Thee Sombrero, Inc. v. Scottsdale Ins. Co., E067505
Decision Date | 25 October 2018 |
Docket Number | E067505 |
Court | California Court of Appeals Court of Appeals |
Parties | THEE SOMBRERO, INC., Plaintiff and Appellant, v. SCOTTSDALE INSURANCE COMPANY, Defendant and Respondent. |
Law Office of Guinevere M. Malley and Guinevere M. Malley, Blue Jay, for Plaintiff and Appellant.
Selman Breitman, Alan B. Yuter, and Rachel E. Hobbs, Los Angeles, for Defendant and Respondent.
Thee Sombrero, Inc. (Sombrero) owns a commercial property in Colton. Pursuant to a conditional use permit (CUP), Sombrero’s lessees operated the property as a nightclub called El Sombrero. Crime Enforcement Services (CES) provided security guard services at the nightclub. In 2007, after a fatal shooting at the nightclub, the CUP was revoked and replaced with a modified CUP, which provided that the property could be operated only as a banquet hall.
In a previous action, Sombrero sued CES, alleging that CES’s negligence caused the shooting, which in turn caused the revocation of the CUP, which in turn caused a diminution in value of the property. It won a default judgment against CES.
Sombrero then filed this direct action ( Ins. Code, § 11580, subd. (b)(2) ) against Scottsdale Insurance Company (Scottsdale), CES’s liability insurer. The trial court granted summary judgment in favor of Scottsdale, ruling that Sombrero’s claim against CES was for an economic loss, rather than for "property damage" as defined in and covered under the policy.
We will hold that Sombrero’s loss of the ability to use the property as a nightclub constituted property damage, which was defined in the policy as including a loss of use of tangible property.
The following facts are taken from the evidence admitted in support of and in opposition to the motion for summary judgment, and also from those allegations of the complaint that Scottsdale did not controvert.
Sombrero owned a piece of commercial property in Colton. A conditional use permit (CUP) had been issued authorizing the use of the property as a nightclub. One of the conditions of the CUP was that the city had to approve the floor plan for the property, and thereafter, the floor plan could not be modified without city approval.
In 2007, Sombrero leased the property to new tenants who operated it as a nightclub called El Sombrero. In connection with the new tenancy, the city inspected the property; it approved a floor plan, and it found that the property was in compliance with the floor plan. As part of the floor plan, the club had a single entrance door, equipped with a metal detector.
CES provided security guard services at El Sombrero. It had a corporate general liability policy issued by Scottsdale. The policy covered CES’s liability for "property damage" caused by an "occurrence." "Property damage" was defined as either (a) "[p]hysical injury to tangible property, including all resulting loss of use of that property," or (b) "[l]oss of use of tangible property that is not physically injured." "Occurrence," for present purposes, was defined as "an accident."
On June 4, 2007, one patron of El Sombrero shot and killed another. After the shooting, Sombrero learned that CES had converted a storage area into a "VIP entrance" to the club. The VIP entrance had no metal detector. The owner of CES admitted that the gun used in the shooting got into the club through the VIP entrance.
As a result of the shooting, Colton revoked the CUP. Sombrero managed to negotiate a modified CUP, which allowed it to operate the property as a banquet hall rather than as a nightclub.
On May 26, 2009, Sombrero sued CES for breach of contract and for negligence. The complaint alleged that CES failed to frisk the shooter and that this failure caused the revocation of the CUP. The revocation of the CUP, in turn, "lower[ed] the resale and rental value of the Property" and caused "lost income." As damages, the complaint sought "the reduction in fair market value of the Property" as well as "lost income."
On May 24, 2012, Sombrero obtained a default judgment against CES for $923,078. Henry Aguila, the president of Sombrero, submitted a declaration in support of the default judgment in which he stated:
On February 20, 2015, Sombrero filed this action against Scottsdale,1 alleging one cause of action for breach of the insurance policy.
On May 10, 2016, Scottsdale filed a motion for summary judgment. It argued that the loss of the CUP was not a loss of use of tangible property but merely the loss of an intangible right to use property in a certain way. It also argued that property damage does not include economic loss.
In its opposition, Sombrero argued, among other things, that it lost the use of tangible property due to the revocation of the CUP. It also argued that, when an economic loss results from the loss of use of tangible property, it is covered as property damage.
On October 11, 2016, after hearing argument, the trial court granted the motion. It explained: (Capitalization altered, punctuation added.)
On November 7, 2016, the trial court entered judgment accordingly.
Sombrero contends that "[t]he loss of use of the [p]roperty by the revocation of the CUP[ ] constitutes ... ‘loss of use of tangible property that is not physically injured.’ "
A ( Martinez v. Combs (2010) 49 Cal.4th 35, 68, 109 Cal.Rptr.3d 514, 231 P.3d 259.)
Sombrero persistently argues that Scottsdale had to show that there was no potential for coverage. However, as it acknowledges (albeit in throwaway fashion), this standard applies to the duty to defend, not the duty to indemnify. ( Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1120, 90 Cal.Rptr.2d 647, 988 P.2d 568.) Thus, Scottsdale only had to show that there was no actual coverage.
This does not mean that cases dealing with a duty to defend are irrelevant. If a case holds that there is no duty to defend on facts similar to those here, it necessarily follows that there is also no duty to indemnify. Contrariwise, if a case holds that there is a duty to defend, because there is a potential that the facts might turn out to be similar to the facts here, it follows that there is a duty to indemnify on these facts.
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