Kinsale Insurance Company v. Benchmark Insurance Company

[8] 9 UNITED STATES DISTRICT COURT 10 SOUTHERN DISTRICT OF CALIFORNIA 11 Case No.: 23-cv-00079-DMS-DEB KINSALE INSURANCE COMPANY, 12 Plaintiff, ORDER DENYING DEFENDANT’S 13 v. MOTION FOR PARTIAL SUMMARY JUDGMENT 14 BENCHMARK INSURANCE COMPANY, [15] Defendant. [17] 18 Pending before the Court is Defendant Benchmark Insurance Co.’s motion for partial 19 summary judgment on whether it owes a duty to indemnify under its insurance policies. 20 (Def.’s Motion for Partial Summary Judgment (“Def.’s Mot.”), ECF No. 31.) Plaintiff 21 Kinsale Insurance Co. filed its response in opposition (Plaintiff’s Opp’n (“Opp’n”), ECF 22 No. 32.) Defendant filed a reply. (Def.’s Reply, ECF No. 34.) For the reasons discussed 23 below, the Court denies Defendant’s motion and finds that there are triable questions of 24 fact regarding Defendant’s duty to indemnify. 25 I. BACKGROUND 26 Plaintiff and Defendant issued separate general commercial liability insurance 27 policies to non-party, Indigo Construction Corporation (“ICC”), a subcontractor that later 28 became embroiled in a construction defect lawsuit in state court. Plaintiff’s policies were 1 in effect from October 26, 2018, to October 6, 2022. Defendant’s policies were in effect 2 from October 6, 2016, to October 6, 2017, and October 6, 2018 to October 26, 2018. 3 On April 26, 2017, ICC entered into a contract with the general contractor, T.B. 4 Penick & Sons (“TBP”), to perform concrete work on a parking garage to be constructed 5 at Francis Parker School in San Diego County. ICC was one of many subcontractors 6 performing work on the garage. The contract provided that ICC would install shotcrete 7 and other subcontractors would perform additional functions, including waterproofing. 8 ICC completed its work on the project in early 2019. In or around June of 2019, the school 9 informed TBP of alleged water damage arising from faulty design, construction, and/or 10 materials used in constructing the garage after a rainstorm damaged the garage. The school 11 and TBP sued one another in San Diego County Superior Court (“underlying matter”). 12 Subsequently, TBP sued multiple subcontractors in connection with the underlying suit, 13 including ICC. A claim in the underlying matter was that ICC’s work may have damaged 14 or contributed to the damaging of the waterproofing process. 15 Plaintiff and Defendant jointly defended ICC in the underlying matter for one year 16 before Defendant withdrew from representation in July of 2022. Defendant withdrew from 17 representation claiming that (1) its policies were not in place at the time of the alleged 18 water damage; and (2) the damage was excluded from coverage under one of the 19 exclusionary provisions of Defendant’s policies. 20 In October of 2022, Plaintiff settled the underlying matter. Plaintiff subsequently 21 brought suit in this Court for equitable contribution and equitable indemnity alleging that 22 Defendant had a duty to defend and indemnify ICC in the underlying matter. Defendant 23 counterclaimed for equitable contribution and equitable indemnity to recover the amount 24 it spent in defense fees for the year before it withdrew from representation. The Court 25 previously granted Plaintiff’s motion for summary judgment on the duty defend, finding 26 Defendant owed a duty to defend ICC in the underlying the matter given the potential for 27 coverage under its policy. Defendant now brings the subject motion for partial summary 28 judgment on grounds that it had no duty to indemnify ICC in the underlying matter. 1 II. LEGAL STANDARD 2 Summary judgment is appropriate if there is no genuine issue as to any material fact, 3 and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The 4 moving party has the initial burden of demonstrating that summary judgment is proper. 5 Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). The moving party must identify 6 the pleadings, depositions, affidavits, or other evidence that it “believes demonstrate the 7 absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317 , 323 8 (1986). “A material issue of fact is one that affects the outcome of the litigation and 9 requires a trial to resolve the parties’ differing versions of the truth.” S.E.C. v. Seaboard 10 Corp., 677 F.2d 1301 , 1306 (9th Cir. 1982). 11 The burden then shifts to the opposing party to show that summary judgment is not 12 appropriate. Celotex, 477 U.S. at 324 . The opposing party’s evidence is to be believed, 13 and all justifiable inferences are to be drawn in its favor. Anderson v. Liberty Lobby, Inc., [14] 477 U.S. 242, 255 (1986). However, to avoid summary judgment, the opposing party 15 cannot rest solely on conclusory allegations. Berg v. Kincheloe, 794 F.2d 457, 459 (9th 16 Cir. 1986). Instead, it must designate specific facts showing there is a genuine issue for 17 trial. Id. See also Butler v. San Diego District Attorney’s Office, 370 F.3d 956 , 958 (9th 18 Cir. 2004) (stating if defendant produces enough evidence to require plaintiff to go beyond 19 pleadings, plaintiff must counter by producing evidence of his own). More than a 20 “metaphysical doubt” is required to establish a genuine issue of material fact. Matsushita 21 Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). 22 III. DISCUSSION 23 A. Duty to Indemnify 24 “The insurer’s duty to indemnify runs to claims that are actually covered, in light of 25 the facts proved. . . . It arises only after liability is established.” Buss v. Superior Court, [26] 16 Cal. 4th 35 , 45–46 (Cal. 1997) (citations omitted). “[A]n insurer’s duty to defend is 27 broader than its duty to indemnify.” Marie Y. v. Gen. Star Indem. Co., 110 Cal. App. 4th 28 928, 950 (Cal. Ct. App. 2003). “The duty to defend exists if there is any potential for 1 coverage under the policy, while the duty to indemnify exists only if the insured’s conduct 2 is actually covered.” Id. Defendant brings the subject motion on grounds that Plaintiff has 3 not established that ICC’s conduct is covered under the policy, i.e, that the water damage 4 occurred during Defendant’s policy period. 5 Generally, the duty to indemnify requires the plaintiff to make a showing of actual 6 coverage. “However, the burdens and proof are altered somewhat when one insurer with 7 a defense duty does not join in the defense of the underlying action.” St. Paul Mercury 8 Ins. v. Mountain W. Farm Bureau Mut. Ins., 210 Cal. App. 4th 645, 654 (Cal. Ct. App. 9 2012). Under California law, “in an action for equitable contribution by a settling insurer 10 against a nonparticipating insurer, the settling insurer has met its burden of proof when it 11 makes a prima facie . . . showing of potential coverage necessary to trigger the 12 nonparticipating insurer’s duty to defend—and that the burden of proof then shifts to the 13 recalcitrant insurer to prove the absence of actual coverage.” Safeco Ins. Co. of Am. v. 14 Superior Court, 140 Cal. App. 4th 874, 877 (Cal. Ct. App. 2006) (emphasis added). 15 Here, the Court held in its prior Order that Defendant owed a duty to defend ICC in 16 the underlying matter and breached that duty by prematurely withdrawing from 17 representation and failing to participate in the underlying settlement. (Order Granting 18 Plaintiff’s Motion for Partial Summary Judgment, (“Order”), (ECF No. 26).) Thus, for 19 purposes of equitable contribution, Plaintiff is the settling insurer and Defendant is the 20 nonparticipating insurer. Although Defendant contributed a substantial amount to the 21 defense, as the Court held in its prior order, the duty to defend requires a potential insurer 22 to provide a complete defense. See Buss, 16 Cal. 4th at 49 . (“To defend meaningfully, the 23 insurer must defend immediately. To defend immediately, it must defend entirely.”); id. 24 at 46 (“[The duty to defend] is discharged when the action is concluded. It may be 25 extinguished earlier, if it is shown that no claim can in fact be covered.”) The Court is not 26 aware of, and Defendant fails to cite, any authority establishing that it is not subject to this 27 burden shift because it partially contributed to the defense before prematurely withdrawing. 28 Thus, the Court finds that the burden shift applies. See Safeco Ins. Co. of Am., 140 Cal. 1 App. 4th at 881. (“Accordingly, while we agree with [the nonparticipating insurer] that it 2 must contribute to the settlements only if there was actual coverage under its policies, we 3 agree with [the settling insurer] that in the circumstances of this case—where [the 4 nonparticipating insurer]'s duty to defend is undisputed, and where by law the settlements 5 are presumptively reasonable—the burden of proof is on [the nonparticipating insurer] to 6 establish that there was no coverage (and not on [the settling insurer] to prove the 7 opposite).”) Thus, Defendant has the burden of proving no actual coverage. Id. (“[A 8 nonparticipating insurer] retains its right to raise other coverage defenses as affirmative 9 defenses in a contribution action—which means, of course, that the recalcitrant coinsurer 10 has the burden of proof on those issues.”) 11 B. There is a Potential for Coverage Under Defendant’s Policies. 12 Defendant argues the Court should grant the instant motion for partial summary 13 judgment and find that it had no duty to indemnify ICC in the underlying matter because 14 the alleged damage occurred in September of 2019 outside of Defendant’s period of 15 coverage. To support its motion, Defendant argues: (1) the damage giving rise to the 16 underlying lawsuit occurred after a rainstorm in 2019; (2) Plaintiff failed to produce 17 evidence that the damage occurred within Defendant’s 20-day window of coverage in 18 October of 2018; (3) even if the damage occurred while Defendant’s policy was in effect, 19 it is excluded from coverage under the terms of the policy; and (4) Plaintiff’s expert 20 testimony in relation to timing of damages is speculative and not supported by the facts. 21 Given the burden shift, Defendant’s arguments succeed only if it establishes that there is 22 no genuine issue of material fact that the damage occurred outside Defendant’s policy 23 period. 24 In its prior order, the Court found that Defendant owed a duty to defend because 25 “there is an unresolved dispute regarding when the alleged damage occurred and if such 26 damage may have occurred before 2019 and within the period Defendant’s policies were 27 in effect,” and that such doubt must be resolved in favor of the insured under the duty to 28 defend. (Order at 7.) Defendant now invites the Court, based on essentially the same 1 arguments and evidence, to conclude that there are no triable questions of fact that the 2 water damage occurred in 2019, outside its policy period. 3 First, Defendant alleges that the damage definitively occurred as a result of a 4 rainstorm in 2019. To support its argument, Defendant argues that in ICC’s First Amended 5 Complaint filed in the underlying matter, the general contractor alleged that the school first 6 provided notice of water damage in June of 2019. (Def.’s Mot. at 8.) Additionally, the 7 School’s cross-complaint “alleged that during rain events in or about September of 2019, 8 property damage to the podium deck was discovered.” (Id. at 9). Defendant argues that 9 these facts “lin[e]-up with the emails exchanged during this project which did not have any 10 mention of noticing an actual leak until December of 2018 (in Kinsale’s policy period).” 11 (Id.) Defendant also cites San Diego’s weather report in 2019 and argues that 12 “[d]etermining that the loss occurred in 2019 makes sense since [in October of 2018,] there 13 was only one day with .48 inches of rain (followed by five days of sun), but three inches 14 of rain were observed in December of 2019.” (Def.’s Mot. at 13.)1 15 Plaintiff argues that the Court already addressed these arguments in its prior Order 16 and concluded the evidence does not conclusively establish that the water damage occurred 17 in 2019. As noted in the prior Order, the foregoing evidence merely indicates that the 18 school first noticed and reported potential water damage in December of 2018 and again 19 in June of 2019. It does not establish when the alleged damage occurred and it fails to [21] 1 Defendant asks the Court to take judicial notice of the National Centers for Environmental Information’s 22 daily summaries of the temperature and precipitation recorded at the San Diego International Airport Station between October of 2018 and December of 2019 and a copy of a map taken from Google maps 23 displaying the approximate distance between the San Diego airport and the location of the parking garage. Under Rule 201 of the Federal Rules of the Evidence, the Court may take judicial notice of evidence that [24] is not subject to reasonable dispute and can accurately and readily be determined from sources whose 25 accuracy cannot reasonably be questioned. The Court takes judicial notice of the weather reports “because they are public records of an administrative body that are publicly accessibl[e] on the agency[’s] 26 website[].” Kunde Enterprises, Inc. v. National Surety Corp., 608 F. Supp. 3d 883 , 895 (N.D. Cal. 2022) (citing Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992 , 998–99 (9th Cir. 2017)). The Court takes judicial 27 notice of the copy of the map taken from Google maps as “a source whose accuracy regarding locations cannot be reasonably questioned.” Id. (citing Kalani v. Starbucks Coffee Co., 685 F. App’x 883, 886 (9th [28] 1 foreclose the possibility that the damage may have arisen before or during Defendant’s 2 policy period. It also does not foreclose the possibility that there were multiple incidents 3 of damage as opposed to one incident, any one of which could have occurred during 4 Defendant’s policy period. Defendant’s policy makes clear that its “insurance applies” to 5 property damage if such damage “first takes place during the policy period, regardless of 6 when the … property damage becomes known or apparent to anyone.” (Def.’s Mot. at 12) 7 (emphasis added). Thus, the determinative factor for coverage is when the damage first 8 occurred, not when it was first noticed. Because it is still unclear on the present record 9 when the damage occurred, that question—an obviously material question of fact—must 10 be resolved at trial. 11 Second, Defendant argues that Plaintiff has not produced any reliable documents or 12 evidence indicating that the damage occurred within its 20-day policy period in October of 13 2018. Specifically, Defendant alleges that Plaintiff’s “expert’s report pointed to emails 14 identifying waterproofing pinholes in September of 2018 – claiming pinholes could have 15 allowed the concrete to get wet.”2 (Def.’s Mot. at 14.) While Defendant does not bring a 16 Daubert motion seeking to strike the expert testimony, it complains that the expert 17 “horribly misread” documents, “disregards common sense,” and engages in “speculation.” 18 (Reply Br. at 8.) Defendant argues that when the expert opines that water damage may 19 have occurred in October of 2018, he is entirely wrong because: (1) the waterproofing was 20 done by a different contractor, not ICC; (2) he failed to note other emails which confirmed 21 that the pinholes were being patched; (3) even if the Court accepts that the waterproofing 22 was done by ICC and the pinholes were not patched, he acknowledges that water on [24] 25 2 Plaintiff’s expert described a pinhole as “a small hole…that occurs in fluid-applied waterproofing when rolling over a surface, and they refer to it as gassing off, which creates a little bubble that pops and leaves 26 a hole behind.” (Plaintiff’s Expert Kevin Marler’s Deposition Transcript, (“Plaintiff’s Expert’s Deposition”), (ECF No. 31-2), at 29.) Pinholes are “avenues where the water can go through. When the 27 waterproofing is installed, it should bridge over those cracks, and it should not have any pinholes in it, but we do have pinholes, water is getting into the pinholes, and causing damage. Also, if it gets into the crack [28] 1 concrete is not damage; and (4) even if water on the concrete could be considered damage, 2 it would merely be damage to ICC’s own concrete work, which is excluded by both 3 Defendant’s and Plaintiff’s policies. (Id. at 14–15.) 4 As noted, Defendant has the burden of showing that there is no genuine issue of 5 material fact that the water damage occurred outside its policy. Although Defendant 6 quarrels with the opinions of Plaintiff’s expert, those arguments on the present record go 7 to weight. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) (“Credibility 8 determinations, the weighing of the evidence, and the drawing of legitimate inferences 9 from the facts are jury functions, not those of a judge, whether he is ruling on a motion for 10 summary judgment or for a directed verdict.”) Additionally, in determining whether there 11 is a genuine issue of material fact, the Court views the evidence, including Plaintiff’s 12 expert’s testimony, in the light most favorable to Plaintiff, the non-moving party. Id. (“The 13 evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn 14 in his favor.”) (citing Adickes v. S.H. Kress & Co., 398 U.S. 144 , at 158–59). 15 Accordingly, viewing the evidence in the light most favorable to Plaintiff, Defendant 16 has not met its burden because there is a genuine dispute regarding when the alleged 17 damage occurred. Plaintiff argues that Defendant oversimplifies Plaintiff’s expert 18 testimony and “overlooks the timing of the work as it bears on when damages could have 19 occurred.” (Opp’n at 9.) The Court agrees. Plaintiff’s expert opines that ICC’s work 20 potentially caused “damage to the waterproofing by virtue of cracking to the concrete 21 which, in turn, would have damaged the waterproofing.” (Opp’n at 3.) To support his 22 conclusion, Plaintiff’s expert discussed the timing of ICC’s work on vertical and horizontal 23 surfaces of the parking structure. As to vertical services, Plaintiff’s expert testified that 24 ICC performed shotcrete and concrete work on vertical surfaces after the waterproofing 25 had been installed. Thus, the damage to the waterproofing could have occurred either while 26 ICC was performing its work or shortly after. (Opp’n at 9.) As to horizontal surfaces, 27 Plaintiff’s expert testified that ICC performed its work before the waterproofing was 28 applied to ICC’s completed work. (Id. at 13.) Accordingly, Plaintiff’s expert opines that 1 damage to the waterproofing necessarily occurred after ICC completed its work and 2 potentially within Defendant’s policy period. Because Plaintiff need only establish a 3 potential for coverage as discussed above, Defendant must show there was no coverage 4 under the policy as a matter of law. It has failed to do so. 5 Third, Defendant argues that even if the alleged damage occurred while Defendant’s 6 policies were in effect, the damage is excluded from coverage under its policy because the 7 damage occurred while ICC installed the shotcrete and concrete. Under exclusion j(5) of 8 the policy, damages that arise during the insured’s operations on a structure are excluded. 9 See Clarendon Am. Ins. v. Gen. Sec. Indem. Co. of Ariz., 193 Cal. App. 4th 1377 , 1325 10 (Cal. Ct. App. 2011) (“The exclusion found in j(5) applies to works in progress. The insurer 11 is not obligated to indemnify a policyholder for property damage that occurs while the 12 insured is performing operations on that property.”) 13 Defendant argues that the damages at issue fall within exclusion j(5) because 14 Plaintiff’s own expert report states “that ‘waterproofing was damaged when the shotcrete 15 and concrete walls were installed over the waterproofing.’” (Def.’s Mot. at 17) (Plaintiff’s 16 Expert Kevin Marler’s Report, (“Plaintiff’s Expert’s Report”), (ECF No. 31-2), at 180.) 17 However, Plaintiff’s expert testified that the damage necessarily occurred after ICC 18 completed its work on horizontal surfaces and during or after ICC completed its work on 19 vertical surfaces. The expert also made clear that he cannot be sure when the water damage 20 occurred and declined to provide a specific date. (Plaintiff’s Expert’s Deposition at 48.) 21 Thus, on the present record, it cannot be determined as a matter of law that the damages at 22 issue are excluded under the policy. While Defendant’s arguments may ultimately be 23 successful at trial, it has failed to establish that there is no genuine issue of material fact as 24 to the timing of the damage. 25 At bottom, Defendant asks the Court to grant its motion based on an absence of 26 evidence presented by Plaintiff showing covered property damage within Defendant’s 27 policies. In doing so, Defendant misapprehends Plaintiff’s burden and its own. Defendant 28 must demonstrate an absence of coverage as matter of law. Considering the evidence in 1 || the light most favorable to Plaintiff, which the Court must at this stage, the Court finds that 2 ||there is a factual dispute regarding when the water damage occurred and whether it 3 || occurred when Defendant’s policy was in place. 4 IV. CONCLUSION 5 For the foregoing reasons, Defendant’s motion for partial summary judgment is 6 || DENIED. 7 IT IS SO ORDERED. 8 Dated: August 20, 2024 2 Dvn Bb) 10 Zn Yn IMT Hon. Dana M. Sabraw, Chief Judge 1 United States District Court