Unreported / Non-Citable
Background
Novalk, LLC sued Kinsale Insurance Company in the Southern District of California over a claim arising from a fire. The memorandum addresses two claims, breach of contract and bad faith. The parties agreed that the policy required Novalk, after a reported loss, to produce records "as often as Kinsale reasonably requests." Kinsale asked Novalk for six categories of information to support its investigation, including material about Novalk's financial status, trespasser history, and prior claims. The fire raised suspicious circumstances: signs of forced entry, a disabled sprinkler system, and an open arson investigation.
The summary judgment record showed, and Novalk did not dispute, that Kinsale made the requests and that Novalk failed to produce the information for nearly five years. The district court gave Novalk two chances to comply: first through the period ending with its grant of partial summary judgment at the close of discovery, and second through supplemental briefing on the post-discovery period. Even then Novalk had not produced all the documents, explained its earlier failure, or said when production might be complete. The district court granted summary judgment to Kinsale, and Novalk appealed. The Ninth Circuit decided the appeal without oral argument.
The Court’s Holding
The Ninth Circuit reviewed the grant of summary judgment de novo and affirmed. Applying California law, it explained that an insurer is entitled to summary judgment if the insured breached the duty to cooperate and the insurer was prejudiced by the breach. Breach and prejudice are ordinarily fact questions, but either can be decided as a matter of law when there is no genuine dispute of material fact. The panel found none on breach: the policy required production on reasonable request, the requests went unanswered for nearly five years, and Novalk's later showing still fell short.
On prejudice, the panel reasoned that an insurer may give its own interests consideration equal to its insured's, including by investigating whether policy exclusions apply. Where suspicious circumstances exist, an insured's failure to provide financial information prejudices the insurer because the claim cannot be substantiated. The five-year delay clearly prejudiced Kinsale, which without the financial, trespasser, and prior-claim documentation could not determine whether the exclusion for fraud, crime, or vandalism applied.
The bad faith claim required Novalk to show that benefits due under the policy were withheld and that the reason was unreasonable or without proper cause. Because Novalk did not substantially perform its duty to cooperate, it could not satisfy the first element. Without entitlement to contract benefits, it could not maintain a bad faith claim as a matter of law. The panel affirmed on both claims. It did not decide whether any exclusion actually applied or whether the fire resulted from fraud or arson.
Key Takeaways
- On the memorandum's California-law analysis, an insured that leaves reasonable records requests unanswered for nearly five years can be found in breach of the duty to cooperate at summary judgment.
- Prejudice can be established where suspicious circumstances surrounding a loss leave the insurer unable to evaluate possible fraud, crime, or vandalism exclusions without the withheld financial and historical information.
- An insured that has not substantially performed its cooperation duty cannot show that benefits were due, which defeats a bad faith claim as a matter of law.
- Partial production and supplemental briefing did not cure the breach where the insured offered no explanation and no timetable for completing production.
Why It Matters
The decision is an unpublished memorandum and is not precedent except as provided by Ninth Circuit Rule 36-3. It applies existing California principles on cooperation clauses rather than announcing new law, and it is closely tied to its record of prolonged, unexplained noncompliance.
For insurers and policyholders, it shows that extended failure to answer document requests after a suspicious fire can end both contract and bad faith claims without trial. It leaves open whether any exclusion applied and does not address coverage on the merits.