24th & Hoffman Investors, LLC v. Northfield Ins. Co.

• Decision Date: 30 August 2022
• Docket Number: A163670
• Citation: 82 Cal.App.5th 825,298 Cal.Rptr.3d 816
• Parties: 24TH & HOFFMAN INVESTORS, LLC, et al., Plaintiffs and Respondents, v. NORTHFIELD INSURANCE COMPANY, Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

82 Cal.App.5th 825
298 Cal.Rptr.3d 816

24TH & HOFFMAN INVESTORS, LLC, et al., Plaintiffs and Respondents,
v.
NORTHFIELD INSURANCE COMPANY, Defendant and Appellant.

A163670

Court of Appeal, First District, Division 3, California.

Filed August 30, 2022

Hinshaw & Culbertson, Ray Tamaddon, Los Angeles, for Defendant and Appellant.

Pacific Law Partners, Clarke B. Holland, Jenny J. Chu, Emeryville, and Amanda C. Glenn for Plaintiffs and Respondents.

TUCHER, P.J.

82 Cal.App.5th 829

Appellant Northfield Insurance Company (Northfield) issued a policy to respondent 24th & Hoffman Investors, LLC (24th & Hoffman, or the insured) to insure an apartment complex it owned. The policy's coverage excludes liability for violations of the insured's duty to maintain a habitable premises; this exclusion also encompasses coverage for "any claim or ‘suit’ " that also alleges habitability claims. Two tenants sued 24th & Hoffman, along with two of the LLC's members (collectively, respondents), alleging multiple habitability claims as well as other causes of action that were arguably not based on habitability. Northfield declined to defend the tenants’ lawsuit, and, after settling the underlying action, respondents brought the current action against Northfield for breach of its duty to defend them. The primary question in this case is whether the phrase "any claim or ‘suit’ " in the habitability exclusion relieved Northfield of its obligation to provide a defense to the underlying action.

The trial court concluded the case presented a " ‘mixed’ " action containing both potentially covered and uncovered claims, and that Northfield was therefore obliged to provide a defense. ( Buss v. Superior Court (1997) 16 Cal.4th 35, 65 Cal.Rptr.2d 366, 939 P.2d 766 ( Buss ).) The court granted summary adjudication to respondents on this issue and entered judgment accordingly. We conclude the plain terms of the contract exclude all of the claims in the underlying action, and we accordingly reverse.

82 Cal.App.5th 830

FACTUAL AND PROCEDURAL BACKGROUND

I. The Property

Respondents Adam Phillips and 366 Development, LLC are real estate developers. 24th & Hoffman is their joint venture, formed to invest in and develop San Francisco properties. One such investment property is a six-unit, residential compound at 24th Street and Hoffman Avenue (the apartments).

24th & Hoffman planned to buy out each of the tenants in the apartments, then renovate and sell the units. In December 2017, it purchased a "property and comprehensive liability insurance policy" from Northfield to insure the apartments. The same month, it began contacting tenants, and it soon reached agreements with five

298 Cal.Rptr.3d 820

of the tenants to move out. However, the tenants of the sixth unit, Karen Lee and Aya Osada, decided to remain at the property. By mid-2018, renovations on the bought-out units had begun.

II. The Underlying Action

Lee and Osada (the underlying plaintiffs) brought an action against 24th & Hoffman, 366 Development, and Phillips in San Francisco Superior Court (Lee v. 24th and Hoffman Investors, LLC , (Super. Ct. S.F. City & County, Case No. CGC-18-571219) (the underlying action)).¹

The underlying complaint alleged that respondents allowed a variety of "substandard, indecent, offensive, and hazardous conditions" at the property. Some of those alleged conditions involved problems at the plaintiffs’ apartment caused by the renovations: a broken window, obstruction of their windows, doors, and deck, and blocked light. Others involved physical intrusions on common spaces, such as the presence of trash, debris, construction materials, and tools, and dumping of construction waste at the property. The construction also allegedly caused frequent utility interruptions, a failure to secure the property or provide a closing and locking exterior door, destruction of the garden and plants, pest and vermin infestations, uncontained construction debris and dust (including lead-based and asbestos-containing dust), disruptively loud noise and vibration, and noxious odors and fumes. Other alleged wrongful acts were, on their face, not directly caused by the construction; for instance, the complaint alleged respondents stole and destroyed the underlying plaintiffs’ personal property, and respondents sought to have the underlying plaintiffs provide testimony to assist them in evicting a neighboring tenant as a condition of providing buy-out funds. The claims for

82 Cal.App.5th 831

conversion and trespass to chattels were based on alleged damage to personal property stored in a locker that was—the parties later agreed—neither located in the plaintiff's unit nor authorized for use under their lease.

Based on these general allegations, the underlying plaintiffs asserted eleven causes of action: negligence; nuisance; breach of contract; breach of the implied warranty of habitability; breach of the implied covenant of quiet enjoyment; statutory violations, based on conditions making the premises untenantable and the presence of lead hazards ( Civ. Code, §§ 1941 & 1941.1 ; Health & Saf. Code, § 17920.10 ); tenant harassment (San Francisco Admin. Code, § 37.10B); unfair business practices ( Bus. & Prof. Code, §§ 17200, 17203 ); retaliation; conversion; and trespass to chattels.

III. Respondents’ Tender and Northfield's Denial

Respondents tendered the defense of the underlying action to Northfield, which declined to defend it on the ground that it fell within the policy's exclusion of actions arising out of breach of the implied warranty of habitability.

The insurance policy provisions relevant here provide comprehensive general liability coverage to the insureds for allegations of bodily injury, property damage, and personal injury caused by an occurrence. There is no dispute that the underlying action alleged causes of action that on their face fall within these provisions, but the policy contains exclusions for actions arising from breach of the implied warranty of habitability. And, after stating that

298 Cal.Rptr.3d 821

Northfield would defend and indemnify the insured in any " ‘suit’ " seeking covered damages, the bodily injury and property damage coverage continues, "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." The policy includes similar terms for claims of "personal and advertising injury liability."

As to each coverage at issue here, the policy excludes two kinds of claims. First, it excludes claims "(1) [a]rising out of the: [¶] (a) Actual or alleged violation of any federal, state or local law, code, regulation, ordinance or rule relating to the habitability of any premises; [¶] (b) Breach of any lease, rental agreement, warranty or covenant to maintain a premises in a habitable condition; or [¶] (c) Wrongful eviction from, wrongful entry into or invasion of the right of private occupancy ... due to failure to maintain a premises in a habitable condition." Second, it excludes claims (2) "[a]lleged in any claim or ‘suit’ that also alleges any violation, breach or wrongful eviction, entry or invasion as set forth in Paragraphs (1)(a)–(c) above." The effect of this final "catch-all" provision is at the heart of the dispute before us.

82 Cal.App.5th 832

When Northfield rejected their tender, respondents defended the underlying action with their own counsel and reached a settlement of approximately $150,000.

IV. Procedural History

Respondents brought this action against Northfield on December 10, 2019, alleging that Northfield wrongfully denied coverage in the underlying action. They asserted causes of action for breach of contract, bad faith breach of insurance contract, negligence, and declaratory relief. After reaching a partial settlement, respondents dismissed the bad faith cause of action and the parties filed cross-motions for summary adjudication or judgment.

In their motion for summary adjudication, respondents argued that Northfield had a duty to defend them in the underlying action. In its motion for summary judgment, in turn, Northfield contended that the undisputed facts show that the "Habitability Exclusion" barred coverage for the underlying action.

The trial court granted respondents’ motion for summary adjudication, finding as a matter of law that Northfield owed them a duty to defend in the underlying action. The court concluded that three of the causes of action—retaliation, conversion, and trespass to chattels—were not habitability claims, and that in such a " ‘mixed action,’ " Northfield had a duty to defend the action in its entirety. ( Buss , supra , 16 Cal.4th at pp. 48–49, 65 Cal.Rptr.2d 366, 939 P.2d 766.)

Without prejudice to Northfield's right to appeal, the parties...