The Ninth Circuit Gets it Right: No Coverage No Bad Faith

The Insured is Obligated to Prove Damage from a Peril Insured Against to Get Indemnity

In Jensen Shirley; Karen Shirley v. Allstate Insurance Company, No. 19-56066, United States Court Of Appeals For The Ninth Circuit (October 9, 2020) the Ninth Circuit was asked to find coverage and prove that they were entitled to bad faith damages. Jensen and Karen Shirley (collectively, the “Shirleys”) appealed from the district court’s summary judgment in favor of Allstate Insurance Co. (“Allstate”) on their California state law claims for breach of contract and insurance bad faith.


Under California law, the Shirleys, like every first party insured, bear the initial burden in their breach of contract claim to prove that an event is a claim within the scope of the insurance policy’s basic coverage. Allstate’s policy insures the Shirleys against “physical loss to property,” defined as “physical injury to . . . tangible property.” The parties agree that fire contamination constitutes physical injury under the policy.

However, the Shirleys failed to prove that ash or soot physically contaminated their home. After the Shirleys filed their claim with Allstate, four inspectors from three firms visited the Shirleys’ home and took samples of suspected ash or soot. None of these four inspectors found evidence of fire contamination, including soot and ash. In the absence of physical contamination, the Shirleys rely on subjective reports of a smoke smell in their home. However, the agreement explicitly precludes coverage based on “vapors” or “fumes.”


The Shirleys, therefore, have not presented a genuine dispute of material fact regarding the alleged physical damage to their home. The Shirleys also allege that Allstate’s inspector ignored “burnt landscaping” on their property. However, the Shirleys do not advance any argument about whether the damage to their landscaping falls within the scope of their insurance coverage or whether they submitted a claim to Allstate for such alleged damages. The Shirleys have therefore forfeited this issue because issues raised in a brief which are not supported by argument are deemed abandoned.


A covenant of good faith and fair dealing is implied in every insurance contract under California law. To fulfill this implied covenant, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests and cannot unreasonably and in bad faith withhold payment of the claim of its insured. To receive punitive damages for breach of an implied covenant, the plaintiff also must prove that the defendant acted with the requisite intent to injure the plaintiff.

Allstate properly withheld benefits and did not breach its contract with the Shirleys. Because no benefits are owed, Allstate cannot be liable for acting in bad faith when it refused to pay the Shirleys.

Without a breach of the insurance contract there can be no breach of the implied covenant of good faith and fair dealing. Furthermore, because the Shirleys did not prove that Allstate acted in bad faith—let alone with intent to injure—they are not entitled to punitive damages. The district court properly granted summary judgment on these claims.


Since there was no evidence of physical damage to the property, the risk of loss of which, was insured by Allstate, there could be no obligation or ability to pay a claim since it is impossible to put a monetary value of no damages. Failure to prove a loss defeated the Shirleys’ breach of contract and bad faith claims.

© 2020 – Barry Zalma

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 also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Read last two issues of ZIFL here.

Go to Barry Zalma videos at at

Read posts from Barry Zalma at

Listen to Barry Zalma’s Podcast: Zalma on Insurance

Go to Barry Zalma on YouTube-

Go to the Insurance Claims Library –

Subscribe to e-mail Version of ZIFL, it’s Free! –

This entry was posted in Zalma on Insurance. Bookmark the permalink.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.