Gaylord v. Nationwide Mut. Ins. Co.

• Citation: 776 F.Supp.2d 1101
• Decision Date: 04 March 2011
• Docket Number: No. 1:10–CV–620 AWI MJS.,1:10–CV–620 AWI MJS.
• Court: U.S. District Court — Eastern District of California
• Parties: Ted GAYLORD and Sheri Gaylord, as individuals and dba J & T Cattle Company, Plaintiffs,v.NATIONWIDE MUTUAL INSURANCE COMPANY, an Ohio corporation, Amco Insurance Company, an Iowa corporation, Allied Group, Inc. an Iowa Corporation, and Does 1 through 100, Defendants.

776 F.Supp.2d 1101

Ted GAYLORD and Sheri Gaylord, as individuals and dba J & T Cattle Company, Plaintiffs,

v.NATIONWIDE MUTUAL INSURANCE COMPANY, an Ohio corporation, Amco Insurance Company, an Iowa corporation, Allied Group, Inc. an Iowa Corporation, and Does 1 through 100, Defendants.

No. 1:10–CV–620 AWI MJS.

United States District Court, E.D. California.

March 4, 2011.

George Pete Rodarakis, Roger M. Schrimp, Damrell Nelson Schrimp Pallious Pacher and Silva, Modesto, CA, for Plaintiffs.Catherine T.S. Gregory, John T. Burnite, Lisa S. Passalacqua, Wilson Elser Moskowitz Edelman and Dicker, San Francisco, CA, for Defendants.

ORDER ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

ANTHONY W. ISHII, Chief Judge.

This is an insurance coverage case that arises out of the death of cattle. Plaintiffs Ted and Sheri Gaylord (“Plaintiffs”) brought suit against Defendants Nationwide Mutual Insurance Company (“Nationwide”) and Amco Insurance Company (“Amco”) (collectively “Defendants”) because Defendants refused to cover the loss and defend Plaintiffs against the claims of a third party. Plaintiffs allege claims for breach of contract, breach of the covenant of good faith and fair dealing, and declaratory relief. Defendants now move for summary judgment on all claims. For the reasons that follow, Defendants' motion will be granted in part, and denied in part.

FACTUAL BACKGROUND

Plaintiffs own and operate a livestock operation known as J & T Cattle Co., whereby they raise beef cattle owned by them as well as beef cattle owned by others. PUMF 1; see also DUMF 4. Plaintiffs' livestock operation is principally located at 27552 Lake Road, La Grange, California. PUMF 2. ¹ Individuals bring cattle to Plaintiffs' farm, where their cattle is fed and cared for by Plaintiffs until the cattle reach a certain weight and are ready for slaughter. JUMF 21.

Nationwide issued a farm-owners insurance policy (“the Farm Policy”) to Plaintiffs on March 26, 2008. JUMF 1. Plaintiffs' livestock operation at 27552 Lake Road is listed as an insured location, and J & T Cattle Company is listed as an additional insured. PUMF 4, 5. The Farm Policy states in part, “You should read your policy and review your declarations page for complete information on the coverages you are provided.” JUMF 2. Similarly, Coverage E of the Farm Policy reads in part, “Various provisions of this policy restrict coverage. Read the entire policy carefully to determine rights, duties, and what is and is not covered.” JUMF 3.

The Farm Policy also includes two “Farm Property Schedules,” but neither schedule lists “livestock.” JUMF 5, 6. The term “farm personal property” is defined to include “livestock,” and “livestock” is defined to include “cattle.” See JUMF 7; Davis Dec. Ex. A at p. 60. Coverage E of the Farm Policy states that Nationwide “will pay for direct physical loss of or damage to Covered Property at the ‘insured location’ described in the Declarations ... caused by or resulting from any COVERED CAUSES OF LOSS.” PUMF 6. Coverage E also states in part, “All of the following are Covered Property under Coverage E of this Coverage Form, provided a limit of insurance is shown in the Declarations for the specific type of property ... (b) ‘livestock,’ ‘poultry,’ and other animals covered against BROAD Covered Causes of Loss....” JUMF 4. Coverage E defines “Broad” covered causes of loss as:

BASIC plus the following: m. breakage of glass or safety glazing material, n. falling objects, o. weight of ice, snow or sleet, p. sudden and accidental tearing apart, q. accidental discharge or leakage of water or steam, r. freezing, s. sudden and accidental damage from electrical current, t. electrocution of covered livestock, u. attacks on covered livestock by dogs or wild animals, v. accidental shooting of covered livestock, w. drowning of covered livestock from external causes, x. loading/unloading accidents, y. collision causing death of covered livestock, z. earthquake loss to livestock, aa. flood loss to livestock.²

JUMF 9.

Coverage E's “Loss Settlement Conditions” page for “Scheduled Farm Personal Property” states in pertinent part: “d. Livestock, Poultry, Bees, Fish, Worms, and Other Animals ... With respect to ‘livestock,’ ... the term loss means death or destruction caused by, resulting from, or made necessary by a covered cause of loss.” JUMF 10.

The Farm Policy contains a “Form Liability Coverage Form” for claims made by third parties against the insureds, which is Coverage H. See JUMF 12. Like Coverage E, Coverage H states in part, “Various provisions in this policy restrict coverage. Read the entire policy carefully to determine rights, duties, and what is or is not covered.” Id. Under the “Insuring Agreement,” Coverage H states: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. 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.” JUMF 13. Coverage H's “Exclusions” provide in part: “b. Contractual Liability ... ‘Bodily injury’ or ‘property damage’ for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement .... q. Custom Farming, Custom Feeding, and Farm Management ... 2) ‘Custom feeding’ of ‘livestock’ by an insured unless specifically endorsed....” Id. Coverage H defined “property damage” to include loss of use or physical injury to tangible property. JUMF 15. Coverage H defined “Custom Feeding” to mean “the raising or feeding of ‘livestock’ for others on an ‘insured location.’ ” Id. Coverage H also excluded “ ‘property damage’ that arises out of or is a result of any breach of a written or oral contract, any breach of any other written or oral agreement, or any breach of an express or implied warranty.” JUMF 14.

The Farm Policy does not contain a “custom care and feeding” endorsement. DUMF 3. However, as part of Coverage H, there is a broad endorsement entitled “Livestock Operations Coverage Endorsement.” PUMF 8. That endorsement states that it “modifies the insurance provided” under the “Farm Liability Coverage Form,” and continues: “In consideration of the premium charged for this endorsement, the liability coverage of this policy applies to your livestock operations. All terms and conditions of this policy apply unless modified by this endorsement.” Farm Policy at p. 94 (emphasis in original).

The Farm Policy has a clause regarding legal actions that states: “Legal Action Against Us ... No one may bring a legal action against us under this form unless ... b. The action is brought within 1 year after the date on which the direct physical loss or damage occurred.” JUMF 11 (emphasis in policy).

Also on March 26, 2008, AMCO issued a farm umbrella policy (“the Umbrella Policy”) to Plaintiffs. JUMF 16. The Umbrella Policy in part provides that it will not apply if the “underlying insurance” does not cover the “loss” for reasons other than exhaustion of an aggregate limit of insurance. See JUMF 17. The Umbrella Policy also adopts the exclusions of the “underlying insurance” as follows: “The exclusions applicable to the ‘underlying insurance’ also apply to this insurance.” See JUMF 18. Like the Farm Policy, the Umbrella Policy includes an exclusion for “Contractual Liability” and “Custom Feeding of Livestock.” See JUMF 19. “Custom Feeding” is defined as “the raising or feeding of livestock for others on an ‘insured location’ on an underlying policy.” Id.

When Plaintiffs purchased the policies, they believed Brian Stewart (“Stewart”) was their broker. PUMF 9. Stewart is identified as the agent on the subject policies. PUMF 10. Plaintiffs had a long-standing professional relationship with Stewart, who handled all of Plaintiffs' personal and business insurance needs since about 1998, and Stewart's father before him since about 1996. PUMF 11. Plaintiffs considered Stewart to be in a position of trust and confidence with them. PUMF 12. Stewart was very familiar with Plaintiffs' personal and business needs, having procured insurance for all of Plaintiffs' needs from medical and tenant insurance to the comprehensive farm-owner's package at issue in this case. PUMF 13. Plaintiffs relied entirely on Stewart to provide adequate and agreed upon coverage for Plaintiffs. PUMF 14. Plaintiffs relied entirely on Stewart to inform them of any contrary provisions in the policies. PUMF 15. Plaintiffs believed Stewart was responsible for explaining the policies to Plaintiffs. See PUMF 16. From March 1996 to March 2007, Plaintiffs purchased their farm policies from Fireman's Fund, which was selected and procured by Stewart and his father before him. PUMF 17.

During the 2006 heat wave, Plaintiffs suffered loss when they had to reimburse a client for the heat-related deaths of about 147 cattle at Plaintiffs' livestock operation. PUMF 18. Stewart informed Plaintiffs that their then existing insurance policy did not provide coverage for losses resulting from acts of God, like the heat wave. See PUMF 19.

When Stewart sought to renew Plaintiffs' policies in March 2007, he advised Plaintiffs to switch to the Nationwide policy because it provided better coverage for Plaintiffs' operation. PUMF 20. Plaintiffs expressed to Stewart their concerns about losses related to contaminated feed, since a local dairy suffered substantial loss after feeding cattle hay tainted with botulism. See PUMF 21. Plaintiffs discussed with Stewart that if such an event occurred on their livestock operation, they would not be able to sustain the losses, and therefore needed adequate coverage. See PUMF 22. Plaintiffs understood, based on Stewart's representations to that effect, that Stewart was researching the most suitable policy for Plaintiffs based on their needs and concerns. PUMF 23. Stewart specifically advised Pl...