Colorado West Construction, Inc. v. Mt. Hawley Insurance Company

O [7] 8 United States District Court 9 Central District of California [10] 11 COLORADO WEST CONSTRUCTION, Case № 5:23-cv-00307-ODW (SHKx) INC. et al., [12] Plaintiffs, ORDER GRANTING DEFENDANT/ [13] v. COUNTERCLAIMANT’S MOTION 14 FOR JUDGMENT ON THE 15 MT. HAWLEY INSURANCE PLEADINGS [22] COMPANY, [16] Defendant. [17] 18 MT. HAWLEY INSURANCE COMPANY 19 Counterclaimant, 20 v. 21 COLORADO WEST CONSTRUCTION, INC. et al., [22] Counter-Defendants. [24] 25 I. INTRODUCTION 26 Plaintiffs Colorado West Construction, Inc. and Next Level Construction 27 Services, Inc. bring this action against Defendant Mt. Hawley Insurance Company for 28 failure to defend Plaintiffs in an underlying state court personal injury action. (First 1 Am. Compl. (“FAC”), ECF No. 15.) Mt. Hawley countersues Plaintiffs for 2 declaratory relief that it has no duty to defend or indemnify Colorado West or Next 3 Level in the state action. (Am. Answer & Countercl., ECF No. 16.) Mt. Hawley now 4 moves for judgment on the pleadings, or, in the alternative, to bifurcate and stay 5 Plaintiffs’ bad faith claim. (Mot. J. Pleadings (“Motion” or “Mot.”), ECF No. 22.) 6 For the following reasons, the Court GRANTS Defendant’s Motion for Judgment on 7 the Pleadings.1 8 II. BACKGROUND 9 This insurance coverage dispute stems from whether Mt. Hawley is obligated, 10 under the liability insurance policy that it issued to Colorado West and Next Level to 11 defend and/or indemnify Plaintiffs in an underlying state court personal injury action 12 (“Underlying Action”), and, if so, whether Mt. Hawley’s denied Plaintiffs’ defense in 13 bad faith. 14 The following facts are agreed upon by all parties. In April 2019, a third party 15 hired Colorado West to perform tenant improvement work at a commercial retail 16 property in Moreno Valley, California (the “Project”). (FAC ¶ 8.) In connection with 17 the Project, Colorado West hired Next Level to perform certain demolition work. (Id.) 18 To limit their risk exposure, Plaintiffs entered into a commercial general liability 19 insurance agreement with Mt. Hawley—Policy No. MGL0188812—effective for the 20 period of July 14, 2018, to July 14, 2019 (the “Policy”). (Id. ¶¶ 9–10.) Under the 21 Policy, Mt. Hawley promises to “pay those sums that the insured becomes legally 22 obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which 23 the insurance applies,” and to “defend the insured against any ‘suit’ seeking those 24 damages.” (Countercl. Ex. E (“Policy”) ¶ I.A.1.a, ECF No. 16.2) [25] 26 1 Having carefully considered the papers filed in connection with the Motion, the Court deemed the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. [27] 2 The Court considers the exhibits attached to Plaintiffs’ Complaint and Defendant’s Counterclaim 28 as incorporated into the pleadings by reference, as they are attached to the pleadings, relied upon by the parties, and undisputed. 1 The Policy contains a provision titled “Exclusion – Employees, Leased 2 Workers, Volunteers, or Temporary Workers,” which expressly provides that “[t]his 3 insurance does not apply to . . . ‘bodily injury’ . . . to any employees of subcontractors 4 or independent contractors arising out of or in the course of their employment” 5 (“Injury to Subcontractors Exclusion”). (Countercl. ¶ 18.) 6 In connection with the Project, Next Level “arranged” for a vendor, Armando 7 Padilla Recycling (“Padilla”) to remove materials from the roof structure in exchange 8 for recycle and salvage rights. (Opp’n Mot. 7, ECF No. 25; Countercl. ¶ 11; Answer 9 Countercl. ¶ 11, ECF No. 21.) On April 23, 2019, while the Policy was in effect, 10 Miguel Herrera fell approximately twenty-eight feet from the building’s roof and 11 sustained serious bodily injuries. (FAC ¶ 13; Countercl. ¶ 12; Countercl. Ex. B 12 (“OSHA Citation”), ECF No. 16.) The parties agree that Herrera “represented that he 13 was an employee of Padilla,” and that he fell from the roof “while performing work at 14 the Project.” (Answer Countercl. ¶ 12.) 15 As a result of the accident, the Division of Occupational Safety and Health of 16 California for the Department of Industrial Relations (“OSHA”) issued Next Level a 17 citation and fine for “fail[ure] to ensure that the employees wear an approved personal 18 fall arrest.” (OSHA Citation; Countercl. ¶ 13; Answer Countercl. ¶ 14.) Next Level 19 appealed OSHA’s citation and fine. (See Countercl. Ex. C (“OSHA Appeal”), ECF 20 No. 16.) In the Appeal Form, in a section related to affirmative defenses, Next 21 Level’s Director of Operations checked a box stating that an “[i]ndependent employee 22 action caused the violation,” and added, “Next Level hired a subcontractor and the 23 employee from the subcontractor had the accident.” (Id. at 2.) 24 On October 11, 2019, Herrera filed the Underlying Action entitled Miguel 25 Herrera v. Next Level Construction, Inc. et al., Case No. RIC 1905162, in Riverside 26 County Superior Court for alleged negligence and failure to use reasonable care, 27 thereby creating a dangerous condition on the Project’s premises. (FAC ¶ 13; 28 Countercl. ¶ 16.) In the Underlying Action, Claimant brings two causes of action— 1 general negligence and premises liability—alleging that he “was walking on the roof 2 of the premises . . . when he fell into a hole and/or opening in the floor which caused 3 him to fall four stories to the ground and sustain serious bodily injuries and damages.” 4 (Countercl. Ex. D (“Herrera Compl.”), ECF No. 16.) Herrera is seeking recovery for 5 bodily injury suffered during the Incident. (Id. ¶ 11.) 6 On December 4, 2019, Plaintiffs tendered their request that Mt. Hawley defend 7 Plaintiffs in the Underlying Action. (Countercl. ¶ 19.) Mt. Hawley denied any duty to 8 defend on the basis that the Injury to Subcontractors Exclusion precluded coverage for 9 the claim. (Id.) Plaintiffs appealed Mt. Hawley’s determination, arguing that “there 10 was no evidence that [Herrera] was an employee of Padilla,” (Countercl. ¶ 20), but 11 Mt. Hawley again denied Plaintiffs’ request, (Id. ¶ 21). 12 On February 9, 2023, Plaintiffs filed the instant action against Mt. Hawley in 13 the Superior Court of the State of California, County of Riverside, bringing three 14 causes of action: (1) declaratory relief that Mt. Hawley is obligated to pay for the costs 15 of Plaintiffs’ defense of the Underlying Action, (2) breach of contract resulting from 16 Mt. Hawley’s refusal to defend Plaintiffs in the Underlying Action, and (3) breach of 17 the implied covenant of good faith and fair dealing. (See generally FAC.) Mt. 18 Hawley removed the action to this Court under 28 U.S.C. §§ 1441 (a), (Notice 19 Removal, ECF No. 1), and now moves for judgment on the pleadings, (see generally 20 Mot.). Alternatively, Mt. Hawley requests that the Court bifurcate and stay Plaintiffs’ 21 bad faith claim pending resolution of Mt. Hawley’s coverage obligations (i.e., the duty 22 to defend and indemnify) under the policy. (Id. at 1–2.) 23 III. LEGAL STANDARD 24 “After the pleadings are closed—but early enough not to delay trial—a party 25 may move for judgment on the pleadings.” Fed. R. Civ. P. 12(c). Judgment on the 26 pleadings is appropriate “when the moving party clearly establishes on the face of the 27 pleadings that no material issue of fact remains to be resolved and that it is entitled to 28 judgment as a matter of law.” Hal Roach Studios, Inc. v. Richard Feiner & Co., [1] 896 F.2d 1542, 1550 (9th Cir. 1989). In general, courts may not consider matters 2 outside the pleadings on a Rule 12(c) motion without treating it as a motion for 3 summary judgment. Fed. R. Civ. P. 12(d); Hal Roach Studios, 896 F.2d at 1550 . 4 When ruling on a motion for judgment on the pleadings, “[a]ll allegations of 5 fact by the party opposing the motion are accepted as true” and construed in the light 6 most favorable to that party. McGlinchy v. Shell Chem. Co., 845 F.2d 802 , 810 7 (9th Cir. 1988). However, “conclusory allegations without more are insufficient” to 8 withstand a motion for judgment on the pleadings. Id. “As a result, a plaintiff is not 9 entitled to judgment on the pleadings when the answer raises issues of fact that, if 10 proved, would defeat recovery.” Gen. Conf. Corp. of Seventh-Day Adventists v. 11 Seventh-Day Adventist Congregational Church, 887 F.2d 228, 230 (9th Cir. 1989). 12 If judgment on the pleadings is appropriate, a court has discretion to grant the 13 non-moving party leave to amend, grant dismissal, or enter a judgment. See Lonberg 14 v. City of Riverside, 300 F. Supp. 2d 942, 945 (C.D. Cal. 2004). Leave to amend may 15 be denied when “the court determines that the allegation of other facts consistent with 16 the challenged pleading could not possibly cure the deficiency.” Schreiber Distrib. 17 Co. v. Serv-Well Furniture Co., 806 F.2d 1393 , 1401 (9th Cir. 1986); Carrico v. City 18 & County of San Francisco, 656 F.3d 1002, 1008 (9th Cir. 2011) (“[Leave to amend] 19 is properly denied . . . if amendment would be futile.”). 20 IV. DISCUSSION 21 Mt. Hawley first moves the Court to enter judgment on the pleadings “because 22 the undisputed facts demonstrate that the policy’s ‘Injury to Workers Exclusion’ 23 precludes any potential coverage under the policy for the underlying lawsuit, 24 precluding defense and indemnity under the policy as a matter of law.” (Mot. 1.) 25 Under California law, an insurer “bears a duty to defend its insured whenever it 26 ascertains facts which give rise to the potential of liability under the policy.” Gray v. 27 Zurich Ins. Co., 65 Cal. 2d 263 , 276–77 (1966). In other words, “the insurer’s duty to 28 defend arises . . . [i]f any facts stated in or fairly inferable from the complaint, or 1 otherwise known or discovered by the insurer, suggest a claim potentially covered by 2 the policy.” Albert v. Truck Ins. Exch., 23 Cal. App. 5th 367, 378 (2018) (quoting 3 McMillin Mgmt. Servs., L.P. v. Fin. Pac. Ins. Co., 17 Cal. App. 5th 187, 191 (2017)). [4] To prevail, the insured must prove the existence of a potential for 5 coverage, while the insurer must establish the absence of any such potential. In other words, the insured need only show that the underlying [6] claim may fall with policy coverage; the insurer must prove it cannot. [7] 8 Montrose Chem. Corp. v. Superior Ct., 6 Cal. 4th 287, 300 (1993). “Facts merely 9 tending to show that the claim is not covered, or may not be covered, but are 10 insufficient to eliminate the possibility that resultant damages (or the nature of the 11 action) will fall within the scope of coverage, therefore add no weight to the scales.” [12] Id. The insurer’s duty to defend arises and continues unless it can “conclusively 13 establish that the alleged damages ‘cannot’ fall within the scope of coverage.” Wasau 14 Underwriters Ins. Co. v. Unigard Sec. Ins. Co., 68 Cal. App. 4th 1030, 1038 (1998). 15 Therefore, to succeed in its motion for judgment on the pleadings, Mt. Hawley must 16 clearly and conclusively establish on the face of the pleadings that there is no 17 possibility that the Underlying Action falls within the scope of the Policy. 18 The sole basis for Mt. Hawley’s denial of insurance coverage is the Injury to 19 Subcontractor Exclusion. This provision states that “[t]his insurance does not apply 20 to . . . ‘bodily injury’ . . . to any employees of subcontractors or independent 21 contractors arising out of or in the course of their employment.” (Countercl. ¶ 18.) 22 The exclusion also applies to “all causes of action arising out of ‘bodily injury’ . . . to 23 any employees of a subcontractor or independent contractor by any person or 24 organization for damages because of ‘bodily injury.’” (Id.) 25 To begin its analysis, the Court first finds that the pleadings in the Underlying 26 Action “give rise to the potential of liability under the policy.” Gray, 65 Cal. 2d 27 at 277 . In the Underlying Action, Herrera sought recovery for bodily injury arising 28 from Plaintiffs’ alleged negligence and failure to use reasonable care. (See Herrera 1 Compl.) Under the Policy, Mt. Hawley promised to defend and indemnify Plaintiffs 2 from lawsuits related to property damage, bodily injury, or personal injury caused by 3 an occurrence as defined by the Policy. (FAC ¶ 11; Policy ¶ I.A.1.a.) From the face 4 of the pleadings in the Underlying Action alone, it is not clear that any exception to 5 coverage applies. Herrera does not allege that he was the employee of Padilla, nor 6 any other subcontractor. (See Herrera Compl.) Accordingly, under California law, 7 Mt. Hawley was obligated to assume its duty to defend unless and until it could 8 conclusively refute the potential for coverage raised by the claims in the Underlying 9 Action. See Wasau Underwriters Ins. Co., 68 Cal. App. 4th at 1038 . 10 However, “where the extrinsic facts eliminate the potential for coverage, the 11 insurer may decline to defend even when the bare allegations in the complaint suggest 12 potential liability.” Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 19 (1995). The 13 parties do not dispute that, on April 23, 2019, Herrera suffered bodily injury “while 14 performing work at the Project.” (Answer Countercl. ¶ 12.) Therefore, the issue here 15 is whether extrinsic facts eliminate potential coverage by clearly establishing that 16 Herrera was an employee of a subcontractor. To this end, Mt. Hawley provides the 17 following three pieces of evidence, incorporated by reference into the Counterclaim, 18 to support the conclusion that there is no potential for coverage: (1) an unsigned 19 purchase order between Next Level and Padilla to “remove all wood framing, 20 plywood, sub purlins (4x6) from roof structure,” (Countercl. Ex. A (“Purchase 21 Order”), ECF No. 16), (2) Next Level’s OSHA appeal, completed by the company’s 22 Director of Operations, which states that an “[i]ndependent employee action caused 23 the violation” and that “Next Level hired a subcontractor and the employee from the 24 subcontractor had the accident,” (OSHA Appeal 2), and (3) Plaintiffs’ admission that 25 “Herrera represented that he was an employee of Padilla,” (Answer Countercl. ¶ 12). 26 The Court considers all facts in their totality. See Vann v. Travelers Cos., [27] 39 Cal. App. 4th 1610, 1614 (1995) (“In determining whether a duty to defend exists, 28 courts look to all the facts available to the insurer at the time the insured tenders its 1 claim for a defense.”). To that end, the undisputed evidence makes it clear to the 2 Court that Herrera was serving as an employee of Padilla, a subcontractor, in 3 connection with the Project at the time that the incident occurred on April 23, 2019. 4 First, the Purchase Order indicates that Next Level hired Padilla as a subcontractor to 5 clear materials from the roof. Although the purchase order is unsigned, it is still 6 probative of an agreement between the Next Level and Padilla. That the document is 7 unsigned is not in itself dispositive, as neither California law nor the terms of the 8 Policy require a subcontractor agreement to be signed for it to be effective. 9 Additionally, the statement in the OSHA Appeal by Next Level’s Director of 10 Operations that Next Level “hired a subcontractor and the employee from the 11 subcontractor had the accident,” in combination with Plaintiff’s admission that 12 Herrera “represented that he was an employee of Padilla,” further support the 13 conclusion that Padilla served as a subcontractor to Next Level and Herrera as the 14 subcontractor’s employee. Therefore, the facts and evidence included in the pleadings 15 of this case clearly and convincingly establish that the Injury to Subcontractors 16 Exclusion precludes Mt. Hawley’s duty to defend and/or indemnify Plaintiffs in the 17 Underlying Action. 18 As to Colorado West, Plaintiffs argue that Mt. Hawley improperly conflates the 19 two Plaintiffs. (Opp’n Mot. 15–16.) Relying on the Policy’s severability clause, 20 which states that each insured’s coverage must be analyzed separately, Plaintiffs argue 21 that, even if the Court finds that the Policy’s Injury to Subcontractors Exclusion 22 precludes coverage as to Next Level, the same is not necessarily true for Colorado 23 West. (Opp’n Mot. 16 (“[N]one of this evidence of the related claims in the 24 Counterclaim establish the application of the exclusion to Colorado West.”).) 25 However, it is undisputed that Colorado West “hired [Next Level] to provide certain 26 demolition work on the Project.” (FAC ¶ 8.) Further, the broad language of the 27 Injury to Subcontractors Exclusion applies to “any employees of subcontractors or 28 independent contractors.” (Countercl. ¶ 18 (emphasis added).) As the Court has 1 || already determined that Herrera was the employee of a subcontractor for the purposes 2 || of the Injury to Subcontractors Exclusion as to Next Level, the Policy’s language also 3 || necessarily excludes Herrera’s injury from coverage as to Colorado West. 4 Considering the above, the Court finds that Mt. Hawley has met its burden and 5 || conclusively established on the face of the pleadings in this action that it has no duty 6 || to defend and/or indemnify Plaintiffs in the Underlying Action. 7 Vv. CONCLUSION 8 For the reasons discussed above, the Court GRANTS Mt. Hawley’s Motion for 9 || Judgment on the Pleadings as to the declaratory judgment that Mt. Hawley seeks tn its 10 || Counterclaim. (ECF No. 22.) Accordingly, having concluded that Mt. Hawley owes 11 | Plaintiffs no duty to defend and/or indemnify Plaintiffs in the Underlying Action 12 | under the terms of the Policy, each of Plaintiffs’ causes of action—declaratory relief, 13 | breach of contract, and breach of the implied duty of good faith and fair dealing— must fail. See Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 36 (1995) (holding that 15 || where there is “no potential for coverage and, hence, no duty to defend under the 16 || terms of the policy, there can be no action for breach of the implied covenant of good 17 || faith and fair dealing because the covenant is based on the contractual relationship 18 || between the insured and the insurer’). 19 Therefore, this Order resolves the instant action in its entirety. The Court will 20 || issue Judgment consistent with this Order. [21] 22 IT IS SO ORDERED. [23] 24 November 27, 2023 25 “gs alg 26 Yet Lik 7 OTIS D.’ GHT, II 08 UNITED STATES,DISTRICT JUDGE