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Government Employees Insurance Co. v. Nadkarni

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

July 11, 2019

GOVERNMENT EMPLOYEES INSURANCE COMPANY, Plaintiff,
v.
ANSHUMAN S. NADKARNI, et al., Defendants.

          ORDER DENYING DEFENDANTS' MOTION FOR JUDGMENT ON THE PLEADINGS RE: ECF NO. 7

          LAUREL BEELER UNITED STATES MAGISTRATE JUDGE

         INTRODUCTION

         The plaintiff Government Employees Insurance Company (“GEICO”) brought this declaratory-relief action to determine whether its insurance policy -- issued to the defendants Anshuman and Renuka Nadkarni, who are former landlords facing a state-court wrongful-eviction lawsuit brought by their former tenants -- requires it to defend and indemnify the Nadkarnis.[1] The defendants move for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) on the ground that GEICO has a duty to defend it as a matter of law, and GEICO counters that under the policy, it has no duty to defend or indemnify.[2] The court denies the defendants' motion for judgment on the pleadings.

         STATEMENT

         1. The Insurance Policy

         On May 9, 2018, GEICO issued Personal Umbrella Policy number P8345980 to the defendants for the policy period May 8, 2018 to May 8, 2019, “which was cancelled effective December 28, 2018” (hereinafter the “GEICO policy” or “policy”).[3] The policy limit was “$1 million above the minimum required underlying limit of primary liability insurance in the amount of $300, 000, and also subject to a ‘retained limit' of $500.”[4]

         “Under the terms of the GEICO policy, GEICO promises to pay ‘damages' on behalf of an ‘insured' arising out of an ‘occurrence, '[5] subject to the terms and conditions of this policy.”[6] The policy defines “damages” (in relevant part) as the “‘the total of: damages an “insured” must pay (1) legally; or (2) by agreement with “our” written consent; because of “personal injury” or “property” damage covered by this policy.'”[7] Under the “Conditions” section of the policy, the policy “‘applies to “personal injury” or “property damage” which takes place anywhere during the time this policy is in force, provided that suit is brought in the United States, its territories and possessions, or Canada.'”[8] The policy's definition of “personal injury” includes “wrongful eviction.” The excerpt of the policy is as follows:

         10. Personal injury means:

(a) mental or bodily injury, shock, sickness, disease or death including care and loss of services; or
(b) injury arising out of:
(i) false arrest, false imprisonment, wrongful eviction, wrongful detention or malicious prosecution; or
(ii) libel, slander, defamation of character or invasion of rights of privacy that does not arise out of any one or more of the following:
(A) any business of an insured; or
(B) oral, written or other publication of material by or at the direction of an insured with knowledge of its falsity; or
(C) oral or written publication of material that was first published before the beginning of the policy period.[9]

         Under the policy, “Property damage means physical injury or destruction of tangible property. This includes the loss of use caused by the injury or destruction. Property damage does not include the loss of money, notes, stock, bonds, or similar instruments, computer data or intellectual property.”[10]

         In the section titled “Defense of Suits Not Covered by Other Insurance, ” the policy states in relevant part, “[i]f the required ‘primary insurance' [] is in force but does not cover ‘personal injury' or ‘property damage' due to the nature of the claim against ‘you', and this policy does provide coverage, ‘we' will provide defense of suits in excess of the ‘retained limit'.”[11]

         2. The State Unlawful-Eviction Lawsuit

         In 2017, the defendants bought a residential property that was rented to tenants, who had lived there since 2008 and who had a written lease with the previous owner through April 21, 2018.[12]On March 13, 2018, the defendants served the tenants with a “60 Day Notice of Termination of Tenancy, ” which “‘provided that [the Nadkarni defendants] would be moving into the Subject Unit and that [the third-party claimants] must vacate.'”[13] According to the state complaint, the former tenants vacated the unit on April 21, 2018.[14] In November 2018, three former tenants sued the defendants for wrongful eviction on the ground that the defendants never moved into the property within three months (and did not thereafter stay for three years or offer it back to the tenants), which was the legal ground that allowed eviction.[15]

         The operative state complaint was filed on February 28, 2019, and has the following claims: (1) negligence (by demanding that the tenants vacate the property for an owner move-in and failing to move in) (resulting in serious emotional distress, property damage, property loss, loss of a rent-controlled apartment, and moving costs); (2) wrongful eviction in violation of the San Francisco Rent Ordinance (resulting in the same damages); (3) breach of the covenant of quiet enjoyment (resulting in the loss of a rent-controlled apartment, property damage, property loss, moving costs, and attorney's fees and costs); (4) intentional infliction of emotional distress (resulting in severe emotional distress, mental injury, moving costs, and lose of use and enjoyment of the rental home); (5) a violation of section 37.11A of the San Francisco Rent ordinance by not filing required documents (such as a statement of occupancy within 90 days and updated statements every 90 days thereafter, the notice to vacate, and the notice of termination of tenancy) and by failing to move into the property (resulting in loss of enjoyment of a rent-controlled unit, property damage, property loss, mental injury, emotional distress, statutory damages and penalties, attorney's fees, and litigation costs); (6) unfair business practices in violation of Cal. Bus. & Code Prof. § 17200 by (essentially) the wrongful eviction and the failure to file the documents in violation of the Rent Ordinance, resulting in illegal profits; and (8) as to one former tenant, financial elder abuse warranting punitive damages.[16]

         3. Tender by the Defendants; Coverage Investigation; Response to Tender

         On November 12, 2018, defendant Renuka Nadkarni (on behalf of all of the defendants), tendered the summons and complaint from the state unlawful-eviction action to GEICO for a defense and indemnity under the GEICO policy and advised (in an email) that “(1) ‘On 16th March [2018] a letter of Eviction was sent to the tenant with 60 days termination notice'; and (2) ‘We took possession of the unit starting May [2018]'.”[17]

         GEICO conducted a coverage investigation, which the complaint synopsizes as follows.[18]

24. In connection with its coverage investigation, GEICO obtained a copy of three “Statement[s] of Occupancy filed on behalf of the Nadkarni defendants with the San Francisco Residential Rent Stabilization and Arbitration Board. . . .
a. The “Statement of Occupancy” filed on June 11, 2018 on behalf of the Nadkarni defendants indicates that the notice to vacate the Subject Premises was served on the third-party claimants on “3/16/18” and that the Nadkarni defendants “recovered possession” of the Subject premises on “5/1/2018.”
b. The “Statement of Occupancy” filed on November 8, 2018 [on behalf of] the Nadkarni defendants indicates that the notice to vacate the Subject Premises was served on the third-party claimants on “3/16/18” and that the Nadkarni defendants “recovered possession” of the Subject premises on “5/1/2018.”
c. The “Statement of Occupancy” filed on November 16, 2018 [on behalf of] the Nadkarni defendants indicates that the notice to vacate the Subject Premises was served on the third-party claimants on “3/16/18” and that the Nadkarni defendants “recovered possession” of the Subject premises “on 30th April 2018.
25. GEICO concluded from the allegations in the [state-court] Complaint . . . as confirmed by all information which was provided by the Nadkarni defendants and which was obtained from the San Francisco Rent Stabilization and Arbitration Board that the Nadkarni defendants' exposure to liability in the [state-court] action does not present any potential liability for “personal injury” consisting of “wrongful eviction” covered by the GEICO policy which took place “during the time this policy is in force.” Rather, all undisputed information provided to GEICO indicates that any “personal injury”' consisting of “wrongful eviction” allegedly suffered by the third-party claimants occurred prior to the May 8, 2018 inception of coverage under the GEICO policy either: (1) on March 16, 2018, when the third-party tenants were served a Notice of Termination of Tenancy by the Nadkarni defendants with respect to the Subject Property; (2) on April 28, 2018, when the third-party claimants vacated the Subject Property; or (3) on April 30, 2018 or May 1, 2018, when the Nadkarni defendants recovered possession of the Subject Property
26. GEICO also “concluded from the allegations of the Complaint in [the state-court] action, as confirmed by all information provided by the Nadkarni defendants and obtained from the San Francisco Residential Rent Stabilization and Arbitration Board that the Nadkarni defendants' exposure to liability in the [state-court] action did not present any potential liability for “property damage” claims covered by the GEICO policy. Rather, none [of]the allegations or claims raised any factual potential for “property damage” as that term is defined by the GEICO policy.[19]

         On December 4, 2018, GEICO declined the defendants' tender of the state complaint for a defense and indemnity.[20] On December 8, 2018, the defendants disputed GEICO's position and asserted that GEICO must accept the tender of defense because the “wrongful eviction” occurred in August 2019 (after the expiration of the 90-day period for either an owner move-in or an offer back to the tenants) and thus was during the policy period.[21]

         On January 15, 2019, GEICO responded that it would provide a “defense . . . in the state action via independent counsel subject to a full reservation of rights under the terms of the GEICO [policy] and the law . . . . Among the specific rights reserved by GEICO . . . in the letter were:

a. The “right to disclaim coverage” for the allegations and claims raised by the Venegas action on the grounds that no “personal injury” or “property damage” took place “during the ...

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