Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_05-cv-02027/USCOURTS-casd-3_05-cv-02027-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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05cv2027

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

WPB NO. 1, LLC,

Plaintiff,

v.

VALLEY FORGE INSURANCE

COMPANY,

Defendant.

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Civil No. 05cv2027-L(BLM)

ORDER 

(1) DENYING PLAINTIFF’S

MOTION FOR SUMMARY

JUDGMENT, OR

ALTERNATIVELY, FOR PARTIAL

SUMMARY JUDGMENT; AND 

(2) GRANTING DEFENDANT’S

MOTION FOR SUMMARY

JUDGMENT AND DENYING AS

MOOT ITS ALTERNATIVE

MOTION FOR PARTIAL

SUMMARY JUDGMENT

Plaintiff WPB No. 1, LLC purchased an insurance policy from Defendant Valley Forge

Insurance Company to insure its property in Florida, including a commercial building. During

the policy period, the building was damaged by Hurricane Jeanne. As a result of the hurricane,

mold developed in the property. Plaintiff incurred $747,664.24 in expenses to repair hurricane

damage, of which $328,363.73 is attributable to mold remediation. Defendant agreed to

reimburse Plaintiff for the loss; however, it refused to pay for mold remediation in excess of

$15,000. This action arises out of the parties’ dispute to what extent mold damage is covered by

the policy. 

/ / / / /

Case 3:05-cv-02027-L-BLM Document 43 Filed 03/27/07 Page 1 of 8
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2 05cv2027

Plaintiff filed a complaint in San Diego County Superior Court for breach of contract and

breach of the implied covenant of good faith and fair dealing. Defendant removed the action to

this court based on diversity jurisdiction. The parties filed cross-motions for summary judgment,

or in the alternative for partial summary judgment. For the reasons which follow, Defendant’s

motion for summary judgment is GRANTED, its alternative motion for a partial summary

judgment is DENIED as moot, and Plaintiff’s motion is DENIED.

As to the breach of contract claim, the parties’ arguments are focused on policy

interpretation. While Defendant argues that the policy unambiguously limits mold coverage to

$15,000, Plaintiff argues the mold provisions are ambiguous, and should be construed in favor of

greater coverage. 

At the outset, however, the parties raise a choice of law issue, since the insured property

is located in Florida, and the policy does not include a choice of law provision. Under the Erie

doctrine, federal courts in diversity cases use the substantive choice of law rules of the forum

state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Shannon-Vail Five, Inc.

v. Bunch, 270 F.3d 1207, 1210 (9th Cir. 2001). Under California law, “[t]he fact that two states

are involved does not in itself indicate that there is a conflict of laws or choice of law problem. 

There is obviously no problem where the laws of the two states are identical.” Stonewall

Surplus Lines Ins. Co. v. Johnson Controls, Inc., 14 Cal. App. 4th 637, 642 (1993) (internal

quotation marks and citations omitted). 

The parties agree that insurance policy interpretation laws in California and Florida are

the same, in that the court first looks to the language of the policy itself. (Def.’s Mem. of P. &

A. in Supp. of Mot. for Summ. J. or in the Alternative Mot. for Partial Summ. J. at 6; Pl.’s Mem.

of P. & A. in Opp’n to Def.’s Mtn for Summ. J. at 16 (“Both California and Florida recognize

the same rules of insurance policy interpretation.”) The starting point of policy interpretation

under California and Florida law is the express language of the policy itself. If the language is

unambiguous, the court need not look further. In California, 

[u]nder statutory rules of contract interpretation, the mutual intention of the parties

at the time the contract is formed governs interpretation. Such intent is to be

inferred, if possible, solely from the written provisions of the contract. 

Case 3:05-cv-02027-L-BLM Document 43 Filed 03/27/07 Page 2 of 8
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1 Defendant does not dispute that Plaintiff’s Florida building is Covered Property

under the policy.

3 05cv2027

AIU Ins. Co. v. Super. Ct. (MFC Corp.), 51 Cal.3d 807, 822-23 (1990) (internal citations

omitted). Similarly, under Florida law, 

[w]e must begin by looking to the language of the policy. If the language used in

an insurance policy is plain and unambiguous, a court must interpret the policy in

accordance with the plain meaning of the language used so as to give effect to the

policy as it was written. 

Travelers Indem. Co. v. PCR Inc., 889 So.2d 779, 785 (Fla. 2004) (internal quotation marks and

citations omitted). Either state’s insurance contract interpretation laws lead to the same

outcome. Accordingly, as to policy interpretation, the choice of law issue is moot. Beech

Aircraft Corp. v. Super. Ct. of Los Angeles County (Aanestad), 61 Cal. App. 3d 501, 518 (1976).

In this case, the coverage provision of the policy’s Special Property Coverage Form states

in pertinent part:

Various provisions in this policy restrict coverage. Read the entire policy carefully

to determine rights, duties and what is and is not covered. . . . [¶]

A. COVERAGE

We will pay for direct physical loss of or damage to Covered Property1

 . . . caused by or resulting from any Covered Cause Of Loss.

[¶]

3. Covered Causes of Loss

RISKS OF DIRECT PHYSICAL LOSS unless the loss is:

a. Excluded in section B. EXCLUSIONS;

b. Limited in paragraph A.4 Limitations; or

c. Excluded or limited by other provisions of this policy.

(Decl. of Derrick R. Sturm, Esq. in Supp. of Valley Forge Ins. Co.’s Mot for Summ. J. or in the

Alternative Mot. for Partial Summ. J., Ex. B, Business Account Package Policy (“Policy”) at

Plaintiff0031-32 (all emphases in original).) 

Plaintiff argues that Paragraph A, the insuring clause, is very broad and “expressly covers

all damages caused by a windstorm.” (Pl’s Mot. for Summ. J., or Alternatively, for Partial

Summ. J., Mem. of P. & A., at 8. (emphasis in original).) In making this argument, however,

Case 3:05-cv-02027-L-BLM Document 43 Filed 03/27/07 Page 3 of 8
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2 “‘Specified Causes of Loss’ means the following: [¶] Fire; lightning; explosion,

windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from

fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow,

ice or sleet; water damage.” (Policy at Plaintiff0050.) 

4 05cv2027

Plaintiff ignores the introductory sentence admonishing the reader to read the entire policy

because various provisions restrict coverage, and Paragraph A.3. which references exclusions

and limitations. (Policy at Plaintiff0031-32.) 

Accordingly, to determine whether Plaintiff’s mold damage is covered, exclusions and

limitations must be examined next. These provisions state in pertinent part:

B. EXCLUSIONS

1. We will not pay for loss or damage caused directly or indirectly by

any of the following. Such loss or damage is excluded regardless of

any other cause or event that contributes concurrently or in any other

sequence to the loss.

(Policy at Plaintiff0041.) Although the exclusions listed immediately below this provision do

not refer to mold, the policy includes a separate “Fungus,” Wet Rot, Dry Rot and Bacteria

Exclusion/Limited Coverage endorsement, which does:

A. The following is added to Section B. EXCLUSIONS, Paragraph 1.:

“Fungus,” Wet Rot, Dry Rot and Bacteria

Presence, growth, proliferation, spread or any activity of “fungus,” wet or

dry rot or bacteria.

But if “fungus,” wet or dry rot or bacteria results in a “specified cause of

loss,”2

 we will pay for the loss or damage caused by that “specified cause of

loss.”

(Policy at Plaintiff0027 (all emphases in original).) Accordingly, mold is excluded from

coverage, except if it “results in” a specified cause of loss. Plaintiff does not contend that mold

in this case resulted in a specified cause of loss. 

/ / / / /

/ / / / /

/ / / / /

/ / / / /

Case 3:05-cv-02027-L-BLM Document 43 Filed 03/27/07 Page 4 of 8
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3 Defendant concedes the mold damage in this case is the result of a Covered Cause

of Loss under the policy. For purposes of its summary judgment motion, Defendant also

assumes that the remaining conditions of this paragraph are satisfied. (Def.’s Mem. of P. & A.

in Supp. of Mot. for Summ. J. or in the Alternative Mot. for Partial Summ. J. at 12.)

4 Neither party contends that a different limit is shown in the Declarations.

5 05cv2027

Therefore, the next step is to examine the policy for any applicable exceptions to the mold

exclusion. In this regard, the policy provides: 

This exclusion does not apply: [¶]

2. To the extent that coverage is provided in the Additional Coverage -

Limited Coverage For “Fungus,” Wet Rot, Dry Rot and Bacteria

Section of this endorsement.

(Id. (emphasis in original).) Since the endorsement includes a limited coverage provision for

mold, the mold exclusion does not apply, and coverage is provided as stated in the endorsement:

D. The following is added to Section A. COVERAGE, Paragraph 5. (Special

Property Coverage Form) . . . :

Additional Coverage - Limited Coverage for “Fungus,” Wet Rot, Dry

Rot and Bacteria

1. The coverage described below in paragraph D.2. and D.6. of this

Limited Coverage endorsement only applies when the “fungus,” wet

or dry rot or bacteria is the result of Covered Causes of Loss other

than fire or lightning that occur during the policy period and only if

all reasonable means were used to save and preserve the property

from further damage at the time of and after that occurrence.3

2. We will pay for loss or damage by “fungus,” wet or dry rot or

bacteria. As used in this Limited Coverage, the term loss or damage

means:

a. Direct physical loss or damage to Covered Property caused by

“fungus,” wet or dry rot or bacteria . . . [¶]

3. The coverage described under paragraph D.2. of this Limited

Coverage endorsement is limited to $15,000, unless a different limit

is shown in the Declarations.4

 Regardless of the number of claims,

this limit is the most we will pay for the total of all loss or damage

arising out of all occurrences of Covered Causes of Loss (other than

fire or lightning) which take place in a 12-month period . . .. With

respect to a particular occurrence of loss which results in “fungus,”

wet or dry rot or bacteria, we will not pay more than a total of

$15,000 . . ., even if the “fungus,” wet or dry rot or bacteria

continues to be present or active, or recurs, in a later policy period.

(Id. (all emphases in original).) 

Case 3:05-cv-02027-L-BLM Document 43 Filed 03/27/07 Page 5 of 8
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6 05cv2027

Based on the plain policy language, the most Plaintiff can recover for mold is $15,000,

the amount Defendant paid Plaintiff. Plaintiff’s arguments that the policy is ambiguous and

should be interpreted in favor of greater coverage are unavailing.

First, Plaintiff complains the policy’s mold provisions are ambiguous because they are

found in several places in the policy, and because using endorsements for contemporaneous

policy amendments is unnecessary given the widespread use of computes with word processing

programs. Plaintiff is correct that the policy would be easier to follow if its numerous

endorsements were incorporated in the pertinent portions of the policy, rather than included as

attachments. Nevertheless, the court disagrees that the policy’s fractured structure by itself

makes it ambiguous.

Second, Plaintiff argues the mold exclusion is ambiguous in the context of the instant

claim. Specifically, Plaintiff maintains it is ambiguous when mold results from a hurricane, and,

as conceded by Defendant, coverage for hurricane damage is provided by the policy. Plaintiff

argues that since mold is a likely result of hurricane damage, mold remediation should be

covered, because this is the insured’s reasonable expectation. This argument misses the mark

because the policy expressly covers the circumstance when mold is caused by a covered event,

such as a hurricane. As stated in the “Fungus,” Wet Rot, Dry Rot and Bacteria

Exclusion/Limited Coverage endorsement, when mold is caused by a Covered Cause of Loss

such as a hurricane, mold damage is not excluded, but is covered up to the limit of $15,000. 

Last, Plaintiff argues the mold provision is ambiguous in the context of the policy as a

whole, particularly when read together with the Windstorm or Hail Percentage Deductible

endorsement and Known or Continuing Injury or Damage endorsement. Plaintiff contends that

in light of these endorsements the policy provides coverage for all direct, indirect, and

continuing damage caused by or resulting from the hurricane. The express language of the

endorsements, however, does not support Plaintiff’s interpretation.

The policy has two Known or Continuing Injury or Damage endorsements. One modifies

the insurance provided under the Umbrella Coverage Endorsement, and the other modifies the

Business Liability Coverage Form. (Policy at Plaintiff0023, Plaintiff0020.) Neither the

Case 3:05-cv-02027-L-BLM Document 43 Filed 03/27/07 Page 6 of 8
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7 05cv2027

Umbrella Coverage Endorsement nor the Business Liability Coverage Form provide coverage in

this case, and neither party contends otherwise. (See id. at Plaintiff0051-62 (Umbrella Coverage

Endorsement) and Plaintiff0064-76 (Business Liability Coverage Form).) The policy does not

contain a Known or Continuing Injury or Damage endorsement applicable to the Special

Property Coverage Form, which provides coverage in this case. Accordingly, both Known or

Continuing Injury or Damage endorsements are irrelevant to the interpretation of the Policy for

purposes of this case.

The Windstorm or Hail Percentage Deductible endorsement applies to the Special

Property Coverage Form. (Id. at Plaintiff0013.) It modifies the Declarations page of the Policy

and the Deductibles section of the Special Property Coverage Form. (Cf. id. at Plaintiff0001-03,

Plaintiff0044.) Under the policy, Defendant “will not pay for loss or damage in any one

occurrence until the amount of loss or damage exceeds the Deductible amount shown in the

Declarations.” (Id. at Plaintiff0044.) It “will then pay the amount of loss or damage in excess of

the Deductible up to the applicable Limit of Insurance.” (Id.) The “Fungus,” Wet Rot, Dry Rot

and Bacteria Exclusion/Limited Coverage endorsement, which includes a $15,000 limit for mold

damage, sets a limit of insurance, not a deductible. (See id. at Plaintiff0027.) Since Plaintiff

does not raise an issue pertaining to a deductible, the Windstorm or Hail Percentage Deductible

endorsement is irrelevant to the interpretation of the policy for purposes of this case.

Defendant paid Plaintiff $15,000, the maximum amount for mold damage provided by the

policy under the circumstances of this case. Since there are no genuine issues as to any material

fact on the breach of contract cause of action, it can be summarily adjudicated in Defendant’s

favor. See Fed. R. Civ. P. 56(c).

The remaining cause of action is for breach of the implied covenant of good faith and fair

dealing. It raises a new choice of law issue, since each claim requires separate choice of law

consideration. Beech, 61 Cal. App. 3d at 518. However, on the issue whether a plaintiff can

recover for bad faith in the absence of a breach of the underlying contract, California and Florida

law again mandate the same answer. Accordingly, the choice of law issue with respect to the

bad faith claim is moot. See id.

Case 3:05-cv-02027-L-BLM Document 43 Filed 03/27/07 Page 7 of 8
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8 05cv2027

Under California law, “[a] ‘bad faith’ claim cannot be maintained unless policy benefits

are due . . ..” McMillin Scripps N. P’ship v. Royal Ins. Co., 19 Cal. App. 4th 1215, 1222 (1993). 

Similarly, under Florida law, “an insured’s underlying first-party action for insurance benefits

against the insurer necessarily must be resolved favorably to the insured before the cause of

action for bad faith . . . can accrue.” Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So.2d

1289, 1291 (Fla. 1991). Under either state’s law, a finding that no insurance benefits were owed

precludes as a matter of law a finding of breach of the implied covenant of good faith and fair

dealing based on the failure to pay the same benefits. Since Defendant paid all benefits owed

Plaintiff under the Policy for mold damage, Plaintiff cannot prevail on its bad faith claim against

Defendant.

For the foregoing reasons, IT IS HEREBY ORDERED:

1. Plaintiff’s Motion for Summary Judgment, or Alternatively, for Partial Summary

Judgment is DENIED.

2. Defendant’s Motion for Summary Judgment is GRANTED, and its alternative Motion

for Partial Summary Judgment is DENIED as moot.

IT IS SO ORDERED.

DATED: March 27, 2007

M. James Lorenz

United States District Court Judge

COPY TO: 

HON. BARBARA L. MAJOR

UNITED STATES MAGISTRATE JUDGE

ALL PARTIES/COUNSEL

Case 3:05-cv-02027-L-BLM Document 43 Filed 03/27/07 Page 8 of 8