Opinion ID: 3052326
Heading Depth: 5
Heading Rank: 1

Heading: Loss of use claims

Text: [11] The Kim/Kaen complaints did not allege that the defects in the PlayStation 2 caused them to experience a loss of use of game discs or DVDs. Nonetheless, Sony argues that the Kim/Kaen plaintiffs asserted “classic ‘loss of use’ ” claims covered by the American Home policy. Sony cites to allegations that the PlayStation 2 was unable to read or play CDs, DVDs, or original PlayStation games, and complaints of discs skipping and freezing, accompanied by banging or clicking noises. [12] These allegations are far from “classic ‘loss of use’ ” claims. As the district court noted, the statements regarding discs freezing and skipping referenced the defects in the PlayStation 2, not defects in the discs themselves. Sony Comp. Entm’t, No. C 04-0492 PJH, at 6 (N.D. Cal. Aug. 30, 2005). Indeed, though it is undisputed that certain discs did not properly play on the PlayStation 2, the complaints never suggested that the discs themselves did not function properly on other devices. Id. In this respect, the suit is easily distinguishable from the loss of use cases Sony cites, in which the insured’s defective property rendered the property of a third party unusable. See Anthem Elecs., Inc. v. Pac. Employers Ins. Co., 302 F.3d 1049, 1057 (9th Cir. 2002) (defective circuit boards inserted into scanners of third party plaintiff rendered scanners unusable); Hendrickson v. Zurich American Ins. Co., 72 Cal. App. 4th 1084, 1091-92 (Ct. App. 1999) (defective strawberry plants planted in fields caused loss of use of fields).7 Moreover, the Kim/Kaen plaintiffs did not allege any recognized measure of loss of use of discs, such as rental value. See, e.g., F&H Constr. v. ITT Hartford Ins. Co., 118 Cal. App. 4th 364, 377 (Ct. App. 2004). Last, Sony’s citation to the Kim/Kaen settlement agreement, which references “loss of 7 Sony’s citation to Park Univ. Enter. v. American Cas. Co., 442 F.3d 1239, 1244-45 (10th Cir. 2006) is also unhelpful because the loss of use in that case was not disputed. SONY v. AMERICAN HOME ASSURANCE 8771 use” of discs, is irrelevant, because the duty to defend is based on the complaints and facts known to the insurer at the time of tender only. We Do Graphics, Inc. v. Mercury Cas. Co., 124 Cal. App. 4th 131, 136 (Ct. App. 2004) (“The duty to defend is not measured by hindsight, but turns ‘upon those facts known by the insurer at the inception of a third party lawsuit.’ ”) (citing Montrose, 6 Cal. 4th at 295). [13] Even if Sony could establish coverage for the Kim/ Kaen suits under the loss of use provision, the lawsuits fall squarely within the purview of Exclusion (m). That provision excludes coverage for “loss of use” property damage arising out of “a defect, deficiency, inadequacy, or dangerous condition in ‘[Sony’s] product.’ ” Any loss of use of the discs inserted into the PlayStation 2 is the result of a defect in Sony’s product, and is therefore excluded from coverage under Exclusion (m). See America Online, Inc. v. St. Paul Mercury Ins. Co., 347 F.3d 89, 98-99 (4th Cir. 2003) (loss of use coverage barred by similar exclusionary provision). Sony’s only response to the Exclusion (m) argument is that the “sudden and accidental” physical injury exception to the exclusion applies. Sony unconvincingly contends that because the complaints allege that the freezing and locking of the discs can happen at any time and that the defects in the console generally manifest at certain time periods, the allegations “evince[ ] the possibility that the loss of use of discs resulted from a sudden and accidental physical injury to the PlayStation 2s.” But these allegations provide far more support for the theory that the devices deteriorated over time than that each and every class member’s devices experienced a sudden and accidental physical injury. Sony analogizes to Anthem, in which this court held that the insured presented a possibility that a similar “sudden and accidental physical injury” exception to an exclusion applied, but in that case extrinsic evidence in the form of diagnostic reports suggested that 8772 SONY v. AMERICAN HOME ASSURANCE physical damage had occurred to the insured’s product. Here, no such evidence exists. Anthem, 302 F.3d at 1059-60.8 [14] Accordingly, we hold that the Kim/Kaen lawsuits are not covered under the “loss of use” coverage provision, and that, even if they were, they are excluded from coverage under Exclusion (m). The sudden and accidental injury exception to Exclusion (m) is inapplicable.