Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-00005/USCOURTS-caed-2_04-cv-00005-1/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Account Receivable

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

DAVID BACK,

NO. CIV. S-04-5 LKK/CMK

Plaintiff,

v. O R D E R

ALLSTATE INSURANCE COMPANY, 

INC.,

Defendant.

 /

 Plaintiff brought suit against defendants alleging four 

causes of action: breach of duty to defend, breach of contract,

breach of duty to settle, and breach of the covenant of good faith

and fair dealing. Compl. at 7-8. Pending before the court are the

parties’ cross-motions for summary judgment/adjudication as to a

myriad of issues, discussed infra. I decide the motions based on

the parties’ papers and after oral argument.

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26 1 The facts are undisputed unless otherwise noted.

2

 I.

 FACTS1

A. THE SOULTS’ HOMEOWNERS INSURANCE POLICY

On July 8, 2001, Deborah Soult, Troy Soult, and Jonathan Soult

were insured under an Allstate homeowners insurance policy. Def.’s

SUF 1. The policy insured the Soult family to the extent of

$300,000 for each claim involving legal liability or damages on

account of negligence or negligent conduct for the policy period

of December 28, 2000 to December 27, 2001. Def.’s Ex. 2. The

Soults’ Allstate homeowners insurance policy contained the

following exclusion:

5. We do not cover bodily injury or property damage arising

out of the ownership, maintenance, use occupancy, renting, loaning,

entrusting, loading or unloading of any motor vehicle or trailer.

However, this exclusion does not apply to:

(a) a motor vehicle in dead storage or used exclusively on an

insured premises;

(b) any motor vehicle designed principally for recreational

use off public roads, unless that vehicle is owned by an

insured person and is being used away from an insured

premises;

(c) a motorized wheelchair;

(d) a vehicle used to service an insured premises which is

not designed for use on public roads and not subject to motor

vehicle registration

(e) a golf cart owned by an insured person when used for

golfing purposes;

(f) a trailer of the boat, camper, home or utility type

unless it is being towed or carried by a motorized land

vehicle;

(g) lawn and garden implements under 40 horsepower;

(h) bodily injury to a residence employee.

Def.’s SUF 2. 

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3

B. THE 1977 FORD LTD.

In July 2001, Teresa Voboril gave Dennis Martin a 1977 Ford

Ltd. Def.’s SUF 4. The Ford was parked in Teresa Voboril’s yard

and was not in use between 1993 and July 2001. Pl.’s SUF 15.

Between 1993 and 1994, the Ford was difficult to start and often

required priming by using starting fluid. Pl.’s SUF 2. After

1993, the Ford was kept in the same place and not parked under any

kind of cover. After the passenger window was broken out, animals

went in and out of the Ford and cats often slept in it. Pl.’s SUF

23. Teresa Voboril attempted to spray Lysol inside, but “once the

windows were broken out and the cats were in there, it was no use.”

Pl.’s SUF 25. The interior was moldy and mildewed. The hinges

were worn out on the hood, and the Ford was started only from time

to time after it was parked at the Voboril residence. Pl.’s SUF

10. Teresa Voboril stated that, at the time she gave the Ford to

Martin, she did not believe the car was driveable, Pl.’s SUF 29,

and that she believed the only thing of value was the engine.

Pl.’s SUF 33. Martin felt the vehicle was unsafe and “never had

it in his mind” to put the car in driveable condition. Pl.’s SUF

77. Martin never registered the Ford to be driven on the highway.

Pl.’s SUF 78. Within a year of the July 8, 2001 accident, the 1977

Ford Ltd. was sent to a junkyard and destroyed. Def.’s SUF 12. 

C. DAVID BACK’S INJURIES

On the morning of July 8, 2001, Dennis Martin explained to his

nephew, Jonathan Soult, that the Ford Ltd. “was given to [him] for

parts and [he] was going to use the engine, so [he] wanted to hear

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2 Martin explained in his deposition that Back suffered

additional injuries because he was wearing a nylon shirt which made

the fire difficult to put out. Martin Dep. at 21. 

4

it fire.” Martin Dep. at 18. After they “got it to fire,” the car

“ran out of gas,” so Martin and his friend, David Back, went to the

gas station. Id. at 19. Although Martin allegedly warned David

Back not to pour the gasoline in the carburetor, Back did so

anyway, which led to a flame “shoot[ing] out of the carburetor.”

Def.’s SUF 5, Martin Dep. at 20. Jonathan Soult was behind the

wheel of the 1977 Ford Ltd. when it backfired and injured Back.

Def.’s SUF 6. Back was badly burned.2 On July 8, 2001, the 1977

Ford Ltd. started and ran from 30 seconds to one minute. Def.’s

SUF 9. Jonathan Soult told his mother, Deborah Soult, about the

accident within a matter of days. Def.’s SUF 11. 

D. BACK SUES MARTIN AND THE SOULTS; ALLSTATE’S ACTIONS

In February 2002, Back sued Dennis Martin for the injuries he

suffered while priming the 1977 Ford Ltd.’s carburetor. Def.’s SUF

13. The California State Automobile Association (CSAA) InterInsurance Bureau hired the firm of Maire, Mansell & Beasley to

defend Martin. Def.’s SUF 14. In August 2002, Back settled his

claims against Martin. Def.’s SUF 15. 

 In November 2002, Back served his complaint for the injuries

he suffered while priming the 1977 Ford Ltd.’s carburetor on

Jonathan Soult and Deborah Soult. Def.’s SUF 16. CSAA retained

Maire, Mansell & Beasley to defend the Soults. Def.’s SUF 17. In

December 2002, Allstate first received a copy of Back’s complaint

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against the Soults. Def.’s SUF 18. On December 11, 2002,

Allstate’s adjustor, Case Plooy, spoke with one of the Soults’

lawyers, who said that CSAA had retained them and that David Back

was injured when an automobile backfired. Def.’s SUF 19. 

 Plooy did not hire an outside field adjuster to investigate

the scene of the incident. Pl.’s SUF 44, 45. Allstate did,

however, hire the firm of Sonnenschein, Nath & Rosenthal to obtain

information about the claim and to provide a coverage analysis.

Def.’s SUF 20. Plooy relied on the coverage counsel to

investigate, but was unaware of whether the coverage counsel

examined any photographs of the automobile, or whether anybody with

automotive repair experience examined the automobile. He was also

unaware of any information that suggested the Ford was capable of

self-propulsion. Pl.’s SUF 50. On December 12, 2002, Allstate’s

lawyers at the Sonnenschein firm sent the Soults’ lawyer a letter

that, inter alia, asked them to provide information about their

claim and reserving Allstate’s rights. Def.’s SUF 21. On December

16, 2002, Allstate’s lawyers received a letter from the Soults’

lawyers formally tendering their claim for defense and indemnity

under the Soults’ homeowners policy. Def.’s SUF 22. Other than

Plooy’s December 11, 2002 telephone conversation with the Soults’

lawyer and the Soults’ tender letter and its enclosures, the Soults

did not provide any additional information to Allstate about their

claim. Def.’s SUF 25. 

On January 15, 2003, Allstate’s lawyer sent a letter denying

the claim, explaining that the information provided to it showed

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3 The letter attached as Exhibit 10 to plaintiff’s motion is

dated February 19, 2003 and, as defendant notes, is not on

letterhead. The letter states that “Mr. Back has authorized a

settlement demand of $299,999.00" and that “[t]he purpose of this

demand is to give defendant Deborah Soult an opportunity to settle

within policy limits of the homeowner’s insurance.” Pl.’s Ex. 10.

6

that the accident arose out of the use or maintenance of a motor

vehicle and that “[a]lthough there are numerous exceptions to

Exception 5, we have no information suggesting that any of them

applies.” Def.’s SUF 26. Allstate’s denial letter stated, “If our

understanding of the relevant facts is incorrect or incomplete, we

trust you will so inform us. For instance if the loss did not

involve a passenger motor vehicle, we would need to know that.”

Def.’s SUF 27. The Soults did not respond to the denial letter.

Def.’s SUF 28. At that time, the Soults did not dispute Allstate’s

conclusion that the motor vehicle exclusion applied, nor did they

dispute the conclusion that the 1977 Ford Ltd. was a motor vehicle.

Def.’s SUF 29, 30. 

The parties dispute whether Allstate ever received or knew

about a policy-limits settlement offer from David Back until this

lawsuit was filed.3 Def.’s SUF 31, 32. The policy-limits demand

letter that Back allegedly sent to Allstate only offered to release

Deborah Soult, and not Troy or Jonathan Soult. Def.’s SUF 33, 34.

The demand letter did not offer to resolve medical liens. Id.

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4 Back and the Soults’ lawyers agreed that: (1) Jonathan

Soult would suffer judgment without putting on any defense; (2)

Deborah Soult would also assign to Back any rights she had against

Allstate because it denied the claim; (3) CSAA would pay Back the

$15,000 remaining under Martin's auto policy's limits; and (4)

Back agreed not to try to record or collect on his judgment against

the Soults. 

Cal. Ins. Code § 11580(b)(2) permits a judgment creditor to

proceed directly against the insurer for the responsible party. 

7

Ultimately, the Soult family allowed Back to obtain a judgment

against Jonathan Soult and assigned all of their rights as a first

party insured to Back.4 Compl. at 4. On or about November 6,

2003, plaintiff obtained a judgment against Jonathan Soult in the

amount of $3,400,124.70. Id. In January 2004, Back sued Allstate

in his own right to collect on his judgment against Jonathan Soult.

Because Deborah Soult assigned her rights against Allstate to Back,

he also sued Allstate for breaching its insurance contract with her

and for "bad faith" in connection with that breach. Id. As

Soults' assignee, Back alleges that there was coverage for the

accident and that Allstate is liable for bad faith because it did

not accept his policy-limits settlement demand. The complaint

prays for $38.4 million in damages. Id.

II.

SUMMARY ADJUDICATION STANDARDS

 Summary adjudication, or partial summary judgment “upon all

or any part of a claim,” is appropriate where there is no genuine

issue of material fact as to that portion of the claim. Lies v.

Farrell Lines, Inc., 641 F.2d 765, 769 (9th Cir. 1981) (“Rule 56

authorizes a summary adjudication that will often fall short of a

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8

final determination, even of a single claim”) (citations omitted);

Playboy Enters., Inc. v. Welles, Inc., 78 F. Supp. 2d 1066, 1073

(S.D. Cal. 1999), aff’d in part, rev’d in part, on other grounds,

279 F.3d 796 (9th Cir. 2002); E.D. Local Rule 56-260(f). 

Under summary judgment practice, the moving party

always bears the initial responsibility of informing the

district court of the basis for its motion, and

identifying those portions of ‘the pleadings,

depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any,’ which it

believes demonstrate the absence of a genuine issue of

material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “[W]here the

nonmoving party will bear the burden of proof at trial on a

dispositive issue, a summary judgment motion may properly be made

in reliance solely on the 'pleadings, depositions, answers to

interrogatories, and admissions on file.” Id. Indeed, summary

judgment should be entered, after adequate time for discovery and

upon motion, 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. See id. at 322. “[A] complete failure of proof concerning

an essential element of the nonmoving party's case necessarily

renders all other facts immaterial.” Id. In such a circumstance,

summary judgment should be granted, “so long as whatever is before

the district court demonstrates that the standard for entry of

summary judgment, as set forth in Rule 56(c), is satisfied.” Id.

at 323.

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9

If the moving party meets its initial responsibility, the

burden then shifts to the opposing party to establish that a

genuine issue as to any material fact actually does exist.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

586 (1986); See also First Nat'l Bank of Ariz. v. Cities Serv. Co.,

391 U.S. 253, 288-89 (1968); Secor Limited, 51 F.3d at 853. 

In attempting to establish the existence of this factual

dispute, the opposing party may not rely upon the denials of its

pleadings, but is required to tender evidence of specific facts in

the form of affidavits, and/or admissible discovery material, in

support of its contention that the dispute exists. See Fed. R.

Civ. P. 56(e); Matsushita, 475 U.S. at 586 n.11; See also First

Nat'l Bank, 391 U.S. at 289; Rand v. Rowland, 154 F.3d 952, 954

(9th Cir. 1998). The opposing party must demonstrate that the fact

in contention is material, i.e., a fact that might affect the

outcome of the suit under the governing law, Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986); Owens v. Local No. 169,

Assoc. of Western Pulp and Paper Workers, 971 F.2d 347, 355 (9th

Cir. 1992) (quoting T.W. Elec. Serv., Inc. v. Pacific Elec.

Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987), and that the

dispute is genuine, i.e., the evidence is such that a reasonable

jury could return a verdict for the nonmoving party, Anderson, 477

U.S. 248-49; see also Cline v. Industrial Maintenance Engineering

& Contracting Co., 200 F.3d 1223, 1228 (9th Cir. 1999).

In the endeavor to establish the existence of a factual

dispute, the opposing party need not establish a material issue of

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fact conclusively in its favor. It is sufficient that “the claimed

factual dispute be shown to require a jury or judge to resolve the

parties' differing versions of the truth at trial.” First Nat'l

Bank, 391 U.S. at 290; See also T.W. Elec. Serv., 809 F.2d at 631.

Thus, the “purpose of summary judgment is to ‘pierce the pleadings

and to assess the proof in order to see whether there is a genuine

need for trial.’” Matsushita, 475 U.S. at 587 (quoting Fed. R.

Civ. P. 56(e) advisory committee's note on 1963 amendments); see

also International Union of Bricklayers & Allied Craftsman Local

Union No. 20 v. Martin Jaska, Inc., 752 F.2d 1401, 1405 (9th Cir.

1985).

In resolving the summary judgment motion, the court examines

the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any. Rule

56(c); See also In re Citric Acid Litigation, 191 F.3d 1090, 1093

(9th Cir. 1999). The evidence of the opposing party is to be

believed, see Anderson, 477 U.S. at 255, and all reasonable

inferences that may be drawn from the facts placed before the court

must be drawn in favor of the opposing party, see Matsushita, 475

U.S. at 587 (citing United States v. Diebold, Inc., 369 U.S. 654,

655 (1962)(per curiam)); See also Headwaters Forest Defense v.

County of Humboldt, 211 F.3d 1121, 1132 (9th Cir. 2000).

Nevertheless, inferences are not drawn out of the air, and it is

the opposing party's obligation to produce a factual predicate from

which the inference may be drawn. See Richards v. Nielsen Freight

Lines, 602 F. Supp. 1224, 1244-45 (E.D. Cal. 1985), aff'd, 810 F.2d

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898, 902 (9th Cir. 1987).

Finally, to demonstrate a genuine issue, the opposing party

“must do more than simply show that there is some metaphysical

doubt as to the material facts. . . . Where the record taken as a

whole could not lead a rational trier of fact to find for the

nonmoving party, there is no ‘genuine issue for trial.’”

Matsushita, 475 U.S. at 587 (citation omitted).

III.

ANALYSIS

A. COVERAGE UNDER THE SOULTS’ POLICY

 The instant motion presents the threshold question of whether

an exclusion contained in the Soults’ homeowners policy precludes

coverage of the July 8, 2001 accident. As I explain below, the

parties’ motions for summary judgment relating to coverage must be

denied because there remain disputed facts which pertain to whether

the Ford Ltd. qualifies as a “motor vehicle” and whether the

accident arose out of the “use or maintenance” of the Ford Ltd.

Under California law, the Soults’ policy is to be interpreted

from the perspective of what a reasonable person in the position

of the insured would have understood the words to mean. Montrose

Chem. Corp. v. Admiral Ins. Co., 10 Cal.4th 645, 666-667 (1995).

"The policy should be read as a layman would read it and not as it

might be analyzed by an attorney or an insurance expert." Crane v.

State Farm Fire & Cas. Co., 5 Cal.3d 112, 115 (1971); see also

Reserve Ins. Co. v. Pisciotta, 30 Cal.3d 800, 807 (1982). 

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Ambiguities in coverage clauses are normally resolved in favor of

upholding the insured's reasonable expectations. Montrose, supra,

10 Cal.4th at 667. Finally, if neither the plain meaning of the

words used nor the reasonable expectations of the insured resolve

the ambiguity in an insurance policy, the policy will be construed

against the insurer. Bank of the West v. Superior Court, 2 Cal.4th

1254, 1265 (1992). 

Coverage exclusions and limitations are strictly construed

against the insurer and liberally interpreted in favor of the

insured. Delgado v. Heritage Life Ins. Co., 157 Cal.App.3d 262,

271 (1984); Healy Tibbitts Constr. Co. v. Employers' Surplus Lines

Ins. Co., 72 Cal.App.3d 741, 749 (1977). Exceptions to exclusions

are construed broadly in favor of the insured. National Union Fire

Ins. Co. v. Lynette C., 228 Cal.App.3d 1073 (1991); see also

American Star Ins. Co. v. Ins. Co. of the West, 232 Cal.App.3d

1320, 1327) (1991).

a. Was the Ford Ltd. a “Motor Vehicle”?

The Soults’ homeowners policy excludes from coverage any

“bodily injury or property damage arising out of the ownership,

maintenance, use, occupancy, renting, loaning, entrusting, loading

or unloading of any motor vehicle or trailer.” Plaintiff contends

that the exclusion does not apply because “the instrument of

plaintiff’s injury was an engine,” and not a “motor vehicle.”

 Pl.’s Mot. at 10. Defendant, on the other hand, maintains that

the instrument was, in fact, a “motor vehicle,” and argues that

Allstate’s policy did not cover the claim. Def.’s Mot. at 11.

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5 In Wilson, an automobile insurer attempted to avoid paying

for a car accident based on a policy requirement that the policy

holder insure all of her automobiles through it. The insurer

argued that the policyholder voided her policy because she did not

insure a 1946 Chevrolet that she had inherited. The court relied

on the legal definition of “motor vehicle” contained in Section 415

Vehicle Code which requires “self-propulsion” to be considered a

vehicle and held that the 1946 Chevrolet was not a motor vehicle.

6 As I have noted elsewhere, however, common sense is what

tells us the world is flat.

13

Under the law, it appears that plaintiff’s point is well-taken.

Plaintiff cites Civil Serv. Employees Insur. Co v. Wilson, 22

Cal.App.2d 519 (1963), for the proposition that the Ford Ltd. was

not a “motor vehicle.”5 Relying on Wilson, plaintiff argues that

the instrument of plaintiff’s injury was “an engine contained in

a junker 1977 Ford LTD which was not subject to registration under

California Vehicle Code §4000.” Pl.’s Mot. at 8. Defendant

maintains that the Wilson’s court’s reliance on the Vehicle Code’s

definition of “automobile” is inapt because the plain language

controls, and thus, “technical definitions from statutes do not

count” (citing Bluehawk v. Continental Ins. Co., 50 Cal.App.4th

1126 (1996)). It argues that reliance on the Vehicle Code’s

definition would be tantamount to relying on a prohibited extrinsic

aid. Defendant alternatively argues that unlike the vehicle in

Wilson, the Ford Ltd. “was capable of self-propulsion,” and

finally, that “even cars in a state of monumental disrepair are

still motor vehicles.” Def.’s Mot. at 14. The defendant’s resort

to common sense is appealing, but cannot prevail.6

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While it is true that extrinsic interpretative aids may 

be utilized to interpret a policy's definition only when the policy

language is ambiguous, the court need not rely on “extrinsic

interpretive aids” in this instance. Bank of the West v. Superior

Court, 2 Cal.4th 1254 1264-1265 (interpretative aids and rules

employed only when insurance policy is ambiguous); Smyth v. USAA

Property & Casualty Ins. Co., 5 Cal.App.4th 1470, 1474 (1992)

(principles of construction "'come[] into play only if it is first

determined that an ambiguity exists, which is also a question of

law' "]). Nor need the court rely on what defendant characterizes

as “Wilson’s decades-old, restored-to-self-propulsion test” to

conclude that a “motor vehicle” requires self-propulsion, that is

because the Code’s definition mirrors the ordinary, i.e., plain,

meaning of “motor vehicle.” See American Heritage Dictionary of

the English Language, Fourth Edition (motor vehicle defined as “[a]

self-propelled wheeled conveyance, such as a car or truck, that

does not run on rails.”); See also Merriam-Webster Dictionary Third

New International Dictionary, Unabridged (2002)(motor vehicle

defined as “an automotive vehicle not operated on rails,” where

“automotive” refers to something “of, relating to, or concerned

with self-propelled vehicles or machines”). Given the plain

meaning of “motor vehicle,” the court concludes that “a reasonable

person in the position of the insured well might have understood

the words “motor vehicle” to mean a conveyance that is “selfpropelling,” or operable, which, as noted, as it relates to the

Ford Ltd., is disputed.

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Defendant insists that even if the Vehicle Code’s definition

applies, the Ford Ltd. qualifies as a motor vehicle because it was

capable of self-propulsion or being restored to that condition.

Def.’s Mot. at 13-14. Defendant cites to evidence in the record

that the car started and ran for 30 seconds to a minute, that it

was “intact, with an engine, transmission, steering wheel

windshield, tires, rims, etc.,” and that Dennis Martin - the only

mechanic who inspected the car - could have put it in driveable

condition. Id. Defendant ignores other evidence in the record

which puts this contention in dispute. Evidence offered by

plaintiff suggests that the Ford Ltd. was not capable of selfpropulsion, and it is unclear from the record whether the Ford

could have been restored to a self-propelling state. Teresa

Voboril stated that she did not believe the car was driveable in

any way when she gave it to Martin. Pl.’s SUF 29. When the

vehicle was transferred to Dennis Martin, she believed the only

thing of value was the engine. Pl.’s SUF 33. Even though Martin

stated that “he could get anything running,” he also noted that the

vehicle was unsafe and "never had it in his mind" to put the car

in driveable condition. Pl.'s SUF 77, citing Martin Dep. at 29-30.

As noted above, Martin never registered the Ford to be driven on

the highway. Pl.'s SUF 78. Put directly, a dispute exists as to

whether the Ford Ltd. constituted a “motor vehicle.”

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7 Because “maintenance” is not defined anywhere in the

policy, it is to be interpreted from the perspective of what a

reasonable person in the position of the insured would have

understood the words to mean. Montrose Chem. Corp. v. Admiral Ins.

Co., 10 Cal.4th at 666-667 (1995). In this instance, the court

concludes that a reasonable person would have understood

“maintenance” as it is ordinarily defined, i.e., “the labor of

keeping something in a state of repair or efficiency.” Webster's

Third New International Dictionary, Unabridged (2002).

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b. Accidents arising out of the “use or maintenance” of

a motor vehicle

In addition to the issue noted above, there appears to be

another disputed issue of material fact which bears on whether or

not the exclusion precludes coverage of Back’s accident. The

Allstate homeowners policy excludes from coverage “accidents that

arise out of the use or maintenance of a motor vehicle.”7 Despite

defendant’s unambiguous assertion that “no one can dispute that

Back was injured as he was starting a 1977 Ford LTD,” Def.’s Mot.

at 12, it is indeed unclear from the evidence presented whether

Back poured the gasoline into the carburetor to “use or maintain”

the Ford Ltd. Put differently, there is a factual dispute as to

whether the parties were attempting to “maintain” the Ford Ltd. -

that is, to bring it into a state of repair or efficiency, or

whether, as Martin’s deposition suggests, Back poured the gasoline

into the carburetor to “fire” the engine in order to see if the

engine would work. 

In his version, Martin explained to Jonathan Soult on July 8,

2001 that the Ford Ltd. “was given to [him] for parts and [he] was

going to use the engine, so [he] wanted to hear it fire.” Martin

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8 Somewhat surprising to this court, a number of courts have

concluded that “[an] attempt to start [a car] by pouring gasoline

into the carburetor, which resulted in the ignition of the gas,

involved ‘maintenance’ of the vehicle within the terms of [the]

exclusion.” Broadway v. Great American Ins. Co., 465 So.2d 1124,

1128 (1985). See also David v. Tanksley, 218 F.3d 928 (8th Cir.

2000); Lawson v. Allstate Ins. Co., 456 So.2d 1235 (1984); North

Star Mut. Insur. Co. v. Carlson, 442 N.W.2d 848 (1989); Volkswagon

Ins. Co. v. Nguyen, 405 So.2d 190 (1981); Holliman v. MFA Mut. Ins.

Co., 289 Ark. 276, 711 S.W.2d 159 (1986); Hollis v. St. Paul Fire

& Marine Insur. Co., 416 S.E.2d 827 (1992). It is, to say the

least, unclear to the court how the issue could be one of law

rather than fact. In any event, in the matter at bar there is

evidence that Back and Soult never intended to “maintain” or “use”

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Dep. at 18. Apparently, after Martin and Soult “got [the Ford] to

fire,” the car “ran out of gas,” so Martin and Back went to the gas

station for more gasoline. Id. at 19. 

It is unclear whether Back poured the gasoline in the

carburetor to use or maintain the Ford Ltd., but Martin’s

deposition suggests that Martin and Back never intended to maintain

the Ford and get it back to running order. Rather, the evidence

suggests that Martin, Back, and Soult poured gasoline into the Ford

Ltd. to “fire” the engine. Martin asserts that he was never

interested in restoring the Ford and that he “looked at it as an

engine block . . . a piece of junk that should have never entered

the street and never would have.” Martin Dep. at 28, 36. Martin

consistently maintained that he did not consider the car to have

any value outside of the value of the engine. Id. at 32. For all

of the above reasons, I conclude that it is disputed whether Back,

Martin, and Soult were “us[ing]” or “maintaining” the Ford Ltd.

when Back poured the gasoline into the carburetor, causing serious

injuries to himself on July 8, 2001.8

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the Ford Ltd. but were merely interested in finding out whether the

engine could be started.

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B. DUTY TO SETTLE 

Plaintiff argues that on February 19, 2003, he sent a letter

to Allstate which provided for a policy-limits settlement offer

which Allstate failed to consider. Plaintiff contends Allstate

acted in bad faith by failing to conduct an investigation into the

legitimacy of the Soults’ claims. Pl.’s Mot. at 17. Allstate, on

the other hand, argues that it never received the offer to settle

and so cannot be liable for failing to settle and for any bad faith

claim premised on such allegations.

Although California courts have held that an insurer must act

in good faith “in an effort to negotiate a settlement” and that an

insurer owes a duty to respond to settlement demands, see, e.g.,

Shade Foods, Inc. v. Innovative Prods. Sales and Marketing, Inc.,

78 Cal.App.4th 847, 906 (2000), summary judgment cannot be granted

regarding bad faith and the policy limits based on Allstate’s

alleged refusal to settle. 

First, I note that there is a disputed issue as to whether

defendant ever received the settlement letter. See Pl.’s Ex. 10.

Plaintiff’s counsel submits a declaration from his secretary, who

claims to have mailed the demand letter. Defendant, however,

contends that it never received the policy-limits demand letter and

were not otherwise aware of that demand. Def.’s Opp’n at 23,

citing Sullivan Decl. ¶ 6, Barnes Decl. ¶ 7, Plooy Decl. ¶ 10. 

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Because this issue turns on credibility, summary judgment must be

denied.

Additionally, the court cannot grant summary judgment based

on defendant’s alleged failure to settle because, as defendant

points out, Back never offered to settle with Jonathan Soult. It

is undisputed that the demand letter that Back’s counsel allegedly

sent only offers to settle with Deborah Soult. Thus, as Allstate

notes, even if it had received Back’s policy-limits demand letter,

it could not have accepted it because the letter did not offer to

release either Troy Soult or Jonathan Soult, both of whom were also

insured under the policy. Under California law, an insurance

company cannot accept an offer that does not release all of its

insureds. See, e.g., Moreno v. Allstate Ins. Co., 2002 WL 31133203

at *3 (E.D. Cal. Sept. 10, 2002)(“As a matter of law, Allstate

could not accept [the] policy-limits settlement offer without

obtaining a release for all insureds covered by its liability

policy.”); Letho v. Allstate Ins. Co., 31 Cal.App.4th 60, 75 (1994)

(“[A]n insurer can breach its duty to its insureds by disbursing

the policy proceeds to [a] claimant without first obtaining a

release of the insureds . . . . We know of no case permitting an

insured . . . to sue for bad faith on the basis of the insurer’s

rejection of a settlement demand because it did not include a

complete release . . . .”). Because Allstate could not accept a

settlement offer without obtaining a release for all insureds, the

court grants Allstate’s motion for summary adjudication as to the

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9

 Defendant contends that Back is not entitled to any recovery

beyond the policy limits because it could not have accepted the

settlement offer. While the court agrees that no bad faith

liability should attach based on the failure to settle claim, as

discussed infra, the court cannot decide whether Back is entitled

to recovery beyond the policy limits because plaintiff also avers

that Allstate acted in bad faith by failing to investigate the

Soults’ claim. 

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duty to settle claim, and any claim arising out of Allstate’s duty

to settle in order to protect its insured.9

C. ALLSTATE’S ALLEGED FAILURE TO INVESTIGATE

Plaintiff contends that Allstate had a duty to provide its own

expertise in evaluating the Soults’ claims. Plaintiff contends

that Allstate did not conduct any investigation into the facts

surrounding plaintiff’s claim and that plaintiff is entitled to

summary adjudication as to whether the conduct of defendant

constituted bad faith. Defendant disputes these contentions and

maintains that it is entitled to summary adjudication with respect

to bad faith because there was a legitimate dispute whether

Allstate’s policy covered the Soults’ claim. 

In order to establish a breach of the implied covenant of good

faith and fair dealing under California law, a party must show (1)

benefits due under the policy were withheld, and (2) the reason for

withholding benefits was unreasonable or without proper cause.

Guebara v. Allstate Ins. Co., 237 F.3d 987, 992 (9th Cir. 2001)

(citing Love v. Fire Ins. Exch., 221 Cal.App.3d 1136, 1151 (1990)).

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Because the key to a bad faith claim is whether denial of a claim

was reasonable, a bad faith claim should be dismissed on summary

judgment if the defendant demonstrates that there was "a genuine

dispute as to coverage." Id.; and see Feldman v. Allstate Ins. Co.,

322 F.3d 660, 669 (9th Cir. 2003). The Ninth Circuit has held that

the “genuine dispute doctrine” should be applied on a case-by-case

basis. Guebara, 237 F.3d at 993. Thus, the court is in the

position of assessing whether Allstate’s denial of the Soults’

claim was reasonable and whether there was “a genuine dispute as

to coverage.” Feldman, supra. 

While there can be no doubt that there was a dispute

concerning coverage, whether denial of the Soults’ claim was done

in good faith is for the jury. Guebara, 237 F.3d at 992. In

Guebara, the Ninth Circuit made clear that “the key to a bad faith

claim is whether denial of a claim was reasonable,” a question that

turns on a myriad of facts which can only be determined on a

case-by-case basis. Plaintiff asserts that defendant should have

conducted its own investigation rather than assigning such duties

to an outside law firm, while defendant argues that there was a

legal dispute as to whether the claim was covered in the first

instance. It is clear to the court that the question of

reasonableness, a quintessential jury question, is, under the

circumstances, not amenable to disposition at the summary judgment

stage. While the Ninth Circuit has explained that a bad faith

claim could be dismissed on a summary judgment motion if the

defendant demonstrates that there was a “genuine dispute as to

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10 The court notes that “[d]eterminations related to

assessment of punitive damages have traditionally been left to the

discretion of the jury.” Amadeo v. Principal Mutual Life Ins. Co.,

290 F.3d 1152, 1165 (9th Cir. 2002)(citation omitted).

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coverage,” id., the court refrains from doing so here because a

jury might reasonably find that defendant’s alleged

misrepresentation of the law and of the facts warrants bad faith.

The question of “reasonableness” will inevitably engender disparate

results because each case will have disparate facts. The wide and

diverse experience of juries then may well be preferred to reliance

on the insulated experience of the court in deciding this issue.

Plaintiff also requests punitive damages, noting that the

Ninth Circuit has held that punitive damages are recoverable where

the defendant acts in bad faith. Pl.’s Mot. at 14. Defendant

argues that it is entitled to summary adjudication on the punitive

damages claim because there existed a “genuine issue” as to whether

the claim was covered under the policy. Because, for the reasons

explained above, the court cannot resolve the bad faith question,

summary judgment as to punitive damages must also be denied.10

IV.

CONCLUSION

For all the foregoing reasons, the court hereby ORDERS as

follows:

1. The parties’ motions for summary adjudication as to

whether Back’s accident was covered under the Soults’ policy are

DENIED.

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2. Defendants’ motion for summary adjudication as to the duty

to settle claim, and bad faith premised upon such allegation, is

GRANTED. 

3. The parties’ motion for summary adjudication as to bad

faith premised upon Allstate’s alleged failure to investigate are

DENIED.

4. The parties’ motions for summary adjudication as to

punitive damages are DENIED.

IT IS SO ORDERED.

DATED: July 13, 2005.

/s/Lawrence K. Karlton 

LAWRENCE K. KARLTON

SENIOR JUDGE

UNITED STATES DISTRICT COURT

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