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SCOTTSDALE INSURANCE COMPANY v. OU INTERESTS

November 2, 2005.

SCOTTSDALE INSURANCE COMPANY, Plaintiff,
v.
OU INTERESTS, INC, et al, Defendants.



The opinion of the court was delivered by: VAUGHN WALKER, District Judge

ORDER

Before the court are the parties' cross motions for summary judgment. For reasons discussed herein, plaintiff Scottsdale Insurance Company's ("Scottsdale") motion for summary judgment in its favor as to defendant and counterclaimant Ou Interests, Inc ("Ou") is DENIED; Ou's motion for partial summary judgment on its counterclaim for breach of contract is GRANTED. Partial summary judgment is further GRANTED in favor of Ou on its counterclaim for breach of the implied covenant of good faith and fair dealing. Scottsdale's motion for summary judgment in its favor as to defendant and counterclaimant SOCO Limited ("SOCO") is GRANTED, and SOCO's motion for partial summary judgment on its counterclaim for breach of contract is DENIED.

I

  All facts relevant to this proceeding are undisputed. Now-defunct SOCO was a California limited partnership whose sole general partner was Ou. SOCO's business was real estate development. On August 12, 1991, Scottsdale issued a comprehensive general liability insurance policy ("CGL policy") to SOCO, naming both SOCO and Ou as insureds. Doc #28 ("Joint Stip") at 5, ¶ 13.

  The CGL policy was effective from August 12, 1991, to January 1, 1994, during which time all premiums were paid. Id. The CGL policy was governed pursuant to form L6395a, which provides in relevant part:
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
A. bodily injury or
B. property damage
to which this insurance applies, caused by an occurrence, and the company shall have the right and the duty to defend any suit against the insured seeking damages on account of bodily injury or property damage, even if the allegations in the suit are groundless, false, or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.
Id at 5-6 ¶ 14; Ex G.

  Like most insurance policies, the CGL policy enumerated several exclusions from coverage. Relevant to this proceeding is the "owned property exclusion," whereby coverage does not extend to damage "to property owned or occupied by or rented to the insured, or, except with respect to the use of elevators, to property held by the insured for sale or entrusted to the insured for storage or safekeeping." Id at 6, ¶ 14; Ex G.

  During the policy period, SOCO built and developed two buildings consisting of seventy-two residential condominium units and three commercial units (the "Post International property") located in San Francisco, California. Joint Stip at 3, ¶¶ 2, 4. At all relevant times, deeds to the Post International property were in the name of SOCO and not Ou. Id at 5, ¶ 12; Ex C. SOCO sold the first unit of the Post International property on March 11, 1994, and all remaining units were transferred from SOCO's control on or before November 11, 1996. Id ¶ 11; Ex B.

  In 2001, the homeowners association of the Post International property filed a complaint against SOCO, Ou and Group 1 (successor-in-interest to SOCO and Ou) in California state court asserting various causes of action arising from alleged construction deficiencies ("Post International litigation"). SOCO and Ou first tendered defense of the Post International litigation to Scottsdale in June 2001 after the original complaint was filed; Scottsdale denied coverage based on the owned property exclusion. On October 21, 2004, the homeowners association filed a second amended complaint. The alleged construction deficiencies include substandard drainage and concrete work, poor design and installation of plumbing and fire sprinkler systems, defects in the spa and flaws in the roofing construction. The Post International plaintiffs further allege that the construction defects have caused other physical damage to the property. On October 25, 2004, SOCO and Ou retendered defense and indemnity to Scottsdale. On November 24, 2004, Scottsdale, through its agent, once again denied coverage to SOCO on the basis of the owned property exclusion. Notwithstanding that Ou never held title to the Post International property, Scottsdale cited the owned property exclusion as grounds for denying coverage to Ou, positing that Ou had an ownership interest in the Post International property "entirely derivative of its status as general partner of [SOCO], such that the owned property exclusion is applicable to it as well." Doc #37 (Willoughby Decl), Ex P at 11.

  On January 21, 2005, Scottsdale filed this action against SOCO, Ou and Group 1 (collectively, "defendants") seeking a declaration that Scottsdale is not obligated to defend or indemnify SOCO or Ou in the Post International litigation. Doc #1. On March 11, 2005, SOCO and Ou filed counterclaims against Scottsdale for breach of contract and breach of the implied covenant of good faith and fair dealing. Doc #12. On May 16, 2005, Scottsdale agreed to defend Ou in the Post International litigation subject to a reservation of rights. Joint Stip at 6, ¶ 17.

  Before the court are the parties' motions for summary judgment. Scottsdale moves for summary judgment in its favor on the applicability of the owned property exclusion and against counterclaimants SOCO and Ou on their counterclaims for breach of contract and breach of the implied covenant of good faith and fair dealing. Doc #26. Defendants cross-move for summary judgment in their favor on the applicability of the owned property exclusion. Doc #32. Counterclaimants SOCO and OU move for partial summary judgment on their counterclaim for breach of contract. Id. II

  In reviewing a summary judgment motion, the court must determine whether genuine issues of material fact exist, resolving any doubt in favor of the party opposing the motion. "[S]ummary judgment will not lie if the dispute about a material fact is `genuine,' that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, 477 US 242, 248 (1986). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id. And the burden of establishing the absence of a genuine issue of material fact lies with the moving party. Celotex Corp v. Catrett, 477 US 317, 322-23 (1986). Summary judgment is granted only if the moving party is entitled to judgment as a matter of law. FRCP 56(c).

  The nonmoving party may not simply rely on the pleadings, however, but must produce significant probative evidence, by affidavit or as otherwise provided in FRCP 56, supporting its claim that a genuine issue of material fact exists. TW Elec Serv v. Pacific Elec Contractors Ass'n, 809 F2d 626, 630 (9th Cir 1987). The evidence presented by the nonmoving party "is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson, 477 US at 255. "[T]he judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Id at 249.

  The evidence presented by both parties must be admissible. FRCP 56(e). Conclusory, speculative testimony in affidavits and moving papers is insufficient to raise genuine issues of fact and defeat summary judgment. Thornhill Publishing Co, Inc v. GTE Corp, 594 F2d 730, 738 (9th Cir 1979). Hearsay statements in affidavits are inadmissible. Japan Telecom, Inc v. Japan Telecom America Inc, 287 F3d 866, 875 n1 (9th Cir 2004).

  Finally, summary judgment is appropriate in this instance because interpretation of an insurance policy is generally a question of law. See Tzung v. State Farm Fire & Cas Co, 873 F2d 1338, 1340-41 (9th Cir 1989); AIU Ins Co v. Superior Court, 51 Cal 3d 807, 818 (1990).

  III

  Because this is a diversity action involving interpretation of an insurance contract, California insurance law governs. See Conestoga Servs v. Executive Risk Indemnity, 312 F3d 976, 980-81 (9th Cir 2002). "A federal court applying California law must apply the law as it believes the California Supreme Court would apply it." Gravquick A/S v. Trimble Navigation Int'l Ltd, 323 F3d 1219, 1222 (9th Cir 2003). To the extent the California Supreme Court has not decided an issue presently before the court, the court must "predict how the California Supreme Court would decide the issue, using intermediate appellate court decisions, statutes, and decisions from other jurisdictions as interpretive aids." Id. Further, the court must defer to decisions of intermediate California appellate courts "unless there is convincing evidence that the California Supreme Court would decide the matter differently." California Pro-Life Council, Inc v. Getman, 323 F3d 1088, 1099 (9th Cir 2003) (citing In re Watts, 298 F3d 1077, 1082 (9th Cir 2002)). Although the court is not bound by unpublished decisions of intermediate state courts, unpublished opinions that are supported by reasoned analysis may be treated as persuasive authority. See, e.g., Employers Ins of Wausau v. Granite State Ins Co, 330 F3d 1214, 1220 n8 (9th Cir 2003) ("[W]e may consider unpublished state decisions, even though such opinions have no precedential value.").

  With these legal principles in mind, the court turns to ...


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