Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_08-cv-00920/USCOURTS-casd-3_08-cv-00920-0/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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1 08CV920 BTM (CAB)

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

LEGACY PARTNERS, INC.,

Plaintiff,

CASE NO. 08CV920 BTM (CAB)

ORDER DENYING MOTION TO

vs. DISMISS

CLARENDON AMERICAN INSURANCE

COMPANY,

Defendant.

Defendant Clarendon American Insurance Company moves to dismiss Plaintiff Legacy

Partners, Inc.’s complaint for breach of insurance contract, breach of implied covenant of

good faith and fair dealing, and declaratory relief. For the reasons set forth below, the Court

DENIES Defendant’s motion to dismiss.

FACTUAL BACKGROUND

Plaintiff purchased a general liability policy from Defendant which covered all losses

suffered by Plaintiff as a result of an “Occurrence” as defined in the policy. The insurance

policy in question defines Occurrence as “an accident, including continuous or repeated

exposure to substantially the same general harmful conditions.” 

After the purchase of this policy, Plaintiff was sued by The Wellington Group, LLC

(“Wellington”). Wellington alleged that Plaintiff, among others, (1) trespassed upon

Wellington’s property in order to make repairs to a retaining wall; (2) constructed

subterranean tie-backs using Wellington’s property without permission; (3) failed to exercise

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2 08CV920 BTM (CAB)

reasonable care and skill in performing construction work on the Wellington property; (4)

failed to exercise reasonable care and skill in determining the need for repair to the retaining

wall; (5) caused damage by placement of heavy construction equipment and materials on

the Wellington property; and (6) negligently removed storm and pollution work that Wellington

had completed as part of its development of the property. (Wellington’s Complaint ¶ ¶37,

117) 

Plaintiff sought coverage for the loss it suffered as a result of the Wellington lawsuit

under the policy it purchased from Defendant. Defendant denied coverage. 

DISCUSSION

A motion to dismiss for failure to state a claim will be denied unless it appears that “no

relief could be granted under any set of facts that could be proved consistent with the

allegations.” Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Fidelity Financial Corp. v.

Federal Home Loan Bank of San Francisco, 792 F.2d 1432, 1435 (9th Cir. 1986).

The parties agree that in order for Plaintiff to be covered by the insurance policy

issued by Defendant, the loss sustained by Plaintiff as a result of the Wellington lawsuit must

have stemmed from an “occurrence,” i.e., “an accident, including continuous or repeated

exposure to substantially the same general harmful conditions.” Defendant argues that

because Plaintiff’s actions with regard to the Wellington property were intentional rather than

accidental, they do not qualify as “occurrences” eligible for coverage under the insurance

policy. 

Defendants point out that although Wellington alleges negligence against Plaintiffs,

a negligent action is not the equivalent of an accident. 

It is common to hear the argument that if the underlying complaint alleges negligence,

there must be a duty to defend. This is not necessarily true. . . Such arguments

misconstrue the 'accident' requirement in standard general liability policies. 'Under

California law, the term refers to the nature of the insured's conduct, not his state of

mind.' . . . ' Negligent' or not, in this case the insured's conduct alleged to have given

rise to claimant's injuries is necessarily nonaccidental, not because any 'harm' was

intended, but simply because the conduct could not be engaged in by 'accident.' ”

Ulrich v. State Farm Fire & Cas. Co., 109 Cal. App. 4th 598, 610 (2003) (quoting Quan v.

Truck Ins. Exchange, 67 Cal. App. 4th 583, 595-596 (1998).

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3 08CV920 BTM (CAB)

However, the term “accident” has also been used to refer to the unintended or

unexpected consequence of the act. “When an injury is an unexpected or unintended

consequence of the insured's conduct, it may be characterized as an accident for

which coverage exists. When the injury suffered is expected or intended, coverage

is denied. When one expects or intends an injury to occur, there is no ‘accident.’ ” .

. . “The fact that an act which causes an injury is intentional does not take the

consequence of that act outside the coverage of a policy which excludes damage

unless caused by accident for if the consequence that is the damage or injury is not

intentional and is unexpected it is accidental in character. . . . the Supreme Court

stated that “accident” “has been defined ‘as “a casualty-something out of the usual

course of events and which happens suddenly and unexpectedly and without design

of the person injured. It includes any event which takes place without the foresight or

expectation of the person acted upon or affected by the event.’ . .. These statements

defining the term “accident” employ the words “consequence” and “happen,” thereby

indicating that an accident can exist when either the cause is unintended or the effect

is unanticipated.

State Farm Fire and Cas. Co. v. Superior Court, 164 Cal. App. 4th 317, 325-26 (2008)

(citations omitted).

The Court has examined Plaintiff’s complaint and the Wellington Second Amended

Complaint in order to determine whether Plaintiff has pled that it suffered a loss that is

eligible for coverage under the policy. Plaintiff does not make any independent

characterizations of its conduct with regard to the Wellington property as accidents,

unintentional actions, intended actions with unintended or unexpected consequences, or

otherwise. Instead, Plaintiff incorporates and relies upon the allegations brought against

them by Wellington in their complaint and responses to interrogatories. (Plaintiff’s Complaint

¶¶ 15-17) 

The Court agrees that many of Plaintiff’s alleged actions, such as the trespass upon

Wellington property or the placement of subterranean tie-backs, appear to be intentional

actions with intended consequences, rather than accidents. However, other allegations such

as the damage caused by placement of heavy construction equipment and materials on the

Wellington property and the negligent removal of Wellington’s storm and pollution work could

have an accidental component depending on the facts of the case. For example, Plaintiff’s

intentional act of placing equipment on Wellington’s property could have resulted in

unintended consequences if Plaintiff accidentally deployed the wrong or too heavy

equipment. Plaintiff’s intentional act of performing repair work on the retaining wall could

have involved unintended consequences if Plaintiff’s employees accidentally caused

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1 Because the Court denies the motion to dismiss on the ground that Plaintiff’s

loss was not result of an accidental “Occurrence,” the Court need not reach the issue of 

whether coverage may also be available under the personal injury provisions of the

insurance policy. The Court also declines to resolve Plaintiff’s waiver and estoppel

arguments as unnecessary. 

4 08CV920 BTM (CAB)

damaged while in the course of performing the intended repair. Also, the Court cannot tell

from the pleadings whether the removal of Wellington’s storm and pollution work was an

intended consequence or the accidental byproduct of Plaintiff’s repairs to the retaining wall.

As explained above, it is unclear from Plaintiff’s current complaint and the incorporated

Wellington complaint whether the damage to the Wellington property was solely caused by

the intended consequences of Plaintiff’s actions or was also caused by the unintentional or

accidental consequences of Plaintiff’s actions. Because the Court cannot conclude at this

juncture that Plaintiff’s actions could not constitute “occurrences” under any set of facts

consistent with the allegations as pled, the Court denies Defendant’s motion to dismiss

Plaintiff’s first and second claims for breach of insurance contract.1 See Hishon, 467 U.S.

at 73. 

Defendant also argues that the Court should also dismiss Plaintiff’s third claim for

tortious breach of the implied covenant of good faith and fair dealing because (1) Plaintiff has

failed to plead that Defendant breached the insurance contract; and (2) Plaintiff failed to

plead how the Defendant’s handling of coverage was unreasonable. For the reasons set

forth above, the Court finds that Plaintiff has not failed to plead that Defendant breached the

insurance contract. The Court also finds that Plaintiff adequately pled a cause of action for

breach of the implied covenant of good faith and fair dealing. Plaintiff states in its complaint

that Clarendon acted in bad faith by wrongfully and unreasonably declining coverage.

Contrary to Defendant’s argument, Plaintiff does not need to enumerate specific acts and

allege why they are unreasonable. Under the liberal pleading standards for federal actions,

Plaintiff’s general allegations are sufficient to plead a claim for breach of the implied covenant

of good faith and fair dealing. See Love v. Fire Ins. Exchange, 221 Cal. App. 3d 1136, 1151-

52 (“[T]here are at least two separate requirements to establish breach of the implied

covenant: (1) benefits due under the policy must have been withheld; and (2) the reason for

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withholding benefits must have been unreasonable or without proper cause.”). 

The Court therefore DENIES Defendant’s motion to dismiss Plaintiff’s third claim for

tortious breach of the implied covenant of good faith and fair dealing. For the same reasons,

the Court also denies Defendant’s motion to dismiss Plaintiff’s fourth and fifth causes of

action for declaratory relief which are premised on the facts alleged in the first through third

causes of action. 

Defendant’s motion to dismiss is DENIED. 

IT IS SO ORDERED. 

DATED: October 2, 2008

Honorable Barry Ted Moskowitz

United States District Judge

Case 3:08-cv-00920-BTM-CAB Document 14 Filed 10/02/08 Page 5 of 5