Scottsdale Ins. Co. v. Superior Court

Filed 6/17/08 Scottsdale Ins. Co. v. Superior Court CA1/4

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FOUR

Scottsdale Insurance Company (Scottsdale) has asked this court to set aside an order from respondent superior court staying proceedings in that court. We agree the stay was improvidently granted.

I. BACKGROUND

Scottsdale filed a complaint for declaratory relief and restitution. Scottsdale alleged it had issued a policy of general liability insurance to Park Terrace Investors, the fictitious business name for real party in interest Park Terrace Partners. That partnership was formed to purchase and renovate a building in San Francisco. The project was completed and the first unit in the building was sold in 1996.

Scottsdale further alleged Park Terrace Partners formed a homeowners association to manage and maintain the common areas of the building. In August 2006, the homeowners association named Park Terrace Partners and others[1] in a suit for construction defects. Park Terrace Partners tendered the defense of the action to Scottsdale, which agreed to defend the action subject to a reservation of rights.

Scottsdale filed the declaratory relief action to resolve the issue of its duty to defend. Park Terrace Partners moved to stay the action pending resolution of the construction defects action, claiming the outcome of the declaratory relief action turned on facts to be litigated in the defects action.

At the hearing on the motion, Scottsdale explained it sought determination of a single issue: the application of the owned property exclusion in its policy. Scottsdale asserted the issue could be resolved on undisputed facts, and it did not object to a stay with respect to any other issues raised by its complaint. Park Terrace Partners countered that even if the matter went forward on the single issue, prejudice would result from having to defend both cases at the same time. The trial court granted the stay without giving an explanation.

Scottsdale timely sought writ relief in this court. We issued an alternative writ directing the trial court to vacate its stay order, but the court chose not to comply.

II. DISCUSSION

Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 301-302 (Montrose) states the controlling legal principal here: To eliminate the risk of inconsistent factual determinations that could prejudice the insured, a stay of the declaratory relief action pending resolution of the third party suit is appropriate when the coverage question turns on facts to be litigated in the underlying action.

The Supreme Court gave two contrasting examples in Montrose. The classic situation warranting a stay occurs when the insurer seeks to avoid providing a defense in a negligence action by arguing its insured harmed the third party by intentional conduct. (Montrose, supra, 6 Cal.4th at p. 302.) [T]he potential that the insurers proof will prejudice its insured in the underlying litigation is obvious. (Ibid.)

On the other hand, the Supreme Court pointed to the circumstances in State Farm Mut. Auto Ins. Co. v. Flynt (1971) 17 Cal.App.3d 538. In Flynt, the insurer sought a duty to defend determination for liability arising from an auto accident. Coverage turned on whether the insured had granted permission for the drivers use of the car. That question was irrelevant to the third partys personal injury claim, and could properly be determined in the declaratory relief action independently of the timing of the third party suit. (Montrose, supra, 6 Cal.4th at p. 302.) Thus, when the coverage question is logically unrelated to the issues of consequence in the underlying case, the declaratory relief action may properly proceed to judgment. (Ibid.; see also Northland Ins. Co. v. Briones (2000) 81 Cal.App.4th 796, 804-807 [request for stay properly denied where issue of negligence not subject to dispute]; see, generally, Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2007)  7:667 et seq., p. 7B-58 et seq.)

The instant case falls in the latter category. Scottsdale seeks adjudication of a single, narrow issue, which appears to turn on undisputed facts, or facts not relevant to the construction defects action. As we understand Scottsdales argument, there is no potential for coverage because (1) damages occurring outside the policy period are not covered, and (2) during the policy period Park Terrace Partners owned the property, and the policy excludes damage to property owned by the insured.

Park Terrace Partners has not disputed that it owned the property during the policy term. Instead, it argues that defending the owned property exclusion will necessitate proof of issues related to damages. Park Terrace Partners suggests this proof would include evidence showing the property was, in fact, damaged, when it was damaged, and that the damaged property was owned by the homeowners association or its members. We disagree. Park Terrace Partners need not prove or concede any of these facts in the declaratory relief action. No damages need be proven to adjudicate the issue of ownership, upon which the policy exclusion is based.

An insurer owes a duty to defend against claims that create a potential for indemnity. The court looks first to the allegations of the complaint to determine whether the insurer owes a duty to defend. (Montrose, supra, 6 Cal.4th at p. 295.) The homeowners association alleges it has sustained and continues to sustain grave physical property damage to the roofs, floors and walls of the Residential and Commercial Units, to the Common Area and to the garages of the Development . . . . The homeowners association also alleges various other damages, including damage to the contents of the buildings units. If the policy potentially covers any of those damages, Scottsdale owes a duty to defend regardless of whether damages are ultimately awarded. (See ibid. [the duty to defend is broader than the duty to indemnify, thus an insurer may owe a duty to defend in an action in which no damages are awarded].) Accordingly, for purposes of determining the duty to defend, damages are assumed, and Scottsdale must prove as a matter of law that there is no potential for coverage of those damages. Park Terrace Partners has not explained how the determination of this narrow issue would undermine its defense in the construction defect case.

We do not lightly overturn what is essentially a discretionary call by the trial court. The stay was issued here, however, even though Park Terrace Partners failed to show any possibility of inconsistent factual determinations. Further, Park Terrace Partnerss claim that it would suffer significant prejudice from concurrent litigation was not supported by the record. According to a representation by counsel below, trial had been set in the declaratory relief action in July, but counsel expected a fall or winter trial date in the construction defects action. There has been no showing that a summary judgment or summary adjudication motion, on such a limited issue, would be overly burdensome when trial in the construction defects action is apparently months away.

Park Terrace Partners also argues Scottsdale has not demonstrated irreparable harm because it will have the chance to recover all of its defense costs at the conclusion of the defects action. This argument might be more persuasive had Park Terrace Partners responded to Scottsdales assertion that Park Terrace Partners will likely be unable to reimburse defense costs. Park Terrace has never stated, in this court or below, that it will have the resources to reimburse Scottsdale after what will likely be expensive, protracted litigation in the construction defects action.[2] Finally, Park Terrace Partnerss suggestion that Scottsdale can simply withdraw from the defense is unrealistic and serves no ones interest at this point in the litigation. (Cf. Scottsdale Ins. Co. v. MV Transportation (2005) 36 Cal.4th 643, 660, fn. 5.)

As we noted in our order issuing the alternative writ, the trial court may again stay this action if Scottsdales motion is denied. The trial court also retains the discretion to impose a stay if the motion for summary judgment/adjudication itself should reveal a genuine possibility of inconsistent factual determinations.

III. DISPOSITION

Let a peremptory writ of mandate issue directing the trial court to vacate its order granting the motion for stay. Instead the trial court shall deny the motion and permit Scottsdale to proceed with filing its motion for summary judgment or adjudication. Having served its purpose, the alternative writ is discharged. Scottsdale shall recover costs. (Cal. Rules of Court, rule 8.490(m)(1)(A).)

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RIVERA, J.

We concur:

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RUVOLO, P.J.

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SEPULVEDA, J.

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[1] Others included real party in interest Amerippon, Inc., a general partner of Park Terrace Partners. Hereafter references to Park Terrace Partners includes Amerippon.

[2] In any event, by the issuance of an alternative writ, we have already determined Scottsdale satisfied the prerequisites of writ review. (Payne v. Superior Court (1976) 17 Cal.3d 908, 925.)