Case No.: 5:17-cv-00693-EJD

ORDER DENYING DEFENDANTS’ MOTION TO DISMISS OR STAY PROCEEDINGS

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

GREAT AMERICAN INSURANCE 

COMPANY,

Plaintiff,

v.

QUINTANA HOMEOWNERS 

ASSOCIATION, et al.,

Defendants.

Case No. 5:17-cv-00693-EJD 

ORDER DENYING DEFENDANTS’

MOTION TO DISMISS OR STAY 

PROCEEDINGS

Re: Dkt. No. 21

I. INTRODUCTION

Plaintiff Great American Insurance Company (“GAIC”) initiated this declaratory relief 

action seeking a judicial determination that it does not owe Defendants Quintana Homeowners 

Association (“Quintana HOA”) and James Gregg (“Gregg”) a duty to defend or indemnify in the 

underlying suit entitled GIBCO Partners, LLC v. Quintana Homeowners Association, et al., 

currently pending in the Monterey County Superior Court. Presently before the Court is Quintana

HOA’s motion to dismiss pursuant to Rule 12(b)(6), Fed.R.Civ.P., or to stay the proceedings 

pending resolution of the underlying state court action. Defendant Gregg has filed a joinder. The 

motion is scheduled for hearing on August 17, 2017. The Court finds it appropriate to take the 

matter under submission for decision without oral argument pursuant to Civil Local Rule 7-1(b). 

For the reasons set forth below, Defendants’ motion to dismiss or to stay the action is denied.
Case No.: 5:17-cv-00693-EJD

ORDER DENYING DEFENDANTS’ MOTION TO DISMISS OR STAY PROCEEDINGS

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II. BACKGROUND

A. Underlying Action

The plaintiff in the underlying action, GIBCO Partners, LLC (“GIBCO Partners”), is the 

purchaser of “Lot 10,” a 91.5 acre plot of land located within a 2070 acre development in Carmel 

Valley known as Quintana. Prior to purchasing the property, GIBCO Partner’s manager, Jonathan 

Gibson (“Gibson”) reviewed Quintana’s Covenants, Conditions and Restrictions (“CC&Rs”), the 

Design Guidelines of Quintana, and the maps of the Quintana lots contained in each of these 

documents. Based upon the information contained therein, Gibson determined that the “building

envelopes” (the area of each lot in Quintana in which all residential improvements must be built), 

could only be changed in one of three specified ways: (1) the Architectural Review Board 

(“ARB”) could make the changes without formally amending the Design Guidelines if certain 

findings were made; (2) the ARB could make changes if it received the vote or written consent of 

no less than seventy-five percent (75%) of the Quintana HOA; or (3) the developer, Twelfth Tee, 

could make changes.

On January 30, 2008, prior to purchasing Lot 10, Gibson had a telephone conversation 

with Gregg, who is identified in the complaint as a developer of Quintana with an ownership 

interest in Twelfth Tee, a member of the Quintana HOA Board from 2003-2011, and a member of 

the ARB from approximately 2003-2013.

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 Based on this conversation, Gibson believed that 

Gregg was the key person to contact at Quintana to obtain information and guidance about 

whether he should purchase Lot 10. GIBCO Partners allege that it reasonably relied upon the 

information Gregg provided, as well as the representations in the CC&Rs, the Design Guidelines 

and maps, in concluding that Lot 10 would provide Gibson and his family the privacy they 

desired, when it decided to purchase Lot 10 for $2.75 million on February 28, 2008.

GIBCO Partners alleges that the information Gregg provided was false and misleading.

 

1

In the Amended Revised Sixth Amended Complaint, which was filed in Monterey County 

Superior Court after the instant motion to dismiss or stay was filed, Gregg is also identified as a 

“volunteer” for the HOA in connection with the sales of various lots in Quintana from 2007-2008. 
Case No.: 5:17-cv-00693-EJD

ORDER DENYING DEFENDANTS’ MOTION TO DISMISS OR STAY PROCEEDINGS

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Further, GIBCO Partners alleges that throughout 2009, 2010 and 2011, the Quintana HOA and 

ARB allowed multiple violations of the CC&Rs to exist on eight of the thirteen lots in the 

Quintana development, including among other things, building envelope violations. GIBCO 

Partners alleges that it notified the ARB and the Quintana HOA of the violations, and was 

promised that the CC&Rs would be enforced. The Quintana HOA and ARB, however, allegedly 

failed to fulfill their promise. Instead, in approximately June of 2012, the Quintana HOA

president asked the lot owners to approve a series of amendments to the Design Guidelines which 

would eliminate several of the violations, and the ARB promised to approve a few of the 

violations for some of the lot owners if those lot owners voted to approve the Design Guideline 

revisions. Ultimately, the amendments to eliminate several of the longstanding violations received 

enough votes to pass, and the ARB approved most of the remaining violations.

Based on the foregoing, GIBCO Partners alleges the following causes of action in its 

Amended Revised Sixth Amended Complaint2pertinent to the instant insurance coverage action: 

breach of contract against the Quintana HOA for failure to enforce the CC&Rs and Design 

Guidelines, for which it seeks injunctive relief and an award of attorney’s fees; fraud and negligent 

misrepresentation against Gregg, acting in the capacity of “a volunteer on behalf of the HOA,” for 

which it seeks damages, including punitive damages, as well as attorney fees; violation of 

California Corporations Code §§8320, 8321, 8333 against the Quintana HOA, for which it seeks 

injunctive relief and attorney fees; violation of the Davis-Stirling Act, California Civil Code 

§§1363, 1363.05, 1365 and 1363.840, for which it seeks injunctive relief and attorney fees; and 

declaratory relief against the Quintana HOA with respect to an alleged building envelope violation

on Lot 11, and attorney fees. By order of the Monterey County Superior Court filed June 25, 

2015, GIBCO Partners is precluded from recovering monetary damages from the HOA.3 

 

2 GAIC acknowledges receipt of the Amended Revised Sixth Amended Complaint. In GAIC’s 

view, the new allegations in this pleading do not alter its coverage position as outlined in its 

complaint or in its opposition brief to the instant motion to dismiss or stay proceedings. 

3 GAIC’s Request for Judicial Notice of the Superior Court’s order is granted. 
Case No.: 5:17-cv-00693-EJD

ORDER DENYING DEFENDANTS’ MOTION TO DISMISS OR STAY PROCEEDINGS

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B. The Coverage Action

According to GAIC’s complaint, Quintana HOA and Gregg (hereinafter collectively 

referred to as “Insureds”) are presently receiving a defense in the underlying action from Quintana 

HOA’s primary insurer, Travelers Casualty and Surety Company of America (“Travelers”) under 

a primary liability insurance policy issued to Quintana HOA (“Travelers Policy”), the limits of 

which have not been exhausted. GAIC initiated the instant action seeking a judicial declaration 

that it will have no obligation under the umbrella liability policy it issued to the Quintana HOA

(“Umbrella Policy”), to defend and indemnify the Quintana HOA and Gregg in the underlying 

action upon the exhaustion of the Travelers Policy. 

The GAIC Umbrella Policy provides “Claims Made Coverage” for the coverage period of 

September 21, 2011 to September 21, 2012, and contains a limit of $5 million for each occurrence 

and a $5 million general aggregate limit. The GAIC Umbrella Policy provides “follow form 

umbrella coverage” over Quintana HOA’s primary policies, such as the Travelers Policy. 

In the present declaratory relief action, GAIC seeks confirmation that it owes no defense 

and indemnity to the Insureds on the following grounds:

10. As it relates to Quintana [HOA], the Underlying Action seeks 

only injunctive and declaratory relief. Since the Underlying Action 

does not assert a claim for damages, and there is no coverage under 

the Great American Umbrella Policy for the cost of complying with 

injunctive or other equitable relief, there is no covered Loss alleged 

in the Underlying Action from which a defense or indemnity 

obligation can arise in the event the applicable limit of the Travelers 

Policy is exhausted. 

* * *

12. Although Gregg also served as a developer-appointed member 

of the “pre-turnover” Board of Directors of Quintana, the alleged 

representation was made when he was not a member of Quintana’s 

Board of Directors. Under such circumstances, exclusions 

contained or incorporated in the Great American Umbrella Policy 

bar coverage for the alleged acts or omissions of Gregg. 

Consequently, Great American can have no obligation with respect 

to the defense or indemnity of Gregg in the Underlying Action in the 

event the applicable limit of the Travelers Policy is exhausted.

GAIC Complaint, ¶¶10, 12. More specifically, with respect to Gregg, GAIC alleges that it has no 
Case No.: 5:17-cv-00693-EJD

ORDER DENYING DEFENDANTS’ MOTION TO DISMISS OR STAY PROCEEDINGS

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obligation to defend and indemnify “based on the application of the Builder, Developer or Sponsor 

Wrongful Act exclusion” contained in the GAIC Umbrella Policy and/or Claims Against 

Builder/Developer exclusion contained in the Travelers Policy. The GAIC Builder, Developer or 

Sponsor exclusion provides as follows:

Builder, Developer or Sponsor Wrongful Act

Any “wrongful act” which is directly or indirectly related in whole 

or in part to actual or alleged ‘wrongful act” on the part of a builder, 

developer or sponsor or anyone affiliated with a builder, developer 

or sponsor. This exclusion shall not apply to claims while such an 

“Insured” is a member on the “Insured’s board of directors and in 

the capacity of such.

As used in this endorsement, “wrongful act” means any actual or 

alleged error, misstatement, misleading statement, act or omission, 

neglect or breach of duty.

The Travelers Policy exclusion for Claims Against Builder/Developer states as follows:

1. For purposes of this endorsement, the following terms have the 

following meanings:

a. “Builder/Developer Board Member” means any person 

appointed or elected to serve on the board of directors of the Parent 

Organization by the builder, developer or sponsor of the Parent 

Organization, and who was both a director or officer of the Parent 

Organization and a director, officer, employee or agent of such 

builder, developer, or sponsor of the Parent Organization;

b. “Policy Year” means each year of the Policy Period 

beginning with the Policy Inception Date and ending one year 

thereafter and each successive year until canceled or non-renewed.

2. The Insurer shall not be liable to make any payment for Loss in 

connection with any Claim made against any Builder/Developer 

Board Member after the end of the Policy Year in which such 

Builder/Developer Board Member ceases to serve on the board of 

directors of the Parent Organization.

See GAIC Complaint, ¶32.

III. LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed if it fails to 

state a claim upon which relief can be granted. In deciding whether to grant a motion to dismiss, 

the court generally Amay not consider any material beyond the pleadings.@ Hal Roach Studios, 

Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990). In considering a motion 
Case No.: 5:17-cv-00693-EJD

ORDER DENYING DEFENDANTS’ MOTION TO DISMISS OR STAY PROCEEDINGS

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pursuant to Rule 12(b)(6), the court must accept as true all Awell-pleaded factual allegations.@ 

Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1950 (2009). The court must also construe the 

alleged facts in the light most favorable to the plaintiff. Love v. United States, 915 F.2d 1242, 

1245 (9th Cir. 1988). A[T]o survive a motion to dismiss, a complaint must contain sufficient 

factual matter, accepted as true, >to state a claim to relief that is plausible on its face.=@ Iqbal, 556 

U.S. at 678 (internal citations omitted); see also Fed.R.Civ.P. 8(a). 

IV. DISCUSSION

A. Motion to Dismiss

The Insureds contend that GAIC’s complaint fails to state a claim upon which relief may

be granted because the GAIC Policy clearly requires GAIC to defend and indemnify. The 

Insureds raise essentially four arguments to support coverage. First, the Insureds contend that the 

underlying complaint alleges numerous “wrongful acts” within the meaning of the GAIC Policy:

“errors, misstatements, misleading statements, acts, omissions, neglects, and breaches of duty in 

the way [the Quintana HOA] allegedly did not follow the CC&Rs or Design Guidelines, has

neglected to provide the sublime, pastoral residential community that was allegedly promised to 

GIBCO, failed to produce records and meeting minutes, thereby violating the Davis-Stirling Act, 

among other wrongful acts.” Defendants’ Motion, pp.13-14. Second, the Insureds contend that 

the Policy does not exclude claims for injunctive relief. Rather, the Insureds construe the GAIC 

Policy as requiring only that a “claim” be made for a “wrongful act.” Third, the Insureds contend 

that the requests for attorney fees accompanying the state law claims for injunctive relief are 

compensable “Losses,” and that the term “damages” in the GAIC Policy should be construed in 

favor of the insured to include attorney fees. Fourth, the Insureds contend that with respect to 

Gregg, the underlying state court complaint now identifies him as a “volunteer,” and therefore the 

Builder/Developer exclusion does not apply.

The Insureds’ various substantive arguments do not support dismissal under Rule 12(b)(6), 

Fed.R.Civ.P. With respect to the Insureds’ first argument, GAIC’s complaint for declaratory relief 

is not predicated upon the absence of a “claim” or “wrongful act” in the underlying state court 
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action. Instead, GAIC alleges that the state law claims for injunctive and declaratory relief do not 

constitute a covered “Loss” within the meaning of the GAIC Umbrella Policy. 

The Insureds’ second argument with respect to injunctive relief similarly fails. GAIC’s 

position is that the cost of complying with an injunction is barred from coverage under the Cost of 

Injunctive Relief Exclusion in the Travelers Policy, which “follows form” to the Travelers Policy. 

See GAIC’s Opposition, p. 14. The Travelers Policy Cost of Injunctive Relief Exclusion provides 

as follows:

The Insurers shall not be liable to make any payment for Loss, other 

than Defense Costs, in connection with any Claim made against any 

of the Insureds which constitute costs and expenses incurred or to be 

incurred to comply with an order, judgment or award of injunctive 

or other equitable relief of any kind, or that portion of a settlement 

encompassing injunctive or other equitable relief. . . .

See GAIC’s Opposition, p. 9.

The Insureds’ third argument regarding coverage for prevailing party attorney fees is also

unavailing. Under the GAIC Policy, a compensable “Loss” is defined as follows:

the total amount excess of the applicable Retention which any 

Insured becomes legally obligated to pay as the result of all Claims 

first made against any Insured during the Policy Period for 

Wrongful Acts including, but not limited to, damages (including 

punitive or exemplary damages where insurable under applicable 

law), judgments, settlements and Defense Costs. . . . 

See GAIC’s Opposition, p.8. “Defense Costs” are defined as “that part of Loss consisting of 

“reasonable costs, charges and expenses (including but not limited to attorney fees) incurred in 

defending or investigating Claims, including appeals therefrom.” Although “Loss” includes

“attorney fees,” the “attorney fees” must have been “incurred in defending or investigating 

Claims.” An award of attorney fees as a prevailing party falls outside the scope of insurable 

“Loss.” As for the Insureds’ alternative argument that attorney fees are a form of damages, GAIC

contends that California law is to the contrary, citing Cutler-Orosi Unified School District v. 

Tulare County School Dist., 31 Cal.App.4th 617, 632 (1994). Thus, GAIC’s position is not 
Case No.: 5:17-cv-00693-EJD

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foreclosed by California law.

Lastly, the Insureds contend that with respect to Gregg, the underlying state court 

complaint now identifies him as a “volunteer,” and therefore the Builder/Developer exclusion does 

not apply. GAIC’s allegations, however, are sufficient at the pleading stage. GAIC alleges as 

follows:

42. Great American seeks a declaration that it can have no 

obligation to defend and indemnify Gregg under the Great American 

Umbrella Policy based on the application of the Builder, Developer 

or Sponsor Wrongful Act exclusion contained in the [Umbrella] 

Policy and/or the Claims Against Builder/Developer exclusion 

contained in the Travelers Policy. Given that Gregg was no longer 

serving as a developer-appointed member of Quintana’s Board of 

Directors on January 30, 2008, which is the date of the telephone 

call during which the alleged misrepresentation was made, one or 

both of the exclusions apply to bar coverage for Gregg.

See GAIC’s Complaint, ¶42. The GAIC Builder/Developer exclusion bars coverage for any 

wrongful act “which is directly or indirectly related in whole or in part to actual or alleged 

‘wrongful act’ on the part of the . . . developer . . . or anyone affiliated with a builder, developer or 

sponsor,” except “while such an ‘Insured’ is a member on the ‘Insured’s’ board of directors and in 

the capacity as such.” Id. at ¶25. The Travelers Builder/Developer exclusion similarly bars 

coverage for a developer-appointed board member of Quintana where a claim is made “after the 

end of the Policy Year” in which the developer-appointed board member “ceases to serve on the 

board of directors” of Quintana. GAIC’s allegations must be accepted as true at the pleading 

stage (see Ashcroft v. Iqbal, 556 U.S. at 1950) and are sufficient to state a claim for declaratory 

relief. Accordingly, the Insureds’ motion to dismiss is denied.

B. Motion to Stay

In general, a stay of a declaratory action to determine insurance coverage is appropriate 

when the coverage question turns on facts to be litigated in the underlying action. Montrose 

Chemical Corp. v. Superior Court, 6 Cal.4th 287, 301-302 (1983). In this case, however, GAIC’s 

positions with respect to the defense and indemnity of Quintana HOA and Gregg largely turn on 

policy interpretation. The Insureds identify two categories of potential factual overlap between the 

issues to be resolved in the underlying state court action and the present case; however, the 
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potential overlap is not a sufficient basis to delay this case. The Insureds first contend that there 

remain factual issues regarding the “nature of relief” available in the underlying action. The 

Monterey County Superior Court, however, has already determined that “the only relief Plaintiff 

may seek in this action as against the HOA is injunctive.” See Monterey County Superior Court 

Order filed June 25, 2015. Second, the Insureds contend that there remain unresolved issues with 

respect to the nature of Gregg’s relationship with the Quintana HOA and the developer entities. 

The GAIC contends, however, that it has already been established that Gregg was no longer a 

member of Quintana’s board at the time he allegedly made misrepresentations, which is the only 

evidence needed to determine the applicability of the Builder/Developer exclusion. Therefore, a 

stay of the instant action is unwarranted. See GGIS Ins. Serv., Inc. v. Superior Court (Capitol 

Indem. Corp.), 168 Cal.App.4th 1493, 1505 (2008). 

V. CONCLUSION

For the reasons set forth above, GAIC has pled sufficient facts upon which relief may be 

granted. Accordingly Defendants’ motion to dismiss or stay the proceedings is DENIED. 

Nothing in this Order should be construed as a decision on the underlying merits of the coverage 

issues.

IT IS SO ORDERED.

Dated: August 11, 2017

______________________________________

EDWARD J. DAVILA

United States District Judge