Semx Corp. v. Federal Ins. Co.

• Decision Date: 31 August 2005
• Docket Number: No. CIV04CV2449WQHWMC.,CIV04CV2449WQHWMC.
• Citation: 398 F.Supp.2d 1103
• Court: U.S. District Court — Southern District of California
• Parties: SEMX CORPORATION, Plaintiff, v. FEDERAL INSURANCE COMPANY, and Does 1 through 9, Defendants.

398 F.Supp.2d 1103

SEMX CORPORATION, Plaintiff, v. FEDERAL INSURANCE COMPANY, and Does 1 through 9, Defendants.

No. CIV04CV2449WQHWMC.

United States District Court, S.D. California.

August 31, 2005.

COPYRIGHT MATERIAL OMITTED

Brooks L. Iler, Iler and Iler, Poway, CA, for Plaintiff.

Ann M. Ghazarians, Harrington Foxx Dubrow and Canter, Los Angeles, CA, for Defendant.

ORDER: (1) GRANTING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT NO. ONE [Doc. No. 15]; AND (2) GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT NO. TWO [Doc. No. 22]

HAYES, District Judge.

I. Introduction

This case arises out of an insurance coverage dispute between a corporate policy holder and its insurer regarding certain claims made by the policy holder under an insurance policy containing first-party property and third party liability coverages. On November 1, 2004, Plaintiff SEMX Corporation ("Plaintiff" or "SEMX") filed a complaint against Defendant Federal Insurance Company ("Defendant" or "Federal") in the Superior Court of California for the County of San Diego. Plaintiff's complaint is based on Defendants alleged denial of certain claims for insurance coverage advanced by Plaintiff relating to an accidental release of chemicals that caused first and third party damages at Polese Company's (a subsidiary of Plaintiff) manufacturing plant in San Diego. On December 7, 2004, Defendant removed the action to this Court. On April 25, 2005, Plaintiff filed a first amended complaint.

Currently pending before the Court are two, separate motions by Defendant for partial summary judgment / adjudication. Both of Defendant's motions for partial summary judgment center on Defendant's assertion that it did not breach any duty owed to Plaintiff under the insurance policy. Defendant claims that it was not in breach of contract or in breach of the implied covenant of good faith and fair dealing with respect to the first and third party claims asserted by Plaintiff under the policy. On July 29, 2005, the Court heard the parties' oral arguments and now issues the following order.

II. Factual Background

Plaintiff, is a corporation with it's principal place of business in New York. First Amended Complaint ("FAC"), ¶ 1. On or about March 21, 2001, Defendant, a licensed insurer doing business in California, insured Plaintiff under "comprehensive business" policy # 3529-07-27 STL (the "Policy"). Id. at ¶ 5. On or about March 21, 2001, an accident occurred at Plaintiff's Carroll Canyon premises ("the Polese Company") wherein ammonia gas was released into the air, causing damages which Plaintiff alleges were recoverable under the Policy. Id. at ¶ 7. Plaintiff alleges that it promptly notified Defendant of the accident and submitted a claim for its alleged damages. Id. at ¶ 7. Plaintiff allegedly enumerated in its claim, damages resulting from a loss of business, property damage, and alleged injuries to third parties. Id. at ¶¶ 7.

At some point after the submission of the claim, Defendant accepted liability for Plaintiff's loss of business and property damage, but initially denied coverage for third party tort claims advanced against Plaintiff. Id. at ¶ 8. Subsequently, Defendant provided Plaintiff with approximately $300,000 to cover the property damage Plaintiff sustained, paid $1,500,000 for "business interruption" and later "pick[ed] up the defense and indemnification of the claims for personal injury." Id. at ¶ 8. Plaintiff allegedly notified Defendant that it suffered a $4,000,000 loss in income due to the closing of its facilities. Id. at ¶ 9. Defendant retained the accounting firm of Cornwell & Nathan, LLP "to do an exhaustive review of plaintiff's business records." Id. at ¶ 10. Plaintiff alleges that Cornwell & Nathan "concluded that plaintiff lost approximately $1,785,001 in income." Id. at ¶ 11. However, Plaintiff contends that Defendant did not pay Plaintiff the full amount of loss, as determined by Cornwell & Nathan. Further, Plaintiff alleges that Defendant breached its duty under the Policy when it failed to pay the amount of loss determined by Cornwell & Nathan. Id. at ¶ 12. In addition, Plaintiff alleges that Defendant had a duty to disclose the contents of a particular report prepared by Cornwell & Nathan (the "Cornwell report") in connection with Cornwell & Nathan's analysis. Id. at ¶ 16.

Additionally, at some point after the submission of Plaintiff's claim, Defendant denied a duty to cover Plaintiff in third party tort claims asserted by two individuals complaining of personal injury. Id. at ¶ 18. On several occasions between the date of the accident and approximately November 15, 2001, Plaintiff allegedly communicated its position to Defendant that Plaintiff was due coverage of the third party claims by way of defense and indemnity. However, Defendant allegedly maintained its position that the claims were not covered under the Policy. Plaintiff alleges that it proceeded in providing its own defense of the third party claims and assumed the cost of such defense. According to Plaintiff, on or about November 10, 2003, Defendant changed its position, and proceeded to defend and indemnify Plaintiff. Based on its allegations, Plaintiff asserts causes of action for (1) breach of contract, (2) bad faith, (3) unfair competition, and (4) fraud.

III. Legal Standard

Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure where the moving party demonstrates the absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A fact is material when, under the governing substantive law, it could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute over a material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

A party seeking summary judgment always bears the initial burden of establishing the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. 2548. The moving party may meet this burden in two ways: (1) by presenting evidence that negates an essential element of the nonmoving party's case or (2) by demonstrating that the nonmoving party failed to make a showing sufficient to establish an element essential to that party's case on which that party will bear the burden of proof at trial. Id. at 322-23, 106 S.Ct. 2548. If the moving party fails to discharge this initial burden, summary judgment must be denied and the court need not consider the nonmoving party's evidence. Adickes v. S.H. Kress & Co., 398 U.S. 144, 159-60, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970).

If the moving party satisfies its initial burden, the nonmoving party cannot defeat summary judgment merely by demonstrating "that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); see also Anderson, 477 U.S. at 252, 106 S.Ct. 2505 ("The mere existence of a scintilla of evidence in support of the nonmoving party's position is not sufficient."). Rather, the nonmoving party must "go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Celotex, 477 U.S. at 324, 106 S.Ct 2548 (quoting Fed.R.Civ.P. 56(e)) (internal quotations omitted).

In ruling on a motion for summary judgment, "[t]he district court may limit its review to the documents submitted for purposes of summary judgment and those parts of the record specifically referenced therein." Carmen v. San Francisco Unified Sch. Dist., 237 F.3d 1026, 1030 (9th Cir.2001). Therefore, the court is not obligated to "scour the record in search of a genuine issue of triable fact." Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir.1996) (citing Richards v. Combined Ins. Co., 55 F.3d 247, 251 (7th Cir.1995)). The court must view all inferences drawn from the underlying facts in the light most favorable to the nonmoving party. Matsushita, 475 U.S. at 587, 106 S.Ct. 1348. "Credibility determinations [and] the weighing of evidence ... are jury functions, not those of a judge, [when] he [or she] is ruling on a motion for summary judgment." Anderson, 477 U.S. at 255, 106 S.Ct. 2505.

IV. Discussion

Defendant moves for partial summary judgment in two separate motions. The first motion for partial summary judgment centers on Plaintiff's allegations relating to the settlement of the first-party¹ damage claims asserted by Plaintiff under the Policy. The second motion centers on Plaintiff's allegations that arise out of the way in which Defendant handled the third party suits filed against Plaintiff in the aftermath of the March 21, 2001 accident. The Court addresses each in turn.

A. Defendant's Motion for Summary Judgment on the First-Party Claims

Plaintiff asserts causes of action based on Defendant's insurance coverage of the first-party damages that Plaintiff suffered due to the March 21, 2001 accident: (1) breach of contract (the Policy); and (2) bad faith (also referred to as Plaintiff's breach of the implied covenant of good faith and fair dealing claim); (3) unfair competition and (4) fraud See FAC. Defendant's first motion for partial summary judgment moves for judgment on the breach of contract and bad faith causes of action on grounds that (1) Plaintiff's breach of contract and bad faith claims are barred by a two-year limitation contained in the contract for actions on a claim, and in the alternative (2) if the Court finds the contractual limitation to not apply, Plaintiff's bad faith claim is still barred by the governing statute of limitations. Defendant's first motion for partial summary judgment...