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Allstate Insurance Co. v. Leong

United States District Court, D. Hawaii

May 11, 2010

ALLSTATE INSURANCE COMPANY, Plaintiff,
v.
RICHARD D. LEONG, individually and as trustee of the Richard D. Leong Revocable Trust; and ELEANOR LEONG, individually and as trustee of the Eleanor Leong Revocable Trust, Defendants

          ORDER GRANTING IN PART AND DENYING IN PART MOTIONS FOR SUMMARY JUDGMENT CONCERNING INSURANCE COVERAGE

          SUSAN OKI MOLLWAY UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION.

         This is a diversity action involving insurance coverage for alleged damage to a retaining wall and diminution in value of a home. Richard and Eleanor Leong own residential property on which they allegedly planted trees over a City and County of Honolulu sewer line. The trees' roots may have damaged the sewer line, which may have caused an underground leak from the line. The tree roots may have blocked the sewer line, causing a discharge through a manhole cover. The underground leak from the sewer line, combined with the escape of effluent through the manhole cover, may have caused damage to a downhill neighbor's retaining wall.

         The neighbors, Randolph and Andrea Neal, sued the City and County of Honolulu (the “City”) in state court, alleging that the leak of “sewage and effluent” from the sewer system had damaged their retaining wall. The Neals alleged negligence (failure to properly maintain the sewage system), trespass (sewage and effluent flowing onto the Neals' property without permission), nuisance (sewage and effluent flowing onto the Neals' property), and taking of property (diminution of the Neals' property value because the Neals must build a “butressing wall” that will decrease the amount of usable property). See Complaint, Neal v. City and County of Honolulu, Civ. No. 04-1-2276-12 KSSA (Dec. 7, 2004) (attached as Exhibit A to Allstate Insurance Company's Concise Statement, Docket No. 27-1).

         The City has filed a Third-Party Complaint against the Leongs, claiming that, to the extent the City is liable to the Neals, the Leongs must indemnify the City for the damages. The Third-Party Complaint asserts: 1) that the Leongs breached a covenant not to plant trees over the area of the sewer easement; 2) that the trees over the easement constitute a trespass; and 3) that the Leongs were negligent in planting trees in a manner that allowed their roots to interfere with, block, and/or obstruct the sewer line. See Defendant and Third-Party Plaintiff City and County of Honolulu's Third-Part Complaint, Neal v. City and County of Honolulu, Civ. No. 04-1-2276-12 KSSA (Apr. 1, 2005) (attached as Exhibit B to Allstate Insurance Company's Concise Statement, Docket No. 27-2).

         The Leongs tendered the defense of the state-court action to Allstate under their Deluxe Homeowner's Policy, No. 087803228 (“Policy”). Allstate has been defending the Leongs under a reservation of rights. See Letter from Cindy Criss of Allstate to Richard Leong (June 14, 2005) (attached as Exhibit D to Allstate Insurance Company's Concise Statement, Docket No. 27-4).

         Allstate filed this declaratory judgment action, seeking a determination that it has no duty to defend or indemnify the Leongs under the Policy. Before the court are motions for summary judgment by Allstate and the Leongs. See Docket Nos. 26 and 29. Both motions seek a determination of rights under the Policy. The court rules that Allstate has a duty to defend and possibly to indemnify the Leongs from the claims pertaining to damage to the retaining wall. However, Allstate has no duty to defend or indemnify the Leongs with respect to any claims for diminution in value or with respect to any claims for the clean up of raw sewage, if asserted.

         II. SUMMARY JUDGMENT STANDARD.

         Summary judgment shall be granted when “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). One of the principal purposes of summary judgment is to identify and dispose of factually unsupported claims and defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). Accordingly, “[o]nly admissible evidence may be considered in deciding a motion for summary judgment.” Miller v. Glenn Miller Prods., Inc., 454 F.3d 975, 988 (9th Cir. 2006). Summary judgment must be granted against a party that fails to demonstrate facts to establish what will be an essential element at trial. See Celotex, 477 U.S. at 323. A moving party has both the initial burden of production and the ultimate burden of persuasion on a motion for summary judgment. Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000). The burden initially falls on the moving party to identify for the court “those portions of the materials on file that it believes demonstrate the absence of any genuine issue of material fact.” T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp., 477 U.S. at 323); accord Miller, 454 F.3d at 987. “A fact is material if it could affect the outcome of the suit under the governing substantive law.” Miller, 454 F.3d at 987.

         When the moving party fails to carry its initial burden of production, “the nonmoving party has no obligation to produce anything.” In such a case, the nonmoving party may defeat the motion for summary judgment without producing anything. Nissan Fire, 210 F.3d at 1102-03. On the other hand, when the moving party meets its initial burden on a summary judgment motion, the “burden then shifts to the nonmoving party to establish, beyond the pleadings, that there is a genuine issue for trial.” Miller, 454 F.3d at 987. This means that the nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (footnote omitted). The nonmoving party may not rely on the mere allegations in the pleadings and instead “must set forth specific facts showing that there is a genuine issue for trial.” Porter v. Cal. Dep't of Corr., 419 F.3d 885, 891 (9th Cir. 2005) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986)). “A genuine dispute arises if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” California v. Campbell, 319 F.3d 1161, 1166 (9th Cir. 2003); Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000) (“There must be enough doubt for a ‘reasonable trier of fact' to find for plaintiffs in order to defeat the summary judgment motion.”).

         On a summary judgment motion, “the nonmoving party's evidence is to be believed, and all justifiable inferences are to be drawn in that party's favor.” Miller, 454 F.3d at 988 (quotations and brackets omitted).

         III. APPLICABLE POLICY LANGUAGE.

         Allstate insured the Leongs under a Deluxe Plus Homeowner's Policy, which states: “Allstate will pay damages which an insured person becomes legally obligated to pay because of bodily injury or property damage arising from an occurrence to which this policy applies, and is covered by this part of the policy.” See Policy, Coverage X (Family Liability Protection). The Policy defines “occurrence” as “including continuous or repeated exposure to substantially the same general harmful conditions during the policy period, resulting in bodily injury or property damage.” The Policy defines “property damage” as “physical injury to or destruction of tangible property, including loss of its use resulting from such physical injury or destruction.”

         The Policy excludes from coverage “property damage consisting of or caused by vapors, fumes, acids, toxic chemicals, toxic gasses, toxic liquids, toxic solids, waste ...


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