Airborne San Diego, LLC v. Travelers Prop. Cas. Co. of Am.
| Decision Date | 10 May 2021 |
| Docket Number | Case No.: 19-cv-899-WQH-AHG |
| Citation | 538 F.Supp.3d 1032 |
| Parties | AIRBORNE SAN DIEGO, LLC, a California limited liability company; and Suncoast Financial Mortgage Corporation, a California corporation, Plaintiffs, v. TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, a Connecticut corporation, Defendant. |
| Court | U.S. District Court — Southern District of California |
Michael R. Buscemi, Buscemi Hallett LLP, San Diego, CA, for Plaintiffs.
Leo Lavoy Ashley, III, Richard C. Weston, Weston and McElvain LLP, Los Angeles, CA, for Defendants.
The matters before the Court are the Motion for Summary Judgment, or Alternatively, Partial Summary Judgment filed by Defendant Travelers Property Casualty Company of America (ECF No. 31) and the Motion for Partial Summary Judgment filed by Plaintiffs Airborne San Diego, LLC, and Suncoast Financial Mortgage Corporation (ECF No. 38).
On May 13, 2019, Plaintiffs Airborne San Diego, LLC ("Airborne") and Suncoast Financial Mortgage Corporation ("Suncoast") filed a Complaint against Defendant Travelers Property Casualty Company of America ("Travelers"). (ECF No. 1). On November 5, 2019, Plaintiffs filed a First Amended Complaint ("FAC"). (ECF No. 15).
Plaintiffs allege that they are the primary and additional insureds on a custom insurance policy issued by Defendant Travelers. Plaintiffs allege that on December 7, 2016, at Airborne's indoor skydiving facility there was a breakdown of turning vane equipment in the wind tunnel above the flight chamber, causing more than $1,000,000 in property damage. Plaintiffs allege that in June 2017, the nose cone in the wind tunnel "catastrophically failed, coming off and blowing apart," and damaging the fan blades and parts of the tunnel superstructure. (Id. ¶ 48). Plaintiffs allege that the Travelers insurance policy covers property damage and loss of business income caused by the turning vane failure and the nose cone failure. Plaintiffs allege that Travelers repeatedly denied and underpaid policy benefits, contributing to the demise of Airborne's business. Plaintiffs bring the following claims against Travelers: 1) breach of insurance contract; and 2) breach of the implied covenant of good faith and fair dealing. Plaintiffs seek damages, including punitive damages, statutory penalties, and attorneys’ fees and costs.
On November 19, 2019, Travelers filed an Answer to the FAC. (ECF No. 18).
The parties engaged in fact discovery.
On November 12, 2020, Travelers filed a Motion for Summary Judgment, or Alternatively, Partial Summary Judgment. (ECF No. 31). Travelers moves for summary judgment on both of Plaintiffs’ claims. In the alternative, Travelers moves for partial summary judgment on the grounds that there is no coverage for the turning vane claim, the genuine dispute doctrine precludes liability for breach of the implied covenant of good faith and fair dealing, and Plaintiffs fail to come forward with evidence sufficient to entitle Plaintiffs to an award of punitive damages. On December 7, 2020, Plaintiffs filed an Opposition to Travelers’ Motion for Summary Judgment. (ECF No. 32). On December 14, 2020, Travelers filed a Reply. (ECF No. 33).
On January 29, 2021, Plaintiffs filed a Motion for Partial Summary Judgment. (ECF No. 38). Plaintiffs move for partial summary judgment on the grounds that there is coverage for the turning vane claim, Travelers waived any policy requirement for notice and proof of loss, Travelers is liable for breach of the implied covenant of good faith and fair dealing as a matter of law, and the genuine dispute doctrine is "unavailable." (Id. at 2). On February 22, 2021, Travelers filed an Opposition to Plaintiffs’ Motion for Partial Summary Judgment. (ECF No. 40). On March 2, 2021, Plaintiffs filed a Reply. (ECF No. 41).
On March 11, 2021, the Court heard oral argument on the Motions for Summary Judgment. (ECF No. 42).
Plaintiff Airborne owned and operated an indoor skydiving facility in downtown San Diego. Construction of the facility was financed in part by Plaintiff Suncoast. Defendant Travelers "issued insurance policy no. BME1-9H131195-TIL-16 to Airborne for the period of November 14, 2016 to November 14, 2017" ("Policy"). (Def.’s Statement of Undisputed Material Facts ("Def.’s SUMF"), ECF No. 31-1 ¶ 1). Suncoast has an "insurable interest" under the Policy as a "Loss Payee." (Endorsement, Ex. D to Fink Decl., ECF No. 32-1 at 82-83). "The Policy provides Equipment Breakdown Protection," including coverage for property damage and business income loss. (Def.’s SUMF, ECF No. 31-1 ¶ 3).
The Policy has a coverage limit for property damage of $28,732,645 per "Breakdown." (Policy, Ex A. to Litke Decl., ECF No. 31-2 at 22). To qualify for coverage, there must be a "Breakdown" or failure of "Covered Equipment," in addition to other requirements. (Id. at 28). Covered Equipment includes "internal pressure or vacuum" equipment and "electrical or mechanical equipment that is used in the generation, transmission or utilization of energy." (Id. at 47). Covered Equipment does not include any "non-metal part or any part or tool subject to periodic replacement." (Id. at 48).
The Policy has a coverage limit for business income loss of $2,400,000 per Breakdown. (Id. at 22). The Policy covers actual loss of "Business Income" during the "Period of Restoration"—the period from the date of the Breakdown to thirty days after the damaged property should have reasonably been repaired or replaced. (Id. at 28). "Business Income" is net income that would have been earned and normal operating expenses that would have been incurred. (Id. at 47).
In December 2016, Airborne was preparing to open its facility. The facility had two vertical wind tunnels to simulate a skydiving experience. The wind tunnels used large fans to move air at a high speed. The fans were "capped with an aerodynamic fiberglass nose-cone to direct airflow past the fan blade and motor assembly." (Pls.’ Additional Undisputed Material Facts ( ), ECF No. 32-3 ¶ 66). In each corner of the tunnels, there was a turning vane "made of fiberglass attached to the walls with metal pins." (Id. ¶ 65). "The turning vanes were essentially curved, wing-like foils used to bend the airflow through the corners" and "remove turbulence." (Def.’s SUMF, ECF No. 31-1 ¶ 9; Pls.’ AUMF, ECF No. 32-3 ¶ 64).
"On December 7, 2016, while wind tunnel 1 was engaged in a testing operation, the turning vanes above the flight chamber broke apart," sending "pieces of shrapnel and materials back through the fan, and dust and debris back into the flight chamber." (Pls.’ AUMF, ECF No. 32-3 ¶¶ 70-71). "Tunnel 1 had to be shut down, recommissioned, tested and repaired as a result of the turning vane failure." (Id. ¶ 75).
(Id. ¶ 106).
On June 29, 2017, Airborne tendered a claim for Policy benefits to Travelers for the nose cone failure ("Nose Cone Claim").2 Airborne reported that its business had opened in June 2017. On August 11, 2017, Airborne sent Travelers financial records and business projections. On September 19, 2017, Travelers agreed to retain a forensic accounting firm to evaluate Airborne's lost business income from the nose cone failure. Airborne was in financial distress and requested that Travelers "bring [Airborne's] interruption payment current" so Airborne could pay its creditors. (Ex. 99 to Litke Dep., ECF No. 32-2 at 275). Travelers did not make any payment in response to Airborne's request. In late September 2017, Airborne closed its business, and Suncoast acquired an interest in Airborne's insurance claims through a settlement agreement.
Travelers requested additional accounting records on the business income loss portion of the Nose Cone Claim. On March 8, 2018, Suncoast sent Travelers a report prepared by its forensic accounting firm, concluding that Airborne's lost business income for a period of thirteen months was $4,487,992. In calculating lost business income, the accounting firm included lost military sales and did not subtract depreciation from Airborne's normal operating expenses.
In April 2018, Suncoast sent Travelers additional accounting records. On May 14, 2018, Travelers’ forensic accounting firm concluded that Airborne's lost business income for a period of twelve months was $427,603. In calculating lost business income, the accounting firm subtracted depreciation as a saved operating expense. On June 18, 2018, Travelers paid $427,597 for the business income loss portion of the Nose Cone Claim after adjusting the accountant's figure "to account for the average daily value of the Policy's deductible." (Def.’s SUMF, ECF No. 31-1 ¶ 27).
Suncoast challenged Travelers’ determination of Airborne's lost business income. Travelers hired a second forensic accounting firm, and Suncoast provided a second report from its forensic accountant. On August 16, 2018, Travelers’ second accounting firm concluded that "Airborne's projected business income loss for 12 months totals $496,704"—$69,107 more than the amount Travelers already paid. (Id. ¶ 32). "Travelers issued an additional payment totaling $69,107 for Airborne's business income loss claim on August 22, 2018." (Id. ¶ 34).
On November 7, 2018, Plaintiffs’ attorney requested resolution of the business income loss portion of the Nose Cone Claim via appraisal, and Travelers agreed. The appraisal proceeding lasted several months. On July 31, 2019, the appraisers executed an Appraisal Award in the amount of $1,903,296—the remainder of the Policy's $2,400,000 business income loss limit. The Appraisal Award included lost military sales and did not subtract depreciation from Airborne's normal operating expenses. "Travelers timely paid the Appraisal Award on August 12, 2019." (Id. ¶ 38).
On November 7, 2018, Plaintiffs tendered a...
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...insurance law governs in this diversity case." Encompass , 764 F.3d at 984 ; see also Airborne San Diego, LLC v. Travelers Prop. Cas. Co. of Am. , 538 F.Supp.3d 1032, 1039 (S.D. Cal. 2021) (Hayes, J.) (applying California law) ("Federal courts apply state law to interpret an insurance polic......