Great Am. Ins. Co. v. Chang

GREAT AMERICAN INSURANCE COMPANY, and GREAT AMERICANINSURANCE COMPANY OF NEW YORK, Plaintiffs,

v. MICHAEL CHANG, d/b/a SUNRISE CLEANERS, INC., and ROXANNECHANG, d/b/a SUNRISE CLEANERS, INC., Defendants.

Case No. 12-00833-SC

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

Dated: June 19, 2013

ORDER GRANTING MOTION FOR

PARTIAL SUMMARY JUDGMENT

I. INTRODUCTION

This case involves an insurance coverage dispute arising from underlying state court actions and government orders concerning the alleged contamination of a property owned by Defendant Michael Chang (the "Property"). Defendant Michael Chang and his wife, Defendant Roxanne Chang (collectively, the "Changs"), operated a dry cleaning business on the property from 1977 to 1981. During this period, the Property was insured by the above-captioned plaintiffs (collectively, "Great American"). Through this action, Great American seeks a declaration that it does not owe a duty to defend or indemnify the Changs in the underlying actions. Nowbefore the Court is Great American's motion for partial summary judgment. ECF No. 64 ("MSJ"). The motion is fully briefed, ECF Nos. 68 ("Opp'n"), 69 ("Reply"), and appropriate for determination without oral argument per Civil Local Rule 7-1(b).¹ For the reasons set forth below, Great American's motion for partial summary judgment is GRANTED.

II. BACKGROUND

The Property at issue in this case is located on Baldwin Avenue in San Mateo, California. ECF Nos. 16 ("Compl.") ¶ 4, 29 ("Answer") ¶ 4. Various parties have alleged that the Property is contaminated with PCE and stoddard solvent due to leaking underground storage tanks. The Changs acquired the Property in 1977, along with a dry cleaning business already located on the Property. Michael Chang operated a dry cleaners on the Property from 1977 until about 1981 under the name Sunrise Cleaners. In 1981, Michael Chang sold the Sunrise Cleaners business, though he continued to own the Property and leased the premises to others.

Soon after the Changs acquired the Property, Great American issued a policy to Sunrise Cleaners for a policy period of December 15, 1977 to December 15, 1980. Great American later issued a policy to Michael Chang for a policy period of December 15, 1980 toDecember 15, 1983. The Changs claim that Roxanne Change is an additional insured under the policies. Neither Great American nor the Changs retained a copy of the policies, but the parties have stipulated to some of the policy terms, including policy limits of $500,000 for property damage.

The Changs later leased the Property to Bilal Kartal ("Kartal"), who opened an Italian restaurant on the premises. In 2006, Kartal brought a nuisance action against the Changs in the California Superior Court for San Mateo County in connection with an alleged solvent leak on the Property (the "Kartal Action"). ECF No. 65 ("RJN") Ex. 1 ("Kartal Compl."). Kartal alleges the following: At the time the Changs purchased the Property in 1977, they knew or should have known that one or more storage tanks containing dry cleaning solvent were buried under a previously unused portion of the Property behind what is now the restaurant. Id. ¶ 3. In 1992, Kartal built a patio behind the restaurant. Id. ¶ 1. The patio was later enclosed and became a banquet area central to the restaurant's business. Id. In or around 2002 or 2003, customers began noticing a peculiar odor coming from the banquet area, which was caused by solvents leaking from the buried storage tanks. Id. ¶ 6. The odor became worse over time and drove customers away from the restaurant. Id. ¶¶ 7-8.

At some unspecified time, the California Regional Water Quality Control Board (the "State Water Board") began to investigate the alleged contamination at the Property. Zacharias Decl. Ex. 1.² On December 28, 2007, the Changs tendered the KartalAction, along with the state investigation, to Great American for defense and indemnity. Id. As to the government investigation, the Changs informed Great American: "The local Environmental Health Department, [State Water Board] and federal Environmental Protection Agency are investigating the liability of your insured. Governmental agencies have ordered action on the part of the responsible parties to investigate the occurrence and mitigate the damages to groundwater and off-site properties." Id. Great American initially denied the tender with respect to both the Kartal Action and the government investigation.

After Great American denied the tenders, the Changs filed cross-complaints in the Kartal Action against various third parties, including Grace Yamaguchi ("Yamaguchi"), who allegedly operated a dry cleaners on the property before the Changs, and Christopher Chang (no relation to the Changs), who allegedly operated a dry cleaners on the property after the Changs. RJN Exs. 3-4. In their amended cross-complaint in the Kartal Action, the Changs alleged that Yamaguchi and Christopher Chang caused the solvent contamination on the Property and asserted claims for negligence, indemnity, and contribution, among other things. RJN Ex. 4. The Changs prayed for "response costs, lost rents and all other damages incurred due to Cross-Defendants['] [conduct]," and "damages, defense costs and potential liability, if any." Id. at 20-21.

On February 11, 2009, the court in the Kartal Action entered "Pre-Trial Order No. 5," which stated: "In order to avoidunnecessary filing of pleadings by Defendants and Cross-Defendants in this action, it shall be deemed that . . . [a]ll Defendants and Cross-Defendants have filed Cross-Complaints for implied equitable indemnity and for a determination of comparative negligence against all of the Defendants and Cross-Defendants." RJN Ex. 10. Michael Chang then requested that Great American indemnify him with respect to the cross-complaints that were deemed filed in the Kartal Action. Compl. ¶ 83; Answer ¶ 83. In response, Great American denied that the "deemed" affirmative cross-complaints gave rise to a duty to defend, but agreed to provide a defense subject to a full reservation of rights. Id.

Yamaguchi and Christopher Chang filed actual cross-complaints against the Changs in late 2010. RJN Exs. 5 ("C. Chang X-Compl."), 6 ("Yamaguchi X-Compl."). These cross-complaints also named as a defendant Eun Kyung Lee ("Lee"), who allegedly operated a dry cleaning business on the Property after Christopher Chang, from approximately 1989 until 1996. C. Chang X-Compl. ¶ 23; Yamaguchi X-Compl. ¶ 21. Yamaguchi and Christopher Chang's cross-complaints essentially sought indemnity and contribution from the Changs for any damages for which they were held liable. In March 2011, Lee also filed a cross-complaint for indemnity and contribution against the Changs, Yamaguchi, and Christopher Chang. RJN Ex. 7 ("Lee X-Compl."). Additionally, Lee sought "damages in the form of property damage, contents damage, loss of value, loss of use, loss of rents, repair costs, and other economic and non-economic damages." Id. at 5.

Apparently, the State Water Board continued to investigate contamination on the Property as the Kartal Action was ongoing.The parties have not filed with the Court any documents actually issued by the State Water Board. However, according to an April 10, 2009 letter from the Changs' counsel, the Changs applied for funding from the California Underground Storage Tank Fund (the "Storage Tank Fund") for pollution clean-up on the Property. Zacharias Decl. Ex. 4. The State Water Board denied the application, and the Changs requested that Great American pay for legal fees and costs incurred to challenge that denial. Id. Subject to a complete reservation of rights, Great American agreed to pay, and has paid, certain fees and costs incurred by the Changs to prosecute the litigation against the State Water Board. Zacharias Decl. ¶ 10.

At some unspecified time, the Changs conducted a voluntary site investigation and recommended further investigation of alleged PCE contamination on the Property. Compl. ¶ 92; Answer ¶ 92. Sometime in 2010, the State Water Board approved the proposed investigation and asked the Changs to submit a work plan. Id. The Changs requested that Great American pay the costs of the site investigation approved by the State Water Board. Zacharias Decl. ¶ 11, Ex. 5. Great American agreed to pay certain costs in connection with the investigation, subject to a full reservation of rights. Id. ¶ 11.

Great American brought this action against the Changs in February 2012. Great American's amended complaint asserts nine causes of action for, inter alia, declaratory relief, reimbursement of money paid, and breach of contract. Great American essentially seeks a declaration that it does not owe the Changs a duty to defend or indemnify as to the Kartal Action or the governmentorders. It also seeks reimbursement of the amounts it has paid or will pay on behalf of the Changs. The Changs have counterclaimed for breach of contract and tortious breach of the covenant of good faith and fair dealing. Great American now moves for partial summary judgment on its claims and the Changs' counterclaims.

III. LEGAL STANDARD

Entry of summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Summary judgment should be granted if the evidence would require a directed verdict for the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). Thus, "Rule 56[ ] mandates the entry of summary judgment . . . against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "The evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson, 477 U.S. at 255. However, "[t...