Summary Judgment Victory – Utility Services Exclusion Applies Despite Missing ISO Form

On January 5, 2018, Judge Marc Marmaro of the Los Angeles Superior Court granted Selman Breitman’s Motion for Summary Judgment with respect to the complaint brought against the firm’s client, Scottsdale Insurance Company in the case entitled Exotic Reef Imports, Inc. v. Scottsdale Insurance Company, et al.  Plaintiff, Exotic Reef Imports, Inc. sued Scottsdale for breach of contract and bad faith following a denial of coverage under plaintiff’s first-party property policy.  Plaintiff sought $4.5 million in damages and claimed its damages increased daily due to a sizable loss of business income claim.

The relevant loss involved damages to plaintiff’s aquarium business following the loss of electrical power at plaintiff’s business premises.  Scottsdale insured plaintiff under a Commercial Property Policy and disclaimed coverage pursuant to the policy’s Utility Services exclusion.  Plaintiff claimed that the denial was improper and in bad faith because the Causes of Loss – Special Form containing the relevant exclusion was inadvertently omitted from the policy provided to plaintiff upon renewal of its prior Scottsdale policy.  Plaintiff argued that it was never aware of the exclusion, that it would not have accepted a policy containing such an exclusion, and that Scottsdale engaged in bad faith by endorsing the policy to include the missing form following the loss.

In granting the motion, the Court agreed with Scottsdale that the fact that the Special Form was physically missing was irrelevant as the parties always intended that the Special Form and exclusion were to form part of the policy as reflected by the pre-contract negotiations.

After successfully establishing that the Special Form was part of plaintiff’s policy, Scottsdale then prevailed in arguing that the Utility Services exclusion applied to preclude coverage for plaintiff’s claimed loss.  The Court, therefore, granted Scottsdale’s motion as to plaintiff’s breach of contract cause of action and, as a result, granted the motion as to the bad faith allegations based upon Scottsdale’s arguments that there can be no bad faith absent a contract breach.

Selman Breitman Partner Meka Moore and Associate Tim McFeely represented Scottsdale Insurance Company. For more information on this case and its implications, please contact Meka or Tim, whose contact information is below.


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