Bernstein v. Kemper Indep. Ins. Co.

670 F.Supp.3d 1018

Richard P. BERNSTEIN, et al., Plaintiffs, v. KEMPER INDEPENDENCE INSURANCE COMPANY, Defendant.

No. 2:20-cv-02517-DAD-JDP

United States District Court, E.D. California

Filed April 25, 2023

Signed April 24, 2023

Joseph A. Welch, Law Office of Joseph A. Welch, Sacramento, CA, for Plaintiffs.

Theona Zhordania, Sheppard, Mullin, Richter & Hampton LLP, Los Angeles, CA, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

This matter is before the court on the motion for partial summary judgment filed on behalf of defendant on August 30, 2022. (Doc. No. 21.) The pending motion was taken under submission on the papers. (Doc. No. 26.) For the reasons explained below, defendant's motion for partial summary judgment will be granted.

FACTUAL BACKGROUND¹

This case involves an insurance coverage dispute between plaintiffs Richard P. Bernstein and Leah Ann Alcazar (collectively, "plaintiffs") and defendant Kemper Independence Insurance Company ("defendant" or "Kemper Independence") arising from defendant's denial of a property damage claim that plaintiffs submitted under their homeowner's insurance policy.

Plaintiffs own a house at 5211 Bellwood Way, Carmichael, California 95608 ("the house") that was insured under a homeowner's policy issued by Kemper Independence for the period February 4, 2019 through February 4, 2020 ("the Policy"). (DUF ¶¶ 1, 2.) On or around December 24, 2019, plaintiff Bernstein submitted an insurance claim to Kemper Independence for property damage that, according to plaintiffs, "resulted from the accumulation of massive amounts of water under [the] house from a burst drainage pipe." (DUF ¶¶ 5, 7.) In response to the interrogatories defendant propounded on plaintiffs in this action, plaintiff Alcazar described the type of damage to the property she noticed in early 2019, which included, inter alia, misalignment of laundry room and living room doors, separation of cabinets from the wall in the laundry room, uneven flooring in kitchen and family room, cracks in counter tiles, cracks in ceiling, and cracks in sheetrock. (DUF ¶ 6.)

On or around January 3, 2020, an independent adjuster, Jamey Kim from Wardlaw Claims Service, inspected the house on Kemper Independence's behalf.² (DUF ¶ 10.) During this inspection, Mr. Kim did not go underneath the house. (PUF ¶ 23.) As reflected in the claim notes maintained by Kemper Independence, on January 7, 2020, Mr. Kim left the following voicemail for Kemper Independence's senior claims adjuster, Gary Watts:

I inspected the loss location on 1/3/2019³ and the damages appear to be from differential settling. The insured informed me that he had a contractor (A friend of his) look at the damages and crawled in the crawl space and determined that the damages were caused from a washing machine drain line failure (Collapse.) Could we get a structural engineer out to the loss location to help determine the cause of the loss? Thank you in advance.

(PUF ¶ 24.) The final loss report that Mr. Kim prepared recommended a full denial of plaintiffs' claim "as the damages appear to have been caused from differential settling." (DUF ¶ 11; Doc. No. 21-5 at 108.) Mr. Kim's final loss report did not mention that a structural engineer should inspect the house; rather, his report merely stated in part:

DIFFERENTIAL SETTLING: The pier and beam portion of the dwelling appears to be settling while the concrete slab foundation is not. This appears to be the cause of the cracking in painted stucco exterior, tile flooring in the living room, and cracking of the ceiling and wall drywall in a large portion of the interior.

SUBROGATION: No possible subrogation as damage solely the result of differential settling.

(DUF ¶ 11.) Based on Mr. Kim's report and the photographs taken by him, Kemper Independence concluded that the Policy did not cover the reported damage to plaintiffs' property. (DUF ¶ 12.)

On or around January 9, 2020, Kemper Independence sent plaintiff Bernstein a letter, which stated in part: "The Policy does not provide coverage for this loss because your policy excludes coverage for settling." (DUF ¶ 13.) That letter referred to the following relevant provisions in the Policy:

SECTION I - PERILS INSURED AGAINST COVERAGES A, B, AND C

We insure against risk of direct loss to property described in Coverages A, B and C only if that loss is a physical loss to property. We do not insure, however, for loss:

1. Excluded under Section I - Exclusions.

. . .

3. Caused by:

. . .

e. Any of the following:

1) Wear and tear, marring or deterioration; 2) Mechanical breakdown, latent defect, inherent vice, or any quality in property that causes it to damage or destroy itself;

However, we do insure for loss caused by mechanical breakdown with respect to the coverage provided under Section I -Additional Coverages, Limited Water Back-up And Sump Discharge Or Overflow Coverage, paragraph b.

. . .

6) Settling, shrinking, bulging or expansion, including resultant cracking of bulkheads, pavements, patios, footings, foundations, walls, floors, roofs or ceilings.

(DUF ¶ 3) (emphasis added.) The Policy also provides the following exclusions:

SECTION I - EXCLUSIONS

1. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event:

1) Results in widespread damage or affects a substantial area; or

2) Is caused by or results from an act of nature, an act of man or is otherwise caused.

. . .

1.b. Earth Movement, meaning earthquake, including land shock waves or tremors before, during or after a volcanic eruption; landslide; mine subsidence; mudflow; earth sinking, rising or shifting; unless direct loss by:

a. Fire; or

b. Explosion;

ensues and then we will pay only for the ensuing loss.

. . .

2. We do not insure for loss to property described in Coverages A and B caused by any of the following. However, any ensuing loss to property described in Coverages A and B not excluded or excepted in this policy is covered.

. . .

c. Faulty, inadequate or defective:

. . .

2) Design, specification, workmanship, repair, construction, renovation, remodeling, grading, compaction;

3) Materials used in repair, construction, renovation or remodeling; or

4) Maintenance;

of part or all of any property whether on or off the "residence premises."

(DUF ¶ 4.) The claim denial letter also stated: "If you know of any additional information that you believe we have not considered in reaching our decision to disclaim coverage, . . . , we invite you to provide it to us at your earliest convenience. We will carefully consider any additional information you provide." (Doc. No. 21-5 at 151.)

On February 5, 2020, plaintiff Bernstein sent Mr. Watts a letter via email asking why Kemper Independence's claim denial letter did not address the following endorsement language in the Policy, titled "Exceptions to 3.e":

Unless the loss is otherwise excluded, we cover loss to property covered under Coverages A, B or C resulting from an accidental discharge or overflow of water or steam from within a:

i) Storm drain or water, steam or sewer pipe off the "residence premises;" or

ii) Plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance on the "residence premises." This includes the cost to tear out and replace any part of a building, or other structure, on the "residence premises," but only when necessary to repair the system or appliance. However, such tear out and replacement coverage only applies to other structures if the water or steam causes actual damage to a building on the "residence premises."

(PUF ¶¶ 26; 27.) That same day, Mr. Watts responded by email and stated that "the cracks in the walls and siding were result of settling; not direct result of a plumbing leak; the cracks in the walls and siding would not be result of the plumbing leak in the crawlspace." (PUF ¶ 28.) Plaintiff Bernstein replied to this email, stating that "[t]here was no cracking until the water flowing under the house from the busted pipe affected the piers and posts foundation, according to a structural engineer who actually inspected under the home, unlike your inspector, who told me it wasn't his role to go under the house but he would have someone come inspect." (PUF ¶ 29.) Plaintiffs did not provide Kemper Independence with a copy of that engineer's inspection results until May 15, 2020. (PUF ¶ 30; Doc. No. 21-5 at 154.) Specifically, on May 15, 2020, plaintiff Bernstein emailed Mr. Watts a copy of the one-page letter he received from his friend, Jerry L. Slinkard, a civil engineer for JLS Consulting, dated February 17, 2020, stating the following:

Per your request, I inspected the underfloor of your residence to ascertain the cause of various newly observed problems to the home (such as cracking to newly painted walls, doors starting to stick, and cracking starting in the glass block wall). Upon inspection, I found a 4" drain line under the laundry area near the front of the house had fractured. No other problems or irregularities were present. It is clear that the fracture to the drain line triggered the ensuing damages to your residence.

Also confirming this diagnosis were watermarks along the inside perimeter foundation, the sudden cracking to newly painted walls, the doors starting to stick, and the cracks to the glass wall suddenly starting to appear.

Now that the cause of the problem has been isolated, the property should be left to continue to dry out properly on its own, to be confirmed by visual inspection. Then the house needs to be releveled, and then cosmetically repaired.

(DUF ¶¶ 8, 9; Doc. No. 27-3 at 14-15.) On May 27, 2020, Mr. Watts responded to that email and asked plaintiff Bernstein to provide the contact number for Mr. Slinkard because Mr. Watts had additional questions regarding Mr. Slinkard's findings and needed Mr....