noted that Safeco was consistent with California appellate authority which has held that negligent misrepresentation "falls within the rubric of fraud and not ordinary negligence." Id. The court further noted that this finding was supported by the California Civil Code which defines "fraud" to include negligent misrepresentation. Id. Accordingly, the court concluded that there was no "occurrence" as defined under the policy, and that the insurer had no duty to defend or indemnify the insured. Id.
Both American States and Safeco firmly establish that Allstate's policy does not cover the cause of action for negligent misrepresentation alleged in the underlying action. Similarly, the cause of action for negligence is not covered under the policy, as it is inextricably tied to the misrepresentations made in connection in the sale of the Longridge property. Paragraph 33 of the Matson complaint alleges that the Chaneys' were negligent in that they:
a. Failed to properly repair or maintain the subject property;
b. Failed to fully inform plaintiff of the PROPERTY CONDITIONS;
c. Failed to conduct a reasonably diligent investigation of the SUBJECT PROPERTY; and
d. Failed to complete all the work required under the contract.
See Matson Complaint, P 33(a)-(d), Glad Decl., Ex. "A." These allegations by themselves, however, do not form the basis for Matson's negligence cause of action.
The Matson complaint specifically alleges that above-referenced negligent acts arose "during the course of selling the subject property" and that "the failure to disclose these facts concerning the property was likely to mislead and in fact misled Plaintiff in light of the representations made during negotiations . . . ." See Matson Complaint, PP 33-34 (emphasis added), Glad Decl., Ex. "A." The negligence lies not in the commission of the acts by themselves, but rather, in the failure to convey them to Matson. Thus, Matson's negligence cause of action is, in essence, a claim for negligent misrepresentation.
2. The Policy Does Not Provide Coverage For the Type of Damages Sought By Matson In The Underlying Action
Even if there was an occurrence under the policy -- which there clearly was not -- the type of damages available for negligent misrepresentation and negligence are not covered under the policy. Allstate correctly points out that the policy at issue provides coverage only for bodily injury or property damages; however, Matson's recovery under her negligent misrepresentation and negligent construction, maintenance and repair causes of action is limited solely to economic damages, i.e., "benefit of the bargain" damages. This issue was thoroughly analyzed in this Court's opinion in Allstate Ins. Co. v. Miller, 743 F. Supp. 723 (N.D. Cal. 1990).
In Miller, plaintiff had purchased from the defendant-insureds a home which contained numerous defects. The plaintiff filed a lawsuit against the insureds alleging inter alia that they had negligently misrepresented and failed to disclose the home's defects. The district court granted the insurer's motion for summary judgment and ruled that the insureds' homeowners policy did not cover the insured against claims of negligent misrepresentation or negligent infliction of emotional distress. Id. at 727.
In reaching its decision, the court noted that California Civil Code section 3433 limits the recovery in real estate fraud actions to purely economic or "benefit of the bargain" damages. Id. at 726. The court also noted that under California law, "fraud" includes both intentional and negligent misrepresentation. Id. Thus, the court concluded that "the only damages recoverable for negligent misrepresentation are economic or contractual losses outside the meaning of 'property damages' under the policy." Id. (emphasis added).
The decision and analysis set forth in Miller has since been confirmed by several subsequent federal and California state court decisions. See, e.g., Safeco, 915 F.2d at 502 (citing Miller and holding that homeowner's policy did not obligate insurer to defend insured against allegations that he negligently failed to inspect the property and inform the buyer of defects in the property); American States, 92 Daily Journal D.A.R. at 3960 ("The underlying complaints for intentional and negligent misrepresentation do not constitute property damage as defined in the policies and do not give rise to the potentiality of coverage."); Warner v Fire Ins. Exch., 230 Cal. App. 3d 1029, 1034-35 (1991) (holding that underlying lawsuit which contained causes of action for fraud and negligent misrepresentation did not constitute "bodily injury" or "property damage").
Matson's primary argument in light of the clear weight of authority against her is that the Chaneys' alleged negligence and negligent misrepresentations resulted in "property damage other than economic loss," see Def.'s Opp'n at 3, and that economic loss comprises only "one element of Matson's entire claim for property damage," id. at 16-17. The Ninth Circuit, however, rejected this same argument in Safeco. There, the plaintiff in the underlying action sought damages from the insured based on the insured's failure to inspect and inform the buyer of defects in the property sold. The Court explained that the damages flowing from this conduct inured not to the physical condition of the property, but rather, to the property's value and desirability. "Although the defective condition of the property is an element of [the buyer's] claims, the defects cannot, even when interpreting the policy broadly, be considered the cause of [the buyer's] damages." Accordingly, the court concluded that the misrepresentations were not an occurrence within the meaning of the policy.
Nonetheless, even if the damages sought by Matson amount to "property damage" as opposed to "economic loss," such damages are specifically excluded under the policy. The pertinent provisions of the policy state that liability coverage does not apply to "property damage to property owned by an insured" or "property damage to property rented to, occupied by or in the care of an insured . . . ." See Homeowner's Policy, Section II at 24-25 (emphasis added), Burke Decl., Ex. "A." Courts have construed this "owned property" exclusion to exclude from coverage any damages sustained outside the relevant policy period. E.g. State Farm Fire and Casualty Co. v. Neumann, 698 F. Supp. 195, 196 (N.D. Cal. 1988) (ruling in a real estate misrepresentation case that the "owned property" exclusion excluded from coverage any damage to property while owned by the insured). Id. at 698.
Here, it is undisputed that the Chaneys owned the property until the close of escrow on May 21, 1991. The property was "occupied, used by or in the care of" the Chaneys until they vacated the property on May 24, 1990 -- the day before Matson took possession. See Matson Decl., P 4. Since any of the "property damage" alleged by Matson necessarily had to have occurred prior to the date Matson came into possession of the premises, the Court finds that the policy excludes coverage for such damage.
Matson maintains that the "owned property" exclusion contained in the policy is ambiguous, and therefore, inapplicable to the instant case. Citing Fireman's Fund Ins. Co. v. Ex-Cell-O Corp., 685 F. Supp. 621, 625 (E.D. Mich. 1987), Matson insists that the "owned property" exclusion does not apply to the environmental claim alleged in the underlying action.
The district court in Fireman's Fund ruled, in the context of a large environmental clean-up action, that the owned property exclusion does not apply where adjoining property damage was incurred. Id. at 625. In the present action, there is no indication that Matson or any other party is seeking recovery from the Chaneys for groundwater contamination. Accordingly, Matson's argument is without merit. See Western World Ins. Co. v. Dana, 765 F. Supp. 1011, 1014 (E.D. Cal. 1991) ("Insurance is not available until property damage has occurred which is covered by the policy.").
C. Defendant Matson's Request For Stay
Matson argues that summary judgment at this juncture is premature given that the underlying action is currently pending. This Court in Canyon Creek, however, recently rejected an identical argument:
Defendants argue that to decide the pending summary judgment motions, it will be necessary to finally adjudicate the existence of liability on the part of the insured. This is simply not true. To decide whether coverage exists under the applicable policies, the Court merely must determine whether the allegations in the complaints in the state court actions, even if accepted as true, give rise to coverage under the polices at issue. In ruling one way or another on the issue, the Court is in no way reaching the merits of the underlying complaints. For this reason, the Court sees no compelling argument why it should dismiss or stay the action.
Id. at 3959 (emphasis added). Other recent decisions by this Court have reached this same conclusion. State Farm Fire & Cas. Co. v. Thomas, 756 F. Supp. 440, 442 (N.D. Cal. 1991) ("Under California law, insurance companies have the right to determine their obligations to their insured prior to a judgment against the insureds."); Miller, 743 F. Supp. at 725 (rejecting the argument "that an insurer cannot obtain declaratory relief before the underlying action comes to a final adjudication.").
Accordingly, there is no reason to delay a determination of the coverage in the present case.
Controlling case authorities clearly indicate that none of the claims asserted against the Chaneys in the underlying Matson action are covered by Allstate insurance policy no. 034116447. Thus, as a matter of law, the Court finds that Allstate has no duty to defend or indemnify the Chaneys in that action. Accordingly,
IT IS HEREBY ORDERED that Allstate's motion for summary judgment is GRANTED and that judgment be entered in favor of Allstate.
IT IS SO ORDERED.
DATE: May 29, 1992
SAUNDRA BROWN ARMSTRONG
United States District Judge