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Caso v. Hartford Casualty Insurance Co.

May 2, 2008

LAWRENCE CASO; CASO TRUST, PLAINTIFFS,
v.
HARTFORD CASUALTY INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge

MEMORANDUM AND ORDER

This matter is before the court on a motion for summary judgment, pursuant to Federal Rule of Civil Procedure 56, filed by defendant Hartford Casualty Insurance Company ("defendant" or "Hartford"). Plaintiffs Lawrence Caso ("Caso") and the Caso Trust (the "Trust") (collectively, "plaintiffs") oppose the motion. For the reasons set forth below, defendant's motion is GRANTED in part and DENIED in part.

BACKGROUND*fn1

In 1999, Caso took title to the property located at 550 Main Street in Placerville, California, as trustee for the Trust.*fn2

(DRAF ¶ 50.)*fn3 A two story commercial building (the "Building") is located on the property. (DRAF ¶ 50.) The Building is located three to five feet from a cliff extending upward for about twelve feet. (PRUF ¶ 6.) Behind the building is an exterior drain. (PRUF ¶ 18.)

On December 30, 2004, Hartford issued an insurance policy for the Building for the period of March 12, 2005, to March 12, 2006 (the "Policy"). (PRUF ¶ 1.) The policy contained a "Stretch Endorsement," which provided additional coverage for losses caused by water backing up through sewers or drains.

(DRAF ¶ 53.) For this additional coverage, Hartford charged an additional premium. (DRAF ¶ 53.)

On or about December 30, 2005, it rained heavily in Placerville. (PRUF ¶ 10.) Published data indicates a rain gauge in the area recorded 4.9 inches of rain during the twenty-four hour period ending at 9:00 a.m. on December 31, 2005, and 5.3 inches of rain for the period ending at noon. (PRUF ¶ 10.) The gauge readings indicated that at no time did the rainfall exceed .6 inches per hour. (DRAF ¶ 60.)

On December 31, 2005, Caso discovered the Building had sustained water damage. (PRUF ¶ 4.) At the time the water damage occurred, water was standing at the rear of the Building at a level of at least five inches and was above the slab foundation of the Building. (PRUF ¶ 13.) Water penetrated the Building at the rear and southeast corner. (PRUF ¶ 14.)

Caso reported the loss to Hartford on January 3, 2006. (PRUF ¶ 23.) On January 6, 2006, Hartford insurance adjuster, Ivan Yount ("Yount"), inspected the Building. (PRUF ¶ 15.) Yount reviewed the Policy, met with Caso, inspected the property, took photos, made a diagram, and made notes of what he observed. (PRUF ¶ 24.) At the time of the inspection, there was some degree of water flowing from an outlet of an exterior drain. (PRUF ¶ 15.) Hartford denied the claim for coverage on January 16, 2006. (PRUF ¶ 27.) Yount determined the cause of the loss was excluded flooding; namely, surface water from heavy rains that pooled in the three to five foot "trench" between the Building's rear wall and the nearby vertical 115-foot cliff behind the Building. (PRUF ¶ 26.)

On January 25, 2006, Hartford insurance agent Steven Shortes wrote a "Business Memo" to Yount, on behalf of plaintiffs, requesting reconsideration of the claim. (PRUF ¶ 28.) The memo indicated sump pumps had pumped water into the building. (PRUF ¶ 28.) Hartford contends claim supervisor Scott Wilson ("Wilson") reviewed the Caso file, as of February 20, 2006, and concluded the disclaimer of coverage was warranted. (PRUF ¶ 29.)*fn4

Hartford did not, however, respond to Shortes or Caso as to why the claim remained denied. (DRAF ¶ 55.)

In March 2006, a large rootball was discovered in the main drain for the exterior drainage system. (DRAF ¶ 57.) Caso contacted Shortes about the discovery. (DRAF ¶ 58.) Shortes wrote to Hartford regarding the rootball. (DRAF ¶ 58.) Hartford did not respond to the letter. (DRAF ¶ 58.)

On December 14, 2006, Caso filed suit on behalf of himself and the Trust in El Dorado County Superior Court, alleging six causes of action: (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) negligence; (4) negligent infliction of emotional distress; (5) intentional infliction of emotional distress; and (6) fraud. Plaintiffs sought damages for the repair of the water damage to the Building and alleged lost rents, as well as for expenses relating to snaking the exterior drain on December 31, 2005 and for improvements to the exterior drainage system after the subject loss. (PRUF ¶s 2, 4, 20.) On January 16, 2007, defendant removed the case to this court on the basis of diversity jurisdiction. (Notice of Removal [Docket #1], filed Jan. 16, 2007.)

On January 11, 2008, plaintiffs moved to amend the pretrial scheduling order to permit amendment of the complaint to add a cause of action for reformation of the Policy to add Caso as a named insured. (Pls.' Mot. to Modify [Docket #42], filed Jan. 11, 2008.) The court denied the motion, finding plaintiffs were not diligent in seeking amendment of the pretrial scheduling order. (Mem. & Order [Docket #53], filed Feb. 15, 2008.)

Defendant now moves for summary judgment.

STANDARD

The Federal Rules of Civil Procedure provide for summary judgment where "the pleading, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact." Fed. R. Civ. Proc. 56(c); see California v. Campbell, 138 F.3d 772, 780 (9th Cir. 1998). The evidence must be viewed in the light most favorable to the nonmoving party. See Lopez v. Smith, 203 F.3d 1122, 1131 (9th Cir. 2000) (en banc).

The moving party bears the initial burden of demonstrating the absence of a genuine issue of fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If the moving party fails to meet this burden, "the nonmoving party has no obligation to produce anything, even if the nonmoving party would have the ultimate burden of persuasion at trial. Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102-03 (9th Cir. 2000). However, if the nonmoving party has the burden of proof at trial, the moving party only needs to show "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp., 477 U.S. at 325.

Once the moving party has met its burden of proof, the nonmoving party must produce evidence on which a reasonable trier of fact could find in its favor viewing the record as a whole in light of the evidentiary burden the law places on that party. See Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir. 1995). The nonmoving party cannot simply rest on its allegations without any significant probative evidence tending to support the complaint. See Nissan Fire & Marine, 210 F.3d at 1107. Instead, through admissible evidence the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. Proc. 56(e).

ANALYSIS

A. Standing

Hartford argues Caso lacks standing to sue, in his individual capacity, because he is not a party to the insurance contract.*fn5 Although insurance policies contain special features, they are still contracts. Palmer v. Truck Ins. Exchange, 21 Cal. 4th 1109, 1115 (1999). Thus, a person "who is not a party to the contract[ual] has no standing to enforce the contract or recover extra-contract damages for wrongful withholding of benefits to the contracting party." Seretti v. Super. Nat'l Ins. Co., 71 Cal. App. 4th 920, 930 (1999) (internal quotations ommitted); see also Burns v. Cal. Fair Plan, 152 Cal. App. 4th 646, 652 (2007) ("The nature and effect of an insurance contract is to indemnify the insured against loss or damage, and not someone else who is not a party to the contract; nor has such other party any lawful claim upon the amount realized by the [in]sured under the policy.").

Caso argues he was a named insured under the Policy. Contrary to his assertion, the undisputed evidence establishes that Caso was not a named insured. Hartford issued the subject insurance policy on December 30, 2004, effective between March 12, 2005, to March 12, 2006. (Def.'s Ex. A [Docket #57-1], filed Mar. 21, 2008.) The Policy named Caso and the Trust as insureds. (Id.) However, on February 21, 2005, Hartford issued a "Policy Change" removing Caso as a named insured. (Id.) Specifically, the Policy Change stated: "This endorsement changes the policy effective on the Inception Date of the policy unless another date is indicated below: . . . Named Insured and Mailing Address: Caso Family Trust UA Dated 9-20-90 . . . ." (Id.) The Policy Change lists an effective date of March 12, 2005. (Id.) Accordingly, Caso was not a named insured under the insurance policy.

Caso contends he never requested to be removed from the Policy.*fn6 Rather, Caso asserts he only requested the word "Family" be added to the insurance policy. (Proposed First Amended Compl. ¶ 28 [Docket #42-2], filed Jan. 7, 2008.) Hartford contends Caso requested to change the named insured on the Policy from Lawrence A. Caso and the Caso Trust to "Caso Family Trust UA Dated 9-20-90." (Decl. of Ann K. Johnston ¶ 3 & Ex. A [Docket #46], filed Jan. 18, 2008.) While the parties dispute the underlying reason for the Policy Change and what specific change was requested, this dispute is irrelevant to the determination of whether Caso was a named insured under the Policy. Because Caso was not a party to the contract at the time of loss, or at any time during the effective dates of the Policy, he lacks standing to bring a claim to enforce the contract or recover extra-contractual damages.

Moreover, the parties' dispute regarding the Policy Change does not pertain to any cause of action plead in the complaint. Their dispute over the propriety of the Policy Change is relevant, if at all, to a claim by Caso, individually, for reformation and/or fraud. (See supra n. 6.) However, no such claims are plead in this case. (See Mem. & Order, filed Feb. 15, 2008 [denying leave to amend to add a reformation cause of action].)*fn7

Caso argues that even if he was not a named insured under the Policy, he was an insured under the Policy's definitions of "additional" insureds. Section C of the Policy contains the following definitions of additional insureds:

If you*fn8 are designated in the Declarations as: . . .

[a] trust, you are an insured. Your trustees are also insureds, but only with respect to their duties as trustees. Each of the following is also an insured: . . . [a]ny person (other than your 'employee'), or any ...


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