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Conway v. Northfield Insurance Co.

United States District Court, N.D. California

July 16, 2019

Shirley Conway, Plaintiff,
Northfield Insurance Company, Defendant.



         The Court considers herein cross motions for summary judgment by plaintiff Shirley Conway (“Conway”) and defendant Northfield Insurance Company (“Northfield”) regarding the latter's duty to defend in an underlying landlord-tenant action. (Dkt. Nos. 18, 19.) The Court heard oral argument on the motions on April 30, 2019.

         Having considered the parties' written and oral arguments, and the admissible evidence submitted, and for the reasons set forth herein, the Court Orders as follows: (1) Conway's motion for partial summary judgment is Granted, and (2) Northfield's cross-motion for summary judgment is Denied. The Court finds that the undisputed material facts show that there is a potential for coverage under the insurance policies at issue for claims raised in the underlying litigation. More specifically, the underlying action involves potential claims arising under Coverage A and Coverage B, and no relevant exclusions apply. Accordingly, Northfield has a duty to defend.

         I. Summary of Facts

         A. The Underlying Action

         The instant complaint stems from a coverage dispute related to an action filed in the Superior Court for the State of California, County of San Francisco, captioned Supmitchotima v. Conway, Case No. CGC-18-564336. The complaint in the underlying action, filed February 14, 2018, concerns a property owned by Conway located at 3295 Mission Street in San Francisco. (Joint Appendix of Exhibits (“JA”), Ex. A (“Compl.”) ¶¶ 6-7.) That complaint alleges, in pertinent part, as follows:

• In January 2009, plaintiff Ratinun Supmitchotima assumed liability under an existing lease for the property, which had been used to operate a restaurant called Pad Thai. (Id. ¶ 6.) Beginning in 2009 and continuing throughout the relevant period, Conway repeatedly told Supmitchotima that Conway would sell the building to plaintiff. (Id. ¶ 8.) In reliance on these representations, Supmitchotima executed a new lease for the property in 2014. (Id. ¶¶ 9-10.) The lease not only concerned the commercial space, but included use of a residential space on the second floor by Supmitchotima and her family. (Id. ¶ 10.)
• As to the residential space, Conway failed to disclose that the second floor of the building was not a legal residential unit, but rather, was zoned for “commercial” use, and never sought to convert the residential space into a legal residential unit. (Id. ¶ 11.) Moreover, the San Francisco Building Department never issued a certificate of occupancy permitting any portion of the building to be used as a residence. (Id.) Numerous problems affected the residential unit, including a leaky roof, mold, inadequate ventilation, and power outages, which rendered the residential space unsafe for occupancy. (Id. ¶¶ 13, 52.)
• Next, the building required significant repair work that interfered with Supmitchotima's operation of the restaurant. (Id. ¶ 13.) Specifically, the foundation of the building had structural problems requiring extensive repair work, including work on the bathrooms in the restaurant. (Id.) Conway failed to instruct her contractor to attempt to perform repair work outside restaurant hours. (Id.) As a result, Supmitchotima was forced to close the restaurant for several weeks in the spring of 2016. (Id.) The repair work and consequent closures of the restaurant resulted in Supmitchotima losing five restaurant employees. (Id. ¶ 16.) Conway also placed construction signs in front of the restaurant and did not remove them until November 2016, even though no construction vehicles were using the space for at least a portion of that time. (Id. ¶ 47.)
• In 2017, Conway's attorney sent notices to Supmitchotima stating that the 2015 lease was in default because of Supmitchotima's supposed failure to secure proper liability and property insurance. (Id. ¶ 17.) Conway's attorney threatened to evict Supmitchotima and her family. (Id.)
• Due to the disruption caused to the restaurant by the repair work, and Conway's demands that Supmitchotima fund the repairs herself, Supmitchotima had to close her business after nine years of operation. (Id. ¶ 19.)

         The complaint includes claims for, among other things, tortious interference with prospective economic relations and contract, breach of contract, negligence, and fraud. (Id. ¶¶ 22-74.)

         On June 15, 2018, Conway filed a cross-complaint in the underlying action seeking, among other things, to have Supmitchotima removed from the property. (JA, Ex. F (“Cross-Compl.”) ¶¶ 43-44.) The cross-complaint alleges that Supmitchotima told Conway that she had obtained all necessary permits to install a kitchen and bathroom on the property and had certified the residential space for use as a dwelling, all of which was false. (Id. ¶ 7.) The cross-complaint further alleges that Supmitchotima hired unlicensed individuals to perform repairs on the property without Conway's consent. (Id. ¶ 9.)[1]

         B. The Policies

         Northfield issued two successive commercial general liability policies to Conway, with effective policy periods of August 26, 2016 through August 26, 2017, and August 26, 2017 through August 26, 2018. (JA, Exs. D and E (collectively, the “Policies”).)[2]

         “Coverage A” of the Policies provides coverage for “bodily injury and property damage liability.” (JA, Ex. D at 21; JA, Ex. E at 21.)[3] “Property damage, ” as defined in the Policies, includes “loss of use of tangible property that is not physically injured.” (JA, Ex. D at 51; JA, Ex. E at 51.) The Policies provide that any such loss of use “shall be deemed to occur at the time of the ‘occurrence' that caused it.” (JA, Ex. D at 51; JA, Ex. E at 51.) “Occurrence, ” in turn, is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (JA, Ex. D at 34; JA, Ex. E at 34.)

         “Coverage B” provides coverage for “personal and advertising injury liability.” (JA, Ex. D at 25; JA, Ex. E at 25.) “Personal and advertising injury” is defined in the Policies as any injury, other than bodily injury, that arises out of, among other things, “[t]he wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling[, ] or premises that a person occupies, committed by or on behalf of its owner, landlord[, ] or lessor.” (JA, Ex. D at 34; JA, Ex. E at 34.)

         In relevant part, the Policies contain the following exclusions from coverage:

         Habitability of Premises

          “Bodily injury” or “property damage” . . . [or] “Personal and advertising injury”:

(1) Arising out of the:
(a) Actual or alleged violation of any federal, state or local law, code, regulation, ordinance or rule relating to the habitability of any premises;
(b) Breach of any lease, rental agreement, warranty or covenant to maintain a premises in a habitable condition; or
(c) Wrongful eviction from, wrongful entry into or invasion of the right of private occupancy of a room, dwelling or premises, whether actual or constructive, due to failure to maintain a premises in a habitable condition;
(2) Alleged in any claim or “suit” that also alleges any violation, breach or wrongful eviction, entry or invasion as set forth in Paragraphs (1) (a) - (c) above.

         (JA, Ex. D at 68; JA, Ex. E at 68.)

         Independent Contractors

“Bodily injury, ” [] “property damage” . . . [or] “[p]ersonal and advertising injury” arising out of the operations of any independent contractor performed for or on behalf of any insured.

         (JA, Ex. D at 42; JA, Ex. E at 42.)

         The Policies also exclude from coverage “[p]roperty damage” to “[p]roperty [the insured] own[s], rent[s], or occup[ies], ” as well as “[p]roperty damage” to “[t]hat particular part of real property on which you or any contractors or subcontractors working . . . on your behalf are performing operations[.]” (JA, Ex. D at 24; JA, Ex. E at 24.)

         II. Applicable Standards

         A. Summary Judgment

         The parties each have filed motions for summary judgment on the issue of whether Northfield has a duty to defend Conway. Summary judgment is appropriate where “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Summary judgment is mandated “against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “[W]hen parties submit cross-motions for summary judgment, each motion must be considered on its own merits.” Fair Hous. Council of Riverside Cty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001) (alteration and internal quotation marks omitted). Thus, “[t]he court must rule on each party's motion on an individual and separate basis, determining, for each side, whether a judgment may be entered in accordance with the Rule 56 standard.” Id. (quoting Wright, ...

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