Opinion
No. C 03-05127 JW.
September 27, 2004
ORDER GRANTING ALLSTATE'S MOTION FOR SUMMARY JUDGMENT
I. INTRODUCTION
This is an insurance coverage suit brought by Allstate Insurance Company ("Allstate"). Allstate's insureds, Timothy Chodera and Sandra Chodera (the "Choderas"), sold their condominium to Laura R. Beauchesne and Richard B. Beauchesne, Esq. (the "Beauchesnes"). Thereafter, the Beauchesnes filed suit against the Choderas in state court claiming that the Choderas defrauded them by misrepresenting and/or concealing the condition of the condominium. Plaintiff Allstate Insurance Company ("Allstate") initiated this declaratory relief action to obtain a judgment that it has no obligation to defend the Choderas in the underlying suit. Allstate's motion for summary judgment, or in the alternative, partial summary judgment, was heard on September 27, 2004. Counsel for Allstate and the Choderas appeared and addressed the Court. In addition, Mr. Beauchesne appeared on behalf of the Beauchesnes and addressed the Court, although the Beauchesnes did not file any briefing. Based upon all papers filed to date and the comments of counsel, the Court grants Allstate's motion for summary judgment.
II. BACKGROUND
The Choderas' objection to, and alternative motion to strike Allstate's separate statement of material facts is granted because Allstate did not seek and receive authorization to file such separate statement. Nevertheless, the Court's ruling does not prevent the Court from considering the substance of the separate statement of material facts to the extent it is already set forth Allstate's memorandum in support of its motion for summary judgment.
A. The Condominium
The Choderas owned a condominium located at 6133 Country Club Parkway, San Jose, California. They sold the condominium to the Beauchesnes by grant deed dated August 22, 2000, and recorded on August 28, 2000. The sales agreement contained an "as is" provision indicating that the condominium was sold "without warranty, in its present physical condition." The sales agreement also contained a rent-back provision allowing the Choderas to rent-back the condominium from the Beauchesnes after the close of escrow.
On or about July 29, 2000, the Choderas and Beauchesnes executed a lease pursuant to which the Choderas rented the condominium for approximately thirty (30) days after the close of escrow (the "lease"). The Beauchesnes took physical possession of the condominium on October 15 or 16, 2000.
B. The Allstate Policies
At various times, Allstate insured the Choderas under four different policies. The policies potentially relevant to this case are: (1) a condominium policy for August 27, 1997 to September 14, 2000; (2) a renters policy on the condominium from August 31, 2000 to September 25, 2000; (3) a homeowners policy in effect from July 23, 1991 to August 27, 1997 for the property located at 336 Mariposa Avenue, Mountain View, California; and (4) a homeowners policy for the property located at 7443 Hoylake Court, Gilroy, California, which took effect on November 22, 2000 and remains in force. The terms of these policies contain a section which states:
Subject to the terms, conditions and limitations of this policy, Allstate will pay damages which an insured person becomes legally obligated to pay because of bodily injury or property damage arising from an occurrence to which this policy applies, and is covered by this part of the policy.
Motion at p. 3. The policies define "occurrence" as "an accident . . . resulting in bodily injury or property damage." Id. Each policy defines "bodily injury" as "physical harm to the body, including sickness or disease, and resulting death . . ." Id. Further each policy defines "property damage" as "physical injury to or destruction of tangible property, including loss of its use resulting from such physical injury or destruction." Id. The policies provide coverage only for losses or occurrences that take place during the policy period.
In addition, each policy includes the following exclusion for property damage to property owned by an insured or rented to, occupied or used by or in the care of an insured:
We do not cover bodily injury to an insured person or property damage to property owned by an insured person and reserved for that person's exclusive use and occupancy whenever any benefit of this coverage would accrue directly or indirectly to an insured person.
* * *
We do not cover property damage to property rented to, occupied or used by, or in the care of, an insured person. . . . This exclusion does not apply if the property damage is caused by fire, explosion or smoke.Id. at 4. Finally, each policy has an exclusion that bars from coverage any losses that arise "out of any premises, other than an insured premises." Id. C. The Underlying State Court Action Against Choderas
On February 28, 2002, the Beauchesnes sued the Choderas for specific performance, fraud, rescission, breach of fiduciary and statutory duties, and strict liability. Over a year and a half later, the Beauchesnes filed a first amended complaint with claims for breach of contract, declaratory relief, fraud, fraud-rescission, negligent failure to make real estate transfer disclosures; and conversion of the $4,000 security deposit. In essence, the Beauchesnes alleged that the Choderas concealed and misrepresented the existence of certain material defects in the property, including, but not limited to, the following: (a) inadequate hot water capacity; (b) defective heating and air conditioning systems; (c) defective installation of marble flooring contrary to the CCR's of the condominium homeowners' association; (d) pet urine and stains in the carpeting; (e) water damage to the hardwood floors; (f) spliced telephone lines; (g) severely warped doors; (h) roof leaks; (i) toilets that clogged regularly; (j) a recurring and persistent problem with ant infestation in the property; (k) defective locks; and (l) various electrical problems including a defective intercom system and breaker switch. The first amended complaint further alleged that upon taking possession of the property on or about October 1, 2000, the Beauchesnes discovered that damage in excess of $4,000 had been done to the property including, without limitation, damage to the hardwood floors. In the prayer for relief, the Beauchesnes sought damages from fraud in the sale of the condominium; rescission of the residential purchase agreement; declaratory relief; attorney's fees; and punitive damages.
The Beauchesnes also sued the real estate broker who represented the Choderas in the sale, the developers of the condominium project, the manufacturer of heating and air conditioning systems supplied to the condominium project, the property inspectors and one of the lawyers who represents the Choderas.
D. The Coverage Dispute
Allstate initially declined to defend when the Choderas tendered the Beauchesne action. Later, Allstate agreement to pay for the Choderas' defense under a reservation of rights and reimbursed the Choderas for the defense costs they had incurred before Allstate agreed to defend them. To date, Allstate has paid $101,276.07 to the Choderas' personal counsel to defend the Beauchesne action.
Allstate now moves for summary judgment contending that it (1) has neither a duty to defend nor indemnify the Choderas, and (2) is entitled to reimbursement by the Choderas for the defense fees and costs it has incurred in defending them. Allstate's motion is based on three main arguments. First, Allstate contends that its policies only cover bodily injury and property damage caused by an "occurrence," i.e., an accident, and therefore the alleged misrepresentation, concealment and conversion are not covered. Second, Allstate contends that its policies exclude coverage for "property damage to property owned by an insured person" as well as "property damage to property rented to, occupied or used by, or in the care of, an insured person," and therefore the policies bar any coverage for damage to the condominium that occurred during the time the Choderas owned or rented it. Third, Allstate contends that its policies only cover bodily injury and property damage arising from the insured premises, and that the condominium at issue was not an insured premises at the relevant times.
III. STANDARDS
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show 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). However, "[b]ecause of the intensely factual nature of trademark disputes, summary judgment is generally disfavored in the trademark arena."Interstellar Starships Servs., Ltd. v. Epix, Inc., 184 F.3d 1107, 1109 (9th Cir. 1999).
The moving party "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any which it believes demonstrate the absence of a genuine issue of material fact." Celotex v. Catrett, 477 U.S. 317, 323(1986). If he meets this burden, the moving party is then entitled to judgment as a matter of law when the non-moving party fails to make a sufficient showing on an essential element of his case with respect to which he bears the burden of proof at trial. Id. at 322-23.
The non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The non-moving party cannot defeat the moving party's properly supported motion for summary judgment simply by alleging some factual dispute between the parties. To preclude the entry of summary judgment, the non-moving party must bring forth material facts, i.e., "facts that might affect the outcome of the suit under the governing law . . . Factual disputes that are irrelevant or unnecessary will not be counted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The opposing party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586 (1986).
The court must draw all reasonable inferences in favor of the non-moving party, including questions of credibility and of the weight to be accorded particular evidence. Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 520 (1991) (citing Anderson, 477 U.S. at 255); Matsushita, 475 U.S. at 588; T.W. Elec. Serv. v. Pac. Elec. Contractors, 809 F.2d 626, 630 (9th Cir. 1987). It is the court's responsibility "to determine whether the 'specific facts' set forth by the nonmoving party, coupled with undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence." T.W. Elec. Serv., 809 F.2d at 631. "[S]ummary judgment will not lie if the dispute about a material fact is 'genuine,' that is if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. However, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'" Matsushita, 475 U.S. at 587.
"An insurer has a very broad duty to defend its insured under California law." Anthem Electronics v. Pacific Employers Ins., 302 F.3d 1049, 1054 (9th Cir. 2002). The California Supreme Court has instructed that "the insured is entitled to a defense if the underlying complaint alleges the insured's liability for damages potentially covered under the policy, or if the complaint might be amended to give rise to a liability that would be covered under the policy." Montrose Chem. Corp. v. Superior Court, 6 Cal.4th 287, 299 (1993). Once the duty to defend is established, the duty continues "unless and until it can conclusively refute that potential." Id. Furthermore, "[a]ny doubt as to whether the facts establish the existence of the defense duty must be resolved in the insured's favor." Id. at 299-300.
Whether a complaint contains a potentially covered claim is determined by the facts alleged in the complaint. Gray v. Zurich Ins. Co., 65 Cal.2d 263, 275, n. 15 (1966). Facts extrinsic to the allegations of the complaint may give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy. Id. at 276.
IV. DISCUSSION
A. Misrepresentation, Concealment and Conversion Are Not Covered "Occurrences"
As stated previously, the policies define "occurrence" as "an accident . . . resulting in bodily injury or property damage." Common sense and caselaw make clear that the alleged negligent misrepresentation and concealment are not "accidents." See e.g. Safeco Ins. Co. v. Andrews, 915 F.2d 500 (9th Cir. 1990) (no duty to defend against negligence failure to inspect and inform of defects in property and for misrepresentation);Miller v. Western General Agency, Inc., 41 Cal.App.4th 1144 (1996) (no duty to defend suit by home purchaser alleging seller failed to disclose defective plumbing); Allstate Ins. Co. v. Chaney, 804 F.Supp. 1219 (N.D. Cal. 1992) (no duty to defend action against sellers for alleged misrepresentations relating to real estate purchase). Therefore, the Court finds that there has never been a no potential for coverage of the misrepresentation and concealment claims.
Similarly, the alleged conversion cannot be considered "accidental." The first amended complaint states clearly that the rent-back agreement required the Choderas to provide a security deposit; that the Beauchesnes requested that the Choderas release the security deposit; and that the Choderas refused to return the security deposit. This description of the alleged conversion makes clear it was not an accident. Therefore, there has never been any potential coverage for the alleged conversion. See Collins v. American Empire Ins. Co., 21 Cal.App.4th 787 (1994).
B. The Fraud and Concealment Claims Are Not Covered for the Additional Reason that They Caused Only Economic Losses
The fraud and concealment claims are not covered for the additional reason that they caused only an economic loss, not a covered "property loss." In this case, the Beauchesnes seek damages resulting from the alleged fraud and concealment of the defects in property. These damages are, as a matter of law, purely economic. Safeco, 915 F.2d at 502. Economic losses are outside the scope of the Allstate policies' coverage, which is limited to "property damage." C. The Claim that The Choderas Damaged the Property Is Not Covered
The first amended complaint suggests that the Choderas damaged property, including the hardwood floors, while they occupied the condominium. See First Amended Complaint at 7:1-2. When the alleged damage occurred is unclear. The Beauchesnes assert that they intent to, but have not yet filed, a second amended complaint that will clearly allege that the Choderas damaged property during the rent-back period. For purposes of this motion, the Court construes the first amended complaint broadly to include allegations that the Choderas damaged property both before and after the sale of the property, but in any event, before the rent-back period expired. There has never been any potential for coverage of such a claim is because of the owned property and occupied property exclusions. As set forth previously, the Allstate exclusions state:
We do not cover bodily injury to an insured person or property damage to property owned by an insured person and reserved for that person's exclusive use and occupancy whenever any benefit of this coverage would accrue directly or indirectly to an insured person.
* * *
We do not cover property damage to property rented to, occupied or used by, or in the care of, an insured person. . . . This exclusion does not apply if the property damage is caused by fire, explosion or smoke.
These exclusions have been interpreted to bar coverage in cases similar to the present one. In Chaney, supra, the purchaser of a purportedly defective house alleged, among other things, that the sellers had negligently maintained the house. The court held there was no coverage, explaining as follows:
Here, it is undisputed that the Chaneys owned the property until the close of escrow on May 21, 1991. The property was "occupied, used by or in the care of" the Chaneys until they vacated the property on May 24, 1990 — the day before Matson took possession. Since any of the "property damage" alleged by Matson necessarily had to have occurred prior to the date Matson came into possession of the premises, the Court finds that the policy excludes coverage for such damage.Chaney, 804 F.Supp. at 1223. See also State Farm Fire Cas. Co. v. Neuman, 698 F.Supp. 195, 196 (N.D. Cal. 1988);Titan Corp. v. Aetna Cas. Sur. Co., 22 Cal.App.4th 457 (1994); Devin v. United Service Auto. Ass'n, 6 Cal.App.4th 1149, 1160 n. 7 (1992).
In the present case, the Choderas owned the condominium until August 22, 2000 and thereafter occupied the property under the rent-back agreement until approximately October 1, 2000. Whether the Choderas were owners or renters, the exclusions cited above applied throughout their occupancy of the condominium.
The Choderas argue, however, that the owned property exclusion is inapplicable because the condominium was not reserved for their exclusive use and occupancy, but instead was used and occupied by them with their daughter. This argument is without merit because the Allstate policies define "insured person" to include any relative residing in the named insured's household and any dependent person in the named insured's care.
Next, the Choderas attempt to manufacture an ambiguity within the policies, which they contend when reasonably construed, creates an expectation for insurance coverage. They essentially contend that the ambiguity arises when the occupied property exclusion is compared to the "other premises" exclusion, which states "[w]e do not cover . . . property damage arising out of any premises, other than an insured premises, owned, rented or controlled by an insured person."
The argument is wholly unpersuasive. As a preliminary matter, the "other premises" is an exclusion, and thus by definition, cannot create any reasonable expectation of additional coverage. Furthermore, the two exclusions speak to two entirely different situations. The occupied property exclusion creates an exclusion for property rented to, occupied or used by, or in the care of the insured. In contrast, the "other premises" exclusion bars coverage for any liability the insureds might have that arises out of premises they own or occupy other than the insured premises.
Lastly, the Choderas contend that Section I and Section II of the policies at issue create an ambiguity, which when reasonably construed, creates an expectation for insurance coverage. Section I is entitled "Your Property," and covers "sudden and accidental direct physical loss" to the insured's residence premises and personal property and theft of the insured's personal property. Section II provides liability coverage. The Choderas contend that the "property damage" identified in the first amended complaint would have been covered under Section I of the policy if the Choderas had made an insurance claim with Allstate while they owned or occupied the condominium, and therefore they had a reasonable expectation that the same "property damage" would be covered under Section II.
The plain language of the insurance policies fails to support the Choderas' last argument. Section I and Section II of the policies are entirely separate and clearly serve different purposes. One portion cannot reasonably be construed to create coverage, or for that matter, exclude coverage, within the other portion. See e.g. Titan, 22 Cal.App. at 474 (rejecting argument that separate "personal injury" coverage can be read to eliminate exclusion under "property damage" coverage of the policy).
Therefore, any claim that the Choderas damaged the property has never been potentially covered by the Allstate policies as a matter of law.
D. The Equitable Claims Are Not Covered
The Beauchesnes claims for declaratory relief and rescission have never been potentially covered because the Allstate policies only apply to claims for "damages."
E. The Homeowners Policies Do Not Provide Coverage
Lastly, the two homeowners policies never provided any potential for coverage because the losses alleged did not occur within the effective period of these policies.