West American Ins. Co. v. Hernandez

• Decision Date: 15 October 2009
• Docket Number: Civil No. 07-1447-AA.
• Citation: 669 F.Supp.2d 1211
• Parties: WEST AMERICAN INSURANCE COMPANY, an Ohio Corporation, Plaintiff, v. Justin L. HERNANDEZ and Daniela A. Hernandez, and Chase Home Finance, LLC, a New Jersey Corporation, Defendants.
• Court: U.S. District Court — District of Oregon

669 F.Supp.2d 1211

WEST AMERICAN INSURANCE COMPANY, an Ohio Corporation, Plaintiff, v. Justin L. HERNANDEZ and Daniela A. Hernandez, and Chase Home Finance, LLC, a New Jersey Corporation, Defendants.

Civil No. 07-1447-AA.

United States District Court, D. Oregon.

October 15, 2009.

Daniel E. Thenell, Kyle A. Sturm, Smith Freed & Eberhard, P.C., Portland, OR, for plaintiff.

R. Scott Taylor, Eugene, OR, for defendants Justin and Daniela Hernandez.

Bryant D. Tchida, Pro Hac Vice, Minneapolis, MN, David W. Axelrod, Anna M. Smith, Schwabe, Williamson & Wyatt, P.C., Portland, OR, for defendants Chase Home Finance, LLC.

OPINION AND ORDER

AIKEN, District Judge:

On September 27, 2007, plaintiff West American Insurance Company filed a complaint seeking a declaration of its rights under a Homeowner's Insurance Policy ("the policy") it issued to defendant Justin Hernandez ("J. Hernandez"). Defendant Chase Home Finance, LLC, ("Chase") was a covered mortgagee under the policy. Plaintiff contends that under the terms of the policy it is required to compensate neither Chase nor J. Hernandez and his wife, defendant Daniela Hernandez ("D. Hernandez"), (collectively, "the Hernandezes") for losses incurred in a January 2007 arson fire to the insured property. All parties filed cross motions for summary judgment. For the reasons explained below, the Hernandezes' motion for summary judgment is granted in part, as to plaintiff's First Claim for Declaratory Relief. All other motions for summary judgment are denied.

BACKGROUND

The undisputed facts are as follows: in December 2004, J. Hernandez and Pamela Saepharn ("Saepharn") purchased a house ("the property") in North Bend, Oregon. At the time, they were engaged to be married. Chase made a mortgage loan to J. Hernandez, secured by the property. While the loan was made to J. Hernandez only, paperwork accompanying the loan documents showed Saepharn as a co-owner of the property.

In April 2005, plaintiff issued the policy in question to J. Hernandez and Saepharn. The policy was purchased through plaintiff's agent, Juul Insurance Agency, Inc. ("Juul"). Chase is named as the first mortgagee on the applicable declaration page of the policy.

Sometime in the summer of 2005, J. Hernandez and Saepharn broke off their engagement. On October 11, 2005, Saepharn called Juul and informed them she had moved to California. Saepharn and the Juul agent discussed the fact that Saepharn's engagement ring would stay in the possession of J. Hernandez at the property. Saephern says she made the call because she wanted to be removed from the policy. After reviewing notes taken during the Juul agent's phone call with Saepharn, Juul agrees Saepharn's name should have been taken off the policy after the October phone call. Saepharn was not, however, removed from the policy at that time.

In January 2006, J. Hernandez married D. Hernandez. In or about April 2006, Saepharn transferred her title and rights to the property via warranty deed. Simultaneously with the warranty deed transfer, J. Hernandez executed a new deed of trust provided by Chase which identified him as the sole owner of the house. At some time in 2006, the Hernandezes moved to Portland. They informed Juul of their change of address on December 20, 2006.

A fire partially destroyed the property on January 2, 2007. The fire was determined to be an arson fire with multiple points of origin. On or about April 19, 2007, J. Hernandez submitted a proof of loss to plaintiff for the damage caused by the fire. On or about September 26, 2007, plaintiff denied coverage to the Hernandezes, claiming the fire loss was excluded from coverage.

The policy insured the property against loss, with certain exclusions. Three particular provision of the policy are at issue in this case.¹ First, the Vandalism/Vacancy Provision excludes from coverage losses caused by vandalism or malicious mischief where the property was vacant for 60 days prior to the loss. Second, the Intentional Loss Provision excludes from coverage losses intentionally caused by the insured. Third, the Mortgagee Clause defines the mortgagee's rights under contract, stating that while the policy normally requires the insurer to compensate the mortgagee even when coverage has been denied to the homeowner, that duty is subject to the mortgagee's compliance with certain requirements, including the requirement to notify the insurer of any change in ownership, occupancy, or substantial change in risk of which the mortgagee is aware.

Plaintiff filed this suit seeking a declaration that (1) it is not obligated to compensate the Hernandezes because the Vandalism/Vacancy Provision excluded the loss from coverage (First Claim for Relief); (2) it is not obligated to compensate the Hernandezes under the policy because they set or conspired to set the fire (Second Claim for Relief); and (3) it is not obligated to compensate Chase under the policy because Chase failed to inform it of a change in ownership of which Chase was aware (Third Claim for Relief).

STANDARDS

Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Substantive law on an issue determines the materiality of a fact. T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). Whether the evidence is such that a reasonable jury could return a verdict for the nonmoving party determines the authenticity of a dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Id. at 324, 106 S.Ct. 2548.

Special rules of construction apply when evaluating summary judgment motions: (1) all reasonable doubts as to the existence of genuine issues of material fact should be resolved against the moving party; and (2) all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party. T.W. Elec., 809 F.2d at 630.

DISCUSSION

I. First and Second Claims for Relief: The Hernandezes' and Plaintiff's Cross-Motions for Summary Judgment

Plaintiff denied the Hernandezes' claims on two alternative grounds. First, plaintiff contends it is not obligated to pay under the policy because the arson fire was a form of vandalism or malicious mischief caused while the house was vacant. Under the Vandalism/Vacancy Provision of the contract,

2. We do not insure ... for loss: ...

c. Caused by: ...

(4) Vandalism and malicious mischief, and any ensuing loss caused by any intentional and wrongful act committed in the course of the vandalism or malicious mischief, if the dwelling has been vacant for more than 60 consecutive days immediately before the loss. A dwelling being constructed is not considered vacant[.]

Pl.'s Ex. K p. 5. In addition, plaintiff argues that an even broader exclusion, denying coverage if the house has been merely unoccupied, rather than vacant, for 60 days, must be read into the contract pursuant to the Oregon Insurance Code ("the Insurance Code").

Second, plaintiff contends it is not obligated to pay because the Hernandezes set or conspired to set the fire. Under the Intentional Loss Provision of the contract,

A. We do not insure for loss caused directly or indirectly by ... ___

8. Intentional Loss

Intentional Loss means any loss arising out of any act an "insured" commits or conspires to commit with the intent to cause a loss[.]

Pl.'s Ex. K, p. 9.

For the reasons stated below, I conclude that summary judgment is inappropriate as to the applicability of the Intentional Loss Provision, but that summary judgment should be granted to the Hernandezes regarding the Vandalism/Vacancy Provision.

A. First Claim for Relief: Vandalism/Vacancy Exclusion

Plaintiff argues that it is entitled to deny coverage to the Hernandezes because the fire happened under conditions which exclude the loss from coverage under the Insurance Code and the terms of the contract. Plaintiff contends that Oregon law requires this court to read into the contract the uniform exclusion from the Insurance Code, which is a broader coverage exclusion than the Vacancy/Vandalism provision and is more favorable to plaintiff. The Hernandezes argue that the Insurance Code permits substitution of provisions which are more favorable to the insured, and that plaintiff did just that in this case.

Further, the Hernandezes argue that the Vandalism/Vacancy Provision contained in the contract does not apply because (1) arson is not a type of vandalism or malicious mischief, (2) the house was not vacant for sixty days before the fire, and (3) the house was undergoing continuous remodeling and so was "under construction" within the meaning of the provision. Finally, the Hernandezes argue plaintiff was aware they were not living in the house, and that its continued acceptance of their insurance premiums constituted waiver of the exclusionary provision.

I conclude that the Vandalism/Vacancy Provision is an adequate substitute for the uniform exclusion in the Insurance Code. Further, I find that the property was not vacant as a matter of law, and that the Vandalism/Vacancy Provision therefore does not exclude the loss from coverage. I therefore grant the Hernandez's motion for summary judgment on the First Claim for Relief, regarding the Vandalism/Vacancy Provision. Because the house was not vacant, it is unnecessary to address the arguments regarding whether arson is a form of vandalism, whether the house was under...