LMC Vineyards, LLC v. Allied World National Assurance Company

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 LMC VINEYARDS, LLC, Case No. 24-cv-03357-TLT 8 Plaintiff, ORDER DENYING PLAINTIFF'S 9 v. PARTIAL SUMMARY JUDGMENT MOTION 10 ALLIED WORLD NATIONAL ASSURANCE COMPANY, Re: Dkt. No. 27 11 Defendant. 12 13 This case hinges on whether claims of construction defects from homeowners constitute “suits” that an insurance company was therefore obligated to defend. 14 Pending before the Court is Plaintiff LMC Vineyard, LLC’s (“Plaintiff”) partial summary 15 judgment motion. ECF 27. The Court heard oral argument on May 6, 2025. 16 Having considered the parties’ briefs, the parties’ oral arguments and presentations, the 17 relevant legal authority, and for the reasons below, the Court DENIES Plaintiff’s partial summary 18 judgment motion since there remain genuine issues of material fact as to whether a “suit” 19 occurred. All claims therefore remain. 20 I. PROCEDURAL HISTORY 21 On June 4, 2024, Plaintiff filed a complaint against Defendant Allied World National Assurance Company (“Allied World”) for the following causes of action: (1) breach of contract; 22 (2) breach of implied covenant of good faith and fair dealing; and (3) declaratory relief. ECF 1. 23 Allied World answered the complaint on July 11, 2024. ECF 12. Plaintiff moved for partial 24 summary judgment on December 4, 2024, asking the Court to find that (1) a “suit” commenced 25 based on the homeowners’ construction defect claims, which triggered Allied World’s obligations 26 to Plaintiff; and (2) that Allied World breached its obligations to Plaintiff when it denied coverage 27 for those claims. ECF 27. The parties also filed a joint statement of undisputed facts. ECF 27-1. 1 Allied World filed a timely opposition. ECF 38. Plaintiff thereafter filed a reply. ECF 39. The Court held a hearing on May 6, 2025. ECF 51. 2 3 II. BACKGROUND 4 A. Parties Plaintiff owned Trilogy Vineyards, a housing development located in Brentwood, 5 California, during the relevant period of September 30, 2011 through September 30, 2016. ECF 6 27, Ex. 3, 2; ECF 27, Ex. 16. Plaintiff was held responsible for construction defect claims made 7 by homeowners during this period. See ECF 27, Ex. 11, 33–34. American Safety Indemnity 8 Company (“American Safety”) had issued the primary insurance policy to Plaintiff, ECF 27, Ex. 9 2, and Allied World issued the excess insurance policy, ECF 27, Ex. 3 (collectively, the 10 “policies”). 11 B. The American Safety Policy The American Safety policy stated that American Safety “will pay those sums that the 12 insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property 13 damage’ to which this insurance applies.” ECF 27-2 at 9. American Safety will also “have the 14 right and duty to defend the insured against any ‘suit’ seeking those damages” and “will have no 15 duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property 16 damage’ to which [the] insurance does not apply.” Id. 17 American Safety’s policy provided the definition of a “suit” as: “a civil proceeding in 18 which damages because of ‘bodily injury’ ‘property damage’ or ‘personal and advertising injury’ to which this insurance applies are alleged.” Id. at 23. American Safety’s policy further clarified 19 that a “suit” includes: 20 An arbitration proceeding in which such damages are claimed and to 21 which the insured must submit or does submit with our consent; or 22 Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our 23 consent. Id. The American Safety policy also contained a “no voluntary payments” clause: “No insured 24 will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or 25 incur any expense, other than for first aid, without our consent.” Id. at 18. 26 C. The Allied World Policy 27 Allied World’s policy is termed a “following form excess liability insurance policy.” ECF 1 27, Ex. 3, 32. This means that Allied World wrote the policy to “follow the warranties, terms, and conditions, exclusions, and limitations” in the American Safety insurance policy (i.e.: to follow the 2 form of American Safety’s policy). Id at 32. The policy explained the role of an “excess insurer:” 3 to “pay, on behalf of the insured, that part of loss, to which this policy applies, which exceeds the 4 applicable underlying limits (i.e.: the limits of American Safety’s policy).” Id. (emphasis added). 5 Stated differently, Allied World is termed an “excess layer insurer” because it only comes in to 6 provide what it is obligated to pay in excess of what American Safety already contributed. Id. 7 8 Allied World’s policy explained: The company shall have the right, but not the duty, to assume charge 9 of the investigation, settlement or defense of any claim made, suit brought, or proceeding instituted against any insured upon 10 exhaustion of the applicable underlying limits. If the company has exercised such right, it will not investigate, settle or defend any claim, 11 suit or proceeding after it has exhausted the applicable [limit]. 12 If the company does not exercise such right, or if the applicable underlying limits are not exhausted, the company will have the right, 13 and will be given the opportunity, to associate effectively with the insured or any underlying insurer, or both, in the investigation, 14 settlement or defense of any claim, suit or proceeding that is likely to involve this policy. 15 In such event, the insured, the underlying insurer, and the company 16 shall cooperate in the investigation, settlement or defense of such claim, suit or proceeding. 17 18 Id. at 32–33 (emphasis added). Allied World’s policy further stated it “has no obligation under 19 this policy with respect to any claim, suit or proceeding settled without its prior written consent” (the “no obligation” clause). Id. Also regarding consent, Allied World’s policy stated that Allied 20 World will only pay for certain defense and supplementary expenses, including “[r]easonable 21 attorney fees and other reasonable investigation, loss-adjustment or litigation expenses incurred 22 directly by the company or by the insured, with the company’s consent.” Id. at 33 (emphasis 23 added). 24 Allied World’s policy explained that if American Safety’s policy “has defined a word or 25 phrase, [Allied World’s] policy will follow that definition unless [Allied World’s] policy expressly 26 defines such word or phrase, in which case the meaning given to such word or phrase in this policy will apply.” Id. Notably, Allied World’s policy did not define a “suit.” 27 D. When An Excess Insurer’s Obligations Are Triggered 1 Under California law, “[all] primary insurance must be exhausted before liability attaches 2 under a secondary policy…This means that an excess insurer has no duty to defend or contribute 3 to defense costs until primary limits are exhausted in resolution of third-party claims against the 4 insured.” Cnty. of Santa Clara v. U.S. Fid. & Guar. Co., 868 F. Supp. 274, 277 (N.D. Cal. 1994) 5 (citations omitted). However, exceptions may arise based on specific policy language. SantaFe Braun, Inc. v. Ins. Co. of N. Am., 52 Cal. App. 5th 19, 29 (2020) (“It is well settled that an excess 6 insurer has no duty to defend unless the underlying primary insurance is exhausted, absent policy 7 language to the contrary.”) (citation omitted). 8 Following the exhaustion of a primary insurance, the excess insurer’s duty to defend or 9 indemnify is generally triggered by the commencement of a “suit.” See Foster-Gardner, Inc. v. 10 Nat’l Union Fire Ins. Co., 18 Cal. 4th 857, 869 (1998), as modified (Sept. 23, 1998) (“An insurer 11 has a duty to defend when the policy is ambiguous, and the insured would reasonably expect the 12 insurer to defend him or her against the suit…”) (citation omitted). Under a “literal meaning” approach, “suit” refers to “actual court proceedings initiated by the filing of a complaint.” Id. 13 (explaining that under this literal approach, there is no “suit” that the insurer must defend absent a 14 filed complaint). However, a suit may also be an adjudicative administrate proceeding. See 15 Ameron Int’l Corp. v. Ins. Co. of Pa., 50 Cal. 4th 1370, 1374–75 (2010) (finding an administrative 16 adjudicative proceeding before an administrative law judge a “suit” under those circumstances). 17 Important here, where an insurance policy provides the definition of a “suit,” the court 18 applies that definition. See Ortega Rock Quarry v. Golden Eagle Ins. Corp., 141 Cal. App. 4th 19 969, 979 (Cal. Ct. App. 2006) (applying the definition of a suit based on the insurance policies). 20 E. Allied World’s Denial of Coverage In late 2016 and 2017, Plaintiff became aware of construction defects involving homes that 21 closed escrow during the American Safety and Allied World policy period. ECF, Ex. 1, 2. On 22 March 15, 2017, Plaintiff emailed the defects and homeowners’ claims (the “notices”) to Allied 23 World. ECF 27, Ex. 4, 2–3. The email identified twelve homes as having the “same general 24 harmful conditions” and said there may be a “potential these claims will penetrate into [Allied 25 World’s] coverage.” Id. One day later, Allied World acknowledged receipt via letter. ECF 27, 26 Ex. 5. Allied World noted in the letter that they established a file based on this information, 27 clarified they were not confirming coverage, and reserved all rights and defenses on the issue. Id. 1 investigate, defend, and resolve the notices, which involved Plaintiff buying back the impacted homes. ECF 27, Ex.1, 2. Allied World disputes such payments were for covered amounts. Id. 2 On October 5, 2017, Plaintiff sent a letter to Allied World asking Allied World to 3 “acknowledge that Allied World will fund reasonable settlements of the property damage claims 4 up to its policy limits once the limits of the American Safety policy are exhausted.” ECF 27, Ex. 5 16, 2–3. Plaintiff’s letter explains that it requested that “Allied World provide consent to settle the 6 tendered third-party property damage claims arising from [Plaintiff’s] development…and confirm 7 that such settlements will not violate…the Allied World policy” and that Allied World “confirm in 8 writing that Allied World will consent to settlement of the claim…and will acknowledge to pay reasonable settlements up to its policy limit for third party claims covered under the Allied World 9 Policy.” Id. at 3–4. Plaintiff also asked Allied World to provide its position on the alleged claims 10 by October 10, 2017, “[i]n light of the upcoming settlement discussions.” Id. at 4. 11 On October 11, 2017, Allied World responded, stating that it was “continuing to 12 investigate coverage for the [] claims, subject to a reservation of rights.” ECF 27, Ex. 17, 2. 13 Allied World clarified that while its investigation was ongoing, it continued to reserve all rights 14 and defenses under its “no obligation” clause and under the “voluntary payments” clause (as 15 adopted from American Safety’s policy). Id. at 2. Allied World also explained in this letter that it believed it was “unclear that the claims and resulting harm are sufficiently alike that the highly 16 unusual, pre-litigation buy-backs being proposed are an appropriate way (much less the only 17 appropriate way) to handle claims identified for this remedy.” Id. at 3. Therefore, Allied World 18 “continue[d] to reserve all rights under its excess policy and the law,” id. at 4, and declined to pay 19 costs incurred from the construction matters. ECF 27, Ex. 1, 3. 20 F. The Right to Repair Act, Cal. Civ. Code §§ 895–945.5 21 The Right to Repair Act was enacted in 2002 “to specify the rights and requirements of a 22 homeowner to bring an action for construction defects, including applicable standards for home 23 construction, the statute of limitations, the burden of proof, the damages recoverable, a detailed prelitigation procedure, and the obligations of the homeowner.” Anders v. Superior Court (2011) 24 192 Cal. App. 4th 579, 585 (citation omitted). Chapter 1 of the Right to Repair Act defines terms 25 immaterial here, Chapter 2 outlines building standards, Chapter 3 explains obligations on the 26 builder, and Chapter 4 prescribes nonadversarial prelitigation procedures a homeowner must 27 initiate before bringing a civil action against the builder to seek recovery for the alleged 1 Under Chapter 4 of the Right to Repair Act, a homeowner must initiate certain prelitigation procedures before “bringing a civil action against the builder for alleged construction defects.” 2 The McCaffrey Grp., Inc. v. Superior Court, 224 Cal. App. 4th 1330, 1343 (Cal. Ct. App. 2014) 3 (citing Cal. Civ. Code §§ 910–38). For instance, a party must provide written notice of a claim 4 prior to filing an action, and the written notice must (a) be provided to the builder via certified 5 mail, overnight mail, or personal delivery; (2) include the claimant’s claim that the construction of 6 his or her residence violates any of the standards set forth in Chapter 2 of the Right to Repair Act; 7 (3) provide the claimant’s name, address, preferred method of contact, and shall state that the 8 claimant alleges a violation pursuant to this part against the builder; and (4) “describe the claim in reasonable detail sufficient to determine the nature and location, to the extent known, of the 9 claimed violation.” See Cal. Civ. Code § 910(a). 10 When a homeowner complies with the notice requirements just described, their written 11 notice shall then “have the same force and effect as a notice of commencement of a legal 12 proceeding.” Id. A homeowner can still “seek[] redress through any applicable normal customer 13 service procedure as set forth in any contractual, warranty, or other builder-generated document,” 14 but if they do so, that request “shall not satisfy the notice requirements of this section.” Id. § 15 910(b). After a homeowner complies with the written notice procedures described in Chapter 4, the builder must timely acknowledge receipt of the notice, decide to inspect and test the claimed 16 defects, and make a written offer to repair the defects if it decides to do so. Id. § 917. 17 The Right to Repair Act allows a builder to opt out of Chapter 4’s prelitigation procedures 18 and to create their own instead: “A builder may attempt to commence nonadversarial contractual 19 provisions other than the nonadversarial procedures and remedies set forth in this chapter.” Id. § 20 914(a). The statute states: if a builder does so, it “…may not, in addition to its own nonadversarial 21 contractual provisions, require adherence to the nonadversarial procedures and remedies set forth 22 in this chapter, regardless of whether the builder’s own alternative nonadversarial contractual provisions are successful in resolving the dispute or ultimately deemed enforceable.” Id. 23 A builder’s opt out of Chapter 4’s procedures “is binding,” and the builder “opts out of the 24 entirety of Chapter 4.” Baeza v. Superior Court, 201 Cal. App. 4th 1214, 1224–26 (Cal. Ct. App. 25 2011). That builder cannot then enforce Chapter 4’s rules. Anders, 192 Cal. App. 4th at 589. 26 It is undisputed in this case that Plaintiff opted out of Chapter 4 of the Right to Repair Act. 27 See ECF 27, Ex. 11, 31 (“Declarant’s Election to Opt Out of [the Right to Repair Act’s] Non- 1 Adversarial Procedures”); ECF 27, Ex. 13 (stating Plaintiff elected to opt out of the procedures); ECF 28 (discussing Plaintiff’s “opt out of the Right to Repair Act’s pre-litigation procedures”). 2 3 G. Evidentiary Objections Allied World submitted various evidentiary objections to Plaintiff’s evidence. ECF 38 at 4 10-12. At the May 6, 2025, hearing, the Court overruled all objections except Defendant’s expert 5 testimony objection, which it took under submission. ECF 51. The Court finds that it need not 6 address Defendant’s expert testimony objection because this Order does not rely on the challenged 7 evidence, as explained below. See Norse v. City of Santa Cruz, 629 F.3d 966, 973 (9th Cir. 2010) 8 (holding a court need only rule on evidentiary objections that are material to its ruling) (citation 9 omitted). 10 II. LEGAL STANDARD 11 A. Rule 56(a) A party may move for summary judgment, or partial summary judgment, identifying 12 claims, or parts of claims, for which summary judgment is sought. Fed. R. Civ. P. 56(a); Celotex 13 Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the Court finds there is no genuine dispute of 14 material fact, then it may grant the motion, finding that the moving party is entitled to judgment as 15 a matter of law. Celotex, 477 U.S. at 322. A material fact is one that could affect the outcome of 16 the litigation under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 17 There is a genuine dispute of material fact if “the evidence is such that a reasonable jury could 18 return a verdict for the nonmoving party.” Id. The moving party bears the burden of showing an absence of a genuine dispute of material 19 fact. Celotex, 477 U.S. at 323. They may satisfy the burden by showing: (1) evidence negating an 20 essential element of the nonmovant’s case, or (2) that the nonmovant failed to make a sufficient 21 showing to establish an essential element of their case for which the party will bear the burden of 22 proof at trial. Id. at 322–23. Where the moving party does not bear the burden of proof at trial, 23 they may show that the nonmovant failed to provide evidence to support their case. Id. at 325. 24 The moving party is not required to produce evidence showing an absence of a genuine dispute of 25 material fact, nor to offer evidence negating the nonmovant’s claim. Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 885 (1990). “[T]he motion may, and should, be granted so long as whatever 26 is before the [D]istrict [C]ourt demonstrates that the standard for entry of judgment, as set forth in 27 Rule 56(c), is satisfied.” Id. (quoting Celotex, 477 U.S. at 323). 1 “If the moving party meets the initial burden, the nonmoving party cannot defeat summary judgment merely by demonstrating ‘that there is some metaphysical doubt as to the material 2 facts.’” Krueger v. Wyeth, Inc., 396 F. Supp. 3d 931, 940–41 (S.D. Cal. 2019) (quoting 3 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). 4 To defeat summary judgment, the nonmoving party must “go beyond the pleadings and by 5 [his] own affidavits, or by the depositions, answers to interrogatories, and admissions on file, 6 designate specific facts showing that there is a genuine issue for trial.” Celotex, 477 U.S. at 324. 7 “Only disputes over facts that might affect the outcome of the suit…will properly preclude the 8 entry of summary judgment…Factual disputes that are irrelevant or unnecessary will not be counted.” Anderson, 477 U.S. at 248. 9 At summary judgment, a court may not make credibility determinations. Krueger, 396 F. 10 Supp. 3d at 941. The evidence, and inferences drawn therefrom, must be construed in the light 11 most favorable to the non-moving party. Ctr. for Bio-Ethical Reform, Inc. v. L.A. Cnty. Sheriff 12 Dep’t, 533 F.3d 780, 786 (9th Cir. 2008) (citation omitted). 13 B. California Insurance Contract Law 14 Under California law, the interpretation of an insurance contract is a question of law. 15 Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 18 (1995). Therefore, it is “often amenable to 16 summary judgment, although summary judgment may be inappropriate in a contract case if there is a dispute over a material fact necessary to interpret the contract.” Liberty Surplus Ins. Corp. v. 17 Samuels, 562 F. Supp. 3d 431, 437 (N.D. Cal. 2021) (internal citations omitted) (cleaned up). 18 Standard contract interpretation principles apply to breach of insurance policies disputes. 19 Powerine Oil Co., Inc. v. Super. Ct., 37 Cal. 4th 377, 390 (2005). “Under California law, [t]he 20 fundamental rules of contract interpretation are based on the premise that the interpretation of a 21 contract must give effect to the mutual intention of the parties.” Liberty Surplus, 562 F. Supp. 3d 22 at 438 (internal quotations and citation omitted). “Such intent is to be inferred, if possible, solely 23 from the written provisions of the contract.” Id. (citation omitted) “The clear and explicit meaning of these provisions [are] interpreted in their ordinary and popular sense, unless [the provisions are] 24 used by the parties in a technical sense or a special meaning is given to them by usage controls 25 judicial interpretation.” Id. (internal quotations and citation omitted). 26 1. Implied Waiver of Consent: The Diamond Heights Rule 27 In Diamond Heights, a California appellate court assessed whether the plain meaning of an 1 excess layer insurance provider’s “no action” clause –– which provided that the insured could only “make a claim of loss after its liability had been rendered certain by a final judgment after a trial” 2 or “by written agreement” of all parties, including the insurer –– meant what it said it meant. 227 3 Cal. App. 3d 563, 574 (Ct. App. 1991). In other words, did the clearly stated no action clause 4 mean the insurer had absolute veto power if it did not agree? The court held that the clause did not 5 give such power, and the Diamond Heights rule was born: “an excess insurer may waive its rights 6 under [a no action] clause if it rejects a reasonable settlement and at the same time fails to offer to 7 undertake the defense.” Teleflex Med. Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 851 8 F.3d 976, 983 (9th Cir. 2017) (“Teleflex”) (citing Diamond Heights, 227 Cal. App. 3d at 581). Stated differently, the Diamond Heights rule provides: “an excess liability insurer has three 9 options when presented with a proposed settlement of a covered claim that has met the approval of 10 the insured and the primary insurer. The excess insurer must (1) approve the proposed settlement, 11 (2) reject it and take over the defense, or (3) reject it, decline to take over the defense, and face a 12 potential lawsuit by the insured seeking contribution toward the settlement…Under Diamond 13 Heights, the insured is entitled to reimbursement if the excess insurer was given a reasonable 14 opportunity to evaluate the proposed settlement, and the settlement was reasonable and not the 15 product of collusion.” Id. at 979 (cleaned up) (internal quotation marks and citation omitted). In Teleflex, the Ninth Circuit assessed whether the district court appropriately applied the 16 Diamond Heights rule by first describing in detail the facts of Diamond Heights: 17 In Diamond Heights, a condominium developer sued its excess 18 insurer, Central, seeking contribution toward the settlement of construction defects claims covered by the excess insurance policy. 19 The developer and its primary insurer notified Central that the plaintiffs’ settlement demand exceeded the primary coverage layer 20 and that it was likely the primary policy limits would be exhausted. 21 The excess insurer sent a reservation of rights letter and stayed out of the defense…The developer then sued Central, seeking 22 contribution toward the settlement. Central moved for summary judgment on the ground that the settlement was entered without its 23 consent and therefore violated the policy’s “no action” clause. The trial court granted summary judgment in Central's favor, but the 24 court of appeal reversed. 25 The appellate court ruled that, subject to certain conditions, a primary insurer may negotiate a good faith settlement of a claim in 26 an amount which invades excess coverage, and ... enter into such settlement binding upon the excess insurer without the excess 27 insurer's consent, notwithstanding the ‘no action’ clause…the excess insurer may waive its rights under that clause if it rejects a the defense. 1 Id. at 982 (citations omitted) (emphasis added). 2 The Ninth Circuit found the district court correctly followed the Diamond Heights rule in 3 its diversity action governed by California law where the insured sued its excess insurance carrier 4 in connection with the excess carrier’s refusal to contribute to the settlement arrived at by the 5 insured and the primary insurer or to take over the defense. Id. at 987. 6 As Telefax opines, a rule that an excess insurer does not have an absolute right to veto a 7 reasonable settlement makes sense because “[a] contrary rule would imperil the public and judicial interests in fair and reasonable settlement of lawsuits…[and] have inequitable consequences for 8 the insured in cases where liability may exceed excess limits, as well for primary insurers in cases 9 where liability does not.” Id. at 983; see also Fuller-Austin Insulation Co. v. Highlands Ins. Co., 10 135 Cal. App. 4th 958, 987–90 (2006), as modified on denial of reh’g (Feb. 17, 2006) (explaining 11 that a contrary rule would “would impose an unnecessary burden on primary insurers and parties 12 to an underlying action to hold that an excess insurer has an absolute right to withhold its consent 13 to a settlement, while at the same time decline to participate in the action” and that “policies 14 [cannot] be read to permit an excess insurer to hover in the background of critical settlement negotiations and thereafter resist all responsibility on the basis of lack of consent”). 15 16 III. DISCUSSION Plaintiff first seeks partial summary judgment that a “suit” commenced based on the 17 notices from the homeowners. ECF 27. Plaintiff argues that the Court must find that a suit 18 commenced because the notices were “suits” under Chapter 4 of the Right to Repair Act. Id. 19 Allied World argues that a suit did not commence because (1) Chapter 4 of the Right to 20 Repair Act does not apply here since Plaintiff opted out of that chapter, and (2) Allied World must 21 have consented prior to any of Plaintiff’s prelitigation procedures constituting a “suit.” ECF 38. 22 There remain genuine issues of material fact as to whether a “suit’ commenced. 23 A. A “Suit” Did Not Commence Based on Chapter 4 of the Right to Repair Act. Plaintiff argues a “suit” commenced here because the homeowners’ notices were consistent 24 with the notices described under Chapter 4 of the Right to Repair Act, which constitute a suit 25 based on the statute’s plain language. See Cal. Civ. Code §§ 910(a) (explaining that when the 26 Chapter 4’s notice requirements are followed, such notice “shall have the same force and effect as 27 a notice of commencement of a legal proceeding”). Defendant argues there remain disputed issues 1 answer is of no consequence where Plaintiff opted out of Chapter 4. The Court agrees. The Court finds genuine disputes of material fact preclude summary judgment as to 2 whether the homeowners’ notices qualify as notices under Chapter 4. See Anderson, 477 U.S. at 3 248 (making clear that disputes over facts that might affect the outcome of the suit properly 4 preclude the entry of summary judgment). First, Plaintiff provides no evidence to support its 5 position that all the notices here met the requirements of Chapter 4. See Celotex, 477 U.S. at 323 6 (stating that the moving party bears the burden of showing an absence of a genuine dispute of 7 material). To the contrary, Plaintiff provides the Court with a homeowner agreement laying out 8 the notices’ requirements, which are clearly different from Chapter 4’s notice requirements. Compare ECF 27, Ex.11, 11–12 (requiring homeowners provide “written notice” of a repair issue 9 and serve it on declarant’s agent in an unspecified manner), with Cal. Civ. Code § 910(a) 10 (requiring claimants provide “written notice via certified mail, overnight mail, or personal 11 delivery”). Therefore, the Court cannot find that Plaintiff’s notices were Chapter 4 notices. 12 Even if the Court could find that the notices satisfied Chapter 4’s notice requirements, such 13 a finding would not mean Plaintiff’s notices were “suits” because Plaintiff “opted out” of Chapter 14 4’s definition of a suit. See ECF 27, Ex. 11 at 31 (“Declarant’s Election to Opt Out of [the Right 15 to Repair Act’s] Non-Adversarial Procedures”); see also Baeza, 201 Cal. App. 4th at 1225 (making clear that when a builder opts out of Chapter 4, the builder “opts out of the entirety of 16 Chapter 4”). Moreover, Plaintiff’s indisputable opt out is not undone by simply including in its 17 contract with the homeowners that “a properly completed and served notice of claim shall have the 18 same force and effect as a notice of the commencement of a legal proceeding as defined in 19 California Civil Code Section 910(a),” ECF 27, Ex. 11 at 34, because a contract between the 20 homeowners and Plaintiff does not bind Allied World. See Mewawalla v. Middleman, 601 F. 21 Supp. 3d 574, 589 (N.D. Cal. 2022) (discussing general rule that contracts do not bind nonparties). 22 The Court disagrees with Plaintiff that D.R. Horton establishes that a finding of the notices satisfying Chapter 4’s requirements equate to a finding that the notices are suits. D.R. Horton 23 discussed whether a notice sent pursuant to the requirements of Chapter 4 of the Right to Repair 24 Act constituted a legal proceeding and, unremarkably, found in the affirmative based on the plain 25 language of Chapter 4. D.R. Horton Los Angeles Holding Co. v. Am. Safety Indem. Co., No. 26 10CV443 WQH WMC, 2012 WL 33070, at *19 (S.D. Cal. Jan. 5, 2012). D.R. Horton therefore 27 merely serves as background to understanding the effect of Chapter 4’s definition of a legal 1 D.R. Horton’s finding concerning the definition of a “suit” is also not dispositive. D.R. Horton is factually distinguishable because there was no evidence in that case that the plaintiff 2 opted out of Chapter 4. See generally id. D.R. Horton did not consider the definition of a “suit” 3 because the Court applied Chapter 4’s definition of a “legal proceeding” given the lack of an opt- 4 out provision. Id. at 19 (explaining that Chapter 4’s provision meant that the notices to builder in 5 that case “shall have the same force and effect as a notice of commencement of a legal 6 proceeding”). In this case, however, Chapter 4’s definition of a “legal proceeding” does not apply 7 because Plaintiff opted out of Chapter 4. Baeza, 201 Cal. App. 4th 1214 at 1225; see also ECF 27, 8 Ex. 13 (stating Plaintiff’s opt out of the Right to Repair Act procedures); and ECF 28 (discussing the same). 9 The argument that coverage should flow from Chapter 4 of the Right to Repair Act 10 because Chapter 4’s procedures are mandatory also fails since Plaintiff cannot reasonably expect 11 coverage under a provision it opted out of. See id.; cf. Wexler v. California Fair Plan Ass’n, 63 12 Cal. App. 5th 55, 61 (2021), as modified on denial of reh’g (Apr. 19, 2021), as modified (Apr. 26, 13 2021) (explaining the rule that clear contractual language governs “protects not subjective beliefs 14 but objectively reasonable expectations”). 15 Finally, Plaintiff’s reliance on Clarendon falls short. Clarendon decided, as a matter of first impression, whether the alternative dispute resolution process that the plaintiff there had to 16 undertake pursuant to the relevant statute (the now-repealed Calderon Act) triggered a “suit” that 17 the insurer had a duty to defend. Clarendon Am. Ins. Co. v. Starnet Ins. Co., 113 Cal. Rptr. 3d 18 585 (Ct. App.), review granted and opinion superseded, 242 P.3d 67 (Cal. 2010). The court found 19 that the statutorily mandated procedures were “suits” because, among other reasons, they were 20 “more than a prelitigation alternative dispute resolution requirement” and were “an integral part of 21 the litigation process precisely because of the application and legal effect described in the 22 Calderon Act.” Id. at 592–593. All Clarendon tends to support is the statutory language that already exists in Chapter 4: when the notice requirements of Chapter 4 are followed, such notices 23 “have the same force and effect as a notice of commencement of a legal proceeding.” Cal. Civ. 24 Code §§ 910(a). But again, such an obvious conclusion has no impact here where Plaintiff opted 25 out of such requirements. Therefore, Chapter 4’s explicit statement that notices following its 26 requirements are legal proceedings does not mean the notices at issue here were legal proceedings. 27 B. A “Suit” Did Not Commence from Plaintiff’s Prelitigation Procedures. 1 including the notices, mediations, and settlements, for those procedures to constitute a suit. ECF 39. Allied World disagrees, arguing that Plaintiff’s prelitigation procedures could not constitute a 2 suit without Allied World’s consent based on the plain language of the policies. ECF 37 at 14–15. 3 Because genuine disputes of material fact preclude summary judgment as to whether the 4 homeowners’ notices qualify as notices under Chapter 4, the Court considers the policies’ 5 definition of a “suit” to determine whether Plaintiff needed Allied World’s consent. See Ortega 6 Rock Quarry, 141 Cal. App. 4th at 979 (applying insurance policy’s definition of “suit”). 7 The Court focuses on Allied World’s policy to determine whether Allied World defines a 8 “suit” – it does not. Then, the Court looks to American Safety’s policy because Allied World tells it to: “[if American Safety’s policy has] defined a word…this policy will follow that definition 9 unless this policy expressly defines such word…in which case the meaning given to such 10 word…in this policy will apply.” ECF 27, Ex. 3, 31. American Safety’s policy says a “suit” 11 includes: 12 (1) An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our 13 consent; or 14 (2) Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our 15 consent. 16 Id. This definition invites the question: do Plaintiff’s prelitigation procedures fit within either 17 category? The parties agree that Plaintiff engaged in mediation with the homeowners and that mediation is an “other alternative dispute resolution proceeding” described in the second definition 18 of a “suit” above. See ECF 27 at 14 (explaining that Plaintiff conducted mediation with the 19 homeowners to resolve the claims); see also ECF 37 at 14 (agreeing mediation is an alternative 20 dispute resolution procedure). However, the parties disagree as to whether Allied World’s consent 21 was required for those mediation procedures to constitute a “suit” per the above definition. Id. 22 The Court first finds that the policies’ plain language of the definition of a “suit” indicates 23 that Allied World’s consent would be required for mediation to be a “suit.” By way of reminder, 24 Allied World is an excess insurer that provided Plaintiff a following form excess policy. ECF 27, Ex. 3, 31 (Allied World’s policy “follow[s] the warranties, terms, and conditions, exclusions, and 25 limitations” in American Safety’s policy). “A following form excess policy has the same terms 26 and conditions as the underlying primary policy.” Vizio, Inc. v. Arch Ins. Co., No. 22-55755, 2023 27 WL 7123784, at *2 (9th Cir. Oct. 30, 2023) (citation omitted). In Vizio, the Ninth Circuit 1 addressed whether a primary insurer’s consent provision meant that the excess insurer’s consent was required before the plaintiff could settle claims in litigation. Id. There, the excess insurer’s 2 policy included a provision stating that the excess insurer’s policy shall “follow form to, and apply 3 in conformance with,” the provisions of the primary insurer’s policy. Id. Thus, the court held, the 4 primary insurer’s consent provision was “incorporated” into the excess insurer’s policy and the 5 plaintiff was required to seek the consent of the excess insurer prior to settling the litigation. Id. 6 Since Allied World is a following form policy that explicitly incorporates the terms of 7 American Safety’s policy, ECF 27, Ex. 3, 31, the plain language of the policies indicates that 8 Plaintiff was required to obtain Allied World’s consent before the alternative dispute resolution proceedings in which it engaged constituted a “suit,” see Vizio, Inc., 2023 WL 7123784, at *2 9 (finding primary policy’s consent provision meant the plaintiff needed the consent of the primary 10 and excess insurer). It is undisputed that Allied World did not consent to Plaintiff’s prelitigation 11 procedures, including the mediations and settlements of the notices. See ECF, Ex. 17. Thus, the 12 plain language of the policies would indicate that such procedures were not “suits.” 1 13 However, the analysis doesn’t end there — there remains a genuine dispute as to issues of 14 material fact regarding whether Allied World may have waived its right to consent under the 15 Diamond Heights rule. As explained in Diamond Heights, Allied World “ha[d] three options when [it was] presented with a proposed settlement of a covered claim that [] met the approval of 16 the insured and the primary insurer. The excess insurer must (1) approve the proposed settlement, 17 (2) reject it and take over the defense, or (3) reject it, decline to take over the defense, and face a 18 potential lawsuit by the insured seeking contribution toward the settlement.” Teleflex, 851 F.3d at 19 979 (citation omitted). Allied World “may also challenge the settlement on the ground of 20 unreasonableness or that it is a product of collusion between primary insurer and insured.” Id. 21 The rule is not unfair to Allied World considering Allied World can still “avoid[] a proposed 22 settlement or challeng[e] a final settlement” because it “may…agree to undertake the defense …and either conduct its own settlement negotiations or take the action to trial.” Id. at 983. 23 Like Diamond Heights, a genuine dispute of material fact remains in this case related to 24 25 1 The Court is also unconvinced by Plaintiff’s citation to Food Pro Internat., Inc. v. Farmers Ins. Exch., 169 Cal. App. 4th 976, 990 (2008) for the first time in its PowerPoint presented at the May 26 6, 2025, hearing. Plaintiff claimed in its presentation that Food Pro Internat., Inc. stands for the proposition that an insurer forfeits coverage defenses based on consent or notice where it refuses 27 to defend. However, Food Pro Internat., Inc. nowhere discusses consent provisions or whether a 1 whether Plaintiff met its prima facie burden to show (1) Allied World “was afforded a reasonable opportunity to undertake the defense prior to the settlement”; (2) after being given that reasonable 2 opportunity, Allied World wrongfully failed or refused to provide coverage or a defense, and (3) 3 Plaintiff “thereafter entered into a settlement of the litigation which was (4) reasonable in the 4 sense that it reflected an informed and good faith effort by [Plaintiff] to resolve the claim.” Id. at 5 987 (citing Pruyn v. Agric. Ins. Co., 36 Cal. App. 4th 500, 528 (1995)); see also Old Republic Ins. 6 Co. v. FSR Brokerage, Inc., 80 Cal. App. 4th 666, 679 (2000) (“Whether there has been a waiver 7 is usually regarded as a question of fact to be determined by the jury…”) (citation omitted). 8 Indeed, the evidence demonstrates that Allied World was concerned about the reasonableness of the settlements: “[Allied World] believed it w[a]s unclear that the claims and resulting harm are 9 sufficiently alike that the highly unusual, pre-litigation buy-backs being proposed are an 10 appropriate way (much less the only appropriate way) to handle claims identified for this 11 ‘remedy.’” ECF 27, Ex. 17, 3. Therefore, this issue is not currently settled by undisputed facts. 12 If, at trial, the evidence later establishes a prima facie showing of the Diamond Heights 13 elements, “the burden of proof will shift to [Allied World] to persuade the trier of fact, by a 14 preponderance of the evidence,” that it was not provided with a reasonable opportunity to evaluate 15 the settlement and decide whether to under the defense, that Plaintiff’s settlement did not represent a reasonable resolution of Plaintiff’s claim, or that the settlement was the product of fraud or 16 collusion. Teleflex, 851 F.3d at 987 (citing Pruyn, 36 Cal. App. 4th at 530); see AXIS Reinsurance 17 Co. v. Northrop Grumman Corp., 975 F.3d 840, 849 (9th Cir. 2020) (holding that “excess insurers 18 generally may not second-guess the payment decisions of underlying insurers” and that “the 19 burden is on the excess insurer to show that the underlying insurers’ payments were motivated by 20 fraud or bad faith, or that it has a clear contractual right to challenge those payments”). 21 On summary judgment, however, Plaintiff fails to meet its burden to demonstrate that the 22 undisputed facts show that Allied World waived its right to consent to an alternative dispute proceeding. Celotex, 477 U.S. at 323 (discussing moving party’s burden). Thus, the Court denies 23 Plaintiff’s motion for partial summary judgment as to whether Plaintiff’s procedures were a “suit.” 24 C. Plaintiff Failed to Demonstrate that Allied World Breached a Contract. 25 Having found there remain issues of material fact as to whether a “suit” occurred that 26 triggered Allied World’s duty to defend, the Court need not reach the question of whether Allied 27 World then breached those obligations. See Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th, 1, 36 1 policy, there can be no action for breach of the implied covenant of good faith and fair dealing 9 because the covenant is based on the contractual relationship between the insured and the 3 insurer.”). As such, the Court denies Plaintiffs partial summary judgment motion as to breach. The Court notes that even if it found a “suit” under the policies triggered Allied World’s ‘ obligations—which it cannot at this stage—the Diamond Heights rule would still govern whether 5 Allied World waived its right to consent under its no voluntary payments and no obligation 6 || clauses and thus breached its contract with Plaintiff. See Teleflex, 851 F.3d at 982 (applying 7 || Diamond Heights to assess whether excess insurer had absolute settlement veto rights under g || consent clauses); see also LMA N. Am., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa, 924 F. 9 Supp. 2d 1188, 1204-05 (S.D. Cal. 2013) (denying summary judgment motion where genuine 10 issues of material fact remained over whether consent provisions applied per Diamond Heights). ul IV. CONCLUSION The Court DENIES Plaintiffs motion for partial summary judgment as to whether a “suit” 2 commenced because there remain issues of material fact as to whether Allied World waived its = 13 right to consent to Plaintiff's alternative dispute resolution proceedings before such proceedings 14 || constituted a “suit” under the policies and under the Diamond Heights rule as outlined in Teleflex. 15 The Court DENIES Plaintiff's motion for partial summary judgment regarding whether 16 || Allied World breached its contract in denying coverage to Plaintiff because there remain disputed 5 7 issues of material fact as to whether Allied World’s obligations were ever triggered by a “suit.” 18 All claims and future dates therefore remain. The next court date is October 30, 2025, at 2:00 PM for further case management conference via videoconference only. The joint case management statement is due no later than 70 |! October 23, 2025. 1 IT IS SO ORDERED. 22 |! Dated: June 20, 2025 23 25 TRINA L. S United States District Judge 26 27 28