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J.T. v. Antioch Unified School District

United States District Court, N.D. California

June 28, 2019

J. T., et al., Plaintiffs,
v.
ANTIOCH UNIFIED SCHOOL DISTRICT, et al., Defendants. ANTIOCH UNIFIED SCHOOL DISTRICT, Third-Party Plaintiff,
v.
SPECTRUM CENTER, INC., et al. Third-Party Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART THIRD-PARTY DEFENDANT'S MOTION TO DISMISS THIRD-PARTY COMPLAINT OR FOR JUDGMENT ON THE PLEADINGS DOCKET NO. 75

          EDWARD M. CHEN UNITED STATES DISTRICT JUDGE.

         Plaintiffs J.T., a minor student with learning disabilities, and his mother, N.M., filed suit against Defendant Antioch Unified School District (“AUSD”) for placing J.T. at Spectrum Center, Inc. (“Spectrum”), a non-public school for students with behavioral issues, without N.M.'s consent. Docket No. 40 (First Amended Complaint or “FAC”). J.T. alleges that he was subjected to physical and verbal abuse at Spectrum. Id. In April 2019, AUSD filed a Third-Party Complaint (“TPC”) against Spectrum and Spectrum's insurer, Philadelphia Indemnity Insurance Company (“PIIC”). Docket No. 63. AUSD alleges that PIIC breached its duty to defend and indemnify under insurance policies that covered AUSD as Spectrum's additional insured. Currently before the Court is PIIC's motion to dismiss the TPC or for judgment on the pleadings. Docket No. 75 (“Mot.”). For the reasons stated on the record at the June 21, 2019 hearing and discussed below, the Court GRANTS in part and DENIES in part PIIC's motion.

         I. DISCUSSION

         PIIC argues that it does not have a duty to defend AUSD because AUSD does not qualify as an additional insured under Spectrum's policies and, independently, the professional services exclusion in the policies bars J.T.'s claims. Mot. at 13-16. Because PIIC believes it does not owe AUSD any duty to defend, it contends that AUSD's breach of insurance contract and breach of covenant of good faith and fair dealing claims both fail. Id. at 19.

         A. Breach of Contractual Duty to Defend

         1. Additional Insured

         PIIC's arguments for dismissal are premised on the two Commercial General Liability (“CGL”) policies it issued to Spectrum-PHPK 1178383 and PHPK 1342397.[1] Docket No. 77 (“Conroy Decl.”). Both policies define who qualifies as an additional insured as follows:

Who Is An Insured is amended to included [sic.] as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for “bodily injury, ” “property damage” or “personal and advertising injury” caused, in whole or in part, by [Spectrum's] acts or omissions of those acting on [Spectrum's] behalf . . . .

Conroy Decl., Exh. 3 at PHLY000422, Exh. 4 at PHLY001035.

         PIIC argues that AUSD does not qualify as additional insured under this provision because J.T. did not specifically name Spectrum as a defendant or identify Spectrum as negligent in his underlying complaint. Mot. at 14. California courts have consistently rejected this argument. Under California law, an insurer “bears a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy.” Gray v. Zurich Ins. Co., 65 Cal. 2d 263');">65 Cal. 2d 263, 276-77 (1966). The “bare ‘potential' or ‘possibility' of coverage” is sufficient to trigger the duty to defend, whereas facts “merely tending to show that the claim is not covered, or may not be covered . . . are insufficient to eliminate the possibility that resultant damages [] will fall within the scope of coverage.” Montrose Chem. Corp. v. Superior Court, 6 Cal.4th 287, 300 (1993).

         The policies here classify AUSD as an additional insured so long as it is being subject to liability for injury “caused, in whole or in part, by [Spectrum's] acts or omissions of those acting on [Spectrum's] behalf, ” and J.T. alleges that he suffered physical and emotional abuse while receiving instruction at Spectrum. FAC ¶¶ 63, 79. These allegations present the “bare ‘potential' or ‘possibility' of coverage” sufficient to trigger PIIC's duty to defend, even if J.T. did not explicitly name Spectrum as a defendant. Montrose Chem., 6 Cal.4th at 300; see UDC-Universal Dev., L.P. v. CH2M Hill, 181 Cal.App.4th 10, 21 (2010) (holding that a complaint that did not specifically identify each liable party nonetheless “implicated” their liability); Scottsdale Ins. Co. v. MV Transportation, 36 Cal.4th 643, 654 (2005) (holding that the duty to defend is not excused where “the [plaintiff's] complaint could fairly be amended to state a covered liability.”).

         Accordingly, PIIC had a defense duty upon receipt of AUSD's tender.

         2. Professional Services Exclusion

         PIIC next argues that even if AUSD qualifies as an additional insured, the professional services exclusion in the two CGL policies bars AUSD from coverage because J.T.'s injuries occurred during Spectrum's provision of ...


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