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Barks v. Castlepoint National Insurance Co.

United States District Court, C.D. California, Southern Division

March 26, 2014



DAVID O. CARTER, District Judge.

Before the Court is Defendant CastlePoint National Insurance Company's ("CastlePoint") motion for summary judgment (Dkt. 20). After considering the moving and replying papers and hearing oral argument from both parties, the Court DENIES the motion.

I. Background

a. The Subject Property

Plaintiff Ronald Barks ("Barks") purchased a property at 247 Morning Canyon, Corona Del Mar, California (the "Subject Property"), in 2005. Compl. (Reilly Decl. (Dkt. 20-2)) ¶ 8. Barks contracted with Carlos Gonzalez, d/b/a Gonzo Construction ("Gonzalez") to build an investment home on the property for resale. Id. The Subject Property is in a residential community that uses Covenants, Conditions and Restrictions ("CC&Rs") to govern development projects within the community. See Plaintiff's Statement of Genuine Issues ("PSUF") ¶ 3. The CC&Rs prohibited building a home over 24 feet tall. See id. ¶ 4. Around late March 2008, Gonzalez completed the home. See id. ¶ 5. The final house, however, was more than 24 feet tall. See id. ¶ 6. Gonzalez had to perform additional construction, including lowering the roof, to remedy the problem. See id. ¶ 7. Barks sold the home in August 2009 for $4.975 million. See id. ¶ 8.

On February 15, 2011, Barks filed a complaint in Orange County Superior Court against Gonzalez alleging causes of action for negligence and breach of contract. See Compl. at 6-9. The Complaint stated that the framing had originally been measured incorrectly, without taking into account the addition of the roof. See Compl. ¶¶14-15. The Complaint alleged damages based on Barks's being forced to pay interest on acquisition and construction loans while the defect was fixed, being forced to pay the costs associated with lowering the roof, being forced to pay attorneys' fees and costs associated with disputing the Homeowner's Association's clams about the roof height, and losing value on the property as the real estate market declined. See Compl. at 6-9. Gonzalez tendered the complaint to CastlePoint via an insurance broker. See Stipulated Facts ("SF") (Dkt. 21) ¶ 1. CastlePoint wrote back on May 26, 2011 and disclaimed coverage. See id. ¶ 2. CastlePoint claimed that the alleged damage was not covered as "bodily injury" or "property damage" arising out of an "occurrence" that qualified for coverage under Gonzalez's policies, and that several exclusions applied even if the conduct were covered. See Reilly Decl. Ex. D at 5. Barks filed a First Amended Complaint ("FAC") on September 26, 2011 alleging negligence and breach of contract. See FAC (Reilly Decl. Ex. E) at 8-10. The FAC added as an additional basis of damage the inability to use or enjoy the home for an additional four to eight months during additional construction, and alleged pre-construction mistakes as a partial cause of the height discrepancy. See FAC ¶¶ 21, 29. On September 28, 2011, Gonzalez tendered the FAC to CastlePoint via insurance broker. See SF ¶ 4.

In September 2012, Gonzalez and Barks entered into a stipulated judgment for $1, 000, 000 and Gonzalez assigned his rights against his insurers to Barks in exchange for a covenant not to execute. See PSUF ¶ 15. On March 26, 2013, Barks filed the instant action against CastlePoint and others in Superior Court alleging breach of contract, bad faith, violation of California's Unfair Competition Law ("UCL"), declaratory relief, and promissory estoppel. See Notice of Removal (Dkt. 1) Ex. A. The causes of action are all premised on the alleged failure to defend Gonzalez and to pay damages under the insurance policies.

b. The Insurance Policies

Gonzalez liability insurance policies with CastlePoint: Policy Number 10ATMAG-201561-GL01 (effective May 30, 2006 to May 30, 2007) and Policy Number 10ATMAG-201561-GL02 (effective May 30, 2007 to May 30, 2008). See id. ¶ 17.

Both CastlePoint policies contained the following terms:

1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply....
b. This insurance applies to "bodily injury" and "property damage" only if: (1) the "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; and (2) the "bodily injury" or "property damage" occurs during the policy period."

PSUF ¶ 18.

The policies define an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." See id. ¶ 19. "Property damage" is defined as "physical injury to tangible property, including all resulting loss of use of that property, " or "loss of use of tangible property that is not physically injured..." Id. ¶ 20.

c. The Exclusions

Both policies included Exclusion section (j), excluding from coverage "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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