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Great American Insurance Co. v. Quintana Homeowners Association

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

February 27, 2018



          EDWARD J. DAVILA, United States District Judge


         Plaintiff Great American Insurance Company (“GAIC”) initiated this declaratory relief action seeking a judicial determination that it does not owe Defendants Quintana Homeowners Association (“Quintana HOA”) and James Gregg (“Gregg”) a duty to defend or indemnify in the underlying suit entitled GIBCO Partners, LLC v. Quintana Homeowners Association, , that was pending in the Monterey County Superior Court, but has settled. Presently before the Court is GAIC's motion for summary judgment, or in the alternative, partial summary judgment. The Quintana HOA opposes the motion and seeks summary judgment in its favor pursuant to Rule 56(f), Fed.R.Civ.P. Gregg does not oppose GAIC's motion. The motions were heard on February 22, 2018. For the reasons set forth below, GAIC's motion is granted as to Gregg and denied as to the Quintana HOA, and Quintana HOA's motion is denied.


         A. Underlying Action

         The plaintiff in the underlying action, GIBCO Partners, LLC (“GIBCO Partners”), is the purchaser of “Lot 10, ” a 91.5 acre plot of land located within a 2, 070 acre development in Carmel Valley known as Quintana. Prior to purchasing the property, GIBCO Partners' manager, Jonathan Gibson (“Gibson”) reviewed Quintana's Covenants, Conditions and Restrictions (“CC&Rs”), the Design Guidelines of Quintana, and the maps of the Quintana lots contained in each of these documents. Based upon the information contained therein, Gibson determined that the “building envelopes” (the area of each lot in Quintana in which all residential improvements must be built) could only be changed in one of three specified ways: (1) the Architectural Review Board (“ARB”) could make the changes without formally amending the Design Guidelines if certain findings were made; (2) the ARB could make changes if it received the vote or written consent of no less than seventy-five percent (75%) of the Quintana HOA; or (3) the developer, Twelfth Tee, could make changes. Golf Properties, LLC (“Golf Properties”) is the managing member of Twelfth Tee.

         On January 30, 2008, prior to purchasing Lot 10, Gibson had a telephone conversation with Gregg, who was identified in the complaint as a developer of Quintana with an ownership interest in Twelfth Tee, a member of the Quintana HOA Board from 2003-2011, and a member of the ARB from approximately 2003-2013. Based on this conversation, Gibson believed that Gregg was the key person to contact at Quintana to obtain information and guidance about whether he should purchase Lot 10. GIBCO Partners allegedly relied upon the information Gregg provided, as well as the representations in the CC&Rs, the Design Guidelines and maps, in concluding that Lot 10 would provide Gibson and his family the privacy they desired, when it decided to purchase Lot 10 for $2.75 million on February 28, 2008.

         GIBCO Partners alleged that the information Gregg provided was false and misleading. Further, GIBCO Partners alleged that throughout 2009, 2010 and 2011, the Quintana HOA and ARB allowed multiple violations of the CC&Rs to exist on eight of the thirteen lots in the Quintana development, including among other things, building envelope violations. GIBCO Partners alleged that it notified the ARB and the Quintana HOA of the violations and was promised that the CC&Rs would be enforced. The Quintana HOA and ARB, however, allegedly failed to fulfill their promise. Instead, in approximately June of 2012, the Quintana HOA president asked the lot owners to approve a series of amendments to the Design Guidelines which would eliminate several of the violations, and the ARB promised to approve a few of the violations for some of the lot owners if those lot owners voted to approve the Design Guideline revisions. Ultimately, the amendments to eliminate several of the longstanding violations received enough votes to pass, and the ARB approved most of the remaining violations.

         GIBCO Partners filed suit against the Quintana HOA and Gregg in September of 2011 in the Monterey County Superior Court, asserting claims relating to GIBCO Partners' purchase of Lot 10. In June of 2015, the Superior Court ruled that GIBCO Partners may not assert a claim for damages against the Quintana HOA. MSS 9-11. Gregg's deposition in the underlying action was taken in September of 2016. His testimony confirmed that he was one of the initial members of the Board of Directors for the Quintana HOA, but was no longer serving in that capacity in 2008 when he had the telephone conversation with Gibson.

         In April of 2017, GIBCO Partners obtained leave to file the operative complaint, the Amended Revised Sixth Amended Complaint, which added, in pertinent part, allegations that Gregg was a “volunteer” for the Quintana HOA. The operative complaint included the following claims pertinent to the instant insurance coverage action: breach of contract against the Quintana HOA for failure to enforce the CC&Rs and Design Guidelines, for which GIBCO Partners seeks injunctive relief and an award of attorney's fees; fraud and negligent misrepresentation against Gregg, acting in the capacity of “a volunteer on behalf of the HOA, ” for which GIBCO Partners seeks damages, including punitive damages, as well as attorney fees; violation of California Corporations Code §§8320, 8321, 8333 against the Quintana HOA, for which GIBCO Partners seeks injunctive relief and attorney fees; violation of the Davis-Stirling Act, California Civil Code §§1363, 1363.05, 1365 and 1363.840, for which GIBCO Partners seeks injunctive relief and attorney fees; and declaratory relief against the Quintana HOA with respect to an alleged building envelope violation on Lot 11, and attorney fees.

         Quintana HOA and Gregg (collectively “Insureds”) received a defense in the underlying action from Quintana HOA's primary insurer, Travelers Casualty and Surety Company of America (“Travelers”) under a primary liability insurance policy issued to Quintana HOA (“Travelers Policy”). In February of 2017, Quintana HOA's excess carrier, GAIC, issued letters denying any obligation to defend and indemnify Quintana HOA and Gregg in the event the Travelers policy was exhausted.

         GIBCO Partners offered to settle with the Quintana HOA for $1, 200, 000.[1] Travelers agreed to pay what remained of its $2, 000, 000 eroding policy to settle the case, which was estimated at the time to be approximately $450, 000. In August of 2017, the Quintana HOA's counsel notified GAIC of the settlement offer and Traveler's agreement to contribute to the settlement. The Quintana HOA requested that GAIC pay $750, 000 of the proposed settlement. When GAIC refused to contribute toward the settlement and denied any duty to defend, the Quintana HOA felt it had no choice but to settle the action out of economic necessity. Under the terms of the settlement, Travelers paid what remained of its policy ($415, 000) and the Quintana HOA paid the remaining $785, 000. The settlement included a release of all damages and attorney fees and costs. As to Gregg, the action settled for a mutual release of all claims and no monetary payment. After the agreement to settle was confirmed, the Quintana HOA's counsel again requested that GAIC contribute to the settlement. GAIC never responded.

         B. The Coverage Action

         Shortly after declining coverage and prior to the settlement of the underlying case, GAIC initiated the instant action in February of 2017 seeking a judicial declaration that it has no obligation under the umbrella liability policy it issued to the Quintana HOA (“Umbrella Policy”) to defend and indemnify the Quintana HOA and Gregg upon exhaustion of the Travelers Policy. The GAIC Umbrella Policy provides “Claims Made Coverage” for the coverage period of September 21, 2011 to September 21, 2012, and contains a limit of $5 million for each occurrence and a $5 million general aggregate limit. The GAIC Umbrella Policy provides “follow form umbrella coverage” over the Travelers Policy, and accordingly the coverage in the Travelers Policy applies to GAIC's obligations under its Umbrella Policy.

         Before the underlying case settled, the Quintana HOA answered and counterclaimed for breach of contract based upon GAIC's failure to defend and indemnify; breach of the implied covenant of good faith and fair dealing based upon GAIC's allegedly unreasonable (1) refusal to pay defense costs for the underlying action after the Travelers Policy was exhausted, (2) failure to accept the settlement offer in the underlying action, (3) failure to conduct a full, fair and thorough investigation, (4) failure to give the Quintana HOA at least as much consideration as its own interests, (5) failure to diligently search for and consider evidence that would have supported payment of defense costs and settlement; and (6) misrepresentation of the insurance policy terms and declaratory relief.

         Gregg also filed an Answer, admitting that he was a member of the Board of Directors and an officer for the Quintana HOA, but indicating that he did not hold such positions as of January 30, 2008. MSS 31. Gregg was, however, a member of the Quintana Architectural Review Board at that time. RJN Ex. 6, ¶17.

         Travelers Policy

         The Travelers Policy contains the following Liability Coverage Insuring Agreement relevant to GAIC's alleged obligations under the GAIC Umbrella Policy:

         Liability Coverage

A. The Insurer will pay on behalf of the Insureds Loss up to the available maximum aggregate Limit of Liability set forth in Item 3 of the Declarations which is incurred by the Insured as the result of any Claim first made against the Insureds during the Policy Period or the Discovery Period, if purchased, for a Wrongful Act.

         Request for Judicial Notice[2] (“RJN”) Ex. 5, p. 23. The Travelers Policy provides the ...

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