Judge Thomas Falls, Case 21PSCV00409 2022-11-01 Tentative Ruling

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DEFENDANT WEAVER & ASSOCIATES, INC.’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION

DEFENDANT WEAVER & ASSOCIATES, INC.’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION is GRANTED.

This case is premised upon alleged insurance broker negligence. Plaintiff Valley Forge Acquisition Corporation alleges the following against Defendant Weaver & Associates, Inc.: Plaintiff is a metal fabrication manufacturer and Defendant is an insurance agency that has sold business insurance to Plaintiff since 2000. In 2016, during the annual review of Plaintiff’s facilities, Plaintiff told Defendant that “a plate on its 800-ton hydraulic press had broken” and “emphasized the singular importance of the hydraulic press to its business, and unequivocally stated that the hydraulic press had to be covered under any such policy.” (Complaint ¶7.) Defendant confirmed and expressly agreed to obtain a policy to cover the hydraulic press. (Complaint ¶8.) However, in 2019 when the hydraulic press became inoperable, Plaintiff learned that the hydraulic press was expressly excluded from coverage. According to Plaintiff, Defendant “has directly and expressly admitted that he made a mistake in failing to obtain a policy that included coverage for the hydraulic press, and that it was ‘absolutely’ his intent to procure such coverage on Valley Forge’s behalf.” (Complaint ¶12.) But-for Defendant’s error, Plaintiff would have received the benefits of the insurance policy for the failure of the hydraulic press.[1]

The law of summary judgment provides courts “a mechanism to cut through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 (Aguilar).) In reviewing a motion for summary judgment, courts employ a three-step analysis: “(1) identify the issues framed by the pleadings; (2) determine whether the moving party has negated the opponent’s claims; and (3) determine whether the opposition has demonstrated the existence of a triable, material factual issue.” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294.) “The motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (Code Civ. Proc., § 437c, subd. (c).)

A moving defendant bears the initial burden of production to show that one or more elements of the cause of action cannot be established or that there is a complete defense to the cause of action, at which point the burden shifts to the plaintiff to make a prima facie showing of the existence of a triable issue. (Code Civ. Proc., § 437c, subd. (p)(2).) “The motion shall be supported by affidavits, declarations, admissions, answers to interrogatories, depositions, and matters of which judicial notice shall or may be taken.” (Code Civ. Proc., § 437c, subd. (b)(1).)

The opposing party may not rely on the mere allegations or denials of the pleadings, but instead must set forth the specific facts showing that a triable issue exists as to that cause of action or a defense thereto. (Aguilar, supra, at p. 849.) Specifically, “[t]he opposition, where appropriate, shall consist of affidavits, declarations, admissions, answers to interrogatories, depositions, and matters of which judicial notice shall or may be taken.” (Code Civ. Proc., § 437c, subd. (2).)

Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.” (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389; see also Hinesley, supra, 135 Cal.App.4th at p. 294 [The court must “view the evidence in the light most favorable to the opposing party and accept all inferences reasonably drawn therefrom.”].) In determining whether the papers show that there is a triable issue as to any material fact, the court shall consider all of the evidence set forth in the moving papers, except that as to which objections have been made and sustained, and all inferences reasonable deducible from such evidence. (Hayman v. Block (1986) 176 Cal.App.3d 629, 639.)

Discussion

The premise of Defendant’s motion is that the insurance company, Seneca, denied coverage on “two additional and separate grounds” completely independent of any alleged negligence by the Defendant. (Motion p. 5) (emphasis added). Specifically, the grounds for denial are the following: i. the hydraulic press was explicitly excluded as “Property Not Covered” under the policy; ii. the failure of the hydraulic press was not covered under Equipment Breakdown Coverage because it was not the result of an “accident” as defined by the policy; and

iii. the failure of the hydraulic press due to long-term metal fatigue, which is excluded as cause of loss for wear and tear, decay and deterioration. (Motion p. 6.) Therefore, Defendant’s alleged negligence in excluding the hydraulic press within the insurance policy was not a substantial factor to the coverage denial.

Negligence and Negligent Misrepresentation

Negligence

To plead a cause of action for negligence, one must allege (1) a legal duty owed to plaintiffs to use due care; (2) breach of duty; (3) causation; and (4) damage to plaintiff. (County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal. App. 4th 292, 318) (emphasis added).

Negligent Misrepresentation

To establish this claim, a plaintiff must prove all of the following:

1. That [name of defendant] represented to [name of plaintiff] that a fact was true;

2. That [name of defendant]'s representation was not true

3. That [although [name of defendant] may have honestly believed that the representation was true,] [[name of defendant]/he/she/nonbinary pronoun] had no reasonable grounds for believing the representation was true when [he/she/nonbinary pronoun] made it;

4. That [name of defendant] intended that [name of plaintiff] rely on this representation

5. That [name of plaintiff] reasonably relied on [name of defendant]'s representation;

6. That [name of plaintiff] was harmed; and

7. That [name of plaintiff]'s reliance on [name of defendant]'s representation was a substantial factor in causing [his/her/nonbinary pronoun/its] harm.

(CACI 1903) (emphasis added).

As a prefatory matter, the court notes that its analysis will only focus on the element of causation because it is common to both causes of action and Defendant need only show that there are no triable issues of material fact as to one element of a cause of action to prevail on a summary judgment motion.[2] Effectively, as for the negligent misrepresentation cause of action—wherein Defendant argues that (i) Plaintiff has a duty to read the insurance policy[3] and (ii) Plaintiff himself purportedly knew that the 800 ton press was excluded via an email exchange—the element of justifiable reliance will not be addressed.[4]

Causation

California has adopted the substantial factor test of the Restatement Second of Torts for cause-in-fact determinations. (Rutherford v. Owens-Illionis (1997) 16 Cal.4th 953, 968-969.) A cause in fact is something that is a substantial factor in bringing about the injury. (Id. at p. 969.) The substantial factor standard “has been embraced as a clearer rule of causation—one which subsumes the ‘but for’ test while reaching beyond it to satisfactorily address other situations, such as those involving independent or concurrent causes in fact.” (Id.) Though the term has not been judicially defined with specificity, it has been suggested that “a force which plays only an ‘infinitesimal’ or ‘theoretical’ part in bringing about injury, damage, or loss is not a substantial factor.” (Id) (emphasis added). That said, the substantial factor standard “has been invoked by defendants whose conduct is clearly a ‘but for’ cause of plaintiff's injury but is nevertheless urged as an insubstantial contribution to the injury. [citation]. Misused in this way, the substantial factor test ‘undermines the principles of comparative negligence, under which a party is responsible for his or her share of negligence and the harm caused thereby.’” (Id. quoting Mitchell v. Gonzalez (1991) 54 Cal.3d 1041, 1053.) In sum, Restatement section 432 provides that “the actor's negligent conduct is not a substantial factor in bringing about harm to another if the harm would have been sustained even if the actor had not been negligent.” (Viner v. Sweet (2004) 30 Cal.4th 1232, 1240) (emphasis added).

Therefore, the crux of the issue is whether Plaintiff would have been denied coverage for the hydraulic press system even if Defendant (i.e., the actor) failed to request insurance coverage for the hydraulic press.

A. Defendant’s Burden

Though Defendant concedes that Weaver “mistakenly assumed that the hydraulic press was not explicitly excluded from coverage under the Policy and represented the same to Holmes,” Defendant presents the following arguments in support of its motion:

i. Seneca issued a commercial insurance policy covering Valley Forge's commercial property with a $550,000 coverage limit. (Id.) The issued coverage provided the following terms:

a. Seneca will not “pay for loss or damage caused by or resulting from… d. (1) Wear and tear; (2) Rust or other corrosion, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself...”

b. "The following is added to PROPERTY NOT COVERED: […] 800 Ton Hydraulic Press Bar Mill Ring Roller."

c. In the Equipment Breakdown Coverage section, the insurance policy indicates that Seneca “will pay for direct physical damage to Covered Property that is the direct result of an ‘accident’…” which means “a fortuitous event that causes direct physical damage to…” the Covered Property.

(Motion p. 9, citing UMF No. 11) (emphasis added).

ii. An inspection of the bottom cross-head of the hydraulic press concluded that “the cause of the fracture in the cross-head was long-term fatigue failure that occurred while the hydraulic press was being used under normal operating conditions.” The inspector also observed that that “the welding filler and metal plates were added to the cross-head to either repair a prior fracture and/or prevent a future fracture.” (Motion p. 10, citing UMF No. 17.)[5]

Here, based upon Defendant’s evidence, the court finds that Defendant met its evidentiary burden to demonstrate that Plaintiff’s two causes of action for negligence and negligent misrepresentation both fail as to the causation element because Seneca denied insurance coverage on two independent bases that are not premised upon the exclusion of the hydraulic press as covered property. After all, Defendant presented evidence coverage would have been denied under both the Equipment Breakdown Coverage provision and the wear and tear exclusion of the policy because the fracture was determined to have been caused by long-term metal fatigue failure, which is not an “accident.”

Therefore, the burden now shifts to Plaintiff.

B. Plaintiff’s Burden

In opposition, Plaintiff concedes that the policy provides coverage for property damage “accidently” caused by “wear and tear,” but that that “is precisely what occurred in this case.” (Opp. p. 9.)

Here, however, Plaintiff has offered no evidence to refute Hora’s inspection that the hydraulic press failed from wear and tear. The opposition cites to Holmes’s deposition, but Holmes is not an expert because he is merely the owner of Valley Forge. In this vein, Plaintiff offers no authority for its conclusion that “once the crosshead broke (i.e., suffered a “mechanical breakdown”) it placed unexpected, unintended (i.e., “accidental”) forces on the columns.” (Opp. p. 11) (emphasis added).

Therefore, absent evidence, Plaintiff failed to meet their evidentiary burden of creating triable issues of material fact that even if the hydraulic press had been covered, the fracture at issue would have been covered.

Overall, to prevail on its motion, Defendant needed to show that Seneca denied coverage based on sufficient, independent grounds aside from the hydraulic press being covered. And Defendant met such burden because Seneca’s findings, supported by Hora’s investigation, show that the hydraulic press failed due to long-term metal fatigue, which is excluded under the Policy as wear and tear. As Plaintiff failed to offer any evidence showing otherwise (i.e., that the press failed due to other reasons that would have been covered had Defendant secured the right policy),[6] Defendant successfully established that its alleged error was not a substantial factor because coverage would have been denied anyway.

Conclusion

Based on the foregoing, the court GRANTS the entirety of Defendant’s motion.

[1] Michael Holmes began working at Valley Forge around 1983 and acquired ownership of the company in 2006. Weaver & Associates is an insurance brokerage. Its principal is Matthew Weaver and, during all relevant time periods, it employed Lisa Printy as an office manager.

[2] “Where a defendant moves for summary judgment, his motion will only be granted if his declarations and admissible evidence either establish a complete defense to the plaintiff's action or conclusively negate a necessary element of the plaintiff's case and demonstrate, under any cause of action, no material factual issue requires resolution by trial.” (Paper Savers, Inc. v. Nasca (1996) 51 Cal.App.4th 1090, 1094.) As for the element of causation, while it is ordinarily a question of fact, it can be question of law if the material facts show lack of causality. (See Constance B. v. State of California (1986) 178 Cal.App.3d 200, 207.)

[3] Briefly, this element would create a triable issue of material fact. As noted by Plaintiff in opposition, the appellate court in Papers Savers, Inc., supra, stated that “whether an insured has a duty to read his policy and whether in not reading his policy he is, nonetheless, bound by its terms is a complex one that cannot be stated baldly without an analysis of the surrounding facts.” (Paper Savers, Inc., supra, 51 Cal.App.4th at p. 1104.) Here, the fact that Plaintiff has been Defendant’s client for more than 20 years such that Weaver visited Plaintiff’s facility at least once or twice a year and walked the premises to gain a better understanding of Plaintiff’s insurance needs weighs heavily in Plaintiff’s favor in that Plaintiff would rely on/trust Defendant’s representations. To the extent that Defendant argues the court in Aetna Cas. & Sur. Co. v. Richmond (1977) 76 Cal. App. 3d 645, 652 held that “it is the duty of the insured to read the policy,” the court finds the case distinguishable because it did not involve a negligent misrepresentation cause of action. Therefore, using the analysis in Paper Savers, Inc., the court finds that there is a triable issue of material fact as to the element of justifiable reliance.

[4] Very briefly, however, the matter is as follows. Defendant explains that as part of the underwriting process, Seneca inspected the hydraulic press and determined that a replacement hydraulic press would cost $2 million dollars, requiring Plaintiff to increase the business property coverage on its policy from $450,000 to $2 million dollars. However, when Defendant’s agent (Printy) emailed Plaintiff about the policy asking him if he “‘would like to Exclude the 800-ton press from the property policy’ and increase the business personal property coverage limit to $550,000,” Holmes responded to Printy by stating, “‘Hi Lisa. That is all correct. Thank you, Mike.’ The subject line of Printy’s email and Holmes’ response email both state ‘800 Ton Press to be Excluded.’” (Motion p. 8, citing UMF No. 9) (emphasis added). In Opposition, Plaintiff avers that he “read this statement; however, due to his mistake, lack of diligence, or plain carelessness, he wrongly believed that this exclusionary language referred to outdated equipment, not the hydraulic press.” (Opp. p. 6.) Effectively, while this email may demonstrate Plaintiff had an understanding that the hydraulic press was excluded, it does not indisputably establish that Plaintiff knew the press would not be covered, meaning a triable issue of material fact would remain as to this element. Therefore, the court will not focus on this statement in its analysis as it is not dispositive to the motion, compared to an issue of causation.

[5] The inspection was conducted by Gregory Hora who has “over 10 years of international industry experience in designing and analyzing structural HVAC systems, large-scale piping systems, water treatment systems, PV solar power generation facilities and metal fabrication plant.” (Hora Decl., ¶1.) Hora’s declaration provides the bases for his conclusion; thus, it is admissible evidence. Additionally, Plaintiff has not filed an evidentiary objection to Hora’s declaration.

[6] For example, if Plaintiff had provided evidence that the hydraulic press failed due to an accident.