Integon National Insurance Co. v. Reece

          MEMORANDUM DECISION AND ORDER RE MOTIONS FOR SUMMARY JUDGMENT (ECF NOS. 24, 25)

          LAWRENCE J. O'NEILL UNITED STATES CHIEF DISTRICT JUDGE

         I. INTRODUCTION

         This is an insurance coverage dispute between Plaintiff Integon National Insurance Company (“Integon”) and Defendants Billy Reece, Amber Reece (the “Reeces”), and C.N., a minor, by and through his guardian ad-litem Callie Nielsen (“C.N.”) (collectively “Defendants”). The dispute concerns coverage for claims asserted against the Reeces by C.N. in an action filed in March 2018 and currently pending in California Superior Court for the County of Kern. On September 4, 2018, Integon brought this diversity jurisdiction action pursuant to 28 U.S.C. § 1332 against the Reeces, and also named C.N., who is the plaintiff in the state court action. ECF No. 1. Integon alleges one claim against Defendants seeking declaratory relief, asking the Court to find that Integon has no duty to defend and no duty to indemnify the Reeces in the state court action based on the homeowner's insurance policy's motor vehicle exclusion. The Reeces filed a counterclaim for (1) declaratory relief as to whether the state court action against the Reeces is covered by the policy and whether Integon is required to provide them with independent counsel at Integon's expense; (2) for breach of written contract; and (3) for breach of the covenant of good faith and fair dealing. ECF No. 11.

         On July 8, 2019, Integon and the Reeces both filed motions for summary judgment pursuant to Federal Rule of Civil Procedure 56. ECF Nos. 24-25. Oppositions were filed on July 22, 2019. ECF No. 5.^[1] Replies were filed on July 29, 2019. ECF Nos. 29-30. The issue presented on these summary judgment motions is whether a motor vehicle exclusion in the Reeces' homeowner's insurance policy excludes coverage for the Reeces' liability in the underlying state court litigation. Additionally, the Reeces claim they are entitled to summary judgment on the issue of whether Integon should be required to pay for independent counsel in the state court action. The Court finds it appropriate to rule on the motions without oral argument. See Local Rule 230(g). Having considered the parties' briefing and the relevant law, the Court issues the following order.

         II. FACTUAL BACKGROUND

         The parties agree on all material facts as submitted in the joint statement of undisputed facts. ECF No. 25-3, (“UMF”).^[2]

         On March 28, 2018, C.N. filed a complaint in Kern County Superior Court, Case No. BCV-18-100719, in connection with injuries that C.N. suffered in an accident involving a golf cart owned by the Reeces (the “Underlying Action” or “C.N. Action”). UMF 14; ECF No. 11 at Ex. B. The Underlying Action alleges that on December 22, 2017, C.N. was injured when he fell off the golf cart that was driven by K.R., ^[3] an unlicensed minor. UMF 17. K.R. is the Reeces' niece. UMF 47(d). The Underlying Action alleges various causes of action against the Reeces including that they:

• “did negligently and carelessly own, rent, lease, bail, operate, control, repair, maintain and entrust” the golf cart

• “did negligently and carelessly fail to properly supervise, protect, and control minor children at [the Property], including [C.N.], by providing Defendant, [K.R.], an unlicensed minor, with [the golf cart].”

• were negligent in “allowing and permitting [K.R.], an unlicensed minor, to operate [the golf cart] on a public roadway with other minor children as passengers, including [C.N.].”

• “had actual and/or constructive knowledge, and knew and/or reasonably should have known, that Defendant, [K.R.], an unlicensed minor, would not and could not safely drive, operate, control, possess, and manage [the golf cart] on a public roadway, and negligently and carelessly failed to prevent Defendant, [K.R.], from operating [the golf cart] with minor passengers on a public roadway.”

• were negligent in failing to prevent an unlicensed minor from operating the golf cart in violation of Vehicle Code §12500(a)

• were negligent in failing comply with Vehicle Code §27360.5 by ensuring C.N. was transported in the golf cart using appropriate child passenger restraint system or safety belt

• were negligent in failing to register the golf cart in violation of Vehicle Code §§4000 and 21251.

UMF 18-24. C.N. alleges that he suffered damages resulting from the accident in the amount of $20, 000, 000. UMF 25.

         Integon issued a homeowner's insurance policy to the Reeces, Policy No. 2004464223, effective for the policy period December 19, 2017 to December 19, 2018 (“Integon Policy” or the “Policy”). UMF 5; ECF No. 11, Ex. A. The Policy was in effect on the date of the subject accident and all premiums were paid. UMF 9-10. The Policy has personal liability limits of $300, 000 per occurrence and $5, 000, for medical payments to others. ECF No. 11, Ex. B at 12.^[4] The Policy's “Coverage E” provides personal liability coverage “[i]f a claim is made or a suit is brought against an ‘insured' for damages because of ‘bodily injury' or ‘property damage' caused by an ‘occurrence' to which this coverage applies.” UMF 34; ECF No. 11, Ex. B at 69. The Policy's “Coverage F” provides coverage for medical payments to others when the medical expenses are “incurred or medically ascertained within three years from the date of an accident causing ‘bodily injury.'” UMF 35; ECF No. 11, Ex. B at 69. As it pertains to Coverage E and F, the Policy has an exclusion for “Motor Vehicle Liability.” Id.; UMF 36. “Motor Vehicle Liability” is defined under the Policy as:

         Liability for “bodily injury” or “property damage” arising out of the:

(1) Ownership of such vehicle or craft by an “insured”;

(2) Maintenance, occupancy, operation, use, loading or unloading of such vehicle or craft by any person;

(3) Entrustment of such vehicle or craft by an “insured” to any person;

(4) Failure to supervise or negligent supervision of any person involving such vehicle or craft by an “insured”; or

(5) Vicarious liability, whether or not imposed by law, for the actions of a child or minor involving such vehicle or craft.

UMF 28; ECF No. 11, Ex. B at 55.

         The motor vehicle exclusion under Section II - A.1 in part states that:

Coverages E [personal liability] and F [medical payments to others] do not apply to any “motor vehicle liability” if, at the time and place of an “occurrence”, the involved “motor vehicle”:

a. Is registered for use on public roads or property;

b. Is not registered for use on public roads or property, but such registration is required by a law, or regulation issued by a government agency, for it to be used at the place of the ‘occurrence'; …

UMF 36; ECF No. 11, Ex. B at 69.

         The Policy further provides under ...