Kunde Enters., Inc. v. Nat'l Sur. Corp.
| Decision Date | 21 June 2022 |
| Docket Number | Case No. 19-cv-06636-JSW |
| Citation | 608 F.Supp.3d 883 |
| Parties | KUNDE ENTERPRISES, INC., Plaintiff, v. NATIONAL SURETY CORPORATION, Defendant. |
| Court | U.S. District Court — Northern District of California |
Brook Blaine Roberts, James A. Tabb, Michael Lee Huggins, John Michael Wilson, Steven B. Lesan, Melanie Jean Grindle, Latham Watkins LLP, San Diego, CA, for Plaintiff.
Melissa Andrea Dubbs, Jonathan Gross, Mound Cotton Wollan & Greegrass LLP, Emeryville, CA, Kathleen M. DeLaney, Usery & Associates, Walnut Creek, CA, for Defendant.
ORDER RESOLVING CROSS-MOTIONS FOR SUMMARY JUDGMENT
Re: Dkt. Nos. 64, 70
Now before the Court for consideration are the cross-motions for summary judgment filed by Plaintiff Kunde Enterprises, Inc. ("Kunde") and National Surety Corporation ("National Surety" or "Defendant"). The Court has reviewed the parties’ papers, relevant legal authority, and the record in the case, and it finds this matter suitable for disposition without oral argument. See N.D. Civ. L.R. 7-1(b). For the following reasons, the Court GRANTS, in part, and DENIES, in part, Kunde's motion and DENIES National Surety's cross-motion.
Kunde brings this action for declaratory relief, breach of contract, and good faith and fair dealing against National Surety and seeks coverage for losses to smoke-damaged wines arising out of 2017 wildfires in Napa and Sonoma Counties.
On August 23, 2019, Kunde filed this action in Sonoma County Superior Court, and National Surety removed the case to federal court on October 16, 2019. (Dkt. No. 1.) On February 18, 2022, Kunde filed a motion for summary judgment on its claims for breach of contract and declaratory relief. (Dkt. No. 64.) National Surety filed an opposition to Kunde's motion and a cross-motion, which seeks summary judgment on Kunde's claim for breach of implied covenant of good faith and fair dealing and the request for punitive damages in addition to the contract and declaratory relief claims. (Dkt. No. 70.)
Kunde is a family operated winery and vineyard in Kenwood, California. (Joint Statement of Facts ("JSF") ¶ 1.) Kunde purchased a property insurance policy from National Surety for the period April 1, 2017, through April 1, 2018 (the "Policy"). (Id. ¶ 2.)
In October 2017, the Nuns Fire in Sonoma County merged with several other fires and encompassed much of the area that included Kunde's property. (Id. ¶ 5; see also Dkt. No. 64-3, Declaration of Zach Long ("Long Decl.") ¶ 5.) Smoke from the Nuns Fire infiltrated Kunde's vineyard and winemaking facilities. (JSF ¶ 6.) As a result, the finished wine from this period "conveyed strong aromas and undesirable tastes" and was unmarketable beyond salvage value. (Id. ) This smoke damage to wines is referred to as "smoke taint."
The smoke taint affected two groups of Kunde's wines: (1) the "Watch List" wines, and (2) the "Fire Lot" wines. (Id. ¶ 7.) At the time the wildfires began, Kunde had already harvested or purchased certain grapes, crushed them, and put the resulting must into vats to be processed into wine. (Long Decl. ¶ 6; see also JSF ¶ 7.) The fifteen (15) lots of finished wine made from these grapes are the Watch List wines.1 (Id. ) Testing of the finished Watch List wines showed smoke taint. (Long Decl. ¶ 6; see also JSF ¶ 7.)
Kunde also made wine from grapes harvested between October 20, 2017, and October 30, 2017. (JSF ¶ 7.) A week after the wildfires began, Kunde sent four samples of grapes to ETS Laboratories ("ETS") for testing. (Long Decl. ¶ 7.) ETS tested only two of the four samples—4CS1 and 3CS26—because of the high volume of testing requests at the time. (Id. ) ETS found significant levels of smoke taint compounds in the samples from block 3CS26. (Id. ¶ 8.) Kunde did not harvest these grapes and allowed them to rot on the vine. (Id. ) ETS found insignificant levels of smoke taint compounds in the sample from block 4CS1, and Kunde harvested the grapes from this block. (Id. ¶¶ 8-9.) Kunde also harvested grapes from other blocks that were located farther from the fire. (Id. ¶ 9.) The grapes from these blocks were not tested. The harvested grapes from block 4CS1 and the untested blocks were crushed and placed into the vats for fermentation. (Id. ) The thirty-two (32) lots of finished wines made from these grapes are the Fire Lot wines. (Id. ) Testing of the finished Fire Lot wines showed smoke taint. (Id. ; see also JSF ¶ 7.)
On October 16, 2017, Kunde provided initial notice of loss and claim to National Surety. (JSF ¶ 8; see also Dkt. No. 65, Joint Appendix of Exhibits "(JA"), Ex. 12.) Kunde provided additional information regarding its claimed losses to National Surety over the next year. (JSF ¶ 9.) On October 9, 2018, National Surety sent a letter to Kunde regarding coverage. (JA, Ex. 4; see also JSF ¶ 10.) National Surety reported that the smoke taint damage to the Fire Lot wines resulted from the grapes’ exposure to smoke while they were on the vines prior to harvest and did not occur from exposure to smoke during the wine production process, as Kunde asserted. (JA, Ex. 4 at ALLIANZ_000004.) Because the Policy excludes coverage for damage to grapes on the vine, National Surety denied coverage for the Fire Lot wines. (Id. ) On October 22, 2018, Kunde disputed National Surety's denial of coverage for the smoke tainted wines. (Id. , Ex. 5 at ALLIANZ_000631; see also JSF ¶ 11.)
On March 14, 2019, National Surety sent an additional letter to Kunde regarding coverage. (JSF ¶ 12; see also JA, Ex. 6.) Based on additional information and further investigation, National Surety determined the Policy provided some coverage for the smoke tainted Watch List wines, which were made with grapes harvested before the fires began. (JA, Ex. 6 at ALLIANZ_000027.) National Surety maintained its denial of coverage for the Fire Lot wines based on its belief that the smoke taint damage to the grapes used to make the Fire Lot wines occurred on the vine. (Id. )
On August 22, 2018, counsel for Kunde objected to National Surety's coverage position and requested further reconsideration. (JSF ¶ 13.) National Surety maintained its coverage position. (Id. ¶ 14.)
The Policy's Property-Gard Business and Real and Personal Property Coverage Form ("Property Coverage Form") has limits of $35,060,173. (JA, Ex. 1, at ALLIANZ_000099.) The Property Coverage Form "insures all risks of direct physical loss or damage, except as excluded or limited elsewhere in this Coverage Section." (Id. at ALLIANZ_000140.) The "Property Not Insured" provision states:
(Id. )
The Property Coverage Form contains an "Exclusions" provision, which provides in relevant part:
(Id. at ALLIANZ_000142.)
The Policy contains a Perishable Stock Coverage Endorsement, which states:
(Id. at ALLIANZ_000201-02.)
The Court will address additional facts as necessary in the analysis.
Pursuant to Federal Rule of Civil Procedure 56(c), summary judgment is proper only where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the [moving party] is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). On issues where the moving party does not have the burden of proof at trial, the moving party is required only to show that there is an absence of evidence to support the nonmoving party's case. See Celotex Corp. v. Catrett , 477 U.S. 317, 326, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Upon such showing, the court may grant summary judgment "on all or part of the claim." Fed. R. Civ. P. 56(a)-(b).
The moving party initially bears the burden of proving the absence of a genuine issue of material fact. Celotex , 477 U.S. at 323, 106 S.Ct. 2548. 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. Id. at 325, 106 S.Ct. 2548. Where the...
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