Opinion
CASE NO. 8:19-cv-02479-JLS-KES
2022-01-18
TELLONE PROFESSIONAL CENTER, LLC v. ALLSTATE INSURANCE COMPANY, the Hartford Steam Boiler Inspection and Insurance Company and Does 1 through 10, inclusive.
Steven Brower, Tae J. IM, Brower Law Group APC, Laguna Hills, CA, for Tellone Professional Center LLC. Daniel Mark Barr Nadal, John D. Edson, Peter H. Klee, Sheppard Mullin Richter and Hampton LLP, San Diego, CA, for Allstate Insurance Company. Steven D. Turner, William Son Hoang, Jones Turner LLP, Irvine, CA, for The Hartford Steam Boiler Inspection and Insurance Company.
Steven Brower, Tae J. IM, Brower Law Group APC, Laguna Hills, CA, for Tellone Professional Center LLC.
Daniel Mark Barr Nadal, John D. Edson, Peter H. Klee, Sheppard Mullin Richter and Hampton LLP, San Diego, CA, for Allstate Insurance Company.
Steven D. Turner, William Son Hoang, Jones Turner LLP, Irvine, CA, for The Hartford Steam Boiler Inspection and Insurance Company.
ORDER GRANTING DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT
JOSEPHINE L. STATON, UNITED STATES DISTRICT JUDGE
Before the Court is a Motion for Summary Judgment, or in the alternative, Partial Summary Judgment filed by Defendant Allstate Insurance Company ("Allstate"), (Allstate Mot., Doc. 61; Allstate Mem., 61-1), as well as a Motion for Summary Judgment filed by Defendant The Hartford Steam Boiler Inspection and Insurance Company ("Hartford"), (Hartford Mot., Doc. 62; Hartford Mem. 62-1). Plaintiff Tellone Professional Center, LLC ("Tellone") opposed both Motions. (Allstate Opp., Doc. 69; Hartford Opp., Doc. 68.) Allstate and Hartford replied. (Allstate Reply, Doc. 74; Hartford Reply, Doc. 73.) Having considered the parties’ briefs and held oral argument, the Court now GRANTS both Allstate's and Hartford's Motions for the reasons stated below.
I. BACKGROUND
This matter arises from an insurance dispute between Tellone and Allstate relating to Allstate's denial of Tellone's claim for damages to its heating, ventilation, and air-conditioning (HVAC) system. (Compl., Doc. 1-1; First Amended Complaint ("FAC"), Doc. 53.) Tellone insured a business center with six commercial buildings at 6200 E. Canyon Rim Road, Suite 201, Anaheim, California (the "Property") through Allstate. (Pl.’s Response to Allstate's Statement of Uncontroverted Facts and Conclusions of Law ("Allstate RSUF"), Doc. 69-1, ¶ 1.)
A. The Insurance Policy
The Allstate insurance policy issued to Tellone, Policy No. 648112729 (the "Policy") provides that Allstate "will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss." (Ex. 1 to Allstate Mot., Policy, Doc. 61-4, at 20; see also Allstate RSUF, ¶ 1.) The Policy defines "Specified causes of loss" to include "vandalism." (Policy at 28.)
The Policy contains a number of exemptions or exceptions from coverage. For instance, the Policy specifies that Allstate "will not pay for loss or damage caused by or resulting from.... (1) Wear and tear; (2) Rust or other corrosion, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself;" or alternatively, from "[c]ontinuous or repeated seepage or leakage of water, or the presence or condensation of humidity, moisture or vapor, that occurs over a period of 14 days or more." (Id. at 27.)
B. The Reinsurance Agreement
Effective June 28, 2011, Allstate entered into an Equipment Breakdown Reinsurance Agreement with Hartford (the "Reinsurance Agreement") whereby Allstate "obligates itself to cede to [Hartford] and [Hartford] obligates itself to accept as reinsurance 100% of the Equipment Breakdown liability of [Allstate] as respects Accidents occurring under new and renewal Policies becoming effective on or after the effective date of this Agreement." (Ex. A to Smith Decl., Reinsurance Agreement, Doc. 62-4, at ECF 2, 4.) The Reinsurance Agreement also provides that:
A. [Allstate] will give [Hartford] notice as soon as practicable of any claim or loss arising under coverages subject to this Agreement. [Hartford] shall advise [Allstate] of its estimate of each such claim or loss, and keep [Allstate] advised of any change in such estimate.
B. [Hartford] at its expense will investigate, negotiate and enter into settlement agreements or defend all such claims and losses in accordance with the terms of the coverage subject to this Agreement, and shall defend and hold harmless [Allstate] against any suit brought solely under coverages subject to this Agreement; provided that [Allstate] may at its own expense participate in any such investigation, negotiation, settlement or defense.
C. In the event of a settlement by [Hartford] of a claim or loss arising under coverages subject to this Agreement, [Allstate] will, pursuant to said settlement, make payment directly to the Insured under the coverages subject to this Agreement. Upon making such payment, and when requested by [Hartford], [Allstate] will secure its subrogation rights under the terms of the coverage subject to this Agreement and will then assign such subrogration rights to [Hartford].
D. In the event of a claim or loss involving coverages subject to this Agreement and coverages not subject to this Agreement:
(1) [Allstate] and [Hartford] shall join in the investigation, settlement, and defense of all such claims and losses.
(2) Court costs, interests on judgments, and the cost of defense, including attorneys’ fees, which arise in connection with any investigation, adjustment, resistance to or negotiations concerning settlement of such claims or losses, shall be apportioned between the Company and the Reinsurer in proportion to their respective liabilities as finally determined or as mutually agreed upon.
(3) [Allstate] and [Hartford] agree that:
(a) Coverage for Spoilage and Computer Equipment resulting from an Accident as set forth in the Equipment Breakdown form will be considered primary to overlapping coverage under other forms or endorsements in [Allstate's] Policy or other policies issued by [Allstate] for the same insured.
(b) For any overlapping coverage not specified in paragraph (a) above, Equipment Breakdown coverage will not be considered "primary" or "specific" and the "Guiding Principles", version November, 1963, shall apply to all such claims or losses to the extent to which such "Guiding Principles" are applicable.
(Hartford's Reply to Tellone's Stmt. of Add'l Uncontroverted Facts and Conclusions of Law ("Hartford Reply to ASUF"), Doc. 73-1, ¶ 1; Reinsurance Agreement at ECF 7-8.)
C. Facts Giving Rise to the Insurance Claim
In 2017, excluding replaced parts, Tellone's HVAC system was 40 years old. (Allstate RSUF, ¶ 2.) It consisted of a condensing water cooler tower with four compressors that serviced the six buildings. (Id. ) One compressor jointly serviced Buildings A and F, a second compressor serviced Building B, a third compressor jointly serviced Buildings C and D, and a fourth compressor serviced Building E. (Id. )
In the FAC, Tellone alleged: "In October 2017, one of the HVAC System's four condensers failed, but the other three condensers were still working properly as of November 23, 2017." (Id. , ¶ 3.) Tellone also alleged that "one week after Thanksgiving 2017, three of the four condensers of our client's HVAC System failed essentially at the same time." (Id. , ¶ 5.) The FAC also alleges that that "on or about November 23, 2017," a now-deceased maintenance repair person named Wayne Maldonado "was at the Insured Location in order to do routine maintenance work on the water tower for the HVAC System." (FAC, ¶ 23.) The FAC alleged, but Tellone has supplied no admissible evidence to support, that Maldonado "saw an unknown individual leaving the property in a pickup truck, which was particularly unexpected as it was Thanksgiving and the Insured Location was closed." (Id. , ¶ 24.) The FAC alleged that Maldonado subsequently "observed a green substance at the HVAC water tower." (Allstate RSUF, ¶ 4.) Tellone also alleged that "Maldonado had the water tested at a laboratory and a substance was detected which was not water." (Id. ) On this basis, the FAC alleged that "the efficient proximate or predominant cause of the condensers failing was vandalism in that an unknown third party, for reasons which are not presently known to Tellone, intentionally introduced a harmful chemical into the HVAC System that caused the condenser to fail." (FAC, ¶ 28.) As indicated above, vandalism is a covered cause of loss under the Policy.
Despite the FAC's allegations, the facts developed by the Parties do not support that vandalism was the cause of the HVAC failure. During discovery, "Tellone admitted that the HVAC failures for Buildings A, B and F had nothing to do with the vandalism claim that it reported to Allstate." (Allstate RSUF, ¶ 12.) Additionally, in November 2017, Chemtek Environmental Laboratories ("Chemtek") tested a water sample from one of the failed HVAC units, and Tellone was informed that the Chemtek results showed no evidence of any foreign chemicals based on those tests. (Id. , ¶ 14-16.) Tellone has also admitted that, as of November 30, 2017, "Maldonado knew that Chemtek found ‘none detected’ for any of the chemical compounds it tested for," and "Maldonado told Tellone that there was nothing that Chemtek could pinpoint in its tests." (Id. , ¶¶ 14-15.) And during discovery, Tellone admitted that the lab result did not show either "high numbers" or foreign chemicals. (Id. , ¶ 21.)
Tellone also admitted during discovery that the first of the four HVAC condensers that serviced Buildings A and F failed in March 2017 and never worked again. (Id. , ¶ 6.) And between February 27, 2017 and June 21, 2017, a repair company named Blake Air Conditioning ("Blake") documented ongoing refrigerant leaks in three different buildings that it could not find and correct." (Id. , ¶ 7.) On June 20, 2017, Tellone's property manager advised a tenant that "[t]he entire [HVAC] system must be replaced and not just repaired." (Id. , ¶ 8.) In June of 2017, Tellone hired a company to obtain bids to replace the HVAC system. (Id. , ¶ 9.) On November 8, 2017, Blake found that refrigerant had leaked into the HVAC condensing tank for Building B. (Id. , ¶ 10.) On November 15, 2017, after determining that the leak caused a catastrophic failure, Blake prepared a proposal to replace the Building B HVAC condenser. (Id. , ¶ 11.)
Despite this evidence, on January 18, 2018, the owner of Tellone made a vandalism claim to Allstate, reporting that "all the units were out" and that the loss began in October 2017. (Id. , ¶ 17.) Although Tellone later admitted that the HVAC compression system for Buildings A and F failed on or before March 2017, Tellone never reported a claim to Allstate for that system failure. (Id. , ¶ 18.) Additionally, the owner of Tellone told Allstate that "the water tower company has filed the police report per your attorney's request," but during discovery, "Tellone admitted that the police report was never filed." (Id. , ¶ 26.)
A number of professionals inspected the HVAC units following their failure; none of them attributed the cause of failure to vandalism. In February 2018, Allstate retained engineer John Wlascinski at Haag Engineering to inspect the Tellone HVAC system, and on March 14, 2018, Allstate notified Hartford about the HVAC claim, and Hartford retained engineer Keith O'Neil from ChillCo, Inc. to investigate the cause and origin of the HVAC damage. (Id. , ¶¶ 22-23.) Haag Engineering advised Allstate, in part, that based on its inspection, it had concluded that "[l]eaks in the tubes of the tube-in-shell heat exchangers have allowed condensing water to leak into the refrigerant circuit and contaminate the refrigerant," "[t]he reported leaks in the tubes appear to be from normal and expected erosion and wear," and a "laboratory examination of extracted tube sections would more specifically determine the failure mode and any possible relation to paint reportedly found in the condensing water[.]" (Id. , ¶ 24.) Keith O'Neill found that "[t]he possibility of the three heat exchangers failing within a couple days of each other from separate issues is remote, however, the exact cause of the leaks cannot be determined without additional testing." (Id. , ¶ 25.)
The HVAC units were subsequently disassembled and tested further. On August 10, 2018, following its inspection of the disassembled HVAC system, ChillCo found that "Vessels #1 and #3 both held pressure and tube leak could not be found. The water side of the tubes were severely corroded. Vessels #2 and #4 had tubes leaks which were initiated from the water side and were caused by corrosion. The corrosion was severe in all of the tubes with large amounts of wall material having been lost." (Id. , ¶ 30.) ChillCo concluded that "[t]he cause of the tube leaks in the condenser vessels were caused by corrosion reducing the tube wall to the point of penetration." (Id. ) Additionally, in April 2021, following further testing, metallurgist Dr. Daniel Henkel issued a report regarding the Tellone HVAC system. (Id. , ¶ 36.) He found no chemical evidence to support vandalism. (Id. ) He instead concluded that the "the failures of the HVAC were due to: (1) long-term corrosion and erosion; (2) long-term wear and tear and (3) gradual pipe leaks that lasted several months in 2017." (Id. ) Moreover, in April 2021, following further testing, engineer John Wlascinski and Haag Engineering issued a new report, finding that there was no evidence to support a vandalism, and that the failures of the HVAC were due to: "(1) long-term corrosion and erosion; (2) long-term wear and tear; and (3) gradual pipe leaks that lasted several months in 2017." (Id. , ¶ 37.)
Based on the testing and inspections, on November 15, 2018, Allstate wrote Tellone to deny the claim, finding there was no evidence of vandalism or a covered accident for the equipment breakdown endorsement to apply, and further, that the loss was excluded under the Policy's exclusions for wear and tear, rust, corrosion, decay and deterioration. (Id. , ¶ 33.)
II. LEGAL STANDARD
Summary judgment shall be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). See also Fortyune v. American Multi-Cinema, Inc. , 364 F.3d 1075, 1079-80 (9th Cir. 2004) ("Summary judgment is appropriate ‘if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.’ " (quoting Fed. R. Civ. P. 56(c) )). "A dispute about a material fact is genuine ‘if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.’ " FreecycleSunnyvale v. Freecycle Network , 626 F.3d 509, 514 (9th Cir. 2010) (quoting Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). A fact is "material" when its resolution " ‘might affect the outcome of the suit under the governing law.’ " George v. Morris , 736 F.3d 829, 834 (9th Cir. 2013) (quoting Anderson , 477 U.S. at 248, 106 S.Ct. 2505 ).
"Where the party moving for summary judgment would bear the burden of proof at trial, that party ‘has the initial burden of establishing the absence of a genuine issue of fact on each issue material to its case.’ " Bernstein v. Virgin Am., Inc. , 365 F. Supp. 3d 980, 984 (N.D. Cal. 2019) (quoting C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc. , 213 F.3d 474, 480 (9th Cir. 2000) ). By contrast, when the moving party would not bear the burden of proof at trial, that party "must either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co. v. Fritz Companies, Inc. , 210 F.3d 1099, 1102 (9th Cir. 2000). "If the moving party satisfies its initial burden of production, the nonmoving party must produce admissible evidence to show that a genuine issue of material fact exists." Bernstein , 365 F. Supp. 3d at 984 (citing Nissan Fire , 210 F.3d at 1102 ). "If the nonmoving party fails to make this showing, the moving party is entitled to summary judgment." Bernstein , 365 F. Supp. 3d at 984 (citing Celotex Corp. v. Catrett , 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). The non-moving party does not meet this burden by showing "some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The United States Supreme Court has held that "[t]he mere existence of a scintilla of evidence in support of the non-moving party's position is not sufficient." Anderson , 477 U.S. at 252, 106 S.Ct. 2505. Genuine factual issues must exist that "can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 250, 106 S.Ct. 2505. When ruling on a summary judgment motion, the Court must examine all the evidence in the light most favorable to the non-moving party. Celotex , 477 U.S. at 325, 106 S.Ct. 2548. The Court cannot engage in credibility determinations, weighing of evidence, or drawing of legitimate inferences from the facts; these functions are for the jury. Anderson , 477 U.S. at 255, 106 S.Ct. 2505. Without specific facts to support the conclusion, a bald assertion of the "ultimate fact" is insufficient. See Schneider v. TRW, Inc. , 938 F.2d 986, 990–91 (9th Cir. 1991).
III. DISCUSSION
A. Allstate's Motion
1. Breach of Contract Claim
Allstate moves for summary judgment on Tellone's breach of contract claim, in which Tellone alleges that Allstate breached the terms of the Policy "by failing and refusing, and continuing to fail and refuse, to pay any amount due under the [Policy] for the loss to the HVAC System." (FAC, ¶ 64.) "The elements for a breach of contract action under California law are: (1) the existence of a contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) damages to plaintiff as a result of the breach." Buschman v. Anesthesia Bus. Consultants LLC , 42 F. Supp. 3d 1244, 1250 (N.D. Cal. 2014) (citing CDF Firefighters v. Maldonado , 158 Cal. App. 4th 1226, 1239, 70 Cal.Rptr.3d 667 (2008) ). "The burden is on an insured to establish that the occurrence forming the basis of its claim is within the basic scope of insurance coverage." Aydin Corp. v. First State Ins. Co. , 18 Cal. 4th 1183, 1188, 77 Cal.Rptr.2d 537, 959 P.2d 1213 (1998). "And, once an insured has made this showing, the burden is on the insurer to prove the claim is specifically excluded." Id. Here, Tellone has not carried its burden to establish that its claim fell within the basic scope of insurance coverage, and further, Allstate has carried its burden to prove that, even if it did, the claim is specifically excluded under the Policy.
First, Tellone has not demonstrated that its claim fell within the scope of the Policy. The only covered cause of loss Tellone has asserted throughout the course of its dealings with Allstate and in the FAC is vandalism. (See Allstate RSUF, ¶ 34; FAC, ¶¶ 13, 20-31.) But Tellone has not proffered any factual evidence to support a vandalism claim. Indeed, Tellone's Opposition meekly claims only that "Allstate has not contested that two of the four units failed at about the same time after the possible vandalism incident," and this is "circumstantial evidence that the HVAC system that Tellone had been able to keep running for forty years through regular maintenance and replacement of parts would not have two of four units suddenly stop working due to a cause of loss such as corrosion or wear and tear, as opposed to an act of vandalism." (Allstate Opp. at 8.) Additionally, it claims "there is no evidence that the chemical that might have been used in the vandalism was tested for or would have been detectable at the time Mr. Maldonado had the water tested." (Id. at 8-9.) But these are not facts sufficient to support a claim of vandalism, they are speculative and/or conclusory arguments.
By contrast, Allstate has submitted evidence supporting that vandalism was not the cause of the HVAC failure. Allstate has submitted evidence that Tellone admitted during discovery that some of the HVAC units failed at different times that do not correspond with the alleged timing of the vandalism incident, and even that "the HVAC failures for Buildings A, B and F had nothing to do with the vandalism claim that it reported to Allstate." (Allstate RSUF, ¶ 12.) When the water was tested following the HVAC failures occurring in November, the results showed no evidence of foreign chemicals. (Id. , ¶ 16.) Tellone never bothered to file a police report following the alleged vandalism. (Id. , ¶ 26.) Moreover, each expert to inspect the HVAC systems and reach a conclusion—both immediately following the failure and after the systems had been disassembled—has concluded that cause of the failures was attributable to corrosion, erosion, and wear and tear. (See id. , ¶¶ 24, 30, 36, 37.)
Accordingly, Allstate has "produce[d] evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial" in that Allstate has produced evidence negating that Tellone's claim fell within the scope of the Policy. Nissan Fire , 210 F.3d at 1102. And Tellone has failed to "produce admissible evidence to show that a genuine issue of material fact exists." Bernstein , 365 F. Supp. 3d at 984 (citing Nissan Fire , 210 F.3d at 1102 ). Having "fail[ed] to make this showing, [Allstate] is entitled to summary judgment." Id. (citing Celotex Corp. v. Catrett , 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). Tellone has done no more than make conclusory allegation of "some metaphysical doubt as to the material facts," and this is insufficient to defeat summary judgment. Matsushita , 475 U.S. at 586, 106 S.Ct. 1348.
Tellone's only counterargument is that the Policy is an "all-risk" policy, and accordingly, as the insured, Tellone "does not have to prove that the peril proximately causing his loss was covered by the policy." (Allstate Opp. at 8 (quoting Strubble v. United Servs. Auto. Ass'n , 35 Cal. App. 3d 498, 504, 110 Cal.Rptr. 828 (1973).) But the Policy is not an "all-risk" policy; it states clearly that Allstate "will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss. " (Policy at 20 (emphasis added).) Therefore, it falls to Tellone to show that its loss was caused by or resulting from a covered cause of loss. Tellone has failed to do so. And even under the Equipment Breakdown Coverage, the Policy provides that Allstate will "pay for direct physical damage to Covered Property that is the direct result of an ‘accident[,]’ " and that in this context, " ‘accident’ means a fortuitous event that causes direct physical damage to ‘covered equipment.’ " (Policy at 24.) But Tellone has put forward no evidence to demonstrate that the HVAC failures were the direct result of an accident within the meaning of the Policy. Accordingly, Tellone has failed to carry its burden to demonstrate coverage. Conversely, Allstate has carried its burden to prove that Tellone's claim is specifically excluded under the Policy. Allstate alleges that under the Policy, a number of causes of loss are explicitly excluded from the Policy. (See id. at 25-27.) The Policy specifies that Allstate "will not pay for loss or damage caused by or resulting from any of the following," including, "[w]ear and tear;" and "[r]ust or other corrosion, decay, deterioration, hidden or latent defect, or any quality in property that causes it to damage or destroy itself;" as well as, "[c]ontinuous or repeated seepage or leakage of water, or the presence or condensation of humidity, moisture or vapor, that occurs over a period of 14 days or more." (Id. at 27.)
Allstate has alleged that these exclusions apply, and it has supported its allegations with the conclusions of two engineers who each conducted two separate inspections as well as the conclusions of an inspecting metallurgist. John Wlascinski at Haag Engineering concluded in his first report that "[l]eaks in the tubes of the tube-in-shell heat exchangers have allowed condensing water to leak into the refrigerant circuit and contaminate the refrigerant," "[t]he reported leaks in the tubes appear to be from normal and expected erosion and wear ," and a "laboratory examination of extracted tube sections would more specifically determine the failure mode and any possible relation to paint reportedly found in the condensing water[.]" (Allstate RSUF, ¶ 24 (emphasis added).) In his second report, he found that that the failures of the HVAC were due to: "(1) long-term corrosion and erosion; (2) long-term wear and tear; and (3) gradual pipe leaks that lasted several months in 2017." (Id. , ¶ 37 (emphasis added).) Engineer Keith O'Neil from ChillCo, Inc. could not determine the cause of the leaks from his initial inspection, but after the HVAC system was disassembled, subsequently found "Vessels #1 and #3 both held pressure and tube leak could not be found. The water side of the tubes were severely corroded. Vessels #2 and #4 had tubes leaks which were initiated from the water side and were caused by corrosion. The corrosion was severe in all of the tubes with large amounts of wall material having been lost." (Id. , ¶ 30 (emphasis added).) ChillCo concluded that "[t]he cause of the tube leaks in the condenser vessels were caused by corrosion reducing the tube wall to the point of penetration." (Id. ) Additionally, metallurgist Dr. Daniel Henkel opined that the "the failures of the HVAC were due to: (1) long-term corrosion and erosion; (2) long-term wear and tear and (3) gradual pipe leaks that lasted several months in 2017." (Id. , ¶ 36.)
Tellone does not dispute that these experts reached these conclusions, and it proffers no evidence of its own to show that the failure was attributable to an alternate cause. (See Allstate Opp. at 7-8.) Accordingly, Tellone has not carried its burden to "produce admissible evidence to show that a genuine issue of material fact exists," and Allstate is entitled to summary judgment on this claim. Bernstein , 365 F. Supp. 3d at 984 (citing Nissan Fire , 210 F.3d at 1102 ; Celotex , 477 U.S. at 322–23, 106 S.Ct. 2548 ).
As the Court concludes that Tellone has failed to demonstrate coverage, an Allstate has carried its burden to prove that Tellone's claim was specifically excluded under the Policy, the Court declines to address Allstate's remaining arguments regarding Tellone's material misrepresentations and failure to satisfy its own obligation to cooperate under the terms of the Policy.
2. Bad Faith Claim
Allstate also moves for summary judgment on Tellone's bad faith claim. (Allstate Mot. at 16.) "[A] bad faith claim cannot be maintained unless policy benefits are due...." Waller v. Truck Ins. Exch., Inc. , 11 Cal. 4th 1, 35-36, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995). As the Court determined that benefits were not due under the Policy, it grants summary judgment to Allstate on Tellone's bad faith claim.
3. UCL Claim
Allstate also moves for summary judgment on Tellone's Unfair Competition Law ("UCL") claim against it. (Allstate Mot. at 19-23.) Tellone's UCL claim against Allstate is premised on the notion that Allstate's relationship with its reinsurer, Hartford, violated the UCL and amounted to unlawful, unfair, and fraudulent conduct. (Allstate Opp. at 11.)
Under California's UCL, unfair competition is defined as "any unlawful, unfair or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. The UCL is written in the disjunctive, and a plaintiff can make out a UCL claim if it can show that a defendant's conduct is (1), unlawful, (2) unfair, or (3) fraudulent. Cel-Tech Commc'ns, Inc. v. L.A. Cellular Tel. Co. , 20 Cal. 4th 163, 180, 83 Cal.Rptr.2d 548, 973 P.2d 527 (1999).
Allstate argues that because California's Insurance Code specifically permits reinsurance, the Insurance Code "provides a ‘safe harbor,’ " and Tellone "may not use the general unfair competition law to assault that harbor." (Allstate Mot. at 20 (quoting Cel-Tech , 20 Cal. 4th at 184, 83 Cal.Rptr.2d 548, 973 P.2d 527 ).) Additionally, Allstate alleges that reinsurance is neither unfair nor fraudulent. (Id. at 21-22.)
Tellone's Opposition primarily argues that Hartford was not merely Allstate's reinsurer, but instead, had essentially become a party to the original Policy. (See Allstate Opp. at 10-15.) It first claims that the Reinsurance Agreement between Allstate and Hartford violates the UCL's unlawful prong because it violated subdivision (a) of the California Insurance Code § 381 and § 1457 of the California Civil Code because: (1) the "Policy fail[ed] to specify that [Hartford] was a party to the Policy," and Hartford was a party to the Policy because "it was underwriting the [Equipment Breakdown Coverage ("EBC")] and would adjust claims under the EBC"; and (2) Allstate transferred to Hartford its own obligation to provide EBC, adjust EBC claims, and pay EBC claims without informing or obtaining Tellone's consent. (Id. at 11.) It next asserts, outright, that Hartford did not merely act as a reinsurer. (Id. at 13-14.) And it finally contends that whether Allstate's conduct was fraudulent or unfair is a question of fact not suitable for summary judgment. (Id. at 14-15.)
Having reviewed the Reinsurance Agreement and the other evidence submitted by the Parties, the Court concludes that there is no genuine dispute that Allstate and Hartford were indeed in a reinsurance relationship. No UCL liability lies when the conduct a plaintiff pleads in support of the UCL claim is clearly permitted by another law. See Cel-Tech , 20 Cal. 4th at 182, 83 Cal.Rptr.2d 548, 973 P.2d 527 ("If the Legislature has permitted certain conduct or considered a situation and concluded that no action should lie, courts may not override that determination. When specific legislation provides a ‘safe harbor,’ plaintiffs may not use the general unfair competition law to assault that harbor."). The California Insurance Code recognizes reinsurance contracts, and therefore, the Insurance Code provides Allstate and Hartford a "safe harbor" here. See Cal. Ins. Code § 620 ("A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance.") Accordingly, as the California Legislature has already determined that reinsurance contracts are not unlawful, unfair, or fraudulent, the Court will not reach a conclusion to the contrary.
All of the evidence before the Court supports that Hartford was a reinsurer as opposed to a party to the Policy, or an underwriter of the Policy. There is simply no evidence Hartford was a party to the Policy; the Policy was issued to Tellone by Allstate. (See generally Policy.) And there is no evidence that Hartford was assuming the role of anything other than a reinsurer. (See generally Reinsurance Agreement; see also Groff Decl., Doc. 61-8, ¶¶ 25-29 (declaration of Allstate Senior Claims Consultant in supervisory role in connection with the Tellone claim) ("[Hartford] played no role in Allstate's underwriting"; "Allstate's reinsurance agreement with [Hartford] did not alter any of the terms, conditions or provisions of the Policy"; "Allstate was ultimately responsible for making any determination regarding whether any coverage was afforded to Tellone under the Policy"). Critically, Allstate, not Hartford, remained ultimately responsible for paying out claims to the insured. (See Reinsurance Agreement at ECF 7 ("In the event of a settlement by the Reinsurer of a claim or loss arising under coverages subject to this Agreement, [Allstate] will, pursuant to said settlement, make payment directly to the Insured under the coverages subject to this Agreement.").)
Additionally, Tellone has provided no factual support for its claim that Hartford was underwriting the Policy. Underwriting is the process of deciding which risks to insure and which to reject in order to spread losses over risks in an economically feasible way. Smith v. State Farm Mut. Auto. Ins. Co. , 93 Cal. App. 4th 700, 726, 113 Cal.Rptr.2d 399 (2001), as modified (Nov. 20, 2001) (internal citation omitted). Nothing in the Reinsurance Agreement suggests that Hartford was involved in the process of deciding which risks to insure. Although the Reinsurance Agreement provides that Hartford "will investigate, negotiate and enter into settlement agreements or defend all such claims and losses in accordance with the terms of the coverage subject to this Agreement," it also provides that Allstate "may at its own expense participate in any such investigation, negotiation, settlement or defense." (Reinsurance Agreement at ECF 7.) These terms do not relate to the "process of deciding which risks to insure," and do not support a finding that this conduct amounted to underwriting. Although these terms permit Hartford to be more involved in the claim settlement process than other reinsurance agreements might permit, they do not fundamentally transform Hartford's role into that of an underwriter.
Although Tellone disputes that Hartford played no role in Allstate's underwriting of the Policy, and contends that "Allstate also admitted that Hartford is the underwriter for the breakdown coverage under the policy," the sources of evidence Tellone cites in support of this contention do not create a material dispute of fact. Tellone cites the Groff Declaration, the sworn declaration of Allstate's representative, but that declaration does not support such a finding. It states that: "The reservation of rights letter and the denial letter contained incorrect references to [Hartford] as an ‘underwriter’, not a reinsurer. This error was due to the adjuster's lack of familiarity with [Hartford]. [Hartford] played no role in Allstate's underwriting[.]" (Groff Decl., ¶ 25.) As Tellone has provided no evidence to support that the reference to underwriting was not made in error, and the remaining evidence supports that Hartford was not acting as an underwriter, the Court finds this reference insufficient to create a material dispute of fact preventing summary judgment.
The cases Tellone cites do not stand for the proposition that a reinsurer may not engage in investigation or the negotiation of settlement agreements with the insured. See, e.g., Ascherman v. General Reinsurance Corp. , 183 Cal. App. 3d 307, 312 n.5, 228 Cal.Rptr. 1 (1986) (merely describing a reinsurance relationship as "[a] reinsurance company typically contracts with an insurance company to cover a specified portion of the insurance company's obligation to indemnify a policyholder in the event of a valid claim"). For instance, the primary case Tellone cites is Zenith Ins. Co. v. O'Connor , 148 Cal. App. 4th 998, 1007, 55 Cal.Rptr.3d 911 (2007). But that case provides no support for the notion that any party involved in the investigation or settlement of a claim may not be considered a reinsurer. There, per the terms of the reinsurance contract, the insurer "expressly retained the exclusive power to investigate, defend and settle any claim on such terms as it, in its discretion , deemed expedient." Id. Based on the terms of the contract, the court reasoned the reinsurer "had no right or authority to participate" in the investigation and settlement of claims, because "where, as here, a reinsurance contract fails to provide otherwise , a reinsurer has no control over claims settlement." Id. (emphasis added). Here, the reinsurance contract has simply provided otherwise: it expressly gives Hartford the authority to participate in the investigation and settlement of claims. Zenith supports only that the Court should honor those terms of the agreement. And the case relied upon by Allstate, Three Rivers Hydroponics, LLC v. Florists’ Mutual Insurance Company , 2018 WL 791405, at *1 (W.D. Pa. 2018) only offers additional support for the conclusion that participation in the investigation and settlement of a claim is not inconsistent with the role of a reinsurer. See id. at *1-*4.
Tellone has failed to "produce admissible evidence to show that a genuine issue of material fact exists" as to whether Hartford acted as a reinsurer. Bernstein , 365 F. Supp. 3d at 984 (citing Nissan Fire , 210 F.3d at 1102 ). Accordingly, the Court agrees that Tellone's UCL claims may be appropriately disposed of at summary judgment.
4. Conclusion
Tellone has not demonstrated that any genuine issue of material facts exists that prevents the Court from resolving its breach of contract or UCL claims against Allstate on summary judgment, the Court GRANTS Allstate's Motion. Having reached this conclusion, the Court need not and does not address any of the other issues raised in Allstate's Motion or Tellone's Opposition.
B. Hartford's Motion
Hartford also moves for summary judgment as to Tellone's single claim against it for violation of the UCL. (See Hartford Mot.) Like Allstate, Hartford argues that as reinsurance is expressly permitted by California law, a UCL claim based on the Reinsurance Agreement being unlawful, unfair, or fraudulent may not lie. (See id. at 6-12.) Tellone offers the same arguments in support of its Opposition it asserted against Allstate. (See Hartford Opp. at 6-11.) Accordingly, for the same reasons stated above, the Court GRANTS Hartford's Motion for Summary Judgment.
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS Allstate and Hartford's Motions for Summary Judgment. Allstate and Hartford are ORDERED to file a proposed final judgment within five (5) days of the entry of this Order. All future dates as set forth in the Scheduling Order are VACATED.