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January 24, 2003


The opinion of the court was delivered by: JAMES LARSON, United States Magistrate Judge

SUMMARY JUDGMENT ORDER Docket Numbers 97-1, 97-2
The parties' cross-motions for summary judgment pursuant to Rule 56, Federal Rules of Civil Procedure, came on for hearing on September 4, 2002. Appearing for Plaintiff Republic Western Insurance Co. was James J. Braze, GORDON & REES. Appearing for Defendant and counter claimant Donald Karr was Brian Soriano and Lee S. Harris, GOLDSTEIN, GELLMAN, MELBOSTAD, GIBSON & HARRIS LLP. Appearing for Defendant and counter claimant Fireman's Fund was Asim Desai and Donald Peterson, CARLSON, CALLADINE & PETERSON LLP. The court heard oral argument and took the matter under submission. Having fully considered the briefing and arguments of counsel, the court grants summary judgment for Plaintiff as to all issues.


  This court has jurisdiction under 28 U.S.C. § 2201 and 28 U.S.C. § 636(c).*fn1

[241 F. Supp.2d 1092]

      This is a declaratory relief action by Plaintiff Republic Western Insurance Co. ("Republic Western"), which issued a personal umbrella policy*fn2 to Defendant and Counterclaimant Donald Karr ("Karr"). Defendant and Counter claimant Fireman's Fund Insurance Co. ("Fireman's Fund") issued a primary liability policy to Karr. The Fireman's Fund policy provided coverage for bodily injury, property damage and personal injury caused by an occurrence arising from personal activities. (Karr Decl. in Support of Opposition at 1:24-2:2) The Republic Western policy was a commercial umbrella liability policy with a personal umbrella liability endorsement. (Karr Decl. in Support of Opposition at 2:7-11)

  Karr in his counterclaim seeks $2,000,000 in extra-contractual damages for bad faith on the part of his insurers. Fireman's Fund has already paid to Karr the $200,000 he claims to have expended on his legal defense against the Mora lawsuit. The district court (Hon. Claudia Wilken) has previously ruled that California law applies to this case.

  The underlying lawsuit arose when Karr began building a house in a subdivision in Palm Beach, Florida.*fn3 At first his new neighbor, Abraham Mora, agreed to allow him to exceed the limits in the covenants and restrictions governing the subdivision, for example, to build a three-car garage. However, Mr. Mora changed his mind. The reason, he claimed, was that trucks belonging to Karr's contractor parked on his seawall and damaged parts of it, that a wall Karr built re-directed drainage into the same seawall and potentially undermined it, that Karr's contractors deliberately cut tree roots and limbs on Mora's property and that of another neighbor, that the vibration from the trucks broke the water main into his house and that Mora's two year old daughter suffered rashes and respiratory problems from the construction dust.

  On May 1, 1996 Mora filed a Complaint for Declaratory Judgment against Karr in the Circuit Court of Palm Beach, Florida, that certain deed restrictions on Karr's property were valid. The complaint did not seek damages. Karr claims that his letter to his insurers described Mora's claims for property damage and personal injury and that both insurers declined to defend him in the Mora matter. (Karr Decl in Support of Opposition at 3:4-9). The case was tried to a jury in November 1998 and resulted in a verdict against Karr in the amount of $7,000. Trial of equitable defenses raised by Karr was set for June 1999. The action was settled for mutual releases in late 1998 or early 1999. (Complaint at 11:18-22) Karr then sued his insurers for his defense costs, which were between $165,000 and $200,000.

  In June 1996 either Karr cancelled or Republic Western did not renew the umbrella coverage. (Ex. 1 to Soriano Decl.)

  A letter from Republic Western to Karr dated November 10, 1997, denies coverage because of a "Designated Premises Limitation" that coverage for liability extends

[241 F. Supp.2d 1093]

      only to his business in San Francisco,*fn4 not to his new house in Florida. (Ex. 1 to Soriano Decl. in Support of Opposition, letter to Karr from Martha W. Hart).The Republic Western policy also had a business limitation clause, under which coverage counsel for Republic Western found coverage under the policy to be excluded for the injuries alleged by Mr. Mora. (Ex. 1 to Soriano Decl. in Support of Opposition). However, coverage counsel also found that this exclusion was cancelled by the personal umbrella coverage provided by the policy. Counsel was of the opinion that neither insurer would have a duty to defend under Florida law but that Fireman's Fund would have a duty under California law.

  Fireman's Fund, relying on the original complaint in the Mora-Karr lawsuit, believed it to be for breach of contract, which was not covered under the policy. Mora's Fifth Amended Complaint, however, included claims for loss of enjoyment and damage to the health of Mr. Mora's young child. Both types of claims were covered under the policy. Fireman's Fund acknowledged its coverage at the settlement conference before this court at a time when the case was still assigned to Judge Wilken for trial. Fireman's Fund paid Mr. Karr $198,000 to cover his attorney's fees for the defense against Mr. Mora's lawsuit. Now Fireman's Fund seeks to be reimbursed by Republic Western. Republic Western filed this declaratory relief action that it owed nothing to either Karr or Fireman's Fund.

  The complaint seeks relief as follows:
Count 1) For a declaration as to whether California or Florida law applies. Republic Western contends that Judge Wilken's ruling that California law applies in effect grants it summary judgment on this count. Fireman's Fund contends that her ruling means only that California law applies to this dispute, and does not mean that Republic Western has no duties as set forth in the first and second causes of action.
Count 2) If Florida law applies, for a declaration that the Republic Western policy is not applicable. If Florida law applied, then the allegations of Mr. Mora, whose suit against Karr set this whole dispute in motion, would not have triggered a duty to defend by Fireman's Fund. Under Florida law, only the allegations of the complaint determine a duty to defend. Mr. Mora's complaint was a declaratory relief action that Karr's home construction violated the covenants and restrictions of their subdivision. He also raised issues of property damage and personal injury, claiming damage to his home from Karr's construction project and injury to his two year old daughter's health caused by construction dust. Under California law, these allegations trigger a duty to defend, even though they were outside the complaint.
Count 3) If California law applies, for a declaration that the Republic Western policy is not applicable. This is the core issue. Republic Western claims that its duty to defend is only triggered when primary coverage is denied or exhausted, and that neither occurred in this case. Fireman's Fund claims that Karr withdrew his claim on its policy.
  Federal Rule of Civil Procedure 56 states that a moving party is entitled to summary judgment as a matter of law where there is no genuine issue of material fact. A court should consider a material fact, one which may affect the outcome of a case, to be in dispute where there is sufficient

[241 F. Supp.2d 1094]

      evidence for a reasonable jury to return a verdict for the party opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court also noted that "there is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Id. at 249. The nonmoving party has the burden of producing operative facts, and the "mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which a jury could reasonably find for the plaintiff." Id. at 252. If operative facts are not presented, summary judgment is appropriate.

  The moving party has the initial burden to demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett Corp., 477 U.S. 317, 323 (1986). Once the moving party has met its burden under Rule 56(c), the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Industrial Co., Ltd. V. Zenith Radio Corp., 475 U.S. 574, 586 (1986). However, any inferences from the underlying facts must be viewed in the light most favorable to the party opposing the motion. Id. at 587.

  Rule 56(c) requires that summary judgment "shall be rendered forthwith" if there is "no genuine issue as to any material fact" and the moving party is entitled to judgment as a matter of law. The Celotex Court also stated that "[o]ne of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses," Id. at 323-24, and that the summary judgment procedure should not be regarded as a "disfavored procedural shortcut" but should be viewed as "an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.' " Id. at 327.

[Judges are not] required to submit a question to a jury merely because some evidence has been introduced by the party having the burden of proof, unless the evidence be of such a character that it would warrant the jury in finding a verdict in favor of that party.
Anderson, 477 U.S. at 251, quoting Improvement Co. v. Munson, 14 Wall. 432, 448 (1872).

  Karr contends that there is ambiguity in the language of the Republic Western policy which would make its coverage primary if the insured did nothing to violate the primary policy and the insurer denied coverage. This is an overenthusiastic interpretation of the Republic Western policy language. Karr contends that the language is ambiguous and should be construed ...

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