Scottsdale Insurance Company v. David and Betty Kaplan Family Trust et al, No. 3:2015cv00538 - Document 65 (N.D. Cal. 2015)
Court Description: ORDER DENYING 38 MOTION FOR PARTIAL SUMMARY JUDGMENT.(whalc2, COURT STAFF) (Filed on 11/23/2015)
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Scottsdale Insurance Company v. David and Betty Kaplan Family Trust et al Doc. 65 1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 11 For the Northern District of California United States District Court 10 SCOTTSDALE INSURANCE COMPANY, Plaintiff, 12 13 14 15 16 17 18 v. DAVID AND BETTY KAPLAN FAMILY TRUST, DAVID KAPLAN AND BETTY KAPLAN, individually and as trustees for DAVID AND BETTY KAPLAN FAMILY TRUST, LALEH ZELINSKY FAMILY TRUST, LALEH ZELINSKY, individually and as trustee for LALEH ZELINSKY FAMILY TRUST, ASM INVESTMENTS, INC., a California corporation, AND DOES 1–50, 19 ORDER DENYING MOTION FOR PARTIAL SUMMARY JUDGMENT Defendants. / 20 21 22 No. C 15-00538 WHA INTRODUCTION In this declaratory judgment insurance action, plaintiff insurance company moves for 23 summary judgment on two of its four claims. For the reasons stated below, plaintiff’s motion is 24 DENIED. 25 STATEMENT 26 This is an insurance-coverage action brought by plaintiff insurer against landlord 27 defendants, the insureds, to determine the parties’ rights and obligations under landlord 28 defendants’ commercial general-liability policy, effective May 1, 2013 to June 4, 2014. Defendants David and Betty Kaplan, individually and as trustees for co-defendant David and Dockets.Justia.com 1 Betty Kaplan Family Trust; Laleh Zelinsky, individually and as trustee for co-defendant Laleh 2 Zelinsky Family Trust; and ASM Investments, Inc., are landlords who own the Warfield Hotel, 3 a single-resident-occupancy hotel located at 118 Taylor Street in San Francisco’s Tenderloin 4 neighborhood. Landlord defendants have been sued numerous times by residents of the 5 Warfield as well as by the City and County of San Francisco due to the uninhabitable conditions 6 maintained at the hotel (Scottsdale Exhs. 3, 7, 11, 14–15). 7 Most recently, and relevant to our case, is Toliver v. Shaikh, et al., No. CGC 14-542085. in June 2016. There, seventy-eight plaintiffs, most of whom were not plaintiffs in prior actions 10 against the Warfield, brought suit for: (1) negligence; (2) breach of the warranty of habitability; 11 For the Northern District of California The Toliver action is currently pending in San Francisco Superior Court and is set to go to trial 9 United States District Court 8 (3) breach of the warranty of quiet enjoyment; (4) violation of the San Francisco Rent 12 Ordinance; (5) intentional infliction of emotional distress; (6) violation of California Civil Code 13 Section 1942.4; and (7) violation of California Civil Code Section 1940.1. The named 14 defendants in the Toliver action include David and Betty Kaplan, as trustees; Laleh Zelinsky, 15 individually and as trustee; and ASM Investments, Inc., all defendants in this federal action 16 (Scottsdale Exh. 3). 17 Plaintiff Scottsdale Insurance Company undertook the defense of the Toliver action, 18 pursuant to a reservation of rights, and filed the instant complaint for declaratory relief. 19 Scottsdale argues that the Toliver action is not covered based on the known-loss provisions in 20 the insurance policy. Bodily injury and property damage are set forth in Coverage A of the 21 policy, which reads: 22 This insurance applies to “bodily injury” and “property damage” only if: 23 * * * 24 25 26 27 28 Prior to the policy period, no insured listed under Paragraph 1. of Section II . . . knew that the “bodily injury” or “property damage” had occurred, in whole or in part. If such a listed insured or authorized “employee” knew, prior to the policy period, that the “bodily injury” or “property damage” occurred, then any continuation, change or resumption of such “bodily injury” or “property damage” during or after the policy period will be deemed to have been known prior to the policy period. 2 1 2 3 * * * “Bodily injury” or “property damage” will be deemed to have been known to have occurred at the earliest time when any insured . . . or any “employee” authorized by you to give or receive notice of an “occurrence” or claim: 4 (1) Reports all, or any part, of the “bodily injury” or “property damage” to us or any other insurer; (2) Receives a written or verbal demand or claim for damages because of the “bodily injury” or “property damage”; or (3) Becomes aware by any other means that “bodily injury” or “property damage” has occurred or has begun to occur. 5 6 7 8 9 Essentially, the policy creates a coverage exclusion if the insured had been put on notice, before inception of the policy, by receiving a demand for damages or by other means, of the injury 11 For the Northern District of California United States District Court 10 claimed during the policy period. The policy contains a similar known-loss provision for 12 personal and advertising injury. 13 Prior to the Toliver action, Warfield hotel residents had sued landlord defendants on 14 several occasions relating to habitability issues. A group of thirty-three plaintiffs filed an action 15 in February 2012 alleging an array of habitability violations from 2009–2012 (the Santa-Iglesias 16 action). That action settled. Also in February 2012, an individual brought suit against landlord 17 defendants alleging habitability violations spanning 2009–2010, which also settled (the Prater 18 action). In August of 2013 (after inception of the instant policy in May 2013), a group of thirty- 19 four plaintiffs brought another suit against landlord defendants alleging similar habitability 20 violations, which settled (the Ashdown action). All of these private actions, including the present 21 Toliver lawsuit, were brought by the same plaintiffs’ law firm, the Hooshmand Law Group. In 22 addition, in July 2013 (after inception of the instant policy in May 2013), the City and County of 23 San Francisco brought suit against landlord defendants based on similar allegedly substandard 24 living conditions. That action referenced several previous notices of complaints arising from the 25 conditions at the Warfield Hotel, which spanned back to 2001 (Scottsdale Exhs. 3, 7, 11, 14–15). 26 27 Based on the existence of these prior lawsuits, and landlord defendants’ knowledge of them, Scottsdale seeks a declaration that it has no duty to indemnify or defend landlord 28 3 1 defendants in relation to the most recent Toliver action. This order follows full briefing and oral 2 argument. 3 4 ANALYSIS Summary judgment is proper where the pleadings, discovery, and affidavits show that 5 there is “no genuine issue as to any material fact and that the moving party is entitled to 6 judgment as a matter of law.” Rule 56(c). Material facts are those which may affect the 7 outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A liability insurer’s duty to defend will arise when a suit against an insured potentially seeks damages within the coverage of the policy. An insurer, however, need not defend if the third party complaint cannot, by any conceivable theory, raise a single issue which would bring it within policy coverage. Thus, the settled rule is that where a pleading against the insured raises the potential for coverage, the insurer must provide a defense. In order to prevail on a motion for the summary adjudication of the duty to defend, the insured need only show that the underlying claim may fall within coverage; the insurer must prove it cannot. 8 9 11 For the Northern District of California United States District Court 10 12 13 Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017, 1032 (2002) (internal citations 14 omitted). 15 “[A]n insurer will be required to defend a suit where the evidence suggests, but does not 16 conclusively establish, that the loss is not covered. . . . A carrier remains free to seek 17 declaratory relief if undisputed facts conclusively show, as a matter of law, that there is no 18 potential for liability.” Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287, 299 (1993) 19 (internal citations omitted). “Any doubt as to whether the facts establish the existence of the 20 defense duty must be resolved in the insured’s favor.” Id. at 299–300. “An insurer may rely on 21 an exclusion to deny coverage only if it provides conclusive evidence demonstrating that the 22 exclusion applies. Thus, an insurer that wishes to rely on an exclusion has the burden of 23 proving, through conclusive evidence, that the exclusion applies in all possible worlds.” 24 Atlantic Mutual, 100 Cal.App.4th at 1038–39 (internal citations omitted). 25 Here, issues of material fact remain as to whether the policy’s known-loss provisions 26 absolve Scottsdale of its duty to defend in the underlying Toliver action. Specifically, 27 Scottsdale has not established as a matter of law that the previous civil lawsuits put landlord 28 defendants on notice of all specific claims alleged in Toliver. As stated above, only two of the 4 1 actions Scottsdale discusses predate the inception of the policy at issue in our case — the Santa- 2 Iglesias and Prater actions — both filed in 2012. 3 The Santa-Iglesias action, filed by thirty-three plaintiffs, included many of the same 4 alleged habitability violations as the underlying Toliver action. Seventeen of the Santa-Iglesias 5 plaintiffs are also among the seventy-eight plaintiffs in Toliver. The Santa-Iglesias action 6 implicated fourteen of the sixty-three units in the Warfield hotel. Toliver, in contrast, 7 implicates forty units. The Prater action involved only a single plaintiff alleging defects in her 8 individual unit. Thus, there are at least twenty-five units implicated in Toliver that were not 9 addressed in Santa-Iglesias and Prater and Toliver includes a later time period. Many of the defects alleged in the previous actions overlap with the Toliver allegations. 11 For the Northern District of California United States District Court 10 Many of the same units are involved and all allege violations in common areas. The existence 12 of the prior lawsuits likely put landlord defendants on notice of at least some violations alleged 13 in Toliver. This is especially true in regards to the claims of the seventeen plaintiffs in Toliver 14 who were also plaintiffs in the previous Santa-Iglesias action. 15 Nevertheless, Scottsdale has not established beyond “any doubt” that the known-loss 16 provisions in the policy apply to all of the claims in Toliver. The California Supreme Court has 17 established that “in a mixed action, the insurer has a duty to defend the action in its entirety.” 18 Buss v. Superior Court, 16 Cal.4th 35, 48 (1997). “To defend meaningfully, the insurer must 19 defend immediately. To defend immediately, it must defend entirely. It cannot parse the 20 claims, dividing those that are at least potentially covered from those that are not. To do so 21 would be time consuming. It might also be futile.” Id. at 49. Here, the facts in the underlying 22 Toliver action have not been developed such that it can be determined conclusively that 23 landlord defendants were fully on notice of all of the violations before signing on to the 24 Scottsdale policy. In fact, at oral argument, Scottsdale’s counsel emphasized that the Toliver 25 action contained “no specific allegations in the complaint.” 26 The same is true of the numerous complaints cited in the lawsuit brought against 27 landlord defendants by the City of San Francisco in 2013, which referenced complaints about 28 the Warfield Hotel dating back to 2001. For the same reasons as the Santa-Iglesias and Prater 5 1 actions, these complaints do not, as a matter of law, implicate the known-loss provisions of the 2 insurance policy. The California Supreme Court addressed a similar scenario in Montrose 3 Chemical Corporation v. Admiral Insurance Company, 10 Cal. 4th 645 (1995). There, the 4 insurance company pointed to a letter the insured received from the EPA, detailing violations at 5 the insured’s plant. In rejecting the contention that this letter constituted “notice,” such that 6 those violations constituted a known loss for insurance purposes, Montrose stated that a 7 “known-loss contention can seldom be successfully relied on by an insurer to defeat a duty to 8 defend because the factual uncertainties needed to be resolved in order to establish the defense 9 generally cannot be resolved on a motion for summary judgment.” Id. at 691. So too here.* Scottsdale essentially contends that the longstanding habitability issues at the Warfield 11 For the Northern District of California United States District Court 10 put landlord defendants on notice of the habitability violations alleged in Toliver. Scottsdale 12 correctly points out that landlord defendants “received a demand or claim for damages relating 13 to habitability issues at the Warfield Hotel prior to the May 1, 2013 inception date of the 14 Policy” (Reply at 2). That fact, however, is not dispositive. An insured being on notice of 15 general habitability allegations in certain parts of a building does not negate any future 16 insurance coverage for allegations relating to other partially overlapping, partially different 17 habitability issues. As demonstrated by the authority cited above, “the insured need only show 18 that the underlying claim may fall within coverage; the insurer must prove it cannot.” Atlantic 19 Mutual, 100 Cal.App.4th at 1032, Simply asserting that landlord defendants must have been on 20 notice of the Toliver violations due to previous similar violations is not sufficient to warrant 21 summary judgment. 22 To rebut the contention that issues of fact exist as to landlord defendants’ knowledge of 23 the alleged Toliver violations, Scottsdale asserts that “the triggering event for coverage is the 24 insured’s wrongful act, not the claimants’ injuries” (Reply at 3). This, however, does nothing to 25 26 27 28 * At oral argument, Scottsdale asserted that Montrose does not apply to our case because of the anti-Montrose provision contained in the Scottsdale policy. The anti-Montrose provision referred to, and anti-Montrose provisions generally, however, merely state that the wrongful conduct and the injury claimed under an insurance contract must both occur during the policy period. As stated above, Scottsdale has failed to conclusively prove that the cause of all of the Toliver plaintiffs’ injuries took place before inception of the instant policy in May 2013. 6 1 change the equation. For the same reasons, Scottsdale has failed to conclusively establish that 2 the same alleged wrongful acts alleged in the previous lawsuits caused the violations alleged in 3 Toliver. While it is conceivable that this could be true, the existence of the prior actions and 4 complaints does not go so far as to establish knowledge as a matter of law. Scottsdale fails to cite a single decision from our court of appeals or from a California 5 relies heavily on Judge Samuel Conti’s decision in Jardine v. Maryland Casualty Company, No. 8 10–3335, 2011 WL 5778798 (N.D. Cal. Dec. 27, 2011) (Judge Samuel Conti). That decision, 9 while not binding anyway, is distinguishable from our case. In Jardine, a building resident 10 improperly applied a plaster to the property’s walls, causing damage. He later purchased an 11 For the Northern District of California appellate court that supports its assertion. That is because none exists. Instead, Scottsdale 7 United States District Court 6 insurance policy and later sought indemnification for wall damage. While he conceded he knew 12 about damage to the north section of the wall, he stated he did not know about damage to the 13 south section, and sought indemnification for the section he did not know had been damaged. 14 The district court rejected Jardine’s contention that he did not know about the damage to the 15 south wall, concluding that the damage to the south section had merely been “a continuation, 16 change or resumption of the sulfate attack in the [north] section that had manifested” earlier. Id. 17 at *10. 18 Significantly, in Jardine, the underlying case had already proceeded to a bench trial and 19 the facts had been established, in contrast to our case. More importantly, Jardine dealt with two 20 discrete walls in the same unit, and it had been established that the same corrosive plaster had 21 been applied to both of them. From those conceded facts, the district court concluded that 22 damage to the second wall constituted a continuation of damage to the first wall. Many more 23 variables remain in play here. The underlying Toliver action has seventy-eight plaintiffs. Only 24 seventeen of those plaintiffs had been involved in actions commenced before the parties entered 25 into the insurance agreement. Additionally, as stated above, the Toliver action involves twenty- 26 five separate units not implicated in prior suits. Based on the differences between the 27 underlying action and the previously settled actions, factual issues remain to be decided as to 28 the scope of landlord defendants’ knowledge of the alleged Toliver violations. 7 1 CONCLUSION 2 For the reasons stated above, Scottsdale’s motion for partial summary judgment is 3 DENIED. 4 5 IT IS SO ORDERED. 6 7 Dated: November 23, 2015. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 8 9 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8
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