Great America Insurance Company et al v. Chang et al

Filing 77

Order by Hon. Samuel Conti granting 64 Motion for Partial Summary Judgment.(sclc1, COURT STAFF) (Filed on 6/19/2013)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 United States District Court For the Northern District of California 9 10 GREAT AMERICAN INSURANCE COMPANY, and GREAT AMERICAN INSURANCE COMPANY OF NEW YORK, 11 Plaintiffs, 12 v. 13 15 MICHAEL CHANG, d/b/a SUNRISE CLEANERS, INC., and ROXANNE CHANG, d/b/a SUNRISE CLEANERS, INC., 16 Defendants. 14 ) Case No. 12-00833-SC ) ) ORDER GRANTING MOTION FOR ) PARTIAL SUMMARY JUDGMENT ) ) ) ) ) ) ) ) ) ) ) 17 18 19 I. INTRODUCTION This case involves an insurance coverage dispute arising from 20 underlying state court actions and government orders concerning the 21 alleged contamination of a property owned by Defendant Michael 22 Chang (the "Property"). 23 Defendant Roxanne Chang (collectively, the "Changs"), operated a 24 dry cleaning business on the property from 1977 to 1981. 25 this period, the Property was insured by the above-captioned 26 plaintiffs (collectively, "Great American"). 27 Great American seeks a declaration that it does not owe a duty to 28 defend or indemnify the Changs in the underlying actions. Defendant Michael Chang and his wife, During Through this action, Now 1 before the Court is Great American's motion for partial summary 2 judgment. 3 Nos. 68 ("Opp'n"), 69 ("Reply"), and appropriate for determination 4 without oral argument per Civil Local Rule 7-1(b).1 5 reasons set forth below, Great American's motion for partial 6 summary judgment is GRANTED. ECF No. 64 ("MSJ"). The motion is fully briefed, ECF For the 7 8 II. 9 BACKGROUND The Property at issue in this case is located on Baldwin United States District Court For the Northern District of California 10 Avenue in San Mateo, California. 11 ("Answer") ¶ 4. 12 contaminated with PCE and stoddard solvent due to leaking 13 underground storage tanks. 14 1977, along with a dry cleaning business already located on the 15 Property. 16 from 1977 until about 1981 under the name Sunrise Cleaners. 17 1981, Michael Chang sold the Sunrise Cleaners business, though he 18 continued to own the Property and leased the premises to others. 19 Soon after the Changs acquired the Property, Great American ECF Nos. 16 ("Compl.") ¶ 4, 29 Various parties have alleged that the Property is The Changs acquired the Property in Michael Chang operated a dry cleaners on the Property In 20 issued a policy to Sunrise Cleaners for a policy period of December 21 15, 1977 to December 15, 1980. 22 policy to Michael Chang for a policy period of December 15, 1980 to Great American later issued a 23 1 24 25 26 27 28 The Changs' opposition brief exceeds the page limits set forth in Civil Local Rule 7-3(a). Further, the Changs filed a surreply brief without seeking leave of the Court, in violation of Civil Local Rule 7-3(d). ECF No. 73 ("Surreply"). The Surreply does not present any evidence or authority that was previously unavailable to the Changs. Nor does it respond to new arguments raised on reply. In the interest of justice, the Court has reviewed all of the arguments raised by the Changs. However, the Court advises the Changs to comply with the Civil Local Rules going forward, as future violations may have consequences. 2 1 December 15, 1983. 2 additional insured under the policies. 3 the Changs retained a copy of the policies, but the parties have 4 stipulated to some of the policy terms, including policy limits of 5 $500,000 for property damage. The Changs claim that Roxanne Change is an Neither Great American nor 6 The Changs later leased the Property to Bilal Kartal 7 ("Kartal"), who opened an Italian restaurant on the premises. 8 2006, Kartal brought a nuisance action against the Changs in the 9 California Superior Court for San Mateo County in connection with In United States District Court For the Northern District of California 10 an alleged solvent leak on the Property (the "Kartal Action"). 11 No. 65 ("RJN") Ex. 1 ("Kartal Compl."). 12 following: At the time the Changs purchased the Property in 1977, 13 they knew or should have known that one or more storage tanks 14 containing dry cleaning solvent were buried under a previously 15 unused portion of the Property behind what is now the restaurant. 16 Id. ¶ 3. 17 ¶ 1. 18 central to the restaurant's business. 19 2003, customers began noticing a peculiar odor coming from the 20 banquet area, which was caused by solvents leaking from the buried 21 storage tanks. 22 customers away from the restaurant. 23 ECF Kartal alleges the In 1992, Kartal built a patio behind the restaurant. Id. The patio was later enclosed and became a banquet area Id. ¶ 6. Id. In or around 2002 or The odor became worse over time and drove Id. ¶¶ 7-8. At some unspecified time, the California Regional Water 24 Quality Control Board (the "State Water Board") began to 25 investigate the alleged contamination at the Property. 26 Decl. Ex. 1.2 Zacharias On December 28, 2007, the Changs tendered the Kartal 27 2 28 Catherine Zacharias ("Zacharias"), a claims manager at Great American who has worked on the Changs' claims, filed a declaration 3 1 Action, along with the state investigation, to Great American for 2 defense and indemnity. 3 the Changs informed Great American: "The local Environmental Health 4 Department, [State Water Board] and federal Environmental 5 Protection Agency are investigating the liability of your insured. 6 Governmental agencies have ordered action on the part of the 7 responsible parties to investigate the occurrence and mitigate the 8 damages to groundwater and off-site properties." 9 American initially denied the tender with respect to both the United States District Court For the Northern District of California 10 Id. As to the government investigation, Id. Great Kartal Action and the government investigation. 11 After Great American denied the tenders, the Changs filed 12 cross-complaints in the Kartal Action against various third 13 parties, including Grace Yamaguchi ("Yamaguchi"), who allegedly 14 operated a dry cleaners on the property before the Changs, and 15 Christopher Chang (no relation to the Changs), who allegedly 16 operated a dry cleaners on the property after the Changs. 17 3-4. 18 Changs alleged that Yamaguchi and Christopher Chang caused the 19 solvent contamination on the Property and asserted claims for 20 negligence, indemnity, and contribution, among other things. 21 Ex. 4. 22 other damages incurred due to Cross-Defendants['] [conduct]," and 23 "damages, defense costs and potential liability, if any." 24 20-21. 25 26 RJN Exs. In their amended cross-complaint in the Kartal Action, the RJN The Changs prayed for "response costs, lost rents and all Id. at On February 11, 2009, the court in the Kartal Action entered "Pre-Trial Order No. 5," which stated: "In order to avoid 27 28 in support of Great American's motion for summary judgment. No. 64-6 ("Zacharias Decl."). 4 ECF in this action, it shall be deemed that . . . [a]ll Defendants and 3 Cross-Defendants have filed Cross-Complaints for implied equitable 4 indemnity and for a determination of comparative negligence against 5 all of the Defendants and Cross-Defendants." 6 Chang then requested that Great American indemnify him with respect 7 to the cross-complaints that were deemed filed in the Kartal 8 Action. 9 denied that the "deemed" affirmative cross-complaints gave rise to 10 United States District Court unnecessary filing of pleadings by Defendants and Cross-Defendants 2 For the Northern District of California 1 a duty to defend, but agreed to provide a defense subject to a full 11 reservation of rights. 12 Compl. ¶ 83; Answer ¶ 83. RJN Ex. 10. Michael In response, Great American Id. Yamaguchi and Christopher Chang filed actual cross-complaints 13 against the Changs in late 2010. 14 6 ("Yamaguchi X-Compl."). 15 defendant Eun Kyung Lee ("Lee"), who allegedly operated a dry 16 cleaning business on the Property after Christopher Chang, from 17 approximately 1989 until 1996. 18 X-Compl. ¶ 21. 19 essentially sought indemnity and contribution from the Changs for 20 any damages for which they were held liable. 21 also filed a cross-complaint for indemnity and contribution against 22 the Changs, Yamaguchi, and Christopher Chang. 23 Compl."). 24 property damage, contents damage, loss of value, loss of use, loss 25 of rents, repair costs, and other economic and non-economic 26 damages." RJN Exs. 5 ("C. Chang X-Compl."), These cross-complaints also named as a C. Chang X-Compl. ¶ 23; Yamaguchi Yamaguchi and Christopher Chang's cross-complaints In March 2011, Lee RJN Ex. 7 ("Lee X- Additionally, Lee sought "damages in the form of Id. at 5. 27 Apparently, the State Water Board continued to investigate 28 contamination on the Property as the Kartal Action was ongoing. 5 issued by the State Water Board. 3 10, 2009 letter from the Changs' counsel, the Changs applied for 4 funding from the California Underground Storage Tank Fund (the 5 "Storage Tank Fund") for pollution clean-up on the Property. 6 Zacharias Decl. Ex. 4. 7 application, and the Changs requested that Great American pay for 8 legal fees and costs incurred to challenge that denial. 9 Subject to a complete reservation of rights, Great American agreed 10 United States District Court The parties have not filed with the Court any documents actually 2 For the Northern District of California 1 to pay, and has paid, certain fees and costs incurred by the Changs 11 to prosecute the litigation against the State Water Board. 12 Zacharias Decl. ¶ 10. However, according to an April The State Water Board denied the Id. 13 At some unspecified time, the Changs conducted a voluntary 14 site investigation and recommended further investigation of alleged 15 PCE contamination on the Property. 16 Sometime in 2010, the State Water Board approved the proposed 17 investigation and asked the Changs to submit a work plan. 18 Changs requested that Great American pay the costs of the site 19 investigation approved by the State Water Board. 20 11, Ex. 5. 21 connection with the investigation, subject to a full reservation of 22 rights. 23 Compl. ¶ 92; Answer ¶ 92. Id. The Zacharias Decl. ¶ Great American agreed to pay certain costs in Id. ¶ 11. Great American brought this action against the Changs in 24 February 2012. 25 causes of action for, inter alia, declaratory relief, reimbursement 26 of money paid, and breach of contract. 27 seeks a declaration that it does not owe the Changs a duty to 28 defend or indemnify as to the Kartal Action or the government Great American's amended complaint asserts nine 6 Great American essentially 1 orders. 2 will pay on behalf of the Changs. 3 for breach of contract and tortious breach of the covenant of good 4 faith and fair dealing. 5 summary judgment on its claims and the Changs' counterclaims. It also seeks reimbursement of the amounts it has paid or The Changs have counterclaimed Great American now moves for partial 6 7 III. LEGAL STANDARD 8 Entry of summary judgment is proper "if the movant shows that 9 there is no genuine dispute as to any material fact and the movant United States District Court For the Northern District of California 10 is entitled to judgment as a matter of law." Fed. R. Civ. P. 11 56(a). 12 require a directed verdict for the moving party. 13 Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). 14 mandates the entry of summary judgment . . . against a party who 15 fails to make a showing sufficient to establish the existence of an 16 element essential to that party's case, and on which that party 17 will bear the burden of proof at trial." 18 477 U.S. 317, 322 (1986). 19 believed, and all justifiable inferences are to be drawn in his 20 favor." 21 of a scintilla of evidence in support of the plaintiff's position 22 will be insufficient; there must be evidence on which the jury 23 could reasonably find for the plaintiff." Summary judgment should be granted if the evidence would Anderson v. Thus, "Rule 56[ ] Celotex Corp. v. Catrett, "The evidence of the nonmovant is to be Anderson, 477 U.S. at 255. However, "[t]he mere existence Id. at 252. 24 25 26 IV. DISCUSSION Great American has asked the Court to render summary judgment 27 on ten issues: (1) & (2) whether Great American has a duty to 28 defend or indemnify the Changs with respect to government agency 7 duty to defend or indemnify the Changs with respect to the 3 complaint in the Kartal Action; (5) whether Great American has duty 4 to pay the Changs' expenses of pursuing claims against other 5 parties in the Kartal Action; (6) whether Great American has a duty 6 pay the Changs' expenses in pursuing ligation against the Storage 7 Tank Fund; (7) & (8) whether Great American has a duty to defend or 8 indemnify as to the cross-complaints against the Changs in the 9 Kartal Action; (9) & (10) whether the Changs may recover against 10 United States District Court orders to address pollution; (3) & (4) whether Great American has a 2 For the Northern District of California 1 Great American on their counterclaims for breach of contract and 11 breach of the covenant of good faith and fair dealing. 12 A. The Duty to Defend and the Duty to Indemnify 13 Before considering the particular issues raised by Great 14 American's motion for partial summary judgment, the Court reviews 15 some general principles concerning the duty to defend and the duty 16 to indemnify. 17 insured for risks covered by the relevant insurance policy. 18 duty to indemnify and the duty to defend are correlative, but are 19 not coterminous. 20 Super. Ct. (Powerine Oil Co.) ("Powerine"), 24 Cal. 4th 945, 958 21 (Cal. 2001). 22 damages are fixed in their amount, the duty to defend may arise as 23 soon as damages are sought in some amount." 24 omitted). 25 duty to indemnify. 26 1076, 1081 (Cal. 1993). 27 a claim that creates even the potential for liability, and so an 28 insurer may owe its insured a duty to defend in a case where no An insurer generally has a duty to indemnify its The Certain Underwriters at Lloyd's of London v. "Whereas the duty to indemnify can arise only after Id. (citations Further, the duty to defend is broader in scope than the Horace Mann Ins. Co. v. Barbara B., 4 Cal. 4th An insurer must defend its insured against 8 1 damages are ultimately awarded. Id. Moreover, in "mixed actions" 2 -- actions in which some claims are at least potentially covered by 3 an insurer and the others are not -- "the insurer has a duty to 4 defend the action in its entirety." 5 4th 35, 47-48 (Cal. 1997). Buss v. Super. Ct., 16 Cal. 6 B. Duty to Defend as to the Government Orders 7 Great American argues that, under the stipulated language of 8 the policies, it has no duty to defend the Changs with respect to 9 government orders pertaining to pollution. The policies state: United States District Court For the Northern District of California 10 "The company shall have the right and duty to defend any suits 11 against the insured seeking damages on account of such bodily 12 injury or property damage . . . ." 13 018, Ex. 3 at EXH 045. 14 Union Fire Insurance Co., 18 Cal. 4th 857 (Cal. 1998), Great 15 American argues that the duty to defend "suits" does not include 16 the duty to pay costs of responding to government agency orders. 17 Opp'n at 15. Zacharias Decl. Ex. 2 at EXH Relying on Foster-Gardner, Inc. v. National In Foster-Gardner, the California Department of Toxic 18 19 Substances Control ("DTSC") found that the plaintiff had incurred 20 liability for cleaning up contamination on the site of his 21 wholesale pesticide and fertilizer business. 22 63. 23 insurers, which had issued policies providing that they had a "duty 24 to defend any suit against the insured seeking damages . . . ." 25 Id. at 863. 26 did not have a duty to defend because the DSTC Order did not 27 constitute a "suit," which the court defined as "a court proceeding 18 Cal. 4th at 861- The plaintiff tendered the defense of the DTSC order to his The California Supreme Court held that the insurers 28 9 1 initiated by the filing of a complaint."3 Id. at 887. In response, the Changs cite to an earlier California Supreme 2 3 Court decision, AIU Insurance Co. v. Superior Court, 51 Cal. 3d 4 807, 818 (Cal. 1990). 5 local administrative agencies brought third-party suits against an 6 insured for alleged violations of various environmental laws and 7 the alleged contamination of seventy-nine different hazardous waste 8 sites. 9 its insurer seeking a judicial declaration that it was entitled to Opp'n at 6. 51 Cal. 3d at 815. In AIU, the United States and The insured brought an action against United States District Court For the Northern District of California 10 coverage for costs it might have become obligated to pay as a 11 result of injunctive relief or reimbursement ordered in the third- 12 party suits. 13 entitled to summary adjudication, because the insured's liability 14 in the third-party suits could constitute damages under the 15 insurance policies. Id. at 816. The court found that the insurer was not Id. at 843. The Court finds that AIU is inapposite here. 16 Unlike the 17 insured in AIU, there is no indication that the Changs have been 18 sued in court by a government agency. 19 Court observed in Foster-Gardner: "AIU's holding -- that there is 20 coverage for certain damages sought in a third-party suit 21 prosecuted [by a government agency] -- has nothing to do with 22 whether the carrier has a duty to defend when no third-party suit 23 has been filed." As the California Supreme 18 Cal. 4th at 857 (quotations omitted). The Changs also suggest that it is irrelevant whether the 24 25 government agency orders constitute suits for the purposes of the 26 3 27 28 Courts in other states have adopted a broader interpretation, holding that an agency proceeding does constitute a suit for the purposes of triggering insurance coverage. See Pac. Employers Ins. Co. v. Servco Pac., Inc., 273 F. Supp. 2d 1149, 1156 (D. Haw. 2003). 10 1 policies, since "there are pleadings before the San Mateo County 2 Superior Court that are asking the court to hold the Changs liable 3 for compliance with an administrative order to investigate 4 pollution-impacted third party properties . . . ." 5 The Changs appear to be referring to the cross-complaints filed in 6 the Kartal Action. 7 in the Kartal Action is a separate question from whether it has a 8 duty to defend with respect to the government agency orders. 9 Opp'n at 6. But whether Great American has a duty to defend Accordingly, the Court GRANTS Great American's motion for United States District Court For the Northern District of California 10 summary judgment as to its duty to defend the Changs against the 11 government orders pertaining to pollution. 12 C. Duty to Indemnify as to the Government Orders 13 The policies state: "[Great American] agrees . . . [t]o pay on 14 behalf of the insured all sums which the insured shall become 15 legally obligated to pay as damages because of property damage 16 caused by the occurrence." 17 Powerine, Great American contends that this language does not 18 create a duty to indemnify the Changs as to the government orders. 19 MSJ at 15-16. 20 Compl. ¶ 31; Answer ¶ 31. Relying on Powerine concerned whether an insurer was liable for costs 21 incurred by the insured in complying with orders issued during 22 administrative environmental proceedings. 23 Like the policies at issue here, the Powerine policy required the 24 insurer to defend "any suit seeking damages" and to "pay all sums 25 that the insured becomes legally obligated to pay as damages." 26 at 950. 27 discussed in Section IV.B supra, the California Supreme Court held 28 that the policy only created a duty to pay money ordered by a court 24 Cal. 4th at 952-55. Id. Based on its earlier holding in Foster-Gardner, which is 11 1 and did not extend to any expenses required by an administrative 2 agency pursuant to an environmental statute. 3 Court reasoned that the duty to defend is broader than the duty to 4 indemnify. 5 not broad enough to extend beyond a civil action pending in court, 6 the duty to indemnify is not broad enough to extend beyond money 7 damages awarded by a court. 8 9 Id. at 961. Id. at 951. The Thus, if an insurer's duty to defend is Id. at 961. The Changs appear to argue that the government orders involve damages because of the claims and counterclaims asserted in the United States District Court For the Northern District of California 10 Kartal Action. 11 that the Kartal Action creates the potential for a court judgment 12 finding them liable for the cleanup ordered by the government. 13 This argument is unavailing for the reasons set forth in Section 14 IV.B supra. 15 orders, not the pleadings in the Kartal Action, create a duty to 16 indemnify. 17 as to the Kartal Action below. 18 See Opp'n at 7. The Changs' reasoning seems to be Id. The pertinent question here is whether the government The Court addresses Great American's duty to indemnify Since there is no indication that the government has brought a 19 civil action against the Changs, the Court finds that Great 20 American does not have a duty to indemnify the Changs with respect 21 to the government orders. 22 D. Duty to Defend and Indemnify as to Kartal's Complaint 23 Great American contends that it does not have a duty to defend 24 or indemnify the Changs as to the claims asserted against them by 25 Kartal, because the damages alleged in Kartal's complaint occurred 26 after the expiration of the policy period. 27 American points out that the Changs' policy period ran from 1977 to 28 1983, while Kartal alleges that he was first injured by 12 MSJ at 16-19. Great 1 contamination caused by the leaking storage tanks in or around 2 2002, when his customers first noticed a peculiar odor emanating 3 from the property. 4 to coverage since the loss of use asserted by Kartal was allegedly 5 caused by the Changs' failure to deal with the underground storage 6 tanks when they purchased the property in 1977. Id. The Changs respond that they are entitled Opp'n at 8-9. 7 The Great American policies issued to the Changs constitute 8 third-party liability insurance, since they provide coverage for 9 liability of the insured to a third party, as opposed to coverage United States District Court For the Northern District of California 10 for loss or damage sustained directly by the insured. See 11 Zacharias Decl. at EXH 019 ("This policy does not apply to . . . 12 property damage to property owned or occupied by or rented to the 13 insured . . . .").4 14 on behalf of the insured all sums which the insured shall become 15 legally obligate to pay as damages because of property damage 16 caused by an occurrence" and "to defend any suits against the 17 insured seeking damages on account of . . . property damage." 18 Zacharias Decl. Ex. 1 at EXH 018. 19 damage" to mean: The policies obligate Great American "[t]o pay The policies define "property 20 (1) physical injury to or destruction of tangible property which occurs during the policy period including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is cause by an occurrence during the policy period. 21 22 23 24 25 26 4 27 28 See also Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal. 4th 645, 663-666 (Cal. 1995) (discussing the distinction between firstparty and third-party liability insurance). 13 1 Id. at EXH 021. They define "occurrence" to mean "an accident, 2 including continuous or repeated exposure to conditions, which 3 results during the policy period in bodily injury or property 4 damage neither expected nor intended from the standpoint of the 5 insured." Id. The California Supreme Court addressed almost identical policy 6 7 language in the context of third-party liability insurance in 8 Montrose.5 9 or progressing over a number of years and an insured who had Montrose involved property damage that was continuous United States District Court For the Northern District of California 10 obtained a series of successive liability policies from multiple 11 insurers while the property damage was ongoing. 12 655. 13 last few years of this period had a duty to defend suits alleging 14 continuous and progressive property damage that resulted from 15 hazardous chemicals that the insured started manufacturing before, 16 but continued manufacturing during, the policy period. 17 661. 18 occurrence for the purposes of the policy when the property damage 19 manifests: 20 22 24 25 26 27 28 At issue was whether an insurer whose policy covered only the Id. at 656- The court held that a continuous condition becomes an Th[e] policy language unambiguously distinguishes between the causative event -- an accident or "continuous and repeated exposure to conditions" -and the resulting "bodily injury or property damage." It is the latter injury or damage that must "occur" 21 23 10 Cal. 4th at 5 The insurer in Montrose contracted to "pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . . bodily injury, or . . . property damage to which this insurance applies, caused by an occurrence . . . ." 10 Cal. 4th at 668. The policy defined "property damage" as "(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom . . . ." Id. Occurrence meant "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." Id. at 669. 14 during the policy period, and "which results" from the accident or "continuous and repeated exposure to conditions." 1 2 3 Id. at 669. The Montrose court found that its decision was confirmed by 4 5 prior case law, including Remmer v. Glens Falls Indemnity Co., 140 6 Cal. App. 2d 84 (Cal. Ct. App. 1956). 7 had obtained property insurance for the period of 1945 through 8 1948. 9 the insureds graded and filled portions of their property. 140 Cal. App. 2d at 85. Id. In Remmer, the insureds In 1947, during the policy period, Id. In United States District Court For the Northern District of California 10 1952, after the policy period, a landslide on the property damaged 11 an adjacent lot. 12 nuisance action against the insureds, and the insureds tendered the 13 suit to their insurer. 14 covered because "the occurrence of an accident within the meaning 15 of the policy is not the time the wrongful act was committed" 16 (i.e., the grading of the property in 1947), "but the time when the 17 [third] party was actually damaged" (i.e., the landslide in 1952). 18 Id. at 88. 19 Id. The owner of the adjacent lot brought a Id. The Court held that the loss was not Interpreting the language of the policies pursuant to Montrose 20 and Remmer, Great American does not owe a duty to defend or 21 indemnify the Changs as to Kartal's complaint. 22 policies' definition of "property damage," Kartal alleges that the 23 physical injury or destruction of tangible property manifested as 24 early as 2002, when Kartal first started losing customers due to 25 the odor caused by the solvent leak. 26 "accident" about which Kartal complains happened as early as 2002. 27 The policies expired in 1983, about nineteen years prior to the 28 events that could potentially trigger coverage. 15 With respect to the Likewise, the "occurrence" or The Changs argue that Kartal's complaint alleges occurrences 1 2 in 1977, including failure to discover the storage tanks and 3 failure to discover the contamination at the time of the purchase 4 that proximately caused the property damage. 5 California Supreme Court rejected this same reasoning in Montrose 6 when it found that the "causative event" does not constitute an 7 occurrence for the purpose of a similarly worded policy.6 8 4th at 669. 9 allegedly occurred, but when the third party was allegedly damaged. Opp'n at 8. But the 10 Cal. The pertinent question is not when the negligent act United States District Court For the Northern District of California 10 See id. In this case, there is no dispute the Kartal alleges that 11 he was damaged well after the expiration of the policy period. The Changs also argue that the policies provide coverage for 12 13 loss of use that occurs "at any time." 14 the policies define property damage as, among other things, 15 "physical injury to or destruction of tangible property which 16 occurs during the policy period including the loss of use thereof 17 at any time resulting therefrom." 18 The Changs' interpretation of this language is unpersuasive. 19 the "loss of use" can occur "at any time," it must result from 20 property damage "which occurs during the policy period." 21 case, Kartal could not have possibly suffered property damage 22 during the policy period because he leased the Property over a 23 decade after the policy period's expiration. 24 6 25 26 27 28 Opp'n at 9. Specifically, Zacharias Decl. Ex. 1 at EXH 21. While In this Even if the Changs Contrary to the Changs' suggestion, State v. Continental Insurance. Co., 55 Cal. 4th 186 (Cal. 2012), does not hold otherwise. See Opp'n at 9. Continental Insurance stands for the proposition that an insurer may be held liable for ongoing property damage that commenced prior to the policy period as long as some of the continuous property damage occurred during the policy period. 55 Cal. 4th at 199-200. In this case, there is no evidence that any of the property damage alleged occurred during the Great American policy period. 16 1 suffered some property damage from the leaking storage tanks during 2 the policy period, the policies only provide coverage for damage to 3 third parties.7 4 For these reasons, the Court finds that Great American does 5 not have a duty to defend or indemnify as to Kartal's complaint. 6 E. Duty to Pay Costs Incurred Prosecuting Cross-Complaints 7 in the Kartal Action and Seeking Recovery from the 8 Storage Tank Fund 9 Next, the Court must determine whether Great American must pay United States District Court For the Northern District of California 10 the costs incurred by the Changs in pursuing cross-complaints 11 against various third parties in the Kartal Action or seeking 12 recovery from the Storage Tank Fund. 13 favor of finding a duty here are unpersuasive. 14 The Changs' arguments in First, the Changs argue that Great American is obligated to 15 fund their cross-complaints because they are an essential part of 16 the Changs' defense in the Kartal Action. 17 under California law, an insurer does not have a duty to prosecute 18 a counterclaim or a cross-complaint on behalf of the insured absent 19 some contractual provision requiring such action. 20 Corp. v. Truck Ins. Exch., 91 Cal. App. 4th 1093, 1105-06 (Cal. Ct. 21 App. 2001). 22 provision. 23 American does not owe the Changs a duty to defend or indemnify with 24 respect to Kartal's claims against them. Opp'n at 10. However, See James 3 The Changs have pointed to no such contractual In any event, as discussed in Section IV.C supra, Great 25 7 26 27 28 The Changs argue that the definition of "property damage" used by Great American in policies issued after 1993 shows that their interpretation is correct. Surreply at 8. As an initial matter, the Court is only concerned with the language in the policies at issue. Further, even if the revised language were used in the relevant policies, the Court would reach the same conclusion. 17 1 The Changs also argue that the California Supreme Court's 2 decision in Ameron International Corporation v. Insurance Co., 50 3 Cal. 4th 1370 (Cal. 2010), requires Great American to provide 4 coverage.8 5 Supreme Court held that administrative adjudicative proceedings 6 before an administrative law judge, which involved twenty-two days 7 of trial, numerous witnesses, and substantial evidence, constituted 8 a "suit" triggering an insurer's duty to defend. 9 4th at 1374. Opp'n at 12. The Court disagrees. In Ameron, the Ameron, 50 Cal. As the Changs point out, Ameron could be construed as United States District Court For the Northern District of California 10 "emphasizing form over substance." 11 opinion suggests that an insurer has a duty to fund a cross- 12 complaint or any other type of offensive action by an insured for 13 contribution against a third party. 14 However, nothing in that Finally, the Changs argue that Great American has a duty to 15 fund their action against the Storage Tank Fund because Great 16 American "voluntarily and in writing" agreed to advance the Changs' 17 costs in that action. 18 concede, Great American advanced those costs under a full 19 reservation of rights. 20 duty to defend merely because it provides a defense under a 21 reservation of rights. 22 reimbursement from the insured for defending claims that are not 23 even potentially covered. 24 /// Opp'n at 12-13. However, as the Changs See Opp'n at 13. An insurer does not owe a In fact, an insurer may later seek See Buss, 16 Cal. 4th at 48. 25 8 26 27 28 The Changs cite Ameron International Corp. v. Insurance Co., 150 Cal. App. 4th 1050 (Cal. Ct. App. 2007), the unpublished opinion by the California Court of Appeal that was later reversed by the California Supreme Court; however, they appear to be referring to the California Supreme Court opinion. 18 1 Accordingly, the Court finds that Great American does not owe 2 the Changs a duty to defend or indemnify with respect to their 3 cross-complaints against third parties in the Kartal Action or 4 their action against the Storage Tank Fund. 5 F. Duty to Defend and Indemnify as to the Cross-Complaints 6 7 Filed by Christopher Chang, Yamaguchi, and Lee Next, the Court considers whether Great American has a duty to 8 defend or indemnify the Changs as to the cross-complaints filed 9 against them by Christopher Chang, Yamaguchi, and Lee in the Kartal United States District Court For the Northern District of California 10 Action. 11 to defend "any suits against the [Changs] seeking damages," and to 12 pay all sums "the [Changs] shall become legally obligated to pay as 13 damages." 14 trigger coverage because they do not seek affirmative recovery from 15 the Changs. 16 merely seek to reduce any liability the cross-complaintants may be 17 found to have to the Changs in the Kartal Action. As discussed above, the policies obligate Great American Great American argues that the cross-complaints do not MSJ at 20. Rather, according to Great American, they Id. 18 Great American relies on the California Court of Appeal's 19 decision in CDM Investors v. Travelers Casualty and Surety Co., 139 20 Cal. App. 4th 1251 (Cal. Ct. App. 2006). 21 concerned alleged contamination on a commercial property owned by 22 the plaintiffs. 23 Water Board ordered the plaintiffs to test the property for 24 pollutants, the plaintiffs sued their former tenants under CERCLA 25 to apportion liability for response costs. 26 tenants raised affirmative defenses seeking to apportion 27 responsibility to plaintiffs. 28 those affirmative defenses were the functional equivalent of a MSJ at 21. CDM, 139 Cal. App. 4th at 1257. Id. 19 That case After the State Id. at 1266. The The plaintiffs argued that 1 counterclaim and that the plaintiffs' insurer had a duty to defend 2 as to those affirmative defenses. 3 that an affirmative defense would only constitute a suit seeking 4 damages for the purposes of the policy if the affirmative defense 5 "would unquestionably have been a suit for damages if asserted in a 6 court of law." 7 defenses asserted by the tenants did not trigger coverage because 8 they were "purely defensive": Id. at 1269. Id. at 1266-67. The court held The court found that the affirmative 9 Here, plaintiffs' tenants had no independent suit against [plaintiffs] that they sought to reduce to a monetary value by asserting it as a setoff payment for the liability that [plaintiffs] was alleging against them. They had no claim whatsoever and could not have sued [plaintiffs] for anything. Regardless of plaintiffs' characterization of a CERCLA proceeding as an action to apportion liability, the reality of CDM's CERCLA case is that [plaintiffs] sued the tenants for indemnity as to an obligation imposed upon [them] by the [State Water] Board and the tenants countered with an indemnity claim against [plaintiffs]. In this posture, the tenants' indemnity claim was purely defensive -- it sought and functioned only to reimpose upon [plaintiffs] what [plaintiffs] w[ere] already legally obligated for. United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 Id. Like the affirmative defenses in CDM, the cross-complaints in 22 this action are almost exclusively defensive. The cross-complaint 23 filed by Yamaguchi merely seeks to hold the Changs liable or 24 partially liable for any judgments rendered against Yamaguchi. 25 Yamaguchi X-Compl. (praying that the cross-defendants be adjudged 26 liable to Yamaguchi for "total," "partial," and "equitable or 27 comparative indemnity"). 28 Christopher Chang. See As does the cross-complaint filed by See C. Chang X-Compl. 20 Lee's cross-complaint is 1 slightly different. 2 Changs, Lee asserts "damages in the form of property damage, 3 contents damage, loss of value, loss of use, loss of rents, repair 4 costs, and other economic and non-economic damages in an amount 5 according to proof." 6 operated a dry cleaners on the property between 1989 and 1996, 7 several years after the Great American policy period, these damages 8 cannot trigger a duty to defend or indemnify under the policies. 9 See Section IV.D supra. United States District Court For the Northern District of California 10 In addition to seeking a set-off against the Lee X-Compl. at 5. However, since Lee The Changs' opposition brief provides a confused set of 11 arguments on this issue. 12 Yamaguchi, Christopher Chang, and Lee cross-complaints are "purely 13 defensive," but the Changs then go on to argue that these cross- 14 complaints seek affirmative relief for property damage. 15 Opp'n at 14-15 with id. at 25. 16 inapposite, but then appear to point out the similarities between 17 that case and the instant action. 18 argue, without further explanation, that the cross-complaints 19 should trigger coverage because they are "an essential part of the 20 Changs defense in the underlying Kartal action." 21 again, the Changs urge the Court to place "substance over form," 22 but they fail to cite any on-point case law which would support 23 their position. The Changs' surreply brief does little to clarify 24 their position. In it, the Changs assert that the cross-complaints 25 show the potential for coverage, because they do not allege when 26 the contamination on the property started or stopped. 27 3. 28 "'defensive' in nature." The Changs repeatedly concede that Compare They contend that CDM is Id. at 15. The Changs also Id. at 14. Once Surreply at However, the Changs again concede that the cross-complaints are Id. at 4. 21 1 For these reasons, the Court finds that Great American does 2 not have a duty to defend or indemnify as to the cross-complaints 3 filed by Yamaguchi, Christopher Chang, and Lee. 4 G. 5 The Changs' Counterclaims for Breach of Contract and Breach of the Covenant of Good Faith and Fair Dealing 6 Finally, Great American moves for summary judgment on the 7 Changs' two counterclaims. 8 that if the Court finds that Great American does not owe the Changs 9 a duty to defend or indemnify in any of the underlying actions, MSJ at 24-25. Great American reasons United States District Court For the Northern District of California 10 then the Changs cannot possibly show that Great American breached 11 its duty to defend and indemnify or engaged in bad faith. 12 Changs do not appear to dispute this reasoning. 13 that if the Court does find that Great American owes a duty, then 14 the Court should find that it breached that duty. 15 As Great American has prevailed on all of the issues discussed 16 above, the Court finds that the Changs cannot succeed on their 17 counterclaims. Id. The They merely argue Opp'n at 16-17. 18 19 20 V. CONCLUSION In sum, the Court finds that the Changs' Great American 21 insurance policies, which provided coverage against third-party 22 lawsuits from 1977 to 1983, do not provide coverage for lawsuits 23 and government actions commenced over twenty years after the 24 policies' expiration. 25 American's motion for partial summary judgment. 26 that Great American is entitled to partial summary judgment of the 27 following issues: Accordingly, the Court GRANTS Great 28 22 The Court finds 1 • Under the language of its insurance policies, Great American 2 has no duty to defend or indemnify the Changs with respect to 3 government orders to address pollution. 4 • Under the language of its insurance policies, Great American 5 has no duty to defend or indemnify the Changs as to the 6 complaint filed by Kartal in the Kartal Action. 7 • Under the language of its insurance policies, Great American 8 has no duty to defend or pay expenses incurred by the Changs 9 with respect to cross-complaints the Changs filed against United States District Court For the Northern District of California 10 11 other parties in the Kartal Action. • Under the language of its insurance policies, Great American 12 has no duty to pay expenses incurred by the Changs in seeking 13 recovery from the California Underground Storage Tank Fund. 14 • Under the language of its insurance policies, Great American 15 has no duty to defend or indemnify the Changs as to cross- 16 complaints filed against the Changs in the Kartal Action. 17 • Because Great American is entitled to partial summary judgment 18 of the above issues, the Changs are not entitled to any 19 recovery from Great American under their counterclaims for 20 breach of contract and breach of the covenant of good faith 21 and fair dealing. 22 23 IT IS SO ORDERED. 24 25 26 Dated: June 19, 2013 UNITED STATES DISTRICT JUDGE 27 28 23

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