Opinion ID: 721571
Heading Depth: 3
Heading Rank: 3

Heading: Covington Homes Action

Text: 18 According to the fifth amended complaint in Covington Homes, Northern California v. Stanford Ranch, Inc., Placer County Superior Court No. 83185, Covington and Stanford entered into a written agreement for the purchase and sale of Parcel 12, Phase II, of the Stanford Ranch Development (purchase property) on May 26, 1987. The escrow was originally scheduled to close on August 3, 1987. From time-to-time, Covington exercised its right under the agreement to extend the closing date. 19 On November 19, 1987, Covington and Stanford modified the agreement, to require Stanford to comply, if required, with Section 404 of the Clean Water Act and provide [Covington] with proof of compliance prior to the close of escrow. Stanford further warranted and covenanted in the modification that the Purchase Property was free of wetlands and vernal pools. 20 Covington alleges that from May 1987 to June 1988, Stanford represented that it was diligently pursuing the Government approvals necessary to complete the sale. Covington also alleges that Stanford was subject to a cease-and-desist order from the Corps in February 1988. On or about June 3, 1988, Stanford repudiated the purchase agreement. 21 Based on the foregoing, Covington asserts claims for specific performance; breach of contract; intentional misrepresentation; negligent misrepresentation; and nondisclosure.B. The Insurance Policies 22 There are two relevant policies at issue in this case-the primary policy issued by Maryland for the policy period August 1, 1986, to August 1, 1988, and the umbrella policy issued by Maryland for the same period. 3 The primary policy provides: 23 II. PERSONAL INJURY AND ADVERTISING INJURY LIABILITY COVERAGE 24 (A) The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of personal injury or advertising injury to which this insurance applies, sustained by any person or organization and arising out of the conduct of the named insured's business, within the policy territory, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such injury.... 25 (B) The insurance does not apply: 26 .... 27 (6) to advertising injury arising out of 28 (a) failure of performance of contract, but this exclusion does not apply to the unauthorized appropriation of ideas based upon alleged breach of implied contract.... 29 .... 30 (D) Additional Definitions 31 Advertising Injury means injury arising out of an offense committed during the policy period occurring in the [ ] course of the named insured's advertising activities, if such injury arises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan. 32 Personal Injury means injury arising out [of] one or more of the following offenses committed during the policy period: 33 .... 34 (2) wrongful entry or eviction or other invasion of the right of private occupancy.... 35 The umbrella policy's insuring agreement states: 36 3.1 COVERAGES. The Company will pay on behalf of the Insured for ultimate net loss in excess of the retained limit which the Insured by reason of liability imposed upon the Insured by law or assumed by the Insured under any contract or agreement, shall become legally obligated to pay as damages because of Personal Injury Liability or Property Damage Liability or Advertising Offense Liability to which this policy applies, caused by an occurrence. 37 The umbrella policy provides the following definitions: 38 2.1 Advertising Offense means libel, slander, defamation, infringement of copyright or of title or of slogan, piracy, unfair competition, idea misappropriation or invasion of rights of privacy committed or alleged to have been committed during the policy period, arising out of the Insured's advertising activities. 39 .... 40 2.9 Personal Injury means any of the following acts or offenses which occur during the policy period, including death and care and loss of service resulting therefrom: 41 .... 42 (d) wrongful entry or eviction, or other invasion of the right of private occupancy.... 43 Coverage is excluded under the umbrella policy with respect to advertising offense, to damages resulting from (a) breach of contract other than an implied contract to pay for the misappropriation of an idea. C. Procedural History 44 After the underlying lawsuits were brought, Stanford tendered its defense and indemnity to Maryland. Maryland denied coverage under the insurance policies and refused to defend the lawsuits. Stanford brought suit against Maryland in Sacramento County Superior Court seeking damages for breach of the insurance contracts and breach of the implied covenant of good faith and fair dealing. The case was removed by Maryland to the United States District Court for the Eastern District of California based on diversity jurisdiction. 45 In the district court, the parties cross-moved for summary judgment. The district court granted Maryland's motion for summary judgment, holding that there was no potential for coverage under the policies. Therefore, the district court held, Maryland did not owe a duty to defend the underlying lawsuits against Stanford. 4