Efk Invs., LLC v. Peerless Ins. Co.
| Decision Date | 26 September 2014 |
| Docket Number | Case No.: 13-CV-5910 YGR |
| Court | U.S. District Court — Northern District of California |
| Parties | EFK INVESTMENTS, LLC, MARKET STREET PROPERTY MANAGEMENT, INC., Plaintiffs, v. PEERLESS INSURANCE COMPANY et al., Defendants. |
Plaintiffs EFK Investments, LLC, and Market Street Property Management, Inc. ("EFK" and "Market Street," or, collectively, "Plaintiffs") bring this insurance coverage action against Defendant Peerless Insurance Company ("Peerless"). Plaintiffs allege claims for breach of an insurance agreement, breach of the covenant of good faith and fair dealing/insurance bad faith, misrepresentation and violation of California's Unfair Competition Law ("UCL"), Business & Professions Code § 17200. Peerless has filed a Motion to Dismiss all claims on the grounds that the terms of Plaintiffs' insurance policy excluded coverage for the occurrences at issue. (Dkt. No. 16.)
Having carefully considered the papers submitted and the pleadings in this action, and for the reasons set forth below, the Court hereby ORDERS that the Motion to Dismiss is GRANTED IN PART AND DENIED IN PART. The motion is GRANTED as to Plaintiffs third claim for relief based upon misrepresentation because Plaintiffs have failed to allege facts sufficient to state this claim. As to the claim for breach of contract, as well as the insurance bad faith and UCL claims arisingfrom the same allegations, the motion is DENIED. Factual issues concerning whether Peerless had a duty to defend or indemnify Plaintiffs preclude resolution of the claims on a motion to dismiss.1
The facts as set forth herein are taken from Plaintiffs' complaint and are assumed to be true for purposes of the motion to dismiss. See Diaz v. International Longshoremen's and Warehousemen's Union, 474 F.3d 1202, 1205 (9th Cir. 2007). Plaintiffs' complaint alleges that EFK Investments is the owner, and Market Street Property is the property manager, of two adjacent pieces of commercial property in San Francisco. Elite Audio was a tenant operating a café and home theater electronics store at one of the properties. Plaintiffs allege they had insurance on the properties under a policy underwritten by Peerless.
Plaintiffs undertook some sandblasting in preparation for painting in the commercial property adjacent to the one leased by Elite Audio. The sandblasting resulted in dust and debris intruding into Elite Audio's space. Elite contended the dust and debris destroyed its entire inventory of high-end audio equipment, as well as damaging furnishings and disrupting business. Although testing prior to the sandblasting revealed no lead in the paint to be sandblasted, Plaintiffs arranged for testing of the intruding dust after the incident. The testing showed trace amounts of lead in a small proportion of the areas that were tested. Plaintiffs arranged for professional abatement of the dust and debris.
Plaintiffs notified Peerless about the incident and Elite Audio's damages claim. Initially, Peerless denied that Plaintiffs had any liability and refused to contribute more than a nuisance amount toward any settlement. Then, on June 12, 2012, Elite filed suit in San Francisco Superior Court against EFK and Market Street, alleging a variety of tort and contract claims, misrepresentation, and an unfair competition claim. (Plaintiffs' complaint, Exh. 1 ["Elite Complaint"].) EFK and Market Street promptly tendered their defense to Golden Eagle andPeerless. The response from Golden Eagle and Peerless was to deny coverage and refuse to defend EFK and Market Street against the Elite Complaint. Their position was that Plaintiffs had failed to implement sufficient precautions in connection with the sandblasting and the claims concerned dust and debris that were lead-contaminated, such that the policy's pollution and lead exclusions applied.
Plaintiffs resolved the litigation on their own in a settlement with Elite requiring: payment of a $130,000.00 lump sum; a lease modification which resulted in a net loss to Plaintiffs of $16,200.00; clean-up costs of $73,048.00; and attorneys' fees and costs of approximately $35,000.00. Plaintiffs again demanded that Peerless compensate them for their losses in connection with the Elite litigation since the alleged cause of the injuries to Elite Audio was ordinary negligence for which the policy provided coverage. Peerless continued to assert that the claims were based upon an occurrence that was excluded from coverage under the terms of the policy.
On November 1, 2013, Plaintiffs filed the instant action in San Francisco Superior Court against Peerless, and Peerless filed a notice of removal to this Court based upon diversity jurisdiction on December 20, 2013.
As a preliminary matter, both Peerless and Plaintiffs have requested that the Court take judicial notice of certain documents. Defendants seek judicial notice of the policies referenced in Plaintiffs' complaint, as well as copies of Plaintiffs' complaint and the exhibits thereto.
Plaintiffs ask the Court to take judicial notice of: (1) communications between them and Peerless concerning the Elite litigation and the facts of the claim; (2) a copy of a lead assessment report by LaCroix Davis LLC, obtained after the sandblasting.2 Peerless objected to this request for judicial notice as being matters not part of the court record. (See Reply at p. 3, fn. 3.)
As a general rule on a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court may not consider matters outside the complaint. See Hal Roach Studios, Inc. v. Richard Feiner & Co, 896 F.2d 1542, 1555 n. 19 (9th Cir. 1990); Branch v. Tunnell, 14 F.3d 449, 454 (9thCir. 1994) (overruled on other grounds in Galbraith v. County of Santa Clara, 307 F.3d 1119, 1127 (9th Cir. 2002)). There are two exceptions to the general rule: (1) documents referenced in the complaint or "central" to the claims as to which no party questions the authenticity of the copies provided (see Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005); Branch, 14 F.3d at 454); and (2) matters of public record covered by Federal Rule of Evidence 201 (see Mack v. South Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986), overruled on other grounds by Astoria Fed. Sav. & Loan Assoc. v. Solimino, 501 U.S. 104 (1991)). Any ambiguity in the documents must be resolved in favor of Plaintiffs at this stage in the proceedings. See International Audiotext Network, Inc. v. AT & T Co., 62 F.3d 69, 72 (2nd Cir. 1995); Hearn v. R.J. Reynolds Tobacco Co. 279 F.Supp.2d 1096, 1102 (Dist. Ariz. 2003).
The Request for Judicial Notice by Peerless is GRANTED. The policy is specifically referenced in Plaintiffs' complaint and there is no dispute as to its authenticity.
Plaintiffs' Request for Judicial Notice is DENIED. The Court finds that it would be inappropriate to take judicial notice of the evidence Plaintiffs offer in opposition in the context of a motion to dismiss. While the evidence, and the parties' differing views of its significance, are germane to question of whether Peerless had a duty to defend, they are not properly considered in determining the adequacy of the pleadings.
The principal basis for dismissal asserted by Peerless is that the face of the complaint and matters of which the Court properly may take judicial notice establish there was no potential for coverage under the applicable insurance policy, and therefore no duty to defend or indemnify the claims against Plaintiffs in the Elite litigation.
California substantive law on insurance applies to diversity case. Freeman v. Allstate Life Ins. Co., 253 F.3d 533, 536 (9th Cir. 2001). Whether an insurer has a duty to defend depends, in the first instance, on a comparison between the allegations of the complaint and the terms of the policy. "If any facts stated or fairly inferable in the complaint [against the insured], or otherwise known or discovered by the insurer, suggest a claim potentially covered by the policy, the insurer's duty to defend arises and is not extinguished until the insurer negates all facts suggesting potentialcoverage." Scottsdale Ins. Co. v. MV Transp, 36 Cal.4th 643, 654-655 (2005). "On the other hand, if, as a matter of law, neither the complaint nor the known extrinsic facts indicate any basis for potential coverage, the duty to defend does not arise in the first instance." Scottsdale Ins. Co. v. MV Transp, 36 Cal.4th 643, 654-655 (2005). To avoid the duty to defend, the insurer must show that "the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage." Montrose Chem. Corp. v. Superior Ct., 6 Cal.4th 287, 300 (1993) (emphasis in original). Doubts as to whether particular facts give rise to a duty to defend are resolved in an insured's favor. See Gray v. Zurich Insurance Co., 65 Cal.2d 263, 269 (1966); CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598, 606 (1986). In litigation involving both covered and non-covered claims, "the insurer has a duty to defend the action in its entirety." Buss v. Superior Court, 16 Cal.4th 35, 48 (1997).
Under California law, interpretation of an insurance policy is a question of law to be decided by a court. Waller v. Truck Ins. Exchange, 11 Cal.4th 1, 18 (1995). An exclusion precludes coverage only if it is "conspicuous, plain and clear." MacKinnon, 31 Cal. 4th at 648 (quoting State Farm Mut. Auto. Ins. Co. v. Jacober, 10 Cal.3d 193, 201-202 (1973)). As a general rule, insurance coverage is "interpreted broadly so as to afford the greatest possible protection to the insured, [whereas] ... exclusionary clauses are interpreted narrowly against the insurer." MacKinnon v. Truck Ins. Exch., 31 Cal. 4th at 648 (internal citations and quotations omitted).
The policy at issue here contains a "Total Pollution Exclusion"...
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