Thee Sombrero, Inc. v. Scottsdale Ins. Co.

*731 Thee Sombrero, Inc. (Sombrero) owns a commercial property in Colton. Pursuant to a conditional use permit (CUP), Sombrero's *732 lessees operated the property as a nightclub called El Sombrero. Crime Enforcement Services (CES) provided security guard services at the nightclub. In 2007, after a fatal shooting at the nightclub, the CUP was revoked and replaced with a modified CUP, which provided that the property could be operated only as a banquet hall.

In a previous action, Sombrero sued CES, alleging that CES's negligence caused the shooting, which in turn caused the revocation of the CUP, which in turn caused a diminution in value of the property. It won a default judgment against CES.

Sombrero then filed this direct action ( Ins. Code, § 11580, subd. (b)(2) ) against Scottsdale Insurance Company (Scottsdale), CES's liability insurer. The trial court granted summary judgment in favor of Scottsdale, ruling that Sombrero's claim against CES was for an economic loss, rather than for "property damage" as defined in and covered under the policy.

We will hold that Sombrero's loss of the ability to use the property as a nightclub constituted property damage, which was defined…