Summary
finding the policy's "acts and decisions exclusion" [which involved the same language as at issue here] was unambiguous and enforceable and would excuse the insurance company from providing coverage for damages caused by the plaintiffs' negligence
Summary of this case from MOSAIC LAW CONGREGATION v. AMCO INSURANCE COOpinion
Case Nos. SA CV 01-0823-GLT (MLGx), SA CV 01-0691-GLT (MLGx).
July 2, 2002
ORDER DENYING PLAINTIFF'S MOTIONS FOR PARTIAL SUMMARY JUDGMENT
The Court DENIES Plaintiff's Motions for Partial Summary Judgment.
For convenience, a single order is used, even though the cases are not consolidated.
I. BACKGROUND
Plaintiff, Landmark Hospitality, LLC, a company created to develop a Marriot Suites Hotel in Garden Grove, California, purchased a Builder's Risk Insurance Policy for the hotel's construction from Defendant. Plaintiff, Landmark Hotels, LLC, a company created to develop an Embassy Suites Hotel in Garden Grove, California, also purchased a Builder's Risk Insurance Policy for the hotel's construction from Defendant. Plaintiff Landmark Hospitality, LLC seeks partial summary judgment concerning the enforceability of the policy's acts and decisions section, timely notice of loss requirements, and faulty, inadequate, or defective exclusion section. Plaintiff Landmark Hotels, LLC also seeks partial summary judgment concerning the enforceability of the policy's acts and decisions section and timely notice of loss requirements. The Court will refer to both Landmark entities as Plaintiff and both policies as "the policy" because the two companies are represented by the same counsel and bring nearly identical claims concerning identical policy language.II. DISCUSSION
A. Summary Judgment StandardSummary judgment is proper if "there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A fact is material if it "might affect the outcome of the suit under the governing law."Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."Id.
The moving party in a summary judgment motion bears the initial burden of proving the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party makes this initial showing, the burden shifts to the nonmoving party to "designate specific facts showing that there is a genuine issue for trial." Celotex, 477 U.S. at 324 (citation omitted). In other words, the non-moving party must produce evidence that could cause reasonable jurors to disagree as to whether the facts claimed by the moving party are true.
In making a summary judgment determination, the Court must view the evidence presented in the light most favorable to the non-moving party, drawing "all justifiable inferences . . . in his favor." Anderson, 477 U.S. at 255. If the non-moving party fails to present a genuine issue of material fact, the Court must grant summary judgment.See Celotex, 477 U.S. at 323-24.
B. Interpretation of Policy
The interpretation of an insurance policy, which is governed by the rules of contract law, is a question of law proper for the court's review. See Safeco Ins. Co. of Am. v. Robert. S., et al., 110 Cal. Rptr.2d 844, 848 (2001); Delgado v. Heritage Life Ins. Co., 203 Cal. Rptr.2d 672, 677 (1984). The court interprets the plain meaning of the policy words, considering the policy as a whole. See Unetco Indus. Exch. v. Homestead Ins. Co., 67 Cal. Rptr.2d 784, 787 (1997); St. Paul Fire Marine Ins. Co. v. Superior Court, et al., 208 Cal Rptr. 5 (1985). If a reasonable interpretation of the policy finds the terms unclear and ambiguous, the ambiguity is construed against the insurer. See Price v. Zim Israel Navigation Co., 616 F.2d 422, 426 (9th Cir. 1980); Manneck v. Lawyers Title Ins. Corp., 33 Cal. Rptr.2d 771, 776 (1994); McKee v. State Farm Fire Cas. Co., 193 Cal. Rptr. 745, 746 (1983). However, a term is not ambiguous solely because it is not defined, and a court cannot adopt a strained interpretation to create ambiguity where none exists. See Ray v. Valley Forge Ins. Co., 92 Cal. Rptr.2d 472, 476 (2000); Mckee, 193 Cal.Rptr. at 746 (1983). Insurance clauses limiting coverage are construed narrowly and clauses extending coverage are read broadly. See Abifadel v. Cigna Ins. Co., 9 Cal. Rptr.2d 910, 919-20 (1992).
C. The Policy's Acts or Decisions Section
Considering the policy in its entirety, the Court finds the policy's Acts or Decisions Exclusion Section is unambiguous. Plaintiff's reliance on three out-of-state district court cases is unpersuasive. The policy exclusion of coverage for "[a]cts or decisions, including the failure to act or decide, of any person group, organization or governmental body" is unambiguous and lawful. See Cuevas v. Allstate, 872 F.Supp. 737 (1994);Continental Cas. Co. v. Phoenix Construction Co., 46 Cal.2d 423, 432 (1956) (explaining an insurance company can limit policy coverage as long as the limitation language is plain). This exclusion provision excuses Defendant from providing coverage for damages caused by Plaintiff's negligence. Whether coverage is excluded and Plaintiff's acts are the predominate cause of the damages is not before the Court at this time. The Court finds the acts and decisions section of the policy unambiguous and enforceable. The Court DENIES Plaintiff's Motion for Partial Summary Judgment of the policy's Acts or Decisions Section.
Those cases are factually distinct from this action, where proximate cause is not at issue at this time. See e.g., St. Paul Fire Marine Ins., Co. v. Genl. Injectable Vaccines, Inc., 2000 WL 270954, 1-2 (W.D. Va. 2000) (determining proximate cause of damages and explaining the acts or decisions provision did not apply where the act was unintentional and a covered loss preceded the act at issue); AutoOwners Ins. Co. v. Hansen Housing, Inc., 604 N.W.2d 504 (S.D. 2000) (finding exclusion did not apply where covered cause preceded excluded cause of damages and individual responsible for excluded cause was unaware and should not have known damage was likely); Jussim v. Massachusetts Bay Ins. Co., 597 N.E.2d 1379 (1992) (applying the Massachusetts "train of events" theory, which is different than California's standard to determine proximate cause, and finding a covered loss was the initial cause of damage before the excluded cause occurred).
D. Timeliness of Plaintiff's Notice of Loss
An insurer may assert as an affirmative defense an insured's breach of a cooperation or notice clause if the insurer shows it was substantially and actually prejudiced by the breach. See Cisneros v. Unum Life Ins. Co. of Am., 134 F.3d 939 (9th Cir. 1998) (explaining California's "notice prejudice" rule allows insurer to avoid liability because of the insured's untimely notice if the insurer shows substantial and actual prejudice from the delay); see also Northwestern Title Sec. Co. v. Flack, 6 Cal. App.3d 134, 141 (1970). The possibility of prejudice to an insurer does not avoid liability. See Cisneros, 134 F.3d at 947. Also, an insurer's inability to contemporaneously investigate a claim or interview witnesses because of delayed or late notice does not establish prejudice. See id.
The Court finds the policy required Plaintiff to provide prompt notice of loss, including when, where, and how the loss occurred. See David Decl. Ex. A. Defendant's expert witness, Mr. Morrison, and witness, Mr. Hammer, suggest Defendant suffered actual and substantial damages because of the timing of Plaintiff's notice. Both defense witnesses indicate if a different and earlier process was applied to the water damaged area the total damages would have been decreased. Plaintiff claims these declarations contradict Defendant's first investigator's finding Plaintiff did an excellent job protecting and cleaning up the site. Plaintiff also contends Mr. Morrison and Mr. Hammer are not qualified and do not provide adequate foundation for their testimony. At this time, the Court finds genuine issues of fact exist whether Defendant's damages due to the timing of Plaintiff's notice were actual and substantial. Plaintiff's Motion for Partial Summary Judgment of this policy section is DENIED.
Defendant did not waive its policy's prompt notice requirements. Under California Insurance Code § 554 "[d]elay in the presentation to an insurer of notice or proof of loss is waived, if caused by an act of his, or if he omits to make objection promptly and specifically upon that ground." Defendant did not affect the timing of Plaintiff's notice. Defendant's May 23, 2001 reservation of rights letter states Plaintiff's notice is untimely, and it does not waive its right to deny Plaintiff's claim based on such untimeliness.
Plaintiff's claim Defendant waived its defect in notice claim under § 553 because Defendant did not immediately tell Plaintiff about an error or problem it could correct is unpersuasive. Defendant contends Plaintiff's notice was untimely. Regardless of when Defendant notified Plaintiff, it could not correct this timeliness defect.
This same section of the insurance policy, which Plaintiff successfully relied on for its Partial Summary Judgment Motion to determine if it made a claim, is still part of the policy agreement.
E. The Policy's Faulty Inadeguate or Defective Exclusion Section
Plaintiff contends the policy's Faulty, Inadequate, or Defective Exclusion Section is vague and ambiguous because it is unclear whether the exclusion applies to the construction process or the finished product. This exclusion section provides:
We will not pay for a "loss" caused by or resulting from any of the following. But if "loss" by a Covered Cause of Loss results, we will pay for that resulting "loss . . ." b. Faulty, inadequate or defective: (1) Planning, zoning, development, surveying, siting; (2) Design, specifications, workmanship, repair, constructions, renovation, remodeling, grading, compacting; (3) Materials used in repair, construction, renovation, or remodeling; or (4) Maintenance; of part or all of any property wherever located."
Considering the entire Builder's Risk Policy, Plaintiff's contention is unsupported and unpersuasive. The policy, which expires when construction is completed, covers the building process. Consequently, the policy exclusions refer to the building process, not the finished product.
Also, Plaintiff's assertion the terms "workmanship" or "construction" refer to a finished product is unsupported by the context of the terms in the policy section. See e.g., Scallv v. Pac. Gas and Elec. Co., 23 Cal. App.3d 806, 819 (1972) (explaining to interpret the plain meaning of a term in a group the court considers all the terms and their general meanings). Plaintiff's reliance on Allstate Ins. Co. v. Smith is misplaced. 929 F.2d 447 (9th Cir. 1991) (finding an all risks policy's exclusion concerned the completed product, not the construction process, based on an entire reading of the contract). In Allstate, the policy, unlike this policy, included language in other sections specifying when the policy was discussing coverage of the construction process. A phrase in the Allstate exclusion section, which would have been ineffective if the section was read to apply to the construction process, is not included in this policy. Interpreting this policy as a whole, the terms "workmanship" and "construction" concern the building process.
Plaintiff claims the term "planning" only refers to considerations before construction. Defendant's claims Plaintiff's planning was faulty because it allowed its contractor to complete the interior before the exterior and roofing was scheduled to be done may refer to considerations made before construction. Plaintiff's assertions concerning its relationship with and responsibility for its independent contractor are not relevant to whether the term "planning" refers to considerations made before construction. The Court finds the term "planning" refers to considerations made before construction, and Defendant's defense of faulty or inadequate planning is proper.
Also, Plaintiff's claim this exclusion section cannot apply because at least one of Defendant's inspectors or employees indicated Plaintiff did an excellent job protecting and cleaning up the site is unpersuasive. Although this testimony referred to by Plaintiff may support its contention its actions were not faulty, inadequate or defective, Defendant raises genuine issues of triable fact concerning Plaintiff's acts. Defendant suggests the statements are taken out of context or do not consider all of Plaintiff's actions.
The Court finds the Faulty, Inadequate, or Defective Exclusion Section is unambiguous and concerns acts during the construction process. Genuine issues of fact exist concerning whether this exclusion precludes Plaintiff's insurance coverage. Plaintiff's Motion for Partial Summary Judgment regarding the Faulty, Inadequate, or Defective Exclusion Section is DENIED.
Defendant's request the Court find Plaintiff's claim is precluded is DENIED. Defendant did not properly bring this request before the Court for summary judgment.