RAMIREZ, P. J.
In 2008, in London, a battery in a handheld electronic gaming device started a fire. Previously, Planet Bingo, LLC (Planet Bingo) designed the device, had it manufactured by an independent contractor, and then shipped it to a distributor in the United Kingdom (UK). That distributor has now agreed to pay $2.6 million for the damages caused by the fire and has asserted a claim for this amount against Planet Bingo.
In this action, Planet Bingo is suing its liability insurer, the Burlington Insurance Company (Burlington). According to Planet Bingo, Burlington handled the claim for fire damages negligently and in bad faith, wrongfully failed to defend the claim, and wrongfully denied coverage for the claim. The trial court granted judgment on the pleadings against Planet Bingo and in favor of Burlington, on the ground that the fire occurred outside the "coverage territory" as defined in the policy.
We will hold that, under the definition of "coverage territory," as properly construed, there is at least a potential for coverage in the future, depending on whether the distributor files suit against Planet Bingo and, if so, where. Accordingly, the trial court erred by entering judgment on the pleadings.
"Because this matter comes to us after a judgment on the pleadings, we take the facts from [the p]laintiff's complaint, the allegations of which are deemed true for the limited purpose of determining whether [the p]laintiff has stated a viable cause of action. [Citations.]" (Timed Out, LLC v. Youabian, Inc. (2014) 229 Cal.App.4th 1001, 1004, fn. 1.)
Burlington issued to Planet Bingo a commercial general liability policy for the policy period from December 2007 through December 2008. The policy provided coverage of up to $1 million per occurrence. A "Deductible" endorsement provided for a $5,000 deductible.
The "Insuring Agreement" section of the policy provided:
"This insurance applies to `bodily injury' and `property damage' only if:
The "Definitions" section of the policy provided:
Planet Bingo ships personal handheld devices ("PHDs") used in the gaming industry. Planet Bingo also designs the PHDs; it contracts with Jaco Industries (Jaco) to manufacture the PHDs, which Jaco does in California. Jaco — not Planet Bingo — selects and purchases the lithium batteries that go in the PHDs. The PHDs are then leased by distributors around the world.
One of these distributors is Leisure Electronics, Ltd. (Leisure), a UK company. Leisure leased Planet Bingo's PHDs to Beacon Bingo (Beacon), another UK company. Planet Bingo trained Leisure on how to use and store lithium batteries. Leisure, in turn, trained Beacon.
On September 12, 2008, there was a fire on Beacon's premises in London. Also on September 12, 2008, Planet Bingo, through its insurance broker, notified Burlington of the fire.
In October 2008, an investigative report concluded that the fire had been caused by a lithium battery in one of Planet Bingo's PHDs. Beacon made a claim against Leisure. Leisure, in turn, made a claim against Planet Bingo. Through its insurance broker, Planet Bingo tendered the claim to Burlington. On March 30, 2009, Burlington acknowledged receipt of the claim and made a reservation of rights. Thereafter, Burlington "undertook complete control of the [c]laim."
On June 2, 2009, Leisure told Burlington that the cause of the fire was a lithium battery in one of the PHDs. Leisure also told Burlington that Beacon was claiming damages exceeding the policy limits.
In April 2010, Burlington told Planet Bingo that it was continuing to investigate the claim. It said it had retained an independent adjuster and an independent expert fire investigator. It also told Planet Bingo that, based on information from Beacon, the fire damage would exceed the policy limits by at least $1.6 million dollars.
In May 2010, Burlington's fire investigator finished his investigation and issued his report. Like the previous investigator, he concluded that the fire was caused by a lithium battery in a Planet Bingo PHD.
In October 2010, Burlington once again told Planet Bingo that it was continuing to investigate the claim. This time, however, it also told Planet Bingo that Leisure might file a lawsuit against it.
In February 2011, Burlington told Planet Bingo yet again that it was still investigating the claim. Burlington demanded that Planet Bingo pay the $5,000 deductible, which Planet Bingo did.
In June 2011, Burlington told Planet Bingo that it was closing its file on the claim because no lawsuit had been filed. Burlington reserved its rights in the event that the claim was reopened. Burlington did not tell Planet Bingo what it had learned about the cause of the fire. It also did not tell Planet Bingo that Leisure and Beacon were in settlement negotiations, nor did it tell Planet Bingo that Leisure was likely to sue Planet Bingo for damages in excess of the policy limits.
In June 2014, Leisure and Beacon entered into a settlement which called for Leisure to pay Beacon £1.6 million — approximately $2.6 million. On July 21, 2014, Leisure notified Planet Bingo of the settlement, demanded that Planet Bingo pay the full amount of the settlement, and indicated that it was going to sue Planet Bingo to recover this amount. Planet Bingo immediately notified Burlington of this claim.
On August 15, 2014, Burlington denied coverage for the claim, on the ground that the fire did not occur in the "coverage territory."
On October 2, 2014, Burlington additionally refused to defend the claim, on grounds including that the fire did not occur in the "coverage territory."
Planet Bingo's complaint asserted causes of action against Burlington for breach of contract, bad faith, negligence, and declaratory relief.
The complaint also asserted causes of action against William Youngblood and William R. Youngblood Insurance Agency, Inc. (collectively Youngblood) for professional negligence and breach of contract, essentially alleging that they failed to procure suitable insurance. These defendants are not parties to this appeal.
Burlington filed a motion for judgment on the pleadings. It argued that: (1) There was no coverage, because the fire did not take place in the coverage territory and because a suit had not been filed in the Unites States or Canada. (2) There was no duty to defend, because no suit had yet been filed. (3) Because there was no coverage, Burlington could not be liable for bad faith. (4) There is no such thing as a cause of action for negligent claim handling.
After hearing argument, the trial court granted the motion. It therefore entered judgment in favor of Burlington and against Planet Bingo.
"`A judgment on the pleadings in favor of the defendant is appropriate when the complaint fails to allege facts sufficient to state a cause of action. [Citation.] A motion for judgment on the pleadings is equivalent to a demurrer and is governed by the same de novo standard of review.' [Citation.]" (People ex rel. Harris v. Pac Anchor Transp., Inc. (2014) 59 Cal.4th 772, 777.) "We affirm the judgment if it is correct on any ground stated in the [motion], regardless of the trial court's stated reasons. [Citation.]" (Mexia v. Rinker Boat Co., Inc. (2009) 174 Cal.App.4th 1297, 1303; see also Everett v. State Farm General Ins. Co. (2008) 162 Cal.App.4th 649, 655 ["`The standard of review for a motion for judgment on the pleadings is the same as that for a general demurrer.' [Citation.]"].)
Planet Bingo contends that the trial court erred by ruling that there was no coverage because the fire did not take place in the "coverage territory."
"`Our goal in construing insurance contracts, as with contracts generally, is to give effect to the parties' mutual intentions. [Citations.] "If contractual language is clear and explicit, it governs." [Citations.] If the terms are ambiguous, we interpret them to protect "`the objectively reasonable expectations of the insured.'"' [Citation.]" (State of California v. Allstate Ins. Co. (2009) 45 Cal.4th 1008, 1018.)
"`A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable.' [Citation.]" (State v. Continental Ins. Co. (2012) 55 Cal.4th 186, 195.) "Because `the insurer typically drafts policy language, leaving the insured little or no meaningful opportunity or ability to bargain for modifications,' ambiguities in policy provisions are generally resolved against the insurer and in favor of coverage. [Citation.]" (City of Hope Nat. Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 397.)
"In general, interpretation of an insurance policy is a question of law and is reviewed de novo under settled rules of contract interpretation. [Citations.]" (Ameron Internat. Corp. v. Insurance Co. of State of Pennsylvania (2010) 50 Cal.4th 1370, 1377-1378.)
The policy here applied to property damage only if it was caused by an occurrence in the "coverage territory." It is undisputed that the relevant "occurrence" was the fire, which took place in the UK. It is also undisputed that this was not within clause a of the definition of the "coverage territory," which was limited to the United States and Canada.
Clause c included "[a]ll other parts of the world," but only if the property damage arose out of "[g]oods or products made or sold by you" in the United States or Canada. "Made" is ambiguous. To "make" can mean "to bring into being by forming, shaping, or altering material" (Merriam-Webster <https://www.merriam-webster.com/dictionary/make>, def. 3.a [as of Feb. 14, 2018].) More loosely, however, it can also mean, "to cause to exist, occur, or appear: create." (Id., def. 2.b.) Planet Bingo did not make the PHDs under the first definition; however, because it designed them and it contracted for their manufacture, it did make them under the second definition.
We resolve this ambiguity by looking to the objectively reasonable expectations of the insured. As far as the complaint reflects, Planet Bingo did not manufacture anything. However, it designed products that it then shipped around the world. Moreover, its insurance broker, Youngblood, was aware that it designed products that were shipped around the world. Youngblood advised Planet Bingo that it should buy the policy at issue. Youngblood had the authority to bind Burlington to coverage. Planet Bingo would naturally expect that Burlington's policy covered property damage that its products might cause anywhere in the world.
Clause c, however, was limited by the proviso that the insured's liability must be "determined in a `suit' on the merits, in the territory described in a. above. . . ."
"`"[A]n insurer cannot escape its basic duty to insure by means of an exclusionary clause that is unclear. . . . `[A]ny exception to the performance of the basic underlying obligation must be so stated as clearly to apprise the insured of its effect.' [Citation.] Thus, `the burden rests upon the insurer to phrase exceptions and exclusions in clear and unmistakable language.' [Citation.] The exclusionary clause `must be conspicuous, plain and clear.'" [Citation.] This rule applies with particular force when the coverage portion of the insurance policy would lead an insured to reasonably expect coverage for the claim purportedly excluded.' [Citation.]" (E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465, 471.) Thus, Planet Bingo's argument is twofold: (1) the clause requiring that a suit must be filed in the United States or Canada is an exclusion; and (2) it is not conspicuous, plain, and clear.
We do not agree that the clause is an exclusion. It is part of the "Insuring Agreement" section of the policy, which extends coverage to "`property damage' . . . caused by an `occurrence' that takes place in the `coverage territory'. . . ." The "Definitions" section then defines the "coverage territory" as including parts of the world other than the United States and Canada, under certain conditions, one of which requires a suit filed in the United States or Canada.
Admittedly, a clause may be deemed an exclusion even if — as here — it is in the insuring agreement section, rather than in the exclusions section of the policy. Indeed, that can be one reason for holding that an exclusion is not sufficiently conspicuous. (Fields v. Blue Shield of California (1985) 163 Cal.App.3d 570, 579; see also U-Haul Co. of Southern Cal., Inc. v. State Farm Mut. Auto. Ins. Co. (1975) 50 Cal.App.3d 665, 668 [placement of limitation among language extending coverage, rather than among exclusions, "could well be viewed as obscuring the fact of exclusion."].) Nevertheless, a grant of coverage has to set certain boundaries. For example, an insurer would not normally agree to cover any given risk for all time; thus, every policy specifies a policy period. This is considered to be part of the insuring agreement, even though it could be viewed as an exclusion of occurrences outside the policy period. Likewise, an insurer would not normally agree to cover an infinite amount of risk, so every insuring agreement specifies a policy limit; this is not viewed as an exclusion of losses in greater amounts.
Here, similarly, an insurer would not normally agree to cover liability adjudicated anywhere in the world. "[I]t would be entirely understandable for an insurance company to want to limit the coverage of its policy to actions prosecuted only in particular jurisdictions and not want to obligate itself to the defense of claims in foreign jurisdictions having different laws and different legal systems." (National Casualty Co. v. Sovereign General Ins. Services, Inc. (2006) 137 Cal.App.4th 812, 824 [conc. opn. of Hull, J.].) While foreign liability coverage is available, it is typically offered as a separate policy, for a separate premium. (International Risk Management Institute, Glossary of Insurance & Risk Management Terms <https://www.irmi.com/online/insurance-glossary/terms/f/foreign-liability-coverage.aspx>, as of Feb. 14, 2018.) Accordingly, a geographical limitation is a natural and organic part of the grant of coverage in an insuring agreement; it is not an exclusion from the coverage granted.
Separately and alternatively, we also do not agree that the clause is not conspicuous, plain, and clear. This case is analogous to U-Haul Co. of Southern Cal., Inc. v. State Farm Mut. Auto. Ins. Co., supra, 50 Cal.App.3d 665. There, the policy extended coverage to non-owned automobiles, but the definition of "automobile" excluded vehicles that did not have four wheels. The court held that this exclusion was enforceable. It explained that "[t]he policy . . . is prefaced by the statement `Note: The words in bold face italic type are defined under Definitions within each section.'" (Id. at p. 668.) Moreover, the non-owned automobile section used the word "automobile" five times, in bold-face italics. (Ibid.) The court concluded: "These repeated emphases upon the need to look to the definition . . . remove any element of obscurity, concealment, or ambiguity which might otherwise be found." (Ibid.)
In this case, the preface to the policy stated: "[W]ords and phrases that appear in quotation marks have special meaning. Refer to Section V — Definitions." "Coverage territory," in quotation marks, was used in the insuring agreement three times — to limit the coverage for bodily injury and property damage, for personal and advertising injury, and for medical payments, respectively. This made it sufficiently clear that "coverage territory" had a special, restricted meaning that had to be consulted when determining coverage.
Planet Bingo argues that the policy is ambiguous (or even internally contradictory) because, in the insuring agreement, Burlington promised "to defend the insured against any `suit' seeking those damages." According to Planet Bingo, "`any' suit means every suit, without limitation as to where the suit is filed." But this ignores the significant qualifying words, "seeking those damages." (Italics added.) "Those damages" refers back, earlier in the paragraph, to "damages because of . . . `property damage' to which this insurance applies." The policy then provides that "[t]his insurance applies to . . . `property damage' only if: [¶] . . . [t]he . . . `property damage' is caused by an `occurrence' that takes place in the `coverage territory'. . . ." And, as already discussed, the "coverage territory" includes the UK only if the insured's liability is determined in a suit in the United States or Canada.
However, we do agree with Planet Bingo's alternative contention: There was at least a potential for future coverage. Even though no suit had yet been filed in the United States or Canada, it was not impossible that one might be filed later.
Burlington dismisses this point as "irrelevant unless and until such a lawsuit is filed. . . ." However, as we will discuss in part VI, post, the fact that there is at least a potential for future coverage is relevant to whether Planet Bingo can state a cause of action for bad faith. It is also relevant to the cause of action for declaratory relief. "`A motion for judgment on the pleadings is an appropriate means of obtaining an adjudication of the rights of the parties in a declaratory relief action if those rights can be determined as a matter of law from the face of the pleading attacked. . . .'" (Alterra Excess & Surplus Insurance Company v. Snyder (2015) 234 Cal.App.4th 1390, 1401.) Here, the trial court essentially declared that there was no coverage and no duty to defend under any circumstances. This was erroneous and must be reversed.
Planet Bingo argues that Burlington has breached its duty to defend.
Standard liability policies, including the policy at issue here, provide that the insurer has a duty to defend a "suit"; by contrast, it has discretion to investigate and to settle a "claim." (Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, 878.) Ordinarily, "the word `suit' in the policies means a civil action commenced by filing a complaint. Anything short of this is a `claim.'" (Ibid.) The policy here specifically defines "suit" as "a civil proceeding in which damages because of . . . `property damage' . . . to which this insurance applies are alleged." The complaint does not allege that a suit has been filed against Planet Bingo; thus, as yet, Burlington has no duty to defend.
Admittedly, the policy here further provides: "`Suit' includes:
In the apparent hope of triggering these provisions, Planet Bingo asserts that the settlement between Leisure and Beacon was the product of mediation. The complaint, however, does not allege this. Moreover, even if it did, Burlington's obligation was to defend "the insured" against an alternative dispute resolution proceeding "to which the insured submits with [Burlington's] consent." It does not appear that Planet Bingo was a party to the asserted mediation at all — much less with Burlington's consent.
Finally, Planet Bingo complains that Burlington deprived it of the opportunity to become a party to the asserted mediation by failing to tell it that the mediation was going on. Leaving aside, again, the fact that the complaint contains no allegations about the mediation whatsoever, there is no basis for supposing that Planet Bingo would have been able to be a party to it. Planet Bingo complains that it was not able to "attend" the mediation, as if it could have bought a ticket. But a third party does not get to just barge into a private mediation. If Leisure and Beacon had wanted Planet Bingo to participate, they could have asked it to do so.
In summary, Planet Bingo's position is that "the duty to defend exists at the prelitigation as well as litigation stages." The law as well as the provisions of the policy are to the contrary. Arguably, an insurer may have other duties during the prelitigation stage — a topic we consider in part VI, post. However, a duty to defend is not one of them.
Planet Bingo contends that it properly alleged that Burlington is liable for bad faith claims-handling.
"`An insurer is said to act in "bad faith" when it not only breaches its policy contract but also breaches its implied covenant to deal fairly and in good faith with its insured. "A covenant of good faith and fair dealing is implied in every insurance contract. [Citations.] The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement's benefits. . . ."' [Citation.] The covenant of good faith and fair dealing `is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct that frustrates the other party's rights to the benefits of the agreement.' [Citation.]" (Behnke v. State Farm General Ins. Co. (2011) 196 Cal.App.4th 1443, 1469.)
"It is clear that if there is no potential for coverage . . ., there can be no action for breach of the implied covenant of good faith and fair dealing because the covenant is based on the contractual relationship between the insured and the insurer. [Citation.] . . . [W]hen benefits are due an insured, `delayed payment based on inadequate or tardy investigations, oppressive conduct by claims adjusters seeking to reduce the amounts legitimately payable and numerous other tactics may breach the implied covenant because' they frustrate the insured's right to receive the benefits of the contract in `prompt compensation for losses.' [Citation.] Absent that contractual right, however, the implied covenant has nothing upon which to act as a supplement, and `should not be endowed with an existence independent of its contractual underpinnings.' [Citation.]" (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36.)
In part IV, ante, we held that, while there was no coverage under the policy yet, as no suit had yet been filed, there was a potential for coverage in the future. This potential was sufficient to make Burlington's investigation and other claims-handling activities subject to the implied covenant of good faith and fair dealing. (Schwartz v. State Farm Fire and Cas. Co. (2001) 88 Cal.App.4th 1329, 1339-1340.) It is well-established that an insurer can breach the implied covenant in its handling of a claim that has not yet ripened into a suit. (E.g., Barickman v. Mercury Casualty Company (2016) 2 Cal.App.5th 508, 512-514, 518-522.) Burlington moved for judgment on the pleadings on the cause of action for bad faith on the sole ground that, because there was no coverage, it could not be in breach of the implied covenant. The trial court agreed and granted the motion on the ground that there was no coverage. This was error.
This is not to say that we wholly endorse Planet Bingo's bad faith cause of action. Planet Bingo's brief lists, in shotgun fashion, the acts that supposedly breached the implied covenant. It states: "Burlington engaged in unreasonable claims handling by: 1) accepting tender of a claim (`the Claim') . . .; 2) invoking the Policy's cooperation clause; 3) prevent[ing] Planet Bingo from involving itself in the Claim or settlement thereof; 4) waiting over a year to conduct an investigation thereby allowing exculpatory evidence to be destroyed; 5) undertaking a substandard and unreasonable investigation; 6) charging for and collecting the Policy's $5,000 deductible; 7) not communicating any facts of its investigation to Planet Bingo, such as that third parties that may sue Planet Bingo were engaged in settlement negotiations and that the settlement may be prejudicial to Planet Bingo; 8) not communicating to Planet Bingo names of other potentially responsible third parties that Planet Bingo could file cross-complaints against, thereby permitting the statute of limitations to run against those third parties; 9) not communicating to Planet Bingo that third parties had settled, thereby prejudicing Planet Bingo's ability to defend itself; 10) doing nothing to protect Planet Bingo's interests; 11) closing its file on the Claim when Burlington knew that third parties were going to settle and sue Planet Bingo; and, 12) ultimately, six years after accepting the Claim, denying it on specious grounds. . . ."
Burlington disputes some of these charges. It argues that it did not "accept" the claim; it was entitled to collect the $5,000 deductible; it did not prevent Planet Bingo from conducting its own investigation; and it did not fail to inform Planet Bingo of the Leisure-Beacon settlement, which occurred after its investigation was over. Independently, we question whether Planet Bingo has adequately alleged that it was damaged by the supposed nondisclosures. We also question how the statute of limitations can have already run against joint tortfeasors when equitable indemnity and contribution causes of action do not accrue until the plaintiff has paid the underlying claim. (People ex rel. Dept. of Transportation v. Superior Court (1980) 26 Cal.3d 744, 751-752, 757.) Burlington, however, did not raise any of these issues in its motion for judgment on the pleadings. We therefore decline to decide them in this appeal.
Planet Bingo contends that it stated a cause of action for negligent claims-handling.
"A person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations." (Aas v. Superior Court (2000) 24 Cal.4th 627, 643.) For this reason, "negligence generally is not among the theories of recovery available against insurers." (Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2017) ¶ 11:205, p. 11-51.) "If an insured seeks to recover in tort for an insurer's mishandling of a claim, it must allege more than mere negligence." (Adelman v. Associated Int'l. Ins. Co. (2001) 90 Cal.App.4th 352, 369.) Indeed, Planet Bingo expressly concedes that: "Burlington may only be found liable for bad faith through its unreasonable claims handling practices and not solely for negligent claims handling."
Planet Bingo argues, however, that by denying coverage, Burlington took the position that there was no contract; thus, when it investigated the claim, it did so as a volunteer, and it thereby took on a noncontractual duty of due care.
This argument practically refutes itself. A denial of coverage is not a denial of the existence of the underlying contract; it is merely an assertion that the particular claim does not meet the contract's requirements for coverage. Thus, investigating a claim is perfectly consistent with a conclusion, at the end of the investigation, that the claim is not covered. Indeed, the very purpose of the insurer's investigation is to determine whether the claim is covered or not.
In sum, then, the fact that Burlington denied coverage does not take it outside the rule that an insurer ordinarily cannot be liable for merely negligent claims-handling.
The judgment is reversed. On remand, the trial court must enter a new order, denying the motion for judgment on the pleadings with respect to the causes of action for breach of contract, bad faith, and declaratory relief, but granting the motion with respect to the cause of action for negligence. In the interests of justice, each side shall bear its own costs.
We recognize that an insurance policy must be interpreted as a whole. (Clarendon America Ins. Co. v. North American Capacity Ins. Co. (2010) 186 Cal.App.4th 556, 566.) Clause c, however, does not use the defined term "your product." The policy uses "your product" solely to specify certain exclusions. For example, the property damage coverage excludes "`[p]roperty damage' to `your product' arising out of it or any part of it." It makes sense that clause c (which extends coverage) would refer to "product" narrowly, at the same time as these exclusions refer to "product" broadly — or, for that matter, vice versa. There is simply no reason for the scope of the two to be commensurate.
A venue selection clause in a contract specifies a county within the state in which a party to the contract may or must bring an action. (See generally Alexander v. Superior Court (2003) 114 Cal.App.4th 723, 727.) Here, the challenged clause does not specify where Planet Bingo must bring an action against Burlington. It does not even specify where a third-party claimant must bring an action against Planet Bingo. It merely provides that, under certain circumstances, a third-party claimant must bring an action against Planet Bingo in the United States or Canada — and must prevail — for there to be coverage.
