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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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13 Case No.: 8:22-cv-00466-MEMF-JDEx

C.J. SEGERSTROM AND SONS,

14 Plaintiff, ORDER GRANTING IN PART SUMMARY 15 JUDGMENT PURSUANT TO RULE 56(f) v. 16

17 LEXINGTON INSURANCE COMPANY, et 18 al., 19 Defendants. 20 21

22 23 Before the Court are the parties’ briefs regarding the Court’s notice of intent to grant 24 summary judgment in favor of Plaintiff on Defendant’s Fourth and Sixth Affirmative Defenses 25 pursuant to Federal Rule of Civil Procedure 56(f). ECF Nos. 95, 96. For the reasons stated herein, 26 the Court GRANTS summary judgment to the Sixth Affirmative Defense only. 27 / / / 28 / / / 1 I. Factual & Procedural Background 2 Plaintiff C.J. Segerstrom & Sons (“Segerstrom”) owns and operates a shopping mall (the 3 “South Coast Plaza”). Segerstrom purchased commercial property insurance for South Coast Plaza 4 from Defendant Lexington Insurance Company (“Lexington”). This case concerns Lexington’s 5 denial of coverage under the applicable policy (the “Policy”) over losses Segerstrom incurred due to 6 the closure of the South Coast Plaza for a period of time due to the COVID-19 pandemic and 7 ensuing closure orders. 8 On February 8, 2024, the parties filed a Combined Motion for Summary Judgment. ECF No. 9 81 (“MSJ”). The Court issued an order granting Lexington’s motion in part and granting 10 Segerstrom’s motion on July 15, 2024. ECF No. 90 (“MSJ Order”). In its MSJ Order, the Court 11 noted its intent to grant summary judgment on Lexington’s Fourth and Sixth Affirmative Defenses 12 pursuant to Federal Rule of Civil Procedure 56(f) and gave the parties and opportunity to respond in 13 writing. MSJ Order at 19. The parties filed responsive briefing on this issue on August 6, 2024. ECF 14 Nos. 95 (“Pl. Brief”), 96 (“Def. Brief”). 15 II. Applicable Law 16 Under Federal Rule of Civil Procedure 56(f), a district court may sua sponte grant summary 17 judgment if the parties have “notice and a reasonable time to respond.” Fed. R. Civ. P. 56(f); KST 18 Data, Inc. v. DXC Technology Company, 980 F.3d 709, 714 (9th Cir. 2020). Specifically, the court 19 may “(1) grant summary judgment for a nonmovant; (2) grant the motion on grounds not raised by a 20 party; or (3) consider summary judgment on its own after identifying for the parties material facts 21 that may not be genuinely in dispute.” Fed. R. Civ. P. 56(f). “Sua sponte grants of summary 22 judgment are only appropriate if the losing party has ‘reasonable notice that the sufficiency of his or 23 her claim will be in issue.’” Greene v. Solano Cnty. Jail, 513 F.3d 982, 990 (9th Cir. 2008) (quoting 24 Buckingham v. United States, 998 F.2d 735, 742 (9th Cir. 1993)). 25 III. Findings of Fact 26 The Court made detailed findings of fact in its Order on the Motion for Summary Judgment. 27 See MSJ Order at 4–6. The Court will not repeat those findings here. No further findings of fact are 28 necessary for this Order. 1 IV. Discussion 2 In the MSJ, one of the arguments advanced by Lexington was that the losses at issue should 3 be excluded based on the Policy’s Contamination Exclusion Endorsement, which excludes losses 4 caused by the “actual, alleged or threatened release, discharge, escape or dispersal of 5 CONTAMINANTS or POLLUTANTS.”1 See ECF No. 1-1 (Policy) at 53. After analyzing the 6 relevant case law, the Court declined to depart from its earlier finding at the motion to dismiss stage 7 that Segerstrom’s interpretation that the exclusion only extends to losses attributable to traditional 8 environmental or industrial pollution is reasonable. MSJ Order at 19. Given that, the Court noted that 9 the exclusion “must be interpreted in favor of coverage” under binding authority. Id.; see 10 MacKinnon v. Truck Ins. Exchange, 31 Cal. 4th 635, 655–56 (2003) (noting that “even if [an 11 insurer’s] interpretation is considered reasonable, it would still not prevail, for in order to do so it 12 would have to establish that its interpretation is the only reasonable one”). Therefore, the Court 13 determined that there may be grounds to grant summary judgment as to Lexington’s Fourth 14 Affirmative Defense, which is based solely on the Contamination Exclusion Endorsement. 15 Lexington notes that where the contract contains ambiguous language (i.e., that both parties’ 16 interpretations appear reasonable),2 the ambiguity should first be resolved by attempting to reconcile 17 the ambiguity with the reasonable expectations of the insured. See AIU Ins. Co. v. Super. Ct., 51 Cal. 18 3d 807, 822 (1990). Only if the ambiguity cannot be resolved by that means should the Court then 19 apply the general rule of resolving ambiguities in favor of coverage. Id. The Court understands 20 Lexington to be arguing that although the Court has already affirmatively found Segerstrom’s 21 proffered interpretation of the Contamination Exclusion during the course of this litigation to be 22 reasonable, there is still a material dispute of fact whether Segerstrom’s proffered interpretation 23

24 1 The terms “CONTAMINANTS or POLLUTANTS” is then defined as “any solid, liquid, gaseous or thermal 25 irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste, which after its release can cause or threaten damage to human health or human welfare or causes or threatens damage, 26 deterioration, loss of value, marketability or loss of use to property insured hereunder, including, but not limited to, bacteria, virus, or hazardous substances as listed in the Federal Water, Pollution Control Act, Clean 27 Air Act, Resource Conservation and Recovery Act of 1976, and Toxic Substances Control Act or as designated by the U. S. Environmental Protection Agency.” Id. 28 2 1 actually was its interpretation at the time that they obtained the insurance. If Lexington can show 2 that Segerstrom did understand that the Contamination Exclusion excluded losses related to 3 communicable diseases like COVID-19, then it would likely not be appropriate to construe an 4 ambiguity in favor of Segerstrom’s post-hoc interpretation. 5 Lexington points to certain evidence set forth in its MSJ which it argues shows that 6 Segerstrom did not have the same understanding it has advanced throughout this litigation— 7 including information Segerstrom was told by its broker, the testimony of Segerstrom’s risk 8 management director, and actions Segerstrom took with other endorsements. Def. Brief at 5–7. In the 9 MSJ Order, the Court merely found that such evidence did not affirmatively show that Segerstrom 10 had a different understanding. MSJ Order at 15. Now, to grant summary judgment on behalf of 11 Segerstrom, the Court must construe the evidence in the light most favorable to Lexington. In doing 12 so, the Court finds that the evidence could possibly support a jury finding that Segerstrom believed 13 that the Contamination Exclusion would exclude coverage of losses caused by communicable 14 disease.3 Accordingly, the Court DENIES summary judgment on the Fourth Affirmative Defense. 15 Segerstrom also requested the Court to grant summary judgment on Lexington’s Sixth 16 Affirmative Defense, which is based on a Seepage and/or Pollution and/or Contamination Exclusion 17 (Endorsement No. 1 of the Policy). Policy at 42. The Court noted that this endorsement, like the 18 Contamination Exclusion Endorsement “appears reasonably interpreted to contemplate traditional 19 environmental pollution and the like,” and therefore would also not reasonably exclude the losses at 20 issue. MSJ Oder at 19, fn. 15. In its supplemental briefing, Lexington does not contest the granting 21 of summary judgment as to its Sixth Affirmative Defense. Def. Brief at 2, n.1. Moreover, it does not 22 appear that the evidence Lexington points to in support of Segerstrom’s understanding of the 23 Contamination Exclusion Endorsement would similarly support the Seepage and Pollution 24 Endorsement. For example, the testimony presented from Segerstrom’s risk management director 25 and the negotiated exceptions Segerstrom made were not related to this latter endorsement. As 26

27 3 The Court notes that Lexington has identified additional extrinsic evidence it believes would be relevant 28 | | Lexington has not pointed to any disputed facts regarding Segerstrom’s interpretation of the Seepage 2 || and Pollution Endorsement, which the Court finds reasonable, the endorsement must be interpreted 3 | in favor of coverage. Accordingly, the Court GRANTS summary judgment on Lexington’s Sixth 4 | Affirmative Defense. 5 V. Conclusion 6 For the reasons stated herein, the Court hereby GRANTS summary judgment on Lexington’s 7 | Sixth Affirmative Defense only. 8 9 || ITIS SO ORDERED. 10 f= 11 Dated: September 11, 2024 12 MAAME EWUSI-MENSAH FRIMPONG 13 United States District Judge 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28