Bankers Insurance Company v. A-1 Air Conditioning & Heating et al

Filing 46

ORDER signed by District Judge John A. Mendez on 3/23/2017 GRANTING Bankers' 28 Motion for Summary Judgment. (Zignago, K.)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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BANKERS INSURANCE COMPANY, a
Florida corporation,

No.

2:16-cv-00177-JAM-CKD

ORDER GRANTING PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT

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Plaintiff,
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v.
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A-1 AIR CONDITIONING & HEATING,
a partnership; et al.,
Defendants.
AND RELATED THIRD PARTY
COMPLAINT
This insurance coverage dispute was sparked by a state

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court lawsuit over a residential fire.

It heated up with a

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cross-complaint filed against Defendants in the state court

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action for which Defendants tendered their defense to Bankers

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Insurance Company (“Bankers”).

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flames by filing this present action for declaratory relief and

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it now seeks summary judgment concerning its duties to defend

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and indemnify the Defendants in the underlying action.

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reasons described below the Court grants Bankers’ Motion for

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Summary Judgment.

Bankers further fanned the

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For the

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I.

FACTUAL BACKGROUND

A-1 Air Conditioning & Heating (“A-1”) is a sole

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proprietorship owned by Daniel Edward Michael Webb (“Webb”) that

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installs and services heating and air conditioning equipment.

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Defendants’ Responses to Plaintiff’s Separate Statement of

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Undisputed Facts (“SUF”), ECF No.42, at ¶¶ 10, 27.

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and Daniel Fisher (“Fisher”) applied to Bankers for general

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liability coverage in 2002 and held a Bankers policy from August

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2003 to August 2005.

SUF ¶¶ 4, 5, 6; Exh. 8.

A-1, Webb,

Webb and Fisher

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also partnered to create Homestead Installations (“Homestead”),

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a fireplace and stove installation business that incorporated in

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April 2002 and for which Webb and Fisher were the sole

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shareholders.

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Although Homestead attempted to secure insurance from Bankers in

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2004, Homestead has never been listed as a named insured on a

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Bankers policy.

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Defendants’ Opposition at 2; SUF at ¶¶ 8, 11.

SUF at ¶¶ 7, 21; Filipoone Decl. at ¶ 6.

In 2004, Fisher—working for Homestead—installed a wood

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burning stove and flue system at 9753 Ben Hall Drive in Galt,

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California.

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(“Custom”) contracted Homestead to perform the work and required

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Homestead to procure a one million dollar general liability

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insurance policy naming Custom as an additional insured.

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¶¶ 12, 13.

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the Scott Alberts Insurance Agency (“Alberts”) through the

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Alberts’ employee Linda Shook (“Shook”).

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provided Defendants with an ACORD form Certificate of Liability

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Insurance, which names A-1 and Homestead as insureds, Custom as

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the certificate holder, and Alberts as the producer.

SUF at ¶¶ 12, 15, 25.

Custom Fireside Shop, Inc.

SUF at

Homestead attempted to apply for this insurance with

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Alberts and Shook then

SUF at

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¶¶ 16, 17; Exh. 7. Around March 28, 2012, the residence in which

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Fisher installed the above-described stove was destroyed in a

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fire.

SUF at ¶ 18.

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II.

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PROCEDURAL BACKGROUND

About a year and a half after the fire, Safeco Insurance

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Company (“Safeco”) filed a state lawsuit against several

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parties, including Custom, due to the fire and the money Safeco

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paid the insured for damage to the residence.

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4.

SUF at ¶ 19; Exh.

Custom filed a cross-complaint naming Homestead, A-1, Webb,

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and Fisher, among others.

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Homestead, A-1, Webb, and Fisher each tendered their defense to

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Bankers and requested that Bankers defend and indemnify them in

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the Safeco lawsuit.

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suit in January 2016 seeking a judicial declaration—pursuant to

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28 U.S.C. § 2201—that it does not owe a duty to defend or

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indemnify A-1, Fisher, Webb, Homestead, or Custom in the Safeco

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suit.

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also named Safeco as a defendant in order for the judgment to

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bind Safeco.

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Homestead, Safeco and Webb on May 25, 2016.

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default was set aside on June 29, 2016 as to Webb and A-1. ECF

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No. 14.

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to file any responsive pleading and dismissed from this action.

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ECF Nos. 5 & 6.

SUF at ¶ 19; Exh. 5.

SUF at ¶ 20.

Custom,

Bankers filed the present

Complaint for Declaratory Relief, ECF No. 1.

Compl. at ¶ 7.

Bankers

A default was entered against A-1,
ECF No. 11.

The

By stipulation and Court order, Custom was not required

A-1, Webb, Fisher, and Homestead 1 filed their

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The default against Homestead was never set aside. Homestead
is also admittedly a “dissolved California Corporation.”
Homestead has no legal basis to oppose this motion for summary
judgment and it was not necessary for Bankers to include
Homestead as a party in its summary judgment motion.
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Answer and “cross-complaint” 2 against Alberts and Shook (“Cross-

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Defendants”) alleging that Cross-Defendants failed to secure the

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requested Bankers insurance coverage and asserting related

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claims.

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See Cross-Complaint, ECF No. 15.

Plaintiff filed its Motion for Summary Judgment on January

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13, 2017.

ECF No. 28.

Cross-Defendants requested a continuance

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of the hearing on the motion, which the Court denied.

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29 & 33.

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“Defendants”) filed an opposition, as did Cross-Defendants.

ECF Nos.

A-1, Webb, Fisher, and Homestead (hereinafter

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Nos. 40 & 34.

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standing to oppose its motion, Plaintiff replied to each

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opposition.

ECF

Although Plaintiff contests Cross-Defendants’

ECF Nos. 43 & 44.

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III.

OPINION

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A.

Declaratory Relief

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In a suit seeking declaratory judgment pursuant to 28

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U.S.C. § 2201, a district court must first inquire whether there

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is an actual case or controversy within its jurisdiction.

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Principal Life Ins. Co. v. Robinson, 394 F.3d 665, 669 (9th Cir.

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2005).

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constitutional case or controversy requirement and thus

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determines the court’s jurisdiction to award relief.

This standard is identical to Article III’s

Am. States

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Defendants named their pleading a “cross-complaint” and assert
claims against Alberts and Shook, who are third parties. In
federal court, this pleading is a “third-party complaint” under
Federal Rule of Civil Procedure 14. A “crossclaim” is a claim
asserted by one party against a co-party. Fed. R. Civ. P. 13(g).
Throughout this order, all references to the “cross-complaint”
are to the “third-party complaint” and reference to “crossdefendants” are to the “third-party defendants.”
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Ins. Co. v. Kearns, 15 F.3d 142, 143 (9th Cir. 1994).
The Ninth Circuit has held that in a declaratory judgment

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action brought to determine an insurer’s duty to defend and

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indemnify in a pending state court liability suit, the case or

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controversy requirement is met.

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In this case, the underlying state lawsuit was pending when

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Bankers’ instigated the action and there is no indication in the

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record that the state case has resolved.

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tendered their defense to Bankers and Bankers—as the present

Kearns, 15 F.3d at 144 (1994).

The Defendants

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litigation demonstrates—contests its obligations to Defendants.

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Under Ninth Circuit precedent and the present facts, the case or

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controversy requirement is met.

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The Court must also exercise its discretion to determine

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whether entertaining the action is proper.

Gov’t Emp. Ins. Co.

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v. Dizol, 133 F.3d 1220, 1223 (9th Cir. 1998).

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guidance for retention is found in Brillhart v. Excess Ins. Co.

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of Am. and includes considerations of the needless determination

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of state law issues, forum shopping, and avoidance of

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duplicative litigation.

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U.S. 491 (1942)).

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considerations may be appropriate, such as “whether the

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declaratory action will settle all aspects of the controversy;

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whether the declaratory action will serve a useful purpose in

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clarifying the legal relations at issue; whether the declaratory

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action is being sought merely for the purposes of procedural

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fencing or to obtain a ‘res judicata’ advantage; [] whether the

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use of a declaratory action will result in entanglement between

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the federal and state court systems[;] . . . convenience of the

Prudential

Id. at 1223–25 (Citing Brillhart, 316

The Ninth Circuit has indicated that other

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parties[;] and the availability and relative convenience of

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other remedies.”

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145 (J. Garth, concurring)).

Id. at 1225 n. 5 (quoting Kearns, 15 F.3d at

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The Court finds that retention is proper in this case.

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Defendants have not objected to this Court deciding the action.

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Although the case turns on state law, it is not an anticipatory

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lawsuit and there is no indication that Bankers is forum

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shopping.

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and, to the Court’s knowledge, there are no parallel state

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proceedings involving the same issues between the parties.

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Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1366–67 (9th

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Cir. 1991) (“[W]hen a party requests declaratory relief in

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federal court and a suit is pending in state court presenting

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the same state law issues, there exists a presumption that the

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entire suit should be heard in state court.”).

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does not find that declaratory relief is sought for the purposes

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of procedural fencing, nor that a decision will entangle the

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federal and state court systems.

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action will settle the controversy and clarify the legal

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relations between Bankers and Defendants.

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the Court turns to the merits of the declaratory action.

Bankers is not a party to the underlying litigation

Cf.

Thus, the Court

Further, the declaratory

For these reasons,

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B.

Summary of Parties’ Arguments

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Bankers’ motion provides several grounds on which this

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Court might grant summary judgment or adjudication.

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argues that Homestead was never a Bankers’ insured, that Webb

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and Fisher were not insured for work they did for Homestead,

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that A-1 has no coverage apart from Webb because A-1 is a sole

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proprietorship, that the certificate does not confer coverage to
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Bankers

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Custom or the other defendants, and that, even assuming the

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policies applied, the fire at issue was not an “occurrence”

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within the policy period. See generally MSJ.

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Defendants concede that Homestead was never insured under a

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Bankers policy, but seem to argue—though it is not at all clear—

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that Bankers may still owe Defendants a duty to defend and

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indemnify due to Alberts’ ostensible authority to provide them

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with a Bankers insurance policy.

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do not counter the substantive legal arguments in Bankers’

Def. Opp. at 4–5.

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motion and admit that most facts are undisputed.

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Defendants

SUF.

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See Def. Opp.;

Cross-Defendants launch a more substantial attack.

First,

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they argue that the allegation in the underlying cross-complaint

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(Custom’s cross-complaint against A-1, Homestead, Webb, and

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Fisher in the Safeco lawsuit) that A-1 and Homestead are alter

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egos creates potential liability on the part of A-1, Fisher, and

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Webb and thus confers a continuing duty on Bankers.

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Opp. at 9.

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ambiguous as to who is an “insured.”

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contests Cross-Defendant’s standing to oppose its motion herein

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against the Defendants because this lawsuit does not include a

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claim or cross-claim between Bankers and Cross-Defendants.

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to Cross Def. at 2–4.

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Cross Def.

Second, they argue that Bankers’ policy language is
Id. at 10–11.

Bankers

Rep.

As explained below, the undisputed facts show that the

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Bankers policies do not cover the fire at issue in the

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underlying lawsuit.

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challenge Bankers’ argument that the fire is not an “occurrence”

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covered by the policies.

Neither Defendants nor Cross-Defendants

The relevant material facts on this
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question are undisputed.

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Response to Plaintiff’s Separate Statement of Undisputed Facts,

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¶¶ 34–36.

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not address the arguments raised in the oppositions or whether

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Cross-Defendants have standing to contest the motion.

SUF ¶¶ 34–36; Cross-Defendants’

As this determination is dispositive, the Court need

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C.

The Fire is Not an Occurrence Under the Policy

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This declaratory action concerns the duty to defend and the

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duty to indemnify.

“The insurer’s duty to indemnify runs to

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claims that are actually covered, in light of the facts proved.”

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Buss v. Super. Ct., 16 Cal.4th 35, 45 (1997).

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insurer’s duty to defend runs to claims that are merely

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potentially covered, in light of facts alleged or otherwise

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disclosed.”

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extends beyond claims that are actually covered to those that

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are merely potentially so—but no further.”

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Id. at 46.

“By contrast, the

This duty is not unlimited; “[i]t

Id.

Insurance policies are interpreted by the rules of

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construction applicable to contracts.

Borg v. Transamerica Ins.

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Co., 47 Cal. App. 4th 448, 456 (1996).

The mutual intention of

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the parties at the time the contract was formed governs its

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interpretation and such intent is to be inferred, if possible,

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solely from the written provisions of the contract.

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Chem. Corp. v. Admiral Ins. Co., 10 Cal.4th 645, 666 (1995).

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“The ‘clear and explicit’ meaning of these provisions,

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interpreted in their ‘ordinary and popular sense,’ controls

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judicial interpretation unless ‘used by the parties in a

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technical sense, or unless a special meaning is given to them by

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usage.’”

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meaning a layperson would ascribe to the language of a contract

Id. (citing Cal. Civ. Code §§ 1638, 1644).

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Montrose

“If the

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of insurance is clear and unambiguous, a court will apply that

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meaning.”

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“the language of an insurance policy must be interpreted broadly

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in order to protect the objectively reasonable expectations of

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the insured.”

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Id. at 666–67.

Where there is ambiguity, however,

Borg, 47 Cal. App. 4th at 456.

Bankers issued Commercial General Liability Coverage

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Policies covering policy periods from August 2, 2003, to August

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2, 2004, and August 2, 2004, to August 2, 2005, listing A-1

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Heating and Air Conditioning, Edward Webb, and Daniel Fisher as

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the insured. Exh. 2 & 3.

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thus Bankers’ duties, if any, would arise from these contracts

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(i.e. if Homestead had been added onto the policies or the

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policies otherwise extended to Fisher’s installation work).

Fisher installed the stove in 2004 and

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The “Insuring Agreement” of the policies state:

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[The insurer] will pay those sums that the insured
becomes legally obligated to pay as damages because of
“bodily injury” or “property damage” to which this
insurance applies. We will have the right and duty to
defend the insured against any “suit” seeking those
damages. However, we will have no duty to defend the
insured against any “suit” seeking damages for “bodily
injury” or “property damage” to which this insurance
does not apply. . . . b. This insurance applies to
“bodily injury” and “property damage” only if: . . .
(2) The “bodily injury” or “property damage” occurs
during the policy period.

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Exh. 2 at BIC000238; Exh. 3 at BIC000281.

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Each policy contains an “Amendatory Endorsement” modifying

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the policy’s definitions.

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BIC000268.

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///

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///

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Exh. 2 at BIC000225; Exh. 3 at

///

The definitions of “occurrence” and “property

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damage” are modified as follows (emphasis added):

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“Occurrence” means an accident which results in
“bodily injury” or “property damage” that first occurs
during the policy period and is neither expected nor
intended by an insured. “Bodily injury” or “property
damage” first occurs during the policy period only if:
a. The “bodily injury” or “property damage” is first
sustained by a person or entity during the policy
period as a direct result of an accident that first
occurs during the policy period; or b. The “bodily
injury” or “property damage” actually is or reasonably
should be first apparent during the policy period to
an “insured”. . . .

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“Property damage” means: a. Physical injury to
tangible property which is caused by an “occurrence”,
including all resulting loss of use of that property.
All loss of use shall be deemed to occur at the time
of the physical injury that caused it; or b. Loss of
use of tangible property that is not physical injury,
provided such loss of use is caused by an occurrence
during the policy period. All such loss of use shall
be deemed to occur at the time of the occurrence that
caused it.

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Id.

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states that Bankers does not have a duty to defend unless a suit

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seeks damages from the insured for an accident that occurred

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during the policy period that caused property damage first

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sustained during the policy period.

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Taking these paragraphs together, the policy unambiguously

The underlying suit does not meet these requirements.

It

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is undisputed that the fire and resulting damage occurred in

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2012 and the insurance policies expired in 2005.

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against Custom does not allege any property damage prior to that

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fire.

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Defendants does not allege any property damage beyond Safeco’s

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alleged injuries.

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allegations in the underlying suit and the unambiguous text of

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the insurance contracts, the 2012 fire is not covered under the

See Exh. 4 at ¶¶ 8, 22.

Safeco’s suit

Custom’s cross-complaint against

See, e.g., Exh. 5 at ¶ 29.

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Based on the

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policies.
The contrast between the facts of this case and those in

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Borg v. Transamerica Ins. Co. is instructive.

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policy at issue defined “occurrence” as “an accident, including

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exposure to conditions, which results, during the policy period,

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in . . . property damage,” which, in turn, was defined as

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“physical injury to, destruction of, or loss of use of tangible

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property.”

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Transamerica owed Borg a duty to defend for damage to his

47 Cal. App. 4th at 456.

In Borg, the

The case turned on whether

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neighbor’s property even though the damage was attributable to

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an occurrence predating the Transamerica policy period.

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Borg court concluded that the policy only required “the property

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damage itself [to] take place during the policy period to

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trigger coverage; the ‘occurrence’ that was the ultimate cause

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of this damage need not have taken place during the term of the

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policy.”

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requiring that the damage first appear during the policy term in

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order for it to be covered.”

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in the underlying lawsuit alleged continuous property damage,

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the damage fell within the ambit of the policy and triggered the

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duty to defend.

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Id.

The

It noted: “[T]here is nothing in the policy

Id.

Thus, because the complaint

Here, the Bankers’ policies are clear that the damage must

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first be sustained during the policy period.

Likewise, the

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occurrence causing the damage must first occur during the policy

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period.

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allegations, there is no potential for coverage and the duty to

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defend does not arise.

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that Bankers has no duty to indemnify Defendants in the

Because the underlying suit contains no such

On this reasoning it further follows

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underlying lawsuit.

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IV.

ORDER

For the reasons set forth above, Bankers’ Motion for

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Summary Judgment on all its claims is GRANTED.

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Dated: March 23, 2017

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