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Martz v. Leading Insurance Group Insurance Co.

United States District Court, N.D. California, San Jose Division

July 29, 2014

KENNETH E. MARTZ and ANNA K. MARTZ, Trustees of the MARTZ FAMILY TRUST, U.T.D. 10/21/1993, Plaintiffs,
v.
LEADING INSURANCE GROUP INSURANCE CO., LTD. (UNITED STATES BRANCH), AND Does 1-25, inclusive, Defendants.

ORDER DENYING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT; DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, PARTIAL SUMMARY JUDGMENT [Re: Docket No. 19, 31]

HOWARD R. LLOYD, Magistrate Judge.

Kenneth E. Martz and Anna K. Martz, Trustees of the Martz Family Trust (collectively, "Martz") sue Leading Insurance Group Insurance Company ("LIG") for its alleged breach of contract and breach of the implied covenant of good faith and fair dealing arising from its denial of coverage for mold and water damage to Martz's apartment building. Before any discovery took place, Martz moved for partial summary judgment on the issue of liability for breach of contract. See Dkt. No. 19. LIG opposed the motion. See Dkt. No. 23. Shortly thereafter, LIG moved for summary judgment on all claims. See Dkt. No. 31. Martz opposed. See Dkt. No. 43. The parties consented to having all matters proceed before the undersigned. See 28 U.S.C. § 636(c); Fed.R.Civ.P. 73. Based on the moving and responding papers, as well as the arguments of counsel at the hearing on March 4, 2014, the Court DENIES both motions.

BACKGROUND

In July 2013, Martz discovered mold and water damage to several units in an apartment complex insured by LIG pursuant to the parties' Businessowners Coverage Form ("Policy"), an "all risk" policy, so called because it covers all risks not expressly excluded. The parties agree that three distinct perils acted in succession to cause the damage: (1) negligent installation of the plumbing; (2) erosion of a hot water pipe; and (3) leakage of hot water and steam. LIG denied coverage based on exclusions for: (1) "Negligent Work"; (2) "Wear and tear; Rust or other corrosion" (hereinafter, "Corrosion"); and (3) "Continuous or Repeated Seepage Or Leakage Of Water" (hereinafter, "Continuous Leakage").

The Negligent Work exclusion provides that "[LIG] will not pay for loss or damage caused by or resulting from [Negligent Work]. But if [Negligent Work] results in a Covered Cause of Loss, [LIG] will pay for the loss or damage caused by that Covered Cause of Loss." Policy, at ¶ I.B.3.c. A Covered Cause of Loss is any risk of direct loss not expressly excluded. Id. at ¶ I.A.3. The parties agree that the negligent installation of the plumbing constitutes Negligent Work within the meaning of the exclusion. However, they dispute whether the negligence resulted in a Covered Cause of Loss, i.e. whether the erosion of the pipe or the leakage of hot water and steam is a Covered Cause of Loss.

The Corrosion exclusion provides that "[LIG] will not pay for loss or damage caused by or resulting from [Corrosion].... But if [Corrosion] results in a specified cause of loss'... [LIG] will pay for the loss or damage caused by that specified cause of loss.'" Policy, at ¶ I.B.2. l. "Specified causes of loss" include "water damage, " which is defined as "accidental discharge or leakage of water or steam as the direct result of the breaking apart or cracking of any part of a system or appliance... containing water or steam." Id. at ¶ I.H.12.c. Again, the parties agree that the erosion of the hot water pipe constitutes Corrosion, and the leakage of hot water and steam here falls within the definition of "water damage." Nevertheless, LIG disputes that the resulting leakage is a "specified cause of loss" as it contends that "specified causes of loss" are also subject to the policy's exclusions.

The Continuous Leakage exclusion provides that LIG "will not pay for loss or damage caused by or resulting from... continuous or repeated seepage or leakage of water, or the presence of or condensation of humidity, moisture or vapor, that occurs over a period of 14 days or more." Id. at ¶ I.B.2.p. Here, the parties dispute whether the leakage did in fact occur for 14 days or more.

Under the "Additional Coverages" section, the Policy expressly provides "Limited Coverage For Fungi', Wet Rot Or Dry Rot, " (hereinafter, "Fungi") which "only applies when the fungi', wet rot or dry rot are the result of a specified cause of loss' other than fire or lightning." Again, the parties agree that the mold here constitutes "Fungi, " but LIG argues that the mold was not caused by a "specified cause of loss" because other relevant exclusions, namely the Continuous Leakage exclusion, apply.

LEGAL STANDARD

A. Summary Judgment

A motion for summary judgment should be granted if there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party bears the initial burden of informing the court of the basis for the motion, and identifying portions of the pleadings, depositions, answers to interrogatories, admissions, or affidavits which demonstrate the absence of a triable issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In order to meet its burden, "the moving party must either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Companies, Inc., 210 F.3d 1099, 1102 (9th Cir. 2000).

If the moving party meets its initial burden, the burden shifts to the non-moving party to produce evidence supporting its claims or defenses. See Nissan Fire & Marine Ins. Co., Ltd., 210 F.3d at 1102. The non-moving party may not rest upon mere allegations or denials of the adverse party's evidence, but instead must produce admissible evidence that shows there is a genuine issue of material fact for trial. See id. A genuine issue of fact is one that could reasonably be resolved in favor of either party. A dispute is "material" only if it could affect the outcome of the suit under the governing law. Anderson, 477 U.S. at 248-49.

"When the nonmoving party has the burden of proof at trial, the moving party need only point out that there is an absence of evidence to support the nonmoving party's case.'" Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001) (quoting Celotex Corp., 477 U.S. at 325). Once the moving party meets this burden, the nonmoving party may not rest upon mere allegations or denials, ...


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