Thee Sombrero, Inc. v. Scottsdale Ins. Co.

28 Cal.App.5th 729

239 Cal.Rptr.3d 416

THEE SOMBRERO, INC., Plaintiff and Appellant,

v.SCOTTSDALE INSURANCE COMPANY, Defendant and Respondent.

E067505

Court of Appeal, Fourth District, Division 2, California.

Filed October 25, 2018

Law Office of Guinevere M. Malley and Guinevere M. Malley, Blue Jay, for Plaintiff and Appellant.

Selman Breitman, Alan B. Yuter, and Rachel E. Hobbs, Los Angeles, for Defendant and Respondent.

OPINION

RAMIREZ, P. J.

Thee Sombrero, Inc. (Sombrero) owns a commercial property in Colton. Pursuant to a conditional use permit (CUP), Sombrero’s lessees operated the property as a nightclub called El Sombrero. Crime Enforcement Services (CES) provided security guard services at the nightclub. In 2007, after a fatal shooting at the nightclub, the CUP was revoked and replaced with a modified CUP, which provided that the property could be operated only as a banquet hall.

In a previous action, Sombrero sued CES, alleging that CES’s negligence caused the shooting, which in turn caused the revocation of the CUP, which in turn caused a diminution in value of the property. It won a default judgment against CES.

Sombrero then filed this direct action ( Ins. Code, § 11580, subd. (b)(2) ) against Scottsdale Insurance Company (Scottsdale), CES’s liability insurer. The trial court granted summary judgment in favor of Scottsdale, ruling that Sombrero’s claim against CES was for an economic loss, rather than for "property damage" as defined in and covered under the policy.

We will hold that Sombrero’s loss of the ability to use the property as a nightclub constituted property damage, which was defined in the policy as including a loss of use of tangible property.

IFACTUAL BACKGROUND

The following facts are taken from the evidence admitted in support of and in opposition to the motion for summary judgment, and also from those allegations of the complaint that Scottsdale did not controvert.

Sombrero owned a piece of commercial property in Colton. A conditional use permit (CUP) had been issued authorizing the use of the property as a nightclub. One of the conditions of the CUP was that the city had to approve the floor plan for the property, and thereafter, the floor plan could not be modified without city approval.

In 2007, Sombrero leased the property to new tenants who operated it as a nightclub called El Sombrero. In connection with the new tenancy, the city inspected the property; it approved a floor plan, and it found that the property was in compliance with the floor plan. As part of the floor plan, the club had a single entrance door, equipped with a metal detector.

CES provided security guard services at El Sombrero. It had a corporate general liability policy issued by Scottsdale. The policy covered CES’s liability for "property damage" caused by an "occurrence." "Property damage" was defined as either (a) "[p]hysical injury to tangible property, including all resulting loss of use of that property," or (b) "[l]oss of use of tangible property that is not physically injured." "Occurrence," for present purposes, was defined as "an accident."

On June 4, 2007, one patron of El Sombrero shot and killed another. After the shooting, Sombrero learned that CES had converted a storage area into a "VIP entrance" to the club. The VIP entrance had no metal detector. The owner of CES admitted that the gun used in the shooting got into the club through the VIP entrance.

As a result of the shooting, Colton revoked the CUP. Sombrero managed to negotiate a modified CUP, which allowed it to operate the property as a banquet hall rather than as a nightclub.

On May 26, 2009, Sombrero sued CES for breach of contract and for negligence. The complaint alleged that CES failed to frisk the shooter and that this failure caused the revocation of the CUP. The revocation of the CUP, in turn, "lower[ed] the resale and rental value of the Property" and caused "lost income." As damages, the complaint sought "the reduction in fair market value of the Property" as well as "lost income."

On May 24, 2012, Sombrero obtained a default judgment against CES for $923,078. Henry Aguila, the president of Sombrero, submitted a declaration in support of the default judgment in which he stated:

"The property went from being valued at $2,769,231 ... with its large occupancy and nightclub entitlement, to being valued at $1,846,153 after the modified conditional use permit allowing for private banquet use ...."

"The difference in value is $923,078."

"[Sombrero] is seeking negligence damages against [CES] ... in the amount of $923,078, which represents the loss in value due to the modification of the conditional use permit."

IIPROCEDURAL BACKGROUND

On February 20, 2015, Sombrero filed this action against Scottsdale,¹ alleging one cause of action for breach of the insurance policy.

On May 10, 2016, Scottsdale filed a motion for summary judgment. It argued that the loss of the CUP was not a loss of use of tangible property but merely the loss of an intangible right to use property in a certain way. It also argued that property damage does not include economic loss.

In its opposition, Sombrero argued, among other things, that it lost the use of tangible property due to the revocation of the CUP. It also argued that, when an economic loss results from the loss of use of tangible property, it is covered as property damage.

On October 11, 2016, after hearing argument, the trial court granted the motion. It explained: "The underlying judgment against [CES] was set in the amount of $923,078 based on lost value after the permit was revoked. [Citation.] This amount is what Sombrero is seeking to recover from Scottsdale in this case [citation] and is described by Sombrero as economic loss [citation]. Lost value is economic loss, but economic loss is not lost use of tangible property [citation]. Accordingly, the coverage in Scottsdale’s policy for property damage does not extend to Sombrero’s economic losses caused by Scottsdale’s insureds." (Capitalization altered, punctuation added.)

On November 7, 2016, the trial court entered judgment accordingly.

IIITHE LOSS OF THE ABILITY TO USE THE PROPERTY AS A NIGHTCLUB CONSTITUTED COVERED PROPERTY DAMAGE

Sombrero contends that "[t]he loss of use of the [p]roperty by the revocation of the CUP[ ] constitutes ... ‘loss of use of tangible property that is not physically injured.’ "

A "[d]efendant[ ] [is] entitled to summary judgment only if ‘all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.’ [Citation.] To determine whether triable issues of fact do exist, we independently review the record that was before the trial court when it ruled on defendant[’s] motion. [Citations.] In so doing, we view the evidence in the light most favorable to plaintiff[ ] as the losing part[y], resolving evidentiary doubts and ambiguities in [its] favor. [Citation.]" ( Martinez v. Combs (2010) 49 Cal.4th 35, 68, 109 Cal.Rptr.3d 514, 231 P.3d 259.)

"Liability insurance obligates the insurer to indemnify the insured against third party claims covered by the policy by settling the claim or paying any judgment against the insured. [Citation.] Where judgment is obtained against an insured in an action based on bodily injury, death, or property damage, the plaintiff (now a judgment creditor) may bring an action against the insurer on the policy, subject to the policy’s terms and limitations, to recover on the judgment. [Citation.] In short, the ‘ "judgment creditor may proceed directly against any liability insurance covering the defendant, and obtain satisfaction of the judgment up to the amount of the policy limits." ’ [Citation.] Among the elements that must be proven is that ‘ "the policy covers the relief awarded in the judgment. ... " ’ [Citation.]" ( Howard v. American Nat. Fire Ins. Co. (2010) 187 Cal.App.4th 498, 512–513, 115 Cal.Rptr.3d 42.)

"An insurer’s duty of indemnification requires a determination of actual coverage under the policy. [Citation.] ... [¶] In contrast, ‘ "[a] liability insurer owes a duty to defend its insured when the claim creates any potential for indemnity. [Citation.] ...’ " ‘[T]he insurer must defend in some lawsuits where liability under the policy ultimately fails to materialize; this is one reason why it is often said that the duty to defend is broader than the duty to indemnify.’ [Citation.]" ( Advanced Network, Inc. v. Peerless Ins. Co. (2010) 190 Cal.App.4th 1054, 1060–1061, 119 Cal.Rptr.3d 17.)

Sombrero persistently argues that Scottsdale had to show that there was no potential for coverage. However, as it acknowledges (albeit in throwaway fashion), this standard applies to the duty to defend, not the duty to indemnify. " ‘[W]hile an insurer has a duty to defend suits which potentially seek covered damages, it has a duty to indemnify only where a judgment has been entered on a theory which is actually (not potentially) covered by the policy.’ [Citation.]" ( Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1120, 90 Cal.Rptr.2d 647, 988 P.2d 568.) Thus, Scottsdale only had to show that there was no actual coverage.

This does not mean that cases dealing with a duty to defend are irrelevant. If a case holds that there is no duty to defend on facts similar to those here, it necessarily follows that there is also no duty to indemnify. Contrariwise, if a case holds that there is a duty to defend, because there is a potential that the facts might turn out to be similar to the facts here, it follows that there is a duty to indemnify on these facts.

"In general, interpretation of an insurance policy is a question of law and is reviewed de novo under settled rules of contract interpretation. [Citations.]" ( Ameron Intern. Corp. v. Insurance Co. of State of Pennsylvania (2010) 50 Cal.4th 1370, 1377–1378, 118 Cal.Rptr.3d 95, 242 P.3d 1020.) " ‘Our goal in construing insurance contracts, as with contracts generally, is to give effect to the...