Nicholson v. Allstate Insurance Company
Filing
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ORDER signed by District Judge Troy L. Nunley on 10/17/13 DENYING 28 Motion for Summary Judgment. (Meuleman, A)
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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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ALEXANDRA NICHOLSON,
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Plaintiff,
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No. 2:11-CV-03018-TLN-KJN
v.
ORDER
ALLSTATE INSURANCE COMPANY,
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Defendant.
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This matter is before the Court on Defendant Allstate Insurance Company’s
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(“Defendant”) Motion for Summary Judgment or Alternatively Summary Adjudication (ECF No.
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28). Plaintiff Alexandra Nicholson (“Plaintiff”) has filed an opposition to Defendant’s motion.
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(See Pl.’s P & A Opp’n to AllState Ins. Co.’s Mot. Summ. J. or Alternatively Summ.
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Adjudication, ECF No. 34.) The Court has carefully considered Defendant’s motion and reply as
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well as the arguments presented in Plaintiff’s opposition. For the reasons set forth below,
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Defendant’s Motion for Summary Judgment is DENIED.
FACTUAL BACKGROUND1
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I.
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Plaintiff owns the home located at 8975 Los Lagos Circle in Granite Bay,
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The facts are, for the most part, undisputed. Where the facts are disputed, the court recounts plaintiff’s
version of the facts as it must on a motion for summary judgment. See McLaughlin v. Liu, 849 F.2d 1205, 1208 (9th
Cir. 1988) (holding that a party opposing a motion for summary judgment with sworn affidavits is entitled to have
her sworn statements taken as true for purposes of deciding motion). Accordingly, the Court, when necessary, cites
to the parties’ deposition testimony, Plaintiff’s sworn declaration, or the exhibits provided by the parties.
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California. At all relevant times, Defendant insured Plaintiff’s home under a Deluxe Plus
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Homeowner’s Policy.
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A. Insurance Policy Coverage
The Policy contains two sections, A and B. Section A is entitled “Dwelling
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Protection.” (ECF No. 28-2 at 5.) Section B is entitled “Other Structures Protection.” (ECF No.
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28-2 at 5.) Additionally, the policy contains a section that sets out exclusions to the coverage
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provided under sections A and B. This Exclusion section contains the following applicable policy
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exclusions:
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14. Vapors, fumes, acids, toxic chemicals, toxic gasses, toxic
liquids, toxic solids, waste material or other irritants, contaminants
or pollutants.
15. e) contamination, including, but not limited to the presence of
toxic, noxious, or hazardous gasses, chemicals, liquids, solids or
other substances at the residence premises or in the air, land or
water serving the residence premises.
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22. Planning, Construction or Maintenance, meaning faulty,
inadequate or defective:
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a) planning, zoning, development, surveying, siting;
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b) design, specifications, workmanship, repair, construction,
renovation, remodeling, grading, compaction;
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c) materials used in repair, construction, renovation or remodeling;
or
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d) maintenance;
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of property whether on or off the residence premises by any person
or organization.
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(ECF No. 28-2 at 17−18.)
B. The 2006 Claim
In Plaintiff’s sworn declaration she states that she occasionally noticed bats flying
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around her property between 1993 and 2006. (Nicholson Decl., ECF No. 39 at ¶ 4.) In June
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2006, Plaintiff began to hear noises coming from her bedroom wall, behind her headboard. (ECF
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No. 39 at ¶ 7.) Plaintiff went outside to explore the cause of the noise and saw bats flying out of
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the top of her home where the exterior brick wall meets the eaves. (ECF No. 39 at ¶ 8.)
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Approximately five days later, Plaintiff noticed an odor inside the property. She subsequently
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obtained estimates to exclude bats from the property. (ECF No. 39 at ¶ 9.) Plaintiff alleges that
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she retained and paid an individual named Mark DeMontes $4250 to remove the bats and make
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the necessary repairs.2 (ECF No. 39 at ¶ 12.) Plaintiff alleges that the bats had vacated the house
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prior to Mr. DeMontes beginning his repairs and that Plaintiff did not observe any bat activity
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until 2009. (ECF No. 39 at ¶ 16−17.)
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Plaintiff filed an insurance claim and Defendant reimbursed Plaintiff for her
expenses in the amount of $3841, pursuant to her policy.
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C. The 2010 Claim
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At some point in 2009, Plaintiff began noticing bats gathering in the east area of
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her property. However, it was not until July 2010, that she again began hearing noises in her
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bedroom wall. At around 10 p.m., Plaintiff ventured outside with a flashlight to investigate and
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saw that bats had returned to the same general area of her property that they had inhabited in
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2006. Plaintiff described the scene as bats “swarming and crawling and flying” around the
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eastern eave of the property. (ECF No. 39 at ¶ 20.) Plaintiff stated that she did not observe an
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odor at this time, but “about five days after I first noticed the bats in July 2010, a horrendous
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smell of dead animals began to permeate the house. There had been no smell of dead animals in
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the house since 2006.” (ECF No. 39 at ¶ 22.)
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After discovering that the bats had returned, Plaintiff tried to contact Mr.
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DeMontes, but was unable to reach him. Consequently, Plaintiff contacted Western Bat
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Specialists to come and inspect the property. Ken Clacher of Western Bat Specialists inspected
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the property on July 14, 2010. He prepared a report estimating the repair at $4500. Mr. Clacher
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testified that he observed the bats entering the property through gaps at the top exterior brick
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walls and proposed sealing the area to prevent re-entry.
Plaintiff contacted Defendant to file a claim3 and Defendant assigned adjuster Jess
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Unfortunately, Plaintiff cannot provide any contact information for Mark DeMontes. (See Nicholson Dep.,
ECF No. 39 at 5.)
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The parties disagree as to whether Plaintiff first submitted a claim via mail in August 2010 or during a later
phone conversation on October 22, 2010. (See ECF 28 at 11; compare with ECF 39 at 15.)
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Molina to handle the claim. Mr. Molina and his manager, Frank Iaccino, met with Plaintiff at the
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property on November 4, 2010. Plaintiff walked both of them around the property and showed
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them where she had observed the bats. (ECF No. 39 at 7.) During the visit, Mr. Molina verbally
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denied coverage because “the policy does not cover damage caused by rodents, and [ ] ‘bats are
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rodents.’” (ECF No. 39 at ¶ 28−30.) He also informed Plaintiff that the 2006 payment was an
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error and that claim, therefore, should have been denied. (ECF No. 39 at ¶ 31.) On November 6,
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2010, Defendant issued a written denial letter with respect to the claim that is the subject of the
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instant matter. (ECF Nos. 35 at ¶ 15; 39 at ¶ 34.) The letter listed “BAT DAMAGE TO
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DWELLING” as the reason for declining policy coverage for the damages and enumerated
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Exclusions 14 and 15 in the policy as reasons for the denial. (ECF No. 28-24 at 8−9.) Due to a
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clerical mistake, the text of Exclusion 14 as listed in the letter is actually Exclusion 22 from
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Plaintiff’s policy. Mr. Molina alleges that he intended to include the text of Exclusion 14 in the
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letter and not that of Exclusion 22. (ECF No. Molina Depo., ECF No. 28-4 at 76:19−77:25.)
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D. Repair of the Property
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In May 2011, Mr. Clacher and Tyler Rhoades of Western Bat Specialists
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performed a bat exclusion4 on Plaintiff’s property. (ECF no. 35 at ¶ 16.) Mr. Clacher and Mr.
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Rhoades testified that during the exclusion, they noticed areas where the person who did the prior
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exclusion had: (1) not installed exclusion mesh (thus leaving exposed the gaps at the top of the
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bricks); (2) installed mesh, but left gaps around the rafters allowing bats to get in; or (3) left
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“buckles” in the mesh that also allowed bats to enter. (Clacher Depo., ECF No. 28-4 at
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108:23−109:6, 109:16−110:12, 111:13−20, 112:8−15, 113:13−114:2, 120:14−121:2; Rhoades
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Depo., ECF No. 28-4 at 130:13−131:5, 133:10−25, 134:16−22, 135:4−14, 137:7−14, 138:16−23,
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142:4−12.) Mr. Rhoades described an area of “about 26 to 30 feet” where no exclusion
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screening had been previously installed. (ECF No. 28-4 at 136:4−13.) In light of these issues
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Clacher admitted that, in his view, the prior exclusion was not properly performed. (ECF No. 28-
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4 at 113:20−114:23.) Further, Rhoades testified that it “looked like somebody had attempted to
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A bat exclusion can consist of removing alive or deceased bats as well as any bat guano from the premises,
finding the area of entry into the home, and appropriately sealing the area to prevent further infestation.
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do an exclusion badly” and with respect to an area around the garage, Rhoades noted that
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whomever did the prior exclusion “really goofed up.” (ECF No. 28-4 at 128:24−129:19,
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133:15−19.) Clacher and Rhoades both saw evidence that bats had entered the gap behind the
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brick in at least some of the areas where they found the problems with the prior exclusion. (ECF
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No. 28-4 at 109:16−20, 139:21−140:7, 140:17−142:3.)
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Plaintiff refutes Mr. Rhoades and Mr. Clacher’s testimony that the prior exclusion
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work was faulty. In her sworn declaration, Plaintiff states that after she discovered that bats were
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getting trapped in the walls of her house, she decided to remove some of the mesh wire screens to
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let them out. Plaintiff explained as follows:
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Obviously I wanted the bats out, and I certainly did not want bats
trapped and dying inside the walls of my house, so I decided to
remove some of the wire mesh screens to let them out. Using a
ladder, I climbed up to areas I could reach with my hands under the
eaves to remove some of the wire mesh screening, which were set
in between the rafters and along the top of the walls. I did this
around my garage and the west side of house just outside my
bedroom. Some of the screens would not come off, and so I
fastened a metal hook on the end of an old painter’s extension pole
that I had at the house. When fully extended, the pole with the hook
was about 16 feet long. Using the extension pole and hook, I was
then able to remove the screens more easily. Using a ladder and the
extension pole, I was then also able to reach and remove screens at
the second floor level of eaves. I was unable to remove some of the
screens, and I ended up bending or breaking some of the screens. I
did not attempt to remove all the screens. I was trying to let the bats
escape so they would not be trapped, and so they would not die
inside the walls of my house. I did this work over the course of
several days in late August and early September 2010.
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(ECF No. 39 at 6.)
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E. The Current Action
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Plaintiff repeatedly attempted to reach an agreement with Defendant concerning
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her claim. (See generally ECF No. 39.) On August 26, 2011, Plaintiff sued Defendant in Placer
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County Superior Court in connection with the claim denial, and Defendant subsequently removed
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the action to this Court. Plaintiff asserts claims against Defendant for breach of contract, bad
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faith and declaratory relief. In addition, Plaintiff is seeking punitive damages. (ECF No. 1 at
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6−11.)
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Defendant filed a motion for summary judgment on all of Plaintiff’s causes of
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action. (ECF No. 28.) In the alternative, Defendant moves for summary adjudication of
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Plaintiff’s claim for breach of the covenant of good faith and dealing (bad faith) and punitive
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damages. Defendant contends that coverage was correctly denied pursuant to Plaintiff’s
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insurance policy and that Plaintiff cannot establish elements of the individual causes of action.
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(ECF No. 28 at 2.)
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II.
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A. Summary Judgment
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STANDARDS OF LAW
Summary judgment is appropriate when the moving party demonstrates no
genuine issue as to any material fact exists, and therefore, the moving party is entitled to
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judgment as a matter of law. Fed. R. Civ. P. 56(c); Adickes v. S.H. Kress & Co., 398 U.S. 144,
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157 (1970). Under summary judgment practice, the moving party always bears the initial
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responsibility of informing the district court of the basis of its motion, and identifying those
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portions of “the pleadings, depositions, answers to interrogatories, and admissions on file together
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with the affidavits, if any,” which it believes demonstrate the absence of a genuine issue of
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material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “[W]here the nonmoving party
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will bear the burden of proof at trial on a dispositive issue, a summary judgment motion may
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properly be made in reliance solely on the pleadings, depositions, answers to interrogatories, and
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admissions on file.” Id. at 324 (internal quotations omitted). Indeed, summary judgment should
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be entered against a party who does not make a showing sufficient to establish the existence of an
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element essential to that party’s case and on which that party will bear the burden of proof at trial.
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Id. at 322. *
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If the moving party meets its initial responsibility, the burden then shifts to the
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opposing party to establish that a genuine issue as to any material fact actually does exist.
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Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585−87 (1986); First Nat’l
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Bank v. Cities Serv. Co., 391 U.S. 253, 288−289 (1968). In attempting to establish the existence
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of this factual dispute, the opposing party may not rely upon the denials of its pleadings but is
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required to tender evidence of specific facts in the form of affidavits and/or admissible discovery
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material in support of its contention that the dispute exists. Fed. R. Civ. P. 56(c). The opposing
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party must demonstrate that the fact in contention is material, i.e., a fact that might affect the
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outcome of the suit under the governing law, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
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(1986), and that the dispute is genuine, i.e., the evidence is such that a reasonable jury could
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return a verdict for the nonmoving party. Id. at 251−52.
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In the endeavor to establish the existence of a factual dispute, the opposing party
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need not establish a material issue of fact conclusively in its favor. It is sufficient that “the
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claimed factual dispute be shown to require a jury or judge to resolve the parties’ differing
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versions of the truth at trial.” First Nat’l Bank, 391 U.S. at 288−89. Thus, the “purpose of
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summary judgment is to ‘pierce the pleadings and to assess the proof in order to see whether there
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is a genuine need for trial.’” Matsushita, 475 U.S. at 587 (quoting Rule 56(e) advisory
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committee’s note on 1963 amendments).
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In resolving the summary judgment motion, the court examines the pleadings,
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depositions, answers to interrogatories, and admissions on file, together with any applicable
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affidavits. Fed. R. Civ. P. 56(c); SEC v. Seaboard Corp., 677 F.2d 1301, 1305−06 (9th Cir.
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1982). The evidence of the opposing party is to be believed and all reasonable inferences that
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may be drawn from the facts placed before the court must be drawn in favor of the opposing
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party. Anderson, 477 U.S. at 255. Nevertheless, inferences are not drawn out of the air and it is
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the opposing party’s obligation to produce a factual predicate from which the inference may be
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drawn. Richards v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244−45 (E.D. Cal. 1985), aff’d,
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810 F.2d 898 (9th Cir. 1987).
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Finally, to demonstrate a genuine issue that necessitates a jury trial, the opposing
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party “must do more than simply show that there is some metaphysical doubt as to the material
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facts.” Matsushita, 475 U.S. at 586. “Where the record taken as a whole could not lead a rational
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trier of fact to find for the nonmoving party, there is no ‘genuine issue for trial.’” Id. at 587.
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B. Insurance Contract Interpretation
The California Supreme Court has held that “[i]nterpretation of an insurance
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policy is a question of law and follows the general rules of contract interpretation.”5 MacKinnon
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Although the Court’s decision in MacKinnon dealt with traditional absolute pollution exclusions in the
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v. Truck Ins. Exchange, 31 Cal. 4th 635, 647 (2003) (citing Waller v. Truck Ins. Exchange, Inc.,
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11 Cal. 4th 1, 18 (1995)). “A contract must be so interpreted as to give effect to the mutual
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intention of the parties as it existed at the time of contracting, so far as the same is ascertainable
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and lawful.” Cal. Civ. Code § 1636 (West). When possible, the intent of the parties should be
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inferred solely from the written provisions of the contract at issue. MacKinnon, 31 Cal. 4th at
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647; see also Cal. Civ. Code § 1639 (West).
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Judicial interpretation is guided by the “clear and explicit” meaning of the contract
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provisions in their “ordinary or popular sense,” unless the parties use the terms in a technical
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sense or assign a special meaning by usage. See MacKinnon, 31 Cal. 4th at 647−48; Cal. Civ.
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Code § 1638−44 (West). A contract provision will be considered ambiguous when it is capable
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of two or more reasonable interpretations. See MacKinnon, 31 Cal. 4th at 648. However, the
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language of a contract must be interpreted as a whole and cannot be found ambiguous in the
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abstract. Id. (citing Waller, 11 Cal. 4th at 18). Furthermore, “‘insurance coverage is to be
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interpreted broadly so as to afford the greatest possible protection to the insured, whereas . . .
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exclusionary clauses are to be interpreted narrowly against the insurer.’” Id. (quoting White v.
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Western Title Ins. Co., 40 Cal. 3d 870, 881 (1985)). “Any exception to the performance of the
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basic underlying obligation must be so stated as clearly to apprise the insured of its effect. Thus,
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the burden rests upon the insurer to phrase exceptions and exclusions in clear and unmistakable
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language. The exclusionary clause must be conspicuous, plain and clear.” Id. (internal
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quotations and citations omitted).
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The California Supreme Court has stated that this rule is specifically applicable
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where the coverage portion of the insurance policy would lead an insured to reasonably expect
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coverage for the claim purportedly excluded. Id. (citing Gray v. Zurich Insurance Co., 65 Cal.2d
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263, 272–273 (1966). Thus, the insured bears the burden of establishing that the claim is within
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the basic scope of coverage, and the insurer bears the burden of establishing that the claim is
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specifically excluded. See id.; Aydin Corp. v. First State Ins. Co., 18 Cal. 4th 1183, 1188 (1998).
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context of commercial general liability, the Court finds that its reasoning is equally instructive on interpreting
residential insurance policy language.
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III.
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The Court will address each of Plaintiff’s causes of action in turn.
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ANALYSIS
A. Breach of Contract
Defendant presents the following three arguments for why it is entitled to
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summary judgment on this claim: (1) the claimed loss was not sudden; (2) the policy excluded
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coverage for faulty workmanship and construction under Exclusion 22; and (3) Exclusions 14 and
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15 preclude liability for odor and waste materials. Each argument is addressed in detail below.
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1. Sudden Loss
The Insurance Policy states “[w]e will cover sudden and accidental direct physical
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loss to the property described in Coverage A−Dwelling Protection and Coverage B−Other
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Structures Protection except as limited or excluded in this policy.” (ECF No. 28-2 at 16
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(emphasis added).) Defendant contends that Plaintiff, as the insured, has the burden of
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establishing that her claim comes within the policy’s basic scope of coverage. (ECF No. 28 at
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15.) Defendant further argues that Plaintiff’s loss was not sudden and thus not protected by the
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policy. (ECF No. 28 at 15.) Defendant’s argument seems to rest on the premise that Plaintiff’s
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entire claim is due to the smell caused by bat guano (which it contends was gradually produced
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and thus not sudden) and not the actual infestation. In support, Defendant cites Prudential-LMI
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Commercial Insurance v. Superior Court, 51 Cal. 3d 674, 698 (1990), for the proposition that
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examples of sudden damage include damages caused by fire or a windstorm and not gradual
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damage such as settlement.
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Plaintiff argues that the loss was sudden and thus should be covered. In support of
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her contention, Plaintiff cites to Merriam Webster’s definition of sudden as “happening or coming
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unexpectedly,” contending that sudden infestation of bats “that appeared from nowhere, without
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warning” satisfies this definition. (ECF No. 34 at 9.)
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Defendant’s assertion that an insured has the burden of establishing that a claim
comes within the policy’s basic scope of coverage is correct. See Royal Globe Ins. Co. v.
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Whitaker, 181 Cal. App. 3d 532, 537 (1986). However, the Court disagrees with Defendant’s
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contention that Plaintiff’s loss was not sudden. In interpreting the same language used in the
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policy provision at issue−sudden and accidental−the Fourth District California Court of Appeal
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found that the combined use of the terms requires defining them independently, “giving [sudden]
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a meaning with a temporal aspect-immediacy, quickness or abruptness-that does not allow it to
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cover events, such as happened in this case-that occurred gradually.” ACL Technologies, Inc. v.
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Northbrook Prop. & Cas. Ins. Co., 17 Cal. App. 4th 1773, 1787 (1993). Although Defendant has
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cited numerous statements made by Plaintiff alleging that the bat guano odor gradually became
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stronger, this does not negate the fact that the initial infestation may have been sudden. Plaintiff
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stated in her declaration that until June of 2010, there was no evidence of bat infestation after the
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original 2006 exclusion. (ECF No. 39 at ¶ 20.) In describing how she discovered the bats
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Plaintiff stated as follows
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I was laying in bed in my bedroom when I heard little banging,
pinging and scratching noises coming from outside my bedroom
wall. After about a half an hour, I went outside with a flashlight to
see what was making the sound. I went to the exterior west wall of
my bedroom and looked up with the flashlight and saw bats
swarming and crawling and flying. The bats were making a
banging sound against the metal gutters, and they were climbing
along the tops of walls near the eaves at both the first and second
floors.
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(ECF No. 39 at ¶ 20.) This description does not support a gradual infestation. Furthermore,
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because the Court must adopt the facts as described by the Plaintiff, there is an issue of material
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fact as to whether the cause of the damage was gradual or whether the damage falls within the
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sudden and accidental language of the policy. As such, this Court declines to find that Plaintiff’s
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claim fails on this basis.
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2. Faulty Workmanship and Construction
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Defendant contends that Exclusion 22, commonly referred to as the “faulty
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workmanship” exclusion, precludes coverage. Exclusion 22 bars claims caused by inadequate or
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defective: design, specifications, workmanship, repair, construction, renovation, remodeling,
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grading, compaction or materials used in repair, construction, renovation or remodeling.
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(Exclusion 22(b)−(c), ECF No. 28-2 at 18.) Defendant contends that the policy excludes
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Plaintiff’s claims because the property’s original construction did not meet the applicable
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California building code at the time of construction and further that the 2006 bat exclusion was
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defective. In support of its contention concerning the original construction of the home,
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Defendant has submitted an expert report from David Schwartz who inspected the property on
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September 26, 2012. In his report, David Schwartz stated as follows:
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At the interior sill of the entry hatch to the crawl space on the West
Elevation, we observed a dead bat and what appeared to be bat
droppings. (Refer to Photographs 37 and 38.) In the main attic
space, we observed what appeared to be rat droppings. (Refer to
Photograph 29.)
We observed that the crawl space vents were protected by 1/4-inch
grid wire mesh fabric. (Refer to Photograph 41.)
We observed that the eave vents were also protected by 1/4-inch
grid wire mesh fabric. (Refer to Photograph 2.) The gap located at
the top of all brick veneer areas was also protected by 1/4-inch grid
wire mesh fabric. (Refer to Photograph 4.)
We observed that the brickwork on this home is unusual in that it is
composed of many irregular bricks and includes “distressed” bricks.
Distressed bricks are twisted, curled, or bent. Based on my
experience with residential design, I understand that this house is
intended to be of the “Storybook Style,” which utilizes artisanal
features such as the wavy, irregular brickwork and a curvilinear
layout of the roof shingles.
According to the construction documents, the horizontal and
vertical gaps at the top of brick veneer areas were intended to be
closed off by soffits and wire screens. (Refer to Exhibit F.) The asbuilt condition has two separate areas of wire screening: behind the
eave vents and over top of the brick veneer to sheathing air gap
under the eaves at the top of the walls. The latter screening appears
to have been added at some point after original construction,
judging by its level of corrosion compared to the screening behind
the eave vents.
Based on our observations, measurements, and investigation, it
appears that the brick veneer assembly’s planar irregularity caused
a variable-size gap ranging from 1/8-inch to 1 and 1/4-inches,
averaging about 3/4-inch between the back side of the brick and the
building paper. The construction documents call for a uniform 1inch air space behind the brick. (Refer to Exhibit G.) This gap
would have allowed small bats to nest in the cavity behind the brick
if not closed off. In addition, vertical irregularities caused by the
odd-shaped bricks at the joint between the top of the brick veneer
and the eave closure boards would also have allowed bats to enter
attic spaces before these gaps were protected by wire mesh. (Refer
to Photograph 6.) Note that the stucco veneer meets the eave
closure boards tightly, and has never created a condition such that
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bats could enter. (Refer to Photograph 21.)
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The gaps referred to in the preceding paragraph could have been
avoided had the original owner-builder taken measures during
construction to close off the gaps or protect them with wire mesh.
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We did not observe any evidence of bats in the attics (Refer to
Photograph 28) or unfinished storage areas on the second floor.
(Refer to Photograph 34.) The only evidence of bats was the single
dead bat and bat droppings at the crawl space access hatch. (Refer
to Photograph 38.) At the time of construction (Refer to Exhibit B),
the California Building Code required that the weather-resistant
system of the building envelope be continuous (Refer to Exhibit C).
The Energy California Energy Code required that openings in the
building envelope be sealed to prevent air infiltration (Refer to
Exhibit D). The California Civil Code required that human
habitation spaces be free of vermin (Refer to Exhibit E). Taken
together, these regulations give rise to the construction industry
standards of practice and care with respect to building envelopes.
Those standards require buildings to have continuous, sealed
envelopes that shall not admit unintentional water, air leaks, or
vermin.
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The residence subject to this report fell below the standards of
practice and care in the construction industry at the time it was
built. As a consequence, bats were able to gain entrance to areas
within the building envelope.
(ECF No. 28-3 at 9−10.)
In response to Mr. Schwartz’s report, Plaintiff argues that Mr. Schwartz had no
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way of knowing what the condition of the house was at any point between 1993 and June 2006.
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(ECF No. 34.) In addition, Plaintiff alleges that there was mesh screening at the top of the walls
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at the eaves, and that she removed them in 2010 to allow bats trapped behind the screening to
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escape. (ECF No. 39 at ¶ 24.)
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Because the Court must consider the allegations in the light most favorable to the
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nonmoving party and all reasonable inferences that may be drawn from the facts placed before the
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Court must be drawn in favor of the opposing party, Plaintiff’s allegations that she removed mesh
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screening creates a material question of fact as to whether the screens were in place when the
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house was constructed. Anderson, 477 U.S. at 255. Thus, summary judgment on this issue is not
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appropriate. See Fed. R. Civ. P. 56(c); Adickes, 398 U.S. at 157. Furthermore, the Court notes
27
that Mr. Schwartz’s report states that the home did not meet codes at the time of construction.
28
Exhibit B of the report consists of building permit forms from 1990. However, the code that is
12
1
offered to prove that the home was constructed in violation of the applicable code is dated 2001.
2
Defendant has not provided the Court with anything which reflects that the status of the
3
applicable code was not modified during the ten years that passed between the construction of the
4
home and the date of the cited code. Accordingly, Defendant has not met its burden of
5
establishing faulty construction.
6
As to Defendant’s contention that the faulty 2006 bat exclusion precludes liability
7
under the policy, Plaintiff’s allegations that she removed screens prior to Mr. Clacher and Mr.
8
Rhoades performing the 2010 exclusion creates genuine issues of material fact as to whether the
9
2006 exclusion was in fact faulty. Accordingly, summary judgment on this issue is also not
10
11
appropriate. See Fed. R. Civ. P. 56(c); Adickes, 398 U.S. at 157.
3. Policy Exclusions 14 and 15
12
Exclusion 14 of the policy states there is no coverage for damage caused by
13
“Vapors, fumes, acids, toxic chemicals, toxic gasses, toxic solids, waste materials or other
14
irritants, contaminants or pollutants.” Exclusion 15(e) is similar, stating there is no coverage for
15
damage caused by “contamination, including, but not limited to the presence of toxic, noxious or
16
hazardous gasses, chemicals, liquids, solids or other substances at the residence premises or in the
17
air, land or water serving the residence premises.” Defendant argues that bat guano and decaying
18
bat carcasses fall within the conditions described in Exclusions 14 and 15. (ECF No. 28.)
19
Plaintiff argues that these pollutant type exclusions are generally understood to apply to
20
environmental disasters and should be narrowly construed as such. (See ECF No. 34 at 17 (citing
21
MacKinnon, 31 Cal. 4th 635 (2003).) Further, Plaintiff argues that the Court should consider
22
Exclusion 15 in its entirety and note that section 15(h) specifically states that there is no coverage
23
for damage caused by “insects, rodents, birds or domestic animals.” (ECF No. 34 at 18.)
24
Plaintiff contends that the inclusion of this clause implies that Exclusions 14 and 15(e) were not
25
intended to govern loss caused by animals. (ECF No. 34 at 18.) In support, Plaintiff has filed
26
documents under seal concerning Defendant’s internal guidelines for claims involving skunks,
27
bats and raccoons (hereinafter referred to as the “Sealed Documents”). (ECF No. 33.) Based on
28
the information set forth in the Sealed Documents, the Court is not persuaded that Exclusions 14
13
1
and 15(e) express the parties’ intent to exclude Plaintiff’s claim.
2
Moreover, the Court’s conclusion is bolstered by the California Supreme Court’s
3
interpretation of pollution exclusion clauses within insurance contracts. In MacKinnon, the
4
California Supreme Court considered whether these sort of “total pollution exclusion” clauses
5
should be interpreted narrowly or broadly. In doing so, the court cautioned that when interpreting
6
such clauses, although the examination of various dictionary definitions can be helpful in
7
ascertaining the meaning of a term, they do not necessarily “yield the ‘ordinary and popular’
8
sense of the word if it disregards the policy’s context.” Id. at 649 (citing Bank of West v. Superior
9
Court, 2 Cal. 4th 1254, 1265 (1992)). Thus, the court looked to the history and intent of the
10
insurance industry in developing these exclusions and the fact that the exclusion grew out of the
11
industry’s desire to avoid coverage for “environmental disasters.” See Mackinnon, 31 Cal. 4th at
12
643.
13
14
15
16
17
18
Commentators have pointed as well to the passage of the
Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA, 42 U.S.C. § 9601 et seq.) in 1980 and the
attendant expansion of liability for remediating hazardous waste
(citation omitted) as motivation for amending the exclusion. “[T]he
available evidence most strongly suggests that the absolute
pollution exclusion was designed to serve the twin purposes of
eliminating coverage for gradual environmental degradation and
government-mandated cleanup such as Superfund response cost
reimbursement.”
19
MacKinnon, 31 Cal. 4th at 645 (quoting Stempel, Reason and Pollution: Correctly Construing the
20
“Absolute” Exclusion In Context and in Accord with Its Purpose and Party Expectations (1998)
21
34 Tort & Ins. L.J. 1, 32). The court found that an expansive interpretation of these clauses may
22
lead to an unreasonable interpretation. “‘Without some limiting principle, the pollution exclusion
23
clause would extend far beyond its intended scope and lead to some absurd results.’” Id. at 650
24
(quoting Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co., 976 F.2d 1037, 1043 (7th
25
Cir. 1992)). For example, the court found that a reasonable policy holder would not understand
26
such a clause to exclude any irritant, but instead would interpret the policy to exclude irritants
27
commonly thought of as pollution. Id. at 652−53. Thus, the Court reads Exclusion 14 in the
28
context of the policy agreement.
14
1
Exclusion 13, which immediately precedes Exclusion 14, excludes loss to the
2
property caused by “soil conditions, including but not limited to corrosive action, chemicals,
3
compounds, elements suspensions, crystal formations or gels in the soil.” (ECF No. 28-2 at 17.)
4
Exclusion 14 precludes policy coverage of “vapors, fumes, acids, toxic chemicals, toxic gasses,
5
toxic liquids, toxic solids, waste material or other irritants, contaminants or pollutants.” (ECF No.
6
28-2 at 17.) The Court finds that the combination of the preceding exclusion dealing with soil
7
conditions and the boiler plate “pollution exclusion language” of Exclusion 14 is indicative of
8
Defendant’s intention that the language of Exclusion 14 apply to environmental pollutants.
9
Defendant has not satisfied its burden of showing that a reasonable policy holder would
10
understand that the terms “vapors, fumes, acids, toxic chemicals, toxic gasses, toxic liquids, toxic
11
solids, waste material or other irritants, contaminants or pollutants” used in this context applies to
12
any sort of mammal excrement. As such, the Court declines to find that Exclusion 14 bars
13
Plaintiff’s claim as a matter of law.
14
Defendant contends that Exclusion 15(e) similarly bars Plaintiff’s claim.
15
Exclusion 15(e) excludes any loss consisting of or caused by “contamination, including, but not
16
limited to the presence of toxic, noxious or hazardous gasses, chemicals, liquids, solids or other
17
substances at the residence premises or in the air, land or water serving the residence premises.”
18
Again, this clause is fundamentally a “pollution type” exclusion, and Defendant has the burden of
19
presenting evidence that this claim is excluded as a pollutant. See MacKinnon, 31 Cal. 4th at 648.
20
In determining whether a claim is excluded pursuant to these pollutant exclusions,
21
the California courts consider whether a substance is typically considered a pollutant by
22
policyholders. See MacKinnon, 31 Cal. 4th at 654. In MacKinnon, the California Supreme Court
23
held that pesticide was not excluded as a pollutant because “the normal application of pesticides
24
around an apartment building in order to kill yellow jackets would not comport with the common
25
understanding of the word ‘pollute.’” Id. In making its determination the court analogized
26
pesticides to carbon monoxide. Specifically, the court explained:
27
28
[w]hile a reasonable person of ordinary intelligence might well
understand carbon monoxide is a pollutant when it is emitted in an
industrial or environmental setting, an ordinary policyholder would
15
1
not reasonably characterize carbon monoxide emitted from a
residential heater which malfunctioned as “pollution.” It seems far
more reasonable that a policyholder would understand [the policy]
as being limited to irritants and contaminants commonly thought of
as pollution and not as applying to every possible irritant or
contaminant imaginable.
2
3
4
5
6
MacKinnon, 31 Cal. 4th at 652−53; see also Am. Cas. Co. of Reading, PA v. Miller, 159 Cal.
App. 4th 501, 511 (2008) (quoting MacKinnon in determining that methylene chloride was
excludable as a pollutant).
7
8
9
10
11
12
Here, Defendants have not presented any evidence that bat guano falls within the
exclusions listed in 15(e). Although Defendant has cited Plaintiff’s statements that the guano had
a terrible odor in support of its claim that the guano caused a noxious vapor, gas or irritant, the
Court declines to label guano a pollutant based solely on these statements. In fact, the only thing
that Defendant has offered in support of its contention is the Wisconsin Supreme Court case
Hirschhorn v. Auto-Owners Ins. Co., 338 Wis.2d 761 (2012).
13
14
15
16
17
18
19
In Hirschhorn, the court found that bat guano was excluded as a pollutant where
the policy specifically listed waste within the definition of a pollutant. The court found that “bat
guano is composed of bat feces and urine. Feces and urine are commonly understood to be waste.
Indeed, the ordinary meaning of feces is waste eliminated from bowels.” Id. at 778 (quotation
marks omitted). The Court does not disagree with these statements 6 since California law requires
courts to consider the context of the terms used. See Mackinnon, 31 Cal. 4th at 649; Bank of
West, 2 Cal. 4th at 1265.
20
21
22
The exclusions at issue are pollution exclusion clauses. Typically pollution claims
stem from a leakage or seepage from a polluted area into some other area that causes the damage.
That is not the situation here, in which the damage was caused by animals coming into the
23
24
25
26
27
28
6
The Court notes that while the Hirschhorn court found that there are safety concerns involving bat guano,
Defendant has not provided information to that effect. Further, the Court notes that bat guano is often used as a
fertilizer and that the likelihood of contracting a disease from it depends on whether the droppings are contaminated
with a fungal spore called H. capsulatum. This spore grows in soils throughout the world, but seems to grow best in
soils with high nitrogen content. See Histoplasmosis: Protecting Workers and Risk, Center for Disease Control and
Prevention, available at http://www.cdc.gov/niosh/docs/97-146/. Defendant has not provided the Court with any
information as to the likelihood of gat guano carrying this spore or any other evidence concerning its classification as
a pollutant. As such, the Court declines Defendant’s invitation to unequivocally find that guano is a pollutant without
adequate evidence of its toxicity.
16
1
structure of the home. As such, this case does not lend itself to the traditional situations in which
2
a pollution exclusion clause would be invoked. Thus, an insured cannot be reasonably expected
3
to believe that this clause precludes recovering on a claim caused by a bat infestation.
4
Moreover, the policy at issue can be distinguished from that in Hirschhorn because
5
it has a provision that explicitly addresses coverage pertaining to damage caused by animals.
6
Exclusion 15(h) states that the policy does not cover losses consisting of or caused by “insects,
7
rodents, birds or domestic animals.”7 (ECF No. 28-2 at 18.) This clause further casts doubt as to
8
whether Defendant intended for claims, such as the one at issue, to be governed under Exclusion
9
15(e) instead of Exclusion 15(h), which specifically addresses damage caused by animals. The
10
Hirschhorn court did not consider a similar clause in determining that guano fell under the
11
pollution exclusion. As such, the evidence presented does not show that the policy excludes
12
coverage of Plaintiff’s claim as a matter of law.
13
B. Breach of the Covenant of Good Faith and Dealing (Bad Faith)
14
Plaintiff contends that Defendant breached its covenant of good faith and dealing
15
and acted in bad faith in denying Plaintiff’s claim. Specifically, Plaintiff alleges that Defendant
16
delayed determining whether any benefits were owed to Plaintiff for the covered loss, failed to
17
conduct a full and complete investigation into the facts and circumstances of the covered loss,
18
refused to pay or provide benefits owed under the policy, and narrowly interpreted the policy in a
19
manner calculated to deny Plaintiff’s claim. (ECF No. 1 at ¶ 18.) Plaintiff further contends that
20
Defendant’s denial of Plaintiff’s claim was willful and without reasonable cause. (ECF No. 1 at ¶
21
19.)
22
Defendant counters that Plaintiff’s claim fails for two reasons: (1) Plaintiff has no
23
right to contract benefits; and (2) Defendant’s denial of coverage was reasonable, whether right or
24
wrong, and therefore not in bad faith. (ECF No. 28 at 20.) The Court has already declined to find
25
that Plaintiff does not have a right to benefits pursuant to the insurance policy. Accordingly, the
26
Court shall only consider Defendant’s second argument.
27
7
28
Both parties have admitted that bats are not in fact rodents and are instead a member of the order Chiroptera
and thus not excluded by Exclusion 15(h).
17
1
An implied covenant of good faith and fair dealing is implicit in an insurance
2
contract, as in any other type of contract. Major v. W. Home Ins. Co., 169 Cal. App. 4th 1197,
3
1208−09 (2009); Foley v. Interactive Data Corp., 47 Cal. 3d 654, 683 (1988). “An insurer is said
4
to act in ‘bad faith’ when it breaches its duty to deal ‘fairly’ and ‘in good faith’ with its insured.
5
Major, 169 Cal. App. 4th at 1209; see also Chicago Title Ins. Co. v. AMZ Ins. Servs., Inc., 188
6
Cal. App. 4th 401, 428 (2010). To violate the covenant, an insurer must act unreasonably.
7
Morris v. Paul Revere Life Ins. Co., 109 Cal. App. 4th 966, 973 (2003). Unreasonable conduct is
8
not synonymous with mistaken or even negligent handling of a claim. Careau & Co. v. Sec. Pac.
9
Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1395 (1990). Instead, bad faith requires a “conscious
10
and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the
11
reasonable expectations of the other party thereby depriving that party of the benefits of the
12
agreement.” Id. Thus, “the term ‘bad faith’ does not connote ‘positive misconduct of a malicious
13
or immoral nature; it simply means the insurer acted deliberately.’” Major, 169 Cal. App. 4th at
14
1209 (citing Neal v. Farmers Ins. Exchange, 21 Cal. 3d 910, 921−22 (1978)).
15
The Court notes that there are no California decisions on point. As previously
16
discussed, no court applying California law has discussed the type of pollution exclusion clauses
17
at issue under a similar set of facts. This issue is unsettled, and thus in a different situation the
18
Court would not be willing to find that a defendant’s belief that an insured’s claim was excluded
19
under an insurance policy’s terms was unreasonable. See Morris v. Paul Revere Life Ins. Co., 109
20
Cal. App. 4th 966, 974−76 (holding that an insurance company’s denial of a claim was reasonable
21
in light of the evolving state of the law at the time). However, in the instant case, the content of
22
the Sealed Documents raises material issues of fact concerning the reasonableness of Defendant’s
23
denial of coverage in this situation, and further whether Defendant did in fact deliberately deny
24
coverage in bad faith. See Careau & Co., 222 Cal. App. 3d at 1395 (holding that deciding
25
whether conduct meets the bad faith criteria must be determined on a case by case basis and will
26
depend on the contractual purposes and reasonably justified expectations of the parties). As such,
27
the Court denies Defendant’s motion for summary judgment as to Plaintiff’s bad faith claim.
28
18
1
2
C. Punitive Damages
Finally, Defendant moves the Court for summary judgment on Plaintiff’s claim for
3
punitive damages, contending that there is no clear and convincing evidence of evil conduct or
4
corporate ratification of such behavior. (ECF No. 28 at 22.) Plaintiff contends that Defendant’s
5
willful indifference creates a triable issue of fact as to whether punitive damages may be awarded.
6
For the reasons set forth below, the Court agrees.
7
Tort damages in a bad faith action include punitive damages, provided that the
8
requirements of California Civil Code § 3294 are met, i.e., “where it is proven by clear and
9
convincing evidence that the defendant has been guilty of oppression, fraud, or malice,” (see
10
Silberg v. Cal. Life Ins. Co., 11 Cal. 3d 452, 462 (1974); 2 Witkin, Summary 10th (2005)
11
Insurance, § 242, p. 357), and an officer, director, or managing agent participated in or ratified
12
such conduct, (Cal. Civ. Code § 3294(b)). Thus, Plaintiff may be entitled to recover punitive
13
damages if she can prove that Defendant not only denied or delayed the payment of policy
14
benefits unreasonably or without proper cause, but also in doing so, was guilty of malice,
15
oppression or fraud, see Jordan v. Allstate Ins. Co., 148 Cal. App. 4th 1062, 1080 (2007), and that
16
the conduct was ratified by Defendant, 2 Witkin, Summary 10th (2005) Insurance, § 242, p. 357.
17
The Court declines Defendant’s invitation to decide that Plaintiff cannot prove that
18
Defendant’s agents acted with oppression, fraud or malice, and that Defendant ratified such
19
conduct. The Sealed Documents proffered by Plaintiff combined with Molina’s deposition
20
testimony that he had reviewed such documents prior to his inspection of Plaintiff’s property
21
(ECF No. 40 at 36:8−40:25) and Plaintiff’s allegations that Jess Molina repeatedly told her that he
22
was denying her claim because “her policy did not cover rodents and that because bats are rodents
23
there was no coverage” (ECF No. 39 at ¶ 28) create a triable issue of fact regarding whether
24
Defendant’s actions satisfy the requirement for punitive damages. Furthermore, the following
25
alleged facts create a material issue of fact concerning whether Defendant ratified the conduct
26
alleged by Plaintiff: (1) Mr. Molina and his supervisor Mr. Iaccino discussed the denial of
27
Plaintiff’s claim the night before the inspection of the property; (2) Mr. Molina’s subsequent
28
denial of coverage at the inspection was agreed with and thus ratified by his supervisor Mr.
19
1
Iaccino; (3) Mr. Iaccino made comments at the inspection alleging that they were ordered by the
2
legal team to deny coverage; and (4) both Mr. Molina and Mr. Iaccino’s conduct was later ratified
3
by Allstate Representative Robert Jobe. The Court is aware that the clear and convincing burden
4
of proving such damages is substantial, but finds that Defendant has not met its burden of
5
showing that Plaintiff is foreclosed from doing so.
6
IV.
7
For the foregoing reasons, Defendants’ Motion for Summary Judgment and in the
8
9
CONCLUSION
Alternative Summary Adjudication (ECF No. 28) is hereby DENIED.
IT IS SO ORDERED.
10
11
Dated: October 17, 2013
12
Troy L. Nunley
United States District Judge
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