Thomas

MEMORANDUM AND ORDER

This declaratory relief action brought by State Farm Fire & Casualty Co. (“State Farm”) arises out of the sale of a single family residence, in Hayward, California. The sale was made by defendants Stanley R. and Jane A. Thomas. The Thomases, insured by State Farm under two separate homeowners policies, sold the residence to Andrew R. Chan and Carol R. Fuller Chan. The sales contract was executed on February 17,1986; escrow closed in April; and in May the Chans moved in.

Shortly thereafter, the Chans allegedly discovered numerous defects in the property, requiring extensive repairs. On February 10, 1987, the Chans filed suit in Alame-da County Superior Court against the Thomases and their real estate broker. The gist of their complaint is that the Thomases fraudulently or negligently misrepresented and concealed the condition of the property. Their alleged misconduct caused the Chans to suffer severe economic losses and emotional distress.

State Farm issued a homeowners policy to the Thomases for their Hayward residence in 1980 (“the Hayward policy”). The policy was renewed annually until its cancellation after the sale of the property, effective April 4,…