1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 KATHRYN CLARK, et al., Case No. 22-cv-01698-WHO

8 Plaintiffs, ORDER DENYING PLAINTIFFS' 9 v. MOTION FOR PARTIAL SUMMARY

JUDGMENT

10 AMCO INSURANCE COMPANY, et al., Re: Dkt. No. 45 Defendants. 11

12 13 Kathryn and Jered Clark (the “Clarks” or “plaintiffs”) assert claims in this lawsuit for 14 breach of contract and breach of covenant of good faith and fair dealing against their insurer, 15 Nationwide Mutual Insurance Company (“Nationwide” or “defendant”), regarding the denial of a 16 supplemental claim for damage to their home.1 They now move for partial summary judgment 17 declaring that the “Undetectable Wildfire or Brushfire Particles” exclusion (“Exclusion 14”) in 18 their policy is invalid and unenforceable and that Nationwide was not entitled to rely on it when 19 making a coverage determination. Because there are disputes of fact concerning whether 20 Nationwide relied on the allegedly unlawful exclusion, the Clarks cannot obtain summary 21 judgment; a decision on the legality of the exclusion and Nationwide’s entitlement to reliance 22 upon it is premature at best. The motion is DENIED. 23 BACKGROUND 24 The Clarks’ home and personal property located at 9168 Piccadilly Circle, Windsor, 25 California, were insured by Nationwide Mutual Insurance Company in October 2019, when the 26 property suffered smoke damage in the Kincaid Fire. See Declaration of D. Schaffer (“Schaffer 27 1 Decl.”), Ex. A [Dkt. No. 45-2] (Homeowner Policy Declarations); Declaration of J. Reynolds 2 (“Reynolds Decl.”), Ex. A [Dkt. No. 51-4] (RegasGroup November 22, 2019, Report). The Clarks 3 submitted a claim for the loss caused by the smoke damage. See Schaffer Decl., Ex D at 1. In 4 adjusting the claim, Nationwide retained the RegasGroup, an environmental hygienist, to conduct 5 a soot, char, ash, and fire residue inspection. Reynolds Decl. ¶ 5. Its report revealed elevated 6 levels of soot, char, ash, and fire residue in the Clarks’ home. See Reynolds Decl., Ex. A at 2. 7 Ultimately, Nationwide issued claim payments totaling $176,832.28.2 Reynolds Decl. ¶ 4. 8 After the Clarks’ vendors completed remediation efforts, the RegasGroup conducted a 9 second inspection. Its report concluded that samples taken from the Clarks’ property were below a 10 3% level for char, soot, and ash. Reynolds Decl., Ex. B (RegasGroup February 10, 2020, Report) 11 at 16. But shortly thereafter, the Clarks retained Air Environmental, an environmental testing 12 vendor, to inspect the Clarks’ attic and crawlspace HVAC ducting. Declaration of S. Barrett 13 (“Barrett Decl.”) [Dkt. No. 51-2] at 268 (detailing February 20, 2020, Air Environmental Report). 14 Its report, which the Clarks submitted to Nationwide, differed significantly from the RegasGroup 15 report. Reynolds Decl. ¶ 10. It recommended “that the attic HVAC ducting should be replaced 16 [due to] the high amount of ash/dust visible inside the ducting, even after the ducting has been 17 cleaned.” Barrett Decl. at 268. 18 As a result of these differences, Nationwide offered to have RegasGroup conduct 19 additional testing. See Reynolds Decl., Ex. C. Mr. Clark refused any additional inspection and 20 notified Nationwide that he would proceed with replacement of the HVAC ducts. See Reynolds 21 Decl., Ex. D. 22 On April 26, 2021, Nationwide informed the Clarks that the information that they had 23 provided raised coverage questions around smoke, soot, and odor damage to their home, HVAC, 24 and personal property. See Schaffer Decl., Ex. D at 1 (Apr. 26, 2021, Claim Notification Letter). 25 It also stated that a portion of their claim could be denied based on the “Undetectable Wildfire or 26

27 2 These payments included: Coverage A (Dwelling): $48,574.62; Coverage B (Other Structures): 1 Brushfire Particles” exclusion, Exclusion 14. Id. at 3. That exclusion reads: 2 14. Undetectable Wildfire or Brushfire Particles 3 This means: a. Any type of smoke, soot, char, ash, particles, matter, material other byproduct 4 or debris, or odor that is produced, emitted or released during or directly 5 resulting from or following wildfire or brushfire event that is undetectable by unaided human sense. Unaided human senses means without requiring special 6 equipment, including, but not limited to, microscopes or laboratory testing. b. This exclusion applies to costs to test for, monitor, clean up, remove, contain, 7 treat, detoxify, neutralize, deodorize, or in any way respond to or assess the effect of Undetectable Wildfire or Brushfire Particles. It also applies to costs to 8 neutralize or deodorize odor unless odor is detectable on your “residence 9 premises” more than 30 days following the declaration of full containment of the wildfire or brushfire by a governmental authority. 10 However, direct physical loss by Wildfire or Brushfire Particles that can be seen solely 11 upon utilization of a chemical sponge or other similar tool designed for detecting such materials are covered. 12 Schaffer Decl., Ex. F at 3. 13 On February 16, 2022, the Clarks filed the underlying complaint for breach of contract and 14 breach of covenant of good faith and fair dealing against AMCO Insurance Company related to 15 their insurance claim for damages. See Dkt. No. 1 (Complaint).3 As this litigation has progressed, 16 Nationwide has continued to evaluate the Clarks’ claim. It retained Exponent, a technical 17 consulting service, to review the RegasGroup and Air Environmental reports and to conduct an 18 additional inspection. Exponent’s November 2022 inspection concluded that fire residue levels 19 were within normal range and that no further professional cleaning was required. Barrett Decl., 20 Ex. A at 152, 159. 21 In response, the Clarks retained Kaizen Safety Solutions, an environmental hygienist, to 22 conduct site inspections of the Clarks’ property on December 11, 2022, and again in March 2023. 23 Reynolds Decl., Ex. N (Kaizen Safety Solutions Report) at 62. In a proof of loss report based on 24 the March 29, 2023, Kaizen Safety Solutions Report, the Clarks submitted a supplemental claim in 25 the amount of $695,763.27. Schaffer Decl., Ex. E (Clark Proof of Loss filed in March 2023). 26

27 3 Plaintiffs filed in state court, and defendants removed based on diversity jurisdiction. See Dkt. 1 Nationwide then reiterated its offer to have the claim re-evaluated through a local expert 2 and vendor re-inspection. Reynolds Decl., Ex. O at 279. The Clarks rejected that offer. 3 Nationwide again retained Exponent to review the Kaizen Safety Solutions report. Schaffer Decl., 4 Ex. F at 1. In an October 13, 2023, report, Exponent stated that there were flaws in the Kaizen 5 Safety Solutions report and concluded that there was no additional damage to the Clarks’ property. 6 Barrett Decl., Ex. A at 2-9. In light of that report, on November 3, 2023, Nationwide sent a denial 7 letter to the Clarks stating that there was no evidence of wildfire damage remaining despite what 8 the Kaizen Safety Solutions Report had stated. Schaffer Decl., Ex. F at 1. That letter included a 9 reference to Exclusion 14. Id. at 3. 10 On April 26, 2024, the Clarks filed their Motion for Partial Summary Judgment, seeking a 11 ruling that Exclusion 14 was invalid and unenforceable, and that Nationwide could not lawfully 12 rely on it. See Motion for Partial Summary Judgment (“Mot.”) [Dkt. No. 45]. On May 8, 2024, 13 Nationwide sent an update to the Clarks’ claim denial, stating that Exclusion 14 was not used to 14 evaluate the Clarks’ claim. Barrett Decl., Ex. C at 356. 15 LEGAL STANDARD 16 Summary judgment on a claim or defense is appropriate “if the movant shows that there is 17 no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of 18 law.” Fed. R. Civ. Proc. 56(a). In order to prevail, a party moving for summary judgment must 19 show the absence of a genuine issue of material fact with respect to an essential element of the 20 non-moving party’s claim, or to a defense on which the non-moving party will bear the burden of 21 persuasion at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has 22 made this showing, the burden then shifts to the party opposing summary judgment to identify 23 “specific facts showing there is a genuine issue for trial.” Id. The party opposing summary 24 judgment must then present affirmative evidence from which a jury could return a verdict in that 25 party’s favor. Anderson v. Liberty Lobby, 477 U.S. 242, 257 (1986). 26 On summary judgment, the Court draws all reasonable factual inferences in favor of the 27 non-movant. Id. at 255. In deciding a motion for summary judgment, “[c]redibility 1 facts are jury functions, not those of a judge.” Id. However, conclusory and speculative testimony 2 does not raise genuine issues of fact and is insufficient to defeat summary judgment. See 3 Thornhill Publ’g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979). 4 DISCUSSION 5 The plaintiffs seek an order granting partial summary judgment that (1) the “Undetectable 6 Wildfire or Brushfire Particles” exclusion and limitation in the insurance policy covering their 7 home and its contents is invalid and unenforceable, and (2) to the extent that Nationwide relied 8 upon the application of the same policy exclusion, it was not entitled to deny the plaintiffs’ claim 9 on or about November 3, 2023. However, it is not clear from the record whether Nationwide 10 relied at all on Exclusion 14 when denying the Clarks’ request for additional payments. Genuine 11 disputes on this material fact preclude summary judgment. Furthermore, no court has addressed 12 the validity or enforceability of Exclusion 14. Nationwide says that it did not apply Exclusion 14, 13 and since there are at least material disputes of fact pertaining to its reliance on Exclusion 14, any 14 ruling now on the exclusion’s validity or enforceability would be premature and amount to an 15 advisory opinion, which I will not provide. 16 A genuine issue of fact is one that could reasonably be resolved in favor of either party and 17 a dispute is material if it could affect the outcome of the suit. Anderson v. Liberty Lobby, Inc., 477 18 U.S. 242, 248-49 (1986). Both factors are met here. 19 Here’s the dispute. The Clarks point to the mention of the exclusion in at least two 20 communications from Nationwide regarding their claim, which they assert shows that it relied on 21 the exclusion to deny the claim. In a letter sent to the Clarks on April 26, 2021, Nationwide 22 acknowledged receipt of the Clarks’ claim and stated that information provided by the Clarks 23 created coverage questions surrounding “[a]dditional smoke, soot, and odor damage” to HVAC 24 ductwork and personal property. See Schaffer Decl., Ex. D at 1. Immediately following the 25 “Claim details” section, Nationwide referenced Exclusion 14.4 Id. at 1–2. The letter continued, 26 “we believe your Homeowners coverage may not apply to this loss because your policy 27 1 specifically excludes undetectable wildfire or Brushfire Particles.” Id. at 3. Then, in its 2 November 3, 2023, partial denial of coverage letter, Nationwide stated: “We must respectfully 3 advise you that your policy does not provide coverage for a portion of this loss – as further 4 detailed below.” Schaffer Decl., Ex. F at 1. That “further detail[] below” included a reference to 5 Exclusion 14, as noted in the “Policy Details” section of the partial denial of coverage letter. Id. at 6 3. Reference to Exclusion 14, particularly following language that raised coverage questions and 7 stated that the Clarks’ policy does not include coverage for their claim, allows for an inference that 8 Nationwide relied at least in part on the exclusion to deny coverage. 9 Nationwide argues to the contrary that the mere mention of Exclusion 14 in the denial 10 letters does not show that it relied on the exclusion to make decisions regarding the Clarks’ claim. 11 It says that the letters and environmental reports from multiple vendors finding no existing 12 damage to the Clarks’ property support its position that its denial of coverage had nothing to do 13 with Exclusion 14. While the April 26, 2021, letter stated Nationwide’s belief that the Clarks’ 14 claim may be subject to Exclusion 14, it also indicated that Nationwide continued to investigate 15 the claim. It included, “[t]o further evaluate your loss, we have retained the expert service of the 16 RegasGroup and Service Master” and advised the Clarks to call their insurance adjuster to 17 schedule a reinspection. See Schaffer Decl., Ex. D at 3. 18 The November 3, 2023, letter, which provides Nationwide’s conclusion on the evidence to 19 date, states in relevant part:

20 Our review showed that there is no evidence of any remaining resulting damage from the wildfire. We have reviewed your expert 21 finding and had it evaluated by Exponent. Based on our expert’s evaluation of the Kaizen report, they concluded the following 22 findings:

23 “We have reviewed the Kaizen report, and none of the information provided by Kaizen changes Exponent’s opinions related to the 24 Subject Property. The Kaizen report is filled with false and misleading statements that illustrate their inexperience and lack of 25 scientific acumen and understanding of settled wildfire particulate assessments and analysis methods. There are serious inconsistencies 26 and major uncertainties among the inspection and subsequent conclusions reached by Kaizen.” 27 Schaffer Decl., Ex. F at 1 (emphasis added). This conclusion does not mention Exclusion 14 as a 1 reason for the denial; it relies on Nationwide’s experts’ opinions and assessments of the condition 2 of the Clarks’ property. To emphasize the point, on May 8, 2024, Nationwide stated that it “has 3 || never used Exclusion 14... to guide the investigation of your claim or to decline any payment on 4 || your claim.” Reynolds Decl., Ex. C (Update to Partial Denial of Coverage Letter). 5 There is indisputably a dispute over whether Nationwide relied on Exclusion 14 to deny 6 || the Clarks’ supplemental claim. The Clarks assert that the dispute itself supports their malice 7 || claims. See Reply 10. If Nationwide does not rely on Exclusion 14 at trial as a basis for its 8 decision (and it has stated it will not, see Oppo. 14, n.41), it is unclear how the issue will arise. 9 And if the jury concludes that the Clarks suffered no damage in any event, the legality of 10 Exclusion 14 would be irrelevant. Regardless, whether Nationwide relied on Exclusion 14 to deny 11 the Clarks’ claim constitutes a dispute over a genuine issue of fact that is apparently material to 12 || the Clarks’ theory of the case, and resolution of that dispute would be a predicate to a 5 13 determination of whether it would be legal for Nationwide to rely on the exclusion. Accordingly, 14 || I must deny the Clarks’ motion for partial summary judgment on this issue.

CONCLUSION

16 Genuine issues of material fact exist concerning whether Nationwide relied on Exclusion 3 17 14 to deny the Clarks’ insurance claim. Their motion for partial summary judgment is DENIED.

IT IS SO ORDERED.

19 Dated: August 7, 2024 20 . 21 W8liam H. Orrick United States District Judge 23 24 25 26 27 28