W. World Ins. Co. v. Nonprofits Ins. Alliance of Cal.

• Decision Date: 09 January 2018
• Docket Number: Case No. 14–CV–04466–EJD
• Citation: 295 F.Supp.3d 1071
• Court: U.S. District Court — Northern District of California
• Parties: WESTERN WORLD INSURANCE COMPANY, Plaintiff, v. NONPROFITS INSURANCE ALLIANCE OF CALIFORNIA, Defendant.

295 F.Supp.3d 1071

WESTERN WORLD INSURANCE COMPANY, Plaintiff,

v.NONPROFITS INSURANCE ALLIANCE OF CALIFORNIA, Defendant.

Case No. 14–CV–04466–EJD

United States District Court, N.D. California, San Jose Division.

Signed January 9, 2018

James Lucken Wraith, David Arthur Evans, Selvin Wraith Halman LLP, Oakland, CA, for Plaintiff.

Andrew James King, Archer Norris, Walnut Creek, CA, GailAnn Y. Stargardter, Mokri, Vanis & Jones, Newport Beach, CA, for Defendant.

ORDER RE: CROSS MOTIONS FOR SUMMARY JUDGMENT

EDWARD J. DAVILA, United States District Judge

Plaintiff Western World Insurance Company ("Western World") and Defendant Nonprofits Insurance Alliance of California ("NIAC") both issued insurance policies to Narconon International ("Narconon"). In this action, Western World seeks a judicial declaration that NIAC owes a duty to defend Narconon in two underlying lawsuits. Western World also requests reimbursement of an equitable share of the costs that it has incurred in defending Narconon. For its part, NIAC seeks a judicial declaration that it has no duty to defend or indemnify.

Both parties have moved for summary judgment on NIAC's duty to defend. Western World's motion will be granted in part and denied in part, and NIAC's motion will be granted in part and denied in part.

I. BACKGROUND

This is an insurance declaratory judgment and equitable contribution action involving insurance policies issued to Narconon. The following facts are not in dispute.

Narconon is an organization that promotes treatment for substance abuse and addiction. Stargardter Decl. ¶ 8, Dkt. No. 35–2. Specifically, Narconon formulates and oversees a Scientology-based treatment program, which is implemented throughout the United States by local state affiliates. Id. This case concerns two of those affiliates—Narconon of Georgia and Narconon of Oklahoma—that run individual drug treatment centers in Georgia and Oklahoma, respectively. Pursuant to a set of License Agreements, Narconon provides materials for implementing the program and monitors operation of the centers; in return, Narconon receives ten percent of each center's revenue. Id. ¶¶ 9, 11.

Relevant here, Narconon is insured under three insurance policies, two issued by Western World and one issued by NIAC. Western World's two policies were issued to Narconon of Georgia and Narconon of Oklahoma in 2007, and both list Narconon as an additional insured. Evans Decl., Ex. A at 84, Dkt. No. 30–1; Evans Decl., Ex. B at 25, Dkt. No. 30–2. The third policy—issued by NIAC to Narconon for an overlapping time period—is the one at issue in the instant case. Evans Decl., Ex. C ("NIAC Policy") at 8, Dkt. No. 30–3. NIAC's policy has three separate coverage forms: (1) Commercial General Liability Coverage Form, (2) Liquor Liability Coverage Form, and (3) Improper Sexual Conduct Coverage Form. Id. at 9, 12–13. The policy also includes an exclusion to the Commercial General Liability Coverage Form for bodily injury that was "due to the rendering of or failure to render any professional service." Id. at 56. The question presented in this case is whether Narconon has the duty to defend two lawsuits under its coverage forms.

The first lawsuit ("the Desmond action") was brought on behalf of Patrick Desmond, who was a patient at Narconon of Georgia. Evans Decl., Ex. H ¶ 27, Dkt. No. 31–4. On the evening of June 10, 2008, after consuming alcohol provided by Narconon staff at a staff member's apartment, Mr. Desmond left the premises with two former patients to purchase heroin and died early the next morning from a heroin overdose. Id. ¶¶ 30–34. Mr. Desmond's family sued Narconon of Georgia and Narconon in May 2010, asserting claims for negligence, negligence per se, fraud, civil conspiracy, and punitive damages. Id. ¶¶ 35–58. Narconon tendered the Desmond action to NIAC, but NIAC twice denied coverage, asserting that there was no "occurrence" triggering policy coverage and that the "professional service" exclusion applied. Evans Decl., Ex. O, Dkt. No. 32–7; Evans Decl., Ex. Q, Dkt. No. 33–1. In March 2012, Mr. Desmond's family amended the complaint and added civil RICO claims against Narconon of Georgia and Narconon. Evans Decl., Ex. I ¶¶ 167–76, Dkt. No. 32–1. Both Narconon and Western World tendered the Desmond action to NIAC, but NIAC declined to defend for the same reasons it had stated with regard to the original complaint. Evans Decl., Ex. R, Dkt. No. 33–2; Evans Decl., Ex. S, Dkt. No. 33–3; Evans Decl., Ex. T, Dkt. No. 33–4. The Desmond action proceeded past summary judgment, and the parties settled in February 2013. Evans Decl. ¶¶ 62–67.

The second lawsuit ("the Landmeier action") was brought on behalf of Heather Landmeier, who was a patient at Narconon of Oklahoma. Evans Decl., Ex. M ¶ 15, Dkt. No. 32–5. The action alleges that, from late August 2007 through early March 2008, employees provided drugs and alcohol to Ms. Landmeier and allowed her to enter into sexual relationships with staff members. Id. ¶ 16. On March 4, 2008, Narconon of Oklahoma forced Ms. Landmeier to leave the facility, despite knowledge that she had relapsed and had become addicted to heroin and oxycontin

. Id. ¶ 17. The day after her expulsion, Ms. Landmeier overdosed on heroin and oxycontin, leaving her in a vegetative state paralyzed from the neck down. Id. ¶ 18. Her family initiated suit in March 2010 and asserted claims for negligence, breach of contract, violation of the Oklahoma Consumer Protection Act, infliction of emotional distress, and punitive damages against Narconon of Oklahoma and Narconon. Id. ¶¶ 19–37. Narconon tendered the Landmeier lawsuit to NIAC, and NIAC accepted the defense under the Improper Sexual Conduct Coverage Form but not under the Commercial General Liability Coverage Form. Evans Decl. ¶ 68. However, NIAC later withdrew its defense, stating that its insurance was "excess" to Western World's policy. Evans Decl., Ex. X, Dkt. No. 34–1; Evans Decl., Ex. Y, Dkt. No. 34–2. Litigation in the Landmeier action is ongoing, and trial has not yet been scheduled.

Western World filed the instant lawsuit in October 2014. Dkt. No. 1. Because Western World agreed to defend Narconon in both the Desmond and Landmeier actions, Western World seeks a declaration that NIAC also has a duty to defend the Desmond and Landmeier actions and requests an equitable share of the costs that Western World has incurred to date. Id. In November 2014, NIAC answered and filed counterclaims asserting that it has no duty to defend or indemnify either the Desmond action or the Landmeier action. Dkt. No. 13.

On December 11, 2015, Western World moved for summary judgment on NIAC's duty to defend. Dkt. No. 27 ("Mot."). On December 28, 2015, NIAC responded and cross-moved for summary judgment on its duty to defend and indemnify. Dkt. No. 35 ("Cross Mot."). Western World filed its opposition and reply on January 11, 2016, Dkt. No. 37 ("Opp."), and NIAC filed its reply on January 19, 2016, Dkt. No. 39 ("Reply").

II. REQUESTS FOR JUDICIAL NOTICE

Western World filed two requests for judicial notice. The first Request for Judicial Notice ("Pl.'s RJN"), Dkt. No. 29, is GRANTED as to both Exhibit A (Plaintiffs' Response to Defendant Narconon Internationals's Motion for Judgment on the Pleadings or, In the Alternative, Motion for Summary Judgment or Partial Summary Judgment, Desmond v. Narconon of Georgia, Inc., Dekalb Cty. State Court Case No. 10–A–28641–2 (Jan. 9, 2013) ) and Exhibit B (Summary Judgment Order, Desmond v. Narconon of Georgia, Inc., Dekalb Cty. State Court Case No. 10–A–28641–2 (Jan. 31, 2013) ). The second Request for Judicial Notice, Dkt. No. 37–1, is GRANTED as to Exhibit A (Complaint for Declaratory Relief, NIAC v. Narconon Int'l, L.A. Super. Ct. Case No. BC569622 (Jan. 16, 2015) ), Exhibit B (Complaint for Declaratory Relief, NIAC v. Narconon Int'l, L.A. Super. Ct. Case No. BC569623 (Jan. 16, 2015) ), Exhibit C (Complaint for Declaratory Relief, NIAC v. Narconon Int'l, L.A. Super. Ct. Case No. BC569624 (Jan. 16, 2015) ), Exhibit D (Cross–Complaint, NIAC v. Narconon Int'l, L.A. Super. Ct. Case No. BC569622 (Feb. 6, 2015) ), and Exhibit E (Consolidation Order, NIAC v. Narconon Int'l, L.A. Super. Ct. Case No. BC569622 (Apr. 6, 2015) ). These types of documents are properly subject to judicial notice. See Reyn's Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) (holding that a court "may take judicial notice of court filings and other matters of public record.").

III. LEGAL STANDARD

A. Summary Judgment in Insurance Policy Disputes

"Summary judgment is proper where no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law." Samuels v. Holland Am. Line–USA Inc., 656 F.3d 948, 952 (9th Cir. 2011) (citing Fed. R. Civ. P. 56(a) ). The Court "must draw all reasonable inferences in favor of the nonmoving party." Id."The central issue is ‘whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.’ " Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251–52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ).

Summary judgment is an appropriate vehicle to decide insurance coverage when the parties agree on the relevant facts and the sole issue before the court is the legal determination of the interpretation of the insurance policy. State Farm Fire & Cas. Co. v. Eddy, 218 Cal.App.3d 958, 267 Cal.Rptr. 379, 381–82 (1990). Here, summary judgment is appropriate because the Court is asked to construe the provisions of an insurance policy and apply those provisions to undisputed facts.

B. Duty to Defend

Under California law, an insurer has a broad duty to defend insured entities against claims that create a potential for indemnity. See Montrose Chem. Corp. v. Superior Court, 6 Cal.4th 287, 24 Cal.Rptr.2d 467, 861 P.2d 1153, 1157 (1993). The duty to defend is broader than the duty to indemnify, s...