# Penn-Star Insurance Company v. Zenith Insurance Company

> District Court, E.D. California · January 31, 2020

URL: https://www.frixlaw.com/law-library/cases/10016682

## Case

- **Court:** District Court, E.D. California
- **Decided:** January 31, 2020
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

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8 UNITED STATES DISTRICT COURT
9 FOR THE EASTERN DISTRICT OF CALIFORNIA
10
11 PENN-STAR INSURANCE COMPANY, No. 1:18-cv-01319-DAD-EPG
12 Plaintiff,
13 v. ORDER DENYING PLAINTIFF’S MOTION
FOR SUMMARY JUDGMENT
14 ZENITH INSURANCE COMPANY, DM
CAMP & SONS, a general partnership, (Doc. No. 32)
15 GOLDEN LABOR SERVICES, LLC, and
VALENTIN ROMER COLOTL,
16
Defendants.
17

18
19 This matter is before the court on plaintiff Penn-Star Insurance Company’s (“Penn-Star”)
20 motion for summary judgment. (Doc. No. 32.1) A hearing on the motion was held on April 16,
21 2019. Attorney James Nielsen appeared on behalf of Penn-Star, attorney James Wilkins appeared
22 on behalf of defendant Golden Labor Services, LLC (“Golden Labor”), and attorney Karen Uno
23 appeared telephonically on behalf of defendants Zenith Insurance Company (“Zenith”) and DM
24
1 On March 5, 2019, Penn-Star filed a motion for summary judgment. (Doc. No. 30.) On March
25
18, 2019, Penn-Star filed an amended motion for summary judgment. (Doc. No. 32.)
Accordingly, the court will deny Penn-Star’s earlier filed motion for summary judgment as
26
having been rendered moot by the later filed motion. However, the court will consider the
27 attachments to the original motion (see Doc. Nos. 30-2, 30-3) to the extent that they have not
been amended by the later motion or otherwise opposed by defendants, since the amended motion
28 for summary judgment relies on those attachments.
1 Camp & Sons (“DM Camp”). Having considered the parties’ briefs and oral arguments, and for
2 the reasons set forth below, the court will deny Penn-Star’s motion for summary judgment.
3 BACKGROUND
4 Penn-Star seeks a declaration from this court that, as a matter of law, the damages sought
5 against defendants Golden Labor, DM Camp, and Valentin Romer Colotl2 (“Colotl”) in an
6 underlying state court action are not covered under the insurance policy that it issued Golden
7 Labor (the “Penn-Star policy”), and that it therefore has no duty to defend or indemnify these
8 defendants in the underlying state court action.3 (Doc. No. 32 at 5.) The material facts of this
9 case are undisputed4 and, as relevant to the pending motion, are set forth below.

10 2 Defendant Colotl has not appeared in this action. On March 1, 2019, the Clerk of the Court
11 entered default against him. Penn-Star’s pending motion for default judgment against defendant
Colotl (Doc. No. 26) will be addressed separately by the undersigned in considering the findings
12 and recommendations issued by the assigned magistrate judge. See Local Rule 302(c)(19).

13 3 Penn-Star also seeks a declaration stating that defendant Zenith, who issued a separate
insurance policy to DM Camp (the “Zenith policy”), has a duty to defend and indemnify Golden
14
Labor, DM Camp, and Colotl in the underlying action pursuant to that policy. (See Doc. No. 13.)
15 If the court finds that both Penn-Star and Zenith are obligated to defend and indemnify in the
underlying action, then Penn-Star seeks a declaration stating that Zenith’s coverage is primary.
16 (Id.) Making either of these determinations would require the court to interpret both insurance
policies. However, the pending motion only addresses whether the Penn-Star policy’s auto
17 exclusion precludes coverage. While a section of the pending motion is entitled “Zenith owes a
duty to defend Golden Labor and Colotl in the [underlying] action” (Doc. No. 32 at 2), Penn-Star
18
only provides a conclusory analysis of this issue. Moreover, at the April 16, 2019 hearing on the
19 pending motion, counsel for Golden Labor noted that “whatever interplay [that] may . . . exist
between [the policies] is something that . . . is probably not appropriate for summary
20 adjudication,” and counsel for Penn-Star noted that “the court can decide the issue of the scope of
Penn-Star’s coverage without addressing the scope of Zenith’s coverage.” Accordingly, the court
21 confines this order to the question of whether the Penn-Star policy covers the underlying action.

22
4 The parties have submitted a joint statement of undisputed facts. (See Doc. No. 34 (joint
23 statement of undisputed facts, hereinafter “JSUF”).) Most of the facts recited in this order are
gleaned from that filing. Defendant Golden Labor has also filed a separate statement of
24 undisputed facts. (Doc. No. 36-1.) Moreover, each of the parties has filed declarations (see Doc.
Nos. 30-2, 34-1, 36-2, 37-1, 38-1), and some have attached to those declarations various
25
documents, including the insurance policies at issue, the complaint filed in the underlying action,
various correspondences between the parties, and other documents (see, e.g., Doc. Nos. 30-1, 34-
26
1, 37-1, 38-1). To the extent there are no objections, the court construes the facts contained
27 within these filings to be undisputed for the purpose of resolving the pending motion. Where an
objection has been raised, the court will only address the objection by way of footnote if it relies
28 on that evidence in resolving the pending motion.
1 A. The Parties
2 Penn-Star is an insurance company that issued a commercial general liability (“CGL”)
3 insurance policy to Golden Labor. (JSUF at ¶ 8.) Golden Labor is a labor-services firm that
4 provides farms with laborers. (Id. at ¶ 5.) DM Camp is a farm based in Kern County. (Id. at
5 ¶ 3.) Colotl is a farm contractor. (Id. at ¶ 5.) DM Camp hired Colotl through Golden Labor.
6 (Id.) Zenith is an insurance company that issued an “agribusiness insurance package policy” to
7 DM Camp (the “Zenith policy”). (Id. at ¶ 16.)
8 B. The Underlying State Court Action
9 On June 27, 2018, the plaintiffs in the state court action filed a complaint in Kern County
10 Superior Court, naming Golden Labor, DM Camp, and Colotl as the defendants (the “underlying
11 action” or “state court action”). (Id. at ¶ 1.) The underlying action stems from a collision
12 between an automobile and a tractor pulling a tillage disc in unincorporated Kern County. (Id. at
13 ¶¶ 2–3.) The automobile in the collision was owned by one plaintiff in the state court action and
14 was driven by another. (Id. at ¶ 2.) The driver of the automobile was killed in the collision and
15 the three surviving passengers suffered injuries. (Id. at ¶ 2.)
16 The state court complaint alleges that, at the time of the collision, Colotl was operating the
17 tractor that collided with the automobile and that the tractor was owned and entrusted to him by
18 DM Camp and Golden Labor. (Id. at ¶¶ 3, 4.) Based thereon, the underlying complaint alleges
19 that Colotl, DM Camp, and Golden Labor were negligent and careless in their ownership,
20 operation, maintenance, and/or control of the tractor, and that their negligence and carelessness
21 caused the tractor to collide with the automobile, thereby causing the decedent’s death and the
22 other injuries about which they complain. (Id. at ¶ 3.) The underlying complaint further alleges
23 that the negligence of these defendants’ is not limited to the ownership, operation, maintenance,
24 and/or control of the tractor but also includes the negligent hiring, retaining, training, and/or
25 supervision of persons responsible for the collision. (Id.)
26 Golden Labor and Colotl tendered the underlying action to Penn-Star for a defense and
27 indemnification under the Penn-Star policy. (Id. at ¶ 22.) Penn-Star accepted the tender subject
28 to a reservation of its rights, advising Golden Labor and Colotl that it agreed to provide them with
1 a defense in the underlying action subject to the terms, conditions, limitations, and exclusions of
2 the Penn-Star policy.5 (Id. at ¶¶ 22–23.)
3 C. The Penn-Star Insurance Policy
4 Penn-Star issued the CGL Penn-Star policy (insurance policy number CPV0014424) to
5 Golden Labor for the period of February 19, 2017 to February 19, 2018. (JSUF at ¶ 8.) As
6 relevant to the pending motion, “SECTION 1 – COVERAGES,” “COVERAGE A” of the
7 Penn-Star policy states:
8 We will pay those sums that the insured becomes legally obligated
to pay as damages because of “bodily injury” or “property damage”
9 to which this insurance applies. We will have the right and duty to
defend the insured against any “suit” seeking those damages.
10 However, we will have no duty to defend the insured against any
“suit” seeking damages for “bodily injury” or “property damage” to
11 which this insurance does not apply.
12 (Doc. No. 34-1 at 19.)
13 Like most insurance policies, the Penn-Star policy at issue here contains a set of
14 exclusions to which “th[e] insurance does not apply to.” (Id. at 20.) Appearing under paragraph
15 “2. Exclusions” to Coverage A, the “g. Aircraft, Auto, Or Watercraft” exclusion states that the
16 policy does not apply to:
17 “Bodily injury” or “property damage” arising out of the ownership,
maintenance, use, or entrustment to others of any aircraft, “auto,” or
18 watercraft owned or operated by or rented or loaned to any
insured . . .. This exclusion applies even if the claims against any
19 insured allege negligence or other wrongdoing in the supervision,
hiring, employment, training or monitoring of others by that insured,
20 if the “occurrence” which caused the “bodily injury” or “property
damage” involved the ownership, maintenance, use or entrustment to
21 others of any aircraft, “auto,” or watercraft that is owned or operated
by or rented or loaned to any insured.
22

23 5 Even though the Penn-Star policy was issued only to defendant Golden Labor, plaintiff Penn-
Star seeks a declaration that it owes no duty to defend or indemnify any of the defendants in this
24 action, including defendants DM Camp and Colotl. This is because it is undisputed that if the
Penn-Star policy covers defendant Golden Labor with respect to the underlying action, then
25
defendant DM Camp qualifies as an “additional insured” under the policy. (JSUF at ¶ 10.)
Moreover, it appears that defendant Colotl would also be covered under the Penn-Star policy,
26
since Penn-Star accepted his tender of the underlying action, despite him not being a named
27 insured, and the Penn-Star policy contains a “Section II – Who Is An Insured,” which provides
that the insured’s “employees” are also covered, with the policy defining “employee” to includes
28 leased or temporary workers. (Id. at ¶¶ 22, 33, 34.)
1 (Id. at 22; JSUF at ¶ 11.) This standard auto exclusion, however, is amended and replaced by an
2 endorsement titled “AUTO EXCLUSION.” (JSUF at ¶ 12.) That endorsement states:
3 THIS ENDORSEMENT CHANGES THE POLICY
4 The endorsement modifies insurance provided under the []:
COMMERCIAL GENERAL LIABILITY COVERAGE PART
5
Exclusion 2. of SECTION 1 – COVERAGES – COVERAGE A
6 BODILY INJURY AND PROPERTY DAMAGE LIABILITY –
Aircraft, Auto, Or Watercraft is deleted in its entirety and replaced
7 with the following:

8 This insurance does not apply to:
“Bodily injury” or “property damage” arising out of the ownership,
9 maintenance, or use by any person or entrustment to others, of any
aircraft, “auto,” or watercraft.
10
This exclusion applies even if the claims against any insured allege
11 negligence or other wrongdoing in the supervision, hiring,
employment, training, or monitoring of others by that insured, if the
12 “occurrence” which caused the “bodily injury” or “property damage”
involved an aircraft, “auto,” or watercraft. . . .
13
14 (Doc. No. 34-1 at 37; JSUF at ¶ 13.)
15 Thus, while exclusion “g. Aircraft, Auto, Or Watercraft” excludes coverage for bodily
16 injury or property damage arising out of the ownership, maintenance, use, or entrustment to
17 others of any “auto” owned or operated by or rented or loaned to any insured, the auto exclusion
18 endorsement replaced that language. The endorsement excludes coverage for bodily injury or
19 property damage arising out of the ownership, maintenance, or use by any person or entrustment
20 to others of any “auto.”
21 In a separate section, entitled “SECTION V – DEFINITIONS,” the Penn-Star policy
22 provides definitions for terms used in it. (Doc. No. 34-1 at 31.) There, “auto” is defined as:
23 a. A land motor vehicle, trailer, or semitrailer designed for travel on
public roads, including any attached machinery or equipment; or
24
b. Any other land vehicle that is subject to a compulsory or financial
25 responsibility law or other motor vehicle law where it is licensed
or principally garaged.
26
However, “auto” does not include “mobile equipment.”
27
28 (Doc. No. 34-1 at 31; JSUF at ¶ 14.)
1 Finally, the policy defines “mobile equipment” to include:
2 a. Bulldozers, farm machinery, forklifts and other vehicles
designed for use principally off public roads. . . .
3
However, “mobile equipment” does not include any land vehicles
4 that are subject to a compulsory or financial responsibility law or
other motor vehicle insurance law where it is licensed or principally
5 garaged. Land vehicles subject to a compulsory or financial
responsibility law or other motor vehicle insurance law are
6 considered “autos.”
7 (Doc. No. 34-1 at 32; JSUF at ¶ 15.)
8 D. This Action and the Pending Motion for Summary Judgment
9 On September 25, 2018, Penn-Star commenced this declaratory judgment action (Doc.
10 No. 1) and on March 7, 2019, filed the pending motion for summary judgment, contending that
11 the policy’s auto exclusion, as amended by endorsement, excludes coverage. (Doc. No. 32.) On
12 April 2, 2019, Golden Labor, Zenith, and DM Camp filed their oppositions to Penn-Star’s motion
13 for summary judgment.6 (Doc. Nos. 36, 37.) On April 9, 2019, Penn-Star filed its reply. (Doc.
14 No. 38.)
15 LEGAL STANDARD
16 Summary judgment is appropriate when the moving party “shows that there is no genuine
17 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
18 Civ. P. 56(a).
19
6 Included in defendants Zenith and DM Camp’s opposition to the pending motion is a purported
20 “cross-motion for summary judgment.” (See Doc. No. 37 at 1, 25–26.) Therein, these defendants
seek an order from the court declaring that: (1) Penn-Star owes a duty to defend Golden Labor,
21 DM Camp, and Colotol in the underlying state court action; and (2) Zenith does not owe a duty to
defend Golden Labor in that action. (Id. at 25.) Although the first of these requests overlaps to
22
some extent with the issues raised in the pending motion for summary judgment, the court will
23 not consider this purported cross-motion, since defendants Zenith and DM Camp did not notice it
for hearing before the undersigned as required, nor did they file a proper motion supported by
24 evidence, accompanying briefs and a statement of undisputed facts. See Local Rules 230(b),
260(a). To bury a cross-motion for summary judgment in an opposition to another party’s motion
25
for summary judgment is inherently unfair and inappropriate. That is particularly true here where
there are defendants with interests adverse to one another. Indeed, at the April 16, 2019 hearing
26
on the pending motion, counsel for defendant Golden Labor expressed that it was unable to file an
27 opposition to defendants Zenith and DM Camp’s cross-motion because it was not properly
noticed. Accordingly, the court will not consider Zenith and DM Camp’s “cross-motion for
28 summary judgment.”
1 In summary judgment practice, the moving party “initially bears the burden of proving the
2 absence of a genuine issue of material fact.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387
3 (9th Cir. 2010) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). The moving party
4 may accomplish this by “citing to particular parts of materials in the record, including
5 depositions, documents, electronically stored information, affidavits or declarations, stipulations
6 (including those made for purposes of the motion only), admissions, interrogatory answers, or
7 other materials” or by showing that such materials “do not establish the absence or presence of a
8 genuine dispute, or that the adverse party cannot produce admissible evidence to support the
9 fact.” Fed. R. Civ. P. 56(c)(1)(A), (B). If the moving party meets its initial responsibility, the
10 burden then shifts to the opposing party to establish that a genuine issue as to any material fact
11 actually does exist. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586
12 (1986). In attempting to establish the existence of this factual dispute, the opposing party may
13 not rely upon the allegations or denials of its pleadings but is required to tender evidence of
14 specific facts in the form of affidavits, and/or admissible discovery material, in support of its
15 contention that the dispute exists. See Fed. R. Civ. P. 56(c)(1); Matsushita, 475 U.S. at 586 n.11;
16 Orr v. Bank of Am., NT & SA, 285 F.3d 764, 773 (9th Cir. 2002) (“A trial court can only consider
17 admissible evidence in ruling on a motion for summary judgment.”). The opposing party must
18 demonstrate that the fact in contention is material, i.e., a fact that might affect the outcome of the
19 suit under the governing law, see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); T.W.
20 Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987), and that the
21 dispute is genuine, i.e., the evidence is such that a reasonable jury could return a verdict for the
22 nonmoving party. See Wool v. Tandem Computs., Inc., 818 F.2d 1433, 1436 (9th Cir. 1987).
23 In the endeavor to establish the existence of a factual dispute, the opposing party need not
24 establish a material issue of fact conclusively in its favor. It is sufficient that “the claimed factual
25 dispute be shown to require a jury or judge to resolve the parties’ differing versions of the truth at
26 trial.” T.W. Elec. Serv., 809 F.2d at 631. Thus, the “purpose of summary judgment is to ‘pierce
27 the pleadings and to assess the proof in order to see whether there is a genuine need for trial.’”
28 Matsushita, 475 U.S. at 587 (citations omitted).
1 “In evaluating the evidence to determine whether there is a genuine issue of fact,” the
2 court draws “all reasonable inferences supported by the evidence in favor of the non-moving
3 party.” Walls v. Cent. Contra Costa Cty. Transit Auth., 653 F.3d 963, 966 (9th Cir. 2011). It is
4 the opposing party’s obligation to produce a factual predicate from which the inference may be
5 drawn. See Richards v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244–45 (E.D. Cal. 1985),
6 aff’d, 810 F.2d 898, 902 (9th Cir. 1987). Undisputed facts are taken as true for purposes of a
7 motion for summary judgment. Anthoine v. N. Cent. Counties Consortium, 605 F.3d 740, 745
8 (9th Cir. 2010). Finally, to demonstrate a genuine issue, the opposing party “must do more than
9 simply show that there is some metaphysical doubt as to the material facts . . .. Where the record
10 taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no
11 ‘genuine issue for trial.’” Matsushita, 475 U.S. at 587 (citation omitted).
12 ANALYSIS
13 It is undisputed that, but for the application of the Penn-Star policy’s auto exclusion, as
14 amended by the endorsement, Penn Star has a duty to defend and indemnify Golden Labor in the
15 underlying action pursuant to that policy. (See Doc. Nos. 32, 36, 37, 38.) Penn-Star advances
16 two theories in support of its position that, as a matter of law, it owes no duty to defend Golden
17 Labor, DM Camp, or Colotl in the underlying state court action. First, Penn-Start contends that
18 the auto exclusion, as amended by endorsement, excludes coverage because the tractor involved
19 in the collision is subject to financial responsibility laws and is therefore an excludable “auto”
20 under the Penn-Star policy. (Doc. No. 32 at 19 –22.) Second, it contends that coverage is
21 additionally excluded under the auto exclusion of the Penn-Star policy, as amended by
22 endorsement, because the automobile involved in the collision is an “auto” used by “any person.”
23 (Id. at 15–19.)
24 “It is . . . a familiar principle that a liability insurer owes a broad duty to defend its
25 insured against claims that create a potential for indemnity.” Horace Mann Ins. Co. v. Barbara
26 B., 4 Cal. 4th 1076, 1081 (1993), as modified on denial of reh’g (May 13, 1993). “[T]he [insurer]
27 must defend a suit which potentially seeks damages within the coverage of the policy.” Gray v.
28 Zurich Ins. Co., 65 Cal. 2d 263, 275 (1966). “The determination [of] whether the insurer owes a
1 duty to defend usually is made in the first instance by comparing the allegations of the complaint
2 with the terms of the policy.” Horace Mann, 4 Cal. 4th at 1081. In analyzing the policy, “courts
3 must consider both the [] language in the policy, and the endorsements or exclusions affecting
4 coverage, if any, included in the policy terms.” Modern Dev. Co. v. Navigators Ins. Co., 111 Cal.
5 App. 4th 932, 939 (2003), as modified (Aug. 29, 2003), as further modified (Sept. 18, 2003).
6 “Facts known to the insurer and extrinsic to the third party complaint can generate a duty to
7 defend, even though the face of the complaint does not reflect a potential for liability under the
8 policy.” Montrose Chem. Corp. v. Superior Court, 6 Cal. 4th 287, 296 (1993).
9 To prevail in an action for declaratory relief regarding the duty to defend, “the insured
10 must prove the existence of a potential for coverage, while the insurer must establish the absence
11 of any such potential.” Id. at 300; see also Reg’l Steel Corp. v. Liberty Surplus Ins. Corp., 226
12 Cal. App. 4th 1377, 1389 (2014) (“The insurer’s defense duty is obviated where the facts are
13 undisputed and conclusively eliminate the potential the policy provides coverage for the third
14 party’s claim.”) “Facts merely tending to show that the claim is not covered or may not be
15 covered, but are insufficient to eliminate the possibility that resultant damages (or the nature of
16 the action) will fall within the scope of coverage . . . add no weight to the scales.” Montrose
17 Chem., 6 Cal. 4th at 300. Accordingly, for Golden Labor, DM Camp, and Colotl to survive Penn-
18 Star’s motion for summary judgment here, they must show that the underlying claims may fall
19 within the Penn-Star policy; Penn-Star, on the other hand, must prove that they cannot. See
20 Montrose Chem., 6 Cal. 4th at 300. Penn-Star “is entitled to summary judgment that no potential
21 for indemnity exists if the evidence establishes no coverage under the policy as a matter of law.”
22 Reg’l Steel, 226 Cal. App. 4th at 1389; see also Am. Star Ins. Co. v. Ins. Co. of the W., 232 Cal.
23 App. 3d 1320, 1325 (1991) (“If the claim does not fall within the insuring clauses, there is no
24 need to analyze further. There is no coverage.”) (citations omitted).
25 Defendants have met their initial burden of establishing that the claims in the underlying
26 action are within the scope of the Penn-Star policy’s insuring clause because it is undisputed that
27 the plaintiffs in the state court action seek damages for bodily injury caused by an occurrence.
28 (See Doc. Nos. 32, 36, 37, 38); see also Montrose Chem., 6 Cal. 4th at 300. Accordingly, below
1 the court addresses whether the Penn-Star policy’s auto exclusion removes the underlying action
2 from the scope of that policy’s insuring clause.
3 A. Whether the Penn-Star Policy’s Auto Exclusion as Amended by Endorsement
4 Excludes Coverage Because the Accident Involved a Tractor
5 Penn-Star contends that its auto exclusion, as amended by endorsement, excludes the
6 damages for bodily injury sought by the plaintiffs in the underlying state court action because the
7 tractor at issue qualifies as an “auto.” (Doc. No. 32 at 19.) Its argument is as follows. The auto
8 exclusion, as amended by endorsement, states that the Penn-Star policy does not apply to bodily
9 injury “arising out of the ownership, maintenance, or use by any person or entrustment to others,
10 of any . . . ‘auto.’” (Doc. No. 30-1 at 62.) Despite the policy defining an “auto” to not include
11 “mobile equipment” (id. at 56), and despite the policy defining “mobile equipment” to include
12 “farm equipment” (id. at 58), Penn-Star argues that “mobile equipment” does not include “any
13 land vehicles that are subject to a compulsory or financial responsibility law or other motor
14 vehicle insurance law where it is licensed or principally garaged” (id.). Penn-Star contends that,
15 because the tractor at issue is subject to California’s financial responsibility laws, it qualifies as
16 an “auto” when applying the definitions of “mobile equipment” and “auto” provided in the Penn-
17 Star policy and is therefore excluded pursuant to the auto exclusion. (Doc. No. 32 at 19.) Golden
18 Labor counters that this interpretation of the Penn-Star policy’s provisions is unreasonable and
19 that the limitation resulting from the definition of “mobile equipment” with respect to whether a
20 land vehicle is subject to “compulsory or financial responsibility laws” is not plain or clear.
21 (Doc. No. 36 at 16–22.) Zenith and DM Camp also contend that this limitation is not plain or
22 clear, arguing further that the limitation is also not conspicuous and that the exclusion itself is
23 ambiguous. (Doc. No. 37 at 11–16.)
24 “In the insurance context, we begin with the fundamental principle that an insurer cannot
25 escape its basic duty to insure by means of an exclusionary clause that is unclear. . . . [A]ny
26 exception to the performance of the basic underlying obligation must be so stated as clearly to
27 apprise the insured of its effect.” Haynes v. Farmers Ins. Exch., 32 Cal. 4th 1198, 1204 (2004)
28 (citation and internal quotation marks omitted). “Coverage may be limited by a valid
1 endorsement and, if a conflict exists between the main body of the policy and an endorsement, the
2 endorsement prevails.” Id. However, in order to be enforceable, “any provision that takes away
3 or limits coverage reasonably expected by an insured must be ‘conspicuous, plain and clear.’” Id.
4 Therefore, “any such limitation must be placed and printed so that it will attract the reader's
5 attention. Such a provision also must be stated precisely and understandably, in words that are
6 part of the working vocabulary of the average layperson.” Id. “The burden of making coverage
7 exceptions and limitations conspicuous, plain and clear rests with the insurer.” Id. Applying
8 these well-recognized principles here, the court concludes that Penn-Star cannot, as a matter of
9 law, rely on the provisions limiting coverage for “mobile equipment” in the Penn-Star policy to
10 escape its coverage obligations in this case.
11 First, the provisions are not conspicuous. In order to reach the conclusion that the tractor
12 at issue is not covered by the Penn-Star policy because it is a “mobile equipment” subject to
13 financial responsibility laws, the reader of the insurance policy must locate several provisions in a
14 policy that is almost fifty pages long. Initially, the reader must find the auto exclusion, as
15 amended by endorsement, which states that the insurance policy does not apply to bodily injury
16 arising out of the use of any “auto.” Next, the reader must find the definition of “auto,” which
17 explicitly excludes “mobile equipment.” Thereafter, one would have to locate the definition of
18 “mobile equipment,” which explicitly notes that “farm machinery” and “other vehicles designed
19 principally for use off public roads” qualify as “mobile equipment.” At this point, the average
20 insured might reasonably assume that a tractor constitutes farm machinery or an “other vehicle
21 designed principally for use off public roads” and is therefore not within the scope of the auto
22 exclusion. See Jauregui v. Mid-Century Ins. Co., 1 Cal. App. 4th 1544, 1552 (1991) (“Protection
23 of the insured’s reasonable expectation of coverage underlies the rules of construction dictating
24 that we construe exclusionary language against the insurer . . . and demands . . . conspicuous
25 placement to avoid or limit coverage.”) “Without further notice, [the] average insured could
26 scarcely anticipate a subparagraph . . . [that] would contain an exclusion.” Id. at 1549 (citation
27 and internal quotation marks omitted). Yet, this is exactly what the definition of “mobile
28 equipment” contains, as it goes on to exclude from its scope “any land vehicles that are subject to
1 a compulsory or financial responsibility law or other motor vehicle insurance law where it is
2 licensed or principally garaged.” Here, this exclusion is not conspicuous since it is buried in the
3 definitions section of the policy. See Thompson v. Mercury Cas. Co., 84 Cal. App. 4th 90, 95
4 (2000) (“A limitation is conspicuous when it is positioned and printed in a form which adequately
5 attracts the reader’s attention to the limitation.”) (internal quotation marks and citation omitted);
6 see also Haynes v. Farmers Ins. Exch., 32 Cal. 4th 1198, 1209 (2004) (“We agree with the Court
7 of Appeal that burying the . . . limitation among [other] provisions renders it inconspicuous and
8 potentially confusing to the average lay reader.”) Moreover, the auto exclusion, as amended by
9 the endorsement, does not even alert the policyholder that its scope will or could be expanded by
10 a definition that appears in a different section of the policy and not in the endorsement itself. See
11 Haynes, 32 Cal. 4th at 1205 (finding limiting language to be inconspicuous where it appeared on
12 the policy’s tenth page as the second of four paragraphs and “[t]here [wa]s nothing in the
13 [definition] to alert a reader that it limits . . . coverage, nor anything in the section to attract a
14 reader’s attention to the limiting language”). In short, “the average lay reader . . . would have a
15 difficult time locating the limiting language and is not required to conduct such an arduous search
16 for camouflaged exclusions.” Jauregui, 1 Cal. App. 4th at 1550. Accordingly, the court
17 concludes that Penn-Star has not “[met] its stringent obligation to alert a policyholder to
18 limitations on anticipated coverage by hiding the disfavored language in an inconspicuous portion
19 of the policy.” Id.
20 Second, even if the reader successfully found all of the relevant provisions, the
21 undersigned concludes that the provisions limiting coverage for “mobile equipment” in the Penn-
22 Star policy are not plain or clear. See id. (“Conspicuous placement of exclusionary language is
23 only one of two rigid drafting rules required of insurers to exclude or limit coverage. The
24 language itself must be plain and clear.”). In order to establish that a provision is plain and clear,
25 “[u]nderstandability is [] required” and “the exclusion must be couched in words which are part
26 of the working vocabulary of average lay persons.” Id. (internal quotation marks and citation
27 omitted). Here, the provision limiting coverage is the language that appears in the definition of
28 “mobile equipment,” which states that “any land vehicles that are subject to a compulsory or
1 financial responsibility law or other motor vehicle insurance law where it is licensed or
2 principally garaged” are not considered “mobile equipment.” Zenith, Golden Labor, and DM
3 Camp contend that an average lay person would not understand the scope of this exclusion as it is
4 now interpreted by Penn-Star. (Doc. Nos. 36 at 20; 37 at 11.) The court agrees.
5 “Although ‘Financial Responsibility Law’ may be an obvious reference to the Vehicle
6 Code to lawyers and judges, . . . it is too vague to meet the stringent obligation of the insurer to
7 limit coverage in plain and clear language.” Jauregui, 1 Cal. App. 4th at 1551. Here, in order for
8 Golden Labor to understand the coverage provided to it, it “was expected to either know the
9 financial responsibility law . . . or know the discrete body of statutory law [] set forth within . . .
10 the [California] Vehicle Code.” Id. at 1552. The Penn-Star policy, however, does not reference
11 the statutes embodying California’s financial responsibility laws, leaving the reader to determine
12 what is meant by that language. Moreover, as demonstrated by Penn-Star’s own motion, even if a
13 reader understood what was meant by that language, in order to reach the conclusion that the
14 tractor at issue is subject to financial responsibility laws, one would need to: (1) locate the
15 definition of “motor vehicle” within California Vehicle Code § 412; (2) conclude that the tractor
16 qualifies as a motor vehicle; and (3) determine whether the tractor, as a motor vehicle, was
17 required to “establish financial responsibility” pursuant to California Vehicle Code §§ 16020 and
18 16021. (See Doc. No. 32 at 20–21.) Assuming that a reader concluded that a tractor did not
19 qualify as a “motor vehicle” under § 412, one would apparently still need to determine whether
20 the tractor qualifies as an “implement of husbandry” as defined in §§ 36000 and 36015 or a
21 “commercial vehicle” as defined in § 260, both of which purportedly require the vehicle at issue
22 to be registered or comply with financial responsibility law. (See id. at 21.)
23 The court need not determine whether the tractor at issue qualifies as a “motor vehicle” or
24 an “implement of husbandry” under the California Vehicle Code because Penn-Star “presumed a
25 level of sophistication and knowledge beyond that of an ordinary layperson and, therefore, the
26 policy provision purporting to limit coverage d[o] not satisfy the requisite plain and clear
27 criteria.” Jauregui, 1 Cal. App. 4th at 1552. That the ordinary lay insured would not reach the
28 same conclusion as the one proffered by Penn-Star here is bolstered by the analysis of a claims
1 consultant that Penn-Star retained to analyze whether the tractor at issue is subject to a
2 compulsory or financial responsibility law or other motor vehicle insurance law. That claims
3 consultant, after reviewing the relevant sections of the California Vehicle Code, noted in an email
4 to Penn-Star’s counsel that a tractor “is not a ‘commercial vehicle’ which would be required to
5 maintain proof of financial responsibility” and that, “[w]hen read in its entirety, [section] 16500.5
6 does not appear to support the assertion that the D.M. Camp tractor would be subject to
7 compulsory financial responsibilities law.” (Doc. No. 37-1 at 12; see also JSUF at ¶ 31.) The
8 claims consultant further noted that, “[w]hile we agree with Penn-Star’s position that the D.M.
9 Camp tractor is an implement of husbandry, we disagree that it is subject to compulsory financial
10 responsibilities laws thus making the tractor an ‘auto’ under the insured’s policy for purposes of
11 applying the automobile exclusion.” (Doc. No. 37-1 at 12.) Moreover, the claims consultant
12 noted that “implements of husbandry, like the D.M. Camp tractor, are exempt for vehicle
13 registration and therefore are also exempt from maintaining proof of financial responsibility.”
14 (Id. at 13.) Finally, the claims consultant noted that “it appears the other sections of the
15 California motor vehicle code support the position that the D.M. Camp tractor is not subject to the
16 state’s compulsory financial responsibilities laws.” (Id.)
17 Because the court finds, based upon the evidence before it on summary judgment, that the
18 provisions limiting coverage for “mobile equipment” in the Penn-Star policy are not conspicuous,
19 plain, or clear as a matter of law, the court concludes that these provisions are unenforceable. See
20 Hall v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, No. 08 CV 1195 JLS (WVG), 2010 WL
21 2650271, at *9 (S.D. Cal. July 1, 2010) (finding that “the limitation provision . . . [wa]s not clear,
22 plain and conspicuous and [wa]s therefore unenforceable”); Thompson v. Mercury Cas. Co., 84
23 Cal. App. 4th 90, 97 (2000) (finding that a limitation appearing in a policy addendum, instead of
24 “in the ‘Liability’ section of the policy, where an average layperson would expect to find it,” was
25 unenforceable). Consequently, Penn-Star cannot rely on these provisions to establish that it is not
26 obligated to defend or indemnify Golden Labor, DM Camp, or Colotl in the underlying state court
27 action.
28 /////
1 B. Whether the Penn-Star Policy’s Auto Exclusion as Amended by Endorsement
2 Excludes Coverage Because the Collision Involved a Private Automobile
3 Penn-Star next contends that, because the collision giving rise to the plaintiffs’ injuries in
4 the underlying state court action involved a vehicle, the auto exclusion, as amended by
5 endorsement, excludes coverage. (Doc. No. 32 at 15.) In so arguing, Penn-Star relies on the
6 following language in the auto exclusion: “This insurance does not apply to: ‘Bodily injury’ or
7 ‘property damage’ arising out of the ownership, maintenance, or use by any person . . . of any . . .
8 ‘auto.’” (Doc. No. 30-1 at 62) (emphasis added). Penn-Star’s argument is that, because the
9 collision involved an automobile that was used by a person, the exclusion applies, and it therefore
10 has no obligation to defend or indemnify Golden Labor, DM Camp, or Colotl in the underlying
11 action. Golden Labor argues that Penn-Star’s interpretation of this exclusion is unreasonable and
12 does not comport with how exclusions in insurance contracts are generally interpreted. (Doc. No.
13 36 at 23–30.) Zenith and DM Camp contend that Penn-Star’s interpretation is “illogical and
14 overbroad.” (Doc. No. 37 at 17–23.) Each defendant contends that the exclusion should not be
15 read so broadly as to exclude liability for accidents involving the use of an “auto” by any person
16 and, instead, should reasonably be interpreted to exclude liability for accidents involving the use
17 of an “auto” by a person for whom Golden Labor could be held legally liable.
18 As discussed, “the California Supreme Court [has] held that insurance contract provisions
19 limiting coverage that are not . . . plain and clear cannot defeat an insured’s reasonable
20 expectation of coverage as provided by the insuring clause.” Essex Ins. Co. v. City of Bakersfield,
21 154 Cal. App. 4th 696, 707 (2007), as modified (Aug. 27, 2007). Here, the undisputed evidence
22 before the court on summary judgment establishes that (1) the auto exclusion is not plain or clear
23 and (2) Golden Labor reasonably expected that the Penn-Star CGL policy would provide it
24 coverage for a lawsuit alleging that it was negligent and careless in its ownership, operation,
25 maintenance, and/or control of the tractor, or negligent with respect to its hiring, retaining,
26 training, and/or supervision of persons responsible for the collision.
27 First, in the insurance context, “basic coverage provisions are construed broadly in favor
28 of affording protection, but clauses setting forth specific exclusions from coverage are interpreted
1 narrowly against the insurer.” Minkler v. Safeco Ins. Co. of Am., 49 Cal. 4th 315, 322, opinion
2 after certified question answered sub nom. Minkler v. Safeco Ins. Co., 399 F. App’x 230 (9th Cir.
3 2010). In addition, “some commentators have argued that an exclusion limits or takes back some
4 of the insurance coverage granted by the insuring clause” because “exclusions serve to limit
5 coverage granted by an insuring clause and [] apply only to hazards covered by the insuring
6 clause.” Essex, 154 Cal. App. 4th at 709 (internal quotation marks and citation omitted). Here,
7 the Penn-Star policy’s insuring clause states that: “We will pay those sums that the insured
8 becomes legally obligated to pay . . ..” (Doc. No. 34-1 at 19) (emphasis added). In other words,
9 the Penn-Star policy does not cover situations where Golden Labor is not liable. However, Penn-
10 Star’s proffered interpretation of the auto exclusion seeks to exclude the underlying action from
11 coverage because the state court plaintiffs—who are not associated with, employed by, or
12 otherwise connected to Golden Labor—were travelling in an “auto.” This interpretation of the
13 auto exclusion runs afoul of the contract interpretation principles outlined by the California Court
14 of Appeal in Essex, since Golden Labor does not face exposure to liability in the underlying state
15 court action due to its operation or use of the vehicle involved in the collision. Indeed, the state
16 court complaint does not even seek damages based on the use or operation of the vehicle involved
17 in the collision.
18 Second, in the court’s view Penn-Star’s “interpretation of the auto exclusion[] converts
19 th[at] exclusion[] into unusual and unfair limitations of coverage that defeat the insured’s
20 reasonable expectations of coverage.” Essex, 154 Cal. App. 4th at 706. Penn-Star interprets the
21 auto exclusion to limit coverage in any case where an automobile was used by any person that
22 resulted in bodily injury, but “no average lay person would have understood the auto exclusion[]
23 in that manner.” Id. at 707. Here, the defendants in the underlying action are being sued for
24 negligence in the use, maintenance, and operation of the tractor and the negligent training for the
25 use, maintenance, and operation of the tractor. Penn-Star contends that it would provide coverage
26 but can’t because the collision involved a vehicle that has no connection to its insured, Golden
27 Labor. Indeed, at the April 16, 2019 hearing on the pending motion, counsel for Penn-Star noted
28 that, had the state court plaintiffs been riding a horse at the time of the collision, Golden Labor
1 would be covered pursuant to the Penn-Star policy. Penn-Star’s position in this regard strains
2 credulity. How could Golden Labor have reasonably expected that the Penn-Star policy would
3 protect it from liability for negligently using, operating, or training another to use a tractor in all
4 instances “except where the [negligence] leads to an automobile accident involving [a] vehicle[]
5 that had no connection to the [insured]”? Id. at 708. Moreover, in this regard Penn-Star’s
6 interpretation of the auto exclusion[] do[es] not comport with the
common understanding of auto exclusions in CGL policies. A CGL
7 policy is intended to cover every risk that is not excluded. A CGL
policy has a very broad insuring clause but also has numerous
8 exclusions. Exclusions can be divided into two categories: Certain
exclusions are designed to avoid coverage for risks the insurer does
9 not wish to insure at all; e.g., war, flood, intentional injury,
environmental pollution, etc. Other exclusions are designed to limit
10 coverage for risks normally covered by other insurance. The auto
exclusion . . . is an exclusion designed to limit coverage for risks
11 normally covered by other insurance. To cover these risks, the
insured must purchase separate insurance.
12
13 Id. at 709–10. However, “[g]iven that [the insured] could not get separate automobile insurance
14 for the accident in the [underlying] lawsuit, the auto exclusion[] should not be interpreted to deny
15 [it] coverage[.].” Id. at 710.
16 Third, Ramiro Marin Perez, who holds Golden Labor’s contractor license, avers7 that,
17 after learning of the facts and circumstances giving rise to the collision, Golden Labor
18 “understood and expected that liability coverage would be available for its potential exposure
19 under [the Penn-Star policy]” and that, at no time prior to the collision, did Penn-Star advise or
20 alert Golden Labor “to any provision or language in the Penn Star policy [which would] . . .
21
7 Penn-Star objects to this declaration, contending that Golden Labor’s intent is irrelevant, and
22
that Mr. Perez’s averments constitute hearsay and are argumentative because “[t]he Penn-Star
23 policy has been entered into the record and it speaks to notice of its terms.” (Doc. No. 38-2 at 2.)
The court overrules Penn-Star’s boilerplate objections. First, the objected-to portion of the
24 declaration is not hearsay. Second, the court is not sure what Penn-Star hopes to accomplish by
asserting that the objected-to portion of the declaration is “argumentative.” Finally, where, as
25
here, an argument is made that language in an insurance contract is not plain or clear, courts are
to “interpret [insurance contracts] to protect the objectively reasonable expectations of the
26
insured.” Minkler, 49 Cal. 4th at 321. This necessarily requires ascertaining what the insured’s
27 reasonable expectations were. See Essex, 154 Cal. App. 4th at 708 (“Of course, the auto
exclusions can be interpreted as Essex has done so, but that is an interpretation of the exclusions
28 in the abstract, and not in the context of the policy or in the circumstances of this case.”).
1 limit[] . . . coverage simply because the claimed injuries involved a vehicle in some way, even if
2 Golden Labor . . . had no connection with or relationship with the driver of the involved vehicle,
3 and/or it was not alleged that Golden Labor . . . was even liable for the use or operation of such
4 vehicle.” (Doc. No. 36-2 at 2.) The court in Essex, which considered broad auto exclusions
5 similar to the one before this court, found that the “auto exclusions do not plainly and clearly
6 preclude coverage of the [underlying] lawsuit in context of the policy as a whole and in the
7 circumstances of the case,” particularly because “the record provide[d] no evidence that [the
8 insurer’s] broad interpretation of the auto exclusions was brought to the attention of the
9 insureds[.]” 154 Cal. App. 4th at 706–07. Based on the undisputed evidence presented on
10 summary judgment before this court, that analysis holds true here as well.
11 Finally, the court notes that although Penn-Star has moved for summary judgment in its
12 favor, it has provided no authority in support of its strained interpretation of the phrase “by any
13 person” which appears in its policy’s auto exclusion. Penn-Star relies heavily on the decision in
14 Maxum Indemnity Company v. Kaur, 356 F. Supp. 3d 987 (E.D. Cal. 2018) in advancing its
15 interpretation of that language, but Maxum is both distinguishable and not binding authority. In
16 Maxum, the district court granted summary judgment in favor of an insurance company seeking a
17 declaration that it had no duty to defend or indemnify in a state court action asserting causes of
18 action for negligence and negligent training. Id. at 1005, 991. At issue there was an automobile
19 exclusion which stated that the “insurance does not apply to . . . ‘[b]odily injury’. . . arising out of
20 the ownership . . . [or] use . . . of any . . . ‘auto’ . . . including the supervision, hiring,
21 employment, training or monitoring of . . . anyone in connection with the ownership . . . [or] use
22 . . . of any . . . ‘auto.’” Id. at 991 (emphasis added). In that case, the insured operated a truck
23 driving school and a driver that the insured had trained was later involved in a single-vehicle,
24 tractor-trailer accident. Id. at 990–91. The insurance company argued that it had no obligation to
25 defend or indemnify the insured in an underlying action because the auto exclusion in its policy
26 specifically excluded liability for bodily injury arising out of the training of anyone in connection
27 with the use of any auto. Id. at 997. The insured argued that the auto exclusion was ambiguous
28 “and that no average lay person would have understood an auto exclusion to exclude coverage for
1 an allegation of negligent training of the trucking school’s specialty students.” Id. The district
2 court in Maxum disagreed, concluding that “the language [before it] plainly and explicitly
3 excluded coverage” for bodily injury arising out of the use of any auto, including the training of
4 anyone in connection with the use of any auto. Id. at 1005.
5 The circumstances in Maxum are distinguishable from those presented here. First, the
6 underlying state court action in Maxum sought damages relating to the driving school instructor’s
7 training of the driver and the exclusion at issue there “explicitly excludes[d] coverage for the
8 injury that occurred in the Underlying Action as it was related to Kaur’s training of Sangam in the
9 use of ‘autos.’” Id. The court in Maxum noted that it “w[ould] not strain to create ambiguity
10 where none exists.” Id. In contrast, here, this court has already concluded that the Penn-Star
11 policy’s auto exclusion does not plainly and clearly inform the insured that the auto exclusion
12 would be applied in the manner Penn-Star seeks to apply it.
13 Second, the language of the auto exclusion in the Penn-Star policy is different than the
14 language of the auto exclusion that was before the district court in Maxum. Penn-Star has
15 directed this court to no binding authority that analyzes the effect of the phrase “by any person”
16 on the auto exclusion. Penn-Star points the court only to two out-of-circuit decisions (one by a
17 federal trial court and one by a state appellate court) analyzing language similar to “by any
18 person,” but its reliance on those decisions in unavailing, since the language analyzed by those
19 courts is not the same as the language at issue here See Fed. Ins. Co. v. New Coal Co., 415 F.
20 Supp. 2d 647, 653 (W.D. Va. 2006); Massachusetts Prop. Ins. Underwriting Ass’n v. Berry, 80
21 Mass. App. Ct. 598, 603 (2011). Moreover, Penn-Star simply cites to these two cases, but does
22 not explain why the policies at issue in the contexts of those cases supports its contention that this
23 court should adopt its proffered interpretation of the auto exclusion in its policy. See Maxum
24 Indem. Co., 356 F. Supp. 3d at 1002 (“Exclusions must be viewed in the context of each specific
25 case.”).
26 Third, even if this court were to adopt Penn-Star’s strained interpretation of its policy’s
27 auto exclusion, the decision in Maxum is still distinguishable because the plaintiffs in the
28 underlying state court action here are not alleging that their use or ownership—or anyone’s use or
1 | ownership for that matter—of a vehicle resulted in bodily injury. Allstate Ins. Co. v. Naai, 684 F.
2 | Supp. 2d 1220, 1230 (D. Haw. 2010) (“The plain language of the automobile exclusion focuses
3 | on the connection between a vehicle and the injury, not between a vehicle and the
4 | insured.”), aff'd, 490 F. App’x 49 (9th Cir. 2012). Instead, the state court complaint alleges that
5 | the defendants were negligent in their use, maintenance, and control of the tractor, or the training
6 | for the use, maintenance, and control of the tractor. Thus, as alleged in the underlying state court
7 | complaint, there is no connection between the use or ownership of the vehicle the plaintiffs in the
8 | state court action were travelling in and the injuries they incurred as a result of the collision.
9 The court finds that the Penn-Star policy’s auto exclusion is not plain and clear enough to
10 || defeat Golden Labor’s reasonable expectation that it was covered for claims arising out of its
11 | alleged negligence with respect to using, operating, and/or training others to use the tractor
12 | involved in the collision at issue here. Accordingly, the court rejects Penn-Star’s interpretation of
13 | its auto exclusion and finds that Penn-Star may not rely on that interpretation to preclude
14 | coverage.
15 CONCLUSION
16 Having concluded that the Penn-Star policy’s auto exclusion does not defeat coverage, the
17 || court denies Penn-Star’s motion for summary judgment (Doc. No. 32) and also denies Penn-
18 | Star’s earlier filed motion for summary judgment (Doc. No. 30) as having been rendered moot by
19 | the filing of the amended motion for summary judgment. This matter is referred back to the
20 | assigned magistrate judge for a further scheduling conference and possible amendment of the
21 | scheduling order (Doc. No. 25), if appropriate and in light of this order.
22 | IT IS SO ORDERED. me □
Dated: _ January 31, 2020 a aL, A 5 anys
24 UNITED STATES DISTRICT JUDGE
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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10016682. Public record. Not legal advice.