United States District Court, N.D. California
ORDER DENYING MOTION FOR SUMMARY JUDGMENT AND STAYING
THE CASE Re: Dkt. Nos. 20, 32
William H. Orrick United States District Judge
Tokio Marine Specialty Insurance Company
(“Tokio”) moves for summary judgment claiming it
owes no duty to defend or indemnify defendant Thompson
Brooks, Inc. (“TBI”) in two underlying lawsuits
pending in state court. Tokio contends the claims are
excluded from coverage under the policy, thereby excusing
Tokio from its duty to defend. I conclude that Tokio
continues to have a duty to defend TBI since there are
factual questions regarding TBI's potential fault and
whether the products completed operations hazard applies.
Therefore, I DENY Tokio's Motion for Summary Judgment.
moves for summary judgment seeking a declaration that Tokio
owes no duty to defend TBI, or partial summary judgment that
it owes no duty to indemnify TBI with respect to certain
claims, in two underlying lawsuits pending in Marin Superior
Court: Peterson, et. al. v. Thompson Brooks, Inc.,
Case No. CIV 1603427 (“Peterson
action”), and Oak Grove Construction Company,
Inc. v. First Republic Bank, et al., Case No. CIV
1502956 (“Oak Grove action”) (together
“Underlying Actions”). Tokio's Mot. for Summ.
J. (“Tokio's Mot.”) 1 (Dkt. No. 20).
requests a judgment declaring: (i) it owes no duty to defend
because most of the claims in the Underlying Actions seek
non-covered economic damages; (ii) the remaining claims are
barred by the “faulty-workmanship” exclusions;
and (iii) Tokio owes no duty to indemnify 2nd and 6th-11th
causes of the Peterson action.
STATE COURT LITIGATION
state court actions arise from TBI's 2010 engagement by
Stuart and Gina Peterson as a general contractor to demolish
and rebuild a house for the Petersons (“Project”)
in Tiburon, California (“Property”). In the
Peterson action, plaintiffs assert claims for: (1)
breach of contract; (2) accounting; (3) breach of implied
warranty; (4) breach of fiduciary duty; (5) negligence; (6)
fraud; (7) negligent misrepresentation; (8) unfair business
practices; (9) conversion; (10) constructive trust; and (11)
unjust enrichment. Declaration of Laurie Cacciari, Ex. 11
(“Peterson Complaint”). Claims 2 and 6-11
generally concern TBI's alleged noncompliance with the
accounting required under the contract, unlawful business and
billing practices, fraud, and unjust enrichment resulting in
economic harms to the Petersons. Claims 1, 3, 4 and 5 concern
some of the same conduct, but also refer to alleged damage
done to the Property as a result of TBI's
Oak Grove action, TBI's subcontractor for
“site preparation” and “earthwork and mass
excavation” sued TBI and later the Petersons for
reimbursement of unpaid labor costs. The Petersons filed a
cross complaint against TBI and Oak Grove alleging claims of:
(1) negligence; (2) breach of implied warranty; (3) breach of
contract; (4) equitable indemnity; and (5) unjust enrichment
based again on the alleged misbilling by TBI and defects and
damages caused to the Property by TBI's work on the
Project. Cacciari Decl., Ex. 12 (“Oak Grove
Cross-Complaint”) ¶ 10.
pleadings in the Underlying Actions are not currently
settled. Declaration of David F. Feingold [Dkt. No. 24-1],
¶ 8. In addition, the Special Master appointed for the
Underlying Actions recently issued Pre-Trial Order No. 1,
governing discovery and other pre-trial matters. Declaration
of Deborah L. Goodman [Dkt. No. 23-3], Ex. 3 at ¶ 15.
Discovery in the Underlying Actions has been stayed, but the
Petersons' expert is expected to produce a report by the
end of April and the parties expect a site inspection will be
conducted soon thereafter. Id. ¶¶ 16,
parties dispute the circumstances and legal effect
surrounding the end of TBI's work on the Project.
According to allegations in the Peterson Complaint,
the Petersons “terminated” TBI's contract
“for cause” effective April 24, 2015 as a result
of TBI's repeated breach of its duties under the
contract. Peterson Complaint ¶
The Petersons' formal April 17, 2015, Notice of
Termination letter states that the Petersons terminated TBI
because “TBI [held] the job hostage by a work stoppage
. . . stopped work and completely demobilized the
site.” Supplemental Declaration of Daniel Katibah [Dkt.
No. 25-1], Ex. 1 at 5, 9. The Petersons considered this to be
a “de facto abandonment of the job.” Id.
to Patrick Davis, TBI's executive vice president and the
project manager on the Project, the Petersons struggled to
pay construction costs in the last year of the Project.
Declaration of Patrick Davis [Dkt. No. 23-1] ¶ 9. As a
result, when TBI's January and February 2015 invoices
were not paid, TBI notified the Petersons effective April 4,
2015, that TBI was discontinuing work until payment was
received. Id. ¶ 12. The Petersons responded by
declaring the contract was “constructively
terminated.” Id. At the time TBI stopped work
on the Project, it was “functionally complete”
and only required a few “punch list” items to be
serviced, maintained, corrected, repaired, or replaced.
Id. ¶ 17. The only “incomplete”
items were exterior landscaping and an outdoor water feature.
Id. TBI asserts that the Petersons had prior to the
termination, “commenced the process of occupying the
buildings, as in hanging art on the wall.” Id.
some of the damage alleged by the Petersons, including an
instance of water intrusion, Davis believes that damage was
caused by the Petersons' landscape architect who directed
a change to the Project without TBI's knowledge.
Id. ¶ 23. As to the damage to hard wood floors,
Davis believes that may have been caused by deficient design
by the Petersons or by failure of the contractor hired by the
Petersons to install and configure the controls for that
system. Id. ¶ 24.
relies on a mediation statement, created by the Petersons in
March 2016 and sent to Tokio by TBI, to argue that after TBI
was terminated the Petersons had to pay their replacement
contractor $3.6 million to finish the Project, as evidence
that the Project could not be considered
“complete” at the time TBI stopped work. Cacciari
Decl., Ex. 9.
INSURANCE POLICIES AND NOTIFICATION
April 1, 2014 to April 1, 2017, Tokio covered TBI with three
consecutive commercial general liability policies
(“Policy”). Cacciari Decl. ¶ 4, Exs.
Section 1, Coverage A, subsection 1 of the Policy provides
that Tokio “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.” Policy at 026, 116, 189.
Tokio also has “the right and duty to defend the
insured against any ‘suit' seeking those
damages.” Id. However, Tokio did not have a
duty to defend against any suit seeking “property
damage” to which the insurance does not apply.
“exclusions” listed in subsection 2j.
“Damage to Property, ” the Policy provides that
it does not apply to property damage to:
j(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
“property damage” arises out of those operations;
or j(6) That particular part of any property that must be
restored, repaired or replaced because “your
work” was incorrectly performed on it.
. . .
Paragraph (6) of this exclusion does not apply to
“property damage” included in the “products
Id. at 030, 120, 193.
“Products-completed operations hazard”
(“PCOH”) definition in Section V-16 provides:
Includes all “bodily injury” and “property
damage” occurring away from premises you own or rent
and arising out of “your product” or “your
work” except . . .
(2) Work that has not yet been completed or abandoned.
However, “your work” will be deemed completed at