Opinion
No. 11-CV-2730-JAM-EFB
11-26-2012
JACK LAGRASSA dba CERTIFIED ELECTRIC and RESIDENCE MUTUAL INSURANCE COMPANY, Plaintiffs, v. THE BURLINGTON INSURANCE COMPANY, and DOES 1-100, inclusive, Defendants.
ORDER GRANTING PLAINTIFFS'
MOTION FOR PARTIAL SUMMARY
JUDGMENT AND DENYING DEFENDANT'S
MOTION FOR PARTIAL SUMMARY
JUDGMENT
This matter comes before the Court on the parties' Cross-Motions for Partial Summary Judgment on the issue of Defendant's alleged duty to defend pursuant to Federal Rule of Civil Procedure 56. Both motions are opposed. For the reasons set forth below, Plaintiffs' Motion for Partial Summary Judgment is GRANTED and Defendant's Motion for Partial Summary Judgment is DENIED.
This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled for October 3, 2012.
I. FACTUAL BACKGROUND
Almost all of the facts in this case are undisputed. On or around December 7, 2005, a fire broke out at Calvin Yee's residence in Elk Grove, California, which caused damage to some of the home and its contents. At the time of the fire, Mr. Yee had a homeowner's insurance policy with Plaintiff Residence Mutual Insurance Company ("RMIC").
Following the fire, there was speculation that it was caused by an alarm panel in the Yee home. At the direction of RMIC, independent adjuster George Pandelidis retained Plaintiff Jack LaGrassa ("LaGrassa"), the owner and sole employee of Certified Electric, to remove and keep the alarm panel from the Yee home, and LaGrassa did so sometime in March 2006. During this time, LaGrassa had a General Liability insurance policy with Defendant Burlington Insurance Company ("Defendant").
LaGrassa kept the alarm panel for almost one year at his home, until sometime in March 2007, he disposed of the alarm panel by placing it in the garbage. The parties disagree about what prompted LaGrassa to get rid of the panel. Plaintiffs LaGrassa and RMIC (collectively "Plaintiffs") have presented evidence, through LaGrassa's testimony, that Mr. Pendelidis authorized the disposal of the panel. Defendant disputes this; Mr. Pendelidis testified he cannot remember whether or not he gave LaGrassa permission to dispose of the panel, and an adjuster at RMIC testified that Mr. Pendelidis did not authorize the disposal of the panel.
Nevertheless, RMIC subsequently requested the alarm panel from LaGrassa, having learned of its disposal sometime in June 2007. Almost two years later, in June 2009, RMIC initiated an action against LaGrassa in Sacramento Superior Court for his failure to retain the alarm panel.
A. Tender History
LaGrassa was served with the underlying lawsuit in early September 2009. He immediately contacted his insurance company, Defendant, and an agent of Defendant informed LaGrassa that his claim was not covered.
LaGrassa subsequently retained an attorney, who sent a letter tendering the defense of the underlying litigation to Defendant. On September 30, 2009, Defendant acknowledged receipt of LaGrassa's letter and denied coverage for the issue presented by the action initiated by RMIC.
Counsel for LaGrassa repeatedly contacted Defendant, seeking reconsideration of the coverage determination. Following a series of letters between LaGrassa's attorney and Defendant, it was clear by January 12, 2010, that Defendant was not going to change its position regarding coverage. LaGrassa could not afford to pay for his defense in the underlying litigation, and as a result, he stipulated to the entry of judgment against him.
B. Insurance Policy Terms
Defendant issued LaGrassa four policies of insurance between 2004 and 2008, and during the relevant time period, LaGrassa's insurance policy with Defendant contained the following terms:
SECTION I - COVERAGES
COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies . . . we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. . . .
b. This insurance applies to "bodily injury" and "property damage" only if:
(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; . . .
SECTION V - DEFINITIONS
13. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. . . .
17. "Property damage" means:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; of
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.
The policy also contains the following exclusions within "Section I - Coverages, Coverage A Bodily Injury and Property Damage Liability":
a. Expected Or Intended Injury
"Bodily injury" or "property damage" expected or intended from the standpoint of the insured.j. Damage to Property
"Property damage" to:m. Damage to Impaired Property Or Property Not Physically Injured
(4) Personal property in the care, custody or control of the insured;
"Property damage" to . . . property that has not been physically injured, arising out of: . . .
(2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.
II. PROCEDURAL HISTORY
Plaintiffs originally filed this action on May 20, 2011, in Sacramento Superior Court, where they asserted three claims for relief: breach of contract, breach of the covenant of good faith and fair dealing, and intentional infliction of emotional distress. Doc. #1, Exhibit A. On October 14, 2011, Defendant removed the action to this Court pursuant to 28 U.S.C. §§ 1332, 1441, and 1446. Doc. #1 at pg. 1-3.
On June 6, 2012, Plaintiffs filed their pending Motion for Partial Summary Judgment (Doc. #13). On June 27, 2012, Defendant filed its Motion for Partial Summary Judgment (Doc. #14) and also filed an Opposition to Plaintiffs' Motion for Partial Summary Judgment (Doc. #16). Plaintiffs subsequently filed an Opposition to Defendant's Cross-Motion together with a Reply in support of their Motion for Partial Summary Judgment (Doc. #19).
Plaintiffs and Defendant both seek to have the following issue adjudicated: Whether Defendant had, under one or more of the liability insurance policies issued to LaGrassa, a duty to defend the June 2009 legal action brought against LaGrassa by RMIC in the Sacramento County Superior Court (RMIC v. LaGrassa, case no. 34-2009-00047925).
III. OPINION
A. Legal Standard
1. Motion for Summary Judgment
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The purpose of summary judgment "is to isolate and dispose of factually unsupported claims or defenses." Celotex v. Catrett, 477 U.S. 317, 323-324 (1986).
The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). If the moving party meets its burden, the burden of production then shifts so that "the non-moving party must set forth, by affidavit or as otherwise provided in Rule 56, 'specific facts showing that there is a genuine issue for trial.'" T.W. Electrical Services, Inc. v. Pacific Electric Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987) (quoting Fed. R. Civ. P. 56(e)). The Court must view the facts and draw inferences in the manner most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962). "[M]ere disagreement or bald assertion that a genuine issue of material fact exists will not preclude the grant of summary judgment". Harper v. Wallingford, 877 F. 2d 728, 731 (9th Cir. 1987).
The mere existence of a scintilla of evidence in support of the non-moving party's position is insufficient: "There must be evidence on which the jury could reasonably find for [the non-moving party]." Anderson, 477 U.S. at 252. This Court thus applies to either a defendant's or plaintiff's motion for summary judgment the same standard as for a motion for directed verdict, which is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id.
2. Interpretation of Insurance Contracts
The "interpretation of insurance contracts raise questions of law and thus are particularly amenable to summary judgment." New Hampshire Ins. Co. v. R.L. Chaides Construction Co., 847 F. Supp. 1452, 1455 (N.D. Cal. 1994). The general rules of contract interpretation govern judicial interpretation of an insurance policy. See, e.g., Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1, 18 (1995). As set forth by the California Supreme Court:
The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the 'mutual intention' of the parties. 'Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. Such intent is to be inferred, if possible, solely from the written provisions of the contract. The 'clear and explicit' meaning of these provisions, interpreted in their 'ordinary and popular sense,' unless 'used by the parties in a technical sense or a special meaning is given to them by usage, controls judicial interpretation. A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable. But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract.Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1, 18 (1995) (quoting Cal. Civ. Code §§ 1638, 1644; AIU Ins. Co. v. Superior Court, 51 Cal.3d 807, 821-22 (1990)) (internal and other citations omitted).
Any ambiguous terms are resolved in the insured's favor, consistent with the insured's reasonable expectations. E.M.M.I. Inc. v. Zurich American Insurance Company, 32 Cal. 4th 465, 470-471 (2004). Insurance coverage is "interpreted broadly so as to afford the greatest possible protection to the insured, [whereas] exclusionary clauses are interpreted narrowly against the insurer." MacKinnion v. Track Ins. Exch., 31 Cal. 4th 635, 648 (2003).
3. Duty to Defend
At the summary judgment stage in a duty to defend case, the party claiming coverage "must prove the existence of a potential for coverage" under the policy terms. Montrose Chem. Corp. of Cal. v. Superior Ct., 6 Cal.4th 287, 300 (1993). Thus, claims that may, or have the possibility to, be covered raise the insurer's duty to defend. Safeco Ins. Co. v. Superior Ct., 140 Cal.App.4th 874, 878 n.2 (2006); see also Montrose, 6 Cal.4th at 295. In determining whether the insurer owes a duty to defend, courts compare the allegations of the complaint and extrinsic evidence with the terms of the policy. Maryland Cas. Co. v. Nat'l Am. Ins. Co. of Cal., 48 Cal.App.4th 1822, 1829 (1996).
Once the party claiming coverage shows a potential for coverage, the insurer must conclusively prove with undisputed evidence that no coverage existed under the policy. Maryland Cas. Co., 48 Cal.App.4th at 1832. Merely raising a triable issue of material fact will not defeat summary judgment in this instance. Id. at 1831.
B. Cross-Motions for Summary Judgment
The issue before the Court is whether Defendant had a duty to defend LaGrassa in the underlying June 2009 state court action. Plaintiffs argue it is undisputed that the facts presented to Defendant at the time of tender indicated there was a possibility for coverage, and therefore, this Court should find Defendant had a duty to defend LaGrassa in the underlying action as a matter of law. See Plaintiffs' Motion for Summary Judgment, Points and Authorities, Doc. #13-1 ("Plts' MSJ") at pg. 10-22. Defendant argues, instead, that this Court should find LaGrassa's claim was not covered as a matter of law and, accordingly, enter summary judgment in its favor. See Defendant's Motion for Summary Judgment, Points and Authorities, Doc. #14-1 ("Def's MSJ") at pg. 1, 5-10; Defendant's Opposition to Plaintiffs' Motion for Summary Judgment ("Def's OPP"), Doc. #16.
1. Potential for Coverage
Under the terms of the policy, property damage is covered only if it is caused by an "occurrence," defined as an accident. E.g., Def's MSJ at pg. 5. The California Supreme Court defines accident, in the insurance liability context, as "'an unexpected, unforeseen, or undesigned happening or consequent from either a known or unknown cause.'" Delgado v. Interinsurance Exch. Of Automobile Club of So. Cal., 47 Cal.4th 302, 308 (2009) (quoting Geddes & Smith, Inc. v. St. Paul Mercury Indemnity Co., 51 Cal.2d 558, 563-564 (1959)) (other citations omitted). Importantly, "'[t]his common law construction of the term 'accident' becomes part of the policy and precludes any assertion that the term is ambiguous.'" Id. (quoting Collin v. American Empire Ins. Co., 21 Cal.App.4th 787, 810 (1994)) (other citations omitted). The parties' first disagreement centers on whether the disposal of the alarm panel could be considered an accident within the policy at issue. The Court must look to "all of the acts, the manner in which they are done, and the objective accomplished occur[ing] as intended by the actor," in determining whether or not LaGrassa's act of disposing of the alarm panel was an accident. See Delgado, 47 Cal.4th 302, 311-12 (2009).
Defendant relies primarily on three California cases, Delgado, Merced, and Frake, arguing they establish that LaGrassa's claim was not covered. See Def's MSJ at pg. 6-8 (citing Delgado, 47 Cal.4th 302 (2009); Merced Mutual Ins. v. Mendez, 213 Cal.App.3d 41 (1989); State Farm Gen. Ins. v. Frake, 197 Cal.App.4th 568 (2011)). All three cases involve the commission of an intentional tort by the insured. In Delgado, the defendant insurance company denied coverage for an underlying lawsuit against their insured for assault and battery. Delgado, 47 Cal.4th at 306-07. The same issue presented here was before the Court in Delgado: was the incident at issue an "accident" within the meaning of the policy held by the insured, such that the insurer had a duty to defend its insured in the underlying action. Id. at 308. The insured had argued that the assault and battery were an accident because he was acting upon his belief, albeit an erroneous one, that he needed to defend himself. Id. The Court rejected this argument, focusing on the close causal connection between the act and the harm, and found that the insured's intentional use of force was clearly not an accident. Id. Frake and Merced present almost identical situations.
The cases relied on by Defendant are distinguishable from the case at bar because there is not the same type of direct relationship between LaGrassa's act and the harm suffered by RMIC, as there was in the aforementioned cases. Cf., e.g., Delgado, 47 Cal.4th 302 (2009). Indeed, had LaGrassa thrown out the alarm panel knowing that RMIC had begun to actively investigate the source of the Yee fire, this might lead to a different result. Instead, RMIC waited almost a year and a half after the fire occurred, and more than a year after LaGrassa had disposed of the panel, to request it. Thus, LaGrassa's destruction of the evidence that RMIC needed could have been accidental and not meant to cause any harm to RMIC under a mistaken belief that the alarm panel was no longer needed. The injury or damage alleged by RMIC as a result of LaGrassa disposing of the fire alarm was not an expected, foreseen or intended consequence of LaGrassa's act. Because it is possible that LaGrassa did not mean to cause any harm to RMIC under a mistaken belief that the alarm panel was no longer needed, these facts would give rise to a duty to defend. See State Farm Fire & Casualty v. Superior Court, 164 Cal.App.4th 317 (2008); Meyer v. Pacific Employers Inc. Co., 233 Cal.App.2d 321 (1995); National American Insurance Co v. Insurance Co. of North America, 3 Cal.3d 553 (1970).
Even more compelling is Plaintiffs' evidence, known to Defendant at the time of tender, that LaGrassa was potentially authorized to dispose of the alarm panel. Again, this demonstrates that there was a possibility for coverage, in that the harm caused by LaGrassa's disposal of the alarm panel was not expected, foreseeable, or designed. Cf. State Farm Fire & Casualty, 164 Cal.App.4th 317 (2008). The cases relied on by Defendant do not foreclose Plaintiffs' claim, which is Defendant's burden at this stage. See Maryland Cas. Co. v. Nat'l Am. Ins. Co. of Cal., 48 Cal.App.4th 1822, 1832 (1996).
Plaintiffs have presented evidence demonstrating that there was a possibility that LaGrassa's claim was a covered accident at the time of tender, and Defendant has not rebutted this evidence by "establish[ing] the absence of any such potential [for coverage." See Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287 (1993). In other words, Plaintiffs have demonstrated Defendant had a duty to defend LaGrassa in the underlying lawsuit because LaGrassa's claim was potentially a covered occurrence under his insurance policy with Defendant.
The parties' second disagreement centers on whether there was property damage or loss of use of property under the terms of the agreement. See Plts' OPP at pg. 7-8. Defendant argues there was no "loss of use" because any permanent loss does not qualify as loss of use in the insurance context. Def's MSJ at pg. 10. Defendant relies on St. Paul Fire & Marine Ins. Co. v. Vadnais Corp., 2012 WL 761664 (E.D. Cal. Mar. 6, 2012), for the proposition that permanent loss does not equate to loss of use; however, St. Paul does not support this conclusion. In that case, the Court found that the plaintiff had only pled a claim for relief arising out of property damage, and plaintiff had failed to plead in the Complaint that loss of the property at issue in that case constituted property damage. 2012 WL 761664 at *12. Here, the underlying complaint sufficiently pled that the loss in this case fell within the policy definitions. RMIC sued LaGrassa because of the loss of the use of the alarm panel itself when he could not return it to RMIC. This arguably conforms with the policy's definition of property damage. See, e.g., Plaintiffs' Complaint, Doc. #1 at ¶ 8; Doc. #1, Ex. B ¶¶ 14-18. The terms of an insurance policy are to be interpreted broadly in favor of the insured. MacKinnion v. Track Ins. Exch., 31 Cal. 4th 635, 648 (2003). Defendant has not directed this Court to any case which convinces this Court that Plaintiffs' claim is foreclosed because it could not, under any circumstances, be considered property damage, which Defendant is required to do at the summary judgment stage. See Maryland Cas. Co. v. Nat'l Am. Ins. Co. of Cal., 48 Cal.App.4th 1822, 1832 (1996).
Accordingly, on the potential for coverage issue the Court finds that Plaintiffs have demonstrated there was at least a possibility that LaGrassa's claim in the underlying lawsuit was covered, and Defendant has failed to establish the absence of coverage. In light of this finding, the Court need not address the parties' arguments regarding negligence, or other theories that would bring Plaintiffs' claim within the scope of coverage.
2. Exclusions
Defendant argues that even if the Court finds LaGrassa's claim was a covered occurrence, three policy exclusions apply that bar coverage of the claim. See Def's MSJ at pg. 10. While the insured has the initial burden of demonstrating a claim falls "within the basic scope of coverage," Collin v. American Empire Ins. Co., 21 Cal.App.4th 787, 803 (1994), "exclusions are narrowly construed and must be proven by the insurer." St. Paul, 2012 WL 761664 at *12 (citing Collin, 21 Cal.App.4th at 802-03). "[A]ny ambiguity is to be interpreted against the insurer and reasonable doubts as to uncertain language should be resolved against the insurer." Miller v. Elite Ins. Co., 100 Cal.App.3d 739, 751 (1980) (citing Crane v. State Farm Fire & Cas. Co., 5 Cal.3d 112, 115 (1971)).
Plaintiffs argue that Defendant cannot raise the issue of the applicability of the exclusions because they waived it by not raising it at the time of tender. Plts' OPP at pg. 8-10. The Court finds that the Defendant has presented evidence and case law that supports its position that it has not waived its right to argue several policy exclusions apply as a bar to coverage. See Defendant's Reply in Support of its Motion for Summary Judgment, Doc. #21 at pg. 3-4 (citing Waller v. Truck Ins. Exch., 11 Cal.4th 1 (1995)). Accordingly, the Court will address the policy exclusions raised by Defendant.
i. Personal Property in the Care, Custody, or Control of the Insured
Defendant first argues that the policy's exclusion for damage to "personal property in the care, custody or control of the insured," applies because it is not disputed that the panel was both personal property and in LaGrassa's care, custody or control. Def's MSJ at pg. 10-11. Plaintiffs respond that LaGrassa was sued by RMIC not because the alarm panel was damaged while in his care but because he failed to return the panel. Plaintiffs further argue that Defendant's narrow reading of this exclusion produces absurd results and renders the policy illusory. Plts' OPP at pg. 11-12.
While neither party has directed this Court to authority that is on point to provide clarity as to the common interpretation of this exclusion, because this Court must construe the exclusions narrowly, against the insurer, the Court finds that Defendant has not met its burden in establishing that this exclusion applies to foreclose Plaintiffs' claim. See Miller v. Elite Ins. Co., 100 Cal.App.3d 739 (1980); Maryland Cas. Co. v. Nat'l Am. Ins. Co. of Cal., 48 Cal.App.4th 1822, 1832 (1996).
ii. Damage that is Expected or Intended
The policy further excludes coverage for property damage that is "expected or intended from the standpoint of the insured." As Plaintiffs properly argue, this exclusion requires the Court to make essentially the same finding it did above, regarding whether or not LaGrassa's act was an "accident." See Plts' OPP at pg. 12. Defendant does not directly respond to this in its Reply, instead arguing that it is clear the damage was expected and intended. For the reasons this Court found LaGrassa has demonstrated there was a possibility that his action was an accident, in that the harm was unexpected, unforeseeable, and unintended, the Court finds that Defendant has failed to demonstrate that this exclusion bars Plaintiffs' claim. Cf. State Farm Fire & Casualty, 164 Cal.App.4th 317 (2008).
iii. Damage arising from Failure to Perform an Agreement
Defendant argues a third policy exclusion, for damage that arises out of the insured's failure "to perform a contract or agreement in accordance with its terms," bars Plaintiffs' claims. Plaintiffs respond that the underlying lawsuit could be construed not as a breach of contract suit, but arising out of an obligation imposed by law, the breach of which constitutes a tort. See Cal. Civ. Code § 1427. Defendant does not respond to this argument in its Reply. As discussed above, there is a disputed issue of whether LaGrassa was authorized to dispose of the alarm panel, which would call into question whether or not there was a breach of an agreement. See supra at B. 1. Moreover, as Plaintiffs point out, LaGrassa's alleged breach in the underlying complaint could constitute both a tort and breach of contract. If construed as a tort, this third policy exclusion would not apply. Thus, in construing this exclusion narrowly, and holding Defendant to its burden to show the exclusion definitively forecloses any potential claim by Plaintiffs, the Court finds that Defendant has not met its burden in demonstrating Plaintiffs' claim was foreclosed. Cf. State Farm Fire & Casualty, 164 Cal.App.4th 317 (2008).
IV. ORDER
For all the foregoing reasons, the Court finds that Plaintiff has demonstrated there was a potential for coverage at the time the underlying lawsuit was tendered to Defendant, and Defendant has not met its burden to conclusively establish an absence of coverage. Cf., Maryland Cas. Co. v. Nat'l Am. Ins. Co. of Cal., 48 Cal.App.4th 1822, 1832 (1996). Accordingly, Defendant had a duty to defend the June 2009 legal action brought against LaGrassa by RMIC in the Sacramento County Superior Court known as RMIC v. LaGrassa, case no. 34-2009-00047925. Plaintiffs' Motion for Partial Summary Judgment is GRANTED, and Defendant's Motion for Partial Summary Judgment is DENIED.
IT IS SO ORDERED.
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JOHN A. MENDEZ,
UNITED STATES DISTRICT JUDGE