Atain Specialty Ins. Co. v. Sierra Pac. Mgmt. Co.

ATAIN SPECIALTY INSURANCE COMPANY, Plaintiff, v. SIERRA PACIFIC MANAGEMENT COMPANYand CALIFORNIA CAPITAL INSURANCE COMPANY, Defendants.

CALIFORNIA CAPITAL INSURANCE COMPANY, Counterclaimant, v. ATAIN SPECIALTY INSURANCE COMPANY, Counterdefendant.

CALIFORNIA CAPITAL INSURANCE COMPANY, Third-Party Plaintiff, v. JERRY LEE and BETTY LEE, Third-Party Defendants.

No. 2:14-cv-00609-TLN-DB

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA

November 2, 2016

ORDER

This matter is before the Court on Plaintiff Atain Specialty Insurance Company's ("Atain") motion for summary judgment (ECF No. 49), Defendant and Counterclaimant California Capital Insurance Company's ("California Capital") motion for partial summary judgment (ECF No. 54), and Third-Party Defendants Jerry Lee and Betty Lee's motion for summary judgment (ECF No. 48). For the reasons discussed below, Atain's motion is GRANTED, California Capital's motion is DENIED, and the Lees' motion is GRANTED.

I. FACTUAL BACKGROUND

This case involves two separate disputes, both about who must bear the costs of defending and settling an underlying personal injury lawsuit. The first is a coverage dispute between two insurance companies, Atain and California Capital. The second is a dispute between California Capital and its insureds, Jerry and Betty Lee, over whether the Lees must reimburse California Capital for a portion of what it paid on the Lees' behalf to settle the underlying lawsuit.

The underlying lawsuit was Deanna Dailey v. Lee Jerry/Betty '98 Fam RV TR, et al., No. CVCS 11-1339 (Sutter Cty. Super. Ct. filed June 16, 2011) (Dailey). (Pl.'s Resp. to Def.'s Stmt. Undisp. Facts (SUF1) No. 1, ECF No. 63.) In Dailey, Deanna Dailey sued both the owner and the property management company of the Pagoda Garden Apartments, where Dailey had lived for roughly ten years. (SUF1 Nos. 1-3, ECF No. 63.) The owner of Pagoda Garden was a trust named Lee Jerry/Betty '98 Fam RV TR.¹ The property management company was Sierra Pacific Management Company, Inc ("Sierra Pacfic").

The Dailey complaint alleged that while living at Pagoda Garden, Dailey developed a severe pulmonary illness that doctors later opined was a form of hypersensitivity pneumonitis called Pigeon Breeder's Disease. (SUF1 Nos. 3, 35-36, ECF No. 63.) Although Dailey was not a pigeon breeder, for nearly a decade Dailey had unwittingly breathed a fine dust of pigeon feathers and pigeon droppings—carried into her apartment through the building's ventilation system. (Def.'s Resp. to Pl.'s Stmt. Undisp. Facts (SUF2) Nos. 18-21, ECF No. 72.) The pigeons roosted on the roof of Dailey's building, in and around the roof-mounted heating, ventilation, and air conditioning (HVAC) units. (SUF2 No. 19, ECF No. 72.) Dailey alleged that the Lees and SierraPacific had been negligent in owning and maintaining Pagoda Garden because they did not keep the pigeons away from the HVAC units. (SUF2 No. 19, ECF No. 72.) Dailey also alleged that the Lees and Sierra Pacific had been negligent because they failed to warn tenants of the health dangers associated with the building's pigeon problem. (SUF2 No. 20, ECF No. 72.) Both the Lees and Sierra Pacific turned to their insurance companies for defense and indemnification.

Those insurance companies are the original parties in this case. Atain insured Sierra Pacific. (SUF1 Nos. 4-7, ECF No. 63.) California Capital insured the Lees. (SUF2 Nos. 59, 62, ECF No. 72.) California Capital also insured Sierra Pacific as an additional insured under the policies it issued to the Lees. (SUF2 Nos. 59, 62, ECF No. 72.) Sierra Pacific tendered its defense to Atain three times. (SUF2 Nos. 22, 37, 42, ECF No. 72.) Atain declined the tender each time, citing policy provisions that ostensibly precluded coverage, but tendered the defense to California Capital. (SUF2 Nos. 32-35, 40-41, 46-47, ECF No. 72.) California Capital undertook the defense and Sierra Pacific assigned its rights against Atain to California Capital. (SUF2 No. 36, ECF No. 72; Stargardter Decl. Ex. H, ECF No. 52-8.) California Capital eventually paid $1.9 million to settle the Dailey lawsuit. (SUF2 No. 50, ECF No. 72.) Atain did not contribute to the defense or the settlement. The insurance companies dispute whether Atain had a duty to defend and indemnify Sierra Pacific in Dailey.

In this lawsuit, the insurance companies ask the Court to determine whether Atain was required to contribute. Atain seeks a declaratory judgment that it was not required to defend or indemnify Sierra Pacific in Dailey. (Pl.'s Compl. ¶¶ 44-79, ECF No. 1.) California Capital seeks the opposite, and requests equitable contribution and indemnity from Atain. (Df.'s Answer and Countercl., ¶¶ 26-42, ECF No. 14.) Armed with Sierra Pacific's assignment of rights, California Capital also asserts claims against Atain for breach of contract and bad faith based on Atain's repeated refusals to defend and indemnify Sierra Pacific. (Df.'s Answer and Countercl., ¶¶ 43-54, ECF No. 14.) Finally, in its third-party complaint against the Lees, California Capital seeks a declaratory judgment that its coverage of the Lees was limited to $1 million. (Third-Party Compl. (TPC) ¶¶ 11-12, ECF No. 15.) And because California Capital spent more than $1 million to settle and defend the Dailey lawsuit, California Capital also seeks $900,000 in reimbursementfrom the Lees. (TPC ¶¶ 16-25, ECF No. 15.)

II. REQUESTS FOR JUDICIAL NOTICE

Atain asks the Court to take judicial notice of the Dailey complaint. (Pl.'s RJN, ECF No. 53.) The Dailey complaint is docketed in several places, including (ECF No. 53-1.) California Capital asks the Court to take judicial notice of an order entered in Dailey following a hearing on a motion for summary judgment. (Df.'s RJN, ECF No. 57.) That order is docketed as (Ex.1 to California Capital's Index of Documentary Evidence, ECF No. 60-1.) These requests are not opposed.

The Court may take judicial notice of facts that can be "accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b). The record of a state court proceeding is one such source. E.g., NuCal Foods, Inc. v. Quality Egg LLC, 887 F.Supp.2d 977, 984 (E.D. Cal. 2012). The Court cannot accept the representations made in the state court documents as true, but it may take judicial notice of the documents themselves and the fact that those representations were made. Id. Subject to that caveat, both requests are granted.

III. LEGAL STANDARDS

A. Summary Judgment

Summary judgment is proper if there are no genuine disputes as to any material facts and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "The inquiry performed is the threshold inquiry of determining whether there is the need for a trial—whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). A district court should grant summary judgment if the evidence "would require a directed verdict for the moving party." Id. at 251. Cross motions for summary judgment are evaluated separately under the same standard. Am. Civil Liberties Union of Nev. v. City of Las Vegas,333 F.3d 1092, 1097 (9th Cir. 2003). Here, the parties dispute how the Court should interpret the relevant insurance policies. That is a question of law. Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 18(1995).

B. California Law on Interpreting Insurance Policies

This is a diversity case, so the Court will apply California law to interpret the insurance policies. See Bell Lavalin, Inc. v. Simcoe and Erie General Ins. Co., 61 F.3d 742, 745 (9th Cir. 1995) (applying state law in diversity suit about insurance policy interpretation). "Interpretation of an insurance policy is a question of law and follows the general rules of contract interpretation." MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 647 (2003) (citing Waller, 11 Cal.4th at 18).

In California, a contract must be interpreted "to give effect to the mutual intention of the parties as it existed at the time of contracting." Cal. Civ. Code § 1636. If possible, the Court will infer that mutual intention solely from the plain language of the contract, read as a whole. Id. at §§ 1638, 1641. The Court must read contract language in its "ordinary and popular sense," unless the parties specify otherwise or particular words have taken on a special meaning through usage. Id. at 1644. The Court may find that a policy provision is ambiguous if the provision is capable of two or more reasonable constructions. MacKinnon, 31 Cal. 4th at 648. "But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract." Id. In the insurance context, coverage provisions are "interpreted broadly so as to afford the greatest possible protection to the insured, [whereas] ... exclusionary clauses are interpreted narrowly against the insurer." Id. If the Court finds that particular terms are ambiguous, it will interpret them to protect the "objectively reasonable expectations of the insured." State v. Allstate Ins. Co., 45 Cal. 4th 1008, 1018 (2009).

IV. ANALYSIS

All three parties have filed motions for summary judgment. The Court begins with the Lees' motion for summary judgement because it involves an issue that also affects the motions by Atain and California Capital. The Court then turns to Atain's motion for summary judgment and California Capital's cross-motion for partial summary judgment. Both of those motions address the same primary legal issue: whether Atain had a duty to defend and indemnify Sierra Pacific in Dailey. The Court has considered the motions separately, but, because the motions both concernthe same issue, the Court addresses them...