Jihan, Inc. v. Amco Ins. Co.

Decision Date14 May 2021
Docket NumberCase No.: 20-CV-97 TWR (WVG)
Citation539 F.Supp.3d 1070
Parties JIHAN, INC., a California corporation, Diana, Inc., a California corporation, Souad, Inc., a California corporation, doing business as AMPM Arco Jamul, Plaintiffs, v. AMCO INSURANCE COMPANY, an Iowa Corporation, Defendant.
CourtU.S. District Court — Southern District of California

Michael R. Buscemi, Buscemi Hallett LLP, San Diego, CA, for Plaintiffs.

Michelle Rene Bernard, Gordon & Rees, LLP, San Diego, CA, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFFSMOTION FOR SUMMARY JUDGMENT

Todd W. Robinson, United States District Judge

Presently before the Court are two motions: (1) the Motion for Summary Judgment (ECF No. 19) filed by Defendant Amco Insurance Company ("Amco"); and (2) the Motion for Partial Summary Judgment (ECF No. 18) filed by Plaintiffs Jihan, Inc., Diana, Inc., and Souad, Inc. d/b/a AMPM Arco Jamul ("Plaintiffs") (collectively, "Cross-Motions"). For the reasons set forth below, the Court GRANTS Amco's Motion for Summary Judgment and DENIES PlaintiffsMotion for Partial Summary Judgment.

I. Background

This insurance coverage dispute arises from two property loss claims ("Claims") submitted by Plaintiffs in connection with their car wash and oil change facility ("Car Wash") in Jamul, California. The Claims involve alleged damage to the building structure and certain car wash systems and other equipment caused by a May 15, 2018 electrical fire ("Fire Loss") as well as a second claim for damages resulting from an alleged vandalism incident ("Vandalism Loss") that occurred approximately one month later (collectively, "Losses"). Plaintiffs sought coverage for the Losses under a commercial property insurance policy ("Policy") issued by Amco to Plaintiffs. Amco partially denied coverage for the Claims based on Amco's contention that Plaintiffs sold the car wash systems, machinery, and other business personal property items to a third party prior to the date of the Losses as well as Policy exclusions for damage caused by wear and tear, negligent maintenance and dishonesty/entrustment.

A. Leasing and Sale Transactions

Plaintiffs are tenants on a ground lease with Raul Rodriguez for the property located at 13886 Campo Road, Jamul, California 91935 ("Property"). (Amended Joint Statement of Undisputed Material Facts ("Fact") 1, 115.)1 The Property includes Plaintiffs’ gas station and convenience store, which is not at issue, and the Car Wash. (Fact 1.) Plaintiffs purchased the Car Wash equipment in 2002 for approximately $285,000 and constructed the Car Wash on the Property in 2005. (Fact 2, 4, 121.)

After operating the gas station, convenience store, and Car Wash for several years, Plaintiffs decided to sell the Car Wash business to Haitham Hermiz in April 2016. (Fact 7, 146.) On April 6, 2016, Plaintiffs’ principal, Souad Yacoub, and Hermiz executed a Business Purchase Agreement ("Agreement") for the Car Wash. (Fact 7, 147.) The Agreement states:

This AGREEMENT shall act as a bill of sale regarding the transfer of assets by SELLER to BUYER which is necessary to carry out this AGREEMENT.
BUYER [sic] is transferring all assets of the CAR WASH and QUICK LUBE, including, but not limited to, inventory, machinery, furniture, trade fixtures, car wash systems and other equipment, fictitious business names, trade names, logos, signs, and goodwill. Provided, however, that leasehold improvements are not part of the AGREEMENT, and SELLER shall retain all ownership of said leasehold improvements. Also included are the tanks used to collect and recycle the water used in the car wash system.

(Fact 9, 148.) The Agreement states that "BUYER to pay sales taxes as a result of this sale of business, on the value of the fixtures and equipment specified herein." (Hermiz Decl., Ex. A at 2, ECF No. 18-1.) The "value of the fixtures and equipment specified herein" is as follows:

The SELLER and BUYER allocate the purchase price to the following items:

Sublease $215,000.00
Trade Fixtures & Equipment $4,500.00
Goodwill $30,000.00
Inventory $500.00
Total sale price $250,000.00

(Id. at 3.) The Agreement was drafted by Yacoub's attorney. (Fact 86.)

On the same date, April 6, 2016, Plaintiffs and Hermiz entered into a "Sublease," wherein Hermiz agreed to pay $6,000 per month to rent the building in which the businesses were housed. (Fact 10.) The Sublease required Plaintiffs to have "insurance to cover fire damage to the building itself" and Hermiz was required to obtain insurance for "damages for bodily injury and property damage, arising from its business operation on the premises." (Fact 11.)

On April 14, 2016, Plaintiffs and Hermiz executed a "Bill of Sale" assigning the "Business Goodwill, Furniture, Fixtures, Equipment, Machinery, Logos, Signs, and Inventory of Stock in Trade" of the Car Wash. (ECF No. 18-3 at 146.) The Car Wash inventory attached to the Bill of Sale lists three items totaling $46.30. (ECF No. 18-3 at 149.) Plaintiffs and Hermiz amended the allocation of the $250,000 purchase price the of the Car Wash as follows: $1,229.85 for fixtures and equipment, $33,420.95 for goodwill, $349.20 for inventory and supplies, and $215,000 for the sublease. (ECF No. 18-3 at 151.)

On July 25, 2016, Hermiz sold the Car Wash business to Salah Polus. (Fact 13.) An Assignment and Assumption of Sublease Agreement was signed and entered into between Hermiz, Polus, and Yacoub, on August 23, 2016 assigning the Sublease for the Car Wash building from Hermiz to Polus. (Fact 14.) As required by the Sublease, Polus obtained an insurance policy issued to the Car Wash by State Farm Insurance Company ("State Farm") in effect for the period December 7, 2017 to December 7, 2018. (Fact 19.) Tax records for the Property show that Polus paid taxes on the business personal property related to the Car Wash business. (Fact 79.) County tax records reflect that Yacoub paid taxes on real property improvements. (Fact 80.)

B. Losses and Insurance Investigations

On May 15, 2018, there was a fire at the Property which started in the controller room located in the Car Wash tunnel area as a result of an electrical malfunction in a junction box. (Fact 21.) The fire damaged the Car Wash controller room including the control panel, ceiling framing, roof covering, building electrical, and car wash controller equipment located in the controller room. (Fact 172-74.) None of the machinery or equipment located outside of the controller room in the Car Wash was damaged by the fire. (Fact 23.)

On May 16, 2018, Yacoub reported the Fire Loss to AMCO and AMCO assigned Carolyn Johnson Gray as the adjuster. (Fact 24.) Polus likewise tendered the Fire Loss to his insurer, State Farm. (Fact 25.) On May 22, 2018, Yacoub spoke with Johnson Gray and requested that AMCO "cancel the claim" because Yacoub's "tenant [wa]s going to make a claim under his insurance." (Fact 26.) Polus then refused to pay rent for the Car Wash. (Fact 29, 169.) This prompted Plaintiffs to begin eviction proceedings against Polus. (Fact 29.) On June 22, 2018, Yacoub contacted AMCO and advised that she wanted to pursue the claim related to the Fire Loss under the Policy. (Fact 30, 180.) Yacoub said she was out of the country and was in the process of evicting Polus and would not have access to the Property until July 10, 2018. (Fact 31.)

Plaintiffs assert that, sometime in July 2018, Polus or his agents damaged the Property by changing the locks, spray painting, removing shelves, removing pumps and hoses, removing a door, and damaging electrical equipment, security equipment and Car Wash equipment. (Fact 33.) This is the alleged damage constituting the Vandalism Loss. Plaintiffs reported the Vandalism Loss to the Jamul Police Department on November 7, 2018. (Fact 34.)

Plaintiffs retained Hot Wax, a car wash equipment retailer, to inspect the Property and prepare an estimate for the repair of the damage to the Car Wash equipment. (Fact 36.) On September 14, 2018 and October 12, 2018, Brian Lutz, the president and owner of Hot Wax, inspected the Property. (Fact 37.) Amco submits a Declaration from Lutz, who states: "It was obvious from my inspection of the premises that the subject car wash equipment had not been maintained and the machinery overall was in poor condition with cracking plastic parts, corrosion at joints in pipes and visible rust in many areas." (Lutz Decl. ¶ 5, ECF No. 19-7.) Lutz states that "several pieces of the car wash equipment were in a state of disrepair totally unrelated to the fire," and "[a]lthough there was a Motor Control Center, Variable Frequency Drive and Tunnel Controller that were in control room that were damaged by the fire, all of the equipment needs replacing, not because it was damaged by the fire, but because the equipment is old and obsolete and poorly maintained." (Id. ¶¶ 6, 7.)

On September 4, 2018, Amco adjuster Johnson-Gray was permitted to inspect the Property. (Fact 42.) On November 1, 2018, Plaintiffs provided Amco with an estimate for repair of the Car Wash from their contractor, Vladic Construction, totaling more than $713,000. (Fact 209.) On November 6, 2018, a new AMCO adjuster, James Boles, was assigned to the Claims. (Fact 44.) Boles inspected the Property with Yacoub on November 13, 2018. (Fact 45.) On November 13, 2018, Boles spoke with Neil Dik of Frylit, a car wash component retailer who had performed the original installation of the Car Wash equipment.2 (Fact 47.) The Parties dispute when Plaintiffs provided Amco with copies of the lease and subleases at issue (Fact 100), however they agree that Plaintiffs first provided Amco with a copy of the Agreement on February 19, 2019. (Fact 51.)

Polus tendered both the Fire Loss and the Vandalism Loss to his insurer, State Farm.3 (Fact 52, 53.) State Farm investigated the Losses and ultimately paid Polus $278,586.36 for the damaged Car Wash systems, machinery and equipment and $66,742.00 for Polus’ loss of...

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