IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
KURT FREITAG dba BIG FISH
PARTNERS,
Plaintiff,
v.
CATLIN IN...
now before me pursuant to 28 U.S.C. § 636(b) (1) (B) and Fed. R. Civ.
P. 72 (b).
When either party objects to any portion ...
Civ. P. 15(a). In other words, the parties' discovery agreement
merely establishes deadlines for them to request leave fro...
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
KURT FREITAG dba BIG FISH
PARTNERS I,
Plaintiffs,
v.
CATLIN...
obtained insurance for the project from defendant Catlin Specialty
Insurance in August of 2007 for the period of September...
insurance, that he does not qualify as an insured under the policy
issued by the Catlin defendants, that he is estopped fr...
policy's knowledge limitation and the known loss doctrine. 1
Plaintiff moves for partial summary judgment on the duty to d...
window leaks. Accordingly, plaintiff tendered the complaint to
defendant Catlin Speciality Insurance for a defense.
The in...
Ambulance v. U.S. Fidelity, 278 Or. 21, 24, 563 P.2d 164 (1977).
An insurer has a duty to defend an action against its ins...
the United States.
September 10, 2007.
Id. at p. 36. The policy period began
The Meritage Development unit owners assert, ...
issued to Kurt Freitag DBA: Big Fish Partners (attached as Exhibit
C to the Declaration of Brian C. Hickman (#30) at p. 2)...
names an insured, regardless of interpretation, as a defendant
against whom liability is sought. 3
B. Neither the Products...
Id. at p. 38
In addition, the policy does not cover property damage to
property the insured owns, rents, or occupies. The ...
plausible in isolation is not reasonable in light of the policy as
whole and cannot be permitted to survive).
Nevertheless...
duty to defend, the owned property exclusion does not negate the
duty in this case.
C. The Knowledge Limitation and the Kn...
1991). However, the Oregon State courts have not adopted the
doctrine, City of Medford v. Argonaut Ins. Group, 2011 WL 601...
F. Unclean Hands and Rescission
Defendants did not assert these claims in their answer and
therefore it is addressed with ...
aware of some defective windows does not negate the duty to defend
and does not provide an adequate basis to void the insu...
Given the breadth of the duty to defend and the possibility
that the underlying complaint touches upon activity that may n...
defenses and a counterclaim at this stage of the proceedings is
unfairly prejudicial and should be denied.
H. Motion to Su...
motion for partial summary judgment (#4 7) should be granted;
plaintiff's motion to strike (#55) is denied; defendants' mo...
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Freitag v catlin f&r june 2013 adopt july 2013

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Federal trial court order granting summary judgment in favor of policyholder on duty to defend under Oregon law based on Bresee standard.

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Freitag v catlin f&r june 2013 adopt july 2013

  1. 1. IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON KURT FREITAG dba BIG FISH PARTNERS, Plaintiff, v. CATLIN INDEMNITY COMPANY, a foreign corporation; CATLIN INSURANCE COMPANY, INC., a foreign corporation; CENTURY SURETY COMPANY, a foreign corporation; and CATLIN SPECIALTY INSURANCE COMPANY, a foreign corporation, Defendants. AIKEN, Chief Judge: Case No. 6:12-cv-01111-TC 0 R D E R Magistrate Judge Coffin filed his Findings and Recommendation on June 11, 2013, recommending that plaintiff Kurt Freitag's motion for partial summary judgment be granted, and that defendants Catlin Indemnity Company's, Catlin Insurance Company, Inc.'s, and Catlin Specialty Insurance Company's motion for summary judgment and motion for leave to amend their answer be denied. The matter is Page 1 - ORDER Case 6:12-cv-01111-TC Document 99 Filed 07/23/13 Page 1 of 3 Page ID#: 1039
  2. 2. now before me pursuant to 28 U.S.C. § 636(b) (1) (B) and Fed. R. Civ. P. 72 (b). When either party objects to any portion of a magistrate judge's Findings and Recommendation, the district court must make a de novo determination of that portion of the magistrate judge's report. See 28 U.S.C. § 636(b) (1) (C); McDonnell Douglas Corp. v. Commodore Bus. Machs., Inc., 656 F.2d 1309, 1313 (9th Cir. 1981), cert. denied, 455 U.S. 920 (1982). Defendants timely filed objections to: (1) the denial of their motion to amend; and (2) the merits of Magistrate Coffin's findings regarding the parties' cross-motions for summary judgment. I have, therefore, given those portions of the report a de novo review. As to the former, defendants argue that they should be granted leave to amend their answer in order to allege additional affirmative defenses and counter-claims because they did not become aware of the facts necessary to support such allegations until January and February 2013. See Defs.' Objections at 4-8, 11. A review of the record reveals that this "new" evidence does not include any facts that defendants did not reasonably have access to long before moving to amend. Further, defendants moved to amend their answer seven months after their initial response, five months after filing their motion for summary judgment, and two months after they allegedly became aware of additional facts through discovery. Finally, contrary to defendants' assertion, the fact that they filed their motion to amend before "the agreed deadline" does not give them an immediate right to amend. Id. at 4; see also Fed. R. Page 2 - ORDER Case 6:12-cv-01111-TC Document 99 Filed 07/23/13 Page 2 of 3 Page ID#: 1040
  3. 3. Civ. P. 15(a). In other words, the parties' discovery agreement merely establishes deadlines for them to request leave from the court to amend, a request that Magistrate Coffin denied in his Findings and Recommendation. In any event, this Court agrees with Magistrate Coffin's analysis and conclusion at to this issue. Defendants' remaining objections merely restate their initial arguments in favor of summary judgement. See generally Defs.' Objections. I agree with Magistrate Coffin's analysis and conclusions regarding these matters. As such, I ADOPT the Magistrate's Findings and Recommendation (doc. 83) in its entirety; defendants' motion for summary judgment (doc. 28) is DENIED, plaintiff's motion for partial summary judgment (doc. 47) is GRANTED, and defendants' motion for leave to amend (doc. 63) is DENIED. Defendants' request for oral argument is DENIED as unnecessary. IT IS SO ORDERED. Dated this ~ day of July, 2013. ) Ann Aiken United States District Judge Page 3 - ORDER Case 6:12-cv-01111-TC Document 99 Filed 07/23/13 Page 3 of 3 Page ID#: 1041
  4. 4. IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON KURT FREITAG dba BIG FISH PARTNERS I, Plaintiffs, v. CATLIN INDEMNITY COMPANY, a foreign corporation; CATLIN INSURANCE COMPANY, INC., a foreign corporation; CENTURY SURETY COMPANY, a foreign corporation; and CATLIN SPECIALTY INSURANCE COMPANY a foreign corporation, Defendants. COFFIN, Magistrate Judge: No. 6:12-cv-1111-TC FINDINGS and RECOMMENDATION Plaintiff is a property developer who developed the Meritage Little Creek Project located in Newport, Oregon. The project was built in three phases beginning in the Fall of 2005. Plaintiff 1 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 1 of 18 Page ID#: 878
  5. 5. obtained insurance for the project from defendant Catlin Specialty Insurance in August of 2007 for the period of September 10, 2007, through September 10, 2008. Plaintiff Kurt Freitag, dba Big Fish Partners I, filed a petition for declaratory judgment in the Circuit Court of the State of Oregon for the County of Lincoln on March 26, 2012. Through that suit, plaintiff sought a declaration that defendants Catlin Indemnity Company, Catlin Insurance Company and Century Surety Company have a duty to defend plaintiff in an underlying complaint in intervention filed against plaintiff in Lincoln County. Plaintiff also brings a claim for breach of contract related to the alleged failure to defend. Defendants removed the case to this court on June 20, 2012. The court previously denied defendants' motion to dismiss in which they asserted that plaintiff was not the named insured under the policy, that they did not issue the policy, and that the property address listed on the policy is not the property at issue in the underlying litigation. Plaintiff amended his complaint to add Catlin Speciality Insurance Company as a defendant and added a claim for reformation to correct an alleged mutual mistake regarding the property address listed in the policy. Defendants Catlin Insurance, Catlin Indemnity, and Catlin Speciality Insurance filed an answer asserting that plaintiff failed to perform conditions precedent to coverage, that his claims are barred because he has other 2 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 2 of 18 Page ID#: 879
  6. 6. insurance, that he does not qualify as an insured under the policy issued by the Catlin defendants, that he is estopped from proceeding with his claims, that the claims are barred because they do not arise out of designated premises, that the claims are barred to the extent they arise out of damage to products completed, that the claims are barred to the extent plaintiff knew or should have known about the damage prior to the inception of the policy, that the claims are barred to the extent that plaintiff failed to cooperate with defendants, that the claims are barred to the extent that arise out of damages upon which plaintiff assumed liability, that the claims are barred to the extent they arise out of damage to property owned by plaintiff, that the claims are barred to the extent they arise out of damage to property plaintiff sold, that the claims are barred to the extent they arise out of damage to property on which plaintiff or his contractors were performing operations or involves repair to plaintiff's work incorrectly performed, that the claims are barred to the extent they arise out of damage to impaired property that has not been physically injured, and that the claims are barred to the extent damages arise out of organic pathogens. Defendants now move for summary judgment contending that plaintiff does not qualify as an insured, coverage is barred by the products-completed operations exclusion or, in the alternative, owned property exclusion, and that coverage is barred by the 3 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 3 of 18 Page ID#: 880
  7. 7. policy's knowledge limitation and the known loss doctrine. 1 Plaintiff moves for partial summary judgment on the duty to defend. Although Catlin invites the court to engage in a complicated analysis of the parties subjective intent and determination of a myriad of coverage issues, the court's task with respect to the summary judgment motions is a modest one: Do the four corners of the underlying complaint against plaintiff trigger Catlin's duty to defend under the four corners of the insuring agreement? With the question so reduced, the answer is a simple "yes." The origins of this coverage dispute arises from plaintiff's action against several contractors, filed in March of 2010, for negligent work and defective products related to the purchase and installation of windows for homes built at the Meritage development. Plaintiff alleges that the windows were installed improperly, permitting water intrusion, and that the windows themselves were designed and manufactured in such a manner so as to permit water intrusion. Subsequently, a group of unit owners in the Meritage Development filed a complaint in intervention, in March of 2011, asserting negligence against Freitag, Freitag dba as Big Fish Partners, and the various contractors related to the 1 Defendants Catlin Indemnity Company and Catlin Insurance Company also argue they are not proper defendants and plaintiff concedes this issue. Accordingly, summary judgment should be granted in favor of defendants Catlin Indemnity and Catlin Insurance. 4 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 4 of 18 Page ID#: 881
  8. 8. window leaks. Accordingly, plaintiff tendered the complaint to defendant Catlin Speciality Insurance for a defense. The interpretation of an insurance policy is a question of law. Hoffman Construction Co. v. Fred S. James & Co., 313 Or. 464, 469. Construing the insurance policy requires the court to ascertain the intention of the parties. Id. The intention of the parties is based on the terms and conditions of the policy. Id. Where a term is not defined, the court resorts first to its plain meaning. If the term is capable of more than one plausible definition, the court must determine if the interpretations are reasonable in light of the context in which the term is used and in the broader context of the policy as a whole. Id. at 470. When two or more competing reasonable definitions are identified after such consideration, then the court must resolve the ambiguity in favor of the insured. Id. at 470-71. 2 For the vast majority of cases, whether an insurer has a duty to defend an action against its insured depends on only the complaint and the insurance policy. See, e.g., Oakridge Comm. 2 "For a term to be ambiguous in the sense that justifies resort to the foregoing rule, however, there needs to be more than a showing of two plausible interpretations[.] * * * [A] term is ambiguous in a sense that justifies application of the rule of construction against the insurer only if two or more plausible interpretations of that term withstand scrutiny, i.e., continues to be reasonable, after the interpretations are examined in the light of, among other things, the particular context in which the term is used in the policy and the broader context of the policy as a whole." Id at 470. 5 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 5 of 18 Page ID#: 882
  9. 9. Ambulance v. U.S. Fidelity, 278 Or. 21, 24, 563 P.2d 164 (1977). An insurer has a duty to defend an action against its insured if the claim against the insured stated in the complaint could, without amendment, impose liability for conduct covered by the policy. The insurer has a duty to defend if the complaint provides any basis for which the insurer provides coverage. Nielsen v. St. Paul Companies, 283 Or. 277, 280 (1978). Even if the complaint alleges some conduct outside the coverage of the policy, the insurer still has a duty to defend if certain allegations of the complaint could impose liability for conduct covered by the policy. Ferguson v. Birmingham Fire Ins., 254 Or. 496, 506-07 (1969). Any ambiguity in the complaint with respect to whether the allegations could be covered is resolved in favor of the insured. Blohm et al v. Glens Falls Ins. Co., 231 Or. 410, 416 (1962). The insurance applies to property damage caused by an "occurrence" taking place in the "coverage territory" during the policy period which was unknown to the insured prior to the policy period. Commercial Insurance Policy issued to Kurt Freitag DBA: Big Fish Partners (attached as Exhibit C to the Declaration of Brian C. Hickman (#30) at p. 24). An occurrence means an accident, including continuous or repeated exposure to the same general harmful conditions. Id. at p. 37. The coverage territory includes 6 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 6 of 18 Page ID#: 883
  10. 10. the United States. September 10, 2007. Id. at p. 36. The policy period began The Meritage Development unit owners assert, in their complaint filed in March of 2011, that Kurt "Freitag caused window products to be framed into each town home within the Meritage Community during the years 2005 and 2006." Intervenors' Complaint (attached as Exhibit B to the Declaration of Brian C. Hickman (#30) at p. 5). The unit owners allege that the installation was improper and that Freitag was negligent in several respects regarding the window installation. Id. at pp. 5-6. Consequently, the unit owners assert, they are suffering water intrusion into their structures causing them damage. As noted above, defendants assert that the duty to defend is negated in this case because plaintiff does not qualify as an insured, that coverage is barred by the products-completed operations exclusion or, in the alternative, owned property exclusion, and that coverage is barred by the policy's knowledge limitation and the known loss doctrine. A. Plaintiff is an Insured There is an issue as to whether the named insured, Kurt Freitag dba: Big Fish Partners, is the partnership named in the lawsuit, Big Fish Partners I, because the policy indicates that named insured is an "individual. " Commercial Insurance Policy 7 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 7 of 18 Page ID#: 884
  11. 11. issued to Kurt Freitag DBA: Big Fish Partners (attached as Exhibit C to the Declaration of Brian C. Hickman (#30) at p. 2) . The policy is ambiguous because it is replete with references to partners, id. at e.g., pp. 1, 2, 3, 8, 14, 18, but states that if the named insured is an "individual," .then insured is only "you and your spouse ... but only with respect to the conduct of a business of which you are the sole owner." Id. at p. 32. The policy does have a check box for a partnership as well. Id. at p. 2. The court finds that it is reasonable, from the prospective of the ordinary purchaser of insurance reading the policy as a whole, to interpret the policy as applying to the partnership consisting of more than one individual given that the policy refers to "Big Fish Partners" multiple times. And while it is also reasonable to interpret the policy as applying to only a solely owned business, the policy is construed in favor of plaintiff. Nonetheless, the intervenors 1 complaint does not refer to the ownership of the partnership and, more importantly, it names Kurt Freitag as an individual and as a dba. Intervenors 1 Complaint (attached as Exhibit B to the Declaration of Brian C. Hickman (#30) at pp. 5 (Freitag), p. 6 (Freitag doing business as Big Fish Partners), p. 7 (Freitag, Big Fish and defendants). Accordingly, the complaint 8 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 8 of 18 Page ID#: 885
  12. 12. names an insured, regardless of interpretation, as a defendant against whom liability is sought. 3 B. Neither the Products-Completed Operations Exclusion nor the Owned Property Exclusion Negates the Duty to Defend The policy excludes property damage included within the "products-complete operations hazard." Commercial Insurance Policy issued to Kurt Freitag DBA: Big Fish Partners (attached as Exhibit C to the Declaration of Brian C. Hickman (#30) at p. 22). Products-complete operations hazard includes: property damage occurring away from the premises you own or rent and arising out of your product or your work except: Work that has not yet been completed or abandoned. Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed. 3 The court need not look beyond the eight corners of the complaint and policy, as defendants suggest citing Fred Shearer & Sons, Inc. v. Gemini Ins. Co., 237 Or. 468 (Or. App. 2010), because the court can ascertain the identity of the insured from the complaint. See Clarendon America Ins. Co. v. State Farm Fire and Cas. Co., 2013 WL 54032 (D.Or. January 3, 2013) (Fred Shearer merely carved out an exception to the general rule that appies only in the particular circumstances that there occurred, i.e., the insurer specifically alleged it was impossible to determine Fred Shearer's status from the face of the complaint). 9 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 9 of 18 Page ID#: 886
  13. 13. Id. at p. 38 In addition, the policy does not cover property damage to property the insured owns, rents, or occupies. The policy does not apply to property damage to premises the insured sells or property in the care custody and control of the ins.ured either. Id. at p. 27. Defendants interpret the policy as excluding all coverage because the work was completed by 2006 (before the policy began) and all homes were sold, or in the alternative, if damage occurred prior to sale, then there is no coverage because plaintiff owned the homes. However, accepting defendants interpretation results in a policy in which Catlin agreed to insure nothing for a premium of $4,008.50. The policy went into effect after the date defendants contend the policy excludes coverage. Defendants further argue that even if there were a way to find coverage, it would still be excluded because it did not cover property owned by plaintiff. The insurance policy was obtained to cover the single project in which plaintiff is now being sued, but defendant's interpretation of its exclusions completely demolish that grant of coverage. This results in, at a minimum, an ambiguity as to interpretation of the entire policy's purpose, but defendants' interpretation is wholly unreasonable and cannot be permitted to survive. See Hoffman Const., 313 Or. at 471 (suggested interpretation that while 10 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 10 of 18 Page ID#: 887
  14. 14. plausible in isolation is not reasonable in light of the policy as whole and cannot be permitted to survive). Nevertheless, the complaint does not limit the dates of the property damage to 2006, but only alleges defective installation of the windows in 2006. Moreover, the alleged last sale is 2007, but the complaint does not allege when in 2007 the sale occurred. 4 Plaintiff is still in control of the homeowners' association (HOA) at the development and still has responsibility for tasks beyond repair and maintenance. The complaint does not allege which, if any, obligations have been fully satisfied and the work is not complete until the HOA has been turned over. Therefore, it cannot be determined from the complaint whether operations are complete. Accordingly, the products-complete operations hazard does not negate a duty to defend even though it may later be determined that the coverage is not available under such exclusion. Further, the complaint, at a minimum, alleges damage to property inside each unit which is not owned by plaintiff. The complaint does not contravene the possibility that some of the subject property was not owned by plaintiff. Because of the broad 4 The complaint alleges sale of the last home "during 2007," and further alleges acquisition by the intervenors on "the following dates," but then omits any dates of acquisition. Intervenors' Complaint (attached as Exhibit B to the Declaration of Brian C. Hickman (#30) at pp. 3-4). 11 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 11 of 18 Page ID#: 888
  15. 15. duty to defend, the owned property exclusion does not negate the duty in this case. C. The Knowledge Limitation and the Known Loss Doctrine Do not Preclude the Duty to Defend The policy does not apply to any property damage that the insured knew had occurred, in whole or in part, prior to the policy period. Commercial Insurance Policy issued to Kurt Freitag DBA: Big Fish Partners (attached as Exhibit C to the Declaration of Brian C. Hickman (#30) at p. 24). The underlying complaint filed by plaintiff against the manufacturer and installers of the windows, alleges leaks beginning in the summer of 2006 with replacement work in that year as well. Plaintiff's Second Amended Complaint (attached as Exhibit A to the Declaration of Brian C. Hickman (#30) at p. ~~ 11-13, 18). This does not establish knowledge of damage. The underlying complaints do not establish, conclusively, knowledge of damage or type of damage, prior to the inception of the policy. At best, defendants establish knowledge of some defects. Accordingly, the knowledge limitation in the policy does not negate the duty to defend. Defendants also argue that the known loss doctrine negates the duty to defend. The "known loss" doctrine "disallows coverage where the loss to be insured is in progress or substantially likely to occur when the insurance contract is issued." City of Corvallis v. Hartford Ace. & Indem. Co., 1991 WL 523876, at *8 (D.Or. May 30, 12 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 12 of 18 Page ID#: 889
  16. 16. 1991). However, the Oregon State courts have not adopted the doctrine, City of Medford v. Argonaut Ins. Group, 2011 WL 6019429 at *2 (D.Or December 1, 2011), and the court declines to apply it when based on vague allegations in the underlying complaints in a duty to defend case. Accordingly, the known loss doctrine does not negate the duty to defend. In response to plaintiff's motion for summary judgment, defendants raise other issues it asserts preclude a finding of a duty to defend including a different address is in the policy than the subject property, other insurance precludes coverage, plaintiff has unclean hands, and that the policy should be rescinded. D. Designated Premises Although the policy does incorrectly list the property address for the premises insured, it is a simple clerical error given that the application correctly lists the address and plaintiff never owned property at the address listed in the policy. E. Other Insurance Although the policy excludes coverage if other insurance exists, defendants present insufficient evidence that any such insurance exists even if such an exclusion could be used under Oregon law to preclude the duty to defend. 13 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 13 of 18 Page ID#: 890
  17. 17. F. Unclean Hands and Rescission Defendants did not assert these claims in their answer and therefore it is addressed with respect to the motion to amend. G. Amend Defendants seek to amend their answer to add the affirmative defenses of loss in progress and unclean hands, and a counterclaim for rescission. Although the time for adding claims has not yet passed in this case and leave to amend shall be freely granted, the parties have already briefed and argued the competing motions for summary judgment. The loss in progress doctrine has been addressed above to the extent it related to the knowledge limitation. The doctrine does not negate the duty to defend in this case. The same is true of the affirmative defense of unclean hands. Defendants attempt to use the equitable doctrine of unclean hands to essentially argue again that the duty to defend is precluded because plaintiff knew about the damage from the windows, but failed to apprise Catlin of claims or occurrences which may give rise to claims for the prior five years as required in the application. As noted above, the underlying complaint gives rise to at least the possibility of damage occurring within the policy period that was unknown to plaintiff. The fact that plaintiff was 14 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 14 of 18 Page ID#: 891
  18. 18. aware of some defective windows does not negate the duty to defend and does not provide an adequate basis to void the insuring agreement. With respect to rescission, defendants seek to allege that plaintiff applied as an 11 individual, 11 that plaintiff represented he would be added as an additional insured to the insurance policy of the general contractors, and that plaintiff misrepresented his knowledge of claims, losses, or occurrences that may give rise to claims under the policy. The court agrees that much of the evidentiary basis upon which defendants rely in seeking to prosecute the proposed rescission claim, e.g., knowledge of window problems which were alleged in the underlying complaints, was available and known long before defendants sought to amend. 5 Thus, defendants unreasonably delayed seeking to amend given that the case has progressed to the summary judgment stage. In essence, defendants seek to prolong the litigation to avoid the broad duty to defend by casting the policy exclusions as purportedly new equitable claims. 5 In addition, as noted above, the policy is ambiguous as to whether it covers only an individually-owned business or a partnership. Moreover, defendants were aware of this issue very early in the litigation. Finally, it is unclear if plaintiff was an additional insured on someone else's policy. See General Change Endorsement (attached as exhibit D to Declaration of Seth Row (#72)) (adding plaintiff effective November 1, 2004). 15 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 15 of 18 Page ID#: 892
  19. 19. Given the breadth of the duty to defend and the possibility that the underlying complaint touches upon activity that may not be precluded from coverage, it is easy to see why defendant, after having exhausted its attempts to negate liability under the terms of the contract, would now seek to void the insuring agreement altogether. Because rescission is an equitable remedy, the court cannot condone an insurer's attempts to invoke contract provisions to avoid the duty to defend and then, failing that, allow the insurer to seek to void the entire contract on virtually the same basis. As noted above, much of the proposed basis for rescission, as well as the unclean hands defense, was contemplated by the insurer in the limitations from coverage which the court has already concluded do not preclude a duty to defend. Attempting to add a counterclaim to void the entire agreement only after exhausting all attempts to deny the duty to defend by asserting coverage exclusions at summary judgment and, prior to that, having sought to dismiss, is unfairly prejudicial. Defendant declined to accept its duty to defend at the outset of the underlying litigation and has vigorously sought to avoid its obligations through the 14 months this litigation has been pending. The court is ready to rule on the motions for summary judgment and that ruling is dispositive of this case. Accordingly, defendants attempt to add new affirmative 16 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 16 of 18 Page ID#: 893
  20. 20. defenses and a counterclaim at this stage of the proceedings is unfairly prejudicial and should be denied. H. Motion to Supplement Defendants also move to supplement the record to add materials related to its unclean hands and rescission defense to the extent those issues were asserted with respect to the summary judgment motions. Although plaintiff opposes the motion, the court has considered all materials submitted with respect to its consideration of the summary judgment motions and the motion to amend. The motion is granted. I. Motion to Strike Plaintiff seeks to strike materials submitted that attempted to direct the court to materials, submitted with defendants' reply brief, beyond the eight corners of the underlying complaint and policy. Although the court has generally been confined to the underlying complaint and policy in determining the summary judgment motions, the motion to strike is denied. CONCLUSION For the reasons stated above: defendants' motion for summary judgment (#28) should be denied, except as noted with respect to defendants Catlin Indemnity and Catlin Insurance; plaintiff's 17 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 17 of 18 Page ID#: 894
  21. 21. motion for partial summary judgment (#4 7) should be granted; plaintiff's motion to strike (#55) is denied; defendants' motion to supplement (#60) is granted; and defendants' motion for leave to amend (#63) should be denied. This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of appeals. Any notice of appeal pursuant to Rule 4(a) (1), Federal Rules of Appellate Procedure, should not be filed until entry of the district court's judgment or appealable order. The parties shall have fourteen (14) days from the date of service of a copy of this recommendation within which to file specific written objections with the court. Thereafter, the parties shall have fourteen (14) days within which to file a response to the objections. Failure to timely file objections to any factual determination of the Magistrate Judge will be considered as a waiver of a party's right to de novo consideration of the factual issues and will constitute a waiver of a party's right to appellate review of the findings of fact in an order or judgment entered pursuant to this recommendation. DATED this day of June, 2013. United Judge 18 - FINDINGS and RECOMMENDATION Case 6:12-cv-01111-TC Document 83 Filed 06/11/13 Page 18 of 18 Page ID#: 895

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