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Sunnyside Development Company, LLC v. Chartis Specialty Insurance Company

January 26, 2012

SUNNYSIDE DEVELOPMENT COMPANY, LLC,
PLAINTIFF,
v.
CHARTIS SPECIALTY INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge:

USDC SDNY

ELECTRONICALLY FILED DOC #:

OPINION & ORDER

This is an insurance coverage dispute in which the insurer has engaged in a series of coast to coast tactics designed to frustrate the performance of its obligation to its insured. Plaintiff Sunnyside Development LLC ("Sunnyside") is a landlord and an additional named insured on a policy issued to its tenant Opsys US Corporation ("Opsys"). Opsys obtained insurance from a predecessor of Defendant Chartis Specialty Insurance Company ("Chartis"). Sunnyside now seeks to enforce against Chartis a default judgment that it obtained in the United States District Court for the Northern District of California (the "California Action"), No. 3:05-cv-01447 (N.D. Cal. Apr. 8, 2010).

Both parties now move for summary judgment, pursuant to Fed. R. Civ. P. 56. For the reasons that follow, Sunnyside's motion is GRANTED as to its second cause of action but otherwise DENIED; and Chartis's motion is GRANTED as to Sunnyside's first cause of action, but otherwise DENIED.

BACKGROUND

In October 2002, Sunnyside leased property at 47375 Fremont Blvd., Fremont California (the "Property") to Opsys. (Sunnyside 56.1 ¶ 4.) On October 28, 2002, American International Specialty Lines Insurance Company ("AISLIC")*fn1 issued a pollution legal liability policy (the "Policy") to Opsys, the "Insured," to run until October 28, 2005. (Sunnyside 56.1 ¶¶ 12, 13.) Sunnyside was named an "Additional Insured" under the Policy. (Chartis 56.1 ¶ 8.) The Policy required Chartis "[t]o pay on behalf of the Insured, Loss that the Insured becomes legally obligated to pay as the result. . . Property Damage resulting from Pollution Conditions. . . ." (Chartis 56.1 ¶ 2.) "Property Damage" included "loss of use"; and "Pollution Conditions" was defined, inter alia, as "the discharge, dispersal, release or escape of any solid, liquid, gaseous or thermal irritant or contaminant . . . ." (Chartis 56.1 ¶¶ 3, 4.)

Opsys was engaged in research and development in the organic light emitting diode industry. (Sunnyside 56.1 ¶ 8.) Opsys's work generated hazardous materials. (Sunnyside 56.1 ¶ 9.) The local Certified Unified Program Agent ("CUPA"), which in this case was the Fremont Fire Department, regulated facilities such as Opsys that handled hazardous materials and generated hazardous waste. (Chartis 56.1 ¶ 9.)

On May 5, 2003, Opsys filed for Chapter 7 bankruptcy protection with the United States Bankruptcy Court for the Northern District of California (the "Bankruptcy Action"). (Chartis 56.1 ¶ 11.) The CUPA learned that Opsys was discontinuing its operations (see Cohen Decl. Ex. 4 104:5-7), and conducted an inspection of the Property (Sunnyside 56.1 ¶ 25). On May 8, 2003, the CUPA issued a Notice of Violation & Order to Comply based on "a condition dangerous to human health, property, and the environment by abandoning hazardous materials and hazardous waste." (Chartis 56.1 ¶ 13.) The CUPA Order required that the facility "present proof that no evidence of contamination at or above the levels of concern remain at the site." (Chartis 56.1 ¶ 13.) As a result of this Order, the Property could not be occupied until a Closure Plan and Closure Report was completed and accepted by the CUPA. (Sunnyside 56.1 ¶ 28.)

In September 2003, Sunnyside and Opsys each filed a "Notice of Loss/Notice of Claim" with Chartis stemming from environmental "contamination" of the Property. (Sunnyside 56.1 ¶ 45.) Sunnyside filed a claim against Opsys in the Bankruptcy Action, and notified Chartis of its claim. (Sunnyside 56.1 ¶¶ 50, 64.) On October 6, 2003, Sunnyside notified Chartis that it submitted a claim directly to Chartis relating to the "damage to the building floors, subfloors, walls and ceilings from the release of toxic chemicals" and a "few . . . drum[s] [that] appear to have leaked . . . ." (Sunnyside 56.1 ¶ 51; Chiu Decl. Ex. 7.) Chartis rejected the claim. (See e.g., Sunnyside 56.1 ¶ 79.)

In October 2003, a "Closure Plan"-describing the process to "remov[e] all hazardous waste" from the Property-was submitted to and approved by the CUPA. (Chartis 56.1 ¶ 15; Cohen Decl. Ex. 8 at 4 (the Closure Plan).) On June 16, 2004, a "Closure Report"-detailing the results of the decontamination process-was accepted by the CUPA, and Sunnyside was allowed to re-lease or re-occupy the Property. (See e.g., Conner Ex. F-1, G (CUPA Closure Report and CUPA Confirmation ).) A Post-Closure Report specifically noted the contamination caused by the leaking drums. (Cohen Decl. Ex. 9, at 7 (The Post-Closure Report stated: "Because of the nature of the majority of the chemicals stored (high or low pH), leaks from the storage drums were fairly evident due to spalling on the concrete floor.").)

Under Chartis's Policy, Sunnyside could not bring a claim against Chartis until "the amount of the Insured's obligation to pay . . . ha[s] been finally determined . . . by judgment against the Insured . . . ." (Sunnyside 56.1 ¶ 66.) On October 22, 2004, the Bankruptcy Court granted Sunnyside's motion for an order permitting it "to pursue collection outside the bankruptcy to obtain insurance benefits under the debtor's insurance policy." In re Opsys U.S. Corporation, No. 03-42660 (Bankr. N.D. Cal. Oct. 22, 2004). On April 8, 2005, Sunnyside instituted the California Action against Opsys. (Sunnyside 56.1 ¶ 80.) On April 18, 2005, Sunnyside filed a first amended complaint in the California Action, raising claims under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. 9600 et seq., for negligence, and for public nuisance. (Chiu Decl. Ex. 17 (the First Amended Complaint).)

On June 24, 2005, Sunnyside notified Chartis that: "[Sunnyside] has sued your insured . . . and are about to file a default. Do you plan on defending? If not, we will get a judgment and then file a writ of garnishment under your policy." (Chartis 56.1 ¶ 34.) There is no record of any response from Chartis. (See Sunnyside 56.1 ¶¶ 93-95 (Chartis never responded); Chartis Response 56.1 ¶ ¶ 93-95 (Chartis representative does not deny that Chartis received notice but instead says he does not recall whether Chartis responded).) Chartis did not intervene in the California Action.

On September 30, 2005, the clerk of the court in the California Action issued an entry of default against Opsys. (Chiu Decl. Ex. 20.) On April 8, 2010, Judge Patel of the United States District Court for the Northern District of California entered a final default judgment against Opsys for $1,000,000 (the "Default Judgment"). (Chiu Decl. Ex. 23.)

On April 30, 2010, Sunnyside brought the instant action to enforce the Default Judgment against Chartis and collect under Chartis's Policy. On March 15, 2011, both ...


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