Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_11-cv-01248/USCOURTS-casd-3_11-cv-01248-2/pdf.json

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

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

EL CAJON LUXURY CARS, INC. dba Bob

Baker Lexus, a California Corporation,

Plaintiff,

CASE NO. 11CV1248 JLS (MDD)

ORDER DENYING MOTION TO

DISMISS SECOND AMENDED

COMPLAINT

(ECF No. 26)

vs.

TOKIO MARINE & NICHIDO FIRE

INSURANCE CO., LTD.,

Defendant.

Presently before the Court is Defendant Tokio Marine and Nichido Fire Insurance Co.,

Ltd.’s (“Defendant” or “Tokio Marine”) Motion to Dismiss Second Amended Complaint. (MTD,

ECF No. 26) Also before the Court are Plaintiff El Cajon Luxury Cars, Inc., dba Bob Baker

Lexus’s (“Plaintiff” or “Bob Baker Lexus”) response in opposition, (Resp. in Opp’n, ECF No. 17),

and Defendant’s reply, (Reply in Supp., ECF No. 18). The hearing set for the motion on June 7,

2012, was vacated, and the matter taken under submission on the papers. Having considered the

parties’ arguments and the law, the Court DENIES Defendant’s motion to dismiss.

This Order incorporates the factual and procedural history as set forth in this Court’s prior

Orders dismissing Plaintiff’s complaint, (Order, Nov. 8, 2011, at 1–2, ECF No. 13), and first

amended complaint (“FAC”), (Order, Mar. 6, 2012, at 1–2, ECF No. 22). After granting

Defendant’s motion to dismiss a second time, the Court allowed Plaintiff one final opportunity to

amend its complaint in light of a theory of liability raised for the first time at oral

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argument—namely, that Bob Baker Lexus had notice of a dangerous problem with the subject

vehicle, and yet negligently rented the vehicle to another customer. (Order, Mar. 6, 2012, at 8,

ECF No. 22) And so, Plaintiff filed its Second Amended Complaint (“SAC”) on March 20, 2012,

(SAC, ECF No. 23), and the instant motion to dismiss soon followed, (MTD, ECF No. 26). 

The Court has twice held that the claim for negligent “maintenance, care and servicing” of

the subject vehicle asserted in the underlying action is unambiguously within the scope of the

Tokio Marine insurance policy, but that the Completed Operations exclusion applies to exclude

coverage over that claim. The Court does not disturb that holding here. Instead, the Court focuses

on whether some other theory of liability—one that has not yet been alleged in the underlying

action but that conceivably could be alleged1—is covered by the insurance policy. 

Plaintiff’s SAC mirrors the FAC, but adds allegations pertaining to this alternative theory

of liability. Specifically, Bob Baker Lexus alleges that a prior renter experienced an unintended

acceleration event in the subject vehicle and alerted a receptionist about the problem upon

returning the vehicle, but the receptionist failed to properly document the complaint. As a result,

the car remained in the loaner fleet and Bob Baker Lexus loaned the vehicle to another

customer—Mr. Saylor, of the underlying action—despite the reported problem. (SAC

¶¶ 17a–19a,2

 ECF No. 23) In giving Bob Baker Lexus a final opportunity to amend its complaint,

the Court previously commented that “[t]his theory of liability does not arise out of Plaintiff’s

‘work’ on the vehicle, and is not tied to any product liability–based claim.” (Order, Mar. 6, 2012,

at 8, ECF No. 22)

At the heart of the instant motion to dismiss is whether, under this new theory of liability, a

receptionist’s duties qualify as “work or operations” that would fall under the Completed

Operations exclusion. In order to rely on an exclusion to deny that it has a duty to defend, Tokio

1

 “[T]he insured is entitled to a defense if the underlying complaint alleges the insured’s

liability for damages potentially covered under the policy, or if the complaint might be amended to

give rise to a liability that would be covered under the policy.” Montrose Chem. Corp. v. Super. Ct., 861 P.2d 1153, 1160 (Cal. 1993).

2

 In adding these new allegations to its complaint, Bob Baker Lexus inadvertently failed to

change the paragraph numbering for the remainder of the complaint. As a result, there are two

paragraphs numbered 17 through 20 in the SAC. This Order cites to the first set of paragraphs 17

through 20 as 17a through 20a, and the second set as 17b through 20b.

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Marine must provide conclusive evidence that the exclusion applies, Atl. Mut. Ins. Co. v. J. Lamb,

Inc., 123 Cal. Rptr. 2d 256, 272 (2002), and the Court strictly construes the exclusionary clause in

favor of the insured, N. Am. Building Maint., Inc. v. Fireman’s Fund Ins., 40 Cal. Rptr. 3d 468,

479 (Cal. Ct. App. 2006).

The Completed Operations exclusion provides that the Tokio Marine insurance policy does

not apply to claims arising out of Bob Baker Lexus’s “work” after that work has been completed

or abandoned, and goes on to explain that “work” means:

a. Work or operations performed by [Bob Baker Lexus] or on [Bob Baker

Lexus’s] behalf; and

b. Materials, parts or equipment furnished in connection with such work or

operations.

[Bob Baker Lexus’s] work includes warranties or representations made at any

time with respect to the fitness, quality, durability or performance of any of the

items included in paragraph a. or b. above.

(Ex. 5 at 41,3

 ECF No. 23-1) As the Court has noted previously, this definition of “work” is

identical to the definition in the Completed Operations exclusion at issue in Baker v. National

Interstate Insurance Co., 103 Cal. Rptr. 3d 565 (Cal. Ct. App. 2010). There, the California Court

of Appeals found that the term “work” includes “a person’s services performed in return for

payment of money,” ultimately holding that a company’s “inspection services” fell within the

Completed Operations exclusion. Id. at 581. Thus, under Baker, “[w]hen a person provides a

service for a customer, for payment from that customer, the person is ‘working’ or otherwise

‘performing an operation’ in the context of his or her business activities.” Id.

According to Tokio Marine, the receptionist’s failure to properly document a customer’s

complaint about a rental vehicle4

 constitutes “work or operations” because “[t]here is no limitation

3

 All pin cites in citations to the exhibits to the SAC utilize the page numbers assigned by

CM/ECF.

4

 Throughout the motion to dismiss, Tokio Marine recharacterizes Plaintiff’s allegations

pertaining to the receptionist’s negligence as a “failure to request maintenance” rather than as a

“failure to properly document a complaint,” as the SAC more accurately alleges. Thus, even assuming

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in the [Completed Operations] exclusion or basis to assert that ‘work’ or ‘work or operations’ must

be physical ‘maintenance.’” (MTD 9, ECF No. 26) Tokio Marine asserts that “work or

operations” “include[s] the duties of a Bob Baker Lexus receptionist assigned to receive loaner

cars and any duties of Bob Baker Lexus to provide proper maintenance procedures, including

procedures addressing or reporting renter complaints.” (Id. at 11)5

Although it is a close call, considering Plaintiff’s allegations in light of the principles for

interpreting insurance contract exclusions and limiting the allegations of the SAC to Bob Baker

Lexus’s loaner car operations, the Court finds that Bob Baker Lexus has alleged a theory of

liability that might be covered by Tokio Marine’s insurance policy. Bob Baker Lexus provides to

its customers a “courtesy loaner vehicle through a rental car program known as the Lexus

Customer Convenience System (‘LCCS’).” (SAC ¶ 5, ECF No. 23) And pursuant to its courtesy

loaner car operations, Bob Baker Lexus alleges that its receptionists have a duty to “properly

document” any complaints that come in regarding the loaner vehicles so that the vehicle will not

that Tokio Marine is correct that a failure to request maintenance would fall within the Completed

Operations exclusion because “a failure to request maintenance would be part and parcel of the

‘maintenance, care and servicing’ of the Rental Vehicle,” (MTD 9, ECF No. 26), the Court’s analysis

focuses on the allegations of the complaint, rather than on Tokio Marine’s recharacterization of those

allegations. And because the Court has already foreclosed any theory of liability arising out of

Plaintiff’s maintenance operations, the Court interprets the SAC’s theory of liability as being limited

to the loaner car operations—specifically, the receptionist’s failure to report a complaint, which

resulted in the car remaining in the loaner fleet such that it was loaned to a subsequent customer. 

5

 Tokio Marine bolsters this argument by analogy to case law interpreting insurance contracts

with Professional Services exclusions, which generally exclude coverage for claims arising out of the

rendering or failure to render professional services. Interpreting such policies and exclusions,

California courts have held that the “crucial factor” in determining whether the exclusion applies is

“whether the injuries occurred during the performance of professional services.” N. Ins. Co. v. Super

Ct., 154 Cal. Rptr. 198, 200 (Cal. Ct. App. 1979) (finding the Professional Services exclusion

applicable where the harm resulted from a clerical employee’s administrative error); see also Food

Pro Internat., Inc. v. Farmers Ins. Exchange, 89 Cal. Rptr. 3d 1, 13 (Cal. Ct. App. 2008) (“[T]he act

that precipitated the injury need not have been one of professional malpractice, as long as the plaintiff

was injured in the performance of the professional service.”). And so here, by analogy, Tokio Marine

argues that the receptionist’s negligent failure to properly document the complaint “do[es] not alter

the duty owed by Bob Baker Lexus to its renters, thus [the receptionist’s] errors are within the

exclusion.” (Reply in Supp. 6, ECF No. 29)

The Court appreciates the parallel Tokio Marine attempts to draw between the Professional

Services exclusion and the Completed Operations exclusion at issue here, but ultimately finds the

analogy unconvincing. Moreover, this argument appears inconsistent with Tokio Marine’s assertion

that the receptionist’s duties in and of themselves constitute “work or operations.” If the receptionist’s

duties in and of themselves fit within the Completed Operations exclusion, then Tokio Marine would

not need to rely by analogy on these Professional Services exclusion cases in order to avoid coverage. 

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subsequently be loaned to another customer without remedying the reported defect. (See id. ¶ 20) 

Though Tokio Marine emphatically characterizes the receptionist’s duties as “work,” the

Court cannot find that Tokio Marine has carried its burden to conclusively demonstrate that the

exclusion applies to this newly asserted potential theory of liability. Nothing in the SAC suggests

that customers are required to pay for Bob Baker Lexus’s loaner car services; indeed, a more

reasonable inference is that this service is provided as a “courtesy” to customers who leave their

personal vehicles with Bob Baker Lexus for maintenance services. Cf. Baker, 103 Cal. Rptr. 3d at

581. Thus, interpreted in the context of this business model, a “layperson policyholder might

reasonably interpret the exclusion’s language,” id.—specifically, the term “work”—to mean the

work performed in the service or maintenance of the vehicles, and not a receptionist’s work in

tracking customer complaints on loaner vehicles. As such, Tokio Marine’s motion to dismiss is

DENIED.

The Court emphasizes, however, that it makes no comment on whether—assuming this

theory is eventually asserted in the underlying action—it necessarily falls outside the Completed

Operations exclusion. For purposes of this motion, and in the context of the broad duty to defend,

the Court merely holds that Bob Baker Lexus has successfully alleged a theory of liability

sufficient to withstand a motion to dismiss.

IT IS SO ORDERED. 

DATED: September 10, 2012

Honorable Janis L. Sammartino

United States District Judge

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