Himelfarb v. Hartford Fire Insurance

EYLER, Judge. The issue in this case is whether Herbert and Frances Himelfarb (“Himelfarbs”), appellants, complied with a proof of loss provision in an insurance policy issued by The Hartford Fire Insurance Company (“Hartford”), appellee. On appeal, the Himelfarbs challenge an order of the Circuit Court for Baltimore City granting Hartford’s motion for summary judgment on the basis that the Himelfarbs had not submitted a complete proof of loss to Hartford within sixty days of Hartford’s request for information, as required by the policy. We hold that the Himelfarbs succeeded in creating a genuine dispute of material fact on this issue, and thus, the trial court erred in granting summary judgment.

Consequently, we reverse and remand for further proceedings. Fact Background The following information is taken from the affidavits and documents filed by the Himelfarbs in opposition to Hartford’s motion for summary judgment. At all relevant times, the Himelfarbs owned a commercial warehouse located at 1327 Bayard Street in Baltimore, Maryland. On April 29, 1992, the Himelfarbs leased a portion of the warehouse to Baltimore Woodworks, Inc. (“Baltimore Woodworks”).

As part of the transaction, the Himelfarbs loaned $100,000 to Baltimore Woodworks as a tenant equipment and improvement allowance and retained a security interest in the property that Baltimore Woodworks purchased with the proceeds of the loan. Baltimore Woodworks failed to make several of its rental payments, thereby defaulting under the terms of its lease. Consequently, in the Spring of 1994, the Himelfarbs instituted ⁴⁶⁰ bankruptcy proceedings against Baltimore Woodworks and, at the beginning of the bankruptcy proceedings, performed an inventory of the equipment and material that remained on the premises. 1 In November, 1994, some of the equipment and material belonging to Baltimore Woodworks, which was subject to the Himelfarbs’ security interest, was stolen from the warehouse. In late 1994 or early 1995, shortly after the Himelfarbs learned of the theft, Frances Himelfarb reported the loss to Ivan Brendler (“Brendler”) of the Brendler Insurance Agency, from whom the Himelfarbs purchased their Hartford insurance policy.

Frances informed Brendler that she would not know the extent of the theft loss until she received the information from the bankruptcy auction of the remaining property. On February 8, 1995, the bankruptcy trustee auctioned off the remaining equipment and material belonging to Baltimore Woodworks. On June 5, 1995, the Himelfarbs notified Hartford of the loss. Thereafter, they retained the services of Harvey Goodman of The Goodman-Gable-Gould Company, adjusters, to (1) investigate the theft, (2) determine the extent of their loss, and (8) pursue their claim with Hartford.

The policy issued by Hartford contained various first party and liability coverages, including coverage for theft of property in which the Himelfarbs had a security interest. On October 2, 1995, Hartford requested that the Himelfarbs submit a proof of loss within sixty days. Goodman prepared a “proof of loss,” utilizing a Hartford printed form, and submitted a signed and sworn copy to Hartford on November 28, 1995. Although the proof of loss asserted the theft of property on November 1, 1994, and contained the information available to the Himelfarbs up until that time, it did not indicate the cost of repair, replacement, or actual cash value of the ⁴⁶¹ stolen items.

Instead, the proof of loss noted that those terms were “to be determined.” On November 30, 1995, Hartford wrote a letter to the Himelfarbs noting its dissatisfaction with the proof of loss and demanding that the Himelfarbs provide it with supplemental information no later than December 4, 1995, or else risk denial of their claim. On December 4, 1995, Goodman wrote a letter to Hartford’s counsel stating that “[a]ll available information requested for the Hartford’s investigation has been provided independently of the Proof.” On December 11, 1995, Hartford denied the Himelfarbs’ claim on the basis that they (1) did not provide prompt notice of the loss, (2) failed to submit an adequate proof of loss, and (3) failed to demonstrate any insurable interest. 2 On April 25, 1996, after numerous telephone calls and letters, Goodman obtained the information with respect to the items sold at the bankruptcy auction in February, 1995. Shortly thereafter, Goodman finished his investigation and, on June 6, 1996, forwarded a formal estimate of loss. In order to prepare the formal estimate of loss, Goodman needed information on the items sold at the bankruptcy auction so that he could compare that information to the inventory of the property taken at the beginning of the bankruptcy proceedings.

This information was included with the June 6, 1996 packet. The inference relied on by Goodman and the Himelfarbs was that the items that were not sold at the auction, but which were on the original inventory list, were the items that had been stolen in November, 1994. Hartford and Goodman exchanged correspondence in August and September, 1996, confirming the date of loss as November 19, 1994, and not November 1, 1994, as originally reported. In a letter dated December 6, 1996, Hartford once again denied the Himelfarbs’ claim on the ground that, to the extent pertinent here, the proof of loss was inadequate. ⁴⁶² On February 26, 1997, the Himelfarbs filed a complaint against Hartford in the Circuit Court for Baltimore City seeking to recover their loss.

On July 14, 1997, Hartford filed its motion for summary judgment and a hearing on the motion was held on October 20, 1997. The trial court held that the Himelfarbs failed to file a timely proof of loss, which was a material breach of the policy, and granted Hartford’s motion. 3 This appeal followed. For the reasons that follow, we reverse. QUESTION PRESENTED On appeal, the Himelfarbs present two questions for our review, which we have rephrased and combined into one question as follows: Did the Himelfarbs as a matter of law fail to file a timely and adequate proof of loss, thereby breaching the insurance policy, precluding recovery?

STANDARD OF REVIEW Appellate review of summary judgment is governed by Maryland Rule 2-501(e). Summary judgment is proper if “there is no genuine dispute as to any material fact and ... the party in whose favor judgment is entered is entitled to judgment as a matter of law.” Rule 2-501(e). “In determining whether a party is entitled to judgment under this rule, the court must view the facts, including all inferences, in the light most favorable to the opposing party.” Baltimore Gas & Electric Co. v. Lane, 338 Md. 34, 43 , 656 A.2d 307 (1995); see also Beatty v. Trailmaster Products, Inc., 330 Md. 726, 739 , 625 A.2d 1005 (1993). The role of the trial court is to decide issues of law and not to resolve disputed issues of fact. DeBusk v. Johns Hopkins Hosp., 105 Md.App. 96, 102 , 658 ⁴⁶³ A.2d 1147 (1995).

Summary judgment proceedings are not intended as a substitute for trial. General Accident Ins. Co. v. Scott, 107 Md.App. 603, 611 , 669 A.2d 773 (1996). Upon review of summary judgment matters, an appellate court determines whether the trial court was legally correct.

De Busk, 105 Md.App. at 102 , 658 A.2d 1147 . DISCUSSION On appeal, the Himelfarbs contend that the trial court could not, as a matter of law, find that they failed to abide by the terms and conditions of the insurance policy. They argue that determining whether their proof of loss met the requirements of the policy was a factual issue to be submitted to a fact finder at trial. In addition, the Himelfarbs contend that, absent prejudice to Hartford, they should not be precluded from recovering on their claim because of an unavoidable delay in submitting a formal estimate of loss.

Hartford disagrees and argues that summary judgment was appropriate because the Himelfarbs failed to abide by the following insurance policy provision: 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 [4] 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. Hartford contends that the information submitted in the proof of loss on November 28, 1995, was insufficient to enable Hartford to investigate the Himelfarbs’ claim and, as such, precludes the Himelfarbs from recovering under the policy. ⁴⁶⁴ Hartford also argues that it need not establish actual prejudice in order to deny a claim when an insured fails to abide by an express policy provision. Hartford’s latter contention is correct. Although several states require an insurer to demonstrate actual prejudice before denying a claim on the basis of failure to comply with a policy provision requiring a proof of loss, Maryland is not one of those states.

Generally, an insurer need not establish actual prejudice in order to deny a first party coverage claim for a breach of a policy provision requiring a proof of loss. See Md.Code Ann., Ins. § 19-111 (1997) (With respect to a property loss claim resulting from fire or a hazard under an extended coverage endorsement, an insured may be prevented from recovering under a policy if the insured fails to provide the sworn proof of loss required by the policy. The statute does not require the insurer to show actual prejudice.); Government Employees Ins. Co. v. Harvey, 278 Md. 548, 554 , 366 A.2d 13 (1976).

This is to be distinguished, however, from breach of a provision in a liability policy requiring prompt notice. See General Acc. Ins. Co. v. Scott, 107 Md.App. 603 , 669 A.2d 773 (1996), and Md.Code Ann., Ins., § 19-110 (1997) (If insurer seeks to disclaim coverage on any policy of liability insurance on the ground of failure to give requisite notice, insurer must establish actual prejudice).

The requirements of notice and proof of loss contained in insurance policies are two different things. A requirement that a proof of loss be submitted is a requirement of the contract that must be complied with unless waived. Harvey, 278 Md. at 553-54 , 366 A.2d 13 . Nevertheless, as explained below, Hartford was not entitled to summary judgment on the basis that the Himelfarbs breached the proof of loss provision.

In Maryland, as in other jurisdictions, it has long been held that proofs of loss exclusively benefit insurance companies and enable them to ascertain the nature, extent, and character of the loss at issue. Harvey, 278 Md. at 553 , 366 A.2d 13 ; Fidelity & Cas. Co. v. Dulany, 123 Md. 486, 494 , 91 A. 574 (1914). See also Schoeman v. Loyal Protective Life Ins.

Co., 239 Iowa 664 , 32 N.W.2d 212, 215 (1948)(the “function of ⁴⁶⁵ proofs of loss is to advise the insurer of the essential facts upon which its liability depends”); Wright v. Mut. Benefit Health & Accident Assoc., 249 Minn. 91 , 81 N.W.2d 610, 614 (1957). Proofs of loss also enable insurance companies to form “a basis for further steps to be taken [in a matter] ... ranging from full settlement to absolute repudiation of liability.” United States Fire Ins. Co. v. Merrick, 171 Md. 476, 489 , 190 A. 335 (1937); see also Harvey, 278 Md. at 553 , 366 A.2d 13 ; Fishel v. Yorktowne Mut.

Ins. Co., 254 Pa.Super. 136 , 385 A.2d 562, 564 (1978)(the purpose behind proofs of loss is “to allow the insurer to form an intelligent estimate of its rights and liabilities, to afford it an opportunity for investigation, and to prevent fraud and imposition upon it”). Moreover, [t]he term “proofs of loss” is a technical term, meaning formal proofs generally furnished on prescribed forms. In furnishing proofs, the insured must, if possible, give all the information called for by the policy.

However, the chief purpose of proofs of loss is to acquaint the insurer with the circumstances relative to the loss, and as to its nature and extent, so as to form a basis for further steps to be taken by the insurer, and the general holding is that any statement or proofs which are sufficient to give such information constitute a compliance with the policy terms. 5A Appleman, Insurance Law and Practice § 3531 (1981). Substantial compliance with proof of loss provisions is all that the law requires. Merrick, 171 Md. at 489 , 190 A. 335 . When an insured acts diligently and in good faith in disclosing information to an insurer, proof of loss