24th & Hoffman Investors, LLC. v. Northfield Insurance Company
(December 2022) - In 24th & Hoffman Investors, LLC v. Northfield Ins. Co., 82 Cal.App.5th 825 (August 30, 2022), the California First District Court of Appeal reversed the trial court’s order granting summary judgment in favor of the insured, 24th & Hoffman Investors, LLC (“24th & Hoffman”) regarding the duty to defend a breach of habitability lawsuit.
The Court of Appeal found that the breach of habitability exclusion in the Northfield Insurance Company (“Northfield”) policy excluded coverage of an underlying lawsuit filed against 24th & Hoffman, which alleged uncovered habitability claims along with three (3) claims that were unrelated to habitability. The Court of Appeal reasoned that the habitability exclusion applied to bar coverage of the entire lawsuit because the exclusion included a “catchall” clause which stated that coverage was excluded for any lawsuit which also alleged any habitability claims. Here, because the underlying lawsuit against 24th & Hoffman alleged covered claims along with uncovered habitability claims, there was no coverage afforded to 24th & Hoffman for the lawsuit in its entirety.
The parties’ dispute arose out of an underlying lawsuit filed against 24th & Hoffman by apartment renters alleging eleven (11) causes of action. 24th & Hoffman tendered the lawsuit to Northfield and Northfield denied coverage of the lawsuit relying on the habitability exclusion in a commercial liability policy issued to 24th & Hoffman covering the apartment complex which was the subject of the lawsuit. Thereafter, 24th & Hoffman settled the lawsuit and filed a complaint for breach of contract and bad faith against Northfield. Subsequently, the parties filed cross-motions for summary adjudication or judgment addressing whether there was a duty to defend owed by Northfield to 24th & Hoffman for the underlying habitability lawsuit.
Northfield relied on the habitability exclusion in its policy in arguing that coverage was not afforded to 24th & Hoffman for the underlying habitability lawsuit. This exclusion states as follows:
As to each coverage at issue here, the policy excludes two kinds of claims. First, it excludes claims “(1) [a]rising out of the: (a) Actual or alleged violation of any federal, state or local law, code, regulation, ordinance or rule relating to the habitability of any premises; (b) Breach of any lease, rental agreement, warranty or covenant to maintain a premises in a habitable condition; or (c) Wrongful eviction from, wrongful entry into or invasion of the right of private occupancy ... due to failure to maintain a premises in a habitable condition.” Second, it excludes claims (2) “[a]lleged in any claim or ‘suit’ that also alleges any violation, breach or wrongful eviction, entry or invasion as set forth in Paragraphs (1)(a)-(c) above.”
In response, 24th & Hoffman argued that the exclusion did not apply to the non-habitability causes of action alleged in the underlying habitability lawsuit, such that Northfield was obligated to defend 24th & Hoffman against the lawsuit. The trial court found that eight (8) of the causes of action alleged in the underlying habitability lawsuit came within the scope of the habitability exclusion in the Northfield policy. However, the trial court found that three (3) causes of action were unrelated to habitability, i.e. retaliation, conversion and trespass to chattels. As such, the trial court found that Northfield was obligated to defend 24th & Hoffman against the underlying habitability lawsuit.
In reversing the trial court’s decision, the Court of Appeal focused on the second part of the exclusion – the “catchall” part – and reasoned that it was “plain, clear and conspicuous.” Hence, the exclusion applied to bar a duty to defend 24th & Hoffman against the underlying lawsuit. The Court of Appeal found as follows:
We reiterate that an insurer is free to limit the risk it assumes by contract, and we may not rewrite the contract for any purpose. (Certain Underwriters, supra, 24 Cal.4th at pp.967-968; Underwriters of Interest, supra, 241 Cal.App.4th at p. 729.) The policy excludes all claims in a suit that alleges violations of the duty to provide a habitable premises, and such claims were unquestionably alleged in the complaint in the underlying action. Thus, by the plain terms of the insurance contract, none of the causes of action is potentially covered because all are excluded by one portion or the other of the habitability provision – either because they allege habitability violations (excluded in par. 1(a)-(c)) or because they appear in the same lawsuit as claims that allege habitability violations (excluded in par. 2).
We recognize the oddity insurance contract that covers certain claims against the insured if those claims are filed in a lawsuit on their own, and not if such claims are brought in a suit that also alleges habitability claims. But we know of no California authority that prevents the parties from contracting for such coverage, as they did here. Indeed, respondents do not dispute that the catchall provision limits indemnity benefits where habitability claims are brought alongside other claims. And if there is no potential for indemnity coverage on any of the claims in the underlying action, then Northfield has no duty to defend it. (See, La Jolla Beach & Tennis Club, supra, 9 Cal.4th at p. 40.)
Los Angeles, CA
Los Angeles, CA