Opinion
No. C 02-3146 JSW
July 22, 2003
ORDER GRANTING DEFENDANT ALLSTATE INDEMNITY COMPANY'S MOTION FOR SUMMARY JUDGMENT
Now before the Court is defendant Allstate Indemnity Company, Inc.'s ("Allstate") Motion for Summary Judgment under Federal Rule of Civil Procedure 56 and Motion to Strike Plaintiff's Evidence in Opposition to Summary Judgment. Having carefully reviewed the parties' papers and considered their arguments and the relevant legal authority, and good cause appearing, the Court hereby GRANTS Allstate's motion for summary judgment and DENIES Allstate's motion to strike as moot.
FACTUAL AND PROCEDURAL BACKGROUND
This action arises from a motor vehicle accident that occurred on January 26, 2000, when Shawn Johnson ("Johnson") failed to stop for a red light and collided with the right side of plaintiff Vickie Lee Brandi's ("Brandi") vehicle. Brandi sustained injuries to her cervical spine that eventually required surgical intervention. At the time of the accident, Johnson was driving a 1988 Chevy van owned by his employer, Don Allen ("Allen"), doing business as Humboldt Bay Packers. In her complaint, Brandi alleges that the pallet of product Johnson was delivering slid from the back to the front of the van, causing Johnson to turn his attention to
In October 2000, Brandi filed suit in Humboldt County Superior Court against both Johnson and Allen under the name of Allen's business, Humboldt Bay Packers. Allen had insured the 1988 Chevy van through a State Farm policy providing liability coverage with a $50,000 limit, and State Farm tendered a defense on his behalf. Allen had also obtained two policies for Humboldt Bay Packers from Allstate: a business auto policy and a business liability policy. Allstate denied coverage to Allen on the basis that the 1988 Chevy van was not covered under either policy
In April 2002, Brandi and Allen entered into a Stipulated Judgment in which Allen dba Humboldt Bay Packers stipulated to sole liability for causing Brandi's injuries. Accordingly,
Johnson dropped out of the suit. The Stipulated Judgment also provided that a judgment on the personal injury cause of action would be entered against Allen dba Humboldt Bay Packers in an amount equaling $350,000. Under these terms, Brandi received the $50,000 policy limit from State Farm. Allen also assigned to Brandi any and all rights he had under the two Allstate policies in consideration for her agreement never to execute on the judgment entered against him
On May 31, 2002, Brandi filed the instant action against Allstate in the Humboldt County Superior Court. Allstate timely removed the action to the United States District Court based on diversity. Brandi seeks to recover the $300,000 remaining on the Stipulated Judgment asserting coverage under one or both of the Allstate policies. Brandi's complaint includes six causes of action: (1) recovery on prior judgment; (2) breach of contract; (3) breach of duty of good faith and fair dealing; (4) breach of the implied covenant of good faith and fair dealing; (5) negligent misrepresentation; and (6) declaratory relief. In a prior order issued August 8, 2002, this Court dismissed Brandi's fifth cause of action alleging negligent misrepresentation. Allstate now moves for summary judgment asserting that neither policy provides coverage and that the remaining causes of action fail as a matter of law
On August 8, 2002, this Court also ordered the dismissal of the only other named defendant in the original action, Northwest Insurance Agency, Inc keeping the pallet in place and leading to the collision.
A. Legal Standard on Summary Judgment
Summary judgment is proper when the record demonstrates "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). An issue is "genuine" only if there is sufficient evidence for a reasonable fact finder to find for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). A fact is "material" if it may affect the outcome of the case. Id. at 248. The party moving for summary judgment bears the initial burden of identifying those portions of the record that demonstrate the absence of a genuine issue of material fact. Id. at 323. Once the moving party meets this initial burden, the non-moving party must go beyond the pleadings and by its own evidence "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). If the non-moving party fails to make this showing, the moving party is entitled to summary judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S 317, 323 (1986)
B. The Plain Meaning of Both Insurance Policies Shows That There is No Coverage
The question before the Court is whether or not Allstate is obligated to provide coverage under the terms of either the business auto policy or the business liability policy. The interpretation of an insurance policy is a question of law. Waller v. Truck Ins. Exch., Inc., 900 P.2d 619, 627 (Cal. 1995). In determining whether a particular policy provides coverage, the mutual intention of the parties at the time the contract is formed governs interpretation. Cal
Civ. Code § 1636 (West 2003). If possible, such intent is to be inferred solely from the language of the contract. Cal. Civ. Code § 1639. Thus, absent evidence indicating that the parties intended a special usage, the Court is required to look first at the language of the insurance policy in order to ascertain its plain meaning or the meaning a layperson would ordinarily attach to it. Cal. Civ. Code §§ 1638, 1644; see also AIU Ins. Co. v. Superior Court, 799 P.2d 1253, 1264 (Cal. 1990)
If the plain meaning of the insurance policy is clear and unambiguous, the Court is to end its inquiry and apply that meaning. AIU, 799 P.2d at 1264. A policy provision contains ambiguity when it is capable of two or more constructions, both of which are reasonable. Bay Cities Paving Grading, Inc. v. Lawyer's Mutual Ins. Co., 855 P.2d 1263, 1271 (Cal. 1993)
However, language in a policy must be interpreted as a whole and cannot be found to be ambiguous in the abstract. Waller, 900 P.2d at 627. Similarly, the Court should not strain to create an ambiguity where none exists. Reserve Ins. Co. v. Pisciotta, 640 P.2d 764, 767-68 (Cal. 1982) 1. There Is No Coverage Under the Business Auto Policy
The plain meaning of the business auto policy is unambiguous. The policy provided liability coverage for three classes of autos only: (1) the six autos specifically designated on the declarations; (2) autos leased, rented, or borrowed by Allen; and (3) autos that Allen did not own, lease, hire, rent or borrow that were used in connection with his business. (Declaration of Marc J. Feldman "Feldman Decl." Exh. 2: Declarations Items 2 3, Business Auto Policy at 1.)
The 1988 Chevy van involved in the accident does not fall within the first class of covered autos because it is not one of the six autos specifically listed in the policy. (Feldman Decl. Exh. 2: Declarations Item 3.) The Chevy van cannot fall within the other two classes of covered autos because neither class covers autos owned by the insured. That is, the second covered class requires that the auto be leased, rented, or borrowed by Allen, and does not include autos owned by Allen. The third covered class specifically excludes autos owned by Allen. Neither party disputes that Allen owned the van involved in the accident. (Feldman Decl. Exh. 1: Req. For Admis. 2.) Therefore, under the plain meaning of the contract language and the undisputed facts in this case, the 1988 Chevy van is not covered under the business auto policy
Moreover, even if the van was covered under the business auto policy, there is still no coverage because Johnson is not a covered driver. It is undisputed that in August 1999 Allen signed an endorsement excluding Johnson as a driver under Allen's business auto policy (Feldman Decl. Exh. 1: Req. For Admis. 2 7.) It is also undisputed that Johnson was driving at the time of the accident. (Feldman Decl. Exh. 1: Req. For Admis. 1.) Under either of these independent grounds the Court finds that there is no coverage under the business auto policy
2. There Is No Coverage Under the Business Liability Policy
The plain meaning of the business liability policy is unambiguous. The policy bars from coverage any accident involving an auto owned by Allen. (Feldman Decl. Exh. 3: Business Liability Policy at 29.) That is, exclusion 2 of the policy states that the following is excluded: "Any accidental event arising out of the ownership, maintenance, operation, use, loading or unloading of aircraft, or autos that are owned, used, rented, or borrowed by any persons insured or their employees or for which liability is assumed under any contract." (Feldman Decl. Exh 3: Business Liability Policy at 29.)
Despite the language of exclusion 2, Brandi argues for coverage under an exception to exclusion 12a in the policy. Exclusion 12a bars from coverage "[a]ny accidental events arising out of completed work resulting from . . . [o]perations related to transporting property, unless the accidental event results from a condition in or on the vehicle used to transport the property and the condition was created while loading or unloading the vehicle." (Feldman Decl. Exh. 3: Business Liability Policy at 29 (emphasis added).) Brandi contends that the exception in this exclusion provides coverage because the accident allegedly occurred as a result of the van being improperly loaded, causing Johnson to turn his attention away from traffic. Brandi argues that the Court should either follow the plain meaning of exclusion 12a because it is more narrowly tailored to the accident than exclusion 2, or find an ambiguity between the two exclusions and interpret the policy in her favor. The Court finds, however, that fundamental principles of interpretation are dispositive and neither of these approaches on the issue of coverage are necessary
Special rules apply to resolving issues of coverage concerning exclusions and exceptions within exclusions. See, e.g., Nat'l Union Fire Ins. Co. v. Lynette C. 279 Cal.Rptr. 394, 399 (Cal.Ct.App. 1991). The function of an exception to an exclusionary clause is to give back coverage taken away by the exclusion. Id. However, the rules governing exclusions create a hierarchy in which general exclusions are not trumped by exceptions to other exclusionary clauses. Id. For example, it is well-established that exceptions to exclusions are not read independently from the contract as whole. Id.; see also Volf v. Ocean Accident Guar. Corp., 325 P.2d 987, (Cal. 1958) (en banc). Moreover, exceptions to exclusions remain subject to and limited by all other related exclusions in the policy. Nat'l Union, 279 Cal.Rptr. at 399
Applying these principles, the Court finds that the hierarchy within the business liability policy is such that exclusion 2, denying coverage in this case, cannot be trumped by an exception within another exclusionary clause. See, e.g., id. Even if, read alone, the exception to exclusion 12a provides coverage, it is in fact limited by all other related exclusions, including exclusion 2. Thus, the exception to exclusion 12a allows coverage for an accident caused by improperly loading a vehicle, but only so long as that vehicle is not owned by the insured (as stated in exclusion 2). It is undisputed that Allen owned the 1988 Chevy van involved in the accident. (Feldman Decl. Exh. 1: Req. For Admis. 2.) Thus, the Court must apply exclusion 2, even if an exception within another exclusionary clause would allow coverage. Under the language of the contract and the undisputed facts in this case, the 1988 Chevy van is not covered under the business auto policy
Because there is no basis for coverage under either the business auto policy or the business liability policy, Brandi cannot maintain her first, second, or sixth causes of action. The causes of action for (1) recovery on prior judgment, (2) breach of contract, and (6) declaratory relief rely on a finding of coverage. Accordingly, the Court finds that these three actions fail as a matter of law
C. Allstate Cannot Be Held Liable For Bad Faith
Where no coverage exists, an insurer cannot be liable for breach of the implied covenant of good faith and fair dealing. Waller, 900 P.2d at 638-39. As explained above, the Court finds Allstate is not obligated to extend coverage under the terms of either the business auto policy or the business liability policy. Thus, Allstate cannot be liable for breach of the implied covenant of good faith and fair dealing. Brandi cannot maintain her bad faith claims and her third and fourth causes of actions alleging bad faith fail as a matter of law
Moreover, even if there were coverage under one or both of the policies, the bad faith claims would still fail. A "genuine dispute" concerning coverage precludes bad faith liability as a matter of law. Chateau Chamberay Homeowners Ass'n v. Associated Int'l Ins. Co., 108 Cal Rptr.2d 776, 784 (Cal.Ct.App. 2001). Thus, a bad faith claim may be dismissed on summary judgment if there is a genuine dispute and the insurers denial of coverage was therefore reasonable. Guebra v. Allstate Ins. Co., 237 F.3d 987, 992 (9th Cir. 2001). The Court finds that the parties' contrasting interpretations of exclusions 2 and 12a in the business liability policy created a genuine dispute as to coverage and Allstate had a reasonable basis for denying coverage. Thus, Brandi's third and fourth causes of action alleging bad faith fail on this independent ground as well
D. Allstate's Motion to Strike Plaintiff's Evidence is Moot
Allstate objects to, and moves to strike, the evidence (Exhs. A-E) that Brandi submits in support of her opposition to Allstate's Motion for Summary Judgment. Any question of the admissibility of this evidence is moot because the Court did not rely on this evidence in its decision. The business auto policy and the business liability policy that Allen purchased from Allstate were the only documents required for the Court's finding on coverage and bad faith
Both of these exhibits were properly submitted to the Court by Allstate. (Feldman Decl. Exhs. 2 3.) Therefore, Allstate's motion to strike Plaintiff's evidence is moot
CONCLUSION
The Court finds that Allstate is not obligated to extend coverage under the terms of either the business auto policy or the business liability policy. Thus, Brandi's coverage claims and bad faith claims cannot be maintained. The Court's decision relies solely on the two insurance policies in question. For the foregoing reasons, the Court GRANTS defendant Allstate's Motion for Summary Judgment and DENIES Allstate's Motion to Strike as moot
IT IS SO ORDERED