-JC University Park, LLC et al v. Zurich American Insurance Company et al, No. 2:2011cv03328 - Document 36 (C.D. Cal. 2012)
Court Description: ORDER GRANTING Defendants Motion for Summary Judgment 20 and DENYING Plaintiffs Motion for Partial Summary Judgment 22 by Judge Dean D. Pregerson. (MD JS-6. Case Terminated.) (jp)
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-JC University Park, LLC et al v. Zurich American Insurance Company et al Doc. 36 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 13 UNIVERSITY PARK, LLC, a California limited liability company; JAMES R. WATSON, an individual and doing business as WATSON & ASSOCIATES, 14 Plaintiffs, 15 v. 16 17 18 19 20 21 ZURICH AMERICAN INSURANCE COMPANY, a New York corporaiton; AMERICAN GUARANTEE AND LIABILTY INSURANCE COMPANY, a New York corporation; STEADFAST INSURANCE COMPANY, a Delaware corporation, Defendants. ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 11-03328 DDP (JCx) ORDER GRANTING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT [Docket Nos. 20, 22] 22 23 Presently before the court are Defendants’ Motion for Summary 24 Judgment (“Motion”) and Plaintiffs’ Motion for Partial Summary 25 Judgment (“Cross-Motion”). 26 papers and heard oral argument, the court grants Defendants’ 27 Motion, denies Plaintiffs’ Cross-Motion, and adopts the following 28 Order. Having reviewed the parties’ moving Dockets.Justia.com 1 I. BACKGROUND 2 At all times relevant to this action, Plaintiffs University 3 Park and James R. Watson (collectively, “UP”) owned certain real 4 property in San Bernardino, California (“Property”). 5 2007, UP entered into sale and purchase agreements for the Property 6 with Toll Bros, Inc. (“Toll”). 7 to Toll in a “finished lot condition.” 8 Contracting Corporation (“Mesa”) to perform certain grading work on 9 the Property. In 2006 and UP agreed to deliver the Property In 2004, UP contracted Mesa Defendants Zurich American Insurance Company, 10 American Guarantee and Liability Insurance Company, and Steadfast 11 Insurance Company (collectively, “Defendants”) issued general 12 liability policies to Mesa, covering UP as an additional insured. 13 The policies provide that Defendants “will pay those sums that the 14 insured becomes legally obligated to pay as ‘damages’ because of . 15 . . ‘property damage’ to which this insurance applies.” 16 here, property damage is limited to: “[p]hysical injury to tangible 17 property, including all resulting loss of use of that property,” or 18 “[l]oss of use of tangible property that is not physically 19 injured.” 20 Relevant (Statement of Stipulated Facts (“SSF”) ¶¶ 3-12, 44-61.) Following an inspection in 2008, Toll refused to close escrow, 21 claiming that the Property was in unfinished condition because of 22 construction defects - including improper grading by Mesa. 23 sued Toll for breach of contract, and Toll cross-complained against 24 UP, ultimately alleging breach of contract, fraud, negligent 25 misrepresentation, foreclosure, and rescission. 26 requested rescission of the purchase agreement, return of its $1.5 27 million deposit, and $3.1 million compensation for its development 28 costs associated with the Property - including, according to UP, 2 UP then As relief, Toll 1 the “diligence expenses that ultimately discovered the existence” 2 of the physical defects. 3 Mot. at 6.) (SSF ¶¶ 14-26; Reply in Supp. of Cross- In 2009, UP first tendered the defense and indemnity of the 4 5 Toll claims to Defendants.1 6 and subsequent tenders by UP, until after UP filed this action 7 against them in 2011. 8 move for summary judgment on the grounds that Toll’s claims were 9 for economic loss, not property damage. 10 II. Defendants failed to respond to this Defendants then denied UP’s tenders and now (SSF ¶¶ 27, 37-38, 41.) LEGAL STANDARD Summary judgment is appropriate where “the movant shows that 11 12 there is no genuine dispute as to any material fact and the movant 13 is entitled to a judgment as a matter of law.” 14 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). 15 In deciding a motion for summary judgment, the evidence is viewed 16 in the light most favorable to the non-moving party, and all 17 justifiable inferences are drawn in its favor. 18 Lobby, Inc., 477 U.S. 242, 255 (1986). 19 20 Fed. R. Civ. P. Anderson v. Liberty California law governs the claims at issue in this diversity case. See Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 21 22 23 24 25 26 27 28 1 In 2009, UP also filed a cross-complaint against Mesa and others companies, based on the defective grading and construction defects. (SSF ¶ 28; Mot. at 5.) Mesa and the other companies, in turn, filed a cross-complaint against UP and others for indemnity, contribution, and declaratory relief. (SSF ¶ 29.) In their Motion, Defendants contend that they have no duty to defend or indemnify UP for these claims, because the “claims merely seek a reduction or elimination of any amount adjudged to be owed” by Mesa and the other companies for damage to UP’s Property. (Mot. at 16.) UP does not provide any response to Defendants’ contention. The court therefore finds that there is no genuine dispute of material fact, and that Defendants are entitled to judgment as a matter of law, as to these claims. 3 1 1025, 1031 (9th Cir. 2008). 2 a broad duty to defend its insured against claims that create a 3 potential for indemnity.” 4 L.A. County, 6 Cal. 4th 287, 295 (1993); see also Anthem Elec., 5 Inc. v. Pac. Employers Ins. Co., 302 F.3d 1049, 1054 (9th Cir. 6 2002) (“Any doubt as to whether the facts establish the existence 7 of the defense duty must be resolved in the insured’s favor.”). 8 Summary judgment can often resolve whether an insurer has a duty to 9 defend. Under California law, an insurer “owes Montrose Chem. Corp. v. Super. Ct. of See Butler v. Clarendon Am. Ins. Co., 494 F. Supp. 2d 10 1112, 1122 (N.D. Cal. 2007). 11 when seeking summary judgment on the duty to defend,” because they 12 “must conclusively show that the underlying claims cannot fall 13 within policy coverage.” 14 III. DISCUSSION 15 But “insurers have a heavy burden Anthem, 302 F.3d at 1056, 1060. The parties here dispute only a single legal issue as to 16 potential coverage that would trigger the duty to defend: whether 17 Toll’s claims were for damages because of property damage - i.e. 18 physical injury to tangible property. 19 law, economic loss and damage to intangible property rights are not 20 covered property damage. 21 112 Cal. App. 3d 213, 219 (1980) (“Strictly economic losses like 22 lost profits, loss of goodwill, loss of the anticipated benefit of 23 a bargain, and loss of an investment, do not constitute damage or 24 injury to tangible property covered by a comprehensive general 25 liability policy.”). 26 Generally, under California See, e.g., Giddings v. Indus. Indem. Co., Defendants therefore argue that there was no potential for 27 coverage here, because Toll’s suit was for damages to its 28 intangible property right to purchase the finished Property from 4 1 UP. 2 physical injury to UP’s own property. 3 for the economic losses to its contractual right to purchase the 4 Property. 5 form of Toll’s claims, the claims only arise because of the 6 physical injury caused by Mesa’s defective grading. 7 words: but for the property damage, Toll would have no claims 8 against UP. 9 decisions in support of their respective positions. As Defendants note, Toll could not have sued UP for any Rather, Toll could only sue UP argues, to the contrary, that regardless of the exact In other Both parties also provide relevant California Although no 10 case is exactly on point, the court concludes that the weight of 11 the authority precludes coverage as a matter of a law, and that 12 Defendants are therefore entitled to summary judgment. 13 Most persuasive, Defendants cite to the California Supreme 14 Court’s decision in Kazi v. State Farm Fire & Casualty Co., 24 Cal. 15 4th 871 (2001). 16 their neighbors’ easement, through grading they had done on their 17 own property. 18 potential coverage under similar policy provisions, because the 19 suit sought damages to the neighbors’ easement - an intangible 20 property right “akin to goodwill, an anticipated benefit of a 21 bargain, or an investment.” 22 the Court held that the arguable physical injury to the insureds’ 23 own property through grading did not “change the character” of the 24 intangible easement right at issue. 25 emphasized that the neighbors could not have sued for any damages 26 to the property, since it was owned by the insureds. 27 884. 28 would not have happened but for - physical grading, the Court There, the insureds had been sued for impeding on See id. at 875. The Court found that there was no Id. at 880. As Defendants argue here, Id. at 883-84. The Court also See id. at In short, even though the suit was precipitated by - and 5 1 instead focused on the nature of the right being asserted - the 2 intangible easement right - in denying coverage. 3 therefore ask this court to apply the same analysis here. Defendants 4 UP, however, argues that this action is controlled not by 5 Kazi, but by the California Supreme Court’s earlier decision in AIU 6 Insurance Co. v. Superior Court, 51 Cal. 3d 807 (1990). 7 government agencies had sued the insured for contaminating the 8 environment with hazardous waste. 9 sought “reimbursement of response costs and the costs of injunctive See id. at 815. In AIU, The agencies 10 relief” - including “their costs of investigating, monitoring, and 11 initiating cleanup of [the] hazardous waste.” 12 Interpreting policy provisions similar to those here, the court 13 held that: 1) the agencies were seeking damages because of property 14 damage, since “the event precipitating the[] legal action [was] 15 contamination of property”; 2) it was irrelevant whether the 16 damages and cleanup took place on the insured’s own property; and 17 3) all of “the agencies’ expenses for responding” were covered, not 18 just those “attributable to actual cleanup, mitigation of damage, 19 or investigation and monitoring.” 20 the analysis is the same here: 1) the precipitating event was the 21 defective grading; 2) it does not matter that UP owned the property 22 that was damaged; and 3) it is immaterial that Toll sought 23 compensation for purely economic losses, since Toll also sought 24 costs related to the property damage - i.e. the diligence expenses 25 that discovered the defective grading. Id. at 816, 842. Id. at 830, 843. UP argues that 26 As Defendants correctly note, however, AIU is distinguishable 27 from and reconcilable with Kazi, because the damages sought by the 28 agencies in AIU were substantially related to the alleged property 6 1 damage. See Nat’l Union Fire Ins. Co. v. Ready Pac Foods, Inc., 2 782 F. Supp. 2d 1047, 1055 (“[L]oss from damage to intangibles is 3 recoverable only to the extent that it provides a measure of 4 damages to physical property which is within the policy’s 5 coverage.” 6 Paul Mercury Indem. Co., 63 Cal. 2d 602 (1965)). 7 the agencies were suing for response costs, including for cleanup, 8 investigation, and monitoring. 9 therefore quantitatively tied to the extent of the environmental (emphasis added) (citing Geddes & Smith, Inc. v. St. Again, in AIU, The amount of damages sought was 10 contamination. 11 the purchase agreement, return of its deposit, and compensation for 12 development costs - none of which were a measure of the physical 13 damage due to defective grading. 14 quantitatively tied to Toll’s intangible contractual rights. 15 this case is like Kazi, where the requested damages were connected 16 to the value of the easement, not the amount of any property damage 17 due to grading. 18 Here, to the contrary, Toll sought rescission of Instead, the requested relief was Thus, Finally, that Toll’s development costs may have included its 19 costs to inspect the condition of the Property prior to closing, as 20 UP contends, does not change the analysis. 21 have incurred these diligence expenses whether or not there had 22 been any property damage. 23 increased somewhat due to the defective grading, this minor 24 connection would fall well short of the relation between the 25 response costs sought and physical injury caused in AIU.2 Toll would presumably Further, even if the inspection costs 26 2 27 28 UP also asks the court to distinguish Kazi because of its focus on easements. However, the alleged contractual right to purchase asserted by Toll here is equally intangible, and therefore (continued...) 7 1 2 3 IV. CONCLUSION For the foregoing reasons, the court GRANTS Defendants’ Motion for Summary Judgment, and DENIES Plaintiffs’ Cross-Motion. 4 5 IT IS SO ORDERED. 6 7 Dated: March 22, 2012 DEAN D. PREGERSON United States District Judge 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 2 28 (...continued) legally indistinguishable. 8
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