14-00759575
D.R. Horton Los Angeles Holding Company, Inc. vs. Certain Underwriters at Lloyd’s, London
Defendant Certain Underwriters at Lloyd?s London?s? Motion for Summary Judgment and/or Adjudication
This matter arises out of a dispute over which one of two insurance policies?a 2002/2003 Policy or a 2007/2008 Policy?applies to cover claims asserted against Leighton & Associates, Inc. (?Leighton?) in the case of Kim v. City of Santa Clarita, LASC Case No. BC407614 (the ?Kim action?), with respect to claimed construction defects in the residential project known as Canyon Gate. Plaintiff D.R. Horton Los Angeles Holding Company, Inc. (?D.R. Horton?) was the developer of Canyon Gate.
There are two consolidated actions at issue here. In or about January 2003, homeowners who owned residential properties adjoining the Canyon Gate project notified D.R. Horton of claims associated with slope movement allegedly caused by the grading activities at the project. These claims resulted in the following actions, which were ultimately consolidated: Fessler v. Zephyr Newhall, L.P.,LASC Case No. PC031788;Wills v. D.R. Horton, LASC Case No. PC032369; and Gaskin v. Zephyr Newhall, LASC Case No. PC033571 (collectively, the ?Fessler Action?.)
In 2009, the following three additional lawsuits were filed, and later consolidated: the Kim action; Canyon Gate Maintenance Association v. City of Santa Clarita, LASC Case No. BC415663; and Warrick v. City of Santa Clarita, LASC Case No. PC046442 (collectively, the ?Consolidation Action?].)
Both policies are ?claims made? policies, in which a claim is first made at a singular point in time, so only one policy can be triggered for any given claim. Leighton obtained the policies through certain Underwriters at Lloyd?s, London, but the specific underwriters for the policies are different entities, led by different underwriters, and partially different subscribing underwriters. Leighton was provided a defense and indemnity in the Fessler Action under the 2002/2003 Policy. Leighton notified certain underwriters of the first claim that eventually became part of the Consolidated Action. The Consolidated Action was ultimately deemed related to the Fessler Action and the remaining funds in the 2002/2003 Policy, over $100,000, were used for the defense of the Consolidated Action. That money ran out while claims were still pending against Leighton.
In partial settlement of the Kim action, Leighton assigned to D.R. Horton its rights against Defendant Certain Underwriters at Lloyd?s, LondonSubscribing to Policy No. 146/LDUSA0700832 (October 1, 2007-2008) (?Defendant?). In this action, D.R. Horton, as assignee of Leighton, is suing Defendant for breach of contract for failure to defend and indemnify under the 2007/2008 Policy.
Defendant seeks summary adjudication of the third through sixth causes of action asserted by D.R. Horton as Leighton?s assignee. Defendant makes the following arguments: (1) the Fessler Action and the Consolidated Action were properly related under the 2002/2003 Policy; (2) even if they were not related, Leighton has waived the right to assert that the Consolidated Action was covered by any policy other than the 2002/2003 Policy; (3) D.R. Horton is also equitably estopped from arguing that the actions are related, by virtue of Leighton?s prior conduct; (4) there can be no ?bad faith? where coverage does not lie; and (5) even if there had been coverage under the 2007/2008 Policy, there is no ?bad faith? where Defendant consistently performed precisely in the manner sought by their insured. For the reasons set forth below, the motion is DENIED.
PRELIMINARY ISSUES
Defendant?s 04/08/16 request for judicial notice of Exhs. 19, 22-24, 45-47, 49, 50, 72-74, 76, and 77 is GRANTED, pursuant to Evidence Code ? 452(d). Judicial notice, however, will not extend to hearsay allegations contained therein. (Bach v. NcNelis (1989) 207 Cal.App.3d 852, 865; see also Espinoza v. Calva (2008) 169 Cal.App.4th 1393, 1396 [no judicial notice of truth of statements contained in filed court documents];Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1564-1566 [no judicial notice of truth of findings in court orders].)
There are no rulings on D.R. Horton?s 08/26/16 objections and Defendant?s 09/02/16 objections. ?[T]he court need rule only on those objections to evidence that it deems material to its disposition of the motion.? (CCP ? 437c(q).)
Finally, the Court declines to consider Defendant?s 09/02/16 Reply to Plaintiff?s Opposition Separate Statement, which was revised and subsequently filed on 09/22/16. There is no provision in CCP ??437c or CRC 3.1350 for a reply or response separate statement.?(Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243, 252.)?The Court also declines to rule on Defendant?s evidentiary objections set forth therein. The objections fail to comply with CRC, rule 3.1354(b), which mandates that ?[a]ll written objections to evidence must be served and filed separately from the other papers in support or in opposition to the motion.? (See also Hodjat v. State Farm Mut. Auto. Ins. Co. (2012) 211 Cal.App.4th 1, 9.)
DISCUSSION
- Whether underlying actions are related
Defendant?s motion is based in large part on a finding that there are no disputed material facts that the two underlying actions are ?related.? If the actions are related, then presumably there would be no potential coverage under the 2007-2008 Policy.
?[T]he term ?related? as it is commonly understood and used encompasses both logical and causal connections.? (Bay Cities Paving & Grading, Inc. v. Lawyers’ Mutual Ins. Co. (1993) 5 Cal.4th 854, 873.) A logical relationship between acts or omissions exists, for example, when they acts or omissions ?arose out of the same transaction, involved the same client, were committed by the same [party], and resulted in the same injury.? (Friedman Professional Management Co., Inc. v. Norcal Mut. Ins. Co. (2004) 120 Cal.App.4th 17, 32.) A causal relationship may exist, for example, when but for the earlier act or omission, the subsequent act or omission would not have occurred. (Id. at 22.)
Here, coverage under the 2002/2003 Policy and 2007/2008 Policy is limited to a ?Claim? first made against the Insured during the policy period. (SSUF 17, 27). ?Claim? is defined as a ?demand received by the Insured for money or services, including the service of suit or institution of arbitration proceedings against the Insured.? (Defendant?s Exhs. 10 and 15, at ? II.D). Section IV (Limit of Liability and Deductible), part B (Related Claims) of the policies provides as follows:
The Limit of Liability specified in Item No. 3 of the Schedule as applicable to ?Each Claim? is the Limit of Liability for All Damages and Claims Expenses arising out of the same or related Wrongful Acts without regard to the number of claims, demands, suits, proceedings or claimants. If additional claims are subsequently made against the Insured which arise out of the same or related Wrongful Acts as a Claim already made during the Period of Insurance, then all such Claims shall be subject to the Limit of Liability.
The Deductible(s) specified in Item No. 4 of the Schedule shall apply only once to each Wrongful Act regardless of the number of Related Claims that arise therefrom. (SSUF 21, 31). The term ?Related Claim? is defined as ?all those Claims that arise out of the same or replicated Wrongful Act in the performance of the Insured?s Professional Business activities.? (SSUF 20, 30). The phrase ?Wrongful Act? is defined as ?any actual or alleged negligent act, error, omission, misstatement, misleading statement, neglect or breach of duty by the Insured ?? (Id.)The term ?Professional Business? is defined as ?testing, inspection, engineering and research services which are conducted by, through or under the direction of the Insured and which arise out of the services as listed in the application or supplemental application and are not excluded.? (Id.)
Defendant argues that the claims in the Fessler and Consolidation Actions are ?causally? related because they were both caused by Leighton?s negligent work on the project. (SSUF 82-89, 98, 99, 106, 107, 120.) They also argue that the claims are ?logically? related because they concern the same scope of work and broadly involve slope stability issues. (Id. See especially, SSUF 86. See also, SSUF 41; various underlying pleadings at Exhibits 19, 22-24, 45-47, 50.)
As an initial matter, Defendant has not met its initial burden of establishing that the claims in the Fessler and Consolidated Actions are ?related.? As to the first contention that the claims are ?causally? related because they were both caused by Leighton?s negligent work on the project, SSUF 82-89, 98, 99, 106, 107, 120 are facts that support the proposition that Leighton agreed that the claims were related, not that the claims were in fact causally related. As to the second contention, SSUF 41 and 86 do not actually support the argument that the claims were ?logically? related. Instead, Defendant asks the Court to look at various underlying pleadings (Exhs. 19, 22-24, 45-47, and 50), but Defendants do not point to the specific pages of those exhibits, and more importantly, those facts were not included in Defendant?s Separate Statement. ?This is the Golden Rule of Summary Adjudication: if it is not set forth in the separate statement, it does not exist.? (City of Pasadena v. Superior Court (2014) 228 Cal.App.4th 1228, 1238, quoting United Community Church v. Garcin (1991) 231 Cal.App.3d 327, 337, superceded by statute on another ground.)
Even if Defendant had met its initial burden, D.R. Horton has raised a triable issue of material fact as to whether the claims in the Fessler and Consolidated Actions are related such that Leighton was precluded from obtaining coverage under the 2007/2008 Policy. It points out that the alleged acts of Leighton that were the subject of the Fessler Action and the Consolidated Action did not cause the same injury. The Fessler Action concerned damage to homes adjacent to Canyon Gate, while the Consolidated Action involved damage to a retaining wall and homes in the Canyon Gate. (RSS 132-145.) And neither the wall nor Canyon Gate homes had been built at the time the Fessler homes were damaged. (RSS 136.)
- Waiver
?Waiver is the intentional relinquishment of a known right after knowledge of the facts. The burden … is on the party claiming a waiver of a right to prove it by clear and convincing evidence that does not leave the matter to speculation, and doubtful cases will be decided against a waiver. The waiver may be either express, based on the words of the waiving party, or implied, based on conduct indicating an intent to relinquish the right.? (Waller v. Truck Ins. Exchange, Inc.(1995) 11 Cal.4th 1, 31 [internal quotes and citations omitted].)
According to Defendant, Leighton waived its right to argue that the actions were unrelated because it requested that they be related (SSUF 57-61); the request was consistent with the course and practice between Leighton and Underwriters in treating all claims from a given project as related (SSUF 81-87, 98-99, 104, 106); Leighton received benefits under the 2002/2003 Policy without reservation (SSUF 62, 67, 78-80); and Leighton asserted a defense in the underlying litigation that D.R. Horton could not pursue indemnity beyond what remained of the 2002/2003 Policy?s liability limits (SSUF 111-113).
But as argued by D.R. Horton, Leighton?s request that the claims be related does not demonstrate relinquishment of a known right?i.e. that the claims were in fact unrelated, that Leighton could have sought coverage under the 2007/2008 Policy, but that it was choosing not to do so.
The insurer has a common law obligation to assist the insured to recover bargained-for policy benefits. (City of Hollister v. Monterey Ins. Co. (2008) 165 Cal.App.4th 455, 490.) ?Extensive regulations also impose on insurers a broad ?duty to speak? with regard to an insured?s coverage. See, e.g., Cal.Code. Regs. tit. 10, ? 2695.4(a) (requiring every insurer to disclose to insureds ?all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the claimant?); Cal.Code. Regs. tit. 10, ? 2695.4(b) (prohibiting insurers from ?misrepresent[ing] or conceal[ing] benefits, coverages, time limits or other provisions of the bond which may apply to the claim presented under a surety bond?); ?.? (August v. Provident Life and Acc. Ins. Co. (C.D. Cal. 2011) 772 F.Supp.2d 1197, 1206.) Section 2695.4(a) ?requires an insurer to disclose to its insured the terms of any insurance policy issued by that insurer that may apply to the claim presented by the claimant.? (Safeco Ins. Co. of America v. Parks (2009) 170 Cal.App.4th 992, 1007.) ?[I]n situations in which an insured’s lack of knowledge may potentially result in a loss of benefits or a forfeiture of rights, an insurer has been required to bring to the insured’s attention relevant information so as to enable the insured to take action to secure rights afforded by the policy.? (Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 428.)
Furthermore, an insurer has ?the duty to investigate claims made by its insured?. (Safeco Ins. Co. of America v. Parks, supra, 170 Cal.App.4th at 1006.) And its ?duty to conduct a reasonable investigation is not narrowly confined to the facts or theories of coverage relied on by its insured.? (Id. at 1007.) ?Ordinarily, an insurer breaches the implied covenant by denying an insured’s claim without first thoroughly investigating all of the possible bases of the claim. In discharging this duty, the insurer may not ignore evidence which supports coverage. If it does so, it acts unreasonably towards its insured and breaches the covenant of good faith and fair dealing. Whether the insurer’s investigation of a particular claim was reasonable must be determined on a case by case basis and will depend on the contractual purposes and reasonably justified expectations of the parties.?? (Id. at 1006 [internal quotes and citations omitted].) ?An insurer’s failure to comply with [? 2695.4(a)] does not, in itself, establish a breach of contract or bad faith by the insurer. The regulations may, however, be used by a jury to infera lack of reasonableness on [the insurer?s] part.? (Ibid.)
Here, Leighton?s understanding of ?Related Claims? came from the underwriters and Clyde & Co, and it believed that the underwriters would tell Leighton if it was wrong in its opinion of related claims. (RSS 159-161.) Defendant never told Leighton it might be wrong about its belief that the actions were related or that it was entitled to a defense under the 2007-2008 Policy. (D.R. Horton?s RSS 162, 192, 194.) Indeed, Defendant never provided a coverage position letter, stating Leighton’s rights under the 2007/2008 Policy. (D.R. Horton?s RSS 154.) Thus, there is a triable issue of material fact as to whether Leighton knew it was giving up its rights to coverage under the 2007/2008 Policy or whether it mistakenly believed that there was no potential for coverage to begin with.
- Equitable estoppel
The elements of equitable estoppel are: ?(1) The party to be estopped has engaged in blameworthy or inequitable conduct; (2) that conduct caused or induced the other party to suffer some disadvantage; and (3)?equitable considerations warrant the conclusion that the first party should not be permitted to exploit the disadvantage he has thus inflicted upon the second party.? (City of Hollister v. Monterey Ins. Co. (2008) 165 Cal.App.4th 455, 488.) ??The doctrine of equitable estoppel is founded on concepts of equity and fair dealing. It provides that a person may not deny the existence of a state of facts if he intentionally led another to believe a particular circumstance to be true and to rely upon such belief to his detriment.?? (Oakland Raiders v. Oakland-Alameda County Coliseum, Inc. (2006) 144 Cal.App.4th 1175, 1189.)
Defendant contends that these elements are satisfied because (1) Leighton maintained the position that the Consolidated Action and theFessler Action were related claims (SSUF 57-62, 86-89, 111-113); and (2) Defendant relied on Leighton?s position and took no further action with respect to the claims (SSUF 54, 62, 76- 77, 108, 120-123). The conclusion that Defendant asks the Court to reach is that these facts warrant the conclusion that Leightion, and therefore D.R. Horton, should not be permitted to argue in this action that the Consolidated Action and the Fessler Action are unrelated.
There is, however, a triable issue of material fact with respect to elements 2 and 3 of the equitable estoppel doctrine. As to whether Leighton?s position caused or induced Defendant to suffer some disadvantage, Defendant?s own undisputed material facts show a triable issue: The approach taken by Leighton on assessing whether the two actions were related ?is entirely consistent with how Hiscox [the lead underwriter for Defendant] would have analyzed the issue.? (SSUF 106, see also SSUF 25, 104-107.) Thus, there is a triable issue of material fact with respect to element 3; the facts do not compel the conclusion this fact-intensive, equitable defense bars D.R. Horton from arguing that the claims are unrelated.
- Defendant?s Remaining Contentions
In light of the foregoing, the Court need not decide any additional arguments raised in support of the remaining issues: whether the Kim Action Statement of Decision is binding on Defendants; whether there is no bad faith because there is no coverage; and whether there is no bad faith because Defendant acted consistently with Leighton?s request.