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