Lucky Leather, Inc. v. Mitsui Sumitomo Insurance Group

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
LUCKY LEATHER, INC.,
Plaintiff - Appellant,
v.
MITSUI SUMITOMO INSURANCE
GROUP; MITSUI SUMITOMO
INSURANCE COMPANY OF
AMERICA; MITSUI SUMITOMO
INSURANCE USA, INC.,
Defendants - Appellees.
No. 14-55019
D.C. No. 2:12-cv-09510-MMM-
PLA
MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
Margaret M. Morrow, District Judge, Presiding
Submitted May 2, 2016**
Pasadena, California
Before: PREGERSON, BYBEE, and N.R. SMITH, Circuit Judges.
FILED
MAY 17 2016
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
* This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
** The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).

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Appellant Lucky Leather, Inc. (“Lucky Leather”), a retailer of leather goods
in Los Angeles, purchased a commercial insurance policy from Appellee Mitsui
Sumitomo Insurance Company (“Mitsui”). After water from a rainstorm
penetrated its basement and damaged its merchandise, Lucky Leather filed a claim
for coverage with Mitsui. Mitsui determined that the damage was excluded from
Lucky Leather’s insurance policy and denied coverage. In response, Lucky
Leather sued Mitsui for breach of contract and for breach of the covenant of good
faith and fair dealing, and requested punitive damages. After discovery, the district
court granted summary judgment on all claims to Mitsui. We have jurisdiction
under 28 U.S.C. § 1291, review a district court’s grant of summary judgment de
novo, Pavoni v. Chrysler Grp., LLC, 789 F.3d 1095, 1098 (9th Cir. 2015), and we
affirm.
1. Mitsui did not breach its insurance contract with Lucky Leather. The
district court properly determined that the water that damaged Lucky Leather’s
inventory was surface water, see, e.g., Water, Black’s Law Dictionary (10th Ed.
2014) (defining “surface water” as “[w]ater lying on the surface of the earth but not
forming part of a watercourse or lake . . . most commonly derive[d] from rain,
springs, or melting snow”), and correctly found that damage caused by surface
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water was unambiguously excluded from Lucky Leather’s insurance policy with
Mitsui.
Lucky Leather’s attempt to fit the water damage into the exception to the
surface water exclusion contained in its insurance policy with Mitsui is unavailing.
It makes no difference that the surface water that damaged Lucky Leather’s
inventory pooled on the ground after exiting a neighbor’s drainage pipe; the
drainage pipe did not back up or overflow, but rather expelled rain water onto the
ground precisely as designed. See Cardio Diagnostic Imaging, Inc. v. Farmers Ins.
Exch., 212 Cal. App. 4th 69, 76 (2012) (holding that a “lay person would
understand” the language in the exception cited by Lucky Leather to “include both
water that comes up out of a sewer, drain or sump (‘backs up’) and water that spills
over from a sewer, drain, or sump (‘overflows’) due to a blockage”) (emphasis
added).
2. Even if we were to find that Mitsui breached its insurance contract with
Lucky Leather, because the parties had a genuine and reasonable dispute over
whether coverage was due, Lucky Leather’s claim for breach of the covenant of
good faith and fear dealing fails. See Chateau Chamberay Homeowners Ass’n v.
Assoc. Int’l Ins. Co., 90 Cal. App. 4th 335, 347 (2001) (“It is now settled law in
California that an insurer denying or delaying the payment of policy benefits due to
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the existence of a genuine dispute with its insured as to the existence of coverage
liability or the amount of the insured’s coverage claim is not liable in bad faith
even though it might be liable for breach of contract.”).
3. Lucky Leather has not put forward any evidence that Mitsui’s conduct
was “oppressive, fraudulent, or malicious.” PPG Indus., Inc. v. Transamerica Ins.
Co., 20 Cal. 4th 310, 319 (1999) (citing Cal. Civ. Code § 3294(a)). Accordingly,
no award of punitive damages is warranted.
AFFIRMED.
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