Tocher v. Sequoia Ins. Co.

Decision Date15 September 2011
Docket NumberC066390,Super. Ct. No. 166700
PartiesG. NEIL TOCHER et al., Plaintiffs and Appellants, v. SEQUOIA INSURANCE COMPANY, Defendant and Respondent.
CourtCalifornia Court of Appeals Court of Appeals


California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

Plaintiffs G. Neil Tocher and Missy Ann Tocher, doing business as Lone Rancher Enterprises, LP (the Tochers), sued defendant Sequoia Insurance Company (Sequoia) after Sequoia denied the Tochers' tender of defense in an underlying arbitration proceeding. The Tochers now appeal from the judgment entered pursuant to stipulation after the trial court determined that the counterclaims in the underlying arbitration proceeding were not covered by the Sequoia policy.

The Tochers contend on appeal that coverage existed under the personal injury liability provision of the Sequoia policy. We conclude, however, that the insurance covered claims arising from operations usual or incidental to farming, but the arbitration counterclaims pertained to hydroelectric power generation and did not involve "farming" as defined in the Sequoia policy.

Accordingly, there are no triable issues of material fact. We will affirm the judgment.


The Tochers own a 547-acre farm and cattle ranch (known as the Twin Valley Ranch) located near Whitmore, California (the property). The property has many lakes, watering ponds and pastures.

On September 25, 2007, the Tochers entered into a written 45-year lease and land use agreement (the lease agreement) with Shasta View, Inc., doing business as T.V. Ranch Hydro Management (Shasta View). The lease agreement was "for the lease, licensing and utilization of California State Water Resource Control Board (SWRCB) Water Use Permit #021001 and Water Use License #01334, Federal Energy Regulatory Commission (FERC) Exemption Project No. 6905-CA[,] and water conveyance facilities, penstock, powerhouse and transmission lines existing on [the Tochers'] property . . . for the purpose of [the] generation, sale and delivery of electrical energy for the mutual profit of [the Tochers and Shasta View] and in a manner which will not detract from the agricultural activities on [theproperty]." The lease agreement provided that the Tochers' and Shasta View's names would be listed as co-owners on California State Water Resources Control Board (SWRCB) water use permits and licenses and Federal Energy Regulatory Commission (FERC) exemptions and licenses, and for the equal sharing of all permit, licensing, and exemption fees.

Under the lease agreement, Shasta View would pay the Tochers $400,000 and 35 percent of all monies Shasta View received from the sale of the hydroelectric power generated at the property, minus expenses for taxes on the improvements and equipment used in, and insurance for, the hydroelectric power operation. The lease agreement required the Tochers to make all water not used on the property available to Shasta View for power generation, and it required Shasta View to purchase, install, operate, and maintain new power-producing equipment at the powerhouse located on the property and to pay for any modification, maintenance, or repair to the forebay, penstocks, springs, or Murphy ditch. The lease agreement contained a mandatory arbitration provision.

Sequoia issued a policy of insurance to the Tochers covering farming operations on the property during the period August 23, 2008, to August 23, 2009 (Sequoia Policy). The Sequoia Policy provided first-party property coverage and third-party liability coverage. The farmowners policy declarations to the Sequoia Policy identified the Tochers as the named insureds and described the Tochers' business as "Grazing Land Leased to Others."

The Sequoia Policy covered damages because of "personal injury" if caused by an offense "[a]rising out of . . . operations usual or incidental to 'farming.'" The Sequoia Policy defined "personal injury" as injury other than "bodily injury" arising out of, among other offenses, the oral or written publication of material that disparaged an organization's goods, products, or services. "Farming" was defined as "the operation of an agricultural or aquacultural enterprise." The Sequoia Policy did not define the terms "agricultural" and "aquacultural."

On December 1, 2008, the Tochers filed a demand for arbitration with the American Arbitration Association against Shasta View. The Tochers alleged that Shasta View breached the lease agreement by authorizing the construction of modifications to the powerhouse and the penstock and installing power-producing equipment without notifying the proper government agencies and obtaining necessary permits, thereby exposing the Tochers to adverse actions by those government agencies.

Shasta View filed an answer and counterclaims against the Tochers in the arbitration proceeding, alleging the following: In 1984, the Tochers constructed a hydroelectric facility on the property and entered into a 20-year power purchase agreement with Pacific Gas & Electric (PG&E) for the purchase of power generated by the Tochers' hydroelectric facility. The Tochers' agreement with PG&E expired in 2004. Thereafter, the Tochers removed the original turbine and generator from the powerhouse on the property. On September 25, 2007, Shasta View enteredinto the lease agreement for the purpose of generating, selling, and delivering hydroelectric power for the mutual profit of the Tochers and Shasta View. The lease agreement authorized Shasta View to "restore" the hydroelectric facility on the property and provided for a sharing of revenues between the parties when a new power purchase agreement with PG&E was executed. Upon the Tochers' insistence, in early October 2007, Shasta View began clearing and other maintenance work on the forebay and the Murphy ditch, a two-and-a-half-mile spring-fed stream that served as the water supply for the hydroelectric facility. The Tochers insisted that Shasta View begin work on the forebay and the Murphy ditch even though Shasta View had not yet resolved "equipment specification" issues nor determined how the hydroelectric power would be marketed. The Tochers demanded that the Murphy ditch be made leak-proof. The Tochers wanted Shasta View to complete maintenance and improvement work on the forebay and the Murphy ditch because the Tochers wanted that system to irrigate their ranch, to their sole benefit and not because of any need of the hydroelectric power operation. Shasta View undertook "major tasks" to sign a power purchase agreement with PG&E. However, the Tochers' breaches and purported termination of the lease agreement prevented Shasta View from executing a contract with PG&E and completing necessary applications with FERC. Pursuant to the Tochers' instruction, their engineer produced a report criticizing Shasta View's "entire approach to the FERC Application." The Tochers' engineer told FERC that Shasta View violated FERC requirements.

As a result of this contact, on September 24, 2008, FERC directed Shasta View to cease all work at the hydroelectric facility. The Tochers asked FERC to "flag" exemption project No. 6905-CA so that any document submitted to FERC must be approved by G. Neil Tocher. Shasta View was attempting to remedy the deficiencies identified by FERC and was proceeding with its FERC application when the Tochers purported to terminate the lease agreement.

Shasta View sought specific performance of the lease agreement or, in the alternative, in excess of $3.9 million in damages.

On January 21, 2009, the Tochers tendered the defense of the Shasta View counterclaims to Sequoia. The Tochers asserted that the counterclaims were covered under the "personal injury" liability and the "occurrence-based property damage" provisions of the Sequoia Policy. In particular, the Tochers asserted that the hydroelectric facility constituted an "aquacultural enterprise" and "farming."

On January 29, 2009, Sequoia denied the Tochers' tender of defense, claiming that it had no duty to defend because (1) the alleged "personal injury" did not arise out of the Tochers' "farming" operations, and (2) the Shasta View counterclaims were excluded under the "business pursuits" provision of the Sequoia Policy.

The Tochers sued Sequoia in Shasta County Superior Court, asserting causes of action for breach of contract, breach of the duty of good faith and fair dealing, and declaratory relief.The Tochers alleged the following: The Sequoia Policy covered damages arising out of the oral or written publication of material that disparaged an organization's goods, products, or services. Shasta View accused the Tochers of disparaging Shasta View to government agencies, lenders, and service and material suppliers, thereby interfering with Shasta View's ability to perform under the lease agreement and resulting in damages to Shasta View. In particular, Shasta View alleged that (1) pursuant to the Tochers' instruction, the Tochers' engineer produced a report criticizing Shasta View's "entire approach to the FERC application," (2) the Tochers' engineer told FERC that Shasta View violated FERC requirements, causing FERC to order Shasta View to stop all work at the hydroelectric facility, and (3) the Tochers asked FERC to flag FERC project exemption No. 6905-CA. Sequoia denied the Tochers' tender of defense without proper cause; failed to compensate the Tochers for the defense costs associated with the Shasta View action; failed to investigate the Tochers' claim; failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies; misrepresented the pertinent facts or insurance...

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