1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 VOUGHT CONSTRUCTION INC., Case No. 24-cv-01838-WHO

8 Plaintiff,

ORDER ON THE CROSS MOTIONS

9 v. FOR SUMMARY JUDGMENT

10 ALLIED WORLD SURPLUS LINES Re: Dkt. Nos. 30, 54, 55

INSURANCE COMPANY,

11 Defendant.

12 13 Plaintiff Vought Construction, Inc. (“Vought”) asserts claims for breach of contract and 14 beach of the implied covenant of good faith and fair dealing against defendant Allied World 15 Surplus Lines Insurance Co. (“Allied World”) based on Allied World’s decision not to represent 16 Vought in an underlying state court suit. Pending before the court are the parties’ respective 17 motions for summary judgment. Vought moves for partial summary adjudication of its duty to 18 defend claim; Allied World moves for summary adjudication of all of Vought’s claims. In the 19 alternative, Allied World moves for partial summary adjudication of Vought’s indemnification 20 claim. Because Vought established the possibility of liability and Allied World could not meet its 21 burden to show that no conceivable theory could raise an issue that would bring the underlying 22 complaint within policy coverage, Vought’s Motion for Partial Summary Judgment is GRANTED. 23 Allied World’s Motion for Summary Judgment is DENIED except with respect to coverage of 24 defective work, which is excluded. 25 BACKGROUND 26 A. Allied World’s Insurance Policies 27 The following are the undisputed facts. Vought purchased five consecutive one-year 1 November 1, 2017, to November 1, 2022. Complaint (“Compl.”) [Dkt. No. 1] ¶ 10. As relevant 2 to this case, the policies provided Vought with “BODILY INJURY AND PROPERTY DAMAGE 3 LIABILITY.” Id. at ¶ 15. Specifically, Allied World would “pay those sums that the insured 4 becomes legally obligated to pay as damages because of . . . ‘property damage’” as defined by the 5 policies. Id. at ¶ 16. This obligation extended to a “right and duty to defend the insured against 6 any ‘suit’ seeking those damages.” Id. The policy covered only that “property damage” that was 7 “caused by an ‘occurrence’” that happened in the United States during the policy period and 8 where, “[p]rior to the policy period, no insured . . . knew that . . . ‘property damage’ had 9 occurred.” Id. 10 The policy further defined “property damage” to be “[p]hysical injury to tangible property, 11 including all resulting loss of use of that property. All such loss of use shall be deemed to occur at 12 the time of the physical injury that caused it.” Id. at ¶ 20. Or, for property that was not physically 13 injured, “[a]ll such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused 14 it.” Id. The policies define an “occurrence” to be “an accident, including continuous or repeated 15 exposure to substantially the same general harmful conditions.” Id. at ¶ 19. 16 The SUPPLEMENTARY PAYMENTS provision of the polices states that Allied World 17 “will pay, with respect to any claim [it] investigate[s] . . . [a]ll reasonable expenses incurred by the 18 insured at [its] request to assist [Allied World] in the investigation or defense of the claim or 19 ‘suit.’” Id. at ¶ 23. The polices required that Vought, as an insured party, provide Allied World 20 with any information as to any possible “occurrence,” that might result in a claim, or, if a suit was 21 brought against Vought, Allied World required “written notice of the claim . . . as soon as 22 practicable.” Id. at ¶ 25. This notice requirement additionally mandated that Vought give Allied 23 World any paperwork related to any lawsuit. Id. 24 The policies include a number of exclusions, three of which are relevant in this case. See 25 Policy Exclusions [Dkt. No. 55] at 6–11 (detailing exclusions labeled “a-q” as related to the 26 BODILY INJURY AND PROPERTY DAMAGE LIABILITY portion of the policies). The Total 27 Professional Services Exclusion states that Allied World will not cover “any liability arising out of 1 or failure to render, any professional services; or . . . of a professional nature.” Total Services 2 Exclusion [Dkt. No. 55] at 44. The terms “professional services” or “of a professional nature” are 3 not defined. The policies also include two exclusions that preclude coverage for any defective 4 work. The j(5) exclusion prevents coverage for any “particular part of real property on which [the 5 insured] or any contractors or subcontractors working directly or indirectly on [] behalf [of the 6 insured] are performing operations, if the ‘property damage’ arises out of those operations.” 7 Policy Exclusions [Dkt. No. 55] at 10. Similarly, the j(6) exclusion disallows coverage for “[t]hat 8 particular part of any property that must be restored, repaired or replaced because ‘[the insured’s] 9 work’ was incorrectly performed on it.” Id. 10 B. The Boblett Action 11 In December 2019, Vought filed a complaint in Alameda County Superior Court against 12 non-party Brennan Boblett, an owner/developer who contracted with Vought to conduct 13 construction work on portions of his personal property located in Oakland, California. Vought 14 Complaint [Dkt. No. 39] at 79.1 Vought alleged that, as a result of Boblett’s actions (and 15 inactions) during the course of the project, Boblett owed Vought more than $100,000. Id. at 84. 16 As is relevant here, on April 15, 2020, Boblett filed a cross-complaint against Vought. Boblett 17 Cross-Complaint [Dkt. No. 1-5] at 3–8. Boblett alleged a minimum of $450,000 in damages and 18 asserted a breach of contract and a negligence claim. In his breach of contract claim against 19 Vought, Boblett alleged that Vought: 20 (a) Failed to provide adequate competent supervision; (b) Failed to complete the work in a 21 timely fashion; (c) Failed to perform the work in accordance with the plans and 22 specification; (d) Failed to perform the work in accordance with the standard of care 23 applicable to the work performed under the Contract; and, (e) Performed the work under 24 the Contract in an unworkmanlike fashion. 25 Dkt. No. 1-5 at 5–6. On his negligence claim, Boblett relatedly asserted that because of Vought’s 26 inadequate supervision and negligent performance, “the Project was constructed improperly, 27 1 negligently, carelessly, and in an unworkmanlike manner.” Id. 2 During the course of discovery in the underlying case, Boblett provided declarations in 3 which he elaborated on his concerns with Vought’s performance and specified the damages he 4 sought. Boblett sought relief in the form of three categories of damages: (1) the cost to repair 5 Vought’s inadequate work and subsequently complete the project, (2) the total additional rent, 6 construction mortgage interest, and site costs accrued due to the delay Boblett attributes to 7 Vought’s negligence, and, (3) the return of more than $40,000 he believed Vought improperly 8 charged for incorrect and/or repair-based work. Boblett Apr. 21, 2023 Decl. [Dkt. No. 51] at 3–4. 9 Referring to the delays, Boblett testified that Vought caused cracks in the roadway near the 10 project site through use of a large excavation machine. Boblett Jan. 24, 2023 Decl. [Dkt. No. 53] 11 at 20. That structural damage on the street prevented the use of a crane during the project— 12 leading to an extended project period of anywhere between seven to fourteen months. Id. (citing a 13 delay of seven months); id. at 24 (citing a delay of eleven months); Boblett Apr. 21, 2023 Decl. 14 [Dkt. No. 51] at 3 (citing a delay of fourteen months). Boblett also testified that Vought did not 15 check with the City of Oakland to ensure the required encroachment permit had been issued before 16 starting work that required said permit. Boblett Sept. 22, 2023 Decl. [Dkt. No. 53] at 37. And, 17 although Boblett acknowledged that Vought was not responsible for obtaining a permit, he stated 18 that as a general contractor Vought was “responsible for checking in with the City to ensure that 19 the permits are valid and active before they perform any work.” Id. Because of Vought 20 neglecting to do so, Boblett alleged, further delays in permitting resulted. Id. at 36–7. 21 In January 2023, days before the scheduled bench trial, Vought accepted Boblett’s offer to 22 settle. Compl. ¶ 41. Pursuant to the settlement agreement, both Vought’s complaint and Boblett’s 23 cross-complaint were dismissed with prejudice—each party agreed to a full release of claims, 24 damages, or fees arising from or related to the Boblett Action. Dkt. No. 1-7 at 32–35; Settlement 25 Agreement [Dkt. No. 60] at 86. Neither party collected damages from the other. 26 C. Vought’s Communication With Allied World 27 During the pendency of the Boblett Action, Vought consistently communicated with Allied 1 Boblett’s cross-claim and reimbursement for legal costs pursuant to the policies. Compl. ¶¶ 32– 2 49. Allied World first denied coverage in October 2020, informing Vought that, in its view, no 3 coverage was appropriate because no “occurrence” took place according to the policy definition. 4 Dkt. 1-5 at 36–43. And, in the alternative, Allied World concluded that even if an “occurrence” 5 did take place, any resulting property damage would be precluded by the j(5) and j(6) exclusionary 6 provisions of the policy. Id. 7 Vought submitted several reconsiderations to Allied World as the Boblett Action moved 8 forward, and continued to provide Allied World with updated pleadings, discovery, and 9 information. Compl. at ¶ 33. After the dismissal of the Boblett Action, Vought sent Allied World 10 updated demand letters and emails seeking coverage. Id. at ¶ 33–43. Throughout, Allied World 11 stayed firm in its view that “there is no possibility that Mr. Boblett’s claims might be covered 12 under the Allied World policy.”2 Dkt. 1-7 at 6. 13 On March 25, 2024, Vought filed this suit, alleging breach of contract claims and a tortious 14 breach of the implied covenant of good faith and fair dealing claim against Allied World. Compl. 15 ¶¶ 50–73. Along with a favorable judgment, Vought seeks monetary damages, extra-contractual 16 damages (including punitive damages), and an award of reasonable attorney fees and costs. 17 Compl. 33. On August 28, 2024, it moved for partial summary judgment. See Vought Motion for 18 Summary Judgment (“Vought Mot.”) [Dkt. No. 30]. Allied World filed a cross-motion for 19 summary judgment that same day. See Allied World Motion for Summary Judgment (“Allied 20 World Mot.”) [Dkt. No. 54]. 21 LEGAL STANDARD 22 Summary judgment on a claim or defense is appropriate “if the movant shows that there is 23

24 2 In its papers, Vought frequently cites to what it views as an admission of Allied World. In a letter dated March 2023, Allied World states that it “acknowledges that damage to the street/curb 25 might constitute “property damage” as defined.” 2023 Coverage Denial [Dkt. 1-6] at 28. The paragraph continues: “However, while Mr. Boblett testified that the Insured’s excavators damaged 26 portions of the street during their operations, Mr. Boblett also testified in no uncertain terms that neither the City nor County (nor any other entity) has brought a claim against him for costs to 27 repair any such damages.” Id. (emphasis removed). Unlike Vought, I do not see this as a 1 no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of 2 law.” Fed. R. Civ. P. 56(a). In order to prevail, a party moving for summary judgment must show 3 the absence of a genuine issue of material fact with respect to an essential element of the non- 4 moving party’s claim, or to a defense on which the non-moving party will bear the burden of 5 persuasion at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has 6 made this showing, the burden then shifts to the party opposing summary judgment to identify 7 “specific facts showing there is a genuine issue for trial.” Id. The party opposing summary 8 judgment must then present affirmative evidence from which a jury could return a verdict in that 9 party’s favor. Anderson v. Liberty Lobby, 477 U.S. 242, 257 (1986). 10 On summary judgment, the court draws all reasonable factual inferences in favor of the 11 non-movant. Id. at 255. In deciding a motion for summary judgment, “[c]redibility 12 determinations, the weighing of the evidence, and the drawing of legitimate inferences from the 13 facts are jury functions, not those of a judge.” Id. However, conclusory and speculative testimony 14 does not raise genuine issues of fact and is insufficient to defeat summary judgment. See 15 Thornhill Publ’g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979). 16 DISCUSSION 17 I. DUTY TO DEFEND 18 Under California law, “[a]n insurer has a very broad duty to defend.” Anthem Electronics, 19 Inc. v. Pacific Empl’s Ins. Co., 302 F.3d 1049, 1054 (9th Cir. 2002). This broad duty entitles an 20 insured “to a defense if the underlying complaint alleges the insured’s liability for damages 21 potentially covered under the policy, or if the complaint might be amended to give rise to a 22 liability that would be covered under the policy.” Montrose Chem. Corp. v. Superior Ct., 6 Cal. 23 4th 287, 299 (1993). But “the duty to defend, although broad, is not unlimited; it is measured by 24 the nature and kinds of risks covered by the policy.” Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 25 1, 19 (1995). 26 In determining whether a duty to defend exists, three steps are available for a court to 27 review. First, an insured can “establish[] potential liability by reference to the factual allegations 1 intends to rely.” Montrose Chem. Corp., 6 Cal. 4th at 299. “[T]he extrinsic facts which may 2 create a duty to defend must be known by the insurer at the inception of the third party lawsuit.” 3 Gunderson v. Fire Ins. Exch., 37 Cal. App. 4th 1106, 1114 (1995) (emphasis in original). These 4 extrinsic facts “give rise to a duty to defend when they reveal a possibility that the claim may be 5 covered by the policy.” Waller, 11 Cal. 4th at 19. Second, at that point, the “insurer must assume 6 its duty to defend unless and until it can conclusively refute that potential.” Montrose Chem. 7 Corp., 6 Cal. 4th at 299.3 And, to be fully relieved of the duty to defend, the insurer must 8 demonstrate that “the third party complaint can by no conceivable theory raise a single issue 9 which could bring it within the policy coverage.” Gray v. Zurich Ins. Co., 65 Cal. 2d 263, 276 10 n.15 (1966). 11 Vought seeks summary judgment on its duty to defend claim, arguing that the undisputed 12 facts show that Allied World owed Vought a duty to defend against the claims asserted against it 13 in the Boblett Action. Allied World counters that Vought’s duty to defend claim fails as a matter 14 of law because Vought was not “legally obligated” to pay damages related to any “property 15 damage” as defined by the policies. Because Vought need only establish the “potential” or 16 “possibility” of liability for Allied World’s duty to defend to attach, and because Allied World has 17 not met its burden in demonstrating that the Boblett complaint could, “by no conceivable theory 18 raise a single issue which could bring it within the policy coverage,” I conclude that Vought has 19 established Allied World’s duty to defend. Gray, 65 Cal. 2d at 276 n.15. 20 PROPERTY DAMAGE 21 Allied World correctly states that according to the policies, “to trigger the duty to defend, 22 there must be allegations of property damage, and allegations that the property damage shall result 23 in money ordered by the court.” Allied World Mot. 16. Here, both types of property damage 24 anticipated by the polices (physical injury to tangible property, including all resulting loss of use 25 of that property and loss of use of tangible property that is not physically injured) are at issue. 26 Policy [Dkt. No. 33] at 24; [Dkt. No. 1-1 at 20]. 27 1 A. Physical Injury to Tangible Property 2 In its motion, Allied World focuses solely on physically injured property as potential 3 grounds for coverage. Allied World Mot. 16–24. Specifically, it argues that it was not liable to 4 cover Vought in the underlying action based on Boblett’s allegations of: (1) Vought causing the 5 cracks in the street curb or (2) any defective work Vought completed on the property. In 6 California, “direct physical loss or damage to property requires a distinct, demonstrable, physical 7 alteration to property.” Another Planet Ent., LLC v. Vigilant Ins. Co., 15 Cal. 5th 1106, 1117 8 (2024). “The physical alteration need not be visible to the naked eye, nor must it be structural, but 9 it must result in some injury to or impairment of the property as property.” Id. 10 i. Cracks in the Street 11 To begin, Boblett did not specifically allege in his cross-complaint that Vought was liable 12 for damages to the street curb. Boblett Compl. [Dkt. No. 1-5] at 3–8. But looking to extrinsic 13 evidence available at the start of the Boblett Action, see Montrose Chem. Corp. 6 Cal. 4th 287, 14 Vought points to Boblett’s June 2020 responses to form interrogatories, in which Boblett specifies 15 asserted damages arising from an array of alleged injuries. See 2020 Coverage Denial [Dkt. No. 16 37] at 2; Boblett Resp. Interrog. [Dkt. No. 39] at 241–42. Among those damages, Boblett includes 17 an estimated $82,500 for a “delay of eleven months.” Id. He does not specify further about the 18 cause of said delay. 19 Boblett apparently did not discuss the curb damages at length until his January 2023 20 deposition. There, he explained that because of “the street damage that Vought had created” by its 21 consistent use of the excavator tool on the area, the plan to utilize a crane to expedite construction 22 had to be revised. Boblett Jan. 24, 2023 Decl. [Dkt. No. 53] at 31. Boblett further stated that “the 23 cracks that are leading on to my site [are] where [Vought’s] excavator came in and out multiple 24 times.” Id. at 32. As for the cracks themselves, when asked at a later deposition whether he 25 intended to repair the street, Boblett responded that he had “not been notified of any of those 26 [cracks] that need repair. And . . . a lot of those cracks have existed all these years dating back to 27 when Vought was on the job with the initial excavation work. So these cracks aren’t anything 1 34. Boblett could not recall whether the cracks pre-dated Vought’s time working on the property, 2 and he confirmed that the City of Oakland never filed a claim against him to hold him liable for 3 damages to city property. Boblett Jan. 24, 2023 Decl. [Dkt. No. 53] at 23–4. In Allied World’s 4 view, these statements indicate that “Boblett never alleged that Vought is ‘legally obligated to pay 5 as damages’ for the cracks in the street.” Allied World Mot. 17. 6 As Vought indicates, in its 2023 denial of coverage, Allied World does “acknowledge[] 7 that damage to the street/curb might constitute ‘property damage’ as defined.” 2023 Coverage 8 Denial [Dkt. No. 1-6] at 28. But because Boblett was never held liable for those damages by the 9 City, Allied World asserts, there could never have been even the possibility that Boblett could try 10 and hold Vought “legally obligated” to cover them. Id.; Policy [Dkt. No. 1-1 at 6]. Allied 11 World’s arguments do not, however, meet the high burden of demonstrating that Boblett’s cross 12 complaint “can by no conceivable theory raise a single issue” concerning the cracks in the street 13 that “would bring it within the policy coverage.” Gray v. Zurich Ins. Co., 65 Cal. 2d at 276 n.15. 14 Allied World’s arguments in reference to this motion, along with the information presented in its 15 coverage denials, do not lend support to an understanding that its investigation of the Boblett 16 action conclusively determined a lack of duty to defend. 17 Boblett stated during a later deposition, for example, that although he has no intention of 18 repairing the cracks for the benefit of the City, he was “aware . . . from a water and drainage 19 standpoint, [he] need[s] to keep that area maintained so that it doesn’t block any of [the] down 20 street drainage and whatnot.” Boblett Sept. 22, 2023 [Dkt. No. 53] at 34. One reading of 21 Boblett’s deposition is that he recognizes the damage done to the street and may wish to repair it 22 for his own benefit and use—especially considering the related construction delays that I address 23 below. Boblett’s later clarification concerning the elements of the “delay” were not available at 24 the “inception” of the lawsuit. Gunderson, 37 Cal. App. 4th at 1114. For that reason, it cannot be 25 considered in a duty to defend analysis. It is only relevant in so far as it is a demonstration of one 26 interpretation of Boblett’s allegations of “delay” at the time he filed his cross-complaint, an 27 interpretation that Allied World has made no demonstration of ruling out over the course of its 1 Although the information available at the inception of the Boblett cross-complaint action is 2 limited, consisting solely of (1) Boblett’s complaint alleging a claim for negligence and (2) his 3 response to the interrogatories referring to the delay, I conclude that Allied World could have in 4 the very least determined that “the complaint might be amended to give rise to a liability that 5 would be covered under the policy.” Montrose Chem. Corp., 6 Cal. 4th at 299. To that end, I 6 conclude that Vought could establish a possibility that the cracks on the street constituted 7 “property damage.” 8 1. “Occurrence” 9 Before Vought can fully establish a potential for liability for the cracks in the street, 10 however, it must satisfy the second prong of the policy—that the ‘property damage’ in question 11 was possibly caused by an ‘occurrence.’ Policy. [Dkt. No. 1-1] at 6. As I previously mentioned, 12 the policies define an “occurrence” to be “an accident, including continuous or repeated exposure 13 to substantially the same general harmful conditions.” Policy [Dkt. No. 1-1] at 20. An accident, 14 in turn, is defined by California law as “an unexpected, unforeseen, or undesigned happening or 15 consequence from either a known or unknown cause.” Liberty Surplus Ins. Corp. v. Ledesma & 16 Meyer Constr. Co., 5 Cal. 5th 216, 221 (2018). Further, “[t]he term ‘accident’ is more 17 comprehensive than the term ‘negligence’ and thus includes negligence. . . . Accordingly, a policy 18 providing a defense . . . for . . . injury caused by ‘an accident’ promises coverage for liability 19 resulting from the insured’s negligent acts.” Id. (internal quotation marks and citations omitted). 20 Boblett sued Vought in part on a cause of action for negligence. Although Allied World 21 asserts that Vought’s decision to repeatedly drive the excavator over the street was intentional and 22 led to obvious results, and therefore was not accidental, it provides no factual basis with which to 23 support its claim. Allied World Oppo. at 16–17. As the Ninth Circuit noted in Anthem, “[t]he 24 possibility that the defects were unexpected is enough to trigger the insurers’ duty to defend.” 302 25 F.3d at 1056. (emphasis added). Here, without more, I cannot conclude that the cracks in the 26 street were the obvious result of intentional action. And, “[a]ny doubt as to whether the facts 27 establish the existence of the defense duty must be resolved in the insured’s favor.” Montrose 1 for coverage arising from the occurrence(s) leading to the cracks in the street. In so doing, it has 2 established that Allied World had a duty to defend it in the underlying Boblett action. 3 ii. Defective Work 4 Allied World next asserts that it did not have a duty to defend Vought against Boblett’s 5 claims for damages to his residence, because those damages are not a result of “property damage” 6 as defined by the polices. Allied World Mot. 17. These damages, based on Boblett’s deposition 7 testimony and discovery, included claims for: overexcavation of the pool, improperly poured 8 foundation, deficiently built CMU walls, and the improper placement of the pool, foundation, 9 grade beams, and various other elements. Allied World Mot. 12–14. 10 The j(5) and j(6) exclusions, as noted, preclude from coverage any part of any property that 11 has been worked on by the insured and is found to need restoration, repair, or replacement due to 12 the actions of the insured. Policy. [Dkt. No. 1-1] at 10. The Professional Services Exclusion, in 13 kind, precludes Allied World from covering liability arising out of “any breach of duty or 14 negligent act, error, omission, malpractice or mistake in the rendering of, or failure to render, any 15 professional services” or “of a professional nature.”4 Allied World contends that these three 16 exclusions prevent it from exercising any duty to defend Vought from damages alleged for 17 defective work. 18 Vought does not address, nor does it appear to raise in its complaint or elsewhere in the 19 record, whether any damages alleged by Boblett for “defective work” are covered under the 20 policies.5 These exceptions plainly disallow a duty to defend as it relates to Boblett’s damages 21 claims for Vought’s defective work product. To the extent that Allied World moves for summary 22 adjudication that it did not have a duty to defend Vought concerning any alleged defective work in 23

24 4 The Professional Liability exclusion applies even if, as here, the claims asserted against the insured allege negligence. Total Professional Services Exclusion [Dkt. No. 55] at 44. But, again, 25 the exclusion does not apply to “property damages” as defined by the policy, resulting from insured’s actions. Id. 26

5 Although Vought does discuss the j(5), j(6), and Professional Services exclusions in opposition 27 to Allied’s motion, it does so in the context of loss of use. Vought Oppo. at 17–22. Allied does 1 the underlying case, I GRANT its motion for summary judgment in part. 2 B. Loss of Use Property Damage 3 Although Vought addresses physical damage in its Motion, the bulk of its arguments 4 center on the policies’ provision detailing coverage for property damage as it pertains to “loss of 5 use.” See generally Vought Mot.; Vought Oppo. Vought contends that delay was a central 6 portion of Boblett’s cross-complaint against it. Although Boblett did not specifically allege “loss 7 of use” in his cross-complaint, Vought may also look to extrinsic evidence available at the start of 8 litigation to establish the potential for liability. Montrose Chem. Corp., 6 Cal. 4th at 299. To 9 repeat, Boblett’s June 2020 responses to form interrogatories specifically denote a “delay of 10 eleven months.” Because of the nature of Boblett’s project—construction of his personal 11 residence—such a delay could be construed as “loss of use.” 12 Vought asserts that Boblett believed it to be the cause of delay in several ways, resulting in 13 loss of use damages, including additional rent. Vought Mot. 9–12; Vought Oppo. 15. First, 14 Boblett considered Vought responsible for the delay resulting from the inability to use a crane on 15 the project because of Vought’s property damage to the street. Vought Oppo. 15. Boblett also 16 stated that because Vought completed work without ensuring a permit was in place, Vought 17 further caused a delay when the City of Oakland suspended the project because of the lack of 18 permit. Id. Finally, Boblett indicated that he experienced a delay caused by the additional time 19 required by the subsequent contractor to fix Vought’s alleged mistakes. Boblett Apr. 21, 2023 20 Decl. [Dkt. No. 51] at 3. 21 On its face, Vought appears to have identified possible loss of use “property damage” as 22 defined by the policies. As before, that Boblett added further specification during discovery does 23 not detract from the fact that at the inception of litigation, Allied World needed to “assume its duty 24 to defend unless and until it [could] conclusively refute” any potential duty. Montrose Chem. 25 Corp., 6 Cal. 4th at 299. It has not done so. 26 Allied World contests Vought’s framing of Boblett’s claimed damages as “property 27 damages.” Instead, Allied asserts that “Boblett’s alleged damages of construction delays and loss 1 for.” Allied World Oppo. 11 (emphasis added). Citing Stein-Brief Group v. Home Indemnity 2 Company and American International Bank v. Fidelity & Deposit Company, Allied World 3 contends that California caselaw does not allow for damages resulting from loss of rent or as the 4 result of delay in construction “to trigger liability coverage” for property damage. Allied Oppo. 5 13–14. In both cases, the courts concluded that “the inability to construct an improvement results 6 in only economic loss.” 65 Cal. App.4th 364, 372 (1998); 49 Cal. App. 4th 1558, 1572 (1996). 7 Allied World misunderstands the guiding principle limiting economic recovery in such 8 instances. “The correct principle, then, is not that economic losses, by definition, do not constitute 9 property damage. . . . Rather, the correct principle is that losses that are exclusively economic, 10 without any accompanying physical damage or loss of use of tangible property, do not constitute 11 property damage.” Thee Sombrero, Inc. v. Scottsdale Ins. Co., 28 Cal. App. 5th 729, 739 (2018). 12 Here, Boblett asserted claims for lost rents, arguably “exclusively economic.” Id. However, this 13 lost rent was in connection with alleged physical damage, discussed supra, and loss of use of 14 tangible property—Boblett alleged that as a result of Vought’s actions, construction on his home 15 was delayed by at least 11 months. Boblett Apr. 21, 2023 Decl. [Dkt. No. 51] at 4 (removing 16 permitting issues from the calculation of delay); Boblett Jan. 24, 2023 Depo. [Dkt. No. 53] at 24 17 (alleging the possibility of additional delay caused by Vought). Though again the clarification of 18 his allegations occurred years after Boblett filed his cross-claim, Allied World offers no argument 19 why any investigation it carried out foreclosed this understanding, and ultimately Allied World’s 20 duty to defend. Cal. Ins. Code § 790.03(h)(3). 21 i. “Occurrence” 22 As with the cracks in the street, to properly establish potential liability for property 23 damage, Vought must demonstrate that the “loss of use” property damage was “caused by an 24 occurrence.” Policy. [Dkt. No. 1-3] at 6. As a preliminary matter, Allied World fails to address 25 this issue, elaborating only on its views concerning whether the cracks in the street constituted an 26 occurrence. See Allied World Oppo. 14–17. Because “[a]n accident may exist when any aspect in 27 the causal series of events leading to the injury or damage was unintended by the insured and a 1 liability for an occurrence. Albert v. Mid-Century Ins. Co., 236 Cal. App. 4th 1281, 1291 (2015) 2 (internal quotation marks and citation omitted). Here, Boblett alleged several “causal series of 3 events” that he attributed to Vought’s action or inaction—and neither his complaint nor his related 4 || statements “provide[d] a reason to think that” Vought “expected” any of the resulting outcomes. 5 Anthem Elecs., 302 F.3d at 1056; see also Hartford Fire Ins. Co. v. Tempur-Sealy Int'l, Inc., 158 6 || F.Supp.3d 877 (N.D. Cal. 2016). 7 ssketk 8 For the reasons explained, I conclude that there is no genuine issue of material fact as to 9 the potential for coverage. Allied World had a duty to defend Vought in the underlying Boblett 10 || Action. 11 || I OTHER CLAIMS 12 Because I conclude that Allied World owed Vought a duty to defend during the underlying 5 13 || Boblett action, I do not address Allied World’s request for summary adjudication on Vought’s 14 second (alleging a duty to indemnify) and third (alleging a breach of the implied covenant of good 3 15 faith and fair dealing) causes of action. Those claims will be decided at trial. 16 CONCLUSION 3 17 Vought’s Motion for Summary Judgment on its duty to defend claim is GRANTED. 18 || Allied World’s Motion for Summary Judgment on Vought’s duty to defend is DENIED except 19 concerning its duty to defend Vought against allegations rooted in defective work product. Allied 20 || World’s Motion for Summary Judgment on Vought’s claims concerning the duty to indemnify and 21 breach of the implied covenant of good faith and fair dealing claims is also DENIED. 22 IT IS SO ORDERED. 23 Dated: December 9, 2024 Mae 25 . 6 illiam H. Orrick United States District Judge 27 28