2011-00112151-CU-BC

Centex Homes vs. Ad Land Venture

Nature of Proceeding:      Motion for Clarification or Reconsideration

Filed By:    Carrigan, Nicholas P.

The court rules as follows on Defendants’ motion for clarification and/or
reconsideration of this court’s order granting in part and denying in part Plaintiff Centex
Homes’ (“Centex”) motion for summary adjudication of the issue of Defendants’ duty to
defend:

First, Defendants move the court to clarify its order granting in part and denying in part
Centex’ motion for summary adjudication.  Defendants argue that clarification is
required because the court’s written order conflicts with statements made from the
bench at the hearing on October 9, 2013.  In its ruling on submitted matter served on
October 10, 2013, the court affirmed the tentative ruling.  At that time the court also
acknowledged that there may have been some confusion of issues during oral
argument.  The court thus clarified several issues and reiterated its conclusion in the
tentative ruling that “the SB 800 Notice of Claim would give rise to a duty to defend
under the language of the St. Paul Mercury policies.”  To the extent Defendants
contend that the court’s written ruling still conflicts with statements made from the
bench during oral argument, the court’s written ruling (the tentative ruling as affirmed
with additions in the ruling on submitted matter) supersedes any such statements from
the bench.

In reaching this conclusion, the court is aware of Defendants’ argument that the court
should not have relied on, and may have suggested at oral argument that it was not
relying on, the Tolman Declaration submitted to support Centex’s motion for summary
adjudication.  The Tolman Declaration contains an expert opinion that damage to the
homes in the underlying construction defect action probably commenced immediately
after each home was constructed.  Defendants argued at the hearing and continue to
argue that the court should not have relied on the Tolman Declaration because it
contains a fact, i.e., Tolman’s opinion about the time that damage likely occurred, of
which Defendants were not aware at the time Centex forwarded the SB 800 Notice of
Claim.

The court referred to the Tolman Declaration in its written ruling because it reflects a
factual scenario in which damage occurred within the applicable policies’ coverage
provisions, i.e., while “your work” was still being performed at the project.  The Tolman
Declaration thus reinforced the court’s conclusion that the SB 800 Notice of Claim in
and of itself gave rise to a duty to defend.  That is, because the Notice of Claim does
not indicate when damage occurred, and thus presents the possibility that damage
commenced immediately after each home was constructed, the potential for coverage
inheres in the SB 800 Notice of Claim.  Hence, the SB 800 Notice of Claim gave rise to
a duty to defend.  Even without the Tolman Declaration, the court would have ruled as
it did.               Finally, Defendants ask the court to reconsider its ruling in light of San Miguel
Community Association v. State Farm General Insurance Company [“San Miguel”]
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(2013) 220 Cal.App.4   798.  The Court of Appeal did not issue the San Miguel opinion
until after the parties had briefed Centex’s motion for summary adjudication.  San
Miguel involved residents’ claims against a residential community association for the
latter’s failure to enforce parking restrictions set forth in the CC&Rs.  The question in
San Miguel was whether the insurer owed a duty to defend the association when the
residents’ allegations and the extrinsic facts known to the insurer disclosed that the
residents were only seeking injunctive relief, not the “damages” that the policy
covered.  Under such circumstances, the San Miguel court held that the insurer did not
owe a duty to defend because there was no possibility for coverage under the policy.

San Miguel is inapposite because the SB 800 Notice of Claim in the instant case
makes numerous references to physical defects in subject homes.  It is difficult if not
impossible to construe the SB 800 Notice of Claim as anything other than a statement
of damages.  In fact, CC § 896 provides that the actionable defects subject to the SB
800 procedures relate to “recovery of damages” for deficiencies in residential
construction, design, etc.  (See also CC § 944 [SB 800 contemplates claims for
damages].)  San Miguel does not command this court to modify its ruling on Centex’s
motion for summary adjudication.

Defendants’ request for judicial notice of the San Miguel opinion is GRANTED.

The minute order is effective immediately.  No formal order pursuant to CRC 3.1312 or
further notice is required.

Item   4     2011-00112151-CU-BC

Centex Homes vs. Ad Land Venture

Nature of Proceeding:      Motion for Summary Adjudication (Control of Centex Homes’ Defense)

Filed By:   Mills, Graham C.

Plaintiff and Cross-Defendant Centex Homes’ (“Centex”) motion for summary
adjudication of its first and second causes of action against Defendants Travelers
Property Casualty Company of America, St. Paul Fire and Marine Insurance Company,
St. Paul Mercury Insurance Company (“St. Paul Mercury”), and Fidelity and Guaranty
Insurance Company (“Fidelity and Guaranty”) (collectively “Defendants”), as well as
the third and ninth causes of action in the first amended cross-complaint (“FACC”) of
Defendants and Cross-Complainants St. Paul Mercury and Fidelity and Guaranty is
DENIED.

Factual/Procedural Background

This is an insurance coverage dispute.  Centex developed a residential project
(“Project”) and required subcontractor and Defendant herein Ad Land Venture (“Ad  Land”) to name it as an additional insured under its (Ad Land’s) liability policies.
Between approximately March 2005 and January 2009, Ad Land performed
landscaping, irrigation, drainage and grading services at the Project.  Ad Land
obtained additional-insured coverage for Centex from St. Paul Mercury in four policies
providing coverage between October 1, 2004 and June 1, 2008.

On June 3, 2011, and pursuant to SB 800 (codified at CC §§ 895 et seq.), numerous
homeowners within the Project collectively served Centex with a Notice of Claim that
their properties suffered from construction defects.  On June 22, 2011, Centex
forwarded the Notice of Claim to St. Paul Mercury and tendered a defense under the
above-cited Ad Land policies.  On August 17 and August 26, 2011, St. Paul Mercury
served Centex with written notices that it was denying coverage.

The homeowners filed a civil complaint in what the parties herein refer to as the  Van
Loon action against Centex.  Based on the policy it issued for the period between June
2006 and June 2008 only, St. Paul Mercury agreed to provide Centex a defense in the
Van Loon action under a reservation of rights.  St. Paul Mercury reimbursed Centex
$272,297.23 in defense fees/costs that Centex incurred before St. Paul Mercury
agreed to provide a defense.  St. Paul Mercury subsequently contributed to a
monetary settlement that resulted in the homeowners’ release of claims based upon
Ad Land’s work.  St. Paul Mercury nonetheless maintains that it never had a
contractual duty to defend Centex and that it is entitled to reimbursement of its defense
costs.

The issue raised in the instant motion is whether, once it denied coverage in the SB
800 Proceedings, St. Paul Mercury nonetheless had the right to control Centex’s
defense, i.e., retain counsel of its choice, when it subsequently decided to undertake
the defense subject to a reservation of rights in the  Van Loon action.  In support of the
motion, Centex has submitted a separate statement with a single set of 12 material
facts.

Discussion

At the outset, the court notes an issue that Defendants raise in the Opposition, namely
whether Centex’s motion addresses any issue that the court may summarily
adjudicate.  The Notice of Motion indicates that Centex seeks summary adjudication
that Defendants had no right to control Centex’s defense in the  Van Loon action.
(Notice at 1:8.)  As Defendants observe, the existence of a right vel non is not in itself
a proper issue for summary adjudication.  (See CCP § 437c(f)(1).)  The court may only
enter an order that summarily adjudicates an entire cause of action, and entire
affirmative defense, an issue of duty or a claim for damages.  (Id.)  Centex’s
observation, that the disputed right to control its defense involves a pure question of
law, does not expand the limitations on the court’s authority to summarily adjudicate
issues.  (See Reply at 2:25-3:10.)

However, the Notice of Motion further indicates that Centex seeks “this relief” as to the
first and second causes of action in the complaint and the third and ninth causes of
action in the FACC.  (See Notice at 1:10-20.)  Furthermore, the Conclusion section in
the Moving Memorandum of Points and Authorities contains an assertion that Centex
is entitled to “prevail” on its first and second causes of action as well as the third and
ninth causes of action in the FACC.  Under these circumstances, the court construes
the motion as one for summary adjudication of the named causes of action, not an  invalid motion for summary adjudication of a right.

At the same time, however, the court rejects Centex’s characterization, made for the
first time in the Reply, that the motion is actually one for summary adjudication of an
issue of duty.  (See Reply at 3:5-6.)  Even if the court could divine the particular duty in
question (the duty to defend without any right to control the defense?), it would not
summarily adjudicate such a duty given Centex’s failure to provide Defendants with
statutory notice of the duty in question.  In other words, the court cannot say that, had
Centex stated in its moving papers that it sought summary adjudication of an issue of
duty, that Defendants would have submitted the opposing papers that have actually
submitted.  On the contrary, it seems entirely possible that Defendants would have
crafted different points and authorities, and perhaps submitted different evidence, if
Centex had denominated its motion as one for adjudication of an issue of duty, rather
than as one for adjudication of causes of action based upon the asserted nonexistence
of a particular right.  Given the due process implications of construing Centex’s motion
as one for summary adjudication of an issue of duty, the court declines to do so.

Centex’s First Cause of Action for Declaratory Relief

Summary adjudication is DENIED.

The court denies summary adjudication because the order sought would not dispose
of the entire first cause of action.  By its First Cause of Action for Declaratory Relief,
Centex seeks a declaration of four distinct rights and duties.  Among these four is
Defendants’ purported duty, under the additional insured endorsements, to “provide
coverage for all damages arising from the operations of the respective named
insureds.”  (See Compl., ¶ 29(c).)  Whether any of the Defendants lost the right to
control Centex’s defense in the  Van Loon action does not answer the question whether
Defendants had a duty to provide coverage for all damages associated with named
insureds’ operations.  Hence, even if there is merit to Centex’s contention that
Defendants lost any right to control Centex’s defense in the Van Loon action, summary
adjudication would not be available because the contention does not dispose of the
entire first cause of action.  (CCP § 437c(f)(1).)

Centex’s Second Cause of Action for Breach of Contract

Summary adjudication is DENIED.

In order to prevail on its second cause of action, Centex was required to produce
evidence demonstrating the nonexistence of any triable issue as to each legal element
of breach of contract.  (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 853.)
The elements of breach of contract are “(1) the existence of the contract, (2) plaintiff’s
performance or excuse for nonperformance, (3) defendant’s breach, and (4) the
resulting damages to the plaintiff.”  (Oasis West Realty, LLC v. Goldman (2011) 51
Cal.4th 811, 821.)  Centex’s separate statement of material facts does not contain any
facts establishing resulting damages.  As a consequence, Centex has failed to meet its
burden of production, and the motion must be denied.

St. Paul Mercury’s Third Cause of Action for Breach of the Implied Covenant of Good
Faith and Fair Dealing

Summary adjudication is DENIED. St. Paul Mercury’s third cause of action is based on the following allegedly wrongful
conduct by Centex:

“St. Paul alleges that Centex has and continues to engage in a pattern
and course of practice wherein it limits its tenders of defense to ‘only’
Travelers’ entities, and then, when such tenders are accepted, objects to
and/or refuses to cooperate with the retained defense counsel, and
instead, engages in extended and protracted litigation challenging
Travelers’ right to defend under the insuring agreements, despite that
fact that the issue has already been decided by at least one court.”

(See FACC, ¶ 87.)  Centex argues that, because St. Paul Mercury initially denied
coverage, St. Paul Mercury lost the right to control Centex’s defense in the  Van Loon
action and, therefore, that Centex’s alleged failure to cooperate with St. Paul Mercury’s
control of Centex’s defense was not a breach of any obligation as a matter of law.
Even if Centex is correct, however, St. Paul Mercury’s allegations go beyond the Van
Loon action and encompass a course of dealing that implicates multiple contracts for
insurance.  Centex has not produced evidence demonstrating that St. Paul Mercury
will be unable to establish the elements of the third cause of action as to any contract
for insurance other than the ones at issue in the  Van Loon action.  In other words,
Centex has not confronted the scope of St. Paul Mercury’s allegations and therefore
has failed to demonstrate that it is entitled to adjudication as a matter of law.

St. Paul Mercury’s Ninth Cause of Action for Equitable Reimbursement

Summary adjudication is DENIED.

St. Paul Mercury’s ninth cause of action contains two “counts” for equitable
reimbursement, only one of which is based on Centex’s tender of a defense as an
additional insured in the  Van Loon litigation.  Centex’s moving papers do not address
St. Paul Mercury’s second count, which involves the “Redig” action.  Consequently,
even if the court agreed with Centex that St. Paul Mercury is not entitled to equitable
reimbursement in conjunction with defense costs incurred in the Van Loon action,
Centex’s motion would not dispose of the entire ninth cause of action, and summary
adjudication would not be warranted.  In reaching this conclusion, the court notes that
Centex has not argued that the two counts in the ninth cause of action may be
adjudicated separately under Lilienthal & Fowler v. Superior Court (1993) 12
Cal.App.4th 1848.  Accordingly, the court has no occasion to consider whether relief
under that case would be appropriate.

Even if the court were to conclude that the first count in the ninth cause of action was
otherwise appropriate for summary adjudication, however, it would deny relief.  In the
first count, St. Paul Mercury alleges that it is entitled to equitable reimbursement for
defense costs based on claims that were not actually within the scope of the policies.
Thus, the ninth cause of action is not limited to the question whether Centex was
required to cooperate with counsel of St. Paul Mercury’s choice as defense costs were
incurred on covered claims.  Rather, St. Paul Mercury’s allegations extend to the
question whether, when St. Paul Mercury reimbursed Centex for its defense costs and
subsequently settled the  Van Loon action, it paid to defend and settle claims to which
Centex was not actually entitled to a defense.  (Compare Buss v. Superior Court
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(1997) 16 Cal.4   35, 47 [“[I]n an action wherein all the claims are at least potentially
covered, the insurer has a duty to defend”] [brackets and emphasis added] with id. at
48 [“[I]n a ‘mixed’ action, in which some of the claims are at least potentially covered
and the others are not, the insurer has a duty to defend as to the claims that are at
least potentially covered, having been paid premiums by the insured therefore, but
does not have a duty to defend as to those that are not, not having been paid
therefore”] [brackets added].)  Although this court ruled in its 10/09/13 order that
Centex’ tender of the SB 800 Notice of Claim gave rise to a duty to defend under the
St. Paul Mercury policies, the court was not asked to decide, and did not decide,
whether every claim in the SB 800 Notice of Claim was potentially covered.  Nor does
Centex’s evidence submitted in support of the motion demonstrate the nonexistence of
a triable issue of material fact as to whether St. Paul Mercury’s policies and additional
insured endorsements covered all such claims.  Hence, triable issues of material fact
remain on the question of equitable reimbursement, and summary adjudication is
denied.

Judicial Notice

Centex’s request for judicial notice of court documents is GRANTED.  In taking judicial
notice of these documents, the court accepts the fact of their existence, not the truth of
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their contents.  (See Professional Engineers v. Dep’t of Transp. (1997) 15 Cal.4   543,
590 [judicial notice of findings of fact does not mean that those findings of fact are
true]; Steed v. Department of Consumer Affairs (2012) 204 Cal.App.4th 112, 120-121.)

Evidentiary Objections

Centex’s evidentiary objections are SUSTAINED.

Conclusion

The motion is denied.

The minute order is effective immediately.  No formal order pursuant to CRC 3.1312 or
further notice is required.