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El Cajon Luxury Cars, Inc. Dba Bob Baker Lexus, A California Corporation v. Tokio Marine & Nichido Fire Insurance Co.


September 10, 2012


The opinion of the court was delivered by: Honorable Janis L. SammartinoUnited States District Judge


Presently before the Court is Defendant Tokio Marine and Nichido Fire Insurance Co., Ltd.'s ("Defendant" or "Tokio Marine") Motion to Dismiss Second Amended Complaint. (MTD, ECF No. 26) Also before the Court are Plaintiff El Cajon Luxury Cars, Inc., dba Bob Baker Lexus's ("Plaintiff" or "Bob Baker Lexus") response in opposition, (Resp. in Opp'n, ECF No. 17), and Defendant's reply, (Reply in Supp., ECF No. 18). The hearing set for the motion on June 7, 2012, was vacated, and the matter taken under submission on the papers. Having considered the parties' arguments and the law, the Court DENIES Defendant's motion to dismiss.

This Order incorporates the factual and procedural history as set forth in this Court's prior Orders dismissing Plaintiff's complaint, (Order, Nov. 8, 2011, at 1--2, ECF No. 13), and first amended complaint ("FAC"), (Order, Mar. 6, 2012, at 1--2, ECF No. 22). After granting Defendant's motion to dismiss a second time, the Court allowed Plaintiff one final opportunity to amend its complaint in light of a theory of liability raised for the first time at oral argument-namely, that Bob Baker Lexus had notice of a dangerous problem with the subject vehicle, and yet negligently rented the vehicle to another customer. (Order, Mar. 6, 2012, at 8, ECF No. 22) And so, Plaintiff filed its Second Amended Complaint ("SAC") on March 20, 2012, (SAC, ECF No. 23), and the instant motion to dismiss soon followed, (MTD, ECF No. 26).

The Court has twice held that the claim for negligent "maintenance, care and servicing" of the subject vehicle asserted in the underlying action is unambiguously within the scope of the Tokio Marine insurance policy, but that the Completed Operations exclusion applies to exclude coverage over that claim. The Court does not disturb that holding here. Instead, the Court focuses on whether some other theory of liability-one that has not yet been alleged in the underlying action but that conceivably could be alleged*fn1 -is covered by the insurance policy.

Plaintiff's SAC mirrors the FAC, but adds allegations pertaining to this alternative theory of liability. Specifically, Bob Baker Lexus alleges that a prior renter experienced an unintended acceleration event in the subject vehicle and alerted a receptionist about the problem upon returning the vehicle, but the receptionist failed to properly document the complaint. As a result, the car remained in the loaner fleet and Bob Baker Lexus loaned the vehicle to another customer-Mr. Saylor, of the underlying action-despite the reported problem. (SAC ¶¶ 17a--19a,*fn2 ECF No. 23) In giving Bob Baker Lexus a final opportunity to amend its complaint, the Court previously commented that "[t]his theory of liability does not arise out of Plaintiff's 'work' on the vehicle, and is not tied to any product liability--based claim." (Order, Mar. 6, 2012, at 8, ECF No. 22)

At the heart of the instant motion to dismiss is whether, under this new theory of liability, a receptionist's duties qualify as "work or operations" that would fall under the Completed Operations exclusion. In order to rely on an exclusion to deny that it has a duty to defend, Tokio Marine must provide conclusive evidence that the exclusion applies, Atl. Mut. Ins. Co. v. J. Lamb, Inc., 123 Cal. Rptr. 2d 256, 272 (2002), and the Court strictly construes the exclusionary clause in favor of the insured, N. Am. Building Maint., Inc. v. Fireman's Fund Ins., 40 Cal. Rptr. 3d 468, 479 (Cal. Ct. App. 2006).

The Completed Operations exclusion provides that the Tokio Marine insurance policy does not apply to claims arising out of Bob Baker Lexus's "work" after that work has been completed or abandoned, and goes on to explain that "work" means:

a. Work or operations performed by [Bob Baker Lexus] or on [Bob Baker Lexus's] behalf; and

b. Materials, parts or equipment furnished in connection with such work or operations. [Bob Baker Lexus's] work includes warranties or representations made at any time with respect to the fitness, quality, durability or performance of any of the items included in paragraph a. or b. above. (Ex. 5 at 41,*fn3 ECF No. 23-1) As the Court has noted previously, this definition of "work" is identical to the definition in the Completed Operations exclusion at issue in Baker v. National Interstate Insurance Co., 103 Cal. Rptr. 3d 565 (Cal. Ct. App. 2010). There, the California Court of Appeals found that the term "work" includes "a person's services performed in return for payment of money," ultimately holding that a company's "inspection services" fell within the Completed Operations exclusion. Id. at 581. Thus, under Baker, "[w]hen a person provides a service for a customer, for payment from that customer, the person is 'working' or otherwise 'performing an operation' in the context of his or her business activities." Id.

According to Tokio Marine, the receptionist's failure to properly document a customer's complaint about a rental vehicle*fn4 constitutes "work or operations" because "[t]here is no limitation in the [Completed Operations] exclusion or basis to assert that 'work' or 'work or operations' must be physical 'maintenance.'" (MTD 9, ECF No. 26) Tokio Marine asserts that "work or operations" "include[s] the duties of a Bob Baker Lexus receptionist assigned to receive loaner cars and any duties of Bob Baker Lexus to provide proper maintenance procedures, including procedures addressing or reporting renter complaints." (Id. at 11)*fn5

Although it is a close call, considering Plaintiff's allegations in light of the principles for interpreting insurance contract exclusions and limiting the allegations of the SAC to Bob Baker Lexus's loaner car operations, the Court finds that Bob Baker Lexus has alleged a theory of liability that might be covered by Tokio Marine's insurance policy. Bob Baker Lexus provides to its customers a "courtesy loaner vehicle through a rental car program known as the Lexus Customer Convenience System ('LCCS')." (SAC ¶ 5, ECF No. 23) And pursuant to its courtesy loaner car operations, Bob Baker Lexus alleges that its receptionists have a duty to "properly document" any complaints that come in regarding the loaner vehicles so that the vehicle will not subsequently be loaned to another customer without remedying the reported defect. (See id. ¶ 20)

Though Tokio Marine emphatically characterizes the receptionist's duties as "work," the Court cannot find that Tokio Marine has carried its burden to conclusively demonstrate that the exclusion applies to this newly asserted potential theory of liability. Nothing in the SAC suggests that customers are required to pay for Bob Baker Lexus's loaner car services; indeed, a more reasonable inference is that this service is provided as a "courtesy" to customers who leave their personal vehicles with Bob Baker Lexus for maintenance services. Cf. Baker, 103 Cal. Rptr. 3d at 581. Thus, interpreted in the context of this business model, a "layperson policyholder might reasonably interpret the exclusion's language," id.-specifically, the term "work"-to mean the work performed in the service or maintenance of the vehicles, and not a receptionist's work in tracking customer complaints on loaner vehicles. As such, Tokio Marine's motion to dismiss is DENIED.

The Court emphasizes, however, that it makes no comment on whether-assuming this theory is eventually asserted in the underlying action-it necessarily falls outside the Completed Operations exclusion. For purposes of this motion, and in the context of the broad duty to defend, the Court merely holds that Bob Baker Lexus has successfully alleged a theory of liability sufficient to withstand a motion to dismiss.


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