No coverage under CGL policy for dispute over berthings fees and sale of vessels- Winter 2008
April, 2008
Butler v. Clarendon America Insurance Co.
2007 A.M.C. 1620 (N.D. Cal. 2007)
Butler is the operator of San Rafael Yacht Harbor in San Rafael, California. Clarendon issued two commercial general liability policies to Butler. Butler was sued in two underlying actions by Lloyd Victor Ramirez, who alleged that following a dispute concerning fees and charges for berthing, Butler unlawfully converted two vessels owned by Ramirez by seizing and selling them. Ramirez claimed that he sustained injury and damage "by losing his principal place of abode, all to his great physical and emotional distress."
Butler tendered the defense of the two actions to Clarendon and requested that Clarendon defend and indemnify him. Clarendon denied Butler's tender of defense and request for indemnity. Butler proceeded to make a series of re-tenders to Clarendon of the underlying actions, all of which were denied by Clarendon.
Butler filed suit against Clarendon for declaratory relief and for claims of breach of contract, negligence and bad faith arising out of Clarendon's failure to defend and indemnify him. The Court denied Butler's first motion for partial summary judgment because the underlying action and available extrinsic evidence presented nothing more than Butler's intentional acts. These acts were not covered under Coverage A of the Clarendon CGL policy, which required an "occurrence" for coverage, and which defined "occurrence" as an "accident." The Court also ruled that there was no coverage under the Special Marina/Boat Repairers/Boat Dealers Legal Liability provision because there was no evidence that Ramirez's property was given to Butler for the purpose of sale and because there was no evidence that any damage occurred to the property while in Butler's custody. Finally, the Court ruled that the Special Boat Dealer/Marina Coverage provision provided "all risk" "first party" coverage and could not legally create a duty to defend against third-party claims.
Butler then filed a second motion for summary judgment asserting new facts and policy provisions that allegedly created a potential for coverage. Butler alleged that a third party, Tim Leary, removed the propeller from Ramirez's vessel while it was being hauled out and stored on land at the San Rafael Yacht Harbor. Butler argued that this allegation constituted an "unexpected, unforeseen or undesigned happening from a known or unknown cause," and was, therefore, an "accident" under Coverage A's insuring agreement. The Court disagreed, citing the exclusion under Coverage A for "personal property in the care, custody or control of the insured," and concluding that Ramirez's vessel constituted personal property that was in the care, custody or control of Butler.
Butler also asserted that the policy's "Package Broad Form Endorsement" created coverage and a duty to defend under Section IV, paragraph E, which provides coverage for "direct physical loss of or damage to Covered Property described in this Form caused by or resulting from any covered loss, unless this loss is excluded . . . ." The Court ruled that the endorsement only provided first-party coverage to Butler, and that it did not legally create a duty to defend against third-party claims.
The third provision relied on by Butler was Form HBDC, entitled "Special Boat Dealer/Marina Coverage." Butler argued that the dispute over the removal of the propeller created a duty to defend. But the Court ruled against Butler, finding that Form HBDC was also limited to providing first-party coverage.
The fourth provision relied on by Butler was Form HMOL, entitled "Special Marina/Boat Repairers/Boat Dealers Legal Liability." As with Coverage A, the Court found that the form's exclusion for property damage to "personal property in the care, custody or control of the insured" applied to bar coverage for the alleged removal of the propeller, because Ramirez's boat was in the care, custody or control of Butler.
Next, Butler relied on Form HPIL, entitled "Protection and Indemnity Liability" and Form HTOW, entitled "Towers Liability Endorsement" as provisions creating a potential for coverage and a duty to defend. These provisions provide coverage for the insured's liability arising out of vessels that are afloat. The Court found that Butler did not proffer any factual scenario under which coverage would be triggered under these provisions.
Butler's second motion for summary judgment also included arguments that Coverage B of the policy created a potential for coverage arising out of allegations of "personal injury" to Ramirez. Butler first argued that the underlying lawsuit provided a basis for potential claims of wrongful eviction, wrongful entry or invasion of a right of occupancy against Butler. The Court found that the aforementioned claims must arise out of an interest in real property in order to be covered under Coverage B. In this instance, Ramirez's claims were based on his interest in personal property (the vessels) and did not encompass any real property claims. The Court also rejected Butler's contention that Ramirez's claims stemmed from Ramirez's interest in the rented marina slip, which constituted an interest in real property.
In ruling on Butler's claim for breach of the implied covenant of good faith and fair dealing, the Court found that the federal admiralty rule creating a duty to defend regardless of whether there was coverage under the policy did not apply because there was no legal authority that would permit the Court to apply federal admiralty law to a California tort claim.