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