First Nat'l Ins. Co. of Am. v. Ayala, Case No. 5:19-cv-01060-EJD

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California
Writing for the CourtEDWARD J. DAVILA, United States District Judge
Citation489 F.Supp.3d 928
Docket NumberCase No. 5:19-cv-01060-EJD
Decision Date24 September 2020
Parties FIRST NATIONAL INSURANCE COMPANY OF AMERICA, Plaintiff, v. Juana AYALA, et al., Defendants.

489 F.Supp.3d 928

FIRST NATIONAL INSURANCE COMPANY OF AMERICA, Plaintiff,
v.
Juana AYALA, et al., Defendants.

Case No. 5:19-cv-01060-EJD

United States District Court, N.D. California, San Jose Division.

Signed September 24, 2020


489 F.Supp.3d 930

Blake Justin Russum, Ropers Majeski PC, Redwood City, CA, for Plaintiff.

Matthew Yuji Minae, Randy M. Hess, Adleson, Hess & Kelly, APC, Campbell, CA, for Defendants.

ORDER GRANTING MOTION FOR SUMMARY JUDGMENT

Re: Dkt. No. 63

EDWARD J. DAVILA, United States District Judge

Plaintiff First National Insurance Company of America ("First National") initiated this declaratory relief action seeking a determination that it has no duty to defend or indemnify Defendant Juana Ayala ("Ayala") in an underlying wrongful death action brought against her by the parents of the toddler decedent, Defendants Shannon Bernard ("Bernard") and Maria Vega ("Vega"), entitled Bernard v.

489 F.Supp.3d 931

Ayala , Santa Clara County Superior Court, Case Number 114 CV263148 (the "Underlying Action"). Presently before the Court is First National's motion for summary judgment. Dkt. No. 63. First National contends that the claims in the Underlying Action are for losses arising out of, or in connection with, the operation of a family day care home, and therefore California Insurance Code § 676.1(c) eliminates any potential coverage.1 First National also contends that the Daycare Exclusion in the Homeowners Policy similarly precludes coverage.2 Bernard and Vega (collectively "Defendants") oppose the motion and cross move for summary judgment. In the alternative, Defendants seek a stay of this case pending final adjudication of the Underlying Action. Dkt. No. 68. First National filed a reply brief. Dkt. No. 74. Based upon all pleadings filed to date and the undisputed the evidence, the Court will grant First National's motion.

I. BACKGROUND3

The facts giving rise to this suit are tragic and the loss to the parents of K.D. is beyond measure. Bernard and Vega's toddler son, K.B., was brutally assaulted at Ayala's home and died.

A. Ayala's Homeowners Policy

First National issued a Quality-Plus Homeowners Policy to Ayala, policy number OA3487649, effective from February 14, 2012 to February 14, 2013 ("Homeowners Policy"). Defendant Shannon Bernard's and Maria Vega's Responsive Separate Statement in Opposition to First National's Motion for Summary Judgment, (Dkt. No. 68-1 at 2). Section II – Liability Coverages, Coverage E, Personal Liability of the Homeowners Policy provides:

If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, we will:

1. pay up to our limit of liability for the damages for which the insured is legally liable; and

2. provide a defense at our expense by counsel of our choice even if the allegations are groundless, false or fraudulent.
489 F.Supp.3d 932
We may investigate and settle any claim or suit that we decide is appropriate. Our duty to settle or defend ends when the amount we pay for damages resulting from the occurrence equals our limit of liability.

Id. at 2 (emphasis added). The Homeowners Policy contains the following exclusion pertinent to the pending motion:

1. Coverage E - Personal Liability and Coverage F - Medical Payments to Others do not apply to bodily injury or property damage :

* * *

h. Which results from the legal liability of any insured because of home care services, day care, and any other hospice related activity provided to any person on a regular basis by or at the direction of:

(1) any insured ;

(2) any employee of any insured ;

(3) any other person actually or apparently acting on behalf of any insured .

Regular basis means more than 20 hours per week. This exclusion does not apply to:

(1) home care services provided to the relatives of any insured ;

(2) occasional or part-time home care services provided by any insured under 23 years of age.

Id. at 3-4 (emphasis added). The Homeowners Policy does not provide home day care insurance coverage pursuant to a separate insurance endorsement. Id. at 2.

B. Tender and Underlying State Court Action

On or around September 18, 2012, prior to the filing of the complaint in the Underlying Action, Ayala tendered the wrongful death claim asserted against her by Bernard and Vega for defense and indemnity under the Homeowners Policy. Id. at 4. Upon receipt of the claim, First National conducted an investigation into the death of K.B. Id. Defendant Ayala gave a recorded statement as part of this investigation. Id. at 5. During her recorded statement, Ayala said she "took care" of K.B. for six months. Decl. of Sarah Rosenbaum in Support of Plaintiff's Motion for Summary Judgment, Ex. G, Dkt. No. 62-8 at 95. Ayala also stated that she told Vega she would take care of K.B. as "a favor" while Vega looked for a daycare. Id. at 96. Ayala denied running a "daycare." Id. The information in Ayala's recorded statement to First National is consistent with the information stated in the declaration of K.B.'s father, Bernard. See Decl. of Shannon Bernard ¶¶ 3-5, Dkt. No. 68-4. Ayala was to watch K.B. on a temporary basis "at basically no charge other than payment of costs." Id. Ayala agreed to cook for and feed K.B. while he was at Ayala's home, and so Bernard "provided $100 a week simply to cover these expenses." Id. at ¶ 5. First National also obtained recorded statements from Ayala's children, Noemi Fuentes and Jesus Fuentes Ayala, who confirmed that Ayala had taken care of K.B. Dkt. No. 68-1 at 7.

On January 17, 2013, an paralegal assistant at the Boccardo Law Firm emailed First National on behalf of Defendants, stating that K.B. "had been attending the daycare—along with several other children—for several months Monday-Friday from 9-6, as both parents work." Dkt. No. 62-8 at 112.4 Upon completion of its investigation,

489 F.Supp.3d 933

First National issued a letter to Ayala on March 11, 2013, declining to provide a defense or indemnification of the yet to be filed Underlying Action. Dkt. No. 68-1 at 8. The declination letter set forth the basis for the declination of coverage, including First National's analysis of the applicability of Insurance Code § 676.1(c). Id. at 9. According to First National, its investigation confirmed that in addition to caring for K.B., Ayala had cared for two grandchildren at her home, and that the care had been provided every weekday for months for periods of less than 24 hours per day. Id. at 10-11. Based on these findings, First National concluded that Ayala's home qualified as a small family day care home for which Insurance Code § 676.1(c) eliminated coverage. Id. at 11.

In April of 2014, Bernard and Vega filed the Underlying Action against Ayala alleging negligence, premises liability, and wrongful death. Id. at 12.5 The original complaint in the Underlying Action contains the following allegations:

DEFENDANT AYALA WAS OPERATING A DAYCARE CENTER FOR CHILDREN. PLAINTIFFS ENTRUSTED THE CARE OF THEIR CHILD, KADEN BERNARD, TO DEFENDANT AYALA IN RETURN FOR PAYMENT OF FEES. DEFENDANT AYALA NEGLIGENTLY AND CARELESSLY HIRED DEFENDANT BENITEZ WHO NEGLIGENTLY AND CARELESSLY ASSAULTED THE MINOR CHILD WHILE IN THE CARE OF DEFENDANT AYALA AND IN THE COURSE AND SCOPE OF EMPLOYMENT OF HIS EMPLOYER, WHICH RESULTED IN KADEN BERNARD'S DEATH.

Id.6 Bernard's counsel, Mr. Stein of The Boccardo Firm, deposed Ayala in the Underlying Action on October 17, 2014. Decl. of Randy Hess, Ex. B, Dkt. No. 68-3; Decl. of Jaclyn D. Conover, Ex. C, Dkt. No. 73-1.7 Consistent with the information stated in The Boccardo Law Firm's January 17, 2013 email to First National, Ayala testified that in addition to looking after her grandchildren while their parents worked, she took care of K.B. at her home. Dkt. No. 73-1 at 25-28. Ayala agreed to watch the then six month old K.B. on a temporary basis as a favor to Defendants. Id. at 27-28, 30. Ayala took care of K.B. for approximately six months, Monday through Friday, from 9:00 a.m. to 6:00 p.m., before he was assaulted and died. Id. at 29, 31, 33. Defendants paid Ayala $100 a week. Id. at 31.

Over four years after Bernard and Vega filed the Underlying Action, Ayala tendered the original complaint in the Underlying Action to First National and requested reconsideration of the March 11, 2013 declination. Dkt. No. 68-1 at 13-18. On February 25, 2019, First National reaffirmed

489 F.Supp.3d 934

its declination of coverage. Id. at 15.

The Underlying Action was stayed for several years pending the resolution of the criminal case against Benitez. Id. On September 30, 2019, Bernard and Vega sought leave to lift the stay in the Underlying Action for the limited purpose of filing an amended complaint. Id. On October 1, 2019, Bernard and Vega filed a First Amended Complaint ("FAC"). Id. at 16. The following allegations appear in the FAC:

b. Defendant Ayala was a personal friend of Plaintiffs. On April 11, 2012, and
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