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Daniels v. Allstate Insurance Co.

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

October 1, 2014

ALLSTATE INSURANCE COMPANY, an Illinois corporation, and DOES 1 through 25, inclusive, Defendants.


LUCY H. KOH, District Judge.

Plaintiffs Jenny and Mark Daniels ("Plaintiffs") initiated this litigation against their insurer, Allstate Insurance Company ("Defendant"), for breach of insurance contract and breach of the implied covenant of good faith and fair dealing. See ECF No. 2. Plaintiffs claim that Defendant had a duty to defend them in underlying litigation brought in Santa Cruz County Superior Court. See ECF No. 25.

After the Court granted Defendant's Motion to Dismiss with leave to amend, see ECF No. 23, Plaintiffs filed a first amended complaint, see ECF No. 25. Defendant again filed a Motion to Dismiss, arguing once more that no potential for coverage existed under the insurance policy as a matter of law. See ECF No. 26. Plaintiffs have filed an Opposition, see ECF No. 30, and Defendant has filed a Reply, see ECF No. 31.

The Court finds this motion suitable for decision without oral argument pursuant to Civil Local Rule 7-1(b) and hereby VACATES the hearing and the Case Management Conference set for October 9, 2014, at 1:30 p.m.

Having considered the briefing, the record in this case, and applicable law, the Court GRANTS Defendant's Motion to Dismiss without leave to amend for the reasons stated below.


A. The Insurance Policy

Plaintiffs purchased a homeowner's insurance policy (the "Policy") from Defendant in September 2012. The Policy was renewed effective September 2013 and remains in force. ECF No. 25 ¶ 6. Under the Policy, Defendant agrees to indemnify and defend Plaintiffs for damages as follows:

Subject to the terms, conditions and limitations of this policy, Allstate will pay damages which an insured person becomes legally obligated to pay because of bodily injury or property damage arising from an occurrence to which this policy applies, and is covered by this part of the policy.

ECF No. 8 at 2. The Policy defines "occurrence" as an "accident, including continuous or repeated exposure to substantially the same general harmful conditions during the policy period, resulting in bodily injury or property damage." ECF No. 2, Ex. A to Pls.' Compl. ("Allstate Policy") at 3.

B. The Underlying Litigation

The instant case arises out of a Santa Cruz County Superior Court lawsuit filed against Plaintiffs by their neighbors, Joyce and Edward Kennedy (the "Kennedys"). The Kennedys and Plaintiffs own adjacent property lots in Santa Cruz, California. Both lots sit on a south-facing hillside, with the Kennedys' property situated below that of the Plaintiffs. ECF No. 2, Ex. B to Pls.' Compl. ("Kennedys' Compl.") ¶ 9. The underlying dispute centered on the replacement of a twenty-year-old, man-made wooden retaining wall located on Plaintiffs' property along the boundary line shared with the Kennedys. Id. ¶ 8. The retaining wall, which was built by a previous owner of Plaintiffs' property, supports large amounts of fill soil that keep Plaintiffs' backyard level. Id. ¶ 11. In addition, two large fir trees, one located at the east end of the retaining wall ("Tree 1") and the other about five feet upslope from the wall's center ("Tree 2"), have root systems embedded in the fill soil. Id. ¶¶ 12-15.

From their own property, the Kennedys noticed that Plaintiffs' retaining wall was collapsing in various places. The Kennedys' observation prompted them to hire geotechnical engineers and an arborist to examine the condition of the wall and trees. Kennedys' Compl. ¶ 10. The experts' reports confirmed that the wall was severely distressed and posed a threat of collapsing from "poor construction, age and/or damage caused by tree roots." Id. ¶ 11. The wall's failure would probably result in a landslide, causing the fill soil from Plaintiffs' property to inundate the Kennedys' property below. Id. ¶¶ 12, 20. In addition to the tree roots aggravating the threat of the wall's collapse, there was also some risk that the trees would fall onto the Kennedys' property should the wall fail and release the fill soil supporting the trees. Id. ¶¶ 17, 20.

From May to October 2012, the Kennedys repeatedly expressed their concerns to Plaintiffs. ECF No. 8-2, Ex. A at 3. The Kennedys made multiple visits and requests to Plaintiffs to replace the wall and remove the trees, and even suggested alternative dispute resolution. Id. The Kennedys also sent Plaintiffs a copy of the arborist's report, which detailed the dangers posed by the trees. Kennedys' Compl. ¶ 18. Despite having knowledge of the condition of the ...

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