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350 W.A. LLC v. Chubb Group of Insurance

December 5, 2007

350 W.A. LLC AND HOKOJITSUGUYU COMPANY, LTD., PLAINTIFFS,
v.
CHUBB GROUP OF INSURANCE A/K/A FEDERAL INSURANCE COMPANY, DEFENDANT.



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

ORDER ON MOTIONS IN LIMINE AND OTHER MISCELLANEOUS MOTIONS

Pending before the Court are thirteen motions in limine filed by Plaintiff Hokojitsuguyu Company (Docs. # 179-191), eleven motions in limine filed by Defendant Federal Insurance Company (Docs. # 169-178, 193), Defendant's motion to strike (Doc. # 242), and two ex parte applications requesting leave to file over-length briefs (Docs. # 192, 220-3). The parties appeared at a motions in limine hearing before the Honorable William Q. Hayes on Friday, September 7, 2007. A jury trial in this matter is set to begin on February 12, 2008. (Doc. # 166).

BACKGROUND

On December 14, 2004, Plaintiffs David Blackburn (Blackburn) and Hokojitsuguyo Company (Hoko) filed this action in California State Superior Court in San Diego. See Notice of Removal (Doc. # 1). Plaintiffs asserted claims for breach of insurance contract, breach of the implied covenant of good faith and fair dealing, and other violations of state law against Defendant Federal Insurance Company (Federal). (Doc. # 1). Plaintiffs' claims concerned a building located at 350 West Ash Street in San Diego, California (the Property), and specifically water damage which the Property sustained in November and December 2002. Defendant Federal issued an insurance policy which insured the Property during November and December 2002, and the Complaint alleged that Defendant Federal improperly denied Plaintiffs' insurance claims and delayed in compensating Plaintiffs under the insurance policy in bad faith.

On December 12, 2005, Plaintiffs filed a First Amended Complaint which terminated David Blackburn as a Plaintiff, and named 350 W.A., LLC (350 W.A.) as a new Plaintiff. (Doc. # 34). The First Amended Complaint reasserted Plaintiffs claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and other miscellaneous relief. (Doc. # 34).

On January 4, 2007, and after the Court ruled on the parties' cross-motions for summary judgment (Doc. # 101), the Court set this matter for jury trial. (Doc. # 165). The only claims which remain to be tried to the jury are Plaintiff Hoko's claims for breach of insurance contract and breach of the implied covenant of good faith and fair dealing. (Doc. # 101); Revised Proposed Pretrial Order. The parties agree that 350 W.A. is no longer a party for the purposes of the jury trial.

PLAINTIFFS' MOTIONS IN LIMINE

1. Plaintiff's # 1 - Motion to Exclude Reference to and Evidence of Wrongful Eviction Action in Jacqueline Helleis, et al. v. 350 W.A., LLC, et al. (Doc. # 179)

In May 2003, Plaintiff Hoko transferred the Property to David Blackburn, and Blackburn immediately transferred the Property to 350 W.A. It is undisputed that after the Property transferred to 350 W.A., 350 W.A. evicted the commercial tenants of the building.

The California state court litigation in Jacqueline Helleis, et al. v. 350 W.A., LLC, et al. arose out of the May 2003 evictions, and involved commercial tenants' claims against 350 W.A. and David Blackburn for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) breach of the covenant of quiet enjoyment, (4) constructive eviction, (5) nuisance, and (6) declaratory relief. After a bench trial on the issues, the state trial court issued a Statement of Decision and Judgment in favor of the Plaintiffs and against 350 W.A. on the claims for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of the covenant of quiet enjoyment, and constructive eviction. The state court judge concluded that 350 W.A.'s principal owner, David Blackburn, intended to convert the Property to residential use from at least October 2002, and that 350 W.A. evicted the commercial tenants in May 2003 as a pretext so that Blackburn and 350 W.A. could renovate the building. See Defendant's Trial Ex. # 2815. The state court's findings in this respect appear in the opinion of the California Court of Appeal affirming the judgment of the state trial court. See Defendant's Trial Ex. # 3061.

This motion in limine concerns the relevance and admissibility of references and evidence of the various state court rulings and judgments in Jacqueline Helleis, et al. v. 350 W.A., LLC, et al. in the trial before this Court. Plaintiff contends that the state court rulings are inadmissible hearsay, irrelevant, and unfairly prejudicial. Plaintiff further contends that the state court rulings cannot have a preclusive effect in this litigation because the issues in the state court proceedings were not identical and not actually litigated, and because the parties in the state court litigation are different than they are here.

Defendant contends that the rulings and judgments in Jacqueline Helleis, et al. v. 350 W.A., LLC, et al. are admissible and relevant to the issue of how Defendant handled Plaintiff's insurance claim. Defendant contends that the State court rulings have preclusive effect as to certain issues, and in particular, the issue of David Blackburn's intent to convert the building to residential units.

A. Collateral Estoppel

Collateral estoppel prevents relitigation of issues of fact or law that were litigated in a prior proceeding. Robi v. The Five Platters, Inc., 838 F.2d 318, 322 (9th Cir. 1988). "In both offensive and defensive use situations the party against whom estoppel [issue preclusion] is asserted has litigated and lost in an earlier action." Id. "Collateral estoppel, like the related doctrine of res judicata, has the dual purpose of protecting litigants from the burden of relitigating an identical issue with the same party or his privy and of promoting judicial economy by preventing needless litigation." Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 (1979).

"Assuming a full and fair opportunity to litigate, . . . federal courts must accord preclusive effect to state court judgments." Marquez v. Guttierez, 51 F. Supp. 2d 1020, 1026 (E.D. Cal. 1999); see also 28 U.S.C. § 1738. State law governs the extent and elements of collateral estoppel. Valley Wood Preserving, Inc. v. Paul, 785 F.2d 751, 753 (9th Cir. 1986). In order to apply collateral estoppel in California, (1) the issue must be identical to that decided in the prior proceeding; (2) the issue must have been actually litigated in the prior proceeding; (3) the issue must have been necessarily decided in the prior proceeding; (4) the decision must have been final and on the merits; and (5) preclusion must be sought against a person who was a party or in privity with a party to the prior proceeding.

Alvarez v. May Dep't Stores, 143 Cal. App. 4th 1223, 1233 (2006). "The party asserting collateral estoppel bears the burden of establishing these requirements." Pacific Lumber v. SWRCB, 37 Cal. 4th 921, 943 (2006).

Even where the "minimal requirements" for collateral estoppel are satisfied, "the doctrine should not be applied if considerations of policy or fairness outweigh the doctrine's purposes as applied in a particular case." Bostick v. Flex Equipment Co., 147 Cal. App. 4th 80, 97 (2007). Accordingly, "[i]n deciding whether the doctrine is applicable in a particular situation a court must balance the need to limit litigation against the right of a fair adversary proceeding in which a party may fully present his case." Id.

In order for Defendant Federal to use the state court decisions to preclude Plaintiff Hoko from litigating issues, Plaintiff Hoko must have been a party or in privity with a party in the state court litigation. Alvarez, 143 Cal. App. 4th at 1233. However, Plaintiff Hoko was not a party to the state court proceedings in Jacqueline Helleis, et al. v. 350 W.A., LLC, et al., and was not in privity with Blackburn and 350 W.A. at that time with respect to that litigation. In fact, the state trial court's findings indicate a rift and difference of opinion between Plaintiff Hoko and 350 W.A. at the time of the state court litigation. After reviewing the decisions of the state trial and appellate courts in Jacqueline Helleis, et al. v. 350 W.A., LLC, et al., the Court concludes that the judgments and findings of those courts should not be afforded preclusive effect here.

The Court concludes that the decisions of the state trial and appellate courts in the matter of Jacqueline Helleis, et al. v. 350 W.A., LLC, et al., should not be afforded preclusive effect as to any issue litigated in the trial before this Court.

B. Admissibility of the State Court Decisions

In light of the Court's decision as to the preclusive effect of the state court decisions, and without determining whether the state court decisions are admissible pursuant to a hearsay exception, the Court concludes that evidence of and references to the state court rulings and judgments in Jacqueline Helleis, et al. v. 350 W.A., LLC, et al. should be excluded during trial pursuant to Federal Rule of Evidence 403. The Court concludes that any relevance that the state court rulings and judgments might have is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury. See Obrey v. Johnson, 400 F.3d 691, 698 (9th Cir. 2005).

Plaintiff's motion in limine # 1 (Doc. # 179) is GRANTED.

2. Plaintiff's # 2 - Motion to Exclude Evidence Concerning the Conversion, and Alleged Intent to Convert, the Property From Offices to Residential Condominiums (Doc. # 180)

Sometime after the November and December 2002 flood incidents, 350 W.A. converted the Property from commercial office space into residential condominiums. Plaintiff moves to exclude evidence that David Blackburn had an intent to and did convert the Property from commercial office space into residential condominiums.

Plaintiff contends that evidence of the Property's conversion and/or Blackburn's intent to convert is irrelevant to this litigation and unfairly prejudicial. Plaintiff contends that all evidence of conversion or Blackburn's intent to convert should be excluded pursuant to FED. R. EVID. 401 and 403. Defendant contends that the evidence is relevant to a number of issues which will be tried to the jury. Specifically, Defendant contends that evidence of conversion and Blackburn's intent to convert is relevant to show (1) that Blackburn and Hoko intended to defraud Defendant by submitting exaggerated claims, (2) that the November and December 2002 flood incidents did not cause new damage, (3) whether Plaintiff and Blackburn voided the insurance policy with Defendant by making false statements and representations, and (4) whether Defendant adjusted Plaintiff's claim in good faith. Defendant further contends that the evidence is relevant to explain how Defendant adjusted Plaintiff's claims under the insurance policy,

Two claims are going forward at trial: (1) Plaintiff's claim for breach of insurance contract, and (2) Plaintiff's claim for breach of the implied covenant of good faith and fair dealing. After reviewing the briefing and arguments in this case, it is evident that an important issue at trial will be Defendant's basis and rationale for adjusting the claims in the manner in which it did. Accordingly, the Court concludes that what Defendant knew about the leaks and what information it learned which assisted it in determining whether certain claims under the policy should be paid will also be relevant. The Court concludes that evidence of Blackburn's pre-existing intent to convert the Property will be relevant to explain how Defendant adjusted Plaintiff's claims under the policy. In particular, such evidence will be relevant to explain why Defendant might have been suspicious and/or delayed in adjusting claims.

While Plaintiff contends that the evidence of Blackburn's intent to convert will be prejudicial and might unduly delay the trial, the Court concludes that any threat of such prejudice and delay does not substantially outweigh the probative value of the evidence.

Plaintiff's motion in limine # 2 (Doc. # 180) is DENIED.

3. Plaintiff's # 3 - Motion to Exclude Evidence of Pre-existing Water and Mold Damage in Areas Unaffected by the November and December 2002 Flood Incidents (Doc. # 181)

The parties agree that the Property was the subject of a construction defect lawsuit which occurred before the November and December 2002 flood incidents. The parties further agree that certain parts of the Property sustained water damage prior to the November and December 2002 flood incidents.

Plaintiff's motion in limine # 3 seeks to exclude as irrelevant evidence that the Property sustained water and mold damage in areas which were unaffected by the November and December 2002 flood incidents. See FED. R. EVID. 402 & 403. Plaintiff claims that the only relevant issue with respect to Plaintiff's breach of contract claim is the extent of damage caused by the November and December 2002 flood incidents. Plaintiff concedes that it submitted damage estimates to Defendant Federal after the November and December 2002 flood incidents which included costs associated with replacement of some areas of the Property which were not affected by the November and December 2002 flood incidents. See Plaintiff's Motion in Limine # 3 (Doc. # 181) at 4-5. However, Plaintiff claims that those replacement costs were not based on those areas being damaged by water in November and December 2002, but were based on sound economics and the requirements of certain federal laws, e.g., the Americans with Disabilities Act.

Defendant contends that evidence of pre-existing water damage is relevant to show (1) depreciation of the Property, (2) that Plaintiff misrepresented pre-existing damage to the Property, and (3) that Defendant was justified in thoroughly investigating Plaintiff's claims given that Defendant had not been aware of previous water damage until after the November and December 2002 flood incidents. Defendant further contends that evidence of the pre-existing water damage is relevant to impeach Plaintiff's experts, since those experts were not informed of pre-November 2002 water damage to the Property before they assessed damage to the Property caused by the November and December 2002 flood incidents.

As noted in Defendant's opposition to this motion, it is difficult to determine where the pre-existing water damage to the Property ends and where the damage caused in November and December 2002 begins. However, after reviewing Plaintiff's moving papers, it is apparent that Plaintiff submitted at least some replacement cost estimates to Federal which included the replacement of certain parts of the Property which were not damaged by the November and December 2002 flood incidents. In light of that admission and this Court's findings below with respect to the appropriate Loss Damage Basis in this case, the Court concludes that, at a minimum, evidence of pre-existing water damage is relevant to whether the Property depreciated in value. The insurance policy at issue in this case specifically excluded from coverage payment for damages caused by wear and tear and depreciation. Furthermore, to the extent that Plaintiff submitted replacement estimates to Federal for areas which were not affected by the November and December 2002 flood incidents, but which were damaged by previous water damage, evidence of that pre-existing damage would be relevant to explain how and why Defendant adjusted Plaintiff's water damage claims under the insurance policy. The Court finds that such evidence would not be substantially outweighed the danger of unfair prejudice, undue delay, or jury confusion. See FED. R. EVID. 403.

Notwithstanding depreciation and Defendant's handling of Plaintiff's insurance claims, there is evidence that some of Plaintiff's experts were not fully aware of the Property's prior water damage and involvement in a construction defect lawsuit. See Federal's Opposition to Plaintiff's Motion in Limine # 3, Exs. I, J, M. To the extent that those experts included in their damages analyses water damage which existed before the November and December 2002 flood incidents, evidence that the water damage was pre-existing would be relevant to impeach those experts' opinions and conclusions. The Court finds that the relevance of that evidence would not be substantially outweighed the danger of unfair prejudice, undue delay, or jury confusion. See FED. R. EVID. 403.

For the above reasons, Plaintiff's motion in limine # 3 (Doc. # 181) is DENIED without prejudice.

4. Plaintiff's # 4 - Motion to Determine the Applicable Measure of Indemnity (Doc. # 182)

Pursuant to the insurance policy entered into by and between Defendant Federal and Plaintiff Hoko, Defendant agreed to insure the Property against certain loss and damage. This motion addresses whether the "Replacement Cost Basis" or the "Actual Cost Value Basis" is the proper measure of indemnity under the policy and certain undisputed facts of this case.

The insurance policy at issue here contains two alternative loss payment bases, "Replacement Cost Basis" and "Actual Cost Value Basis." The loss payment basis determines the amount of coverage to which the insured is due when the insured's property suffers damage. The "Replacement Cost Basis" provision states in relevant part:

Lost or damaged covered property will be valued at the cost to repair or replace such property at the time of loss or damage, but not more than you actually spend to repair or replace such property at the same or another location for the same use or occupancy.

There is no deduction for physical deterioration or depreciation. . . .

If you do not repair or replace the covered property, we will only pay as provided under Actual Cash Value Basis.

Notice of Lodgment of Exhibits in Support of Plaintiffs' In Limine Motions (Pl. Lodg.), Ex. B at PCY000095. The "Actual Cash Value Basis" provision states:

If the Loss Payment Basis shown in the Declarations is actual cash value, lost or damaged covered property will be valued at the cost to repair or replace such property at the time of loss or damage with material of like kind and quality, less allowance for each of the following:

- physical deterioration; - physical depreciation; - obsolescence; and - depletion.

Pl. Lodg., Ex. B at PCY000095. The parties agree that Plaintiff remodeled the Property after the flood incidents in November and December 2002, and converted the formerly commercial building into condominiums.

A. Replacement Cost Basis or Actual Cash Value Basis

Plaintiff contends that Defendant is obligated to compensate Plaintiff for the cost to repair or replace the damaged building to its pre-loss condition pursuant to the "Replacement Cost Basis." Plaintiff concedes that the insurance policy references replacement "for the same use or occupancy," however, Plaintiff contends that the policy is ambiguous because the policy later references "repair or replace" without limiting such repair or replacement to the same use or occupancy. Plaintiff contends that because the policy is ambiguous, it must be interpreted against the drafter, Defendant Federal, and must be interpreted so that the proper measure of indemnity is the "Replacement Cost Basis."

Defendant contends that the policy is clear on its face, and that the "Actual Cash Value Basis" is the proper measure of indemnity because Plaintiff chose to covert the commercial building into condominiums. Defendant contends that when the policy is read in context, the policy limits the "Replacement Cost Basis" to situations in which Plaintiff replaced or repaired the building for the same use or occupancy. Defendant contends that Plaintiff's interpretation ignores the overall policy language and established rules of contract interpretation.

"A contract of insurance must be governed and interpreted by the same rules which ordinarily apply to other contracts," Chase v. National Indem., 129 Cal. App. 2d 853, 858 (1954), and "[t]he fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties." Bank of the West v. Superior Court, 2 Cal. 4th 1254, 1264 (1992); see also Blackhawk Corporation v. Gotham Insurance Co., 54 Cal. App. 4th 1090, 1096 (1997). Where contractual language is clear and explicit, the clear language governs. Bank of the West, 2 Cal. 4th at 1264. "On the other hand, if the terms of a promise are in any respect ambiguous or uncertain, [the promise] must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it." Id. "This rule, as applied to a promise of coverage in an insurance contract, protects not the subjective beliefs of the insurer, but, rather, the objectively reasonable expectations of the insured." Id.

"A provision in an insurance contract is ambiguous if it is capable of more than one reasonable construction." Blackhawk, 54 Cal. App. 4th at 1095. "However, courts will not strain policy language to create an ambiguity or label a provision ambiguous simply by isolating phrases and considering them in the abstract." Id. Instead, "[t]he whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." Poseidon Development v. Woodland Lane Estates, 152 Cal. App. 4th 1106, 1114 (2007)."Specific provisions of a contract should not be considered in isolation." Id.

The insurance policy at issue here describes two loss payment bases, a "Replacement Cost Basis" and a "Actual Cash Value Basis." Pl. Lodg., Ex. B at PCY000095. The "Replacement Cost Basis" is the default basis, and provides that "[l]ost or damaged covered property will be valued at the cost to repair or replace such property at the time of loss or damage, but not more than you actually spend to repair or replace such property at the same or another location for the same use or occupancy." Pl. Lodg., Ex. B at PCY000095. Pursuant to this provision, when an insured collects under the "Replacement Cost Basis" provision, the insured cannot recover more than the amount actually spent to repair or replace property "for the same use or occupancy."

Aside from limiting recovery under the "repair or replace" provisions to repairs and replacements "for the same use or occupancy," the "Replacement Cost Basis" provision includes language that triggers application of the "Actual Cash Value Basis" provision. Specifically, the "Replacement Cost Basis" provision states that, "[i]f you do not repair or replace the covered property, we will only pay as provided under Actual Cash Value Basis." Pl. Lodg., Ex. B at PCY000095. Accordingly, if and when the insured does not "repair or replace" the covered property as described in paragraph three of the "Replacement Cost Basis" section of the policy, the "Actual Cash Value Basis" provision will apply.

The parties fundamentally disagree as to the proper definition of "repair or replace" as used in the third paragraph of the "Replacement Cost Basis" section of the policy. Plaintiff contends that "repair or replace" as used in paragraph three is ambiguous in light of the policy's use of "repair or replace" in the first paragraph of the "Replacement Cost Basis" section of the policy, and argues that "repair and replace" as used in the third paragraph should not be read in light of the "same use or occupancy" language which appears in paragraph one. Defendant contends that the "repair or replace" language in paragraph three of the "Replacement Cost Basis" section of the policy should be read in the context of paragraph one of that section, and notes that when read in context, the "repair or replace" language used in paragraph three is also limited to repairs and replacements "at the same or another location for the same use or occupancy."

As noted above, "the whole of a contract is to be taken together, so as to give effect to every part" of the contract. Poseidon, 152 Cal. App. 4th at 1114. When read in isolation, "repair or replace" as used in the third paragraph of the "Replacement Cost Basis" section does not appear limited in any way to "the same use or occupancy." However, "[s]pecific provisions of a contract should not be considered in isolation," Poseidon, 152 Cal. App. 4th at 1114, and when read in context, it is apparent that "repair and replace" as used in the third paragraph of the "Replacement Cost Basis" section of the policy is limited by the "same use or occupancy" language of paragraph one.

"Courts must interpret contractual language in a manner which gives force and effect to every provision, and not in a way which renders some clauses nugatory, inoperative or meaningless. Ratcliff Architects v. Vanir Constr. Management, 88 Cal. App. 4th 595, 602 (1998). Plaintiff Hoko's argument that "repair or replace" should be interpreted as not including the "same use or occupancy" limitation would render the "same use or occupancy" provision "nugatory, inoperative, or meaningless." Id. Furthermore, when read as a whole, the "Replacement Cost Basis" provisions limit replacements or repairs to the "same use or occupancy," because paragraph one's detailed description of "repair or replace" defines "repair or replace" as being limited to "the same use or occupancy."

"Although the contract could have been more artfully written," the Court concludes that the insurance policy provisions at issue here are "not ambiguous," as recovery under the "Replacement Cost Basis" provision is limited to situations where the insured repaired or replaced the covered property for the same use or occupancy. Ratcliff, 88 Cal. App. 4th at 603. Plaintiff Hoko admits that the replacement costs were not spent "for the same use or occupancy." See Plaintiff's Response to Defendant's Motion in Limine # 5 at 3. Accordingly, under the undisputed facts of this case, the Court concludes that the "Actual Cash Value Basis" provision applies.

B. The Burden of Proof under the "Actual Cash Value Basis" Provision

Pursuant to the "Actual Cash Value Basis" provision of the insurance policy, If the Loss Payment Basis shown in the Declarations is actual cash value, lost or damaged covered property will be valued at the cost to repair or replace such property at the time of loss or damage with material of like kind and quality, less allowance for each of the following:

- physical deterioration;

- physical depreciation;

- obsolescence; and

- depletion.

Pl. Lodg., Ex. B at PCY000095.

Plaintiff contends that Defendant has the burden to prove any amount of physical deterioration, depreciation, obsolescence, or depletion. Specifically, Plaintiff contends that the "Actual Cash Value Basis" operates as a policy exclusion, and the burden to prove policy exclusions is on the insurer. Defendant contends that it is Plaintiff's burden to prove physical deterioration, depreciation, obsolescence, or depletion. Defendant contends that (1) case law places the burden on the insured to prove actual cash value, (2) the "Actual Cash Value Basis" provision is not an exclusion but an alternative grant of coverage, and (3) the burden should be placed on the Plaintiff because Plaintiff, not Defendant, is in the sole position to identify depreciation, deterioration, obsolescence, and depletion.

"The burden is on an insured to establish that the occurrence forming the basis of its claim is within the basic scope of insurance coverage." Aydin Corp. v. First State Ins. Co., 18 Cal. 4th 1183, 1188 (1995). "[O]nce an insured has made this showing, the burden is on the insurer to prove the claim is specifically excluded." Id.

Both parties cite the California Court of Appeal decision in Community Assisting Recovery, Inc. v. Aegis Security Ins. Co., 92 Cal. App. 4th 886, 894 (2001), to support their arguments, and each notes that the case concluded that the burden of establishing actual cash value is on the insured. Plaintiff contends, however, that the case is distinguishable on the grounds that the contract at issue in Aegis was a standard form policy which explicitly placed the burden of establishing actual cash value on the insured. Defendant contends that the case is not distinguishable on those grounds and is in fact on point. After reviewing Aegis, the Court concludes that the case is factually distinguishable on the grounds that a specific standard form policy was at issue. However, the Court finds that the case is nevertheless persuasive as to the burden. Indeed, the California Court of Appeal later cited Aegis in a context other than a standard form policy, and held that "[t]he burden was on [the insured] to establish the actual cash value at the time of the loss." See Caro v. State Farm Ins. Co., 2d Civil No. B179019, 2005 WL 3216275,, * 4 (Dec. 1, 2005).

Notwithstanding the case law, Plaintiff argues that the depreciation and depletion provisions in the "Actual Cash Value Basis" section of the policy operate as exclusions, which Defendant has the burden to prove. However, not all limiting language operates as an exclusion, and the depreciation and depletion provisions here do not appear in the exclusions section of the policy. See FMC Corp. v. Plaisted, 61 Cal. App. 4th 1132, 1159 (1998), citing Queen City Farms v. Central Nat. Ins. Co., 882 P.2d 703, 715 (1994) ("The argument that any limitation on coverage is exclusionary in nature and should be treated as an exclusion is plainly wrong."). As noted in FMC Corp. and Queen City, it is worth considering that "the burden of proof should be on the insured because the insured is likely to be in possession of or have greater access to whatever information exists about its expectations or intentions." FMC Corp., 61 Cal. App. 4th at 1159; Queen City, 882 P.2d at 716. Defendant highlights this point by noting that Plaintiff is in a better position than Defendant to know the amounts of depreciation and depletion in this case, and cites United States v. 194 Quaker Farms Rd., 85 F.3d 995, 990 (2d Cir. 1996), for the proposition that "[b]urden-shifting where one party has superior access to evidence on a particular issue is a common feature of our law."

After reviewing the case law, the parties briefs, and the policy arguments, the Court concludes that the burden of establishing actual cash value, and in turn depreciation and depletion, falls on the Plaintiff as the insured under the facts of this case.

Plaintiff's Motion in Limine # 4 (Doc. # 182) is DENIED.

5. Plaintiff's # 5 - Motion to Exclude Evidence Consisting of Attorney-Client Communications (Doc.# 183)

As discovery progressed in this case, Plaintiff disclosed several documents to Defendant which Plaintiff later asked Defendant to return on the grounds that they embodied protected attorney-client communications. Among others, Plaintiff sought return of (1) a September 11, 2003 letter from Joseph Oliva, Plaintiff's previous lawyer, to 350 W.A.'s principal, David Blackburn [Tr. Ex. 2602], (2) a document entitled "350 W.A. Action Plan" [Tr. Ex. 2393], and (3) an October 23, 2003 correspondence from David Blackburn to attorney Mike Duckor [Tr. Ex. 2637]. After Defendant refused to return the documents, the matter went before Magistrate Judge Bencivengo. After arguments and briefing, Magistrate Judge Bencivengo ruled that Plaintiff waived any claim to privilege with respect to the three documents.

Notwithstanding the waiver of privilege, Plaintiff contends that Trial Exhibits 2602, 2393, and 2637 contain irrelevant information which is highly prejudicial to Plaintiff's case. Plaintiff contends that all three exhibits should be excluded pursuant to FED. R. EVID. 402 and 403, and as improper hearsay. Defendant contends that all three exhibits are relevant, are not improper hearsay, and are not unfairly prejudicial pursuant to FED. R. EVID. 403.

A. The September 11, 2003 Letter [Tr. Ex. 2602]

The September 11, 2003, letter from Joseph Oliva to David Blackburn generally concerns the applicable loss payment basis under the insurance policy and how the loss payment basis provisions should be interpreted in light of California law. The letter also contains a statement regarding an intent to convert the property into residential condominiums. Plaintiff contends that the statement regarding an intent to convert is irrelevant, and that the document is unfairly prejudicial because a jury may view negatively a strategic discussion with respect to maximizing insurance recovery. Defendant contends that the document is not unfairly prejudicial.

After reviewing Trial Exhibit # 2602, the Court finds that the document primarily consists of Oliva's opinion and interpretation of the insurance policy, and therefore is of limited or no relevance in this case. The Court finds that any limited relevance of Trial Exhibit # 2602 is substantially outweighed by the dangers of unfair prejudice, confusion of the issues, or misleading the jury. See FED. R. EVID. 403.

Plaintiff's motion in limine # 5 is GRANTED without prejudice as to the September 11, 2003 letter [Tr. Ex. 2602]. Defendant may raise the issue again at trial if appropriate.

B. The 350 W.A. Action Plan [Tr. Ex. 2393]

Prepared by 350 W.A. LLC's former attorney Andrew Harold, the 350 W.A. Action Plan is a document which contains attorney Harold's opinions and strategy with respect to closing the sale of the Property from Plaintiff to Blackburn, and a frank discussion regarding the benefits that the threat of a bad faith action against Defendant Federal might produce. Plaintiff contends that the contents of the document are irrelevant and extremely prejudicial. Defendant contends that the document is relevant to show that Plaintiff wrongfully made claims for lost rents and tried to conceal certain facts from Defendant. ...


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