United States District Court, N.D. California
J. T., et al., Plaintiffs,
ANTIOCH UNIFIED SCHOOL DISTRICT, et al., Defendants. ANTIOCH UNIFIED SCHOOL DISTRICT, Third-Party Plaintiff,
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.
M. CHEN UNITED STATES DISTRICT JUDGE.
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.
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.
Breach of Contractual Duty to Defend
arguments for dismissal are premised on the two Commercial
General Liability (“CGL”) policies it issued to
Spectrum-PHPK 1178383 and PHPK 1342397. 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.
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).
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.”).
PIIC had a defense duty upon receipt of AUSD's tender.
Professional Services Exclusion
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 ...