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An appellate court in California has affirmed a trial court's decision rejecting an insured's efforts to enforce a check he authorized his insurer to issue to his contractor, which deposited the check in its own bank account.

The Case

After Stanley Jozefowicz's mobile home was damaged in a fire in May 2014, he submitted a claim to his insurer, Allstate Insurance Company.

Mr. Jozefowicz also retained Sunny Hills Restoration to perform cleanup, repairs, and remediation of the mobile home. Mr. Jozefowicz entered into a written contract with Sunny Hills that provided, “Sunny Hills Restoration is hereby appointed as my representative in fact to endorse and deposit in its account any Insurance Company checks or drafts relating to this Proposal and Work Authorization.” The contract also stated, “I direct that Allstate Insurance include the name of Sunny Hills Restoration on any checks or drafts relating to this Proposal and work Authorization.”

In January 2015, Allstate issued a check for $20,943.97 payable to both Mr. Jozefowicz and Sunny Hills to pay for repairs to Mr. Jozefowicz's mobile home. Allstate sent the check directly to Mr. Jozefowicz, but he never cashed it.

Around the same time, a dispute apparently arose between Mr. Jozefowicz and Sunny Hills over the scope and quality of the work.

Thereafter, Sunny Hills contacted Allstate and requested that the check be reissued and sent directly to Sunny Hills.

On March 10, 2015, Allstate issued a second check in the same amount, made payable to Mr. Jozefowicz and Sunny Hills, and sent it directly to Sunny Hills. Sunny Hills endorsed the check and deposited it into its own bank account.

Mr. Jozefowicz subsequently sued Allstate under California Uniform Commercial Code (“UCC”) Section 3-309, which allows a person to enforce an instrument not actually in his or her possession.

Allstate moved for summary judgment, asserting that Mr. Jozefowicz was unable to enforce the second check because it already had been cashed, not because it had been destroyed or lost or was in a person's wrongful possession within the meaning of Section 3-309.

For his part, Mr. Jozefowicz argued that his contract with Sunny Hills failed to comply with provisions in California Probate Code Section 4121(c), which requires that a power of attorney be notarized or witnessed by two people, and, therefore, that Sunny Hills was not actually his representative in fact when it negotiated the check.

The trial court granted summary judgment in favor of Allstate, and Mr. Jozefowicz appealed.

The Appellate Court's Decision

The appellate court affirmed.

In its decision, the appellate court observed that Mr. Jozefowicz had not brought an action to enforce the insurance contract but, rather, to enforce the second check issued by Allstate (as the first check still was in Mr. Jozefowicz's possession) under Section 3-309. To do so, the appellate court explained, Mr. Jozefowicz had to prove among other things that the negotiation of the check to the bank was not a transfer – if it was a transfer, the appellate court continued, Section 3-309 did not apply.

Here, the appellate court said, the check was delivered by a person (Sunny Hills) other than the issuer (Allstate) for the purpose of giving the person receiving the delivery (Sunny Hills' bank) the right to enforce the check. Accordingly, the appellate court ruled, the loss of possession occurred as a result of a transfer and, therefore, Mr. Jozefowicz could not satisfy Section 3-309.

The appellate court was not persuaded by Mr. Jozefowicz's attempt to rely on Probate Code Section 4121(c), reasoning that Mr. Jozefowicz's contract with Sunny Hills specifically appointed Sunny Hills as Mr. Jozefowicz's representative, allowing Sunny Hills to “endorse and deposit in its account any Insurance Company checks or drafts relating to this Proposal and Work Authorization.” The purpose of the contract, the appellate court ruled, was to provide security for Sunny Hills to be paid for its work. Therefore, the appellate court declared, the parties were not required to observe the formalities of the Probate Code in creating an agency relationship.

The appellate court concluded that because Mr. Jozefowicz's loss of possession was due to a transfer by him vis-à-vis his representative, his claim under Section 3-309 failed.

The case is Jozefowicz v. Allstate Ins. Co., No. G055643 (Cal. Ct. App. May 28, 2019). Attorneys involved include: Hamilton & Associates; Ben-Thomas Hamilton and Kristine Stcynske for Plaintiff and Appellant. Sheppard, Mullin, Richter & Hampton, Peter H. Klee, Karin Dougan Vogel, and Matthew G. Halgren for Defendant and Respondent.

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Mr. Meyerowitz is the Director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He may be contacted at smeyerowitz@meyerowitzcommunications.com.