578 F.Supp.3d 1136
S.D. Cal.2022Background
- Plaintiff owned a 27-ft Boston Whaler insured by State Farm under a Boatowners Policy (2014–2015, renewed) that excluded losses "directly and immediately caused by ... repairing, renovating, servicing, or maintenance," and excluded wear/tear, mechanical breakdown, neglect, and losses from defective workmanship/materials.
- Plaintiff left the vessel with Oceanside Marine Center (OMC) for engine repairs in July 2015; on November 18, 2015 OMC conducted a sea trial to test repairs during which an electronic/control malfunction led to an allision with a concrete piling and additional damage while hauling the boat out.
- OMC notified Plaintiff the same day and said it would handle minor repairs; Plaintiff’s agent later reported more significant damage. Plaintiff removed the boat from OMC in March 2016 and stored it ashore for roughly 2½ years.
- Plaintiff first claimed the loss to State Farm nearly three years after the incident (October 2018); State Farm denied coverage (Oct. 9, 2018) citing Policy exclusions; after further submissions and a marine survey (Todd & Associates), State Farm reaffirmed denial (Feb. 20, 2019). Plaintiff’s own surveyor later identified non‑cosmetic issues.
- Plaintiff sued OMC separately and later sued State Farm for breach of contract and bad faith. The district court granted summary judgment for State Farm, holding (inter alia) that a sea trial is part of repair/servicing and the Policy exclusions bar coverage; the court overruled the parties’ evidentiary objections and took judicial notice of the OMC suit and settlement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether damage during a sea trial is covered or falls within the Policy's repair/servicing exclusion | Cherewick: collision occurred while vessel was navigating the Pacific Ocean and was not "being repaired" at that instant | State Farm: a sea trial is the marine equivalent of an auto "test drive" and is an integral part of repair/servicing, so Exclusion 1(j) bars coverage | Held: sea trial is part of repair/servicing; damage during sea trial is excluded — summary judgment for State Farm |
| Whether other Policy exclusions (wear/tear, mechanical breakdown, inadequate repairs, neglect) apply | Cherewick: damage was more than mere marring or wear and tear and included structural issues not excluded | State Farm: damages are alternatively excluded as marring/wear/tear, mechanical breakdown, inadequate repairs/workmanship, or neglect during long storage | Held: undisputed evidence shows losses fall within one or more exclusions (repair, wear/tear, mechanical breakdown, defective workmanship, neglect); exclusions bar coverage |
| Whether Policy terms (e.g., "servicing") are ambiguous | Cherewick: undefined terms are vague and should be construed for the insured | State Farm: terms are plain and have been construed in analogous contexts; no ambiguity | Held: terms are not ambiguous as a matter of law; plain meaning applies in insurer's favor where exclusions fit |
| Whether Plaintiff may proceed on a bad‑faith claim despite denial | Cherewick: insurer unreasonably denied coverage and failed to investigate | State Farm: no bad faith because there was no coverage and a genuine dispute existed on a novel issue; insurer relied on expert survey | Held: bad‑faith claim fails because no coverage was owed; insurer’s denial was reasonable as a matter of law under the undisputed record |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden and procedure)
- Anderson v. Liberty Lobby, 477 U.S. 242 (standard for genuine dispute of material fact)
- Encompass Ins. Co. v. Coast Nat. Ins. Co., 764 F.3d 981 (9th Cir. 2014) (California law governs insurance policy interpretation in diversity cases)
- Reynolds v. Ingalls Shipbuilding Div., Litton Sys., Inc., 788 F.2d 264 (5th Cir.) (sea trials are for testing repairs and not considered full navigation)
- Brodkin v. State Farm Fire & Cas. Co., 217 Cal. App. 3d 213 (Cal. App. Ct.) (claims excluded where all alleged causes fall within policy exclusions)
- Kol B’Seder, Inc. v. Certain Underwriters at Lloyd’s of London, [citation="766 F. App'x 795"] (11th Cir.) (affirming insurer summary judgment where loss attributable to defects and lack of maintenance fell within exclusions)
- Waller v. Truck Ins. Exch., 11 Cal. 4th 1 (Cal. 1995) (no bad‑faith liability where insurer correctly denied coverage)