The opinion of the court was delivered by: Honorable Barry Ted Moskowitz United States District Judge
ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT
Plaintiff Legacy Partners, Inc. ("Contractor" or "Plaintiff") has filed a Motion for Partial Summary Judgment [Doc. 30]. Defendant Clarendon American Insurance Company ("Insurer" or "Defendant") has also filed a Motion for Summary Judgment or Alternatively Partial Summary Judgment [Doc. 29]. For the following reasons, the Court DENIES Plaintiff's Motion in its entirety and GRANTS Defendant's Motion in its entirety.
Virtually all of the facts of this case are undisputed. Plaintiff entered into an insurance policy with Defendant (the "Policy"). Subject to certain exclusions, the Policy insured Plaintiff against losses arising out of accidental property damage to real property.
After obtaining the Policy, Plaintiff did construction work on property owned by Wellington Group, LLC (not a party to this action). Wellington sued Plaintiff for alleged property damage arising out of Plaintiff's construction work. When Plaintiff requested from Defendant attorneys fees and coverage for the losses it incurred in defending Wellington's suit, Defendant refused coverage.
A. The Wellington Suit*fn1
In 2004, Wellington sued Plaintiff, alleging several causes of action including breach of contract, trespass, negligent and intentional interference with prospective economic advantage, inverse condemnation, nuisance and negligence (the "Wellington Suit").
Wellington owns undeveloped real property near the I-15 freeway in San Diego County, California. Plaintiff owns developed real property next to Wellington's property.
Caltrans contacted Wellington and notified Wellington of its intention to widen I-15. In order to do so, Caltrans had to access Wellington's property, which Caltrans had a right to do under a previously granted highway easement deed. As part of the widening project, Caltrans needed to have a keystone retaining wall repaired on Plaintiff's property. Although the retaining wall was on Plaintiff's property, it was directly adjacent to Wellington's property. Since Plaintiff's property was already developed, and because repairing the retaining wall would require heavy machinery and excavation, Plaintiff sought to access the retaining wall from Wellington's property.
Plaintiff asked Wellington for an easement for three purposes: (1) for ingress, egress and construction staging of the site in order to allow Legacy to avoid using its own, already developed property, (2) for easier access to repair the keystone wall, (3) to place soil anchors under the Wellington property to stabilize the soil due to the alleged existence of an ancient landslide. Wellington refused Plaintiff's request for an easement, but Caltrans granted Plaintiff an encroachment permit that would allow Plaintiff to conduct the repairs without Wellington's consent.
Wellington alleged that repairing the retaining wall was unnecessary and that its expert found that there had been no ancient landslide. Wellington believed that any repairs should have been performed solely on Plaintiff's property. Furthermore, Wellington asserted that the scope of Caltrans' easement did not encompass Plaintiff intended repairs.
Plaintiff went ahead with the repairs on the retaining wall and used Wellington's property. As a result of Plaintiff's work, Wellington alleged that Plaintiff (1) trespassed upon Wellington's property, (2) constructed subterranean tiebacks without permission, thereby preventing Wellington from making certain improvements to the land, (3) failed to exercise reasonable care in performing construction work, (4) caused damage by placing heavy equipment and materials on the Wellington property, and (5) negligently removed storm and pollution work causing erosion and other damage.
Plaintiff defended the suit, incurring about $500,000 in defense costs, and ultimately settled the Wellington Suit for $350,000. Plaintiff sought coverage for its defense costs from Defendant, but Defendant refused and claimed that the Wellington Suit was not covered under the Policy.
The Policy gives Contractor $1,000,000 in coverage per occurrence, with a retained limit of $100,000 per occurrence. Under the Policy, the Insurer agreed to "pay on behalf of the Insured that portion of the Ultimate Net Loss, in excess of the Retained Amount, which the Insured has become legally obligated to pay as damages and related Claims Expense because of . . . Property Damage . . . to which this insurance applies. (White Decl., Ex. 2 (hereinafter "Policy") § I(A)(1).)*fn2 The bolded words are all defined terms, and the definitions are set forth below.
The Court first addresses the defined terms related to litigation expenses. "The defense of claims or Suits to which this policy applies is the obligation of the Insured." (Id. at § I(B)(1).) Nevertheless, the Insurer is still responsible for some defense costs. The Insurer must pay for the Ultimate Net Loss in excess of the Retained Amount. Ultimate Net Loss is "all sums actually paid, or which the Insured is legally obligated to pay, as damages and Claims Expense in satisfaction of claims or Suits for which insurance is afforded under this policy." (Id. at § V(U).) Claims Expense means the cost of claims investigation, cost of litigation, interest on awards or judgments, or legal expenses which can be directly allocated to a specific claim. (Id. at § V(E).) And Suits are "civil proceeding[s] in which damages because of . . . Property Damage . . . to which this insurance applies are alleged." (Id. at § V(T).)
The Policy defines Property Damage as "[p]hysical injury to tangible property, including all resulting loss of use of that property, or . . . loss of use of tangible property that is not physically impaired." (Id. at § V(R).) But Insurer is not obligated to pay for any and all Property Damage. Insurer must only pay for Property Damage "caused by an Occurrence." (Id. at § I(A)(3).) And the Policy defines Occurrence as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Id. at § V(N).)
Taken together, these provisions require Insurer to pay for litigation expenses arising out of Suits alleging Property Damage, if the damage was allegedly caused by an accident.
The Policy also has certain exclusions. There are four that are potentially applicable here. The Policy does not apply to "(d) [p]roperty in the care, custody or control of the Named Insured or over which the Named Insured is for any purpose exercising physical control; (e) [t]hat particular part of real property on which the Named Insured or any contractors or subcontractors . . . are performing operations, if the Property Damage arises out of those operations; or (f) [t]hat particular part of any property that must be restored, repaired or replaced because the Named Insured's Work was incorrectly performed on it." (Policy, Alienated Premises Endorsement ("APE") at § I(C)(9)(e)--(f).) The fourth exclusion exempts "Property Damage expected or intended from the standpoint of the Insured." (Policy § I(C)(13).)
Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure if the moving party demonstrates the absence of a genuine issue of material fact and entitlement to judgment as a matter of law. 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. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). A dispute is genuine if a reasonable jury could return a verdict for the nonmoving party. Anderson, 477 U.S. at 248.
A party seeking summary judgment always bears the initial burden of establishing the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. The moving party can satisfy this burden in two ways: (1) by presenting evidence that negates an essential element of the nonmoving party's case; or (2) by demonstrating that the nonmoving party failed to establish an essential element of the nonmoving party's case on which the nonmoving party bears the burden of proving at trial. Id. at 322-23. "Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment." T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987).
Once the moving party establishes the absence of genuine issues of material fact, the burden shifts to the nonmoving party to set forth facts showing that a genuine issue of disputed fact remains. Celotex, 477 U.S. at 314. The nonmoving party cannot oppose a properly supported summary judgment motion by "rest[ing] on mere allegations or denials of his pleadings." Anderson, 477 U.S. at 256. When ruling on a summary judgment motion, the court must view all inferences drawn from the underlying facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
A. Defendant's Duty to Pay ...