Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-04450/USCOURTS-cand-3_14-cv-04450-0/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

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

PHILADELPHIA INDEMNITY 

INSURANCE COMPANY,

Plaintiff,

v.

LAKESIDE HEIGHTS HOMEOWNERS 

ASSOCIATION,

Defendant.

Case No. 14-cv-04450-WHO 

ORDER GRANTING MOTION FOR 

SUMMARY JUDGMENT

Plaintiff Philadelphia Indemnity Insurance Co. (“Philadelphia”) contends that the 

“subsidence exclusion” in the insurance policy between it and defendant Lakeside Heights 

Homeowners Association (“the HOA”) means that it is not obligated to defend or indemnify the 

HOA in an underlying state court action in which the County of Lake brought counterclaims for 

negligence and loss of lateral support, among other things. The crux of the dispute is over the 

breadth of the term “operations” in the subsidence exclusion. The evidence submitted with 

Philadelphia’s motion, including especially the HOA’s Declaration of Covenants, Conditions and 

Restrictions (CC&R’s) establishes, that the HOA’s “operations” include maintenance of its 

landscape, construction activities on its property, and its irrigation and drainage systems. All 

possible theories of liability against the HOA in the underlying state court action, including those 

based on negligence, arise from those operations. Accordingly, Philadelphia’s motion for 

summary judgment is GRANTED. 

BACKGROUND

The HOA and owners of property within the HOA asserted claims against Lake County in 

the Lake County Superior Court for inverse condemnation, dangerous condition of public 

property, and negligence in Lakeside Heights Homeowners Association v. County of Lake, Lake 

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County Superior Court Case No. CV-413185. See Dkt. No. 33-2, Ex. A. That lawsuit arose out of 

a landslide, subsidence, and earth movement that occurred in 2013 and damaged the HOA’s and 

owners’ property. Id. ¶ 9. In response, Lake County filed a cross-complaint against the HOA and 

owners (collectively, “HOA”) for negligence, equitable and comparative indemnity, declaratory 

relief, and failure of lateral support (negligence). Dkt. No. 33-2, Ex. B. The cross-complaint 

advances several theories against the cross-defendants involving the HOA’s irrigation system, 

land development, and purported knowledge of a potential subsidence. 

The HOA tendered the defense to Philadelphia, and Philadelphia agreed to defend the 

HOA with a full reservation of rights. Dkt. No. 30-3, Ex. 6, Ex. 9. Philadelphia subsequently 

filed a complaint for declaratory judgment in this Court on October 3, 2014. Compl. (Dkt. No. 1). 

Philadelphia seeks a declaration that it does not owe a duty to defend or indemnify the HOA in the 

underlying action. 

The HOA moved to dismiss the action in November 2014, arguing alternatively that 

because the same facts are at issue in both the underlying state court action and in this action, the 

case should not proceed until the underlying action is resolved. See Dkt. No. 14. Philadelphia 

countered that the motion should be considered as one for summary judgment that should be 

decided in its favor. See Dkt. No. 16. 

I heard the matter and denied both parties’ motions. See Order at 1 (Dkt. No. 24). I 

declined to treat the matter as a motion for summary judgment and found that more documents –

such as articles of incorporation or bylaws – were needed to determine whether the subsidence 

exclusion applies in this case. Id. at 4-6. I noted that “the duty to defend in this matter is not so 

clear” as the HOA suggested, and that the term “operations” in the subsidence exclusion did not 

appear to differ significantly from the term “work.” Id. at 5. I concluded that I needed more 

information about Lake County’s lateral support claim and Lake County’s theory of liability for 

pre-development and development activities in order to determine whether the subsidence 

exclusion applies. Id. at 6-7. And I permitted discovery on “the scope of the HOA’s operations as 

determined by its governing documents or state law, the contours of the County’s failure of lateral 

support claim, and the responsibility of the HOA for pre-development and development activities 

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as determined by its governing documents or state law.” Id. at 7. 

With its motion for summary judgment, Philadelphia submitted the HOA’s maintenance 

bid to landscapers, landscaping maintenance instructions, a “Final Subdivision Public Report,” 

and various discovery responses in the underlying action, as well as the HOA’s by-laws, CC&Rs, 

corporate grant deed, and several public reports. See Dkt. Nos. 30-1, 30-2. I heard argument on 

May 27, 2015. 

LEGAL STANDARD

A court will grant a motion for summary judgment where the pleadings, discovery and 

affidavits show that there is “no genuine dispute as to any material fact and the movant is entitled to 

judgment as a matter of law.” FED. R. CIV. P. 56(a). A dispute as to a material fact is genuine if there 

is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. See Anderson 

v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “Where the moving party will have the burden of 

proof on an issue at trial, it must affirmatively demonstrate that no reasonable trier of fact could find 

other than for the moving party.” Noriga v. Ahmed, No. CV 12-0889 WHO (PR), 2013 WL 3461931, 

at *1 (N.D. Cal. July 9, 2013). 

If the moving party meets its initial burden, the nonmoving party must then go beyond the 

pleadings and “set forth specific facts showing that there is a genuine issue for trial.” Id.; FED. R. CIV.

P. 56(a). The court will consider only material facts and not “factual disputes that are irrelevant or 

unnecessary.” Anderson, 477 U.S. at 248. In order to prevail, the nonmoving party must demonstrate 

with reasonable particularity that the evidence precludes summary judgment. Noriga, 2013 WL 

3461931, at *1. Absent such a showing “the moving party is entitled to judgment as a matter of law.” 

Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (internal citations and quotations omitted).

DISCUSSION

Philadelphia’s argument relies on the “subsidence exclusion” contained in the insurance 

policy between it and the HOA1 which provides that 

 1 Although Philadelphia issued five consecutive insurance policies to the HOA, all include the 

subsidence exclusion. See Mot. 3. I rely on the Policy submitted by Philadelphia in support of its 

first motion to dismiss. Dkt. No. 14-1, Ex. C. 

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This insurance does not apply to: 

“Bodily injury”, “property damage”, “personal injury” or 

“advertising injury” caused by, resulting from, attributable or 

contributed to, or aggravated by the subsidence of land as a result of 

landslide, mudflow, earth sinking or shifting, resulting from 

operations of the named insured or any subcontractor of the named 

insured.

Compl. ¶ 7; Dkt. No. 14-1, Ex. C at 28. As discussed in my prior order, this case hinges on 

whether the cross-claims brought by Lake County involve the “operations” of the HOA. Order at 

5. 

I. EVIDENTIARY OBJECTIONS

I first address the HOA’s argument that Philadelphia has failed to present sufficient 

evidence of its position because its supporting documents are not made with personal knowledge, 

lack foundation, or are not authenticated. Oppo. 14-16 (Dkt. No. 33). The HOA points out that 

Philadelphia failed to provide or authenticate the insurance policies giving rise to this action and 

that the discovery responses Philadelphia provided are unverified. Id. at 14-15. 

In response, Philadelphia argues that the evidence need only be admissible at trial in order 

to satisfy Rule 56. Reply 6 (Dkt. No. 34). It cites to McCarthy v. R.J. Reynolds Tobacco Co., 

which states: “[e]ven if the non-moving party’s evidence is presented in a form that is currently 

inadmissible, such evidence may be evaluated on a motion for summary judgment so long as the 

moving party’s objections could be cured at trial.” 819 F. Supp. 2d 923, 926 (E.D. Cal. 2011). It 

asserts that it can cure evidentiary problems by properly authenticating the documents, and that 

they do not fail for lack of foundation, lack of personal knowledge, or hearsay. Reply 7-8; see 

also Joseph v. Target Corp., No. 2:12-CV-01962-KJM, 2015 WL 351444, at *2 (E.D. Cal. Jan. 

23, 2015) (“[W]here the objecting party does not contest the authenticity of the evidence 

submitted, but nevertheless makes an evidentiary objection based on purely procedural grounds, 

such as that the documents have not been properly authenticated, then the court should consider 

the evidence” on motion for summary judgment) (internal quotations omitted).

I agree with Philadelphia. Both the Cusick declaration and the Meltvedt-Brown 

declaration state that “I have personal knowledge of the matters set forth below, and if called as a 

witness, could and would testify competently thereto.” See Dkt. Nos. 30-1, 30-2. There is no 

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other evidence that the documents would be inadmissible for lack of foundation, lack of personal 

knowledge, or hearsay. 

Moreover, the HOA does not contest the authenticity or validity of the documents. I took 

judicial notice of the insurance policy in my Order denying the HOA’s motion to dismiss, which 

the HOA itself submitted. See Order at 2; Dkt. No. 14-1. And although Philadelphia did not 

submit the policies with its motion for summary judgment, it referred to these prior submissions to 

this Court in support of its motion to dismiss. See Dkt. No. 14-1. In opposition to Philadelphia’s 

motion for summary judgment, the HOA again submitted the policy. See Dkt. No. 33-2. At the 

hearing, Philadelphia indicated that it would be able to authenticate the documents if necessary. 

Because there is no substantive objection, and because the critical language relied upon by 

Philadelphia in the documents is not disputed, I OVERRULE the HOA’s objection. 

II. PHILADELPHIA’S DUTY TO DEFEND AND INDEMNIFY THE HOA IN THE 

UNDERLYING STATE COURT ACTION

A court’s interpretation of an insurance policy is a question of law. Powerine Oil Co. v. 

Superior Court, 37 Cal. 4th 377, 390 (2005). The ordinary rules of contractual interpretation apply to 

insurance contracts. Id. Contractual language that is clear and explicit governs. Id. 

An insurer must defend the insured in a suit which “potentially” seeks damages within the 

coverage of the policy. Montrose Chemical Corp. v. Superior Court, 6 Cal. 4th 287, 295 (1993). In 

determining whether there is a duty to defend, the court “compar[es] the allegations of the complaint 

with the terms of the policy.” Id. “Facts extrinsic to the complaint also give rise to a duty to defend 

when they reveal a possibility that the claim may be covered by the policy” and the duty to defend 

turns on “facts known by the insurer at the inception of a third party lawsuit.” Id.; see also Gauntlett v. 

Illinois Union Ins. Co., No. 5:11-CV-00455 EJD, 2012 WL 4051218, at *6 (N.D. Cal. Sept. 13, 2012)

(“Whether coverage exists does not depend on the labels given to the causes of action in the third party 

complaint; instead it rests on whether the alleged facts or known extrinsic facts reveal a possibility that 

the claim may be covered by the policy.”) (internal quotations omitted). 

Generally, the court interprets exclusionary clauses narrowly, but interprets clauses identifying 

coverage broadly. Garvey v. State Farm Fire & Cas. Co., 48 Cal. 3d 395, 406 (1989). When 

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determining the scope of the coverage and exclusionary clauses, words should be interpreted according 

to the plain meaning that a layman would ordinarily attach to them. Jordan v. Allstate Ins. Co., 116 

Cal. App. 4th 1206, 1214 (2004).

The applicability of the exclusion hinges on consideration of the allegations in the crosscomplaint and Lake County’s claims against the HOA. Accordingly, I examine them below.2

 

A. The Cross-Complaint

Lake County’s first cause of action is for negligence. It states that the HOA’s private 

irrigation system gave rise to “excessive overwatering and/or irrigation leaks” and “saturated the 

grounds of the Subject Property with enormous amounts of water.” Cross-Compl. ¶¶ 9-11 (Dkt. 

No. 33-2). It contends that the HOA was on notice of the deficiencies in its irrigation system, and 

that when repairs were made they were done in “a substandard manner and with neglect and 

reckless disregard for the safety and protection of the Subject Property. . .” Id. ¶¶ 12-13. 

According to the cross-complaint, this was a substantial factor in causing the damages. Id. ¶ 13. 

Lake County also claims in its negligence cause of action that the HOA had actual or 

constructive notice of “earth movement” in 1996 and 2006 but ignored the recommendations of 

land consultants, and that the HOA did not fix its private storm drain that was malfunctioning. Id.

¶¶ 14-15. Additionally, it states that the HOA was “negligent for developing the Subject Property 

in a manner inconsistent with the recommendations of the geotechnical engineer(s)” and for 

failing to disclose “at the approval stage of the project that the Subject Property, or at least that 

portion that has sustained catastrophic damage, was built over an old slide area.” Id. ¶ 17. “The 

fact that the old landslide debris had not been removed in advance of development, that nonengineered fill was placed over the same, and with an absence of a proper drainage system in an 

area where the surficial soil is not expansive and was known to undergo significant strength loss 

and become weak and compressible when saturated, are all substantial factors” in causing the 

damage. Id.3

 

 2 Notwithstanding the HOA’s procedural objections to Philadelphia’s evidence, it does not object 

to the facts contained therein or their truth. I consider the facts below to be undisputed. 

3 The second, third, and fourth causes of action in the cross-complaint allege equitable indemnity, 

comparative indemnity, and declaratory relief based upon the same allegations. See Cross-Compl. 

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The fifth cause of action is for “Failure of Lateral Support (Negligence).” Lake County 

asserts that the HOA “owed a duty to maintain the Subject Property so that the subdivision and 

surrounding land would continue to provide lateral support to the public right of way below.” Id.

¶ 30. It alleges that the “landscaping, vegetation, irrigation and uncontained waters on the Subject 

Property could cause soil on the subdivision and surrounding land to lose strength and cause a 

failure of lateral support” and that “related improvements, maintained and controlled by [the 

HOA],” should additionally be reinforced to prevent the failure of lateral support. Id. ¶ 31. It 

contends that the HOA “breached [its] duty to properly maintain the Subject Property so that the 

subdivision and surrounding land would continue to provide lateral support” by failing to properly 

maintain its landscaping and irrigation. Id. ¶ 32. The breach was also caused by “overwatering of 

landscaping and failure to monitor, maintain and repair their subpar and failing private irrigation 

system which consistently leaked” and released water into the land. Id. ¶ 33. 

B. Facts related to the underlying state court action

1. The HOA’s governing documents

The HOA’s CC&Rs provide the greatest amount of information about what is considered

to be its “operations.” See Dkt. No. 30-2, Ex. 3. The CC&Rs provide several key definitions: 

“Common area” is defined as all property that is not residential lots, and “common expenses” 

include “all expenses or charges incurred by or on behalf of the Association for the management, 

maintenance, administration, insurance, operation, repairs, additions, alterations or reconstruction 

of the Common Area [or] Common Facilities . . . .” Id. at 2-3. The term “Improvement” is 

defined as “the construction, reconstruction, installation, alternation, or remodeling of any 

buildings, walls, decks, fences, swimming pools, driveways, alleys, painting, landscaping, 

landscape structures, irrigation systems, skylights, solar heating systems, spas, antennas, satellite 

dishes, exterior air conditioners and water softeners, utility lines, or any structure of any kind.” Id.

at 3. 

In discussing the HOA’s rights and responsibilities, the CC&Rs state that the HOA has the 

 

¶¶ 20-38. 

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right to borrow money to improve the common area. Id. at 6; see also id. at 17 (individual owners 

are liable for cost caused “[i]n the event that any damage to, or destruction of, any portion of the 

Common Area, including any portion of the Lot which the Association is obligated to repair and 

maintain . . . ”). The CC&Rs state: “[t]he Association shall have the responsibility of managing 

and maintaining the Common Areas and discharging the other duties and responsibilities imposed 

on the Association by the Governing Documents.” Id. at 11. “[I]f any Lot is maintained so as to 

become a nuisance, fire or safety hazard for any reason . . . the Association shall have the right to 

enter said Lot, correct the offensive or hazardous condition and recover the cost.” Id. at 18. 

In addition, the HOA has an “architectural committee” which pre-approves all 

“Improvements” made by homeowners on the property. Id. at 23-25, 29. The committee can 

determine that a proposed Improvement is unacceptable “if factors such as drainage, 

topography . . . or prior adverse experience with the product or components used in construction of 

the Improvement . . . mitigate against erection.” Id. at 25. The committee is also involved during 

construction and will conduct inspections. Id. at 27. In particular, the CC&Rs state that “[n]o 

Owner shall do any work, construct any Improvement, place any landscaping or suffer the 

existence of any condition whatsoever which shall alter or interfere with the drainage pattern for 

the Owner’s or any adjacent Lots or parcels or Common Area.” Id. at 29. 

With regard to the Common Area, the CC&Rs state that “[n]o Improvement, excavation or 

work which in any way alters any Common Area from its natural or existing state shall be made or 

done except by the Association and then only in strict compliance with the provisions of this 

Declaration.” Id. at 30. Owners are liable to the HOA for any damages to the Common Area 

caused by their negligence. Id. Under the section entitled “maintenance responsibilities,” the 

CC&Rs state that 

The Association shall be solely responsible for all maintenance, 

repair, upkeep and replacement within the Common Area, 

landscaping in the unfenced front, side and back yards of each Lot 

and all utility lines, except those within a Residence. No person 

other than the Association or its duly authorized agents shall 

construct, reconstruct, refinish, alter or maintain any Improvement 

upon, or shall create any excavation or fill or change the natural or 

existing drainage of any portion of the Common Area. In addition, 

no person shall remove any tree, shrub or other vegetation from, or 

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plant any tree, shrub, or other vegetation upon the Common Area 

without written approval of the Association.

Id. at 35. 

Philadelphia also provided the HOA’s prior CC&Rs that were enacted in 1983. Cusick 

Decl. 25 (Dkt. No. 30-1).4

 They specifically state that sewers and landscaped areas are Common 

Area. Id. at 27. They also state that “[a]ll of such telephone lines, pipes, conduits and culverts and 

sprinkler systems shall be cared for, repaired, and maintained by the Association or the respective 

utility.” Id. at 40. In addition, “[t]he Association shall keep all improvements of whatever kind 

and for whatever purpose from time to time located on the Common Areas, including all utility 

lines, pipes, conduits and facilities located thereon and owned by the Association, in good order 

and repair.” Id. at 52. The HOA is also responsible for all landscaping. Id. 

Next, Philadelphia submitted the HOA’s bylaws from 1983 and 2004. See Cusick Decl., 

Ex. A; Dkt. No. 30-2, Ex. 4. The 1983 bylaws provide that the Board of Directors is responsible 

for maintaining the Common Area and the exterior of the buildings. Cusick Decl. at 14-15. The

2004 bylaws similarly state that the Board shall “[c]ontract for and pay for maintenance, 

landscaping, utilities, materials, supplies, labor, and services that may be required from time to 

time in relation to the Common Areas and other portions of the Project which the Association is 

obligated to maintain.” Dkt. No. 30-2, Ex. 4 at 14-15. 

Finally, Philadelphia submitted a maintenance bid for a landscaping company listing 

proposed landscaping responsibilities: “[e]valuate the entire sprinkler system and notify 

Association of needed repairs, retrofits and/or needed replacement installations” and “[n]otify of 

seasonal water problems which develop relating to drainage, runoff, standing water, etc.” Cusick 

Decl. at 90. It also submitted “landscape maintenance instructions” that list requirements for 

watering the Common Area and maintaining the irrigation system. Id. at 92-94. 

2. Investigation of the landslide

On April 4, 2013, Lake County issued a press release stating that “[a]s the public is aware, 

a significant amount of movement in the hillside at Lakeside Heights Subdivision has caused 

 4 Page numbers in the documents contained in the Cusick declaration refer to the page number of 

the entire document filed as Docket 30-1. 

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damage to several homes and the sewer line, and created a potential loss to Hill Road and the 

public water system feeding the subdivision.” Dkt. No. 30-2, Ex. 5. This resulted in part from a 

damaged sewer line. Id. Accordingly, Lake County, through its Special Districts Administration,

hired RGH Consultants to perform a geotechnical investigation. Id. 

The release states that while investigating, the Administration noticed a “saturation of 

water” that was believed to be “contributing to the unstable hillside.” Id. This could have resulted

from a “leaking irrigation line, water line or natural spring.” Id. The Administration hired a leak 

detection firm, which found no leaks in the district’s lines but “a suspicion of a significant leak or 

leaks” in the HOA’s irrigation line. Id. 

The Preliminary Geologic Consultation Report from RGH Consultants was completed on 

May 29, 2013. See Dkt. No. 30-3, Ex. 8. This described the investigations conducted and the 

subsurface water encountered. Id. at 1-4. In its “Conclusions and Recommendations,” it stated 

that “the water and sewer within Lancaster Road are in jeopardy of being compromised by the 

continued movement of the landslide” and that “[t]he landslide is likely failing on the former 

failure plane or an inherent weak layer within the terrace deposits.” Id. at 5. It found: 

The driving forces that are most obvious in this landslide are water, 

former slope instability and the placement of new loads (fill and 

homes) within formerly unstable areas. . . It has been documented 

that the hillside has had a history of high perched subsurface water, 

however it has been reported that irrigation leaks and the activities 

related to a fire in the neighborhood had released water into the 

hillside in the weeks prior to the first observed movement of this 

failure. 

Id. at 6. The Report concluded that “[i]t is difficult to determine what the final contributing 

driving force actually was but it is more likely that the culmination of the [] driving forces were 

finally enough to overcome the resisting forces and the landslide began to have accelerated 

movement.” Id. It also stated that Lake County is seismically active, with several small 

earthquakes that occurred before the landslide. Id. 

The Report also made note of a prior report completed by Applied Earth Sciences, Inc. in 

1979. Id. at 4. The 1979 investigation did not “discuss the presence or absence of landslides,” but

recommended that “the surficial soil and the soft alluvial soil in areas of planned fill and at grade 

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should be properly conditioned to provide adequate support for buildings, pavements and any fill.” 

Id.; Ex. 30-3, Ex. 7 at 5. The investigation also recommended installation of “underdrains beneath 

all fills over natural drainage ravines and channels.” Id. at 6. 

On April 9, 2013, the HOA sent a notice to Philadelphia of an occurrence/claim, stating 

that a “[p]otential landslide has developed at the Lakeside Heights subdivision” and that “one of 

the potential causes are [sic] suspicious leaks in the HOA’s 2" irrigation line.” Dkt. No. 30-2, Ex. 

1. 

3. Discovery in the underlying state court case

Philadelphia submitted Lake County’s Amended Responses to the HOA’s Special 

Interrogatories in the underlying case. See Dkt. No. 30-4, Ex. 10. Lake County stated that “there 

was more than one break in the County-maintained potable water piping system” prior to March of

2013. Id. at 20-22. Furthermore, Lake County stated that “leaks in the public water system were 

not a substantial factor in causing a landslide at the Lakeside Heights subdivision . . . beginning in 

March 2013.” Id. at 27-28. It contended that this was because there was no evidence that breaks 

in the public water system were “a substantial factor in causing the subject landslide” and that “[i]f 

water infiltration was a factor, whether or not a substantial factor, it was the release of some two 

million gallons of water in 2012 from the irrigation system in a short window of time on the 

plaintiff’s owned/maintained side of the meter(s).” Id. at 30. In addition, “[o]ther factors were the 

[plaintiff]’s inadequate storm drain system and failure to maintain the same along with the 

substandard construction of the development.” Id. 

Furthermore, Lake County repeatedly stated its position that 

[T]he superceding, intervening cause of the earth movement was the 

failure of the developer to pre-condition the land prior to 

constructing the Lakeside Heights development and/or the failure of 

the developer’s geotechnical engineer to identify these necessary 

steps. Notably, during site gradient the primary zone of movement 

is in the same location as a prior pre-development landslide. 

Accordingly, pre-development, the prior slide debris should have 

been removed, a proper drainage system should have been installed 

and engineered fill material should have been placed. Not only was 

none of this accomplished, but non-engineered fill was added, all 

without necessary drainage. Additionally, the non-engineered fill 

was placed on sloping terrain rather than on a flat bench, contrary to 

the recommendations of the developer’s geotechnical soils engineer. 

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Had the hillside been properly pre-engineered per the above, the 

earth movement would not have occurred even with the presence of 

any purported water intrusion. 

Id. at 47. 

Similarly, Lake County’s responses to cross-defendants’ Special Interrogatories sets forth 

the theory that “[t]he HOA was on notice as early as the 1980s that draining problems were 

plaguing the development which was compounded by excessive water usage and leaks in its 

substandard irrigation and storm drains systems.” Dkt. No. 30-4, Ex. 11 at 3. In addition, “[t]he 

poor construction of the homes and development and absence and/or deficiencies of the storm 

drains, downspouts and/or gutters resulted in erosion of the common areas and the rears of the 

homes along Lancaster Road.” Id. The responses continue that by the 1990s “the HOA was on 

further notice of ongoing drainage deficiencies and soil erosion,” but failed to mitigate the 

situation. Id. at 4. There were no “catch basins” to divert the water and a deficient irrigation 

system. Id. 

C. The HOA’s potential theories of liability

The parties do not dispute that the subsidence exclusion applies only to HOA’s 

“operations.” Oppo. 4. In my prior order, I expressed concern that there was no evidence 

“regarding the breadth of the County’s allegations and what facts underlie the County’s claim of 

lateral support.” Order at 6. Similarly, I noted that “[n]either side addresses why the HOA would 

have liability for pre-development and development activities.” Id. at 7. I stated that crosscomplaint did not include facts that would support a finding of the HOA’s liability for those 

activities, but that the HOA’s governing documents or California Code provisions may provide the 

answers. Id. 

In resolving this motion, I note that the only discovery information that Philadelphia 

submitted pertaining to Lake County’s allegations is the two sets of Lake County’s Responses to 

Special Interrogatories. At the same time, I am not persuaded by either of the HOA’s arguments 

of possible liability that fall outside of the subsidence exclusion. Nor do there appear to be any 

facts available to Lake County, or anything in its complaint, investigatory documents, or discovery 

responses, that support liability outside of the subsidence exclusion. I examine each potential 

theory proffered by the HOA in turn. 

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1. The HOA’s current activities as “operations”

The HOA points out that its legal duties do not equate to “operations.” Oppo. 4. It asserts

that its “operations” are limited to landscaping and other day-to-day maintenance, such as mowing 

grass, maintaining street signs, patching asphalt, maintaining the mail facility, and other aesthetic 

upkeep. Id. at 5. The HOA also contends that it does not maintain the sewer and water system, 

which is a public system. Id. 

These arguments are contradicted by the evidence of record. The HOA’s governing 

documents indicate that it is responsible for all maintenance on all common areas of the property 

that allegedly caused the damages. In addition, the California Civil Code states that a 

homeowner’s association “is responsible for repairing, replacing, or maintaining the common area, 

other than exclusive use common area.” CAL. CIV. CODE. 4775. The HOA’s actions that could 

potentially give rise to liability under the cross-complaint are the creation and operation of its 

irrigation system and the maintenance of its premises, including its failure to remedy construction 

that contributed to earth movement or that was inconsistent with the advice of geotechnical 

engineers, and its failure to fix its private storm drain. See Cross-Compl. ¶¶ 9-17. All of these 

actions or inactions come directly under the HOA’s rights and responsibilities as set forth in its 

governing documents.5 

To be sure, it is possible that the damages in the underlying case are not caused by the 

HOA’s operations, but instead by factors such as seismic activity, fires, or Lake County’s public 

water system. However, those causes will not expose the HOA to liability. Lake County does not 

make such allegations. Rather, Lake County’s cross-complaint, the relevant focus of this motion, 

discusses the current activities of the HOA that led to the alleged damages. Philadelphia met its 

initial burden of showing that no reasonable trier of fact could find a theory of liability that would 

not result from the HOA’s “operations.” 

 5 The HOA does not and could not seriously contend that it is not responsible for landscaping and 

irrigation, which comprise Lake County’s primary allegations and which fall under its 

“operations” as set forth in its bylaws, CC&Rs, and the other documents submitted by 

Philadelphia.

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2. Premises Liability 

The HOA advances two potential theories of liability that would not fall under the 

subsidence exclusion because they relate to past activity that occurred before the HOA could have 

conducted “operations.” First, it points to a premises liability theory: “[u]nder California law if a 

prior landowner creates latent defects in the land, and damage occurs to a third-party during 

subsequent ownership as a result of the latent defects, the prior landowner is not liable (absent 

active concealment) but the subsequent owner is liable subject to ordinary negligence principles.” 

Oppo. 7 (emphasis omitted). In particular, the HOA emphasizes the allegations of the landslide in 

the cross-complaint, stating that it could give rise to liability under a negligence theory that the 

HOA breached its duty of care to prevent the landslide. Id. at 8-9. Second, it cites the complaint’s 

allegations that “pre-HOA site work” and excavation deficiencies allegedly damaged County 

property. Id. at 6, 8. 

As Philadelphia asserts, ordinary negligence principles require the HOA to exercise the 

proper duty of care in maintaining its property. Reply 4; see also Carter v. Nat’l R.R. Passenger 

Corp., No. 13-CV-00809-JCS, 2014 WL 3974732, at *20 (N.D. Cal. Aug. 8, 2014); Brooks v. 

Eugene Burger Mgmt. Corp., 215 Cal. App. 3d 1611, 1619 (Ct. App. 1989). This is consistent 

with the allegations in the cross-complaint and in the discovery responses that indicate that the 

HOA’s liability is founded on its failure to maintain the property and/or remedy conditions giving 

rise to the landslide. 

In short, the HOA’s liability arises out of its current, post-development activities in 

maintaining its land. As discussed above, the only ongoing “maintenance” activities of the HOA 

that could give rise to liability under the cross-complaint are those that fall under its “operations” 

pursuant to the subsidence exclusion. For this reason, the subsidence exclusion applies to any 

liability based on premises liability. 

3. Liability Based on Loss of Lateral Support

Second, the HOA argues that it could be liable under a lateral support theory. Oppo. 9. 

California law gives property owners the right to lateral and subjacent support from adjoining

land. CAL. CIV. CODE § 832. A landowner may be liable if he does not “remedy allegedly 

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defective, previously performed, site work” even if performed by a prior owner. See Oppo. 10; 

see also Lee v. Takao Bldg. Dev. Co., 175 Cal. App. 3d 565, 569 (Ct. App. 1985). 

Again, the HOA points to the cross-complaint’s allegations relating to pre-HOA 

development activities and the “natural landslide that allegedly exists at the subdivision.” Id. at 6. 

It says that the original construction and site work is not an operation of the HOA, but was rather 

under the purview of the pre-HOA developer of the subdivision. Id. Likewise, it cites the 

allegations of a natural landslide, which is not an “operation” of the HOA. Id. at 6-7. 

For the same reasons that the premises liability argument does not provide the HOA with a 

theory of liability not dependent upon its present “operations,” the loss of lateral support theory 

also fails. As the HOA states, “[i]f a landowner, like the HOA in this case, does not remedy 

allegedly defective, previously performed, site work said subsequent landowner may be liable to 

the adjacent property owner for loss of lateral support even though the allegedly defective site 

work was performed by the prior owner.” Oppo. 10. Like the premises liability theory, this 

theory requires a subsequent landowner’s failure to remedy allegedly defective work by a past 

owner. The HOA’s operations involve maintenance of the structures on the property and 

supervision of all new construction. The HOA’s alleged liability based upon failure to remedy is 

consistent with the allegations by Lake County in the cross-complaint and in the discovery 

responses. Liability under a lack of lateral support theory is included under the subsidence 

exclusion. 

4. “Products-completed Operations Hazard” Provision

Finally, I address the HOA’s argument that the “products completed operations coverage”

covers negligent past performance of irrigation repair work. Oppo. 10-11. Although such 

coverage is often excluded from insurance policies, the HOA emphasizes that it specifically 

purchased the coverage from Philadelphia. Id. at 10. The HOA contends that the coverage

“insures against alleged damage that manifests after (sometimes long after) a task is completed 

due to allegedly negligent ‘work,’ ‘operations,’ installation of defective materials, handling of 

defective products, or similar, by a named insured or by anyone doing work on the named 

insured’s behalf.” Id. 

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The “products-completed operations hazard” “[i]ncludes all ‘bodily injury’ and ‘property 

damage’ occurring away from premises you own or rent and arising out of ‘your product’ or ‘your 

work.’” Dkt. No. 14-1, Ex. C at 15. The HOA contends that the “subsidence exclusion does not 

exclude the broader range of potential liabilities insured against by the products completed 

operations coverage.” Oppo. 13. It takes the position that the subsidence exclusion does not apply 

to this coverage because the products completed operations coverage covers a range of liabilities 

that are not otherwise included in the policy or excluded from the subsidence exclusion. Id. 

While the HOA cites to the policy’s definition of “products-completed operations hazard,” see 

Dkt. No. 14-1, Ex. C at 14, it does not submit a separate insurance document that supports its 

position other than a record that the HOA paid for a limit of $3,000,000 for “Products/Completed 

Operations Aggregate Limit.” See Dkt. No. 33-1 at 5.

In reply, Philadelphia states that products completed operations hazard is a defined term in 

the policy, not a stand-alone coverage agreement. Reply 10. It claims that the function of this 

term is to “interact with two exclusions (separate from the Subsidence Exclusion) to show which 

of those two applies to ongoing operations and which applies to completed operations.” Id. These 

exclusions apply to ongoing operations and completed operations, with each subject to a separate 

$3 million aggregate limit of liability. Id. 

Philadelphia further argues that the purpose of the “products-completed operations hazard” 

provision is to allow coverage for damage arising under “exclusion j” of the policy. Id. at 11. 

This exclusion precludes recovery for damages arising from incorrect work. Id.; see also Dkt. No. 

14-1, Ex. C at 5. Another provision of the policy states that “‘[p]roperty damage’ to ‘your work’ 

arising out of it or any part of it and included in the ‘products completed operations hazard’ . . . 

does not apply if the damaged work or the work out of which the damage arises was performed on 

your behalf by a subcontractor.” Dkt. No. 14-1, Ex. C at 5. According to Philadelphia, the 

“products-completed operations hazard” provision dictates when the “subcontractor exception to 

the faulty-workmanship exclusions” applies under the policy, but does not render the subsidence 

exclusion inapplicable in this case. Oppo. 11. 

Philadelphia’s interpretation of the term is sounder. While the HOA fails to explain how 

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this provision applies to override the subsidence exclusion, Philadelphia provides specific citations 

where the policy applies or does not apply the “products-completed operations hazard.” The 

language of the subsidence exclusion is clear, and unlike exclusion (j) of the policy, does not 

mention that it is subject to the products-completed operations hazard. See Dkt. No. 14-1, Ex. C at 

4-5, 28. In addition, unlike the products-completed operations hazard, the subsidence exclusion is 

separate from the rest of the policy and explicitly states that it “changes the policy.” Id. at 28. I 

conclude that the products-completed operations hazard purchased is subject to the subsidence 

exclusion. See 3 Allan D. Windt, Insurance Claims and Disputes § 11:20 (6th ed.) (“The fact that 

there is generally coverage for and a separate policy limit for the completed operations hazard 

does not mean that claims encompassed by the hazard do not have to satisfy the basic insuring 

clause or are not subject to the exclusions in the policy”); Am. Home Assur. Co. v. AGM Marine 

Contractors, Inc., 379 F. Supp. 2d 134, 137 (D. Mass. 2005) aff’d, 467 F.3d 810 (1st Cir. 2006) 

(“The ‘products-completed operations hazard’ provision is not a separate policy but a subpart of 

the entire policy”); Sting Sec., Inc. v. First Mercury Syndicate, Inc., 791 F. Supp. 555, 563 (D. Md. 

1992). 

CONCLUSION

After Philadelphia met its initial burden of showing that no reasonable trier of fact could 

find a theory of liability that would not result from the HOA’s “operations,” the HOA failed to set 

forth specific facts or theories that show that it may be liable under a theory not arising out of its 

operations. The HOA’s arguments based upon potential claims of premises liability and loss of 

lateral support each fail to fall outside of the subsidence exclusion. For the reasons discussed

above, Philadelphia’s motion for summary judgment is GRANTED. Philadelphia is not obligated 

to indemnify the HOA in the underlying action under the terms of the insurance policy. Judgment 

will be entered accordingly. 

IT IS SO ORDERED.

Dated: June 18, 2015

______________________________________

WILLIAM H. ORRICK

United States District Judge

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