La Roca Christian Cmtys. Int'l v. Church Mut. Ins.
| Decision Date | 12 November 2020 |
| Docket Number | Case No.: 20cv1324 DMS (BGS) |
| Parties | LA ROCA CHRISTIAN COMMUNITIES INTERNATIONAL, INC., Plaintiff, v. CHURCH MUTUAL INSURANCE CO. Defendant. |
| Court | U.S. District Court — Southern District of California |
This case comes before the Court on Defendant's motion to dismiss. Plaintiff filed an opposition to the motion, and Defendant filed a reply. For the reasons discussed below, the motion is denied.
The present case arises out of a March 2018 commercial lease agreement ("Lease") between Plaintiff La Roca Christian Communities International, Inc. ("Plaintiff" or "La Roca") and Pacific Coast Christian Prep ("PCCP"). (Compl. ¶17.) La Roca is a nonprofit church and PCCP previously operated a primary school. (Id.) PCCP entered the Lease for the purpose of opening and operating a primary school on La Roca's premises. (Id.) The Lease required a number of tenant improvements, some of which were paid for by La Roca and others by PCCP. (Id. ¶18.) Ultimately, not all of the improvements were completed prior to the start of the school year, and PCCP was unable to occupy the premises and use it as a school. (Id. ¶19.) As a result, PCCP was forced to move its school operation to an alternative site and suffered damages from loss of its tenant improvements and other personal property. (Id.)
In March 2019, PCCP filed a demand for arbitration against Plaintiff La Roca alleging claims for breach of contract and unjust enrichment. (Id. ¶¶20-21.) La Roca thereafter tendered PCCP's claim to Defendant Church Mutual Insurance Company for defense and indemnity coverage under a multi-peril insurance policy it had issued to La Roca, numbered 0263084-02-094345, effective March 21, 2018, to March 21, 2021 ("the Policy"). (Id. ¶¶6, 27.) Defendant denied La Roca's request for defense and indemnity coverage, but paid it $20,000 (less a $250 deductible) under the Policy's Legal Defense Coverage. (Id. ¶29.) La Roca asked Defendant to reconsider its denial, but Defendant failed to respond to Plaintiff's request. (Id. ¶¶32-39.) The arbitrator then issued an Interim Award, awarding PCCP monetary damages against La Roca in the amount of $177,793.07. (Id. ¶40.) After the Interim Award was issued, La Roca forwarded it to Defendant and again requested that Defendant reconsider its denial of the claim. (Id. ¶¶41-43.) Ultimately, Defendant reaffirmed its denial. (Id. ¶¶44-47.) The arbitrator then issued a Final Award in favor of PCCP and against La Roca in the amount of $337,930.04, which included the interim award plus attorneys' fees, costs and prejudgment interest. (Id. ¶48.) Both PCCP and La Roca filed petitions to vacate the arbitration award in state court, which petitions are pending. (Id. ¶49.)
On July 14, 2020, Plaintiff La Roca filed the present case against Defendant arising from its denial of La Roca's request for coverage under the Policy. La Roca alleges claims for declaratory relief (duty to defend), declaratory relief (duty to indemnify), breach of contract, specific performance and bad faith. In response to the Complaint, Defendantfiled the present motion to dismiss.
Defendant moves to dismiss Plaintiff's Complaint in its entirety. It argues Plaintiff is not entitled to coverage because there was no "property damage" based on an "occurrence" as those terms are defined in the Policy. In the absence of coverage, Defendant argues the bad faith claim must also be dismissed.
In Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the Supreme Court established a more stringent standard of review for 12(b)(6) motions. To survive a motion to dismiss under this standard, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556).
"Determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679 (citing Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007)). In Iqbal, the Court began this task "by identifying the allegations in the complaint that are not entitled to the assumption of truth." Id. at 680. It then considered "the factual allegations in respondent's complaint to determine if they plausibly suggest an entitlement to relief." Id. at 681.
Defendant's motion to dismiss depends on issues of contract interpretation. "'Resolution of contractual claims on a motion to dismiss is proper if the terms of the contract are unambiguous.'" Monaco v. Bear Stearns Residential Mortg. Corp., 554 F.Supp.2d 1034, 1040 (C.D. Cal. 2008) (quoting Bedrosian v. Tenet Healthcare Corp., 208F.3d 220 (9th Cir. 2000)). "A contract provision will be considered ambiguous when it is capable of two or more reasonable interpretations." Id. (citing Bay Cities Paving & Grading, Inc. v. Lawyers' Mut. Ins. Co., 5 Cal. 4th 854, 867 (1993)). "Language in a contract must be interpreted as a whole and in the circumstances of the case." Id. (citing Bank of W. v. Superior Court, 2 Cal. 4th 1254, 1265 (1992)). "Where the language 'leaves doubt as to the parties' intent,' Consul Ltd. v. Solide Enters., Inc., 802 F.2d 1143, 1149 (9th Cir. 1986), the motion to dismiss must be denied." Id.
In this case, the relevant policy provisions provide:
We [Defendant] will pay those sums that the insured [La Roca] becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. 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.
(Compl., Ex. A, ECF No. 1-2 at 121.) The Policy goes on to state: "This insurance applies to 'bodily injury' and 'property damage' only if: (1) The 'bodily injury' or 'property damage' is caused by an 'occurrence' that takes place in the 'coverage territory'". (Id.) The Policy defines "property damage" as:
(Id. at 133.) "Occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Id.)
Here, Defendant argues that PCCP's "suit" for damages against La Roca was limited to "lost tuition and lost tenant improvements and equipment" (Mot. at 9.) Defendantargues neither of these losses seeks covered "property damage" under the Policy, and that even if it did, neither was caused by an "occurrence" under the Policy. Plaintiff disputes that lost tuition and lost tenant improvements and personal property were the only damages sought by PCCP in the underlying case. It asserts PCCP also alleged loss of use of real property, namely "loss of use of the premises as a school[.]" (Opp'n at 7.) These losses, according to La Roca, are covered "property damage" as they constitute "loss of use of tangible property that is not physically injured[.]" La Roca further argues the losses were caused by an "occurrence" and thus, triggered both a duty to defend and a duty to indemnify.
It is undisputed that an insurer owes "a broad duty to defend its insured against claims that create a potential for indemnity." Montrose Chem. Corp. of Cal v. Superior Court, 6 Cal. 4th 287, 295 (1993). Whether an insurer has a "duty to defend is determined by reference to the policy, the complaint, and all facts known to the insurer from any source." Id. at 300. If an insurer wrongfully fails to defend its insured, it is required to indemnify the insured for the resulting judgment, even though the duty to indemnify is narrower than the duty to defend. Pruyn v. Agricultural Ins. Co., 36 Cal. App. 4th 500, 518 (1995).
La Roca argues the duty to defend was triggered under the Policy in light of the allegations leveled against it by PCCP in the underlying arbitration, the testimony presented at arbitration, and the arbitrator's findings. In essence, PCCP accused La Roca of breaching the lease by failing to timely prepare the property to meet fire and other code requirements so it could be used by PCCP as a school. While La Roca worked on the property to make it code-compliant, PCCP also made improvements to the property, including installing IT equipment, cable, phones, speakers, projectors, internal wiring, power outlets, doors, smartboards, and other school-specific items. An expert witness on behalf of PCCP testified that La Roca's work fell below the standard of care, causing it to miss inspection deadlines and fail to timely deliver a code-compliant property in accordance with the terms of the Lease. Based on these allegations and the evidencepresented at arbitration, the arbitrator found that "La Roca agreed to a date [to turn full possession of the property over to PCCP] with no understanding of whether it was reasonably achievable." (Compl. ¶ 27, Ex. D at 416.) The arbitrator further found that, "What La Roca did not know was that having a school on the property significantly changed the scope of work and equipment needed to bring the property into compliance with the latest fire code." (Id.) These facts, according to La Roca, give rise to a potential for...
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