Forest Meadows Owners Ass'n v. State Farm Gen. Ins. Co., 1:11-cv-01642-AWI-SKO

• Decision Date: 10 April 2012
• Docket Number: 1:11-cv-01642-AWI-SKO
• Parties: FOREST MEADOWS OWNERS ASSOCIATION, Plaintiff, v. STATE FARM GENERAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of California

FOREST MEADOWS OWNERS ASSOCIATION, Plaintiff,

v.STATE FARM GENERAL INSURANCE COMPANY, Defendant.

1:11-cv-01642-AWI-SKO

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA

Dated: April 10, 2012

ORDER RE: MOTIONS FOR

SUMMARY JUDGMENT

(Docs. 9-15, 24-29)

I. INTRODUCTION

Plaintiff Forest Meadows Owners Association and defendant State Farm General Insurance Company have filed competing motions for summary judgment. For reasons discussed below, Plaintiff's motion shall be denied; Defendant's motion shall be granted.

II. FACTS AND PROCEDURAL BACKGROUND

On September 28, 2011, plaintiff Forest Meadows Owners Association (hereinafter referred to as "Plaintiff") filed its complaint against defendant State Farm General Insurance Company (hereinafter referred to as "Defendant") asserting two causes of action for breach of contract and breach of theimplied covenant of good faith and fair dealing. In the complaint, Plaintiff alleged as follows:

"1. Plaintiff Forest Meadows Owners Association ([ ] 'FMOA') is a non-profit mutual benefit corporation incorporated under the laws of California with its principal place of business in Murphys, California. [¶] 2. Defendant State Farm General Insurance Company ([ ] 'STATE FARM') is a corporation incorporated under the laws of the State of Illinois with its principal place of business in Bloomington, Illinois. [¶] . . . [¶] 5. Sometime prior to April 1, 2008, STATE FARM did issue to FMOA its policy of insurance numbered 90-46-2737-2 covering FMOA for the policy term of April 1, 2008 to April 1, 2009 ('THE POLICY')."

Plaintiff further alleged:

"6. On or about May 9, 2008 Michelle Carpenter ('CARPENTER') was hired by FMOA as a security guard. [¶] 7. On or about September 28, 2008, the former president of FMOA[ ] terminated CARPENTER's employment. He did not consult with or obtain the authority from the Board of Directors of FMOA to terminate CARPENTER . . . . [¶] 8. On or about August 27, 2009, CARPENTER filed suit in the Superior Court of Calaveras County, Michelle Carpenter v. Forrest Meadows et al., Case No. CJ36022; that case was removed to the United States District Court for the Eastern District of California . . . . ('THE CARPENTER ACTION')."

Plaintiff further alleged:

"10. On or about April 26, 2010 a copy of the complaint from THE CARPENTER ACTION was delivered to STATE FARM along with a request that STATE FARM defend and indemnify FMOA . . . . [¶] 11. On or about May 20, 2010 STATE FARM wrongfully denied coverage and a defense to FMOA . . . . [¶] 13. As a result of the breaches of the policy of STATE FARM, FMOA was deprived of its contractual benefits and incurred and paid more than $270,000.00 in legal fees and costs to defend THE CARPENTER ACTION. [¶] 14. The claims that were enumerated in THE CARPENTER ACTION at the time of the tender of defense to [STATE FARM] were potentially covered under the terms of THE POLICY, including but not limited to the 'OPTION DO - Directors and Officers Liability' Form. . . ."

On December 9, 2011, Plaintiff filed its motion for summary judgment.¹ On February 29, 2012, Defendant filed its motion summary judgment. On March 19, 2012, Defendant filed its opposition to Plaintiff's motion. On March 19, 2012, Plaintiff filed its opposition to Defendant's motion. The parties filed their respective replies to the oppositions on March 26, 2012.

III. LEGAL STANDARD

"A party may move for summary judgment, identifying each claim or defense - or the part of each claim or defense - on which summary judgment is sought. The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The moving party bears the initial burden of "informing the district court of the basis for its motion, and identifying those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see Fed. R. Civ. P. 56(c)(1)(A). "Where the non-moving party bears the burden of proof at trial, the moving party need only prove that there is an absence of evidence to support the non-moving party's case." In re Oracle Corp. Securities Litigation, 627 F.3d 376, 387 (2010) (citing Celotex, supra, at p. 325). If the moving party meets its initial burden, the burden shifts to the non-moving party to present evidence establishing the existence of a genuine dispute as to any material fact. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 89 L.Ed.2d 538. A court ruling on a motion for summary judgment must construe all facts and inferences in the light most favorable to the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Even if the motion is unopposed, the movant is not absolved of the burden to show there are no genuine issues of material fact, Henry v. Gill Industries, Inc., 983 F.2d 943, 949-50 (9th Cir. 1993), although the court may assume the movant's assertions of fact to be undisputed for the purposes of the motion and grant summary judgment if the facts and other supporting materials show the movant is entitled to it. See Fed. R. Civ. P. 56(e)(2), (3).

IV. DISCUSSION

A. Principles of contract interpretation in the context of insurance policies - "[I]nterpretation of an insurance policy is a question of law," and "[w]hile insurance contracts have special features, theyare still contracts to which the ordinary rules of contractual interpretation apply." Palmer v. Truck Ins. Exchange, 21 Cal.4th 1109, 1115, 90 Cal.Rptr.2d 647, 988 P.2d 568 (1999) (internal citations and quotations omitted). " 'The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the "mutual intention" of the parties. "Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. Such intent is to be inferred, if possible, solely from the written provisions of the contract. The 'clear and explicit' meaning of these provisions, interpreted in their 'ordinary and popular sense,' unless 'used by the parties in a technical sense or a special meaning is given to them by usage', controls judicial interpretation." ' " Ameron Intern. Corp. v. Insurance Co. of State of Pennsylvania, 50 Cal.4th 1370, 1377-78, 118 Cal.Rptr.3d 95, 242 P.3d 1020 (2010) (quoting Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1, 18, 44 Cal.Rptr.3d 370, 900 P.2d 619 (1995)) (internal citations omitted). Accordingly, " '[the court's] goal in construing insurance contracts, as with contracts generally, is to give effect to the parties' mutual intentions. [Citations.] "If [the] language [of the policy] is clear and explicit, it governs." [Citations.]' " Minkler v. Safeco Ins. Co. of America, 49 Cal.4th 315, 321, 110 Cal.Rptr.3d 612, 232 P.3d 612 (2010).

If the terms of an insurance policy are not clear and explicit, but "susceptible of two or more reasonable constructions," they are ambiguous. Ameron Intern. Corp., supra, 50 Cal.4th at 1378. " 'If the terms are ambiguous . . . , [courts] interpret them to protect " 'the objectively reasonable expectations of the insured.' " Only if these rules do not resolve a claimed ambiguity do [courts] resort to the rule that ambiguities are to be resolved against the insurer." Minkler, supra, 49 Cal.4th at 321 (internal citations omitted). "To further ensure that coverage conforms fully to the objectively reasonable expectations of the insured, the corollary rule of interpretation has developed that, in cases of ambiguity, basic coverage provisions are construed broadly in favor of affording protection, but clauses setting forth specific exclusions from coverage are interpreted narrowly against the insurer." Id. at 322. "[An] exclusionary clause must be ' "conspicuous, plain and clear." ' [Citation.] This rule applies with particular force when the coverage portion of the insurance policy would leadan insured to reasonably expect coverage for the claim purportedly excluded.' [Citation.]" Palp, Inc. v. Williamsburg Nat. Ins. Co., 200 Cal.App.4th 282, 290, 132 Cal.Rptr.3d 592 (2011).

"The insured has the burden of establishing the claim comes within the scope of coverage, and the insurer has the burden of establishing the claim comes within an exclusion. To prevail, the insurer must establish its interpretation of the policy is the only reasonable one. Even if the insurer's interpretation is reasonable, the court must interpret the policy in the insured's favor if any other reasonable interpretation would permit coverage for the claim." Palp, supra, at 200 Cal.App.4th at 290; Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287, 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (1993) ("To prevail, the insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential. In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot"). With the foregoing principles in mind, the Court now proceeds to address the parties' contentions.

B. Coverage for "wrongful acts" under Option DO, the directors and officers liability provision - The contractual duties generally owed by an insurer to its insured are to defend, indemnify and pay policy benefits. Campbell v. Superior Court, 44 Cal.App.4th 1308, 1319, 52 Cal.Rptr.2d 385 (1996). The primary issue in this case is whether Defendant had a duty to defend Plaintiff in the discrimination and wrongful termination lawsuit brought against Plaintiff by its former employee, Michelle Carpenter, and whether Defendant breached that duty...