Opinion
3:20-cv-00844-AC
01-05-2022
FORBIDDEN FRUIT CIDERHOUSE, LLC, dba 2 TOWNS CIDERHOUSE, an Oregon limited liability company, Plaintiff, v. OHIO SECURITY INSURANCE COMPANY, a New Hampshire insurance company; and OHIO CASUALTY INSURANCE COMPANY, a New Hampshire insurance company, Defendants.
FINDINGS AND RECOMMENDATION
JOHN V. ACOSTA United States Magistrate Judge
Plaintiff Forbidden Fruit Ciderhouse, LLC, doing business as 2 Towns Ciderhouse (“Two Towns”), brings this action against Defendants Ohio Security Insurance Company (“Ohio Security”) and Ohio Casualty Insurance Company (“Ohio Casualty”) (collectively “Defendants”) seeking a declaration that Defendants breached their duty to defend and duty to indemnify under commercial liability policies they issued to Two Towns. Presently before the court are the parties' cross-motions for summary judgment (ECF Nos. 37 & 41) and Defendants' Motion for Relief from Summary Judgment (ECF No. 51). For the following reasons, Two Towns' motion for summary judgment should be denied, Defendants' motion for summary judgment should be granted, and Defendants' motion for relief should be denied as moot.
The court finds oral argument would not be helpful to resolution of the issues presently before the court. Therefore, the parties' requests for oral argument are denied. LR 7-1(d).
Factual Background
I. The Underlying Action
Two Towns operates a craft cider brewery that manufactures and distributes hard cider products and is based in Corvallis, Oregon. On March 12, 2020, Richard Winters initiated a putative class action against Two Towns, Winters et al v. Two Towns Ciderhouse, Inc., Case No. 20CV0468 BAS BGS (S.D. Cal.) (the “Underlying Action”). (Compl. ¶ 5, ECF No. 1.) The Underlying Action alleged violations of the California False Advertising Act and the California Unfair Competition Act. Cal. Bus. & Prof. Code §§ 17200-17210; Cal Bus. & Prof. Code §§ 17500-17536. (Decl. Michael B. Merchant Supp. Pl.'s Mot. Summ. J. (“Merchant Decl.”) Ex. 4 (“Winters Compl.”) ¶¶ 72, 84, ECF No. 38-4.) In the Underlying Action, Winters alleged that Two Towns' packaging falsely claimed its products contained “no artificial flavors, ” when in fact they contained DL-Malic Acid, a synthetic form of malic acid derived from petroleum. (Id. ¶¶ 11, 55.) The allegedly offending packaging stated:
WHOLE INGREDIENTS
Made from 100% fresh-pressed Northwest apples, sourced exclusively from local Oregon & Washington farms, as well as other whole, locally harvested agricultural ingredients.
NO SHORTCUTS
Our cider is always slow fermented at cold temperatures. This time intensive process retains the natural character and delicate aromatics of the apples, eliminating the need for additives, which plainly fall short.
NOTHING ARTIFICIAL
NO concentrates or refined sugars.
NO essences or artificial flavors.
NO velcorin or sorbate. (Id. ¶ 44.)
The Underlying Action specifically alleged that Winters purchased Two Towns' products because it advertised that its products do not contain artificial flavors. (Id. ¶ 46.) Winters contended that Two Towns' made false and untrue statements by stating its products contained “nothing artificial” and “no artificial flavors” fully knowing that its products contained DL-Malic Acid. (Id. ¶¶ 75-77.) Winters alleged that he and other class members “were deceived into paying money for products they did not want” and “were deprived of their protected interest to choose the foods and ingredients they ingest.” (Id. ¶¶ 12, 48, 50-51.) Winters sought economic harm in the form of restitution, statutory and punitive damages, and attorney fees. (Id. ¶¶ 78, 99.) Winters alleged that as a result of Two Towns' acts and omissions, he “suffered concrete and particularized injuries, including lost money, wasted time, stress, frustration, and aggravation, and lost confidence in product labeling. (Id. ¶ 57.)
On July 13, 2020, the Underlying Action was amended to include Jake Gruber as an additional named plaintiff and added claims under the California Consumer Legal Remedies Act and the Illinois Consumer Fraud Act. (Merchant Decl. Ex. 5 ¶ 1, ECF No. 38-5.) See Cal. Civ. Code §§ 1750-1784; 815 ILCS 505/1 et seq. Two Towns concedes “there is no material difference” between the initial complaint and the second amended complaint in the Underlying Action. (Pl. Mot. Summ. J. at 7 n.1.)
II. The Insurance Policies
Ohio Security issued Commercial Package Policy No. BKS(20)55239179 to Two Towns for the policy period from September 24, 2019 to September 24, 2020 (the “OSIC Policy”). (Decl. Kimberly Chong Supp. Defs.' Mot. Summ. J. (“Chong Decl.”) ¶ 3 & Ex. A (“OSIC Policy”), ECF Nos. 42, 42-1.) The OSIC Policy includes several parts: commercial property, commercial inland marine, commercial general liability (“CGL”), and liquor liability. (OSIC Policy, ECF No. 42-1 at 155.) Section I of CGL coverage describes the insuring agreement, and generally triggers coverage by “bodily injury, ” “property damage, ” or an “occurrence” under the OSIC Policy. (Id. at 185.) Section I provides two main coverage areas, Coverage A, Bodily Injury and Property Damage Liability, and Coverage B, Personal and Advertising Injury Liability. (Id. at 185, 190.) Section I provides in relevant part:
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 the right and duty to defend the insured against any “suit” seeking those damages. However, 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. We may, at our discretion, investigate any “occurrence” and settle any claim for “suit” that may result. . . .
. . . .
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” . . . .
. . . .
COVERAGE B - PERSONAL AND ADVERTISING INJURY LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “personal and advertising injury” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “personal and advertising injury” to which this insurance does not apply. . . .
. . . .
b. This insurance applies to “personal and advertising injury” caused by an offense arising out of your business but only if the offense was committed in the “coverage territory” during the policy period.(OSIC Policy, ECF No. 42-1 at 185, 190.) Section V of the OSIC Policy defines the policy terms, including “bodily injury, ” “occurrence, ” and “personal and advertising injury” as follows:
3. “Bodily Injury” means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.
. . . .
13. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
14. “Personal and advertising injury” means injury, including consequential “bodily injury”, arising out of [a listed offense.](Id. at 198-200.)
Ohio Security issued a Commercial General Liability Extension Endorsement that, among other things, replaced the definition of “bodily injury” with the following:
3. “Bodily Injury” means physical injury, sickness or disease sustained by a person. This includes mental anguish, mental injury, shock, fright or death that results from such physical injury, sickness or disease.(Id. at 233.)
Ohio Casualty issued Commercial Umbrella Policy No. USO(20)55239179 to Two Towns for the policy period from September 24, 2019 to September 24, 2020 (the “Umbrella Policy”). (Chong Decl. Ex. B (“Umbrella Policy”), ECF No. 42-2.) The Umbrella Policy similarly provides coverage for “bodily injury, ” “property damage, ” “personal injury, ” or “advertising injury” caused by an “occurrence.” (Id. at 23.) The Umbrella Policy provides in relevant part:
I. COVERAGE
We will pay on behalf of the “Insured” those sums in excess of the “Retained Limit” that the “Insured” becomes legally obligated to pay by reason of liability imposed by law or assumed by the “Insured” under an “insured contract” because of “bodily injury, ” “property damage, ” “personal injury, ” or “advertising injury” that takes place during the Policy Period and is caused by an “occurrence” happening anywhere. . . . .(Id. at 23.) Section V of the Umbrella Policy defines the policy terms, including “bodily injury” and “occurrence”:
C. “Bodily Injury” means physical injury, sickness, or disease, including death of a person. “Bodily injury” also means mental injury, mental anguish, humiliation, or shock, if directly resulting from physical injury, sickness, or disease to that person.
. . . .
J. “Occurrence” means:
1. as respects “bodily injury” or “property damage, ” an accident, including continuous or repeated exposure to substantially the same general harmful conditions[.](Id. at 28, 30.) In an endorsement to the Umbrella Policy, the definition of “bodily injury” in section C was amended to provide that: “‘Bodily injury' does not include ‘bodily injury' arising out of ‘personal and advertising injury.'” (Id. at 61.)
III. Tender of The Winters Complaint
On March 27, 2020, Two Towns tendered the Underlying Action to Ohio Security. (Chong Decl. Ex. C, ECF No. 42-3.) Defendants did not immediately accept or deny coverage, requiring Two Towns to hire outside counsel to respond. (Decl. Lee Larsen Supp. Pl.'s Mot. Summ. J. (“Larsen Decl.”) ¶¶ 3-6, ECF No. 40.) In an April 14, 2020 email, Matthew Bougor, a senior claims resolution specialist with Ohio Security, responded to Two Towns' attorney Michael Merchant that he was aware that the Underlying Action had been served, that his initial review did not confirm coverage, and that secondary coverage review could take thirty days. (Chong Decl. Ex. C.) Bougor further stated that if coverage was ultimately confirmed, Ohio Security would reimburse Two Towns for reasonable defense expenses from the date of tender. (Id.)
On May 11, 2020, Defendants issued to Two Towns its coverage position letter stating that neither the OSIC Policy nor the Umbrella Policy (collectively “the Policies”) provided coverage. (Chong Decl. Ex. D, ECF No. 42-4.). Among other reasons, Defendants stated that the Underlying Action did not allege “bodily injury” or an “occurrence” as required under the relevant provisions of the Policies. (Id. at 16-17.) Defendants also stated that the Underlying Action did not allege any facts or damages comprising any “personal and advertising injury” offense within the Policies. (Id. at 17-18.) Thus, Defendants determined the Policies did not provide coverage and declined Two Towns' tender.
IV. The Instant Action
On May 27, 2020, Two Towns filed the instant action alleging two claims: (1) a declaration that Defendants were obligated to defend the Underlying Action and to provide indemnity coverage; and (2) Defendants breached the insurance contracts by failing to defend and indemnify. (Compl. ¶¶ 16-20, 21-27.)
On September 22, 2020, the Southern District of California entered an Order preliminarily approving a Class Action Settlement. The Underlying Action was resolved on December 31, 2020. (Larsen Decl. ¶¶ 8-12; Chong Decl. Ex. E, ECF No. 42-5.)
In November 2020, a discovery dispute arose between Two Towns and Defendants. Two Towns sought discovery relating to the term “bodily injury” as defined by the Policies. (Pl.'s Mot. Compel at 6, ECF No. 21.) Defendants contended the requests were irrelevant or disproportionate to the needs of the case because extrinsic evidence would be unnecessary to resolve the coverage issue. (Defs.' Mot. Prot. Order at 2, ECF No. 19.) On December 15, 2020, the court entered an Order resolving the discovery dispute:
Contrary to Two Towns' argument, the differences between the various definitions of bodily injury are relatively minor and not material, because in all three definitions some form of actual physical impact - injury, sickness, or disease - is a precondition. To the extent that any type of emotional injury could fall within these definitions of bodily injury, it must first result from a physical injury, sickness, or disease. Therefore, based on the plain language of the terms of the policy, “bodily injury” unambiguously requires some type of physical impact. Thus, the interpretation of the policy language is resolved at the first step of the Hoffman analysis.
Perhaps more importantly, there is no expectation that the court would need to resort to extrinsic evidence to interpret “bodily injury.” “Bodily injury” is not
a term that Two Towns and Ohio Casualty or Ohio Security specifically negotiated into their insurance arrangement, nor does Two Towns make such an argument. Instead, “bodily injury” appears to be standard, boilerplate insurance language, and under Great American and First Mercury, the provision would be interpreted against Defendants without resorting to extrinsic evidence. As such, the court and the parties will be constrained to the four-corners of the insurance policies when interpreting that term to determine coverage and when considering the duty to defend and indemnify.(Order at 6-7, ECF No. 33.) Because the court would not need to resort to extrinsic evidence to interpret the term “bodily injury” the court denied Two Towns' motion to compel and granted the Defendants' motion for protective order. (Id. at 7.) The parties' cross-motions for summary judgment followed.
Legal Standards
I. Summary Judgment Standard
Summary judgment is appropriate when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving bears the burden of establishing the absence of a genuine issue of material fact. Celotex v. Catrett, 477 U.S. 317, 323 (1986). The court views the evidence in the light most favorable to the nonmoving party and draws all reasonable inferences in favor of the nonmoving party. Curley v. City of N. Las Vegas, 772 F.3d 629, 631 (9th Cir. 2014); Hernandez v. Spacelabs Med. Inc., 343 F.3d 1107, 1112 (9th Cir. 2003). However, deference to the nonmoving party has limits. The nonmoving party must set forth “specific facts showing a genuine issue for trial.” Fed.R.Civ.P. 56(e) (emphasis added). The “mere existence of a scintilla of evidence in support of the plaintiff's position [is] insufficient.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Therefore, where “the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (internal quotation marks omitted).
When parties file cross-motions for summary judgment, “[e]ach motion must be considered on its own merits.” Fair Housing Council of Riverside Cty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001). “In fulfilling its duty to review each cross-motion separately, the court must review the evidence submitted in support of each cross-motion.” Id.; Acosta v. City Nat'l Corp., 922 F.3d 880, 885 (9th Cir. 2019). Cross-motions for summary judgment require the court to apply the same Rule 56 standard and rule on each motion independently. Tulalip Tribes of Wash. v. Wash., 783 F.3d 1151, 1156 (9th Cir. 2015); see also ACLU of Nev. v. City of Las Vegas, 466 F.3d 784, 790-91 (9th Cir. 2006) (“We evaluate each motion separately, giving the nonmoving party in each instance the benefit of all reasonable inferences.”) (citation and internal quotation marks omitted); 10A Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 2720 (4th ed. 2019) (recognizing that on cross-motions for summary judgment “if there is no genuine dispute and one or the other party is entitled to prevail as a matter of law, the court will render judgment”).
II. Declaratory Judgment Standards
Under the Declaratory Judgment Act, “[i]n a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a); accord Or. Rev. Stat. § 28.010 (providing that courts have the power to declare rights and other legal relations); see Gov't Emps. Ins. Co. v. Leif's Auto Collision Ctrs., LLC, Case No. 3:17-cv-00045-PK, 2018 WL 3153476, at *2 n.1 (D. Or. Mar. 2, 2018) (noting that federal court sitting in diversity applies the Federal Declaratory Judgment Act, and that there is little practical difference between the Oregon and federal statutes). Disputes between an insurer and its insureds satisfies Article III's case and controversy requirement. Gov't Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1222 n.2 (9th Cir. 1998); State Farm Fire & Cas. Co. v. Norton, Case No. 3:20-cv-399-SI, 2020 WL 6946450, at *2 (D. Or. Nov. 25, 2020). Where the coverage question is unrelated to issues of consequence in the underlying case, “the declaratory relief action may properly proceed to judgment.” Home Indem. Co. v. Stimson Lumber Co., 229 F.Supp.2d 1075, 1086 (D. Or. 2001) (internal quotation and citation omitted).
Here, the Underlying Action has been resolved and the court's resolution of the coverage issues will clarify the legal relations and obligations of the parties. Accordingly, the court finds it appropriate to exercise discretion, and the parties do not contend otherwise. Dizol, 133 F.3d at 1225 & n.5 (citing Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942)).
Discussion
I. Defendants' Motion for Summary Judgment
Defendants move for summary judgment on Two Towns' claim for declaratory judgment, arguing they have no duty to defend Two Towns against the allegations in the Underlying Action. Defendants also argue that because there is no coverage, the court need not determine whether there is a duty to indemnify.
A. Standards for Evaluating Duties Under Insurance Policies
Interpreting insurance policies and an insurer's duties to defend and indemnify are questions of state law. Allstate Ins. Co. v. Morgan, 123 F.Supp.3d 1266, 1272-73 (D. Or. 2015). The duty to defend is broader than the duty to indemnify, and the court evaluates them separately. Id.; Ledford v. Gutoski, 319 Or. 397, 403 (1994). A duty to defend is triggered by the allegations in the underlying pleading; the duty to indemnify is proven by facts establishing a right to coverage. Allstate Ins. v. Morgan, 123 F.Supp.3d at 1273. “Although an insurer's duty to defend depends on the pleading, the insurer has a duty to defend the insured only ‘if the claim made against the insured is one covered by the insurer.'” Id. (citing Casey v. Nw. Sec. Ins., 260 Or. 485, 489 (1971)). The insured bears the burden of proving coverage while the insurer has the burden of proving exclusion from coverage. ZRZ Realty Co. v. Beneficial Fire & Cas. Ins. Co., 349 Or. 117, 127 (2010). If the insurer can prove that there is no coverage under the policy, the insurer can establish that it has neither a duty to defend nor to indemnify. Allstate Ins. v. Morgan, 123 F.Supp.3d at 1273.
Whether an insurance provider has a duty to defend is determined by examining the four corners of the insurance contract and the underlying complaint. W. Hills Dev. Co. v. Chartis Claims, Inc., 360 Or. 650, 652 (2016); Ledford, 319 Or. at 399. An insurer has a duty to defend an action “if the complaint filed against the insured ‘could, without amendment, impose liability for conduct covered by the policy.'” U.S. Fid. & Guar. Co. v. Star Techs., Inc., 935 F.Supp. 1110, 1113 (D. Or. 1996) (Star Techs.) (quoting Ledford, 319 Or. at 399-400); Bresee Homes, Inc. v. Farmers Ins. Exchange, 353 Or. 112, 117 (2012). “Conversely, if the underlying complaint does not contain allegations of covered conduct, then the insurer has no duty to defend.” Colony Ins. Co. v. Victory Constr. LLC, 239 F.Supp.3d 1279, 1283 (D. Or. 2017) (internal quotation marks and ellipsis omitted). The court, considering only the allegations in the complaint, determines whether any of the allegations could support a covered claim against the insured. Marleau v. Truck Ins. Exchange, 333 Or. 82, 91 (2001) (recognizing that “[i]t is the substance of the complaint, not its form, that is at the heart of the inquiry”); Bresee, 353 Or. at 117.
B. Insurance Contract Interpretation Standards
Under Oregon law, construction of an insurance contract is a question of law for the court. Holloway v. Republic Indem. Co. of Am., 341 Or. 642, 649 (2006). Construction of insurance contracts requires ascertaining the parties' intent, which is determined from the terms and conditions of the policy, as interpreted from the perspective of the “ordinary purchaser of insurance.” Totten v. New York Life Ins. Co., 298 Or. 765, 770 (1985). Such intentions are to be ascertained from the terms and conditions of the policy. W. Am. Ins. Co. v. Hernandez, 669 F.Supp.2d 1211, 1221 (D. Or. 2009); Hoffman Constr. Co. of Alaska v. Fred S. James & Co., 313 Or. 464, 469 (1992) (“[T]he primary and governing rule of the construction of insurance contracts is to ascertain the intention of the parties.”).
If an insurance policy explicitly defines the word or phrase at issue, the court is bound to apply that definition. Holloway, 341 Or. at 650; Groshong v. Mutual of Enumclaw Ins. Co., 329 Or. 303, 307-08 (1999). If the policy does not define the word or phrase, the court next looks to its primary and general meaning. Id.; Century Indem. Co. v. Marine Grp., LLC, 131 F.Supp.3d 1018, 1028 (D. Or. 2015). Where the word or phrase is susceptible to two or more plausible interpretations, it must be considered in light of the “particular context in which that term is used in the policy and the broader context of the policy as a whole.” Hoffman, 313 Or. at 470; Holloway, 341 Or. at 650; Century Indem., 131 F.Supp.3d at 1028. A term is ambiguous only if more than one interpretation remains reasonable after such review. Hoffman, 313 Or. at 470; Century Indem., 131 F.Supp.3d at 1028. The insurer has the burden of drafting insurance policies that are clear and unambiguous. N. Pac. Ins. Co. v. Hamilton, 332 Or. 20, 29 (2001); Century Indem., 131 F.Supp.3d at 1028. Therefore, any unresolved ambiguity in an insurance policy in light of the context should be strictly construed against the insurer. Hoffman, 313 Or. at 470; Century Indem., 131 F.Supp.3d at 1028.
C. The Underlying Action Does Not Allege Bodily Injury or an Occurrence
Defendants argue there is no coverage for the Underlying Action because the complaint contains no factual allegations that fall within Coverage A in the CGL portion of the OSIC Policy or the coverage in the Umbrella Policy. Defendants contend that their duty to defend is triggered by a “suit” seeking damages for “bodily injury” caused by an “occurrence.” (Defs.' Mot. Summ. J. at 14, ECF No. 41.) According to Defendants, coverage under the Policies is triggered by: (1) the alleged injury for which damages are sought satisfies the Policies' definition of “bodily injury, ” or (2) the cause of the injury satisfies the Policies definition of “occurrence.” (Id.) Defendants argue that the Underlying Action fails to satisfy either criteria, and they are entitled to judgment as a matter of law.
Two Towns responds that the Underlying Action “alleged damages caused by ‘bodily injury' because the pleadings support claims that consumers ingested products that they would not have, and claimed injuries as a result.” (Pl.'s Mot. Summ. J. at 7, ECF No. 37.) Two Towns argues that it can be inferred from the Underlying Action that Winters and other putative class members ingested or consumed the cider. Two Towns argues that ingesting an unwanted substance constitutes “bodily injury” as defined within the Policies. (Pl.'s Resp. at 3, 5, ECF No. 48.) Two Towns contends that the court may reasonably infer that it did not intend to cause the harm alleged in the Underlying Action and thus alleges an “occurrence.”
1. bodily injury
The court begins its analysis with the complaint in the Underlying Action. There, Winters and the class members alleged that Two Towns' packaging falsely claimed its products contain “no artificial flavors, ” when in fact they contain a synthetic form of malic acid derived from petroleum, and alleged violations of the California False Advertising Act and the California Unfair Business Practices Act. (Id. ¶¶ 72, 84.). They claimed the alleged misrepresentations deceived them into buying products they did not want, and sought damages in the form of restitution, statutory and punitive damages, and attorney fees. (Id. at ¶¶ 78, 99.) Winters and the other class members contended they suffered injuries in the form of lost money, wasted time, stress, frustration, and aggravation, and has lost confidence in product labeling. (Id. at ¶ 57.)
Next, the court looks at whether these factual allegations describe “bodily injury” as defined in the Policies. The court reviews the Policies “presuming that words have their plain, ordinary meanings.” Am. Family Mutual Ins. Co., S.I. v. Big Bush Farms, 6:19-cv-1725-MK, 2020 WL 6038048, at 3 (D. Or. Apr. 7, 2020), adopted 2020 WL 4346936 (July 29, 2020) (internal quotation and citations omitted). The OSIC Policy defines “bodily injury” as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” (OSIC Policy, ECF No. 42-1 at 198.) The CGL Extension redefined bodily injury to mean “physical injury, sickness or disease sustained by a person. This includes mental anguish, mental injury, shock, fright or death that results from such physical injury, sickness or disease.” (Id. at 232.) And the Umbrella Policy defines “bodily injury” as “physical injury, sickness or disease, including death of a person. ‘Bodily injury' also means mental injury, mental anguish, humiliation, or shock if directly resulting from physical injury, sickness or disease to that person.” (Umbrella Policy, ECF No. 42-2 at 28.)
The court is bound to apply the definition supplied by the Policies. Holloway, 341 Or. at 650. As this court previously determined, the definitions are not materially different and all require some form of actual physical impact or harm - an injury, sickness, or disease - as a precondition to coverage. (See Order, ECF No. 33 at 6.) Thus, under the plain language of the terms of the Policies, “bodily injury” unambiguously requires some type of physical impact or physical harm.
The Underlying Action contains no allegations that Winters or the class members suffered any physical injury, were sickened, or contracted a disease as a result of ingesting or consuming Two Towns' beverages, such that coverage under the Policies is triggered. Winters does not assert that the artificial flavoring DL-Malic Acid was harmful or hazardous, that he became physically ill, or was sickened by the artificial flavor, and thus does not assert “bodily injury” as defined in the Policies.
The crux of the Underlying Action is that Winters and other class members were deceived by the product's labeling into purchasing products that contained artificial flavors. (See, e.g., Winters Compl. ¶ 90 (alleging Two Towns “deceive[d] Plaintiff and the Class members to purchase drink products containing artificial flavors”). The Underlying Action alleged Two Towns' misrepresentations caused them to purchase cider beverages with artificial flavors that they did not want, “impaired [their] ability to choose the type and quality of products [they] choose to buy, ” and were “deprived of their protected interest to choose the foods and ingredients they ingest.” (Id. ¶¶ 13, 15, 51.) Nothing in these allegations suggest the misrepresentations caused any physical injury, sickness or disease. Rather, these allegations contend that Two Towns' misrepresentations led them to purchase products they did not want, which is a purely an economic injury. See Martin v. State Farm Fire & Cas. Co., 146 Or.App. 270, 280 (1997) (holding that misrepresentations about previous damage to property and not “physical damage” as defined by the insurance policy asserted damages to the plaintiffs' economic interests, which were not covered). The damages sought in the Underlying Action are consistent with purely economic interests: restitution, statutory damages, punitive damages, and attorney fees. Therefore, there are no allegations of “bodily injury” and no coverage under the Policies.
Nevertheless, Two Towns argues that the court must infer that at least some of the class members consumed the cider, and that because the class members ingested an unwanted substance, they suffered a “physical impact” which is sufficient to trigger coverage. Two Towns' position is unavailing for four reasons.
First, it is not clear that any class members actually ingested or consumed the cider. Two Towns contends that Winters and the class members assert that they were “deprived of their protected interest to choose the foods and ingredients they ingest.” (Winters Compl. ¶ 51.) As Defendants correctly state, viewing paragraph 51, the injury alleged to have occurred is not from consuming the cider, but instead the deprivation of choice - their “protected interest” in determining which products to consume. Depriving consumers of their choice among products is not a physical injury, sickness, or disease as defined within the Policies.
Second, even if it can reasonably be inferred that some putative class members ingested Two Towns' cider products, there are no factual allegations that any suffered a bodily injury as result of doing so. Again, as defined by the Policies, there must be some physical injury, sickness, or disease that results from ingesting the cider to fall within the definition of “bodily injury.” The Underlying Action contains no factual allegations that Winters or any class member became ill or suffered any physical harm from drinking Two Towns' products. Moreover, they do not seek damages that could reasonably be related to bodily injury, such as recovery of medical expenses or emotional distress damages. Instead, Winters and other class members seek restitution, statutory damages, and attorney fees, which are purely economic injuries in this context.
Third, the court rejects Two Towns' suggestion that the court should infer that some potential class member could become physically sick from drinking DL-Malic Acid due to an allergic reaction, and that such a physical impact is “bodily injury” triggering coverage. (Pl.'s Mot. Summ. J. at 9-10., ECF No. 37.) Defendants' duty to defend Two Towns turns on whether the court can reasonably interpret the allegations in the Underlying Action “to include an incident or injury that falls within the coverage of the policy.” West Hills, 360 Or. at 665; compare Bresee Homes, 353 Or. at 117 (holding underlying action reasonably alleged conduct that could provide coverage of property damage claims); with Ledford, 319 Or. at 399-400) (holding underlying complaint alleged that insured subjectively intended to cause harm to the plaintiffs, thus whether a different injury could theoretically be alleged failed to trigger duty to defend). Here, it would be unreasonable to infer from the underlying complaint that an allergic reaction occurred, because the factual allegations do not clearly assert that Winters or other class members drank the cider and contain no allegations whatsoever that they became sick or ill from doing so. Moreover, the Underlying Action does not seek damages premised on a physical injury, such as recovery of medical expenses that might be expected from “bodily injury” stemming from an allegeric reaction. Rather, the theory of recovery unambiguously is premised on false and deceptive product labeling and recovery of economic damages. Again, the court is constrained to review the allegations in the Underlying Action as asserted, without amendment. Fred Shearer & Sons, Inc., v. Gemini Ins. Co., 237 Or.App. 468, 478 (2010) (“If the allegations in the complaint are ambiguous, but a reasonable interpretation would bring them within coverage, there is a duty to defend.”). Because there are no allegations of “bodily injury” or damages that flow from a physical harm or sickness, is not reasonable to find that Defendants had a duty to defend because some potential class member could have had an allergic reaction to the artificial flavoring. See also Medmarc Cas. Ins. Co. v. Avent Am., Inc., 612 F.3d 607, 615 (7th Cir. 2010) (holding duty to defend was not triggered because underlying action did not allege physical harm resulting from BPA-containing products and class action plaintiffs sought only economic damages).
Finally, the court concludes that the alleged “stress, aggravation, and frustration” Winters asserts is not “bodily injury” as defined in the policies, because these injuries are not alleged to result from a “physical injury, sickness, or disease.” Two Towns argues that the alleged injuries of stress and aggravation could potentially cause a physical symptom such as pain and thus are “bodily injury” (Pl.'s Resp. at 5) is not convincing. As this court determined previously, “[t]o the extent that any type of emotional injury could fall within these definitions of bodily injury, it must first result from a physical injury, sickness, or disease.” (Order at 6, ECF No. 33.) Stress, aggravation, and frustration do not constitute physical injuries, sickness or disease.
Plaintiff's reliance on Am. States Ins. Co. v. Bercot, Case No. 03-cv-637-CO, 2004 WL 1490321 (D. Or. July 1, 2004), is misplaced. There, the court examined whether the underlying plaintiffs alleged “bodily injury” by asserting the insureds were responsible for releasing asbestos into the air from demolition activities occurring on the property over a twelve-year period. Id. at *8. In Bercot, the underlying plaintiffs described that the ongoing asbestos releases threatened their health and the health of others and caused them emotional distress. Id. at *9. The court found that the allegations “physical manifestations of their emotional distress, ” came within the definition of bodily injury, sickness or disease as defined in the policy. Id. Thus, in Bercot, the years of exposure to asbestos with attendant physical manifestations of emotional distress were sufficient to allege “bodily injury.” Id.
Unlike the underlying allegations in Bercot, the Underlying Action here contains no allegations of exposure to a hazardous carcinogen. Unlike Bercot, there is no suggestion that consuming DL-Malic Acid made Winters or the class members sick previously, or could cause them physical injury, sickness, or disease in the future. And, unlike Bercot where the plaintiffs experienced emotional distress as a result of exposure to a hazardous substance, Winters's stress, aggravation, and frustration are linked to Two Towns' allegedly deceptive packaging. (Winters Compl. ¶¶ 46-48, 50, 56-57.) The court concludes that the stress and frustration asserted by Winters in the Underlying Action does not stem from a physical injury, sickness, or disease and, therefore, is not “bodily injury” as defined in the Policies.
Two Towns' reliance on Klamath Pacific Corp. v. Reliance Ins. Co., 151 Or.App. 405 (1997), also is inapt. In Klamath Pacific, the court found the insurer had a duty to defend claims of intentional infliction of emotional distress (“IIED”). Id. at 413-14. There, the victims in the underlying action alleged that the insured's employees intentionally rubbed their arms against the victims' breasts, grabbed and pinched their breasts and buttocks, which caused the victims embarrassment, shame, and emotional harm. Id. at 410-11. In Klamath Pacific, the insurer denied coverage because the allegations of emotional distress were not “bodily injury” resulting from a physical trauma. Id. at 414. The Klamath Pacific court disagreed. The court determined that “[i]t may reasonably be inferred from th[e] pleadings that such conduct could have caused physical trauma” to the victim. Id. at 414.
Contrary to Two Towns' suggestion, the Klamath Pacific case is readily distinguishable from the allegations here. Unlike in Klamath Pacific, the alleged physical impact here - drinkingcider with artificial flavors - is not alleged to have caused a physical injury, sickness, or disease. Instead, the stress, aggravation, and frustration Winters alleges to have suffered resulted from Two Towns' falsely advertising its products as being free from artificial flavors and deceiving Winters and others into purchasing items they did not want. (Winters Compl. ¶¶ 51, 57.) Winters's stress and frustration of purchasing and, perhaps, drinking unwanted cider is far removed from the shame, embarrassment, and emotional harm the victims experienced as a result of being groped and pinched by their supervisor while on the job in Klamath Pacific.
Even if Winters or a class member drank the cider, an allegation that does not appear in the Complaint, as previously noted.
As a matter of law, the Underlying Action does not allege “bodily injury” or any physical injury, sickness or disease covered under the terms of the Policies. Consequently, Defendants' duty to defend was not triggered.
2. occurrence
The Policies provide coverage for “bodily injury” or “property damage” that is “caused by an ‘occurrence.'” (OSIC Policy, ECF No. 42-1 at 185; Umbrella Policy, ECF No. 42-2 at 23.) The Policies identically define an “occurrence” to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (OSIC Policy, ECF No. 42-1 at 200; Umbrella Policy, ECF No. 42-2 at 61.) The Policies do not define what constitutes an “accident.” However, its meaning “is well established and unambiguous.” Drake v. Mut. of Enumclaw Ins. Co., 167 Or.App. 475, 481 (2000). Oregon courts have recognized that the term “accident” in the insurance context usually means actions that are “unforeseen, unexpected, unintended, or the like.” Bighorn Logging Corp. v. Truck Ins. Exchange, 295 Or.App. 819, 833 (2019); Allstate Indemnity Co. v. Puzey, Case No. 3:1-cv-01520-ST, 2014 WL 12567159, at *3 (D. Or. 2010). The meaning of “accident” does not focus on the intentionality of the insured's conduct; rather, it looks to whether the insured “intended to cause injury.” Drake, 167 Or.App. at 481. “If the injury was intentionally inflicted, it was not the result of an accident and, accordingly, did not arise from an occurrence covered under the policy.” Id.; Great N. Ins. Co. v. Crown Pine Timber 4, L.P., Case No. 3:18-cv-2104-YY, 2021 WL 38187, at *12 (D. Or. Jan. 5, 2021). “[T]he question is whether ‘the insured intended to cause the particular injury or harm, as opposed to merely intending the act.'” ZRZ Realty, 222 Or.App. at 469 (quoting Ledford, 319 Or. at 401).
Defendants argue that the conduct alleged in the Underlying Action does not constitute an “occurrence” under the Policies. Defendants argue that Winters and the other class members allege that Two Towns intentionally misrepresented its cider products as containing “nothing artificial” and “no artificial flavors” despite knowing they contained DL-Malic Acid, a synthetic ingredient. Defendants argue that the underlying complaint alleged that Two Towns knew its representations were false and acted to deceive consumers, and therefore, using artificial flavors was not an “accident.” Defendants maintain that the harm to Winters and the other class members was not “caused by an occurrence” under the Policies, and they have no duty to defend. (Defs.' Mot. Summ. J. at 25, ECF No. 41.)
Two Towns argues that the court cannot infer subjective intent from the allegations. Two Towns contends that the court should reasonably infer that Two Towns intended to increase its sales, but did not intend to cause the physical harm described in Underlying Action. (Pl.'s Resp. at 8, ECF No. 48.) Two Towns also argues the California statutes at issue “do not have strict scienter requirements to establish liability” and that liability may lie for a wide range of intentional conduct that is not excluded under the Policies. (Id.) The court disagrees.
Turning to the allegations in the Underlying Action, Winters alleged that Two Towns “knew” its representations were false, that it intentionally made the misrepresentations “in order to deceive reasonable consumers, ” and that Two Towns “took advantage” of its position of power “in order to deceive Plaintiff Winters and Class and California members to purchase drink products containing artificial flavors.” (Winters Compl. ¶¶ 75, 77, 89-90.) Based on these allegations, the court concludes that there is only one reasonable interpretation - that Two Towns acted with an “intention to injure.” Drake, 167 Or.App. at 482; Ledford, 319 Or. at 232 (inferring intentional conduct was not an “occurrence” covered under the policy and thus no duty to defend); see also Cunningham & Walsh Inc. v. Atl. Mutual Ins., 88 Or.App. 251, 255 (1987) (“[W]hen fraud or deceit is committed, its natural and intended consequence is to do harm and, whatever the harm might be, the conduct which brought it about is not an ‘occurrence' under the policy.”).
Because there is only one plausible definition of “occurrence” the court need not go beyond the first step of Hoffman. Therefore, the court concludes that the Underlying Action did not allege an “occurrence” as defined in the Policies, and Defendants did not have a duty to defend. Defendants' summary judgment motion on this basis should be granted.
II. Plaintiff's Motion for Summary Judgment
Two Towns moves for summary judgment, arguing that: (1) Defendants breached the duty to defend by denying the tender; and (2) it is entitled to indemnity for its reasonable attorney fees, costs, and expenses in defending the Underlying Action, and in pursuing this coverage dispute. Two Towns contends that the Underlying Action sufficiently alleges potentially recoverable bodily injury claims without amendment. Two Towns' arguments concerning bodily injury mirror those it asserted in response to Defendants' summary judgment motion. It does not assert that the Underlying Action alleges an “occurrence” under Section B.1. of the OSIC Policy.
Defendants respond that because they did not breach their duty to defend, the court need not consider whether Two Towns is entitled indemnity, including the reasonableness of Two Towns' fees, costs, and expenses incurred in resolving the Underlying Action. Defendants are correct.
As thoroughly discussed above, the Underlying Action does not allege factual allegations falling within “bodily injury” as provided in the plain meaning of the Policies. Therefore, there is no coverage under the Policies and Defendants' duty to defend was not triggered. Because Defendants did not have a duty to defend, the court declines to address whether it had a duty to indemnify. Esurance Ins. Co. v. Hamm, 387 F.Supp.3d 1134, 1138 (D. Or. 2019) (providing that if there is no coverage, the insurer has neither a duty to defend nor duty to indemnify); Allstate Ins. v. Morgan, 123 F.Supp.3d at 1273 (same). Accordingly, Two Towns' motion for summary judgment should be denied.
III. Defendants' Motion for Relief from Summary Judgment
A. Standards
“Rule 56(d) offers relief to a litigant who, faced with a summary judgment motion, shows the court by affidavit or declaration that ‘it cannot present facts essential to justify its opposition.'” Michelman v. Lincoln Nat'l Life Ins. Co., 685 F.3d 887, 899 (9th Cir. 2012) (quoting Rule 56(d)). Parties seeking Rule 56(d) relief bear the burden of showing: “(1) it has set forth in affidavit form the specific facts it hopes to elicit from further discovery; (2) the facts sought exist; and (3) the sought-after facts are essential to oppose summary judgment.” Family Home & Fin. Ctr., Inc. v. Fed. Home Loan Mortg. Corp., 525 F.3d 822, 827 (9th Cir. 2008). A court may: “(1) defer considering the motion or deny it; (2) allow time to obtain affidavits or declarations or to take discovery; or (3) issue any other appropriate order.” Fed.R.Civ.P. 56(d). Courts have discretion whether to grant relief under Rule 56(d). Burlington N. Santa Fe R.R. Co. v. Assiniboine & Sioux Tribes of Fort Peck Reservation, 323 F.3d 767, 773 (9th Cir. 2003).
B. Analysis
After Two Towns filed its motion for summary judgment, Defendants filed a motion for relief from summary judgment asking the court to defer ruling on Sections 3 through 7 of Two Towns' motion. Defendants contend that during an August 11, 2020, telephone status conference with the court, the parties agreed to resolve the threshold issue of coverage prior to engaging in extensive discovery. According to Defendants, they agreed to the early discovery deadlines and exchanged limited discovery on that basis. Defendants contend that despite this understanding, Two Towns seeks relief on issues aside from coverage in its motion for summary judgment.
Two Towns responds that the court should deny Defendants relief from judgment because they failed to seek the discovery they now claim may be necessary. Two Towns contends that there was not an express agreement between the parties to bifurcate the coverage issue and the court's docket fails to reflect such an understanding. The court disagrees.
The court sequenced discovery in this case to first address the threshold issue to be determined, whether there was a duty to defend, and then subsequently the parties would address the duty to indemnify, if necessary. (See Pl.'s Mot. Compel at 2, ECF No. 21.) This is consistent with Defendants' current position (Decl. Michael A. Guadagno Supp. Mot. Rule 56(d) ¶¶ 8-9, ECF No. 52), and reaffirmed by the parties' November 2020 discovery dispute relating to materials defining “bodily injury” discussed above. (See Pl.'s Mot. Compel at 2 (“The threshold issue to be determined is whether there is a duty to defend. Subsequently, the Court will have to determine whether there is a duty to indemnify.”); Defs.' Mot. Prot. Order at 6-7, ECF No. 19 (“Plaintiff's requests for underwriting files . . . are extrinsic to the Policies and therefore have no bearing on the determination of coverage.”).
Nevertheless, because the court has determined that the coverage issue should be resolved in Defendants' favor, the court recommends that Defendants' motion pursuant to Rule 56(d) be denied as moot. In the event the district judge disagrees with this court's recommendation on coverage, Defendants should be given leave to renew their Rule 56(d) motion.
Conclusion
Based on the foregoing, Defendants' Motion for Summary Judgment (ECF No. 41) should be GRANTED, Plaintiff's Motion for Summary Judgment (ECF No. 37) should be DENIED, and Defendants Motion for Relief from Summary Judgment (ECF No. 51) should be DENIED as MOOT.
Scheduling Order
These Findings and Recommendations will be referred to a district judge. Objections, if any, are due within fourteen (14) days. If no objections are filed, then the Findings and Recommendations will go under advisement on that date.
If objections are filed, then a response is due within fourteen (14) days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendations will go under advisement.