Renovation Realty, Inc. et al v. Colony Insurance Company et al

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
RENOVATION REALTY, INC., et al.,
Plaintiffs,
v.
COLONY INSURANCE COMPANY, et
al.,
Defendants.
Case No.: 25-CV-2297 W (DEB)
ORDER GRANTING DEFENDANT
KINSALE INSURANCE
COMPANY’S REQUEST FOR
JUDICIAL NOTICE AND MOTION
TO DISMISS [DOC. 12]
Defendant Kinsale Insurance Company moves to dismiss Plaintiffs’ Complaint
under Federal Rule of Civil Procedure 12(b)(6). Along with the motion, Defendant
requests judicial notice of the underlying state-court complaint and insurance policies.
Plaintiffs do not oppose the request for judicial notice but oppose the motion to dismiss.
The Court decides the matter on the papers submitted and without oral argument.
Civ. L.R. 7.1(d.1). For the following reasons, the Court GRANTS Defendant’s request
for judicial notice and GRANTS the motion to dismiss [Doc. 12].
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I. BACKGROUND
In this insurance-coverage dispute, Plaintiffs Renovation Realty, Inc., Keith
Christian and Kathy Vasquez (collectively, “Renovation”) are suing Defendant Kinsale
Insurance Company (“Kinsale”) for its failure to defend and indemnify Renovation in an
underlying state-court lawsuit filed by Mara Fortin (the “Fortin litigation” or “Fortin”).
(Compl. [Doc. 1] ¶ 8.) Renovation contends they “qualify as additional insureds” under
policies Kinsale issued to J Build, Inc. for the period October 1, 2020 to 2021 (Policy No.
0100128475-0) and October 1, 2021 to 2022 (Policy No. 0100128474-1). (Id. ¶ 10).
According to the Fortin complaint, that litigation arises “from the fraudulent sale
of a La Jolla coastal residence (the ‘Property’),” which plaintiff Mara Fortin alleges
Renovation “deliberately misrepresented as ‘completely remodeled’ and ‘meticulously
maintained’.” (See Fortin Compl. [Doc. 12-3] ¶ 1.1) Fortin alleges, however, that “[i]n
truth, Defendants, including the seller . . . and its listing brokerage and renovator
RENOVATION REALTY, INC. (‘RRI’), knew from sources including a pre-renovation
termite report documenting fugus and dry rot . . . that the Property harbored pre-existing
material defects.” (Id.) As a result, “[i]nstead of the promised pristine home, Plaintiff
MARA FORTIN unwittingly purchased a concealed health and safety hazard plagued by
toxic mold, pervasive water intrusion, structural decay, and tampered essential electrical
and data systems, all artfully obscured by Defendants’ superficial renovations.” (Id.)
Based on these allegations, the Fortin complaint asserts causes of action against
Renovation for: (1) Fraudulent Concealment; (2) Negligent Misrepresentation;
(3) Violation of California Civil Code §§ 1102, et seq. (Statutory Disclosure Violations);
(4) Violations of Business & Profession Code § 17200 (Unfair Competition Law); (5)
Constructive Fraud (Civ. Code § 1573); and (6) Declaratory Relief (Invalidity of
Arbitration Provision – Code Civ. Proc. § 1060). (See Id.)
1 The Fortin Compl. is attached to Kinsale’s Request for Judicial Notice (“RJN”) as Exhibit 1. (RJN
[Doc. 12-2] 2:24–25.)
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On February 24, 2025, Renovation received a pre-suit written demand for damages
from Fortin’s counsel, which allegedly “included claims of property damage and bodily
injury.” (Compl. ¶ 13.) On June 25, 2025, Renovation tendered its defense to Kinsale,
“pursuant to its status as an additional insured.” (Id. ¶ 22.) Kinsale acknowledged the
claim and advised Renovation that it was investigating, but as September 4, 2025,
Kinsale had not made a coverage decision. (Id. ¶¶ 23, 24, 29.)
On September 4, 2025, Renovation filed this lawsuit for (1) Breach of Contract,
(2) Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing, and
(3) Declaratory Relief – Duty to Defend – Civil Code 2860. (See Compl.) On November
25, 2025, Kinsale filed the pending motion to dismiss the Complaint.
II. LEGAL STANDARD
A. Federal Rule of Civil Procedure 12(b)(6)
A motion to dismiss under Rule 12(b)(6) tests the complaint’s sufficiency. See N.
Star Int’l v. Ariz. Corp. Comm’n., 720 F.2d 578, 581 (9th Cir. 1983). The court must
dismiss a cause of action for failure to state a claim upon which relief can be granted.
Fed.R.Civ.P. 12(b)(6). In evaluating the motion, the court must assume the truth of all
factual allegations and must “construe them in light most favorable to the nonmoving
party.” Gompper v. VISX, Inc., 298 F.3d 893, 895 (9th Cir. 2002); see also Walleri v.
Fed. Home Loan Bank of Seattle, 83 F.3d 1575, 1580 (9th Cir. 1996).
As the Supreme Court has explained, “[w]hile a complaint attacked by a Rule
12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s
obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels
and conclusions, and a formulaic recitation of the elements of a cause of action will not
do.” Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1964 (2007). Instead, the allegations in
the complaint “must be enough to raise a right to relief above the speculative level.” Id.
at 1964-65. A complaint may be dismissed as a matter of law either for lack of a
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cognizable legal theory or for insufficient facts under a cognizable theory. Robertson v.
Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).
Generally, courts may not consider material outside the complaint when ruling on a
motion to dismiss. Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555
n.19 (9th Cir. 1990). However, courts may consider documents specifically identified in
the complaint whose authenticity is not questioned by parties. Fecht v. Price Co., 70
F.3d 1078, 1080 n.1 (9th Cir. 1995) (superseded by statutes on other grounds). Moreover,
courts may consider the full text of those documents, even when the complaint quotes
only selected portions. Id. The court may also consider material properly subject to
judicial notice without converting the motion into one for summary judgment. Barron v.
Reich, 13 F.3d 1370, 1377 (9th Cir. 1994).
B. California Insurance Law
California law obligates an insurer to defend the insured when the facts alleged in
the complaint create a potential for coverage. Scottsdale Ins. Co. v. MV Transp., 36 Cal.
4th 643, 654 (2005). In evaluating the duty to defend, the insurer must also consider
facts outside those alleged in the complaint. Id. “If any facts stated or fairly inferable in
the complaint, or otherwise known or discovered by the insurer, suggest a claim
potentially covered by the policy, the insurer’s duty to defend arises and is not
extinguished until the insurer negates all facts suggesting potential coverage.” Horace
Mann Ins. Co. v. Barbara B., 4 Cal. 4th 1076, 1081 (1993).
The interpretation of the insurance policy is governed by the ordinary rules of
contract interpretation. Palmer v. Truck Ins. Exchange, 21 Cal. 4th 1109, 1115 (1999).
The fundamental goal in interpreting an insurance policy is to ascertain the parties’
mutual intentions. Vons Cos., Inc. v. United States Fire Ins. Co., 78 Cal. App. 4th 52, 58
(2000). Where possible, those intentions should be inferred solely from the policy’s
written terms. AIU Ins. Co. v. FMC Corp., 51Cal. 3d 807, 822 (1990). Thus, policy
language that is clear and explicit governs. Id.
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III. DISCUSSION
A. Request for Judicial Notice
Kinsale requests judicial notice of the Fortin complaint and the two policies under
which Renovation seeks coverage. (RJN [Doc. 12-2] 2:24–3:3.) Renovation does not
object to the request. (Opp’n [Doc. 15] 2:20–27.)
Federal Rule of Civil Procedure 201 permits a court to take judicial notice of an
adjudicative fact if it is “not subject to reasonable dispute.” Fed. R. Evid. 201(b). A fact
is “not subject to reasonable dispute” if it is “generally known,” or “can be accurately and
readily determined from sources whose accuracy cannot reasonably be questioned.” Fed.
R. Evid. 201(b)(1)-(2). Under this rule, a court may “take judicial notice of matters of
public record without converting a motion to dismiss into a motion for summary
judgment,” but it “cannot take judicial notice of disputed facts contained in such public
records.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018).
Under Rule 201, judicial notice of the Fortin complaint is appropriate. See NuCal
Food, Inc. v. Quality Egg LLC, 887 F.Supp.2d 977, 984 (E.D. Cal. 2012) (“Courts have
consistently held that courts may take judicial notice of documents filed in other court
proceedings.”).
Regarding the Kinsale policies, “the incorporation by reference doctrine [applies]
to situations in which the plaintiff’s claim depends on the contents of a document, the
defendant attaches the document to its motion to dismiss, and the parties do not dispute
the authenticity of the document, even though the plaintiff does not explicitly allege the
contents of that document in the complaint.” Knievel v. ESPN, 393 F.3d 1068, 1076 (9th
Cir.2005) (citations and quotations omitted). Here, Renovation does not dispute the
authenticity of the Kinsale policies. Additionally, Renovation’s Complaint references the
policies and Renovation’s causes of action against Kinsale are based on the policies.
Accordingly, under the incorporation by reference doctrine, the Court will consider the
policies. See Enger v. Allstate Ins. Co., 682 F.Supp.2d 1094, 1096 (E.D.Cal. 2009)
(considering terms of insurance policies under the incorporation-by-reference doctrine in
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evaluating motion to dismiss); Professional Solutions Insurance Company v. Grover La
Mesa, Inc., 2023 WL 350395, *4 (S.D.Cal. 2023) (granting request for judicial notice of
insurance policies where “no party has opposed” the request and the parties do not
dispute the genuineness of the policy’s terms, on the interpretation).
B. The Complaint fails to state a breach of contract claim
Kinsale contends there is no potential for coverage under the policies because
Fortin alleges only intentional conduct and economic damages. (MTD P&A [Doc. 12-1]
7:15–9:1.) Renovation responds that Kinsale’s analysis is flawed because it is “based
solely upon the four corners of the Underlying Complaint” and the duty to defend is
determined “based upon not only the allegations in the complaint, but also on extrinsic
evidence which is known or should have been known through a reasonable investigation
at the time in which the determination is made.” (Opp’n 5:23–6:6.) The Court agrees with
Kinsale.
Renovation seeks coverage as an additional insured under the two Kinsale policies
issued to J Build. (Compl. ¶ 10.) The Insuring Agreement for both policies provides, in
relevant part:
a. We will pay those sums that the insured becomes legally obligated to pay
as damages because of “bodily injury” or “property damage” to which this
insurance applies. We will have the right and duty to defend the insured
against any “suit” seeking those damages. . . .
b. This insurance applies to “bodily injury” and “property damage” only if:
(1) The “bodily injury” or “property damage” is caused by an “occurrence”
that takes place in the “coverage territory”; . . .
(October 2020–2021 Policy at 004; October 2021–2022 Policy at 077.2) Both policies
define an “occurrence” as “an accident, including continuous or repeated exposure to
2 The 2020–2021 Policy is attached to the RJN as Exhibit 2 [Doc. 12-4]. (RJN at 2:26–28.) The 2021–
2022 Policy is attached to the RJN As Exhibit 3 [Doc. 12-5]. (Id. at 3:1–3.)
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substantially the same general harmful conditions.” October 2020–2021 Policy at 018;
October 2021–2022 Policy at 091.) They also define “property damage” as “physical
injury to tangible property, including all resulting loss of use of that property” and “loss
of use of tangible property that is not physically injured.” (October 2020–2021 Policy at
018; October 2021–2022 Policy at 091.) Given this language, for there to be a potential
for coverage under the policies, Renovation’s Complaint must identify facts suggesting
that Fortin potentially involves “bodily injury” or “property damage” that was “caused by
an ‘occurrence’,” meaning “an accident. . . .”
Here, Renovation’s Complaint contains few facts concerning the Fortin litigation.
Under the “general allegations” section, the Complaint simply acknowledges that this
“action arises” from Fortin. (Compl. ¶ 8.) There is no description of plaintiff’s claims
against Renovation.
Later in the Complaint, Renovation alleges in conclusory terms that Ms. Fortin’s
pre-suit demand for damages “included claims of property damage and bodily injury” and
that at some point Renovation “provided KINSALE . . . with even more factual
information supporting the potential for coverage that had been disclosed in discovery in
the Underlying Action.” (Compl. ¶¶ 13, 25.) However, aside from these conclusory
statements, there is no discussion about what Fortin alleges caused her “claims of
property damage and bodily injury,” nor is there any indication about what additional
“factual information supporting the potential for coverage” was “disclosed in discovery”
in Fortin.
Finally, under the First Cause of Action for Breach of Contract – Duty to Defend,
the Complaint simply reiterates in conclusory terms that the “Underlying Action alleges
the potential for damages because of property damage and/or bodily injury.” (Compl. ¶
3.)
In contrast to the sparse allegations in Renovation’s Complaint, the Fortin
complaint includes significant detail regarding the basis for the six causes of action
asserted against Renovation, Christian and Vasquez. None of the allegations remotely
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suggest Ms. Fortin’s damages were the result of an “occurrence” or an “accident.” For
example, the Fortin complaint’s “Introduction” explains that “[t]his action arises from the
fraudulent sale of a La Jolla coastal residence (the ‘Property’),” which Renovation
“deliberately misrepresented as ‘completely remodeled’ and ‘meticulously maintained’.”
(Fortin Compl. ¶ 1.) The complaint continues, “[i]n truth, Defendants, including the seller
. . . and its listing brokerage and renovator RENOVATION REALTY, INC. (‘RRI’),
knew from sources including a pre-renovation termite report documenting fugus and dry
rot . . . that the Property harbored pre-existing material defects.” (Id.) The complaint also
alleges that Renovation “spearheaded’ the deception and that “its principal KEITH
CHRISTIAN and listing agent KATHY VAZQUEZ, [RENOVATION] knowingly
concealed these severe defects through strategically deficient disclosures . . ., misleading
marketing . . ., deceptive cosmetic alterations, and critical omissions of fact.” (Id. ¶ 2.)
The Fortin complaint further alleges that the sale to Ms. Fortin was “not an
isolated oversight but emblematic of a calculated ‘renovate-and-flip’ business model
designed to deceive.” (Fortin Compl. ¶ 4.) According to the plaintiff:
This scheme involved acquiring properties, performing superficial cosmetic
work to mask known hazards . . . and marketing these dangerously defective
homes as fully renovated. This model prioritized profit over mandatory
disclosures and consumer safety, inflicting substantial financial and health-
related harm on Plaintiff.
(Id.)
After the introduction, the Fortin complaint continues to characterize Renovation’s
conduct as intentional and part of the renovate-and-flip business model that prioritized
profit over mandatory disclosures and consumer safety. For example, Fortin alleges that
before the sale of the property, Renovation “documented, pre-existing knowledge of
material defects directly impacting the Property’s condition, value, and habitability” and
that, at the time of the sale, Renovation was in possession of reports which noted “among
other critical issues, pre-existing ‘Fungus/Dry Rot Damage’ at the Property – conditions
indicative of structural compromise, conducive to mold proliferation, and requiring
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substantial repair.” (Fortin Compl. ¶¶ 21, 23.) Despite this knowledge, Renovation
“undertook a deliberate course of conduct to actively conceal them.” (Id.) This was done
through a scheme of “orchestrating and performing superficial ‘renovations’ that merely
cosmetically obscured the documented fungus, dry rot, and other latent defects, rather
than properly remediating these conditions.” (Id.) This alleged scheme involved cosmetic
“cover-ups” “such as painting over water-damaged areas and mold, and concealing
structural decay and stripped wiring with new paint and drywall.” (Id. ¶ 37.) She further
alleges that “[t]his deliberate concealment was intended to induce Plaintiff to purchase
the Property at an inflated price, believing it to be in a condition falsely portrayed by
Defendants”. (Id. ¶ 45.)
Beyond the intentional concealment of defects, Fortin alleges Renovation
“aggressively marketed the Property, making material misrepresentations regarding its
condition.” (Fortin Compl. ¶ 19.) This included “falsely representing in the MLS Listing
that the Property was ‘completely remodeled’, despite their knowledge of the extensive
concealed defects, unpermitted work, and the superficial nature of their ‘renovations.’”
(Id. ¶ 48.) Fortin also alleges Renovation made representations or omissions in “the
Agent Visual Inspection Disclosure and other disclosure documents that failed to
accurately portray the Property’s true, defective condition.” (Id. ¶ 57.) These were made
“without reasonable grounds for believing them to be true.” (Id.)
In contrast to Renovation’s conclusory statements in the Complaint, the detailed
allegations in the Fortin complaint establish that Renovation’s liability is based on
intentional and non-accidental conduct and, accordingly, Ms. Fortin’s damages are
economic. See Miller v. Western General Agency, Inc., 41 Cal.App.4th 1144, 1151
(1996) (finding claims for intentional and negligent misrepresentation regarding
condition of plumbing in sale of house gave rise to economic damage, not injury to
tangible property). For this reason, the Court finds there is no potential for coverage
under the Kinsale policies, and thus Kinsale did not breach its duty to defend Renovation.
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Nevertheless, in its opposition, Renovation insists a potential for coverage exists
because the Fortin complaint includes “allegations relating to damages associated with
the cost to repair property damage due to alleged negligence in the performance of
RENOVATION REALTY’s scope of work.” (Opp’n 6:17–20.) As support, Renovation
cites the Fortin complaint’s allegation that plaintiff’s “damages include, but are not
limited to, costs for comprehensive mold remediation, structural repairs, complete
rewiring, diminished market value of the Property, temporary relocation expenses and
medical expenses. . . .” (Id. 6:20–25, citing Fortin Compl. ¶ 72.) Renovation then
contends the complaint’s reference to “medical expenses” suggests “there is a potential
for a bodily injury claim in the lawsuit.” (Id. 6:23–25.)
Renovation’s argument mischaracterizes the cause of Ms. Fortin’s damages. While
Renovation contends the Fortin complaint alleges the damages were the result of
Renovation’s negligent work, the immediately preceding paragraphs clarify the damages
were caused by Renovation’s “failure to comply with the mandatory statutory disclosure
obligations imposed by California Civil Code §§ 1102 through 1102.17 in connection
with the sale of the property. . . .” (Fortin Compl. ¶¶ 64, 72.) Specifically, the complaint
alleges Renovation’s disclosure “falsely represented, through affirmative statements and
material omissions, that the Property was not affected by any known mold, water
intrusion, structural defects, unpermitted construction, or electrical system deficiencies,
among other misrepresentations.” (Id. ¶ 67.) According to the complaint, Renovation’s
“failure to disclose known defects . . . and their failure to amend disclosures after
receiving Plaintiff’s inspection reports . . . demonstrate a lack of honesty in fact in the
conduct of the transaction, rendering the provided disclosures materially false and
misleading by omission.” (Id. ¶ 70.) In short, far from suggesting a potential for
coverage, the allegations concerning Ms. Fortin’s damage confirm they were not caused
by an “occurrence” or “accident”—as required by the Kinsale policies—but instead by
Renovation’s scheme to defraud Ms. Fortin. As such, Fortin involves economic damages,
not “bodily injury” or “property damages” as defined in the policies. See also Devin v.
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United Services Auto. Assoc., 6 Cal.App.4th 1149, 1158 (1992) (holding damages caused
by intentional and negligent misrepresentation constitute economic injury, not “property
damage” caused by an occurrence).
Next, Renovation contends Kinsale’s motion is “procedurally improper” because
“the existence of a duty to defend turns” on “all information available at the time of
tender” and the Court is precluded at this stage from considering the extrinsic evidence
reasonably known to Kinsale. (Opp’n 8:17–28.) This argument also lacks merit.
Renovation’s argument misapprehends both its burden and the issue pending
before the Court. Under Rule 12(b)(6), the issue is whether Renovation has satisfied its
burden of alleging enough facts in the Complaint to state a cause of action for breach of
the policies. Fed.R.Civ.P. 12(b)(6). While Renovation is correct that this Court may not
consider extrinsic evidence in deciding the motion (with the exception of the policies and
Fortin complaint), nothing prevented Renovation from including in the Complaint the
purported extrinsic facts that support the breach of contract cause of action. For the
reasons stated above, Renovation has failed to satisfy its burden and based on the
allegations in the Fortin complaint, this Court finds there is no potential coverage for
Renovation. Further, because Renovation has not requested leave to amend and, more
importantly, nothing in the opposition remotely suggests there are facts supporting the
breach of contract cause of action, leave to amend is unwarranted.
Because the Complaint fails to state facts suggesting a potential for coverage under
the Kinsale policies, the Court will dismiss the breach of contract cause of action.
C. The Complaint fails to state a breach of the covenant of good faith and
fair dealing claim and declaratory relief claim
Because Renovation has failed to allege a claim for breach of contract, its claim for
breach of the covenant of good faith and fair dealing claim also fails. See Manzarek v.
Kinsale Fire & Marine Insurance Company, 519 F.3d 1025, 1034 (9th Cir. 2008)
(“California law is clear, without a breach of the insurance contract, there can be no
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breach of the implied covenant of good faith and fair dealing.”); Brehm v. 21st Century
Ins. Co., 166 Cal.App.4th 1225, 1235 (2008) (“As a general rule . . . there can be no
breach of the implied covenant of good faith and fair dealing if no benefits are due under
the policy”).
Similarly, because the Court finds there is no breach of policy and no duty to
defend, Renovation’s declaratory relief claim fails.
IV. CONCLUSION & ORDER
For the reasons set forth above, the Court GRANTS Kinsale’s request for judicial
notice and motion to dismiss [Doc. 12] WITHOUT LEAVE TO AMEND.
IT IS SO ORDERED.
Dated: January 30, 2026
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