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Boardwalk Condominium Association v. Travelers Indemnity Company of Illinois

July 3, 2007


The opinion of the court was delivered by: Hayes, Judge

ORDER (Doc. # 105)

The matter before the Court is the Motion for Summary Judgment (Doc. # 105) filed by Defendant Travelers Indemnity Company of Illinois ("Travelers").


On October 21, 2000, Travelers issued a business insurance policy to Plaintiff Boardwalk Condominium Association ("Boardwalk"), No. I-680-371D2015-TIL-01 (the "policy"), providing coverage for loss to the "Boardwalk Condominium" property located at 8330-8840 Villa La Jolla Drive in San Diego County, California, for the policy period October 12, 2000 to October 12, 2001. (Fact 1.)*fn1 The parties renewed the policy for the period October 12, 2001 to October 12, 2002. (Fact 3.)

During the summer of 2001, the residents of two condominiums on the third floor of Building 8840 notified Boardwalk that their units were were seriously water damaged and contaminated with mold. (Fact 105.) On August 28, 2001, Boardwalk notified its insurance broker of the potential loss, and the broker tendered the claim to Travelers on September 28, 2001. (Facts 34-35.) Karen Blanchard, a Travelers claims adjuster, interviewed Boardwalk's property manager on October 1, 2001 (Fact 37); retained Building Analysts, a forensic architectural and engineering firm, to determine the cause of loss on October 3, 2001 (Fact 39); and visited the Boardwalk property on October 4, 2001 (Fact 40).

On December 7, 2001, Blanchard spoke with a Building Analysts representative, who stated that there was evidence of a roof leak. (Fact 107.) On December 10, 2001, Building Analysts submitted a report stating, "[b]ased solely on our observations, we have concluded that most of the stains on the ceilings and walls are caused by roof leaks." (Fact 41.) On December 12, 2001, Blanchard noted that a limitation on damage resulting from rain had been deleted from Boardwalk's policy by endorsement and concluded that the interior water damage was covered. (Facts 107-08.) On the same day, Blanchard informed the assistant to Boardwalk's property manager in a telephone call that there appeared to be coverage for the interior water damage. (Fact 109.)

On January 8, 2002, Blanchard called Boardwalk's property manager and stated that there must have been a miscommunication with her assistant, because no remediation work had begun on the property when remediation had been authorized. (Fact 112.) Blanchard advised Boardwalk that the unit owners could use their own contractors, although Blanchard needed to be "kept in the loop." (Fact 112.)

On January 11, 2002, a roofer retained by Boardwalk informed Blanchard that there were no roof leaks, but that lack of ventilation might be allowing excessive moisture to be trapped under the roof and causing the damage to the third floor units. (Fact 114.) On February 3, 2002, a forensic architect hired by Travelers identified as possible causes of loss the following sources of water intrusion: window leaks, "which can be a major contributor to mold problems in the units"; minor water intrusion around fireplaces; lack of adequate ventilation in the bathrooms; lack of outside ventilation for clothes dryers, which is "a major source of water intrusion"; and lack of roof cavity ventilation, "which can be another contributing factor toward promoting mold growth." (Facts 49, 118.)

On February 7, 2002, Blanchard, her supervisor, and a property reinspector discussed Boardwalk's claim noting that there were several possible causes of loss and that it would be difficult to apportion the resulting damage among them. (Fact 119.) They concluded that the damage caused by the leaking windows, leaks around the fireplaces, and the lack of dryer vents was covered. (Fact 119.) On February 20, 2002, after inspecting several of the units of Building 8840 with a property re-inspector and a restoration contractor, Blanchard noted all 18 third-floor units of Building 8840 would likely have damage requiring repair. (Fact 121.)

On March 1, 2002, Boardwalk sent Blanchard its estimates for the remediation and restoration of Unit 308 of Building 8840, totaling $42,800. (Fact 123.) On March 1, 2002, according to Blanchard's Claim File Notes, "a partial payment of $50,000 [was] forwarded to the insured as there is damage caused by covered causes of loss. We anticipate that these damages will exceed this partial payment, however we cannot determine this amount until our investigation is complete." (Fact 124.) Blanchard sent a letter on March 1, 2002, notifying Boardwalk of the "partial payment," reiterating a previous request for further documentation, and reserving "any rights or defenses [Travelers] may have under its policy or any applicable regulation or law." (Facts 51, 124.)

On March 4, 2002, Boardwalk's claim was transferred to Dennis Luoma, an adjuster for Travelers' "Major Cases Unit." (Fact 125.) On March 25, 2002, Luoma sent a letter to Boardwalk's property manager requesting 16 categories of documents and other information. (Fact 53.)

Receiving no response, Luoma re-sent the letter requesting the documents on May 6, 2002 and June 19, 2002. (Fact 54.) On July 2, 2002, Boardwalk's attorney sent a letter to Luoma objecting to the broad scope of documents requested by Luoma, but stating: "Nevertheless, in the spirit of cooperation, the board is willing to produce these records for your inspection and copying at a reasonable time, either on site or at the offices of their management company." (Facts 59-60; Mendoza Decl. ¶ 6, Ex. E.)*fn2 On July 31, 2002, Luoma again re-sent his previous letter to Boardwalk's property manager requesting the 16 categories of information. (Fact 54.)

On August 19, 2002, Alice Whitted, the President of Boardwalk's Board of Directors, wrote to Luoma, informing him that "[Boardwalk's] records are open to your inspection and if someone representing your office attempts to view the documentation, they will be greeted warmly." (Facts 55, 129.) On October 4, 2002, Whitted sent a letter to Luoma, informing him that Boardwalk was in a "critical" financial situation because it was unable to get a loan to pay over $300,000 owed to various vendors performing work on the damaged units, and Boardwalk had been forced to impose a special assessment on all of its homeowners. (Fact 131.) She asked him to "[p]lease consider expediting our claim immediately, or at the very least give us some relief in this critical situation." (Fact 131.) On October 7, 2002, Whitted again wrote Luoma, repeating the information in her previous letter, and noting that Boardwalk had spent over $500,000 on the remediation and restoration which had depleted its reserves. (Fact 133.) She concluded: "We would very much appreciate it if you would expedite our Claim immediately or at the very least give us some relief so work might be continued. We are in a very difficult and critical situation and need your help." (Fact 133.)

On October 8, 2002, Luoma sent a letter to Boardwalk's property manager stating that Travelers had not received the documentation Travelers had requested and Luoma enclosed copies of his previous requests for documentation. (Fact 56.) On October 9, 2002, Boardwalk's attorney sent Luoma a letter indicating that Boardwalk was "endeavoring to collect that information and provide it to you in a timely manner. However, it is our understanding that this information is not required for Travelers to determine if there is coverage for the above-referenced claims." (Fact 57.) On October 22, 2002, Luoma wrote again to Boardwalk's management company and renewed his requests for various documents. (Fact 58.) On November 15, 2002, Boardwalk's counsel wrote to Travelers' counsel, referencing the two letters from Boardwalk (i.e., the July 2, 2002 letter from Boardwalk's counsel and the August 19, 2002 letter from the President of Boardwalk's Board of Directors) inviting Travelers to review and copy the requested documents. (Facts 59, 137.) On December 13, 2002, Travelers' counsel responded to Boardwalk's counsel "reiterat[ing] the requests for information contained in Mr. Luoma's March 25, 2002 letter." (Fact 138(a).) On December 16, 2002, Boardwalk's counsel replied that "[i]f Travelers is interested in viewing the documents it has been requesting, please contact our office and we will coordinate a time." (Fact 138(b).)

On December 19, 2002, Travelers' counsel wrote to Boardwalk's counsel, "we again reiterate our request for the information contained in the March 25, 2002 letter. If the Association remains willing to provide us access to the documents . . . please advise." (Fact 139.) On December 20, 2002, Boardwalk's counsel responded that "Travelers has consistently ignored any offer to view documents and/or copy those documents at the insured[']s premises or at its manager's site. . . . If Travelers is truly interested in inspecting, examining and/or copying these documents, it should have taken the insured up on its invitation months ago." (Fact 140.) On January 3, 2003, Travelers' counsel wrote, asking if Boardwalk was now refusing to provide the requested information, and if not, to provide it as soon as possible to Luoma. (Fact 141.) On January 3, 2003, Boardwalk's counsel replied:

The insured, Boardwalk Association, now has on five (5) occasions offered the insurance company the opportunity to inspect and copy its documents, and all such invitations have been ignored by the insurance company. . . . As we informed you previously in our letters, the insured is not obligated to produce five and a half bankers' boxes full of documents, or go through them and try to guess which documents are important to the insurance company in order to prove or disprove coverage. . . . On December 16, 2002, we again wrote to your office, and to Travelers, and stated the following: 'If Travelers is interested in viewing the documents it has been requesting, please contact our office and we will coordinate a time.' Rather than respond to this invitation, by making one simple phone call, you chose to make the following disingenuous and irresponsible response: '(1) Is the insured refusing to respond to Travelers' request for information set forth in Travelers' letter of March 22, 2002? (2) Is the insured now refusing to provide Travelers with access to the documents that were ostensibly offered in its July 2, 2002 letter?' . . . . [W]hich part of 'If Travelers is interested in viewing the documents it has been requesting, please contact our office and we will coordinate a time' do you not understand? (Fact 142.) On January 13, 2003, Travelers' counsel wrote that he would coordinate the inspection and copying of Boardwalk's files at the property manager's office. (Fact 143.) On January 23, 2003, Travelers copied documents from Boardwalk's files. (Fact 61.)

In a letter dated April 8, 2003, Luoma denied Boardwalk's claim in its entirety. (Fact 62.) Luoma wrote that the claimed damage manifested prior to the inception of the first policy issued by Travelers to Boardwalk and therefore was excluded by the policies. (Fact 62.) He also listed many other exclusions in the policies, including the mold and design defect exclusions, and indicated that "to the extent the claims result from" excluded conditions, the policies did not provide coverage. (Fact 62.) Luoma further wrote: "It is also the position of Travelers that the insured failed to cooperate in our investigation of this matter, by . . . failing to respond to requests for information issued in connection with Travelers' claim investigation and by failing, until recently, to provide access to requested records and other documents for Travelers' review." (Fact 62.)

Boardwalk expended over a million dollars to repair the property damage to the third floor units of Building 8840. (Fact 78.)

On February 5, 2003, Boardwalk filed a Complaint against Travelers in the Superior Court of California for the County of San Diego, asserting three causes of action. Boardwalk contends that Travelers breached its insurance contract by, inter alia, failing to pay Boardwalk policy benefits, failing to conduct a prompt, full and complete investigation of Boardwalk's claims, failing to advise Boardwalk in a timely manner of the status of its claim, failing to respond to communications with respect to the claim and failing to affirm or deny coverage within a reasonable time. (Compl. ¶¶ 37, 42.) Boardwalk next contends that Travelers' alleged breach of the insurance contract was in bad faith and with malice, fraud or oppression, and with the intent to injure Boardwalk, thereby entitling Boardwalk to punitive damages. (Compl. ¶ 50.) Boardwalk's third cause of action is for declaratory relief, seeking a determination of coverage and the rights and duties of each of the parties. (Compl. ¶¶ 54, 57.) On March 13, 2003, Travelers removed the action to this Court. (Doc. # 1.)

On February 6, 2004, Travelers filed its first Motion for Summary Judgment (Doc. # 22), asserting that Boardwalk's claim was precluded under the "manifestation rule," and that the claim was excluded under the mold/fungus exclusion, the "acts and decisions" exclusion, and/or the design/construction defects exclusion. On August 3, 2004, the Court granted summary judgment in favor of Travelers, based exclusively on the holding that Boardwalk's claim was barred by the "manifestation rule." (Doc. # 69.) The Court did not reach the other arguments in the Motion for Summary Judgment. On June 8, 2006, the Ninth Circuit reversed this Court's grant of summary judgment, holding that the application of the "manifestation rule" was unwarranted "because there was a genuine issue of material fact regarding whether Boardwalk's 'loss [was] continuing and progressive . . . [or] was a series of discrete events.'" Boardwalk Condominium Ass'n v. Travelers Indem. Co. of Ill., 198 Fed. Appx. 599, 600, 2006 WL 2348111, *1 (9th Cir. 2006) (quoting Central Nat. Ins. Co. v. Superior Court, 2 Cal. App. 4th 926, 933-34 (1992)). The Ninth Circuit did not reach the other arguments in the Motion for Summary Judgment.

On February 27, 2007, Travelers again moved for judgment in its favor as a matter of law on the grounds that: (1) Boardwalk's claim is excluded under the mold/fungus exclusion, and/or the exclusion for loss caused by construction or design defects; (2) Boardwalk's claim that Travelers breached the implied covenant of good faith and fair dealing fails because Travelers did not deny benefits in bad faith; and (3) Boardwalk's claim for punitive damages fails because Travelers has not been guilty of "oppression, fraud or malice." After receiving evidence and briefing from the parties, the Court conducted oral argument on April 9, 2007.


Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure where the moving party demonstrates the absence of a genuine issue of material fact and entitlement to judgment as a matter of law. See Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is material when, under the governing substantive law, it could affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute over a material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

A party seeking summary judgment always bears the initial burden of establishing the absence of a genuine issue of material fact. See Celotex, 477 U.S. at 323. If the moving party satisfies its initial burden, the nonmoving party must "go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Id. at 324 (quoting Fed. R. Civ. P. 56(e)).

In ruling on a motion for summary judgment, the Court must view all inferences drawn from the underlying facts in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). "Credibility determinations [and] the weighing of evidence . . . are jury functions, not those of a ...

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