Federal Insurance Company v. The Dentist's Insurance Company

Filing 43

ORDER DENYING DEFENDANTS MOTION FOR SUMMARY JUDGMENT 33 AND GRANTING PLAINTIFFS MOTION FOR PARTIAL SUMMARY JUDGMENT 34 by Judge Otis D. Wright, II. (lc). Modified on 3/7/2016 (lc).

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United States District Court
Central District of California

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FEDERAL INSURANCE COMPANY,
Plaintiff,

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Case No. 2:14-cv-08737-ODW(ASx)

v.

ORDER DENYING DEFENDANT’S

THE DENTISTS INSURANCE

MOTION FOR SUMMARY

COMPANY,

JUDGMENT AND GRANTING
Defendant.

PLAINTIFF’S MOTION FOR
PARTIAL SUMMARY JUDGMENT

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[33, 34]

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I.

INTRODUCTION

Before the Court are cross-motions for summary judgment that turn on one
single, operative issue: whether Defendant The Dentists Insurance Company
(“TDIC”) had a duty to defend against the claims and damages alleged in an
underlying state court suit, Jose Luis Anguiano v. MCD Arcade Lane, LLC, et al.
(hereinafter “Underlying Suit”). For the reasons discussed below, the Court concludes

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that TDIC had a duty to defend as a matter of law. Accordingly, the Court DENIES

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Defendant’s Motion for Summary Judgment, and GRANTS Plaintiff’s Motion for

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Partial Summary Judgment.1

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II.

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FACTUAL BACKGROUND

A. Parties and Pertinent Policies

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Plaintiff Federal Insurance Company (“Federal”) brings a purely equitable

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action against Defendant TDIC for declaratory relief, equitable contribution, equitable

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subrogation, and equitable indemnity. (Second Am. Compl. [“SAC”] 64–102, ECF

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No. 29.) At issue is the responsibility for payment of the defense and settlement of a

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personal injury action. (Id. ¶ 6; TDIC’s Mot. for Summ. J. [“TDIC Mot.”] 2, ECF No.

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33; Federal’s Mot. for Partial Summ. J. [“Federal Mot.”] 1, ECF No. 34-4.)

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Federal’s insureds own and maintain a multi-unit commercial building at 696

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East Colorado Boulevard in Pasadena, California, known as Arcade Lane. (Joint

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Statement of Undisputed Facts [“JSUF”] ¶¶ 1–2.) MDC Arcade, LLC and MMV

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Properties, LLC own the building, and Morlin Management Corporation and Morlin

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Asset Management are the property managers for the space (collectively, the

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“Landlords”). (Id. ¶ 3–4.) TDIC’s insured, Dr. Edward Murachanian, operates a

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dental office in Suite 204 of this building.

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Murachanian a Professional & Business Liability policy (hereinafter, “TDIC Policy”),

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which included three Dental Business Liability Additional Insured Endorsements. (Id.

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¶ 17.) Both parties agree that the Landlords were covered by these Additional Insured

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Endorsements. (Id. ¶ 18–19.)

(Id. ¶¶ 1–2, 7.)

TDIC issued Dr.

The pertinent language in the TDIC Policy reads as follows:

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I. Coverage Agreements

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…

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After carefully considering the papers filed in support of and in opposition to the Motion, the Court
deems the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; L.R. 7-15.

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B. Coverage B – Dental Business Liability

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We will pay on the insured’s behalf all sums the insured becomes

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legally obligated to pay as damages because of bodily injury, personal

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injury, advertising injury or property damage to which this insurance

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applies.

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This coverage applies only to bodily injury and property damage that

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happens during the policy period and that is caused by an occurrence.

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This coverage applies only to personal injury and advertising injury

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arising out of an offense committed during the policy period.

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This coverage applies only to injury that results from your practice of the

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dental profession.
…

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G. Defense
1.

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Coverages A, B and C

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We have the right and duty to defend, with defense counsel

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selected by us, any suit against an insured seeking damages

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covered by Coverage A, B and C.

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subject to the provisions of Condition 1, settle any claim as we

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deem expedient, but we shall not be obligated to pay any claim or

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judgment or defend any suit after the applicable limit of our

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liability has been exhausted by payment of judgments or

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settlements.

We may investigate and,

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(TDIC Policy, JSUF Ex. A at 7, 9 (emphasis in original).) Under the Additional

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Insured Endorsements, the Landlords were listed as additional insureds, with coverage

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under Coverages B (“Dental Business Liability”) and E (“Medical Waste Legal

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Defense Reimbursement”). (Id. at 52–58.)

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However, the duty to defend does not exist for suits outside the coverage of
Coverage B.

The TDIC Policy lists two exclusions to Coverage B, and explicitly

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states that “[t]he insurance afforded the lessor does not apply to: . . . Liability arising

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out of any acts or omissions of the lessor, the lessor’s contractors, vendors or service

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providers, or anyone acting on the lessor’s behalf.” (TDIC Policy, JSUF Ex. A at 22

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(emphasis added).) Therefore, per the TDIC Policy, negligent actions by the lessor, or

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the additional insureds, would not warrant Coverage B coverage or trigger the duty to

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defend.

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B. Anguiano Incident

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While subject to the TDIC Policy’s coverage, on October 3, 2012, Dr.

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Murachanian arranged for Jose Anguiano, a contracted carpet cleaner with Arax

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Carpet Cleaning, to clean his dental office carpets while he was away on vacation.

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(JSUF ¶¶ 8–9.) In order to complete this task, Anguiano and a colleague had to run

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hoses and electrical cords up a common area stairway and into the dental office suite.

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(Gonzalez Depo. at 47:22–48:25, JSUF Ex. G.) When Anguiano’s vacuum would

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clog or overflow, he and his colleague would use five-gallon buckets to transport the

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dirty water from the vacuum up the stairs and into the dental suite for disposal. (Id. at

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96:25–98:3.) In the course of emptying the vacuum, Anguiano fell on the common

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area stairs and suffered catastrophic injuries. (JSUF ¶ 11.) The exact mechanism by

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which Anguiano fell is unclear.

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On April 22, 2013, Anguiano and his wife filed suit in state court against MCD

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Arcade Lane, LLC—the property management company that owns Arcade Lane. (Id.

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¶ 13.) As a Federal insured, Federal defended and indemnified its insureds under its

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commercial general liability policy (hereinafter “Federal Policy”).

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Anguiano’s complaint alleged that the common area stairs were in a dangerous

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condition and/or not up to code, and that the negligent maintenance of those stairs led

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to Anguiano’s slip-and-fall and the subsequent injuries to his cervical spine and spinal

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cord. (Underlying Suit ¶¶ 19–22, JSUF Ex. D.) Anguiano later added the three

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remaining Landlords (MMV Properties, Morlin Management, and Morlin Asset) as

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Doe Defendants or as Defendants in his workers’ compensation claim. (JSUF ¶ 13.)

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(Id. ¶ 26.)

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Dr. Murachanian was not named as a defendant in the state court action.

On May 29,

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2013, MCD Arcade filed a cross-complaint against Dr. Murachanian for

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indemnification, apportionment of fault, declaratory relief, and express indemnity.

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(JSUF ¶ 14.) Later, the remaining Landlord entities filed nearly identical cross-

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complaints and answers in the state court action. (Id.)

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MCD Arcade then filed a Motion for Summary Adjudication on March 7, 2014,

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arguing that Dr. Murachanian (vis-à-vis TDIC) had a duty to defend and indemnify

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MCD Arcade with respect to Anguiano’s suit and the related workers’ compensation

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claim. (JSUF ¶ 15.) The Motion was denied. (Id.) Dr. Murachanian, through TDIC,

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then filed his own Motions for Summary Judgment (or, alternatively, Summary

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Adjudication) on the Landlords’ cross-complaints. (Id. ¶ 16.) The court ruled in favor

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of Dr. Murachanian as to Landlords Morlin Management and Morlin Asset, but

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severed and stayed the actions against MCD Arcade and MMV Properties pending

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resolution of property managers’ summary judgment appeals. (Id.)

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As per the TDIC Policy, TDIC defended Dr. Murachanian against the cross-

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complaints. (Id. ¶ 21.) In the course of its defense, TDIC’s counsel investigated the

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incident and reported its findings to TDIC. (JSUF 22–23.) Relevant facts gleaned

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from this investigation, which are based on deposition testimony in the underlying

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matter, include:

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 Anguiano and his Arax colleague ran electric cords and two hoses from their

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carpet cleaning machine up the common area stairway and into Dr.

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Murachanian’s dental office suite. (Gonzalez Depo. at 47:22–48:25.)

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 While cleaning the carpet, Anguiano’s vacuum would fill with dirty, soapy

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water and lose suction. This required Anguiano to empty the vacuum on the

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ground floor and carry five-gallon buckets full of the soiled water up the stairs

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and into the dental suite for disposal. Anguiano had to refill those buckets at

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least eight times. (Id. at 93:17–19; Anguiano Depo. at 71:19–73:14, JSUF Ex.

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H.)

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 Anguiano fell and/or tripped while carrying two full five-gallon buckets up to
the dental suite for disposal. (Anguiano Depo. at 90:4–96:2.)

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 At the time of his accident, soapy water coated the stairs, and the soapy mixture

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made the stairs even more slippery. (Skenderian Depo. at 75:12–20, JSUF Ex.

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T.)

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 A property management employee, Haymond Bell, told Dr. Murachanian that

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he had concerns about cleaners running their hoses up common area stairwells,

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and Bell specifically requested that Dr. Murachanian’s cleaning company, Arax

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Cleaning, not run their hoses up the stairway. (Bell Depo. at 88:17–89:11,

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JSUF Ex. I.)

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TDIC refused to defend the Landlords in the Underlying Suit, and

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memorialized this denial in five letters between May 2013 and November 2014. (Id.

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¶ 25.) In one such letter from July 2013, TDIC argued that, because Anguiano’s fall

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occurred outside the leased premises and in a common area, the tenant (and ipso facto

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his insurer) could not be held responsible.

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insureds Morlin Asset and Morlin Management, shouldered the costs of defending the

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Landlords in the Underlying Suit. (JSUF ¶ 16.)

(JSUF Ex. L.)

Federal, through its

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Federal filed the attendant suit to establish that the Landlords were entitled to

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coverage by Dr. Murachanian’s insurer, TDIC. (Federal Mot. 16.) After filing this

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action, Federal settled the state court lawsuit and related workers’ compensation lien

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for $3.5 million. (SAC ¶ 35.) Federal exhausted its insured’s Commercial General

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Liability $1 million limit and paid $2.5 million under the insured’s Commercial

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Excess & Umbrella Insurance policy. (Id. ¶¶ 37–40.) Federal contends that the cost

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of defending the four Landlord entities in the Anguiano suit should be borne by TDIC.

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(Id. ¶ 8.) TDIC, in turn, argues that no duty to defend existed as to the Landlords.

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(TDIC Mot. 2.)

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The Federal and TDIC’s cross-motions as to the duty to defend are now before
the Court for consideration.

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III.

LEGAL STANDARD

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Summary judgment is appropriate where “there is no genuine dispute as to any

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material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ.

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P. 56(a). The moving party bears the initial burden of identifying relevant portions of

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the record that demonstrate the absence of a fact or facts necessary for one or more

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essential elements of each claim upon which the moving party seeks judgment.

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Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

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If the moving party meets its initial burden, the opposing party must then set out

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specific facts showing a genuine issue for trial in order to defeat the motion.

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Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); see also Fed. R. Civ. P.

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56(c), (e). The nonmoving party must not simply rely on the pleadings and must do

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more than make “conclusory allegations [in] an affidavit.” Lujan v. Nat’l Wildlife

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Fed’n, 498 U.S. 871, 888 (1990); see also Celotex, 477 U.S. at 324. Summary

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judgment must be granted for the moving party if the nonmoving party “fails to make

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a showing sufficient to establish the existence of an element essential to that party’s

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case, and on which that party will bear the burden of proof at trial.” Id at 322; see

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also Abromson v. Am. Pac. Corp., 114 F.3d 898, 902 (9th Cir. 1997).

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In light of the facts presented by the nonmoving party, along with any

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undisputed facts, the Court must decide whether the moving party is entitled to

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judgment as a matter of law. T.W. Elec. Serv., Inc. v. Pac Elec. Contractors Ass’n, 809

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F.2d 626, 631 (9th Cir. 1987). When deciding a motion for summary judgment, “the

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interferences to be drawn from the underlying facts . . . must be viewed in the light

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most favorable to the party opposing the motion.” Matsushita Elec. Indus. Co. v.

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Zenith Radio Corp., 475 U.S. 574, 587 (1986)(citation omitted); Valley Nat’l Bank of

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Ariz. v. A.E. Rouse & Co., 121 F.3d 1332, 1335 (9th Cir. 1997). Summary judgment

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for the moving party is proper when a rational trier of fact would not be able to find

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for the nonmoving party on the claims at issue. Matsushita, 475 U.S. at 587.

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IV.

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DISCUSSION

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Federal and TDIC each move for summary judgment as to whether TDIC had a

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duty to defend the Landlords as Additional Insureds in the Underlying Suit. (TDIC

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Mot. 2; Federal Mot. 1.) The duty to defend is a matter of contract interpretation, and

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the interpretation of insurance contracts is a question of law for the court, which may

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be adjudicated on summary judgment. S’ern. Cal. Gas Co. v. City of Santa Ana, 336

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F.3d 885, 888–89 (9th Cir. 2003).

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Because the duty to defend is so broad as to encompass even a mere possibility

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of coverage, the Court concludes that TDIC owed a duty to defend the Landlords as a

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matter of law.

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A. TDIC POLICY: TRIGGERING THE DUTY TO DEFEND

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Before deciding whether TDIC had a duty to defend Federal’s insureds in the

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underlying action, the Court must first interpret the coverage provisions and

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exclusions in the TDIC policies at issue. See Modern Dev. Co. v. Navigators Ins. Co.,

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111 Cal. App. 4th 932, 939 (2003) (“[I]n determining whether allegations in a

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particular complaint give rise to coverage under a comprehensive general liability

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policy, courts must consider both the occurrence language in the policy, and the

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endorsements or exclusions affecting coverage, if any, included in the policy terms.”

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(citing Collin v. Am. Empire Ins. Co., 21 Cal. App. 4th 787, 803 (1994))).

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Under California law,2 interpretation of an insurance policy, as with any other

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contract, is a legal matter for the Court and therefore interpretation of such policies

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does not fall to the trier of fact. See Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 18

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(1995); see also Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co., 45 Cal. App.

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Because the subject matter of the insurance contract was located in California, the Court will apply
California law. See Stonewall Surplus Lines Ins. Co. v. Johnson Controls, Inc., 14 Cal. App. 4th
637, 646 (1993) (California choice of law rules place particular importance on the location of the
insured risk).

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4th 1, 10–11 (1996) (“Interpretation of an insurance policy is primarily a judicial

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function.”).

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“The fundamental goal of contractual interpretation is to give effect to the

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mutual intention of the parties.” Bank of the West v. Super. Ct., 2 Cal.4th 1254, 1264

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(1992) (citing Cal. Civ. Code § 1636). To ascertain the parties’ intent, the Court must

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look first to the language of the policy itself. Id.; A.B.S. Clothing Collection, Inc. v.

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Home Ins. Co., 34 Cal. App. 4th 1470, 1478 (1995). If, given their “common and

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popular meaning,” the contract terms are clear and explicit, they control. See Bank of

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the West, 2 Cal.4th at 1264 (citing Cal. Civil Code § 1638); see also Republic Indem.

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Co. of Am. v. Schofield, 47 Cal. App. 4th 220, 225 (1996) (provisions are to be

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“interpreted in their ‘ordinary and popular sense’”). However, a policy provision is

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“ambiguous when it is capable of two or more constructions, both of which are

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reasonable.” La Jolla Beach & Tennis Club v. Indus. Indem. Co., 9 Cal.4th 27, 37

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(1994) (internal quotations omitted). “‘Courts will not adopt a strained or absurd

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interpretation [of the policy language, however,] in order to create an ambiguity where

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none exists.’” Id. (quoting Reserve Ins. Co. v. Pisciotta, 30 Cal. 3d 800, 807 (1982)).

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Where ambiguity is found, policy terms must be construed to give effect to the

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objectively reasonable expectations of the insured. Bay Cities Paving & Grading, Inc.

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v. Lawyers’ Mut. Ins. Co., 5 Cal.4th 854, 867 (1993). If application of these rules

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does not eliminate or resolve an ambiguity in the policy, it is resolved against the

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insurer and in favor of liability under the policy. La Jolla Beach & Tennis Club, 9

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Cal.4th at 37; Bank of the West, 2 Cal.4th at 1265.

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Here, the TDIC Policy and Additional Insured Endorsements are clear, and no

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ambiguity exists as to their applicability. The TDIC Policy provides Coverage B

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coverage to the Landlords as additional insureds—no dispute exists as to that fact.

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(JSUF ¶ 18–19.; see also TDIC Policy, JSUF Ex. A at 52–58.) The exceptions to

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Coverage B, as part of the contract, must likewise be read as to their plain meaning.

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According to the TDIC Policy, lessors and insureds covered under Coverage B would

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not be granted a defense where “liability [arises] out of any acts or omissions of the

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lessor.” (TDIC Policy, JSUF Ex. A at 22.) The common interpretation of this clause

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would hold that the negligence of the lessor/insured would not trigger the duty to

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defend. Therefore, if the Landlords were at fault in Anguiano’s accident, TDIC would

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have no duty to defend.

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B. THE DUTY TO DEFEND

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The Court concludes that, based on the facts known to the parties at the time of

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Anguiano’s accident and later during litigation of the Underlying Suit, it was not clear

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that the Landlords’ negligence, and their negligence alone, caused Anguiano’s fall.

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Therefore, because the accident was not clearly one outside the purview of the TDIC

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Policy, TDIC owed a duty to defend its Additional Insureds.

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To determine whether an insurer has a duty to defend, courts must first

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compare the allegations of the complaint with the terms of the policy, and ascertain

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whether the facts alleged, together with facts not alleged but known to the insurer at

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the inception of the lawsuit or tender of defense, reveal a possibility that the claim is

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covered. Montrose Chem. Corp. v. Super. Ct., 6 Cal.4th 287, 295 (1993) (“Montrose

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I”); see also Sys. XIX, Inc. v. United Capitol Ins. Co., No. C 98-0481 MJJ, 1999 WL

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447599, * 5 (N.D. Cal. June 23, 1999) (the duty to defend inquiry “focuses on what

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the insurer knew or should have known at the time of declining coverage”).

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Facts outside the allegations of the complaint are considered because of the

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possibility that the pleadings could be amended to state a covered claim.

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Scottsdale Ins. Co. v. MV Transp., 36 Cal.4th 643, 654 (2005) (“But the duty also

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exists where extrinsic facts known to the insurer suggest that the claim may be

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covered”); Montrose I, 6 Cal.4th at 296 (“[F]acts known to the insurer and extrinsic to

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the third party complaint can generate a duty to defend, even though the face of the

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complaint does not reflect a potential for liability under the policy. This is so because

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current pleading rules liberally allow amendment; the third party plaintiff cannot be

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See

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the arbiter of coverage.” (citations omitted)). “Any doubt as to whether the facts give

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rise to a duty to defend is resolved in the insured’s favor.” Horace Mann Ins. Co. v.

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Barbara B., 4 Cal.4th 1076, 1081 (1993); see also Modern Dev. Co., 111 Cal. App.

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4th at 942. The duty to defend is not without limits, however. “‘[T]he insurer need

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not defend if the third party complaint can by no conceivable theory raise a single

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issue which could bring it within the policy coverage.’” La Jolla Beach & Tennis

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Club, 9 Cal.4th at 39 (quoting Gray v. Zurich Ins. Co., 65 Cal. 2d 263, 276 n.15

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(1966)).

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Under California law, an insurer has a broad duty to defend its insured, which

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“may apply even in an action where no damages are ultimately awarded.” Scottsdale

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Ins. Co., 36 Cal.4th at 654 (citing Horace Mann Ins. Co., 4 Cal.4th at 1081). The duty

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to defend “applies even to claims that are ‘groundless, false, or fraudulent,’ [and] is

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separate from and broader than the insurer’s duty to indemnify.” Waller, 11 Cal.4th at

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18. In Montrose I, and again in Montrose Chem. Corp. v. Superior Court, 10 Cal.4th

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645 (1995) (Montrose II), the California Supreme Court held that when a suit against

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an insured alleges a claim that “potentially” or even “possibly” may subject the

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insured to liability for covered damages, an insurer must defend unless and until it can

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demonstrate, by reference to “undisputed facts,” that the claim is not covered.

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Montrose I, 6 Cal.4th at 299–300; Montrose II, 10 Cal.4th at 661–62 n.10; see also

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Pardee Constr. Co. v. Ins. Co. of the West, 77 Cal. App. 4th 1340, 1351 (2000).

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As a threshold matter, it is clear that Anguiano’s state court action is a “suit”

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seeking damages against the Landlords as Additional Insureds due to an “occurrence”

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causing “bodily injury” during the TDIC Policy period. (See TDIC Policy, JSUF Ex.

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A at 7, 9 (emphasis omitted).) Those bare facts alone give rise to the duty to defend.

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And because even a possibility of coverage gives rise to the duty, TDIC should have

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defended its additional insureds where an “occurrence” caused “bodily injury” during

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the policy coverage period. See Atlantic Mut. Ins. Co. v. J.Lamb, Inc., 100 Cal. App.

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4th 1017, 134 (2002) (the possibility of coverage, not the causes of action asserted in

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the underlying complaint, triggers the duty to defend).

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The Court also concludes that the evidence available to TDIC at the time it

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refused to defend the Landlords shows that the additional insureds were potentially

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covered.3

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negligence alone, could not be the only explanation for Anguiano’s injuries, and

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therefore TDIC’s reliance on the Coverage B exceptions is misplaced. The fact that

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the injury itself occurred outside the physical confines of the dental suite does not

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persuade the Court that Dr. Murachanian’s Additional Insureds should be denied

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coverage. (See JSUF Ex. L.) The purpose behind requiring a doctor to have insurance

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coverage for his landlords is so that, when an accident occurs in the course of

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providing medical care, the landlord will likewise be covered. No landlord would

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lease to a business if they could find themselves personally liable for injuries caused

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in the course of their tenant providing medical care.

The evidence shows that that Landlord negligence, and Landlord

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The Underlying Suit’s First Amended Complaint makes clear that, as part of his

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use and maintenance of his dental suite, Dr. Murachanian—not the Landlords—hired

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Anguiano to clean the carpets in the private dental suite, and thus Anguiano was a

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business invitee of Dr. Murachanian. (JSUF ¶¶ 8–9.) Anguiano slipped in the course

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of cleaning the dental suite’s carpets. (Id. ¶ 11.) Moreover, the extrinsic evidence

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available to TDIC shows that a Landlord employee told Dr. Murachanian that hoses

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were not to be laid in common areas, and yet Anguiano laid his cleaning hose on the

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stairs. (Bell Depo. at 88:17–89:11; Gonzalez Depo. at 47:22–48:25.)

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TDIC places undue emphasis on the location of this slip and fall, and ignores

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the fact that Anguiano was only on those stairs to offer a service to its primary

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insured, Dr. Murachanian. (JSUF ¶¶ 8–9.) It is not outside the realm of possibility

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that Anguiano’s decision to run hoses up the common stairwell and into the dental

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TDIC issued several refusal-to-defend letters, the last in November 2014. (JSUF ¶ 25.) Therefore,
the Court will look at all facts known to TDIC at the time of each refusal, including the last.

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suite, leaving a trail of soapy water in his wake, could have caused the fall. Or

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perhaps the stairs were, in fact, negligently maintained as Anguiano alleges in his

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complaint. (Underlying Suit ¶¶ 19–22.) The point is not what did happen that

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afternoon based on 20/20 hindsight, but rather what possible explanations existed at

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the time TDIC refused to defend the Landlords as additional insureds. It is far from

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farfetched to believe that spilled water and a mislaid hose could have been the cause

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of Anguiano’s catastrophic injuries, and TDIC simply cannot pretend otherwise.

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Therefore, this Court holds that no genuine issues of material fact exist as to

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whether TDIC owed a duty to defend its additional insureds in the Underlying Suit.

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The duty to defend is broad, and the Court finds as a matter of law that there was, in

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fact, a possibility that Anguiano’s accident occurred within the TDIC Policy

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provisions.

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coverage” under an insurance policy will trigger the insurer’s duty to defend).

Montrose I, 6 Cal.4th at 295 (the “bare potential or possibility of

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V.

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CONCLUSION

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Accordingly, for the reasons discussed above, Defendant’s Motion for Summary

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Judgment is DENIED and Plaintiff’s Motion for Partial Summary Judgment is

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GRANTED.

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IT IS SO ORDERED.

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March 7, 2016

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____________________________________
OTIS D. WRIGHT, II
UNITED STATES DISTRICT JUDGE

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