Atain Specialty Insurance Company v. Armory Studios, LLC et al

Filing 63

ORDER RE SUMMARY JUDGMENT. Signed by Judge James Donato on 12/15/2017. (jdlc2S, COURT STAFF) (Filed on 12/15/2017)

1
2
3
4

UNITED STATES DISTRICT COURT

5

NORTHERN DISTRICT OF CALIFORNIA

6
7

ATAIN SPECIALTY INSURANCE
COMPANY,

8
9
10

United States District Court
Northern District of California

11

Case No. 15-cv-05124-JD

Plaintiff,

ORDER RE SUMMARY JUDGMENT

v.
ARMORY STUDIOS, LLC, et al.,
Defendants.

12
13

This is a declaratory judgment action brought by an insurer, Atain Specialty Insurance

14

Company, against two insureds, Armory Studios, LLC and Peter Acworth. Plaintiff’s motion for

15

summary judgment is granted. Dkt. No. 39.

16
17

BACKGROUND
There are three underlying California state court actions that are at issue in this case, all

18

pending in the San Francisco Superior Court: (1) John Doe v. Kink.com et al., Case No. CGC-15-

19

545540; (2) Joshua Rodgers v. Kink.com et al., Case No. CGC-15-547036; and (3) Cameron

20

Adams v. Kink.com et al., Case No. CGC-15-547035.

21

Armory Studios, LLC and Peter Acworth are named defendants in all three cases. They

22

tendered defense and indemnity to their insurer, plaintiff Atain Specialty Insurance Company,

23

pursuant to a commercial general liability insurance policy. Atain accepted the defense of Armory

24

and Acworth for all three actions subject to a reservation of rights.

25

Atain sued here for a declaration that it has no duty to defend or indemnify Armory or

26

Acworth for any of the three actions. Atain also seeks reimbursement of the defense fees and

27

costs it has incurred and any indemnity which may be paid in connection with a resolution or

28

judgment in the underlying actions. Dkt. No. 1. Armory and Acworth have asserted

1

counterclaims against Atain for breach of contract, breach of the implied covenant of good faith

2

and fair dealing, and reformation. Dkt. No. 30.
DISCUSSION

3
4
5

I.

DECLARATORY JUDGMENT AND REIMBURSEMENT CLAIMS
Atain has issued a number of consecutive insurance policies to Armory Studios over the

years, but the parties agree that the operative agreement is Policy No. CIP133684001. Dkt. No. 39

7

at 13-15, Dkt. No. 44 at 7; see Dkt. Nos. 40, 40-2, 40-5. The parties also agree that Armory, as the

8

named insured, has met its burden of proving that the claims asserted in the Doe, Rodgers, and

9

Adams actions are potentially within the coverage provided by the Atain policy. Dkt. No. 39 at

10

21. What the parties dispute is whether Atain, as the insurer, has met its burden of proving that

11
United States District Court
Northern District of California

6

the underlying claims “cannot come within the policy coverage by virtue of the scope of the

12

insuring clause or the breadth of an exclusion.” Montrose Chem. Corp. v. Superior Court, 6 Cal.

13

4th 287, 301 (1993). For purposes of this motion the parties have focused on the policy’s

14

“Physical-Sexual Abuse Exclusion.” Dkt. Nos. 39, 44.

15

As the exclusion states: “This insurance does not apply to any ‘occurrence,’ suit, liability,

16

claim, demand or causes of action arising out of or resulting from . . . sexual abuse . . . or sexual

17

behavior intended to lead to, or culminating in any sexual act, whether caused by, or at the

18

instigation of, or at the direction of, or omission by: (a) The insured or the insured’s employees;

19

(b) Patrons of the insureds’ business; (c) Agents of the insured; (d) ‘Volunteer workers’;

20

(e) Subcontractor or employee of any subcontractor; (f) ‘Independent contractor’ or employee of

21

any ‘independent contractor’; or (g) ‘Leased worker.’” Dkt. No. 40-2 at ECF p. 59.

22

The language of this exclusion is not ambiguous in the context of this policy and the

23

circumstances of this case. Bay Cities Paving & Grading, Inc. v. Lawyers’ Mut. Ins. Co., 5 Cal.

24

4th 854, 868 (1993). There are not “two or more constructions, both of which are reasonable.” Id.

25

at 867. While defendants say that Armory “reasonably understood that its insurance would cover

26

all injury claims occurring at the premises, even if the injury was somehow related to Cybernet’s

27

business,” Dkt. No. 44 at 20, that is not a “competing construction” of the exclusion, let alone a

28
2

1

“reasonable” one. Because the contractual language is clear and explicit, it governs. State v.

2

Allstate Ins. Co., 45 Cal. 4th 1008, 1018 (2009).
The Physical-Sexual Abuse Exclusion maps on to the underlying claims here in a

4

straightforward way. All three of the plaintiffs in the underlying cases allege that they contracted

5

and tested positive for the HIV virus after engaging in sexual activity at a pornographic video

6

shoot. Dkt. No. 44 at 2-5; see Dkt. No. 43, Exs. A, B, C. 1 The shoots were organized by

7

Cybernet Entertainment, LLC, which is in the internet pornography film business. Dkt. No. 44 at

8

1. Cybernet leases a building from Armory Studios, LLC, and uses those premises for the

9

pornographic shoots. Id. Acworth is Armory’s managing member. Id. Cybernet is not a party to

10

this case and is not alleged to have been insured by the Atain policy. Only Armory and Acworth

11
United States District Court
Northern District of California

3

are here in that capacity, and the claims asserted against them in the state court actions are

12

negligence, negligence per se, negligent supervision, negligent hiring and/or retention, and

13

premises liability. Id. at 5-6. These claims allege, for example, that Armory and Acworth

14

proximately caused plaintiffs’ injuries by failing to inspect all performers for cuts, sores and

15

lesions, and by failing to observe universal precautions to prevent contact with blood or other

16

potentially infectious materials. Id. Another of the claims asserted against Armory and Acworth

17

is for premises liability, which alleges that they failed their duty to conduct a reasonable inspection

18

of the premises, which would have revealed to them conduct that created an unreasonable risk of

19

harm to plaintiffs. Id.

20

Nevertheless, as defendants acknowledge, there is a single injury asserted in each of the

21

underlying cases: the contraction of the HIV virus. Dkt. No. 44 at 23. There can be no serious

22

dispute that plaintiffs would not have contracted the virus but for their sexual activity during the

23

shoots. Consequently, it cannot seriously be debated that even the claims and causes of action

24

against Armory and Acworth are ones that “aris[e] out of . . . sexual behavior intended to lead to,

25

or culminating in any sexual act, . . . caused by . . . omission by . . . [t]he insured or the insured’s

26

employees.” As such, the claims fall squarely under the Physical-Sexual Abuse Exclusion.

27
1

28

The Court grants the requests for judicial notice, Dkt. Nos. 43, 48, and overrules Atain’s
evidentiary objections, Dkt. No. 49 at 3-4.
3

1

Because the language of the exclusion and its interpretation in the context of this case is
clear and unambiguous, defendants’ arguments about their reasonable expectations and subsequent

3

modifications to the exclusion are irrelevant. Dkt. No. 44 at 1-2. The Court also rejects

4

defendants’ arguments based on the concurrent cause doctrine. Id. at 2. There are not “two or

5

more independent causes” at issue here. Id. at 22. The alleged failures by Armory and Acworth

6

are not “totally independent” causes of plaintiffs’ injuries, i.e., their contraction of the HIV virus.

7

Farmers Ins. Exch. v. Superior Court, 220 Cal. App. 4th 1199, 1212 (2013). Rather, the essential

8

instrumentality and cause of the alleged injury was engagement in sexual acts, for which coverage

9

is excluded. That analytical difference makes this case much more like Farmers Insurance

10

Exchange, 220 Cal. App. 4th 1199, and unlike cases such as State Farm Mutual Automobile

11
United States District Court
Northern District of California

2

Insurance Company v. Partridge, 10 Cal. 3d 94 (1973).

12

Defendants’ arguments that the conduct they are alleged to have engaged in “does not

13

constitute sexual abuse or sexual behavior” and that the alleged sexual behavior was instead that

14

of insured’s tenant (i.e., Cybernet), Dkt. No. 44 at 1, are similarly non sequiturs in light of the

15

clear language of the exclusion. The exclusion does not require the sexual behavior to have been

16

perpetrated by the insured in order to apply.

17

The Court consequently concludes that Atain has met its burden and is entitled to summary

18

judgment on all of its claims. Where there is no possibility of coverage, there is no duty to defend.

19

Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 19 (1995). Atain has demonstrated, by reference to

20

undisputed facts, that the claims are not covered because they fall under the scope of the Physical-

21

Sexual Abuse Exclusion. Montrose Chem., 6 Cal. 4th at 300-01.

22

Enforcing this clear policy language will not render the promised coverage illusory. See

23

Dkt. No. 44 at 23-25. As Atain has expressly acknowledged, the example given by defendants --

24

of a videographer being injured by a falling brick while filming a sex scene -- is in fact an example

25

of exactly the kind of injury that would be covered by Atain’s insurance policy. Dkt. No. 49 at

26

14-15. There are clearly “occurrences” that would still be covered despite the existence of the

27

Physical-Sexual Abuse Exclusion, and this defeats defendants’ illusoriness argument. See

28
4

1

Scottsdale Ins. Co. v. Essex Ins. Co., 98 Cal. App. 4th 86, 94-95 (2002) (“An agreement is illusory

2

and there is no valid contract when one of the parties assumes no obligation.”).

3

II.

4

DEFENDANTS’ COUNTERCLAIMS
Atain has also moved for summary judgment on all three of defendants’ counterclaims

5

against it. Dkt. No. 39 at 24-25. Defendants’ main argument in opposition is a procedural

6

objection, Dkt. No. 44 at 25, which is not well-taken. Given the overlap with the Physical-Sexual

7

Abuse Exclusion issues the parties were directed to address, it is perfectly appropriate and

8

efficient to take up these counterclaims in the context of this summary judgment motion. And

9

because Atain has now proceeded to a summary judgment motion on defendants’ counterclaims,

10

United States District Court
Northern District of California

11

Atain’s motion to dismiss the counterclaims is moot. Dkt. No. 32.
Because there is no insurance coverage for the claims asserted against defendants in the

12

underlying state cases, defendants’ breach of contract counterclaim also fails -- there is no

13

contractual obligation for coverage. The same goes for the good faith and fair dealing

14

counterclaim, which defendants don’t address substantively at all. See Waller, 11 Cal. 4th at 35-

15

36; Love v. Fire Ins. Exch., 221 Cal. App. 3d 1136, 1153 (1990).

16

Summary judgment is appropriate for Atain on defendants’ counterclaim for reformation

17

also. That Atain generally knew of “Cybernet’s tenancy and its business activities at the

18

premises” is not enough to support a reformation claim. Dkt. No. 44 at 25. While defendants

19

argue that it is reasonable to infer from that general knowledge “that Atain knew or suspected that

20

Armory intended the Policy would cover claims related to Cybernet’s adult pornography

21

business,” id., this is entirely too vague and conclusory. See generally Am. Home Ins. Co. v.

22

Travelers Indm. Co., 122 Cal. App. 3d 951, 962-66 (1981).

23
24

CONCLUSION
The Court grants Atain’s summary judgment motion in full. Dkt. No. 39. The parties are

25

directed to meet and confer to make an appropriate filing to determine the monetary amount that

26

should be awarded to Atain for its reimbursement claim. The parties should make every effort to

27

file a stipulation on the amount by February 2, 2018, but if that is not possible for some

28

unexpected reason, the parties may submit a joint status statement outlining any disputes between
5

1

the parties and a proposed briefing schedule to resolve those disputes. Judgment will be entered

2

for Atain after the amount of the monetary award has been fixed.

3
4

IT IS SO ORDERED.
Dated: December 15, 2017

5
6
JAMES DONATO
United States District Judge

7
8
9
10

United States District Court
Northern District of California

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
6