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Benchmark Insurance Co. v. G.L. Construction Co.

United States District Court, District of Nevada

April 13, 2015

G.L. CONSTRUCTION COMPANY, et al., Defendants.



This case arises from a dispute over insurance coverage between Plaintiff Benchmark Insurance Company (“Benchmark”) and Defendants G.L. Construction Company (“G.L.”) and Gordon Lemich (“Lemich”). Pending before the Court is Benchmark’s Motion for Summary Judgment (ECF No. 74). G.L. and Lemich have filed a Response (ECF No. 78), as has Defendants Cerberus Holdings, LLC (“Cerberus”) and Northern Nevada Homs, LLC (“NNH”) (ECF No. 83). Benchmark submitted a Reply to both (ECF Nos. 85, 86). Also pending are Motions for Leave to File Excess Pages (ECF Nos. 77, 80).


Lemich is the owner and operator of G.L., which is a Nevada licensed contractor that engages in excavation work. (Lemich Decl. ¶ 2, ECF No. 78-1). On October 23, 2009, G.L. purchased a commercial general liability policy from Benchmark (“the Policy”). The Policy was effective from that date thru October 23, 2013, having been renewed each year by G.L. (Id. ¶¶ 17–25). Pursuant to the Policy, Benchmark agreed to defend G.L. “against any suit seeking [tort damages for property damage.]” (Ins. Agreement, ECF No. 4, at 41). The Insurance Agreement (“the Agreement”) signed by the parties contained a number of qualifications and exceptions, including that the property damage must be caused by an “occurrence” and that the “occurrence” “take[] place during the policy period.” (Id.).

In June 2000, Lemich and his wife purchased a parcel of property in Reno, Nevada located at 2605 Comstock Drive commonly referred to as “Comstock Storage.” (Lemich Decl. ¶ 5). At the time, Lemich was leasing a parcel of land next to Comstock Storage that he used as an outdoor storage yard. (Id. ¶ 4). In 2002, that parcel was sold to Truckee Meadows Water Authority (“TMWA”) and Lemich entered into a lease agreement with TMWA for continued use of the land. (Id. ¶ 6).

During his ownership of Comstock Storage, Lemich “caused repairs and improvements to be made” to his property. (Id. ¶ 10). “These improvements and repairs were not made or caused to be made by either [G.L.] or by [Lemich] in [his] capacity as an officer, director or employee of G.L.” (Id.). “Simply put, [G.L.] has never been involved in the ownership, maintenance, repair or the improvement of the buildings located [at Comstock Storage].” (Id.). In May 2011, Lemich lost ownership of Comstock Storage through foreclosure proceedings brought by the mortgage provider, Acquired Capital. (Id. ¶ 11).

Acquired Capital purchased Comstock Storage out of foreclosure and Lemich entered into a lease agreement to remain on the property. (Id. ¶ 12). Thereafter, Acquired Capital commenced discussions with Cerberus regarding the sell of Comstock Storage. Allegedly, Acquired Capital was willing to sell Comstock Storage to Cerberus only on an “as-is” basis, but Cerberus was hesitant to make the purchase without assurances from G.L. that the improvements Lemich had made were proper and complied with applicable laws. (Cerberus Compl. ¶ 16, ECF No. 26-1). Lemich felt that a sell to Cerberus would allow G.L. to continue leasing Comstock Storage, and in order to induce the transaction, Cerberus claims that G.L. “affirmatively and expressly represented” that the improvements were all up to code. (Id. ¶¶ 15–17). Allegedly based on G.L.’s assurances, Cerberus purchased Comstock Storage on December 28, 2012 and allowed Lemich to remain as a lessee. (Id. ¶ 18).

Cerberus claims that it subsequently discovered that the improvements to Comstock Storage were not properly constructed and an inspection by the City of Reno allegedly determined that the primary buildings were “riddled with negligent and defective work and uninhabitable.” (Id. ¶ 19). In the end, Cerberus allegedly not only held title to defective construction, but it was also fined for noncompliant electrical wiring and it allegedly incurred costs in cleaning and removing “[h]azardous waste” that had been stored and spilled at Comstock Storage. (Id.).

Additionally, between 2004 and 2008, G.L. and Lemich “dumped substantial amounts of dirt” onto the property adjacent to Comstock Storage that Lemich claims he was leasing from TMWA. (Lemich Decl. ¶ 8). On July 11, 2013, G.L. and Lemich discovered that a portion of that land did not belong to TMWA but rather it was owned by NNH. (Id. ¶ 27). G.L. and Lemich were then sued in the Washoe County District Court by both Cerberus and NNH (“the Cerberus Action”).

The Cerberus Action originally included five claims for relief: (1) negligence, (2) negligent misrepresentation, (3) intentional misrepresentation, (4) intentional property damage, (5) trespass, and (6) injunctive relief. (Id. ¶¶ 26–57). All of these claims, except that for trespass, were alleged to involve only Comstock Storage. The trespass claim alleged that during Lemich’s tenancy of Comstock Storage, G.L. had “dumped vast amounts of dirt and other debris onto NNH’s property without “authorization or permission.” (Id. ¶¶ 50–53).

When Lemich received a copy of the Cerberus complaint, he contacted Benchmark’s third-party claims administrator requesting that Benchmark provide defense services pursuant to the Policy. On August 2, 2013, the claims administrator denied the request, finding that G.L.’s actions were not covered by the Policy either because they did not constitute an “occurrence” or because they fell within exceptions to coverage as outlined in the Policy. (Westcap Letter 6, ECF No. 25-1).

On February 11, 2014, a first amended complaint (“the Cerberus FAC”) was filed in the Cerberus Action in which Cerberus and NNH expanded on the original trespass cause of action by asserting two separate trespass claims: negligent trespass and intentional trespass. (Cerberus FAC ¶¶ 61–68, ECF No. 26-2). Because the lawsuit in Washoe County was progressing and Benchmark refused to defend G.L., Lemich hired counsel to respond to Cerberus and NNH’s allegations. On March 4, 2014 and May 5, 2014, Lemich’s counsel made additional demands on Benchmark to defend G.L. against the Cerberus Action based particularly on the newly alleged “negligent trespass” claim. In his letter to Benchmark’s claims administrator, G.L. and Lemich’s counsel stated that G.L. and Lemich “were not responsible for dumping any type of material on the subject property after 2008.” (Mar. 4, 2014 Letter, ECF No. 25-3).

On May 29, 2014, Benchmark again denied G.L.’s claim because it determined that (1) the dumping happened prior to the Policy’s inception, (2) the statute of limitations barred NNH’s claims, and (3) G.L.’s dumping was not an “occurrence” as defined by the Policy. (Hansard Letter 5–7, ECF No. 25-4). Nevertheless, on June 25, 2014, Benchmark agreed to provide G.L. with a defense in the Cerberus Action under a reservation of rights. (Letter, ECF No. 25-6).

Benchmark also filed the present action seeking a declaratory judgment that the Policy does not cover property damage caused by G.L.’s intentional dumping. G.L. and Lemich responded by filing a counterclaim against Benchmark alleging that the denial of G.L.’s insurance claim was done in bad faith. On August 20, 2014, G.L. and Lemich moved for summary judgment on the issue of whether Benchmark had a duty to provide G.L. with a defense in the Cerberus Action. (ECF No. 20). The Court denied the motion, initially finding that a genuine dispute of material fact existed as to whether G.L.’s dumping on NNH’s property was the result of an honest and good faith mistaken belief on Lemich’s part. (ECF No. 36).

Dissatisfied with the result, and claiming that the Court had clearly gotten it wrong, G.L. and Lemich moved the Court to reconsider its decision. (ECF No. 38). Acknowledging the standard proposed by G.L. and Lemich, the Court proceeded to determine whether the previous Order should be set aside. (Jan. 9, 2015 Order, ECF No. 56). Further evaluation convinced the Court that the factual dispute upon which its previous decision rested was immaterial given the fact that G.L. and Lemich began dumping dirt and other material on the property now owned by NNH as early as 2004. (Id. at 5–6). The Court found that the Policy did not apply to G.L.’s alleged negligent trespass either because the dumping concluded prior to the Policy’s inception or because the dumping would be deemed to have first taken place before the Policy’s issuance. (Id.). In any event, the motion for reconsideration was denied and the Court’s prior decision to deny G.L. and Lemich’s motion for summary judgment was reaffirmed.

Again claiming that the Court’s conclusion was “both factually and legally flawed, ” G.L. and Lemich once more filed a motion for reconsideration on the Court’s denial of summary judgment in their favor. (ECF No. 59). Exasperated with what they perceived to be the Court’s inability to grasp the difference between an insurer’s duty to indemnify and its duty to defend, G.L. and Lemich reiterated many of the arguments previously raised in their first motion for reconsideration. The Court, again finding no reason to set aside its October 29, 2014 Order, denied the motion in brief fashion on February 11, 2015. (ECF No. 69).

On February 20, 2015, Benchmark filed the instant Motion for Summary Judgment. The parties’ arguments both for and against summary judgment are quite similar to those included in the various pleadings and motions already considered by the Court. Benchmark maintains that G.L.’s actions as alleged in the Cerberus FAC raise absolutely no potential for coverage under the Policy. G.L. and Lemich, however, argue that the possibility for coverage is plain from the face of the Cerberus FAC and that Benchmark’s denial of coverage amounts to bad faith worthy of punitive damages.


A principal purpose of the summary judgment rule is to “isolate and dispose of factually unsupported claims or defenses.” Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986). A court grants summary judgment only if “the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In making this determination, the court “must draw all reasonable inferences supported by the evidence in favor of the non-moving party.” Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002). “[T]his standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48 (1986). Rather, only genuine issues of material facts are relevant to the summary judgment analysis. A fact is material if it “might affect the outcome of the suit under the governing law.” Id. at 248. “The moving party bears the initial burden of establishing the absence of a genuine issue of material fact.” Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 531 (9th Cir. 2000). The burden is met by demonstrating to the court “that there is an absence of evidence to support the nonmoving party’s case.” Celotex Corp., 477 U.S. at 325. This is done by citing to depositions, documents, electronically stored information, affidavits or declarations, stipulations, admissions, interrogatory answers, or other materials. Fed.R.Civ.P. 56(c)(1)(A). Once the initial burden is met, however, “Rule 56(e) requires the nonmoving party to go beyond the pleadings and identify facts which show a genuine issue for trial.” Fairbank, 212 F.3d at 531.

Moreover, where reasonable minds could differ on the facts proffered in support of a claim, summary judgment should not be granted. Petzak v. Nevada ex rel. Dep’t of Corr., 579 F.Supp.2d 1330, 1333 (D. Nev. 2008). “Summary judgment is inappropriate if reasonable jurors . . . could return a verdict in the nonmoving party’s ...

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