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R & R Sails, Inc v. Insurance Co. of the State of Pennsylvania

March 30, 2009


The opinion of the court was delivered by: Hon. Michael M. Anello United States District Judge


This matter comes before the Court on Defendant Insurance Company of the State of Pennsylvania's ("Defendant") Motion for Summary Judgment [Doc. No. 55]. Defendant requests an order of this Court entering summary judgment in Defendant's favor as to all claims brought by Plaintiff R&R Sails, Inc., doing business as Hobie Cat Company ("Plaintiff"). Plaintiff opposes the motion [Doc. No. 59]. Defendant filed a reply [Doc. No. 60]. For the following reasons, the Court GRANTS IN PART and DENIES IN PART Defendant's motion.


This diversity case is an insurance dispute arising out of property damage resulting from massive wildfires in Australia in December 2001. The following material facts are not in dispute.*fn1

Hobie Cat Australasia Party Ltd. ("HCAP") is an Australian corporation with its principal place of business in New South Wales, Australia. HCAP is a wholly owned subsidiary of Plaintiff, its parent corporation. Plaintiff is a Missouri corporation with its principal place of business in Oceanside, California. HCAP manufactures, distributes, and markets recreational and competitive-grade sailing boats, kayaks, catamarans, and other watercraft. HCAP receives products and materials from Plaintiff. In 2001, HCAP operated its business out of a leased property in Woolamia. Defendant insured Plaintiff under one or more insurance policies, including Policy No. EX55600240 from September 1, 2001 through September 1, 2002 ("the Policy"). The Policy provided coverage for foreign commercial property, specifically the Woolamia property. (See "Schedule of Locations," attached to the Policy, attached to the Complaint.) The Policy provided coverage for fire losses affecting buildings and contents and for resulting loss of income, business interruption, and for extra expenses caused by fire. (Complaint ¶ 6.) The Policy provided for the following schedule of limits on liability coverage: building $250,000; contents $100,000; business interruption $500,000; and extra expenses $5,000. (Id. ¶ 7.)

On December 25, 2001, wildfires destroyed the Woolamia property and most of HCAP's inventory, manufacturing equipment and supplies, on-site office equipment, and computers. The loss was reported to Defendant on December 27, 2001. Within 48 hours, Defendant's Australian adjuster, Ian McDonald contacted HCAP, visited the site briefly, and began to adjust the claim. In the first week of January 2002, HCAP rented another facility near the Woolamia property. On February 20, 2002, Plaintiff submitted a Sworn Proof of Loss Statement for the $100,000 Contents limits to Defendant. Om March 1, 2002, Defendant paid Plaintiff the Policy's $100,000 limits for Contents. Thereafter, a dispute arose between insurer and insured regarding the value of lost inventory and personal property (i.e., contents), as well as the value of Plaintiff's claim for business interruption and extra expenses. The dispute continued into 2004. In May 2004, Defendant paid Plaintiff $136,948 for the undisputed portion of the business interruption and extra expense claims; Plaintiff's demand was for the full $500,000 business interruption limits of the Policy. In September 2004, Defendant paid Plaintiff the Policy's $100,000 limits for newly acquired building and property. Plaintiff transferred the $336,948 in insurance proceeds to HCAP. The parties remained in dispute over the amount to be paid out to Plaintiff under the terms of the Policy. The instant litigation ensued.

Plaintiff brings three causes of action against Defendant for breach of contract, breach of the implied covenant of good faith and fair dealing ("bad faith"), breach of California Business and Professions Code section 17200 (unfair business practices), and declaratory relief. Plaintiff also seeks punitive damages.


Defendant moves for summary judgment in its favor as to Plaintiff's claims for breach of contract, bad faith, unfair business practices, and punitive damages. As a threshold matter, Defendant asserts that Plaintiff lacks standing to maintain this suit because it had no insurable interest in the losses sustained in the fire. As such, Defendant argues that Plaintiff's breach of contract claim fails as a matter of law, and therefore Plaintiff's dependent bad faith claim also fails. In addition, Defendant contends that Australian law applies to this case pursuant to California's choice of law rules. Because Australian law does not recognize a bad faith cause of action, Defendant argues that Plaintiff's claim fails on this basis as well. Defendant contends that Plaintiff's state law unfair business practices claim is barred by the Unfair Insurance Practices Act. Finally, Defendant argues that Plaintiff cannot meet the evidentiary burden required to survive summary judgment with respect to Plaintiff's punitive damages claim.


Pursuant to Federal Rule of Civil Procedure 56(c), a party is entitled to summary judgment "if the pleadings, 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 and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). It is beyond dispute that "[t]he moving party bears the initial burden to demonstrate the absence of any genuine issue of material fact." Horphag Research Ltd. v. Garcia, 475 F.3d 1029, 1035 (9th Cir. 2007) (citation omitted). "Once the moving party meets its initial burden, . . . the burden shifts to the nonmoving party to set forth, by affidavit or as otherwise provided in Rule 56, specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (internal quotation marks and citations omitted).

A mere scintilla of evidence is not sufficient "to defeat a properly supported motion for summary judgment; instead, the nonmoving party must introduce some 'significant probative evidence tending to support the complaint.'" Fazio v. City & County of San Francisco, 125 F.3d 1328, 1331 (9th Cir. 1997) (quoting Anderson, 477 U.S. at 249, 252). Thus, in opposing a summary judgment motion it is not enough to simply show that there is some metaphysical doubt as to the material facts. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (citations omitted). However, when assessing the record to determine whether there is a "genuine issue for trial," the court must "view the evidence in the light most favorable to the nonmoving party, drawing all reasonable inferences in h[er] favor." Horphag, 475 F.3d at 1035 (citation omitted). On a summary judgment motion, the court may not make credibility determinations; nor may it weigh conflicting evidence. See Anderson, 477 U.S. at 255. Thus, as framed by the Supreme Court, the ultimate question on a summary judgment motion is whether the evidence "presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52.


As a threshold matter, Defendant asserts that Plaintiff lacks standing to maintain this lawsuit. Defendant argues that Plaintiff, as a separate and distinct legal entity, did not have an insurable interest in the items lost by HCAP in the fire. Based on this assertion, Defendant argues that Plaintiff had no cognizable claim under the insurance policy and therefore lacks standing to sue Defendant for breach of the insurance contract, entitling Defendant to summary judgment. Plaintiff argues that because it is the entity that purchased the insurance policy, entered into the contract with Defendant, and is the sole named insured, it has standing to bring its breach of contract and related claims against Defendant. Further, Plaintiff rebuts Defendant's argument that Plaintiff did not have an insurable interest in the destroyed property. Specifically, Plaintiff argues that it lost its own products and property in the fire and therefore had a direct pecuniary interest in the lost items.

Under California law, both the parties to an insurance contract and third-party beneficiaries of the contract are entitled to enforce the contract. See Cal. Civ.Code ยง 1559 ("A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it"). Here, Plaintiff is both a named insured on the contract (and therefore a beneficiary) and it had a directly insured interest in the Woolamia property under the policy. The Foreign Commercial Property Schedule of Locations listed only the property in Woolamia as being covered under Plaintiff's foreign commercial general liability policy purchased from Defendant. The terms of the insurance contract, combined with Plaintiff's evidence of its financial control over HCAP, refute Defendant's ...

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