B&B Lamplighter Oceanside Mobilehome Park, LLC v. Wesco Insurance Company

[7] 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA [10] 11 B&B LAMPLIGHTER OCEANSIDE Case No.: 20-CV-1302 JAH BGS MOBILEHOME PARK, LLC, [12] ORDER DENYING THE Plaintiff, 13 DEFENDANT’S MOTION TO v. DISMISS (ECF No. 11) [14] WESCO INSURANCE COMPANY, [15] Defendant. [28] 1 I. INTRODUCTION 2 On August 19, 2020, Plaintiff B&B Lamplighter Oceanside Mobilehome Park, LLC 3 (“B&B”) filed the First Amended Complaint (“FAC”) against Defendant Wesco Insurance 4 Company (“Wesco”). B&B alleges that under the policy they had with Wesco, Wesco was 5 obligated to defend B&B in the action brought against them by Pacific Manufactured 6 Homes and Lydia Miller on September 20, 2018 (“PMH Action”). 7 B&B alleges four causes of action: 1) Declaratory Relief – Duty to Defend, 2) 8 Declaratory Relief – Duty to Indemnify, 3) Breach of Contract, and 4) Breach of the 9 Covenant of Good Faith and Fair Dealing. 10 On September 2, 2020, Wesco filed a Motion to Dismiss arguing that the action 11 brought by Pacific Manufactured Homes (“PMH”) does not establish the potential for 12 coverage. B&B filed an Opposition to the Motion to Dismiss on September 22, 2020. 13 Wesco filed their reply to the Opposition on October 21, 2020. 14 II. FACTUAL BACKGROUND1 15 B&B is the named insured on an insurance policy issued by Wesco with dates of 16 coverage from July 1, 2019, through July 1, 2020. (ECF No. 10 at 19, 20). This policy 17 includes commercial general liability coverage for B&B and provides coverage for 18 property damage defined as physical damage to tangible property. (Id. at 24, 27). Further, 19 it provides coverage for personal or advertising injury, including the invasion of the right 20 of private occupancy. (Id. at 29, 32). This policy also provides that Wesco has the duty to 21 defend B&B in any civil proceedings seeking damages for these kinds of injuries. (Id. at 22 24, 29). 23 PMH and Lydia Miller sued B&B for claims that included allegations of property 24 damage and personal injury, based on the allegation that B&B removed a mobile home that 25 the plaintiffs had an interest in from Space #35 on B&B’s lot. (ECF No. 10 at 7, 62). [27] 1 This is a recitation of pleaded facts for the purposes of this motion and not to be construed as findings [28] 1 Plaintiffs in the PMH Action later filed their First Amended Complaint on August 23, 2019. 2 (Id. at 5). 3 B&B sent Wesco the First Amended Complaint from the PMH Action on October 4 17, 2019, and again on November 4, 2019. (ECF No. 10 at 41, 43). When B&B received 5 no response, it followed up again on December 2, 2019. (Id.) Plaintiffs in the PMH Action 6 filed a Second Amended complaint on January 14, 2020, which was served on Wesco on 7 January 9, 2020, and again on January 16, 2020. (Id. at 5, 51, 55). AmTrust North 8 America, Inc., the claim administrator assigned by Wesco, rejected the defense of the PMH 9 Action. (Id.) B&B followed up again on both February 10, 2020, and March 10, 2020, 10 and AmTrust did not respond or accept the defense. (Id. at 77-78, 80-81). On March 23, 11 2020, B&B again asked for a response and AmTrust denied any defense. (Id. at 83, 85). 12 On March 26, 2020, B&B filed this action against Wesco. (Id. at 9). 13 III. LEGAL STANDARD 14 Per Federal Rule of Civil Procedure 12(b)(6), a motion to dismiss can be granted 15 when there is no claim upon which relief can be granted. Fed. R. Civ. Pro. 12(b)(6). The 16 court accepts the facts alleged in the complaint as true and draws inferences in the light 17 most favorable to the non-moving party. Barker v. Riverside County Office of Educ., 584 18 F.3d 821, 824 (9th Cir. 2009). These facts are assumed to be true even if doubtful, and the 19 remote possibility of recovery is not enough to dismiss a claim. Bell Atlantic Corp. v. 20 Twombly, 550 U.S. 544, 556 (2007). 21 “On the other hand, the Court is ‘not bound to accept as true a legal conclusion 22 couched as a factual allegation.’” Liou v. Organifi, LLC, 491 F. Supp. 3d 740 , 747 (S.D. 23 Cal. 2020 ) (citations omitted). “Nor is the Court ‘required to accept as true allegations that 24 contradict exhibits attached to the Complaint or matters properly subject to judicial notice, 25 or allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable 26 inferences.’” Id. (citing Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 27 2010)). [28] 1 IV. DISCUSSION 2 A. JUDICIAL NOTICE 3 Wesco has requested that this court take judicial notice of four documents. (ECF 4 No. 11-2 at 1). These documents are 1) a more legible copy of the Second Amended 5 Complaint in the PMH Action, 2) a copy of the August 16, 2019 Minute Order re: ruling 6 on motion to vacate or modify preliminary injunction in the PMH Action, 3) a copy of the 7 August 20, 2019 order vacating the preliminary injunction in the PMH Action, and 4) a 8 copy of the October 28, 2019 Ex Parte Application to shorten time to file Motion for Leave 9 to Amend in the PMH Action. (ECF No. 11-2 at 1, 2). Because these documents are court 10 filings in related litigation, judicial notice is appropriate. Reyn’s Pasta Bella, LLC v. Visa 11 USA, Inc., 442 F.3d 741 , 746 n.6 (9th Cir. 2006). 12 B. WESCO’S DUTY TO DEFEND WAS TRIGGERED BY POTENTIAL LIABILITY FOR PROPERTY DAMAGE [13] B&B’s first claim is that Wesco breached their duty to defend by refusing to defend [14] Wesco in the PMH Action. (ECF No. 10 at 10). Wesco moves to dismiss B&B’s claim, [15] arguing that 1) the complaint does not allege an occurrence that would be covered under [16] the policy, 2) that the complaint does not allege property damage that would be covered [17] under the policy, and 3) that the mobile home was not removed within the policy period.2 [18] (ECF No. 11-1 at 11, 14, 16). B&B contends that the PMH Action alleges an offense that [19] is covered by the policy because the removal of the mobile home was a personal injury. [20] (ECF No. 14 at 6). [21] The insurer has the duty to defend the insured when it learns of facts that create the [22] potential for liability under the policy. Gray v. Zurich Ins. Co., 65 Cal.2d 263, 277 (1966). [23] The duty to defend is determined first by comparing the facts alleged in the complaint to [24] the policy and may also exist when extrinsic facts known to the insurer suggest a potential [26] 27 2 Wesco has also argued that there is no potential for coverage from unlawful eviction, but because B&B is not alleging coverage for wrongful eviction, the analysis will focus on the prior arguments. (ECF No. [28] 1 for coverage. The Travelers Property Causality Co. of America v. Actavis, Inc., 16 2 Cal.App.5th 1026, 1037 (2017). When the duty to defend applies, the insurer must defend 3 against covered and uncovered claims unless it can produce undeniable evidence allocating 4 costs to an uncovered claim. Horace Mann Ins. Co. v. Barbara B., 4 Cal.4th 1076 , 1081 5 (1993). The duty to defend is broader than the duty to indemnify and can apply in cases 6 where there are no damages awarded. Id. Doubt as to whether the court will consider the 7 facts create a duty to defend must be resolved in favor of the insured. Id. In resolving 8 whether a duty to defend arises under a policy, the insurer has a higher burden than the 9 insured. Pension Trust Fund for Operating Engineers v. Federal Insurance Co., 307 F.3d 10 944, 949 (9th Cir. 2002). 11 a. B&B Alleges a Potential Occurrence that Caused the Property Damage 12 Taking Wesco’s arguments in turn. Wesco first contends that it has no duty to 13 defend B&B because the damage alleged in the PMH Action was not the result of an 14 occurrence as defined by the policy. (ECF No. 11-1 at 12). The policy agreement provides 15 that Wesco is obligated to pay the sums that B&B is legally obligated to pay as damages 16 for bodily injury or property damage. (Id.) This policy applies only to bodily injury or 17 property damage that is the result of an “occurrence”, which the policy defines as an 18 accident. (Id.) 19 In interpreting insurance policies, an event is not an accident when the act causing 20 the damage is intentional. Delgado v. Interinsurance Exchange of Automobile Club of 21 Southern California, 47 Cal.4th 302, 311-312 (2009). Wesco contends that because the 22 mobile home was intentionally removed from the lot, the event that caused the property 23 damage was not an accident, and therefore not an occurrence that would be covered by the 24 policy. (ECF No. 11-1 at 13). 25 However, B&B does not contend that the moving of the mobile home was the event 26 that caused the damage. (ECF No. 14 at 10). Rather, they argue that there may be some 27 intervening accident that was the source of the property damage. (Id.) [28] 1 While the duty to defend is triggered by the potential of coverage, this potential 2 liability must not be tenuous and farfetched. Montrose Chemical Corp. v. Superior Court, [3] 6 Cal.4th 287, 302 (1993). A claim of potential liability is tenuous and farfetched when it 4 is not the kind of nature of claim covered by the policy, such as the claim being for a kind 5 of damages not covered by the original policy. Id. 6 In Montrose, the plaintiff’s insurance promised to defend in suits seeking damages 7 for property damage or bodily injury, as well as for claims of property damage or bodily 8 injury that resulted from an occurrence. Id. at 292 . While the defendant argued that the 9 underlying suit over the plaintiff’s alleged environmental contamination was not the kind 10 and nature of claim covered by the policy, the court found that because the kind of damages 11 in the underlying claim were the same as those covered by the policy it was not tenuous. [12] Id. at 302 . The underlying suit seeking recovery for environmental contamination sought 13 recovery for property damage under the policy. Id. at 303 . There was a potential for 14 liability and the duty to defend was triggered. Id. at 304 . 15 Here, B&B alleges that plaintiffs in the PMH Action brings a claim of property 16 damage. (ECF No. 14 at 9). The policy defines property damage as “physical injury to 17 tangible property”. (ECF No. 10 at 38). In this case, the alleged property damage is the 18 damage to the mobile home that was removed from Space #35, as the PMC Second 19 Amended Complaint alleges that the unit was damaged. (ECF No. 14 at 9; ECF No. 10 at 20 62). Like in Montrose, the nature of the damage in the PMH Action is of the same kind 21 and nature as is covered by the policy, as the damage to the mobile home is a physical 22 injury to tangible property and consistent with the definition of property damage in the 23 policy. This alleged damage is potentially covered by the policy and therefore triggers the 24 duty to defend.3 [27] 3 The duty to defend is triggered only for the purposes of this motion. The Court is not making an [28] 1 Furthermore, in Montrose, the court found that the possibility that an accident caused 2 the property damage was enough to trigger the duty to defend when the policy was specific 3 to damage coming from occurrences. Montrose, 6 Cal.4th. at 304-5. There, because of the 4 nature of DDT waste disposal, the possibility of property damage being the result of an 5 accident could not be excluded. Id. Therefore, there was a potential for liability under the 6 policy. Id. 7 Wesco relies on Collin v. American Empire Ins. Co. in arguing that the removal of 8 the mobile home could not be accidental. (ECF No. 11-1 at 13, 14). In Collin, the 9 plaintiffs’ property was removed from their home by a company that worked on their home. 10 Collin v. American Empire Ins. Co., 21 Cal.App.4th 787, 797-8 (1994). This removal was 11 found to be conversion in the plaintiffs’ suit against the company. Id. at 800 . A default 12 judgment was entered for the plaintiffs in that suit, and they then sued the insurance 13 company. Id. Because the plaintiffs alleged that the conversion of their property was 14 willful, and all allegations were accepted as true, the court found that the damage was not 15 from an occurrence in the plaintiffs’ suit against the insurance company. Id. at 806 . 16 However, unlike the case in Collin, the exact cause of the damage to the mobile 17 home in this case is unknown. Even if the removal of the mobile home from the lot was 18 conversion, as is alleged in the PMH Action, B&B argues that the damage could have 19 occurred from an accident in transit. While the possibility of the damage in Collin being 20 caused by an occurrence could be eliminated, here, the possibility of an occurrence causing 21 the damage to the mobile home in transit has not been eliminated. 22 To extinguish the duty to defend, the insurer must negate all facts that indicate 23 potential coverage. Scottsdale Ins. Co. v. MV Transportation, 36 Cal.4th 643, 655 (2005). 24 Without evidence showing that the act of removing the mobile home from Spot #35 was 25 the cause of the damage, Wesco has not shown that the damage was definitively caused by 26 an intentional act, and the potential intervening accident has not been affirmatively 27 disproved. Therefore, like in Montrose, because the possibility of the damage to the mobile [28] 1 home being caused by an accident in transit has not been negated, there is a potential for 2 liability and the duty to defend was triggered. 3 b. B&B Does Not Allege Damage from an Offense 4 B&B argues that there is a potential for coverage that comes from the allegation of 5 a personal injury in the PMH Action. (ECF No. 14 at 6). The policy provides coverage 6 for personal or advertising injuries, defined as including “invasion of the right of private 7 occupancy of a room, dwelling or premises that a person occupies, committed by or on 8 behalf of its owner, landlord or lessor”. (ECF No. 10 at 37). 9 Wesco argues that while the PMH Action alleges that the plaintiff Miller had an 10 occupancy interest in the mobile home, there are no allegations that she ever physically 11 occupied the mobile home or the space that the mobile home was located on. (ECF No. 12 11-1 at 19). 13 While the court must draw inferences in the light most favorable to the non-moving 14 party, the court is not bound to accept as true legal conclusions asserted as facts or 15 assertions contrary to exhibits. Liou v. Organifi, LLC, 491 F. Supp. 3d 740 , 747 (S.D. Cal. 16 2020). In the PMH Action, the plaintiffs allege that Miller had an occupancy interest and 17 that her application to rent the mobile home was wrongfully denied. (ECF No. 10 at 63, 18 67). B&B argues that she was an occupant by way of her occupancy interest in the mobile 19 home on Space #35. (ECF No. 14 at 8). However, because the rental application was 20 denied and there are no allegations that Miller was ever physically occupying the mobile 21 home or Space #35, the most favorable inference that can be drawn is that Miller had an 22 occupancy interest. 23 Because the policy is specific to providing coverage in cases where there has been 24 invasion into a dwelling that a person occupies, Miller’s allegation in the PMH Action 25 would not be a potential for liability, given that Miller did not actually occupy the mobile 26 home. [28] 1 c. B&B Alleges Physical Property Damage to Tangible Property 2 Wesco argues that the property damage alleged in the PMH Action is damage to an 3 intangible property right, which is not covered by the policy. (ECF No. 11-1 at 15). 4 Because injuries to intangible property rights are not covered, Wesco argues that there can 5 be no potential for liability from the underlying action. (Id.) However, B&B argues that 6 the relevant property damage is the damage to the mobile home when it was removed from 7 the lot, which is physical damage to tangible property. (ECF No. 14 at 9). 8 In evaluating the duty to defend, the court looks to any potential for liability, not to 9 whether the acts predominating the underlying action are noncovered. Horace Mann, 4 10 Cal.4th at 1084. Remote facts buried in the underlying complaint that constitute a potential 11 claim are enough to trigger the duty to defend. Pension Trust Fund for Operating 12 Engineers v. Federal Ins. Co., 307 F.3d 994, 951 (9th Cir. 2002). 13 In Pension Trust, the plaintiff had an insurance policy issued by the defendant that 14 protected against losses from third party suits for breach of fiduciary duty. Id. at 947. 15 When the plaintiff was sued for Fraud and Deceit, Negligent Misrepresentation, Fraudulent 16 Inducement, Intentional Interference with Prospective Economic Advantage, Developer 17 Liability, and Lender Liability, the defendant refused to defend. Id. at 948. The court 18 found that although the underlying action was not specifically for breach of fiduciary duty, 19 the facts alleged in those claims could give rise to a claim of breach of fiduciary duty, 20 triggering the duty to defend. Id. at 957. 21 Like in Pension Trust, the facts alleged in the PMH Action potentially give rise to a 22 claim of physical damage to actual property. Therefore, while the PMH Action does 23 concern intangible property rights, the alleged damage to the mobile home when it was 24 removed is potentially covered and enough to trigger the duty to defend. 25 Wesco relies on Kazi v. State Farm Fire and Cas. Co. to argue that intangible 26 property damage cannot give rise to a claim under the policy. In Kazi, the court found that 27 an easement represented a nonpossessory right to use property, making it intangible rather 28 than relating to tangible property. Kazi v. State Farm Fire and Cas. Co., 24 Cal.4th 871 , 1 881 (2001). Therefore, loss of use of the easement was economic loss, and not property 2 damage that would give rise to a claim under the policy. Id. For that reason, the court 3 found that the duty to defend had not been triggered. Id. 4 While Wesco is correct in arguing that the lost opportunity to rent a space on the lot 5 is intangible and uncovered, that is not the only kind of damage alleged in the PMH Action. 6 Because the damage alleged does not have to predominate the claim as, see Horace Mann 7 Ins. Co., 4 Cal.4th at 1081 , the damage to the mobile home can potentially give rise to a 8 claim even though it does not drive the underlying action. Further, as seen in Pension 9 Trust, remote facts can be enough to trigger the duty to defend. Because damage to the 10 mobile home from the removal from the lot is alleged in the PMH Action, there is a 11 potential claim that triggers the duty to defend. 12 d. The Damage May Have Occurred Within the Policy Period 13 Wesco next argues that because the injunction preventing the mobile home from 14 being moved was vacated on August 20, 2019, the mobile home was not moved until after 15 that date. (ECF No. 11-1 at 16). Because the policy expired on July 1, 2019, Wesco has 16 argued that any property damage incurred during the removal from the lot must have 17 occurred after the expiration of the policy and therefore was not covered. (Id.) 18 However, as B&B argues, there are no facts in the FAC or the PMH Action that 19 specifically allege when the mobile home was moved. B&B argues that it is possible that 20 the mobile home was moved during the policy period in violation of the injunction. (ECF 21 No. 14 at 11-12). 22 The court must draw inferences in the light most favorable to the non-moving party. 23 Barker v. Riverside County Office of Educ., 584 F.3d 821, 824 (9th Cir. 2009). Because 24 Wesco has not shown when the mobile home was moved, it is plausible that the mobile 25 home was moved within the policy period. Therefore, the facts suggesting potential 26 coverage have not been negated and there is a potential for liability. Scottsdale Ins. Co. v. 27 MV Transportation, 36 Cal.4th 643, 655 (2005). [28] 1 C.B&B HAS SUFFICIENTLY STATED A CLAIM FOR BREACH OF 7 CON TRACT AND BAD FAITH . B&B claims that Wesco’s failure to defend it in the PMH action was breach of 3 contract and that this failure, coupled with lack of acknowledgement and response to 4 B&B’s communications, was unreasonable and a breach of the covenant of good faith and fair dealing. (ECF No. 10 at 12-14). “Breach of an insurers duty to defend violates a 6 contractual obligation and, where unreasonable, also violates the covenant of good faith and fair dealing, for which tort remedies are appropriate.” Amato v. Mercury Casualty Co., 8 53 Cal.App4th 825, 831 (1997) (citing Campbell v. Superior Court, 44 Cal.App.4th 1308 , ? 1320 (1996)). Because B&B alleges facts that, if true, would be a violation of the duty to 10 defend, the plaintiff has sufficiently stated a claim for both breach of contract and potentially for breach of the implied covenant of good faith and fair dealing. V. CONCLUSION 13 For the foregoing reasons the Motion to Dismiss is denied. [14] 15 IT IS SO ORDERED. [17] 18 DATED: June 10, 2022 [20] 21 {JOHN A. HOUSTON 79 J UNITED STATES DISTRICT JUDGE