Carlton v. AmGuard Ins. Co. ( 2024 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 DAN CARLTON, an individual, No. 2:22-cv-02030 WBS DB 13 Plaintiff, 14 v. MEMORANDUM AND ORDER RE: DEFENDANT’S MOTION FOR 15 AMGUARD INSURANCE COMPANY, a SUMMARY JUDGMENT foreign corporation; and DOES 1 16 to 100, inclusive, 17 Defendant. 18 19 ----oo0oo---- 20 Plaintiff Dan Carlton brought this action against 21 defendant AmGUARD Insurance Company, alleging breach of an 22 insurance contract and bad faith. (Docket No. 1-1.) Defendant 23 now moves for summary judgment. (Docket No. 15.) 24 I. Factual & Procedural Background 25 Plaintiff owned a 45-foot motorized fishing boat. (See 26 Def.’s Statement of Undisputed Facts (Docket No. 15-1) (“SUF”) ¶ 27 10.) Plaintiff kept a boat captain, Luis Flores, on retainer to 28 pilot the boat. (See id. ¶ 11.) On November 3, 2021, Captain 1 Flores began a trip to take the boat -- which was docked in Cabo 2 San Lucas, Mexico -- to Magdalena Bay, also in Mexico. (See id. 3 ¶¶ 10-11.) Plaintiff planned to travel via airplane from 4 Sacramento to Magdalena Bay, where he and his guests would meet 5 up with the captain for a fishing excursion. (See id. ¶¶ 12-13.) 6 While en route to Magdalena Bay, the captain 7 encountered rough weather, including high winds and large waves. 8 (See id. ¶¶ 16, 18.) He lost control of the boat when a wave 9 swamped the motors, which ultimately led the boat to be sunk by 10 large waves near the coast. (See id. ¶¶ 14-20.) Plaintiff’s 11 personal property -- including fishing rods, fishing reels, 12 fishing tackle, televisions, binoculars, wireless headsets, 13 personal clothing, and a computer -- was on the boat at the time 14 and was lost. (See id. ¶ 28; Carlton Decl. (Docket No. 18-4) ¶ 15 3.) 16 Plaintiff had a boat insurance policy from a different 17 insurer that paid out for the loss of the boat and $10,000 worth 18 of personal property. (See SUF ¶ 23-24.) Plaintiff sought to 19 recover the remaining value of the lost personal property (over 20 $150,000) pursuant to a homeowner’s insurance policy issued by 21 defendant AmGUARD. (See id. ¶¶ 5, 24.) 22 The policy covers “personal property owned or used by 23 an ‘insured’ while it is anywhere in the world” and covers damage 24 caused by a “windstorm.” (See id. ¶¶ 7-8 (emphasis added).) 25 Defendant denied coverage on the basis that damage by waves is 26 excluded under the terms of the policy. (See id. ¶ 29.) 27 II. Standard of Review 28 Summary judgment is proper “if the movant shows that 1 there is no genuine dispute as to any material fact and the 2 movant is entitled to judgment as a matter of law.” Fed. R. Civ. 3 P. 56(a). A material fact is one “that might affect the outcome 4 of the suit under the governing law,” and a genuine issue is one 5 that could permit a reasonable trier of fact to enter a verdict 6 in the non-moving party’s favor. Anderson v. Liberty Lobby, 7 Inc., 477 U.S. 242, 248 (1986). While the moving party bears the 8 initial burden of establishing the absence of a genuine issue of 9 material fact, see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 10 (1986), the underlying facts must be viewed in the light most 11 favorable to the non-moving party, see Matsushita Elec. Indus. 12 Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). 13 III. Breach of Insurance Contract 14 Under California law, the interpretation of an 15 insurance policy is a question of law requiring the court to 16 “look first to the language of the contract in order to ascertain 17 its plain meaning or the meaning a layperson would ordinarily 18 attach to it.” Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 19 18 (1995). “While insurance contracts have special features, 20 they are still contracts to which the ordinary rules of 21 contractual interpretation apply.” Bank of the W. v. Superior 22 Court, 2 Cal. 4th 1254, 1264 (1992). “If contractual language is 23 clear and explicit, it governs.” Id. 24 In interpreting an insurance contract, “[a] policy 25 provision is ambiguous when it is susceptible to two or more 26 reasonable constructions.” E.M.M.I. Inc. v. Zurich Am. Ins. Co., 27 32 Cal. 4th 465, 470 (2004). “The proper question is whether the 28 provision or word is ambiguous in the context of this policy and 1 the circumstances of this case.” Id. (cleaned up). “If an 2 asserted ambiguity is not eliminated by the language and context 3 of the policy,” then the ambiguity is “construed against the 4 party who caused the uncertainty to exist (i.e., the insurer) in 5 order to protect the insured’s reasonable expectation of 6 coverage.” Foster-Gardner, Inc. v. Nat’l Union Fire Ins. Co., 18 7 Cal. 4th 857, 868 (1998), as modified (Sept. 23, 1998). 8 “The burden is on an insured to establish that the 9 occurrence forming the basis of its claim is within the basic 10 scope of insurance coverage.” Aydin Corp. v. First State Ins. 11 Co., 18 Cal. 4th 1183, 1188 (1998), as modified on denial of 12 reh’g (Oct. 14, 1998). “[O]nce an insured has made this showing, 13 the burden is on the insurer to prove the claim is specifically 14 excluded.” Id. 15 Defendant advances several theories for its argument 16 that the policy does not cover the loss at issue. The court will 17 address each in turn. 18 A. “Windstorm” 19 The policy at issue here covers “personal property 20 owned or used by an ‘insured’ while it is anywhere in the world.” 21 (Docket No. 15-2 at 31.) “Windstorm” is listed as a “covered 22 peril.” (See id. at 38.) The policy does not define 23 “windstorm.” (See id.) Defendant argues that no windstorm 24 occurred and therefore the damage was not caused by a covered 25 peril. 26 While there is no binding authority on what constitutes 27 a windstorm, defendant cites Morris v. Allstate Insurance 28 Company, 16 F. Supp. 3d 1095 (C.D. Cal. 2014), which is the only 1 case the court has located defining the term under California 2 law. The district court there relied on several dictionary 3 definitions that defined windstorm as “a storm with high winds or 4 violent gusts with little or no rain.” See id. at 1102. 5 Defendant’s brief also argues that a windstorm “is generally 6 distinguished from an area of high wind that is normal for the 7 area.” (See Docket No. 15 at 16.) This aligns with the approach 8 taken by several other jurisdictions that “construe[] the term 9 ‘windstorm’ by . . . requir[ing] that the wind be ‘unusual’ in 10 some respect.” See 17 Couch on Ins. § 153:27; see also, e.g., 11 Graff v. Farmers Mut. Home Ins. Co. of Hooper, Dodge County, 211 12 Neb. 13, 17 (1982) (a windstorm is “a wind of unusual violence or 13 tumultuous force”). 14 The undisputed facts available in the record are as 15 follows. At the time of the accident, approximately 10:00 p.m., 16 it became “very windy and there were big waves.” (Flores Dep. 17 (Docket No. 15-2 at 262-327) at 16:8-10, 17:4-5.) Both wind and 18 waves suddenly “came upon” the boat. (Id. at 14:14-15.) The 19 wind speed when the boat departed for its journey in the morning 20 was five to six knots. (See id. at 17:20-18:5, 44:25-45:3.) The 21 winds later accelerated to speeds of 25 to 30 knots. (Id. at 22 45:16-18.)1 These higher winds prompted the captain to change 23 the boat’s course, and once the captain lost control because the 24 motor was damaged by waves, the wind pushed the boat towards the 25 coast where it was destroyed. (See id. at 45:12-15, 46:18-24.) 26 The tool that the captain used to continuously monitor the wind 27 1 Five knots is equivalent to 5.75 miles per hour. 28 Thirty knots is equivalent to 34.5 miles per hour. 1 forecast had given no indication that such high winds would be 2 present. (Id. at 17:6-18:5.) 3 The court concludes from the above facts that there was 4 a windstorm. The record indicates that there were high winds and 5 no rain. See Morris, 16 F. Supp. 3d at 1102. The wind was also 6 “unusual,” see Graff, 211 Neb. at 17, as there was a marked 7 increase in wind speed, the wind was unexpected, and the wind 8 both caused the captain to change the boat’s course and exerted 9 force on the boat to further push it off course towards dangerous 10 conditions. 11 The court therefore will not grant summary judgment on 12 the basis that no covered windstorm existed. 13 B. “Water” Exclusion & Efficient Proximate Cause Doctrine 14 Defendant next argues that the loss is excluded from 15 coverage. The policy enumerates several general exclusions, for 16 which coverage is unavailable when they “directly or indirectly” 17 cause the loss, “regardless of any other cause or event 18 contributing concurrently or in any sequence to the loss.” 19 (Docket No. 15-2 at 40.) “Water” is one such exclusion, and is 20 defined to include “[f]lood, surface water, waves, including 21 tidal wave and tsunami, tides, tidal water, overflow of any body 22 of water, or spray from any of these, all whether or not driven 23 by wind, including storm surge.” (See id. (emphasis added).) 24 Plaintiff argues that despite involving water damage, 25 the loss of his personal property is covered due to application 26 of the efficient proximate cause doctrine. Pursuant to the 27 efficient proximate cause doctrine, “‘[w]hen a loss is caused by 28 a combination of a covered and specifically excluded risks, the 1 loss is covered if the covered risk was the efficient proximate 2 cause of the loss,’ but ‘the loss is not covered if the covered 3 risk was only a remote cause of the loss, or the excluded risk 4 was the efficient proximate . . . cause.’” Julian v. Hartford 5 Underwriters Ins. Co., 35 Cal. 4th 747, 750 (2005), as modified 6 (May 5, 2005) (internal quotation marks and citations omitted) 7 (quoting State Farm Fire & Casualty Co. v. Von Der Lieth, 54 Cal. 8 3d 1123, 1131–32 (1991)). “[T]he ‘efficient proximate cause’ of 9 a loss is the predominant, or most important cause of a loss.” 10 Id. at 754. This doctrine is “the preferred method for resolving 11 first party insurance disputes involving losses caused by 12 multiple risks or perils, at least one of which is covered by 13 insurance and one of which is not.” Id. at 753 (internal 14 quotation marks and citations omitted). 15 The court recognizes that the insurance policy attempts 16 to circumvent the application of this doctrine with language 17 stating that losses caused by water are excluded “regardless of 18 any other cause or event contributing concurrently or in any 19 sequence to the loss.” (See Docket No. 15-2 at 40.) However, 20 the court cannot give effect to that language, as “[p]olicy 21 exclusions are unenforceable to the extent that they conflict 22 with . . . the efficient proximate cause doctrine.” See Julian, 23 35 Cal. 4th at 750. “[A]n insurer may not preclude application 24 of efficient proximate cause analysis through inconsistent policy 25 language.” Id. 26 Defendant argues that the efficient proximate cause 27 doctrine does not apply because water and wind were not separate 28 contributing perils. For there to be “two or more distinct 1 perils that cause a loss” such that the doctrine applies, “the 2 perils must be such that ‘they could each, under some 3 circumstances, have occurred independently of the other and 4 caused damage.’” De Bruyn v. Superior Ct., 158 Cal. App. 4th 5 1213, 1223 (2d Dist. 2008) (quoting Finn v. Cont’l Ins. Co. 218 6 Cal. App. 3d 69, 72 (1st Dist. 1990)). “[I]t is not necessary 7 that those two or more perils did in fact occur independently to 8 cause the loss for which coverage is sought.” Id. But where it 9 is impossible for the covered peril to occur independently of the 10 excluded peril, the two are not “independent causal agent[s]” and 11 the efficient proximate cause doctrine does not apply. See 12 Julian, 35 Cal. 4th at 760 (declining to apply efficient 13 proximate cause doctrine where policy excluded landslides caused 14 by rain, and the type of landslide at issue “was ‘always’ caused 15 by water”); Coast Rest. Grp., Inc. v. AmGUARD Ins. Co., 90 Cal. 16 App. 5th 332, 345 (4th Dist. 2023), review denied (June 28, 2023) 17 (where policy excluded damage caused by viruses but covered 18 losses resulting from government orders, government’s COVID-19 19 shutdown order “could not under any circumstance have occurred 20 independent of COVID-19” and thus was not a “conceptually 21 distinct peril,” precluding application of efficient proximate 22 cause doctrine). 23 Critically, the record here indicates that the waves in 24 this region were always more severe closer to the shore, 25 regardless of the effect of wind. (See Flores Dep. at 19:4-19, 26 47:3-4.) As such, there is no indication that the waves were 27 28 1 solely “wind-driven,” as defendant argues.2 The wind and waves 2 do not appear to have been “inextricably intertwined,” see Coast 3 Rest. Grp, 90 Cal. App. 5th at 345, but rather “could each, under 4 some circumstances, have occurred independently of the other and 5 caused damage,” see De Bruyn, 158 Cal. App. 4th at 1223. The 6 wind and waves therefore constitute “independent causal agent[s]” 7 such that the efficient proximate cause doctrine applies. See 8 Julian, 35 Cal. 4th at 760. 9 The California Supreme Court has stated unequivocally 10 that the efficient proximate cause analysis is for the trier of 11 fact to determine. See Garvey, 48 Cal. 3d at 412 (“Coverage 12 should be determined by a jury under an efficient proximate cause 13 analysis.”). In this court’s experience, such an inquiry -- 14 laden with conceptual vagaries and undefined legal terms of art - 15 - may well be beyond the capacity of the average juror to 16 understand, much less apply to the facts of a case. See Joe S. 17 Cecil et al., Citizen Comprehension of Difficult Issues: Lessons 18 from Civil Jury Trials, 40 Am. U. L. Rev. 727, 733–34 (1991) 19 (describing concerns expressed by Justice Warren Burger and other 20 commentators about the difficulty of having jurors decide complex 21 issues ill-suited for the layperson). Having recognized the 22 dilemma posed by sending the efficient proximate cause question 23 to the jury (absent a waiver of jury trial), the court 24 nonetheless must do just that. See Garvey, 48 Cal. 3d at 412. 25 Because there are sufficient facts in the record such 26 2 Defendant does not point to any evidence in the record 27 that the waves were exclusively “wind-driven.” There is also no indication that the existence or severity of the wind was 28 affected by the waves, and defendant does not argue as such. 1 that the trier of fact could find either the water or the wind to 2 be the efficient proximate cause of the loss, the court must deny 3 summary judgment on this ground. See Sabadin v. Hartford Cas. 4 Ins. Co., No. 13-cv-1928 JLS ANX, 2015 WL 12672750, at *5 (C.D. 5 Cal. Jan. 13, 2015) (a genuine dispute concerning which of two 6 perils was the efficient proximate cause of a loss “precludes 7 resolution of th[e] case at the summary judgment stage”). 8 C. Watercraft “Equipment” Provision 9 Finally, defendant points to the section concerning 10 windstorm coverage, which states that windstorm damage to 11 “watercraft of all types and their trailers, furnishings, 12 equipment, and outboard engines or motors” is covered “only while 13 [the watercraft is] inside a fully enclosed building.” (Docket 14 No. 15-2 at 38.) Defendant argues that the personal property on 15 the boat -- including fishing rods, fishing reels, fishing 16 tackle, televisions, binoculars, wireless headsets, personal 17 clothing, and a computer (see Carlton Decl. ¶ 3) -– qualifies as 18 the boat’s “equipment” under this provision and therefore is not 19 covered. 20 There is no language in the policy to support 21 defendant’s interpretation of the term “equipment,” nor has 22 defendant cited any authority that supports its interpretation. 23 To the contrary, the courts that have addressed this question 24 have concluded that the type of personal property at issue here 25 does not constitute a watercraft’s “equipment.” See Riche v. 26 State Farm Fire & Cas. Co., 356 So. 2d 101, 103 (La. Ct. App.), 27 writ denied, 358 So. 2d 639 (La. 1978) (fishing equipment “formed 28 no part of the furnishings or equipment of [sunken] boat,” and 1 therefore did not fall within exclusion for “watercraft, 2 including furnishings and equipment, while such property was not 3 inside a fully enclosed building”); Employers’ Fire Ins. Co. v. 4 Howsley, 432 S.W. 2d 578, 580 (Tex. Civ. App. 1968) (camping and 5 fishing equipment, clothes, and camera equipment “cannot be said 6 to be the furnishing or equipment” of rubber boat that sunk, and 7 therefore did not fall within exclusion for “watercraft, their 8 furnishings and equipment except while on land”). 9 The items of personal property at issue here could be 10 moved to dry land, were not a permanent fixture of the boat, and 11 do not in any way relate to the operation of the watercraft. 12 (See Carlton Decl. ¶ 3.) Thus, as in the decisions cited above, 13 the court finds defendant’s proposed interpretation of the term 14 “watercraft equipment” to be unreasonable. 15 Because plaintiff’s personal property was not 16 “equipment” within the meaning of the policy, it is not excluded 17 from windstorm coverage on that basis. 18 For the foregoing reasons, the court will deny 19 defendant’s motion for summary judgment on the breach of contract 20 claim. 21 IV. Bad Faith 22 Defendant also seeks summary judgment on plaintiff’s 23 bad faith claim. “In order to establish a breach of the implied 24 covenant of good faith and fair dealing under California law, a 25 plaintiff must show: (1) benefits due under the policy were 26 withheld; and (2) the reason for withholding benefits was 27 unreasonable or without proper cause.” Guebara v. Allstate Ins. 28 Co., 237 F.3d 987, 992 (9th Cir. 2001) (citing Love v. Fire Ins. 1 Exch., 221 Cal. App. 3d 1136, 1151 (4th Dist. 1990)). 2 As explained above, whether the policy covered the loss 3 is a triable issue. The court thus turns to the question of 4 whether the denial of coverage was “unreasonable.” As relevant 5 here, the California Supreme Court has explained that “an insurer 6 cannot reasonably and in good faith deny payments to its insured 7 without thoroughly investigating the foundation for its denial.” 8 Egan v. Mut. of Omaha Ins. Co., 24 Cal. 3d 809, 819 (1979); see 9 also Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 721 (2007) 10 (citations omitted) (an insurer acts unreasonably if it “ignores 11 evidence available to it which supports the claim”). 12 The claims file indicates that the initial claims 13 review process occurred over the course of one day. (See Docket 14 No. 18-3 at 120-21.) A claims adjuster reviewed a report from 15 the port captain that did not explain how the boat sank, 16 thereafter concluding that that there was no coverage and there 17 was an “unknown COL [cause of loss] for boat sinking.” (See id. 18 at 120.) When the adjuster called plaintiff to inform him that 19 coverage was denied, plaintiff advised her that wind was the 20 cause of the loss, but the adjuster nonetheless affirmed that 21 AmGUARD would proceed with denying the claim. (See id.) 22 Plaintiff thereafter retained an attorney to challenge 23 the denial. An email from defendant’s legal department dated 24 June 8, 2022 advised the adjuster then working on the claim that 25 “we need to make sure we speak with the guy driving the boat at 26 the time of loss” to determine whether wind caused the loss. 27 (See id. at 140.) That adjuster sent an email requesting 28 information from boat captain Flores on August 17, 2022. (See nn enn enn en nn nn NO EO EEE REID I ED eee eee 1} id. at 117.)° The record does not contain any reply to that 2 email or indicate that additional efforts were made to contact 3 Flores. 4 There is no evidence that defendant spoke to the boat 5 captain at any point during the claims review process, despite 6 apparently having access to his contact information prior to 7 denying the claim (see Carlton Decl. 4 5) and being advised by 8 its own legal department that such investigation was necessary to 9 determine whether the loss was covered (see Docket No. 18-3 at 10 140). “Viewing this evidence in the light most favorable to [the 11 insured], a jury could find that [the insurer’s] decision” to 12 deny coverage “was reached by ignoring contrary evidence and 13 failing to investigate diligently,” and therefore summary 14 judgment in favor of the insurer is inappropriate. See Amadeo v. 15 Principal Mut. Life Ins. Co., 290 F.3d 1152, 1164 (9th Cir. 16 2002); see also Egan, 24 Cal. 3d at 819; Wilson, 42 Cal. 4th at 17 721. Accordingly, the court will deny defendant’s motion for 18 summary judgment on plaintiff’s bad faith claim. 19 IT IS THEREFORE ORDERED that defendant’s motion for 20 summary judgment (Docket No. 15) be, and the same hereby is, 21 DENIED. . ak. ah thea (LA. 22 | Dated: May 29, 2024 WILLIAMB.SHUBB ``~ 23 UNITED STATES DISTRICT JUDGE 24 25 26 27 3 Though Flores is a Mexican citizen with limited English proficiency, the email seeking information from him was written 28 in English. 13