Insurance Coverage & Bad Faith Newsletter - Winter 2022

Thompson v. Crestbrook Ins. Co.

(December 2022) - In Thompson v. Crestbrook Ins. Co., 81 Cal. App. 5th 115, 115, 296 Cal. Rptr. 3d 138 (2022), the First District Court of Appeal applied collateral estoppel (issue preclusion) to affirm summary judgment for two insurers on the grounds that a federal court’s earlier decision on an identical insurance coverage issue, which the Ninth Circuit affirmed, barred plaintiffs from relitigating the issue.

In 2015, the Sonoma Land Trust (“SLT”) sued the Thompsons and their LLC for violating a conservation easement by, among other things, removing an oak tree from and depositing dredged pond sediment on the easement parcel, and then allegedly causing further alleged damage when attempting to restore the easement parcel in response to SLT’s demand. The LLC tendered to Burlington Insurance Company, which declined to defend, after which the LLC sued Burlington in federal court for a declaration that SLT’s action alleged an “occurrence” under the Burlington CGL policy (“Burlington Action”). In January 2018, the court granted summary judgment to Burlington. In response to the LLC’s argument that it did not intend to cause damage when attempting to restore the easement parcel, the Burlington court held that “[t]he term ‘accident’ does not apply where an intentional act resulted in unintended harm.” Henstooth Ranch LLC v. Burlington Ins. Co., 293 F. Supp. 3d 1067, 1074 (N.D. Cal. 2018). The LLC appealed to the Ninth Circuit, which affirmed in May 2019. Henstooth Ranch, LLC v. Burlington Ins. Co., 770 F. App’x 804, 805 (9th Cir. 2019).

In January 2019, the court in the SLT action found the Thompson had intentionally violated the easement and awarded nearly $600,000 in damages.

After the Ninth Circuit affirmed in the Burlington Action, the Thompsons agent tendered the SLT action to Crestbrook and Nationwide. Each declined to defend, causing the Thompsons to file the subject suit in Marin County Superior Court. Subsequent cross-motions for summary judgment turned on collateral estoppel and the California Supreme Court’s June 2018 decision in Liberty Surplus Ins. Corp. v. Ledesma & Meyer Constr. Co., 5 Cal. 5th 216, 223, 233 Cal. Rptr. 3d 487, 491, 418 P.3d 400, 404 (2018), which held that negligent hiring/supervision is an “accident” for insurance purposes. Rather than apply collateral estoppel, the trial court made an “independent determination.” In granting summary judgment to the insurers, the trial court held that Ledesma did not apply since the Thompsons did not obtain SLT’s approval before hiring contractors to do the restoration work. The Thompsons appealed.

On appeal, the First District Court of Appeal held that the judgment in the Burlington Action barred the subject action, which obviated the need to re-evaluate the merits of the other courts’ decisions. First, the issue raised by the Thompsons as to whether SLT alleged an “accident” was identical to the issue resolved in the Burlington Action. Even though the Thompsons did not present the Ledesma negligent-hiring theory in the Burlington Action, and even though they adopted corresponding factual themes concerning hiring of contractors in the subject action, the “ultimate issue” – whether the SLT action potentially alleged an “occurrence” defined as an accident – remained the same. “The coverage issue in each case turned on the same underlying universe of facts regarding the acts of the Thompsons and their contractors affecting the easement parcel.” Second, while decided after the Thompsons filed the appeal in the Burlington Action, Ledesma did not diminish the effect of the judgment in the Burlington Action. Ledesma did not overrule or disapprove any previous decision and, at the time the judgment in the Burlington Action was rendered, “no precedent precluded the Thompsons from asserting their negligent-supervision theory.” Third, issue preclusion did not result in unfairness because the Thompsons had a full and fair opportunity to litigate the issue in the previous case, notwithstanding their lawyers’ alleged personal difficulties, which may have affected his performance. Finally, the Thompsons could not rely on the policies’ personal injury coverage for “wrongful entry” because the Thompsons had a right to enter the easement parcel and because the parcel did not qualify as a “premises” into which a “wrongful entry” could occur. Accordingly, the court affirmed the trial court’s judgment.

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