Travelers Property Casualty Company of America v. Mixt Greens, Inc et al

Filing 100

ORDER by Judge Hamilton granting 93 Motion for Summary Judgment; denying 94 Motion for Partial Summary Judgment (pjhlc1, COURT STAFF) (Filed on 1/28/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA,

Case No. 13-cv-0957-PJH

Plaintiff,
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v.
United States District Court
Northern District of California

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MIXT GREENS, INC, et al.,

ORDER GRANTING PLAINTIFF'S
MOTION FOR SUMMARY JUDGMENT
AND DENYING DEFENDANTS'
MOTION FOR SUMMARY JUDGMENT

Defendants.
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The parties' motions for summary judgment came on for hearing before this court

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on January 20, 2016. Plaintiff Travelers Property Casualty Company of America

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("Travelers") appeared by its counsel Samuel Ruby, and defendants Hines Interests

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Limited Partnership ("Hines") and NOP 560 Mission LLC ("NOP") appeared by their

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counsel Francis Scolan. Having read the parties' papers and carefully considered their

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arguments and the relevant legal authority, the court hereby GRANTS plaintiff's motion

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and DENIES defendants' motion as follows and for the reasons stated at the hearing.

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A party may move for summary judgment on a “claim or defense” or “part of . . . a

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claim or defense.” Fed. R. Civ. P. 56(a). Summary judgment is appropriate when there is

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no genuine dispute as to any material fact and the moving party is entitled to judgment as

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a matter of law. Id.

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The background facts are as stated in the order issued on March 25, 2014 (Doc.

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75). Briefly, Travelers issued general liability and umbrella policies (the "Travelers

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Policy") to Mixt Greens, Inc. ("Mixt Greens"), which owned and operated a restaurant in

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San Francisco, California. Travelers filed this action for declaratory relief in March 2013,

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seeking a ruling regarding its duty to defend and indemnify Mixt Greens and Hines/NOP

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(Mixt Greens' landlord) in an action filed in San Francisco Superior Court in 2008 ("the

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Underlying Action") by another restaurant tenant of the same property. Hines/NOP

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answered Travelers’ complaint and filed a counterclaim alleging breach of contract;

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breach of the implied covenant of good faith and fair dealing, and a claim for declaratory

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relief as to Travelers’ obligation to defend and indemnify Hines/NOP with regard to the

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claims in the Underlying Action. Mixt Greens did not appear in this action, and its default

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was entered on November 15, 2013.

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The court subsequently severed the duty-to-indemnify claims pending resolution of

United States District Court
Northern District of California

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the Underlying Action, and ordered that the case could proceed on the duty-to-defend

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claims only. Travelers and Hines/NOP each filed motions for partial summary judgment

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on the issue of duty to defend. In the March 25, 2014 order, the court granted Travelers'

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motion and denied Hines/NOP's motion, and ruled that Travelers had no duty to defend

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Mixt Greens and Hines/NOP. Both sides now seek summary judgment as to whether

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Travelers has a duty to indemnify Hines/NOP in the form of reimbursement for their

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defense costs incurred in the Underlying Action.

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"[T]he duty to defend is broader than the duty to indemnify. Montrose Chem.

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Corp. of Cal. v. Superior Court, 6 Cal. 4th 287, 295, 299 (1993). Conversely, the duty to

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indemnify is narrower than the duty to defend, and where a court rules out the duty to

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defend, it necessarily rules out any "potential for indemnity." See id. at 295. In the

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context of general liability insurance, the so-called "duty to indemnify" is merely

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shorthand for the promise that the insurer makes to "pay for all sums that the insured

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becomes legally obligated to pay [to a third party] as damages" for covered harms. See

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Certain Underwriters at Lloyd's of London v. Superior Court, 24 Cal. 4th 945, 957 (2001).

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It is only by virtue of the separate and distinct promise to defend that a general liability

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insurer acquires a duty to pay the policyholder's defense costs. See id..

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In sum, "[w]here there is a duty to defend, there may be a duty to indemnify; but
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where there is no duty to defend, there cannot be a duty to indemnify." See Certain

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Underwriters, 24 Cal. 4th at 958; see also K.B. v. Hartford Cas. Ins. Co., 608 Fed. Appx.

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492, 493 (9th Cir. June 24, 2015); Rizzo v. Ins. Co. of State of Penns., 969 F.Supp. 2d

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1180, 1203 (C.D. Cal. 2013). Moreover, where there is no potential coverage under the

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policy, there can be no breach of the covenant of good faith and fair dealing. See Brehm

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v. 21st Century Ins. Co., 166 Cal. App. 4th 1225, 1235 (2008).

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Thus, to recover defense costs, Hines/NOP had to prove a breach of the duty to
defend, which they failed to do. Travelers argues that because the court has determined

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that there is no duty to defend, under California law there can be no claim for indemnity.

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Hines/NOP have cited no authority under which the court could find an exception to the

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United States District Court
Northern District of California

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general rule articulated in Montrose and Certain Underwriters.

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Nonetheless, Hines/NOP contend that Travelers is obligated to pay their defense

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cost. They note that under the Policy, "assumed defense costs" are "deemed to be

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damages" because of "property damage" or "personal injury" if, as here, the fees are

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incurred to defend a civil action "in which damages to which this insurance applies are

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alleged." They also argue that because the Lease between Mixt Greens and Hines/NOP

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is a “contract for lease of premises,” it is an "insured contract," and that because the

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defense costs were "assumed" under the Lease, Hines/NOP is entitled to be indemnified

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for its defense costs.

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It appears that Hines/NOP has misconstrued the "insured contract" exception to

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the Contractual Liability exclusion. Under that exclusion, there is no coverage for liability

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for bodily injury, property damage, etc. that the insured assumes by contract for bodily

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injury or property damage, unless the contract qualifies as an “insured contract.” The

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exception provides that if the insured is liable to a third party for that party’s attorneys’

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fees, and if certain conditions are met, the insurer will indemnify the insured for that

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liability. The third party, however, does not acquire any rights against the insurer.

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Here, the insured was Mixt Greens. Hines/NOP argue that their lease agreement

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with Mixt Greens qualified as an “insured contract.” However, the only effect of deeming
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the Lease to be an insured contract would be that if Hines/NOP had been sued by Cal-

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Murphy (plaintiff in the Underlying Action) for bodily injury, property damage, etc., and if

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Hines/NOP had successfully sued Mixt Greens for indemnity under the Lease, Travelers

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would have been obligated to indemnify Mixt Greens. Contrary to Hines/NOP’s position,

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Travelers would not have owed a direct duty to defend or indemnify Hines/NOP.

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The court previously determined in the March 25, 2014 order that there is no

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coverage in this case for "property damage" or "personal injury" under the Policy. Thus,

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Hines/NOP's argument that their fees and expenses are "deemed to be damages"

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because of "property damage" or "personal injury" is to no avail. Moreover, while the

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United States District Court
Northern District of California

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Lease provides for coverage of fees and expenses, Travelers is not a party to the Lease.
Hines/NOP argue that while Travelers’ duty would normally run to Mixt Greens

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under the Travelers Policy, and Mixt Greens’ duty under the Lease would run to

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Hines/NOP, Travelers has – by rejecting Hines/NOP’s tender to its insured – “elected to

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insert itself in place of the insured.” In a footnote in their reply brief, Hines/NOP claim

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that Travelers’ rejection of the tender is "analogous to Travelers intervening in a matter

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between [Hines/NOP] and Travelers' insured, Mixt Greens." In support of this argument,

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Hines/NOP cite Belz v. Clarendon Am. Ins. Co., 158 Cal. App. 4th 615, 633 (2007), a

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case that is factually and legally distinguishable from the present case.

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In Belz, one of the issues was whether an insurer wishing to move to set aside a

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default judgment issued against its insured (without knowledge of the insurer) must first

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obtain leave to intervene in the case, or whether it may instead simply move to set aside

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the default judgment. The state court held that an insurer may intervene, or may instead

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file a motion to set aside the default judgment. Here, Travelers did not file a motion to

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intervene – and it is not clear on what basis it could or would have chosen to do so – and

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it is not seeking to set aside a default judgment. Travelers' rejection of Hines/NOP's

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tender to its insured, Mixt Greens, is in no way "analogous" to seeking leave to intervene,

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and Hines/NOP provide no other legal authority to support this argument.

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Accordingly, the court finds that Travelers’ motion must be GRANTED and
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Hines/NOP’s motion must be DENIED.
As stated at the hearing, no later than February 19, 2016, Travelers shall file a
motion for default judgment as to Mixt Greens.

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IT IS SO ORDERED.

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Dated: January 28, 2016

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__________________________________
PHYLLIS J. HAMILTON
United States District Judge

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United States District Court
Northern District of California

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