is not in the record. GGG replied by letter of December 4 stating that the proof of loss that had been submitted complied “with the 60-day demand period ending December 2, 1995,” and that “[a]ll available information requested for the Hartford’s investigation has been provided independently of the Proof.” Hartford denied the claim on December 11,1995. According to the affidavit of a GGG adjuster, filed in opposition to Hartford’s motion for summary judgment, GGG needed the auctioneer’s list identifying the items sold at the bankruptcy sale so that, by comparing those items with the inventory that had been made by counsel for the Himelfarbs prior to the break-in at the Premises, GGG could determine what had been taken in the break-in. The affiant further stated that, despite numerous telephone calls and letters, GGG had been unable to obtain the information concerning the bankruptcy auction until April 25, 1996.

Under cover of a letter dated June 6, 1996, GGG sent Hartford a presentation prepared by GGG which the latter described as “the Inventory and Claim.” It lists seven items of equipment and twelve lots of assorted personalty at a replacement cost totaling approximately $7,000, nine computers and one laser printer at a replacement cost totaling $16,751, and some $19,000 in fixtures. 3 ⁶⁷⁸ Thereafter, the Himelfarbs sued Hartford in the Circuit Court for Baltimore City. Hartford moved for summary judgment which the circuit court granted. On the Himelfarbs’ appeal to the Court of Special Appeals, the judgment was reversed. Himelfarb v. Hartford Fire Ins.

Co., 123 Md.App. 456 , 718 A.2d 693 (1998). That court reasoned that, although the insurer need not show prejudice in order to enforce policy provisions concerning the timely furnishing of a proof of loss, substantial compliance with the provision by the insured is sufficient. Relying on the law’s aversion to forfeitures, the Court of Special Appeals held that an insured must have a reasonable opportunity under all of the circumstances to comply with policy provisions requiring a proof of loss. The court reversed the denial of summary judgment on the ground “that the Himelfarbs raised a genuine issue of fact as to whether they produced all information available to them as soon as it reasonably could be obtained and produced.” Id. at 470 , 718 A.2d at 700 .

We granted Hartford’s petition for certiorari, and we shall affirm the judgment of the Court of Special Appeals. Hartford’s position is that the “Compliance Proof’ that was submitted within sixty days of Hartford’s request does not satisfy the policy’s requirements because it does not furnish the information requested by Hartford, and that the inventory and claim submitted in June of 1996 did not satisfy the policy’s requirements because it was not submitted within sixty days following Hartford’s request. The short answer to Hartford’s contention is that the record does not contain the request by Hartford. As the movant for summary judgment, the burden was on Hartford to show that the Himelfarbs had not complied with the insurer’s request, which would include producing the terms of the request before the court.

Consequently, the record does not support the grant of summary judgment, even on Hartford’s theory of the case. The policy term with which the Himelfarbs have not complied, as Hartford sees it, is ¶ E.3.a(7), quoted above. Hartford reinforces its contention by citing to ¶ E.4.f of the policy ⁶⁷⁹ under which Hartford “will pay for covered loss or damage within 30 days after [Hartford] receive[s] the sworn proof of loss, if ... [the insureds] have complied with all of the terms of this Coverage Part____” The significance of subparagraph (7), Hartford submits, lies in its sixty day provision. Hartford’s position seems to be that the requirement for furnishing the requested information within sixty days from the request is an express condition precedent so that, upon failure of the condition to occur within the time specified, Hartford’s obligation to perform its part of the bargain is extinguished.

Provisions in insurance policies are to be interpreted like those of any other contract. Collier v. MD-Individual Practice Ass’n, 327 Md. 1, 5 , 607 A.2d 537, 539 (1992); Pacific Indem. Co. v. Interstate Fire & Cas. Co., 302 Md. 383, 388 , 488 A.2d 486, 488 (1985).

Looking first to the language of the Policy, Hartford relies on the introduction of Part E in the Personal Property Coverage form, headed, “LOSS CONDITIONS.” It introduces seven subparts with this language: “The following conditions apply in addition to the Common Policy Conditions and the Commercial Property Conditions.” The seven subparts are: “1. Abandonment,” “2. Appraisal,” “3. Duties In The Event Of Loss Or Damage,” “4.

Loss Payment,” “5. Recovered Property,” “6. Vacancy,” and “7. Valuation.” In our view Hartford undertakes to read too much into the introduction to Part E. Each provision in Part E is not a condition precedent to Hartford’s performance.

For example, included in Part E is subpart 4 dealing with loss payments. Paragraph 4.a. provides that Hartford at its option either will pay the value of lost or damaged property or the cost of repair or replacement. Payment by Hartford clearly is not a condition precedent to Hartford’s obligation to pay. Similarly in ¶ 4.e. the policy provides that Hartford, at its expense, “may elect to defend [the insured] against suits arising from claims of owners of property.” Surely the obligation of Hartford to pay an otherwise proper claim is not extinguished unless a claim is made against the insured by an owner and unless Hartford elects to defend that claim.

The use of the term ⁶⁸⁰ “conditions” in the introduction to Part E of the policy is ambiguous. “The question whether a stipulation in a contract constitutes a condition precedent is one of construction dependent on the intent of the parties to be gathered from the words they have employed and, in case of ambiguity, after resort to the other permissible aids to interpretation. Although no particular form of words is necessary in order to create an express condition, such words and phrases as ‘if and ‘provided that,’ are commonly used to indicate that performance has been expressly made conditional as have the words ‘when,’ ‘after,’ ‘as soon as,’ or ‘subject to.’ ” Chirichella v. Erwin, 270 Md. 178, 182 , 310 A.2d 555, 557 (1973) (citations omitted). Under ordinary rules of construction the use of the term “conditions” in the introduction to Part E must be read compatibly with Part E in its entirety. To do so, “conditions” must be read as “terms” or “provisions,” any one of which, in turn, may be either an express condition or may be a covenant.

If the latter, the provision makes the obligation of Hartford to perform subject to the implied condition of substantial performance. Directing attention to whether ¶ E.3.a(7) is a condition or a covenant, it is first to be noted that the provision does not contain any of the words ordinarily used to create an express condition. Nor does it expressly effect a forfeiture for failure of the condition. The language of ¶ E.3.a(7) imposes a duty on the insured.

Under these circumstances construction of ¶ E.3.a(7) as a covenant, rather than an express condition, is the preferred construction. See Beckenheimer’s Inc. v. Alameda Assocs. Ltd. Partnership, 327 Md. 536, 554-55 , 611 A.2d 105, 113-14 (1992); New York Bronze Powder Co. v. Benjamin Acquisition Corp., 351 Md. 8, 17 , 716 A.2d 230, 234 (1998) (applying New York law); Restatement (Second) of Contracts § 227(2) (1981). In Beckenheimer’s we quoted comment d to Restatement § 227(2) in explanation of the preference: ⁶⁸¹ “ ‘Condition or duty.

When an obligor wants the obligee to do an act, the obligor may make his own duty conditional on the obligee doing it and may also have the obligee promise to do it. Or he may merely make his own duty conditional on the obligee doing it. Or he may merely have the obligee promise to do it____ It may not be clear, however, which he has done. The rule in Subsection (2) states a preference for an interpretation that merely imposes a duty on the obligee to do the act and does not make the doing of the act a condition of the obligor’s duty.

The preferred interpretation avoids the harsh results that might otherwise result from the non-occurrence of a condition and still gives adequate protection to the obligor under the rules ... relating to performances to be exchanged under an exchange of promises. Under those rules ... the obligee’s failure to perform his duty has, if it is material, the effect of the nonoccurrence of a condition of the obligor’s duty. Unless the agreement makes it clear that the event is required as a condition, it is fairer to apply these more flexible rules. The obligor will, in any case, have a remedy for breach.’” 327 Md. at 555, 611 A.2d at 114 .

An express condition precedent to Hartford’s obligation to pay is found in ¶ E.4.f, reading in part: “[Hartford] will pay for covered loss ... after we receive the sworn proof of loss, if ... [the insured has] complied with all of the terms of this Coverage Part.” Thus, Hartford is under no obligation to pay until it has received the sworn proof of loss. But, if the Himelfarbs “have complied with all of the terms of’ Part E, then Hartford “will pay for covered loss.” With respect to the sole issue before us, the effect of the time limit in ¶ E.3.a(7), it suffices that compliance within that time be substantial. This Court has held that substantial compliance by an insured with policy requirements for the submission of a proof of loss is sufficient. United States Fire Ins.

Co. v. Merrick, 171 Md. 476 , 190 A. 335 (1937). That case involved a fire loss on a home insured under a policy that named both a husband and wife as insureds. Six days before the loss the wife deserted her husband, and her whereabouts were unknown ⁶⁸² when the loss was sustained and when the proof of loss was to be filed. Because the fire insurance policy required the proof of loss to be signed by both insureds, the husband signed the proof of loss for himself and on behalf of his wife.

Coverage was denied, based in part on the absence of the wife’s direct participation in the proof of loss. In affirming judgment for the insureds, this Court stated several general principles. “The furnishing of a proof of loss is a preliminary step by the insured in the collection of benefits accruing under an insurance policy; and its chief purpose is to acquaint the insurance company with certain facts and circumstances relative to the loss, forming a basis for further steps to be taken by the company, ranging from full settlement to absolute repudiation of liability. Substantial compliance with the policy requirements for the submission of this proof has been held sufficient. ‘Where insured acts in good faith and discloses such information as the insurer requests, the provision of the policy relative to proof of loss should be liberally construed in aid of the indemnity contemplated by the parties.’ ” Id. at 489 , 190 A. at 341 (citation omitted) (quoting Bingell v. Royal Ins. Co., 240 Pa. 412 , 87 A. 955 (1913)).

The Court was “guided further by the principle that the law does not favor forfeitures.” Id. at 490 , 190 A. at 342 . Accordingly, the failure of the wife to sign the proof of loss “constituted no sound basis for its repudiation by the company.” Id. at 491 , 190 A. at 342 . In Merrick the husband faced a dilemma somewhat similar to that faced by the Himelfarbs in the instant matter. The husband did not know to what extent his wife had taken personal effects with her when she abandoned the marital abode.

Prior to trial the wife had moved to Virginia. She appeared as a witness and described those personal effects which she had taken and which, therefore, were not destroyed in the fire. This resulted in a $545 reduction in the claim under the policy. Id. at 483 , 190 A. at 338 .

In essence, the ⁶⁸³ husband in Merrick did what it was reasonably possible for him to do by the deadline for submitting a proof of loss, and the extent of the loss was later refined as additional information became available. Hartford relies principally on Government Employees Ins. Co. v. Harvey, 278 Md. 548 , 366 A.2d 13 (1976), a case involving a proof of loss under personal injury protection (PIP) coverage adjunct to an automobile liability policy issued by GEICO. The PIP endorsement required a proof of claim to be submitted as soon as practicable after an automobile accident, and within a period not to exceed six months.

The proof of claim was to be submitted on forms furnished by GEICO. Under the PIP endorsement, “ ‘[n]o action shall lie against the Company unless, as a condition precedent thereto, there shall have been full compliance with all terms of this amendment.’ ” Id. at 550 , 366 A.2d at 15 . Three forms were furnished by GEICO: (1) an “Application for Benefits-Economic Loss Protection,” which was to be completed by the insured; (2) a “Wage and Salary Verification” form, which was to be completed by the employer; and (3) an “Attending Physician’s Report” which was to be completed by the insured’s health care provider. The insured did not file any proof of claim within the six