Dale A. Drozd, UNITED STATES DISTRICT JUDGE.
This matter concerns a dispute over an insurance contract. A court trial was held commencing on October 18, 2016 and concluding on October 27, 2016. For the reasons explained below, the court finds plaintiff has not met its burden of proof and therefore finds in favor of defendant and will direct that judgment be entered for defendant.
This action was initially filed by both Pacific Marine Center, Inc.
Pursuant to Federal Rule of Civil Procedure 52, the court now finds the following facts and separately states its conclusions of law. Fed. R. Civ. P. 52(a)(1).
The evidence presented to this court at the bench trial consisted of eleven witnesses and ninety-one exhibits. The court also considered as evidence certain selections of a deposition transcript from Zane Averbach, Esq., a former attorney for Sona Vartanian, who was deemed unavailable to testify at trial. Mr. Averbach's deposition testimony was read into the record at trial. The trial witnesses who were sworn and testified included Sona Vartanian, Howard Gastwirth, Ronald Miller, Thomas Leith, Elaine Barajas, Hagop Vartanian, attorney Thomas Nast, James Stanley Deakin, Barry Cohen, Robert R. Hastey, and James Schratz. Thirty-three joint exhibits were submitted and all were admitted in their entirety. Additionally, fifty-eight exhibits, either in whole or in part, from the separate exhibit lists of defendant and plaintiff were admitted into evidence. All of this evidence has been considered in the court's decision, as have the parties' trial briefs and other submissions and arguments. The court now finds the following facts.
Hagop Vartanian
In 2001 Hagop was indicted on federal criminal charges for subscribing to false tax returns and making false statements on loan applications in violation of 26 U.S.C. § 7206 and 18 U.S.C. § 1014. In March 2003, following a jury trial, Hagop Vartanian was convicted on all counts. He was sentenced in July 2005 to a fifteen-month term of imprisonment but remained free on bail pending appeal. On May 25, 2007, Hagop's judgment of conviction was affirmed by the Ninth Circuit Court of Appeals leading to the setting of November 15, 2007 as the date by which he would be required to surrender himself to the custody of the U.S. Bureau of Prisons. Once the Vartanian family learned Hagop's convictions had been upheld on appeal and he would be incarcerated, the family took steps at the direction of attorney Nast to ensure Hagop's business would survive his incarceration. Attorney Nast was particularly concerned the IRS would seek to levy on the business in order to satisfy Hagop's tax debts, and constructed an intra-family transaction to attempt to prevent that from taking place. The plan called for the activation of the formally dormant Pacific Marine Center, Inc., which would enter into an asset purchase with Hagop for his complete boat inventory at fair market value. Those assets would be purchased by a promissory note with an extended, thirty-year payment schedule, preferably executed at a moment when the boat inventory was fairly low, which would help to keep the monthly payments under the promissory note to a minimum. (See, e.g., Parties' Joint Ex. JX-5.) Under this plan, Hagop would resign any position within the corporation, which would convert to a closed corporation, and would sell his stock to a family member for a nominal amount of $500. Following his release from imprisonment, the stock could later be repurchased by Hagop from the trusted family member for the same nominal payment, while the assets would be left within the corporation.
This plan had multiple potential benefits for the Vartanian family.
Many, if not all, of the Vartanian family members were present for multiple discussions regarding the execution of this plan. At least Sona and Hagop, as well as their brother Kirk Vartanian, were present at these meetings, and Sona's son Marty may also have been present. It is unclear whether Sona and Hagop's parents, who apparently lived in the family home with Hagop, were present for any of these meetings. Attorney Nast was certainly present at them and once he had laid out the plan for the family's consideration, the family collectively discussed who would be the best caretaker for the business. Kirk was rejected for this role because he had financial and legal troubles of his own, and Marty was eliminated because he was too young and inexperienced to serve as principal. Sona therefore presented the only logical choice, and the family agreed she should purchase the corporation's stock and serve as a caretaker for the business while Hagop was in prison.
Attorney Nast explained to the family that there could be no enforceable agreement, written or oral, that Sona would sell the stock back to Hagop after he was released from his imprisonment. Nast was concerned that, if such an agreement were formulated, the family members might be required to either reveal that the transfer was fraudulent or lie under oath when questioned by IRS agents. Therefore, attorney Nast advised there simply had to be a "family understanding" that the corporation's stock would be returned to Hagop once he was released from prison and the threat of the IRS levying on the property had cleared. According to attorney Nast's testimony, which the court found to be quite credible, both Sona and Hagop understood the nature of this "family understanding," and there was never any doubt among the family members that the business would revert to Hagop after he was released from prison and was clear of the threat of an IRS levy.
Shortly before reporting to prison in November 2007, Hagop executed a power of attorney in favor of his sister Sona, again at the direction of attorney Nast, which would allow Sona to finalize the transactions and set in motion the asset protection scheme. (Parties' Joint Ex. JX-3.) The final purchase agreement between Pacific Marine Center and Hagop was entered into in June 2008, with Sona signing both on behalf of the corporation as its president and for Hagop via his power of attorney. Also using the power of attorney, Sona executed several other documents, including a promissory note reconciling a variety of undocumented loans she had supposedly made to Hagop in years past. This new promissory note, executed in June 2008, indebted Hagop to Sona for more than $270,000, and was secured by the promissory note by which Pacific Marine Center purchased the assets of the business from Hagop. Thus, were Hagop to fail to pay Sona under this June 2008 note executed by Sona as to both parties to the transaction, he would forfeit any payment for the business assets of Pacific Marine Center. It is unclear how Hagop purportedly incurred the debt reflected in this note: Sona testified at trial that the debt reflected prior loans she had made to Hagop, while an e-mail entered into evidence suggested that some of the debt constituted loans Sona had made to Pacific Marine Center. (See Parties' Joint Ex. JX-10.)
Though Hagop testified he did not draw a salary from Pacific Marine Center and was not directly compensated for his work there, following his release from prison, accounting records supplied introduced into evidence by plaintiff at trial show Pacific Marine Center making hundreds of payments to Hagop between July 2008 and July 2010. The payments were frequently made multiple times per month, at irregular intervals and for irregular amounts. (Exh. P-1.) The smallest individual payment was for $80, while the largest was for $45,000. (Id.) Sometimes the payments were made in cash, while most of the payments were made by check. (Id.) The payments were frequently in whole dollar amounts, though not always. (Id.) Most surprisingly, multiple payments were frequently made on the same day, such as payments for $3,800, $600, and $700, all of which were made separately to Hagop on April 8, 2010. (Id.) The court finds Sona's explanation for the irregularity of these payments not to be credible.
In August 2009, shortly after Hagop's return to the business, the California Department of Motor Vehicles (DMV) executed search warrants at Pacific Marine Center as well as at one of Kirk Vartanian's businesses. At trial, Sona identified this event as the beginning of the downfall of her relationship with her brother Hagop. Nevertheless, there was little evidence presented at trial of any change in the siblings' relationship until almost a year later.
In July 2010, and possibly for some months preceding, the relationship between Hagop and Sona soured. Among other issues, the two disputed Hagop's purchase of certain boats at auction on behalf of Pacific Marine Center, Hagop's hiring of certain employees, Sona's purported failure to pay bills of the business that were coming due, complaints from customers about Sona's handling of the business, and the decreasing amount of boat inventory that was being kept on-hand by the business. At some point during this month, Sona hired an accountant to advise her how much would be outstanding on the asset purchase agreement, if all the payments that had been made to Hagop were counted as payments made under that agreement. She then contacted an attorney, Zane Averbach, who gave her a notice to post at the business advising those working there that Hagop did not work or consult for Pacific Marine Center.
The dispute between the sister and brother came to a head on July 24, 2010. According to Sona's testimony at trial, Hagop physically assaulted her and threatened her that day and drove her out of the business, changing the locks and stealing all of Pacific Marine Center's boats. Hagop testified that the two did argue, with Sona eventually telling him to stay away from Pacific Marine Center before she left. Hagop maintained he did not assault his sister. Further, Hagop testified he did not change the locks on the building. According to Hagop, Sona did not return to the business for several days after this argument, at which point the landlord came to the business asking Hagop about unpaid rent.
Hagop took a number of steps consistent with his professed understanding that he was the rightful owner of the boats. Shortly after taking the boats and moving them to his property, Hagop sent Sona a letter indicating he had repossessed the boats, providing her with an inventory of the items he had repossessed. Additionally, in August 2010, Hagop called Elaine Barajas, the insurance broker who had sold the insurance policy to Pacific Marine Center, to discuss an insurance bill. During the call, he advised Ms. Barajas he had taken over the business. This prompted Barajas to reach out to Sona to confirm whether Hagop was the appropriate contact for Pacific Marine Center. Barajas was told by Sona that there was a legal dispute between her and her brother, Hagop about who owned the business. Sona also instructed Barajas to reduce the coverage on the insurance policy by eliminating Hagop's building at 10452 Highway 41 from the coverage and lowering the overall policy limits. Hagop meanwhile had contacted the DMV directly as well, seeking to have titles re-issued for any boats he had taken possession of for which Sona had retained possession of the titles. It appears from the evidence admitted at trial that at least some of those titles were reissued by the DMV at Hagop's request.
During the successive months, Sona and Hagop entered into mediation to attempt to resolve their business differences and settle the accounts between them. The mediation was unsuccessful, and Sona ultimately filed suit against Hagop in state court. In November 2010, Sona cancelled her insurance policy with Philadelphia Indemnity and received a portion of her premium in return. She ultimately submitted a claim to Philadelphia Indemnity in March 2011 via her then-attorney, Barry Cohen, alleging in that claim that Hagop had stolen the boats from her and that the theft was a compensable event covered under the insurance contract.
Ultimately, Philadelphia Indemnity retained outside counsel, and after investigating the matter, denied Sona's claim in March 2013. Among the reasons Philadelphia Indemnity gave for refusing coverage were the following: (1) it appeared no theft had occurred, and that whatever had happened between Hagop and Sona was the result of an intra-family legal dispute; and (2) it appeared Hagop was either an employee or an authorized representative of Pacific Marine Center, and any losses due to his wrongdoing were therefore excluded under the policy. (Parties' Joint Ex. JX-33.)
At the outset, it is important to understand what is alleged by plaintiff in the complaint filed in this action. The only insurance claim plaintiff ever tendered to the defendant was one arising from an alleged theft. Moreover, an alleged theft is the only basis for the claim against the defendant insurance company that plaintiff has presented in this civil action. In the original complaint, plaintiff specifically alleged: defendant insured the business against "loss by theft;" "inventory and other items at Pacific Marine's place of business were stolen" in late July 2010; and that plaintiff had notified defendant "of the theft loss" and defendant refused to pay despite the coverage provided by the insurance policy. (Doc. No. 1 at 10.) Moreover, plaintiff's complaint specifically alleged that the defendant's coverage denial "for the theft loss and failure to reimburse plaintiffs for the theft loss" was what constituted the breach of contract. (Id.)
It is undisputed that the policy at issue provides coverage beyond merely that for theft loss. (Parties' Joint Ex. JX-1.) Indeed, the policy actually covers "direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss." (Id.) This is generally known as an "all-risk" policy, which covers losses stemming from theft, property damage, and other sources. Direct physical loss under an all-risk policy generally may include losses due to either theft or conversion. See Intermetal Mexicana, S.A. v. Ins. Co. of N. Am., 866 F.2d 71, 78 (3d Cir. 1989) (interpreting Pennsylvania law and holding conversion is covered under an all-risk policy); EOTT Energy Corp. v. Storebrand Int'l Ins. Co., 45 Cal.App.4th 565, 569, 52 Cal.Rptr.2d 894 (1996) (theft). However, plaintiff here never moved to amend the complaint in order to attempt to expand its theory of liability, and the operative complaint simply does not allege that defendant breached the
With this in mind, below the court will address the law applicable to the consideration of plaintiff's claim.
In order to demonstrate a breach of contract under California law, a party must show: (1) the existence of a contract; (2) plaintiff's performance under the contract or excuse for nonperformance; (3) defendant's breach; and (4) resulting damages to the plaintiff. Oasis West Realty, LLC v. Goldman, 51 Cal.4th 811, 821, 124 Cal.Rptr.3d 256, 250 P.3d 1115 (2011). California courts have held "all risk" policies generally cover losses due to theft. EOTT Energy Corp., 45 Cal.App.4th at 569, 52 Cal.Rptr.2d 894.
Theft is defined statutorily in California as a criminal act, with an accompanying mens rea.
In the insurance context, California courts have explained that words such as "theft," "stolen," "robbery," and "pilferage," are words "that are well understood, and . . . are used in insurance policies in their common and ordinary meaning." Barnett v. State Farm General Ins. Co., 200 Cal.App.4th 536, 543, 132 Cal.Rptr.3d 742 (2011) (quoting Granger v. New Jersey Ins. Co., 108 Cal.App. 290, 294, 291 P. 698 (1930)). Particularly, in order for an alleged theft to be covered under an insurance policy in California, a felonious taking of property is required. Barnett, 200 Cal. App.4th at 543, 132 Cal.Rptr.3d 742. As the California Court of Appeal explained:
Id. (quoting People v. Davis, 19 Cal.4th 301, 305, 79 Cal.Rptr.2d 295, 965 P.2d 1165 (1998)). Analyzing the issue further, the California Court of Appeals noted:
Id. at 544-45 (internal citations and quotations omitted) (emphasis added). Because what is at issue is a claim of right, it is axiomatic the claim "may later be undercut or proven inferior or unavailing once the matter is litigated, but this does not change the fact the initial taking is not criminal under California law." Id. at 545, 132 Cal.Rptr.3d 742. "[T]he third party's intent matters," and a "claim of right at the time of the taking . . . dispels the criminal character required to constitute a theft." Id. at 546, 132 Cal.Rptr.3d 742; see
A claim of right requires a "good faith belief that the specific property taken is one's own." Tufunga, 21 Cal.4th at 939, 90 Cal.Rptr.2d 143, 987 P.2d 168 (emphasis added). Whether such a good faith belief exists is determined based upon the circumstances presented. However, "[b]ad faith means simply that the action or tactic is being pursued for an improper motive." Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1249, 1263, 116 Cal.Rptr.2d 358 (2002). Bad faith can be shown by demonstrating a party acted for improper purposes such as causing delay or harassment. Id. A complete lack of merit in a legal proceeding may be evidence of bad faith, but does not conclusively determine it and it is not mandatory for the court to find that it does. Summers v. Cathedral City, 225 Cal.App.3d 1047, 1073, 275 Cal.Rptr. 594 (1990).
In California, exclusionary clauses in insurance contracts are strictly construed against the insurer and in favor of the insured. E.M.M.I. Inc. v. Zurich Am. Ins. Co., 32 Cal.4th 465, 471, 9 Cal.Rptr.3d 701, 84 P.3d 385 (2004). "Any ambiguity or uncertainty in an insurance policy is to be resolved against the insurer." Crane v. State Farm Fire & Cas. Co., 5 Cal.3d 112, 115, 95 Cal.Rptr. 513, 485 P.2d 1129 (1971). The insurer bears the burden of proof to demonstrate that a claim falls within a policy's exclusionary provisions. North Am. Bldg. Maint., Inc. v. Fireman's Fund Ins. Co., 137 Cal.App.4th 627, 642, 40 Cal.Rptr.3d 468 (2006) (citations omitted). "[S]trict construction does not mean strained construction; under the guise of strict construction, [a court] may not rewrite a policy to bind the insurer to a risk that it did not contemplate and for which it has not been paid." National Union Fire Ins. Co. v. Lynette C., 228 Cal.App.3d 1073, 1077, 279 Cal.Rptr. 394 (1991). Where the terms of an insurance policy are not defined, the court is "to look first to the language of the contract in order to ascertain its plain meaning or the meaning a layperson would ordinarily attach to it." Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 18-19, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995).
An insurance claim is properly excluded under an entrustment exclusion if the loss was caused by the person to whom the property was entrusted. Su v. New Century Ins. Servs., Inc., No. CV 12-03894 DDP (SSx), 2013 WL 5775160, at *3-4 (C.D. Cal. Oct. 25, 2013); see also Atlas Assurance Co. v. McCombs Corp., 146 Cal.App.3d 135, 144, 194 Cal.Rptr. 66 (1983). Courts have found that terms such as "entrustment"
An insurance claim is properly excluded under an authorized representative exclusion if the taking of property was done by an authorized representative. See Stanford Univ. Hosp. v. Federal Ins. Co., 174 F.3d 1077, 1084-85 (9th Cir. 1999); Southern California Counseling Center v. Great Am. Ins. Co., 162 F.Supp.3d 1045, 1050-53 (C.D. Cal. 2014), aff'd 667 Fed. Appx. 623 (9th Cir. 2016). An authorized representative exclusion "covers those who by authorization of the insured are given access to and permitted to handle the insured's funds" or other property. Stanford Univ. Hosp., 174 F.3d at 1085. Such a provision "excludes coverage for misappropriation of funds by those individual or entities authorized by the insured to have access to the funds—in essence, those whom the insured empowers to act on its behalf." Id.
Barring language to the contrary included in the agreement, exclusions such as an authorized representative or entrustment exclusion still apply "even if the loss occurs after" the authorization or entrustment has terminated, "so long as there is a `causal connection between the act of entrustment and the resulting loss.'" Su, 2013 WL 5775160 at *4; see also Bita Trading, Inc. v. Nationwide Mut. Ins. Co., No. 13cv1548 JM (WVG), 2015 WL 433557, at *7 (S.D. Cal. Feb. 3, 2015) (finding entrustment exclusion barred claim for property damage caused by lessee despite termination of tenancy); Plaza 61 v. North River Ins. Co., 446 F.Supp. 1168, 1171 (M.D. Pa. 1978) ("The mere fact that Majo had been told to vacate the site does not change this taking into a theft. Regardless of the status of the parties' legal relations on December 5, 1973, Majo had come into possession of the disputed goods as a result of its work under the construction contract and was carrying them off under a claim of right arising from that contract. This is a risk against which Defendant did not insure.").
"[T]he insured has the initial burden of showing that `the occurrence forming the basis of its claim is within the basic scope of insurance coverage.'" Estes v. State Farm Mut. Auto. Ins. Co., Civil No. 15-cv-0757-JAH (WVG), 2016 WL 4595949, at *3 (S.D. Cal. May 18, 2016) (quoting Aydin Corp. v. First State Ins. Co., 18 Cal.4th 1183, 1188, 77 Cal.Rptr.2d 537, 959 P.2d 1213 (1998). Based upon the evidence presented at trial the court concludes that plaintiff did not meet its burden of demonstrating that a theft occurred. In order to demonstrate a theft occurred, plaintiff bore the burden of proving Hagop had the necessary mens rea to commit a theft. Based on the evidence presented, plaintiff simply failed to meet this burden.
The evidence presented at trial tends to establish Hagop and Sona entered into a "family understanding," concocted by the family attorney, to transfer Hagop's business assets to a dormant corporation in order to avoid a potential IRS levy on those assets. This plan was specifically designed by its architect to help ensure Hagop's business would continue to be a functioning entity following his release from prison. The testimony from Hagop's attorney, which the court found to be credible, was that Hagop had a subjective expectation
The evidence at trial established that Hagop acted toward the property in question as one would act toward property to which they believed they had a rightful claim. As noted above, shortly after removing the boats from the neighboring property, he sent his sister a letter through counsel stating that he had repossessed the boats. Hagop also provided an inventory of the boats and other items removed from the neighboring premises in an attachment to the letter to his sister. Further, Hagop contacted the insurance agent, Ms. Barajas, to discuss the insurance coverage on the building, and advised her he had taken over the business. He also contacted the DMV himself, seeking to have titles re-issued for any boats he had taken possession of for which Sona had retained possession of the titles. All of these actions are consistent with a conclusion that Hagop had a good faith claim of right to the business assets of Pacific Marine Center.
Besides Hagop's belief and attorney Nast's persuasive testimony that the transaction was carried out pursuant to a "family understanding" that the business would be eventually be returned to Hagop, the parties to this agreement did not act as one would toward a normal, arms-length business transaction. This further supports the court's decision that no theft occurred here. First, Sona executed the final purchase agreement for the business assets on behalf of Hagop using his power of attorney and for Pacific Marine Center as its principal. Such obvious self-dealing is inherently suspicious, but not nearly so odd as Sona's subsequent execution of a promissory note reconciling various undocumented "loans" she made to her brother, again using his power of attorney to execute that note on his behalf, and secured by his interest in the original Pacific Marine Center note. Additionally, Pacific Marine Center continued to pay Hagop throughout his time in prison and following his release from custody and return to the business. These payments were on an irregular and varied basis, and much more closely match the regular profits from each sale that an owner of a closely-held corporation could expect to receive than they do payments on a loan as suggested by Sona. Though the agreement between the parties called only for approximately $7,000 to be paid to Hagop per month, the funds provided him were frequently many times that each month.
The transfer of significant funds to Hagop in this haphazard and splintered manner strongly suggests that Hagop, in fact, continued to run the business as though it were his own. Though the only purpose of selling the assets to a corporate entity pursuant to the "family understanding"
Additionally, in the aftermath Sona herself did not act as one would be expected to act toward a theft. Indeed, she treated it as though Hagop had a good faith claim of right to the property in question. Rather than calling the police after her brother allegedly assaulted her and stole the better part of $1 million dollars in assets from her, she renegotiated her insurance coverage, filed a lawsuit against her brother, and entered into settlement negotiations in relation to the allegedly stolen business assets. Sona did not advise the insurance company any theft had occurred until approximately eight months had passed, at which point efforts to settle the dispute between her and her brother had begun to falter. Though Sona testified at trial that she reported the theft to the DMV, the court infers that the report to DMV was more likely done to consternate her brother and escalate the conflict between them rather than as an actual effort to seek an investigation of a theft, which the DMV at any rate apparently never conducted.
In sum, the court concludes that plaintiff has not met its burden to prove a theft occurred. Plaintiff did not introduce sufficient evidence at trial to demonstrate Hagop lacked a good faith claim of right to the possession of the property allegedly stolen. Lacking proof of Hagop's felonious intent, this loss of property is not covered as a theft under the insurance policy. Therefore, defendant did not breach its insurance contract with plaintiff by failing to pay plaintiff's claim for the allegedly stolen property.
Additionally, the court finds in the alternative that, even if a theft had occurred, coverage would be barred by the exclusions contained in the parties' insurance contract. Concerning these exclusions, the contract states:
(Parties' Joint Ex. JX-1 at 66-68) (emphasis added).
The court finds neither of these terms ambiguous. Similar to plaintiff's construction, to "entrust" property to another means to "deliver something to (another)." Webster's Third New International Dictionary (Philip Babcock Gove ed. 2002), at 759 (hereinafter "Webster's"). To "authorize" is "to endorse, empower, justify, or permit by or as if by some recognized or proper authority." Webster's at 146-47. A representative, meanwhile, is defined as "one that represents another as agent, deputy, substitute, or delegate usually being invested with the authority of the principal," or "one that represents a business organization: salesman." Webster's at 1926-27. Therefore, "anyone to whom you entrust the property for any purpose" means anyone to whom property is delivered for any reason. An "authorized representative" is simply one who has been permitted to represent a business.
Under California law, the insurer bears the burden of proving that an exclusion under the policy applies. Aydin Corp. v. First State Insurance Co., 18 Cal.4th 1183, 1189-90, 77 Cal.Rptr.2d 537, 959 P.2d 1213 (1998); Marble Bridge Funding Group Inc. v. Euler Hermes American Credit Indemnity Co., Case No. 5:12-cv-02729, 225 F.Supp.3d 1034, 1044, 2016 WL 7034050, at *7 (N.D. Cal. Dec. 2, 2016) (citing Gray v. Zurich Ins. Co., 65 Cal.2d 263, 274, 54 Cal.Rptr. 104, 419 P.2d 168 (1966)). It is clear in this case that defendant has met that burden by demonstrating that Hagop was both an authorized representative of plaintiff and was entrusted with its property. The evidence presented at trial established that Hagop had access to both properties on which plaintiff's business was located, including keys to the buildings. It also demonstrated that Hagop conducted business on behalf of Pacific Marine Center, including attending auctions to purchase boats, communicating with customers concerning boat sales, selling boats at the Pacific Marine Center location, signing checks on behalf of Pacific Marine Center, and apparently receiving payments from the business's profits on a regular basis.
Sona's contrary explanations regarding this conduct ring hollow to the court. Her testimony that her brother, Hagop, was never authorized to conduct business on behalf of Pacific Marine Center, stole
Of course, the court does not find Hagop's trial testimony entirely credible either. For instance, the court does not believe Hagop's testimony that he received no money in exchange for his work selling boats on behalf of Pacific Marine Center. Rather, as the court has already indicated, the payment records appear to correspond to the regular withdrawals an owner might take from the profits of his closed corporation generated through sales. Serious doubts about the veracity of both Hagop and Sona's testimony aside, it is clear to the court that Hagop had access to the boat inventory in this case, was empowered to act and did act on behalf of Pacific Marine Center, and represented the company in many of its dealings. This leads directly to the inevitable conclusion that Hagop was entrusted with the property, and was an authorized representative of Pacific Marine Center. As such, any alleged theft committed by him was, by the terms of the insurance policy, excluded from coverage. Therefore, there was no breach of the parties' insurance contract by the defendant.
As the court noted in its prior order denying the parties' cross motions for summary judgment, any tort action for the breach of the covenant of good faith and fair dealing is predicated upon a finding of a breach of contract. (Doc. No. 134.) An insurer may always "simply deny the request and take its chance that the trier of fact in an action alleging bad faith breach of the contractual duty to defend will agree that no defense was owed." Eigner v. Worthington, 57 Cal.App.4th 188, 195-96, 66 Cal.Rptr.2d 808 (1997); see also Avery Dennison Corp. v. Allendale Mut. Ins. Co., 310 F.3d 1114, 1117 (9th Cir. 2002) ("Except perhaps in highly extraordinary circumstances, California does not permit recovery on a bad faith claim unless insurance benefits are due under the policy."). Since the court has determined there was no breach of contract by defendant here, there is likewise no breach of the covenant of good faith and fair dealing.
Given the above findings of fact and conclusions of law, the court determines the insurance contract at issue here was not breached and judgment must be entered in favor of the defendant. This order constitutes the findings and conclusions required by Rule 52(a) of the Federal Rules of Civil Procedure. The Clerk of Court is directed to enter judgment in favor of defendant on all of plaintiff's claims in
IT IS SO ORDERED.
(Parties' Joint Ex. JX-16) (emphasis in original).
