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Riverbank Holding Company, LLC v. New Hampshire Insurance Company

June 6, 2012



Plaintiff Riverbank Holding Company, LLC ("Riverbank") brought this action against defendant New Hampshire Insurance Company ("NHIC") arising out of defendant's alleged breach of an insurance policy that it issued to Riverbank. Presently before the court is defendant's partial motion for summary judgment pursuant to Federal Rule of Civil Procedure 56 and plaintiff's partial motion for summary judgment as to its breach of contract claim.

I. Relevant Facts

Riverbank is the owner of real property in Sacramento, California, known as Riverbank Marina ("the Marina property"). (Wengel Decl. Ex. 1 ("Policy") at 40000371 (Docket No. 13-3).) From April 16, 2003, to April 16, 2011, Riverbank held commercial liability insurance with NHIC that covered this property ("the policy"). (Id.; id. Ex. 4 ("Pearl Cross Compl.").)

The policy provides that NHIC will "pay those sums that the insured becomes legally obligated to pay as damages because of . . . 'property damage' to which this insurance applies. We will have the right and duty to defend the insured against any 'suit' seeking those damages." (Policy at 40000464.) Property damage is defined as "[p]hysical injury to tangible property" or "[l]oss of use of tangible property that is not physically injured." (Id. at 40000477-78.)

Riverbank began leasing the Marina property to Borman, Inc. ("Borman") in 2004, which operated a restaurant on the premises. (Pearl Cross Compl. ¶ 7.) Under the lease agreement, Riverbank agreed to maintain and repair the structure of the building. (Id. ¶ 9.) In 2008, Borman sold its business to Pearl On The River ("Pearl"). (Id. ¶ 17.) The sale included all of the restaurant's assets, including tenant improvements and restaurant equipment, and was contingent upon an assignment of the lease, which occurred. (Id. ¶¶ 11-12.)

Upon taking possession of the Marina property, Pearl began various improvements. (Id. ¶¶ 16-23.) In the course of this work, it discovered damage to the property, including dry rot, which Pearl repaired at its own expense. (Id.) When Pearl demanded that Riverbank reimburse the costs associated with the repairs, Riverbank refused. (Id. ¶ 47.)

Conflict developed between Riverbank, Pearl, and Borman arising from the damage to the Marina property, and Riverbank filed suit against the two leasees in 2009 ("the underlying litigation"). (Liberatore Decl. Ex. 2 ("Riverbank First Am. Compl.") (Docket No. 18).) Both defendants filed cross complaints against Riverbank.*fn1 (Id. Ex. 3 ("Borman Cross Compl."); Pearl Cross Compl.) In February of 2010, Borman filed a cross complaint asserting a claim for breach of contract. (Borman Cross Compl.) In December of 2010, Pearl filed a cross complaint alleging causes of action for negligence, breach of contract, fraudulent concealment/failure to disclose, negligent misrepresentation, unjust enrichment, breach of the implied covenant of good faith and fair dealing, and recision. (Pearl Cross Compl.)

The Pearl cross complaint alleged in part that Riverbank failed to disclose the "dry-rot damage to the structural features of [the Marina property] . . . , water intrusion, negligent design and construction resulting in damage to various structural systems in the building, negligent repairs that had been performed to the structure . . . , negligent maintenance, care and repairs to the common areas . . . , and negligent maintenance and care resulting in defective conditions not obvious through a reasonable level of observation." (Pearl Cross Compl. ¶ 16.) The Pearl cross complaint further alleged that the defective conditions of the Marina property caused Pearl to incur costs "in the form of structural and other repairs," and that Riverbank's negligence caused damage "from water intrusion and corrosion" and caused Pearl to sustain damages "including but not limited to structural repairs." (Id. ¶¶ 22, 29.) The cross complaint did not specify what these "other damages" distinct from the structural damages to Riverbank's building were.

In addition to the costs of repairs, Pearl also alleged that the structural damage to the Marina property caused Pearl to delay tenant improvements and the opening of its restaurant and "to suffer delay damages resulting from the duration of the structural repairs." (Id. ¶ 56.)

In a December 2010 letter, Riverbank tendered its defense of the Pearl cross complaint to its insurance agent. (Wengel Decl. ¶ 5, Ex. 3.) A copy of the Pearl cross complaint was enclosed with the letter. (Id.) York Risk Services Group ("York"), on behalf of NHIC, responded approximately one week later, acknowledging receipt and indicating that it would undertake an investigation into whether coverage existed for Riverbank's claim. (Id. Ex. 4.) NHIC further indicated that the investigation was being undertaken with a reservation of its rights and that it would not retain counsel to defend Riverbank at that time. (Id.)

There was no further communication between the parties until May 2011, when Riverbank sent a letter to NHIC in which it again tendered defense of the Pearl cross complaint. (Id. ¶ 7, Ex. 5.) In that letter, Riverbank also tendered defense of the Borman cross complaint. (Id.) NHIC states that it never received the May 2011 letter, but is willing to proceed for the purposes of these motions only as if it had. (Mem. of P. & A. in Supp. of Def.'s Mot. for Summ. J. at 1, n.1 (Docket No. 15).) Riverbank never received a reply to this letter. (Wengel Decl. Ex. 7.)

That same month, an internal NHIC Claim Management Review discussing Riverbank's claim reported that "[b]ecause of the coverage issues, we have not investigated this claim, so we [sic] no information on whether insured is liable" and "we are not investigating this claim." (Id. Ex. 6 at 1000210.)

Riverbank made a third tender demand in June of 2011. (Id. Ex. 7.) In its letter, Riverbank clarified that among the damages arising out of the harm attributable to the water intrusion and corrosion caused by Riverbank's negligence were "costs of repairing . . . tenant improvements at the site in questions [sic]." (Id. at 2.) NHIC responded to this letter the following month, and notified Riverbank that it was "still reviewing the coverage" and that it "expected a decision shortly." (Id. Ex. 9.)

The parties to the underlying litigation held an unsuccessful mediation in July, of which NHIC was informed but did not attend. (Id. Ex. 8, Ex. 10 No. 24 at 9.) In an update sent to NHIC following the mediation, Riverbank's counsel informed NHIC that the parties were continuing to mediate and that Pearl was claiming loss of use of tangible property, including tenant improvements, restaurant equipment, and furnishings. (Id. Ex. 11 at 1.)

In August 2011, the parties to the underlying litigation entered into a settlement agreement. (Id. ¶¶ 28-29.) Several days after the agreement was entered into, York on behalf of NHIC notified Riverbank that it had concluded that there was no coverage for the cross complaints filed against Riverbank. (Id. Ex. 13.) There is no evidence that NHIC did more than consider the cross complaints, language of the policy, and perhaps the terms of the purchase agreement and lease assignment entered into by Riverbank, Pearl, and Borman in its investigation of the claims made against Riverbank. (See id. Exs. 6, 12.)

Riverbank filed suit against NHIC claiming breach of contract on the basis of NHIC's failure to defend and failure to indemnify both the Pearl and Borman cross complaints and breach of the implied covenant of good faith and fair dealing. (Riverbank First Am. Compl.) The complaint included a request for punitive damages. Now, Riverbank has moved for partial summary judgment as to its claim that NHIC breached its duty to defend with regard to the Pearl cross complaint. (Docket No. 13.) NHIC has moved for partial summary judgment as to Riverbank's claims that NHIC breached its duty to defend with regard to both cross complaints and that NHIC breached the implied covenant of good faith and fair dealing. (Docket No. 21.) NHIC also seeks summary judgment as to Riverbank's request for punitive damages.

II. Evidentiary Objections "A party may object that the material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence." Fed. R. Civ. P. 56(c)(2). "[T]o survive summary judgment, a party does not necessarily have to produce evidence in a form that would be admissible at trial, as long as the party satisfies the requirements of Federal Rules of Civil Procedure 56." Fraser v. Goodale, 342 F.3d 1032, 1036-37 (9th Cir. 2003) (quoting Block v. City of Los Angeles, 253 F.3d 410, 418-19 (9th Cir. 2001)) (internal quotation marks omitted). Even if the non-moving party's evidence is presented in a form that is currently inadmissible, such evidence may be evaluated on a motion for summary judgment so long as the moving party's objections could be cured at trial. See Burch v. Regents of the Univ. of Cal., 433 F. Supp. 2d 1110, 1119-20 (E.D. Cal. 2006).

Riverbank has filed six evidentiary objections. (Docket No. 26-3.) Riverbank objects to portions of NHIC's counsel's declaration on the grounds of hearsay, lack of personal knowledge, improper argument, and improper conclusion. It also objects to exhibit five attached to the declaration on the grounds that it is hearsay and not authenticated.

Initially, the court notes that, with respect to Riverbank's objections on the grounds of improper argument and improper conclusion, "statements in declarations based on speculation or improper legal conclusions, or argumentative statements, are not facts and . . . will not be considered on a motion for summary judgment. Objections on any of these grounds are simply superfluous" in the context of a motion for summary judgment. Burch, 433 F. Supp. 2d at 1119.

Because the court does not rely on any of the evidence objected to by Riverbank, its remaining ...

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