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Mcmillin Construction Services v. Arch Specialty Insurance Company

January 25, 2012

MCMILLIN CONSTRUCTION SERVICES,
L.P., A CALIFORNIA LIMITED PARTNERSHIP, ET AL., PLAINTIFFS,
v.
ARCH SPECIALTY INSURANCE COMPANY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hon. Dana M. SABRAWUnited States District Judge

ORDER DENYING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT [Docket No. 54]

This case comes before the Court on Defendants American International Specialty Lines Insurance Company and Lexington Insurance Company's motion for partial summary judgment. Plaintiffs filed an opposition to the motion, and Defendants filed a reply. For the reasons discussed below, the Court denies Defendants' motion.

I.

BACKGROUND

On November 17, 2010, Plaintiffs McMillin Construction Services, L.P., McMillin Management Services, L.P. and Corky McMillin Construction Services, L.P. ("Plaintiffs") filed the present case in San Diego Superior Court. Plaintiffs allege claims for declaratory relief, breach of contract and bad faith against a number of insurance companies, including Defendants American International Specialty Lines Insurance Company and Lexington Insurance Company ("Defendants"). Plaintiffs allege Defendants have a duty to defend and indemnify Plaintiffs against claims arising out of a construction defect action brought against Plaintiffs in San Diego Superior Court. That underlying action is currently stayed. Defendants removed the present case to this Court on December 16, 2010. On May 5, 2011, this Court stayed the indemnity portion of this case pending the stay of the underlying construction defect action.

With respect to the present motion, Defendant Lexington issued an insurance policy to MJB Heating & Air Conditioning, Inc. ("MJB") on or about August 16, 2003. (Defs.' Appendix of Exs. in Supp. of Mot., Ex. A.) That policy provided coverage to MJB for work it performed as a subcontractor for Plaintiff McMillin Construction Services, L.P. That policy was amended on or about August 22, 2003, to include McMillin as an Additional Insured. (Pls.' Appendix of Exs. in Supp. of Opp'n to Mot., Ex. 3.) In response to the construction defect action, Plaintiffs filed a claim under the Lexington policy, which was denied. The present case was filed thereafter.

II.

DISCUSSION Defendants move for partial summary judgment on the ground that the Lexington policy does not include a duty to defend. Absent a duty to defend, Defendants argue they cannot be held liable for breach of contract or bad faith, and they are entitled to summary judgment on Plaintiffs' declaratory judgment claim.

A. Standard of Review

Summary judgment is appropriate if there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The moving party has the initial burden of demonstrating that summary judgment is proper. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). The moving party must identify the pleadings, depositions, affidavits, or other evidence that it "believes demonstrates the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). "A material issue of fact is one that affects the outcome of the litigation and requires a trial to resolve the parties' differing versions of the truth." S.E.C. v. Seaboard Corp., 677 F.2d 1301, 1306 (9th Cir. 1982).

The burden then shifts to the opposing party to show that summary judgment is not appropriate. Celotex, 477 U.S. at 324. The opposing party's evidence is to be believed, and all justifiable inferences are to be drawn in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). However, to avoid summary judgment, the opposing party cannot rest solely on conclusory allegations. Berg v. Kincheloe, 794 F.2d 457, 459 (9th Cir. 1986). Instead, it must designate specific facts showing there is a genuine issue for trial. Id. See also Butler v. San Diego District Attorney's Office, 370 F.3d 956, 958 (9th Cir. 2004) (stating if defendant produces enough evidence to require plaintiff to go beyond pleadings, plaintiff must counter by producing evidence of his own). More than a "metaphysical doubt" is required to establish a genuine issue of material fact. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).

B. Duty to Defend

Defendants argue they have no duty to defend Plaintiffs from the underlying construction defect action according to the Lexington policy. In support of this argument, Defendants rely on two provisions of the policy. The first is the Additional Insured Endorsement, which amends Section II of the policy "to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured." (Defs.' Appendix of Exs. in Supp. of Mot., Ex. A at LEX 00165.) Next, Defendants rely on exclusions j(5) and j(6), which exclude coverage for "property damage" to:

(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ...


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