Citations
- 224 F. Supp. 3d 891
Full opinion text
ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
LUCY H. KOH, United States District Judge
Vincent Marentes and Liudmila Bicheg-kueva (collectively “Plaintiffs”) bring the instant suit against State Farm Mutual Automobile Insurance Company (“Defendant”). Before the Court is Defendant’s Motion for Summary Judgment, or in the Alternative, Partial Summary Judgment. ECF No. 39 (“Mot.”). Having considered the parties’ briefing, the relevant law, and the record in this case, the Court GRANTS Defendant’s Motion for Summary Judgment. The Court DENIES Plaintiffs’ Motion for Partial Summary Judgment, ECF No. 67, and Defendant’s Administrative Motion to File a Sur-Reply, ECF No. 71, as moot.
1. BACKGROUND
A. Factual Background
1. Marentes I
On June 16, 2013, Bichegkueva suffered severe injuries as the result of her vehicle being rear ended by a tow truck driven by Marentes. ECF No. 40-1; ECF No. 40-2 (“Police Report”); ECF No. 48-33 (“Default Judgment Mot.”). The tow truck belonged to Extreme Towing, Marentes’ employer, and Marentes was driving it home after completing a tow job for Extreme Towing. ECF No. 40-1; Police Report at 13. On December 12, 2013, Bichegkueva filed a personal injury action against Mar-entes and Extreme Towing for injuries arising out of the June 16, 2013 incident. ECF No. 48-14, Declaration of Kevin Cho-lakian (“Cholakian Decl.”) ¶ 2-3. The case was originally filed in San Francisco County Superior Court before being transferred to Santa Clara County Superior Court. Id. All proceedings in the action shall be referred to as Marentes I.
2. Coverage Decision Under Marentes’ Insurance Policy
Marentes had a State Farm ear insurance policy at the time of the accident covering his primary vehicle. ECF No. 40-15 (“State Farm Policy”). After the accident and in the first seven months of the case brought by Bichegkueva against Mar-entes and his employer, Marentes did not tender the accident to Defendant. ECF No. 40-17, August 6, 2016 Deposition of Vincent Marentes (“Marentes Deposition”) pp. 26-27. When asked why Marentes did not tender the accident in a deposition, he responded, “Because it—it wasn’t involving my cars, my personal cars.” Id. On July 17, 2014, Robert Aaron (“Aaron”) of Aaron & Wilson LLP, the attorneys hired by Extreme Towing’s insurance company to defend Marentes and Extreme Towing, tendered the “defense and indemnity of the case to State Farm.” ECF No. 40-1. On July 28, 2014, Defendant requested that Aaron provide the police report, which Aaron sent the next day. See Police Report at 1.
Marentes’ State Farm Policy in place at the time of the accident covered a 2003 Chevrolet Impala. State Farm Policy at 2. The policy provided insurance coverage of Marentes’s use of “(1) your car; (2) a newly acquired car; or (3) a trailer; and... the maintenance or use of (1) a non-owned car; or (2) a temporary substitute car.” Id. at 10. The policy defines a non-owned car to include “a car that is in the lawful possession of you or any resident relative and that neither:
1. is owned by:
a. you;
b. any resident relative;
c. any other person who resides primarily in your household; or
d. an employer of any person described in a., b., or c. above....”
Id. at 8.
The policy also excludes coverage “while maintaining or using a vehicle in connection with that insured’s employment in or engagement of any kind in a car business.” Id. at 7. The policy provides an exception to this exclusion if the policyholder is driving a car owned by the insured. Id. at 11-12. The policy defines a car business to be “a business or job where the purpose is to sell, repair, service, deliver, test, road-test, park, or store land motor vehicles or any type of trailer.” Id. at 8.
3. Demands on State Farm & Plaintiffs’ Settlement Agreement
On August 4, 2014, Defendant informed Marentes that Defendant was investigating the accident and stated that Defendant reserved the right to assert all available policy defenses. ECF No. 40-4. On September 8, 2014, Defendant sent a letter to Aaron stating that it was State Farm’s understanding that Marentes was within the scope of his employment at the time of the accident. ECF No. 40-5. Purportedly, this understanding would exclude the accident because Marentes’ job delivering and parking non-functioning cars with a tow truck caused the use of the tow truck to be “in connection with” a car business. See State Farm Policy at 8, 11-12.
In the September 8, 2014 letter, Defendant requested that Aaron respond to Defendant within seven days if its understanding that the accident occurred within Marentes’ scope of employment was incorrect. ECF No. 40-5. After Aaron failed to respond, on September 23, 2014, Defendant sent a letter to Marentes care of Aaron & Wilson LLP denying coverage for the accident. ECF No. 40-6. However, rather than relying on Marentes’ scope of employment and the car business exception, Defendant denied coverage because the car was owned by Marentes’ employer, which is explicitly excluded from the definition of a non-owned car under the policy. Id.; State Farm Policy at 8.
On December 30, 2014, Marentes and Bichegkueva entered into a settlement agreement in Marentes I. ECF No. 40-9. Under the Settlement Agreement, Mar-entes agreed to “stipulate to vacating the Answer filed on his behalf in the Subject Action and allow a default to be entered against him in the Subject Action” and that, at a subsequent, “prove-up hearing for a judicial determination of total damages[,]...Marentes w[ould] not contest.the damages requested and/or the Judgment ultimately entered against him.” Id. at 3. Additionally, Marentes agreed to “assign[ ] and transfer! ] to [Bichegkueva] any and all claims and causes of action- Marentes may now have or hereafter acquire against State Farm arising out of State Farm’s denial of Marentes’ tender as set forth above, except any claim for emotional distress or punitive damages.” Id. at 4-5. In return, Bichegkueva agreed “not to execute or otherwise seek to enforce or collect upon the Judgment.” Id. at 4.
With respect to the default judgment provision, the agreement was premised on Bichegkueva’s attorney’s “final determination... that there are sufficient grounds for Marentes to proceed with a civil action for bad faith against [Defendant] by reason of [Defendant’s] refusal to provide Marentes with a defense and/or indemnity in the Subject Action.” Id. at 3, If Bicheg-kueva’s attorney determined there were insufficient grounds to bring such an action, Bichegkueva agreed to dismiss the case against Marentes with prejudice. Id. at 3-4.
4. State Farm Agrees to Defend Marentes
On February 23, 2015, Bichegkueva’s attorney forwarded the settlement agreement to Defendant by email and stated that he was “giving [Defendant] this last opportunity to defend Mr. Marentes.” ECF No. 48-10 Ex. A. Bichegkueva’s attorney stated that he would “give [Defendant] until March 13, 2015, to notify Mr. Marentes’ current attorney, Robert Aaron, and me [Bichegkueva’s attorney] whether [Defendant] will defend Mr. Marentes.” Id. Otherwise, if Defendant “refuse[d] to provide. a defense to Mr, Marentes, then the Plaintiff w[ould] proceed forward and have a default and judgment entered against him.” Id.
On March 12, 2015, counsel for Defendant, Stephen M. Hayes of Hayes Scott Bonino Ellingson & McLay, LLP (“the Hayes firm”), sent a letter to Bichegkue-va’s attorney stating that “[Defendant] will be providing its insured, Vincent Mar-entes, a defense under a full reservation of rights in relation to the above-referenced matter.” ECF No. 40-10 (“Def. March 12, 2015 Letter”). Defendant’s attorney specified that “[Defendant] is in the process of identifying defense counsel, who will contact Mr. Marentes shortly. [Defendant] will also be issuing a full reservation of rights to Mr. Marentes.” Id. Finally, Defendant’s attorney stated that Defendant did not “intend, by this letter, to waive any rights under the policy or any policy defense. [Defendant] specifically reserves its right to assert defenses at any time.” Id. Although the letter was addressed to Bichegkueva’s counsel, the letter was also sent directly to Aaron & Wilson, LLP and Marentes. Id. at 2; ECF No. 46 (“Marentes Decl.”) ¶ 6.
Defendant did not immediately contact Marentes and did not challenge the terms of the settlement agreement. ECF No. 48-1, Decl. of Jon-Marc Dobrin (“Dobrin Decl.”) ¶ 3. On April 22, 2015, forty-one days later, Bichegkueva’s attorney filed a motion to enforce the settlement agreement in Marentes I. Id. Rather than oppose the motion, Aaron complied with the terms of the settlement agreement by filing a Stipulation and Order Striking Marentes’ Answer and entering Marentes’ default. Id. A hearing for the motion was set for May 19, 2015. ECF No. 48-20, Deposition of Kevin Cholakian (“Cholakian Depo.”) p. 41, ln.16.
State Farm then appointed Kevin Chola-kian (“Cholakian”) and his firm, Cholakian & Associates, to represent Marentes. ECF No. 40-11 (“Def. May 20, 2015 Letter”) at 5. On May 12, 2015, Aaron allowed Chola-kian to associate as defense counsel in Marentes I. On May 15, 2015, Cholakian filed an untimely response to the motion to enforce the settlement agreement between Bichegkueva and Marentes. ECF No. 48-13. In the opposition, Cholakian argued that the settlement cannot be enforced because (1) Marentes’ State Farm Policy does not allow an assignment of rights, a necessary part of the settlement agreement, and (2) although the settlement agreement specified that State Farm had not defended Marentes, Cholakian had now associated as counsel to defend Mar-entes. Id. Simultaneously, counsel for State Farm filed an opposition to the motion to enforce settlement as “the real party in interest” that made the same argument as Cholakian that the settlement agreement was void because it violated the assignment provision of the State Farm Policy. ECF No. 48-10.
At the May 19, 2015 hearing, Superior Court Judge Joseph Huber, the presiding judge in Marentes I, refused to hear Cho-lakian’s and State Farm’s arguments. ECF No. 48-28. Judge Huber had already signed the order enforcing the settlement agreement and stated that there wasn’t anything that he could do. Id. at 3-4. Judge Huber, however, invited the parties to file a motion for reconsideration of the stipulation and order or a motion to set aside default if they wanted to do so. Id. Neither Cholakian nor State Farm filed a motion for reconsideration or a motion to set aside entry of default.
5. Disagreement Between Marentes and State Farm
On May 20, 2015, counsel for State Farm sent a letter to Marentes stating that Marentes’ defense was occurring pursuant to a full reservation of rights, including the right to obtain reimbursement of attorney’s fees and “to file a declaratory relief action to obtain the court’s determination with respect to whether there is a duty to defend or indemnify [Marentes] from the claim.” Def. May 20, 2015 Letter at 1. The letter then described the terms of the State Farm Policy that excluded Marentes from coverage. Id. at 2-5.
On May 22, 2015, Cholakian gave notice to Bichegkueva’s counsel that he was going to seek to set aside the entry of default. ECF No. 40-12. Bichegkueva’s counsel opposed Cholakian’s course of action and claimed that Cholakian had a conflict of interest. ECF No. 40-13. First, Bicheg-kueva’s counsel argued that the assignment-clause violation argument Cholakian made before Judge Huber created a conflict. Id. Second, Bichegkueva’s counsel argued that because Bichegkueva was now an assignee of Marentes’ rights, Cholakian also had to take her interests into account. Id.
On May 26, 2015, Cholakian reached out to Marentes for the first time by phone. Marentes Deck ¶ 8. A few days later, on May 28, 2015, Cholakian met Marentes at Marentes’ apartment. There, Cholakian told Marentes that Cholakian had been hired to “protect” Marentes against the entry of a judgment against him and that (1) the assignment provision in the settlement with Bichegkueva had violated the State Farm policy, and (2) that “[Cholaki-an] did not believe that State Farm was obligated to pay any judgment that [Bichegkueva] might obtain against [Mar-entes].” Id.
The same day, on May 28, 2015, Aaron emailed all counsel involved in the case and stated that “Mr. Marentes does NOT accept State Farms [sic] defense in the Bichegkueva lawsuit subject to State Farm’s right to reimbursement of all costs and attorneys’ fees incurred in the defense. If the defense is offered subject to this right to reimbursement, the defense is hereby rejected, and defense counsel is directed to immediately cease ALL work on Mr. Marentes’ behalf.” ECF No. 40-14.
6. Marentes II
On May 21, 2015, simultaneously with the above correspondence, State Farm filed a declaratory relief action against Bichegkueva and Marentes in the Northern District of California seeking a declaration that Marentes was not covered by the State Farm Policy. ECF No. 48-8. On May 27, 2015, the case was reassigned to the undersigned judge and assigned Case Number 5:15-CV-02289-LHK. N.D. Cal. Case No. 15-CV-02289-LHK, ECF No. 9. Proceedings in this action shall be referred to as Marentes II. Marentes II is distinct from the instant suit, which is assigned Case Number 5:15-CV-05616-LHK. Defendant filed Marentes II in federal court despite the previous invitation from Judge Huber, the judge presiding over Marentes I in state court, to file a motion for reconsideration in that case.
On June 3, 2015, Marentes received the complaint for Marentes II, which Mar-entes understood as seeking defense fees. Marentes Deck ¶ 11. The same day, Mar-entes called Cholakian and complained about State Farm seeking fees against him. Id. Whether the cause was the May 28, 2015 email or the June 3, 2015 phone complaint from Marentes personally, Cho-lakian sent an email on June 3, 2015 to Marentes informing Marentes that State Farm would not seek fees. Id.; ECF No. 48-30. Plaintiffs have not presented evidence that Marentes accepted Defendant’s representation after that email.
On July 20, 2015, in Marentes II, Bichegkueva filed a motion to dismiss, N.D. Cal. Case No. 5:15-CV-02289-LHK, ECF No. 16, and on July 21, 2015, Marentes filed a motion to dismiss, id. ECF No. 20. On August 3, 2015, Defendant filed an opposition. Id. ECF No. 23. On August 10, 2015, Marentes and Bichegkueva filed replies. Id. ECF No. 30 (“Marentes Reply”); id. ECF No. 31 (“Bichegkueva Reply”).
On August 26, 2015, also in Marentes II, Defendant filed a motion for summary judgment. Id. ECF No. 32. On September 9, 2015, Marentes and Bichegkueva filed a joint opposition to Defendant’s motion for summary judgment. Id. ECF No. 39. On September 16, 2015, Defendant filed a reply. Id. ECF No. 40.
On November 10, 2015, this Court granted Bichegkueva’s and Marentes’ motions to dismiss under Brillhart v. Excess Insurance Co. of America, 316 U.S. 491, 495, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942). See id. ECF No. 4.6;State Farm Mutual Auto. Ins. Co. v. Marentes, 2015 WL 6955012 (N.D. Cal. Nov. 10, 2015). Under Brillhart, “a federal district court sitting in diversity and presiding over an action for declaratory relief may decide to dismiss the federal court action if, as in this case, another suit is pending in state court, between the same parties, and presenting the same issues of state law.” Marentes, 2015 WL 6955012 at *3. This Court denied Defendant’s motion for summary judgment as moot. Id. at *1. This Court ordered the Clerk to close the case file. Id. at *8.
On December 14, 2015, Bichegkueva filed a motion to relate Marentes II to the instant suit. N.D. Cal. Case No. 15-CV-02289-LHK, ECF No. 47. On the same day, Judge Richard Seeborg, who was originally assigned the instant suit, issued a Referral for Related Case Determination. Id. ECF No. 48. On December 15, 2015, this Court related Marentes II to the instant suit. ECF No. 11.
7. State Farm’s Disassociation of Counsel and Judgment in Marentes I
On July 13, 2015, Cholakian disassociated as counsel from Marentes I. ECF No. 48-31. The same day, Marentes received a letter from Cholakian informing Marentes that Cholakian would no longer be Mar-entes’ lawyer. Marentes Decl. ¶ 12. Despite Aaron’s email stating that Marentes would not accept representation from State Farm if attorney’s fees were sought, Marentes states that he did not “reject” State Farm’s defense. Id. ¶ 10-11; ECF No. 48-35 at 2.
On March 28, 2016, in Marentes I, after a prove-up hearing where Bichegkueva presented the extent of her damages, judgment was entered against Marentes in the amount of $2,597,352.30 plus the cost of the suit. ECF No. 48-33; ECF No. 48-34. Marentes, pursuant to the requirements of the settlement agreement, did not challenge the amount of damages sought by Bichegkueva in the prove-up hearing.
B. Procedural History of the Instant Suit, Marentes III
On November 12, 2015, Plaintiffs filed the instant suit in state court. ECF No. 1 (“Notice of Removal”) Ex. 1 at 6. On December 9, 2015, State Farm removed the suit to federal court pursuant to diversity jurisdiction. Notice of Removal at 1-5. Proceedings in this action shall be referred to as Marentes III. In Marentes III, Plaintiffs allege (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) promissory fraud and fraudulent concealment, and (4) breach of California’s Unfair Competition Law (“UCL”). Id. Ex. 1 at 6.
On April 7, 2016, the Court issued an Order Regarding Application of Colorado River Abstention. ECF No. 27. The Court held that abstention under Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), was inappropriate because both parties opposed its application, the issues before the state and federal courts did not fully overlap, and the state court proceedings had advanced too far to be capable of resolving the issues in the instant suit. ECF No. 27 at 8-9; ECF No. 48-84 (judgment entered against Marentes on March 28, 2016).
On August 8, 2016, Defendant filed the instant Motion for Summary Judgment on all of Plaintiffs’ claims. ECF No. 39. On August 22, 2016, Marentes and Biehegkue-va filed separate responses to Defendant’s motion. ECF No. 46 (“Marentes Resp.”); ECF No. 48 (“Bichegkueva Resp.”). On August 29, 2016, Defendant replied. ECF No. 50 (“Reply”).
On September 29, 2016, Plaintiffs filed a Motion for Partial Summary Judgment on Plaintiffs’ claims for breach of contract and breach of the implied covenant of good faith and fair dealing. ECF No. 71. On October 13, 2016, Defendant responded, ECF No. 68, and on October 20, 2016, Plaintiffs replied, ECF No. 69. On October 21, 2016, Defendants filed an Administrative Motion to File a Sur-Reply, ECF No. 71, and on October 25, 2016, Plaintiffs filed an opposition, ECF No. 74.
II. LEGAL STANDARD
A. Summary Judgment
Summary judgment is proper where the pleadings, discovery and affidavits demonstrate that there is “no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). Material facts are those which may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Id.
The party moving for summary judgment bears the initial burden of identifying those portions of the pleadings, discovery and affidavits which demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where the moving party will have the burden of proof on an issue at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. However, on an issue for which the opposing party will have the burden of proof at trial, as is the case here, the moving party need only point out “that there is an absence of evidence to support the nonmoving party’s case.” Id. at 325, 106 S.Ct. 2548.
Once the moving party meets its initial burden, the nonmoving party must go beyond the pleadings and, by its own affidavits or discovery, “set forth specific facts showing that there is a genuine issue for trial.” Fed. R. Civ. P. 56(e). The court is only concerned with disputes over material facts and “factual disputes that are irrelevant or unnecessary will not be counted.” Anderson, 477 U.S. at 248, 106 S.Ct. 2505. It is not the task of the court to scour the record in search of a genuine issue of triable fact. Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996). The nonmoving party has the burden of identifying, with reasonable particularity, the evidence that precludes summary judgment. Id. If the non-moving party fails to make this showing, “the moving party is entitled to judgment as a matter of law.” Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548.
At the summary judgment stage, the court must view the evidence in the light most favorable to the nonmoving party: if evidence produced by the moving party conflicts with evidence produced by the nonmoving party, the judge must assume the truth of the evidence set forth by the nonmoving party with respect to that fact. See Leslie v. Grupo ICA, 198 F.3d 1152, 1158 (9th Cir. 1999).
B. State Law in Diversity Cases
“In determining the law of the state for purposes of diversity, a federal court is bound by the decisions of the highest state court.” Albano v. Shea Homes Ltd. P’ship, 634 F.3d 524, 530 (9th Cir. 2011). If the state’s highest court has not decided an issue, it is the responsibility of the federal courts sitting in diversity to predict “how the state high court would resolve it.” Id.; Air-Sea Forwarders, Inc. v. Air Asia Co., Ltd., 880 F.2d 176, 186 (9th Cir. 1989) (internal quotation marks omitted). In the absence of clear authority, the Court looks for guidance from decisions of the state appellate courts and other persuasive authorities, such as decisions from courts in other jurisdictions and treatises. Strother v. S. Cal. Permanente Med. Grp., 79 F.3d 859, 865 (9th Cir. 1996). “In assessing how a state’s highest court would resolve a state law question[,]...federal courts look to existing state law without predicting potential changes in that law.” Ticknor v. Choice Hotels Int’l, Inc., 265 F.3d 931, 939 (9th Cir. 2001).
III. DISCUSSION
Defendant seeks summary judgment on Plaintiffs’ claims for (1) breach of contract, (2) the implied covenant of good faith and fair dealing, (3) promissory fraud and fraudulent concealment, and (4) violation of the UCL. Additionally, Defendant seeks summary judgment on Plaintiffs’ prayer for punitive damages. Plaintiffs oppose the motion with respect to the breach of contract and implied covenant of good faith and fair dealing claim and also requests that the motion for summary judgment be denied under Federal Rule of Civil Procedure 56(d). Both parties raise various evidentiary objections. The Court first discusses the motion for summary judgment with respect to each claim, then addresses the request under Rule 56(d), and finally addresses the Parties’ evidentiary objections.
A. Breach of Contract
Plaintiffs’ claim for breach of contract involves allegations that Defendant breached its duty to defend and indemnify Marentes. See Bichegkueva Resp. at 10-22. Under California law, “[a] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity” under the policy. Montrose Chem. Corp. v. Superior Court, 6 Cal.4th 287, 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (1993) (“Montrose I”) (quoting Horace Mann Ins. Co. v. Barbara B., 4 Cal.4th 1076, 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792 (1993)). The duty to defend is broader than the duty to indemnify and, thus, “an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded.” Id. (citing Horace, 4 Cal.4th at 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792).
While the duty to defend is broad, it “is not unlimited.” Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 19, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995). In determining whether there is a duty to defend, courts must look to the complaint in the underlying litigation and “all facts known to the insurer from any source.” Montrose I, 6 Cal.4th at 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153. The ultimate question is whether the facts known to the insurer at the time it refused to defend the underlying lawsuit created the potential for coverage under the policy. Gunderson v. Fire Ins. Exch., 37 Cal.App.4th 1106, 1114, 44 Cal.Rptr.2d 272 (1995) (“[T]he issues here are what facts respondent knew at the time appellants tendered the defense of the Ferrando lawsuit, both from the allegations on the face of the third party complaint, and from extrinsic information available to it at the time; and whether these known facts created a potential for coverage under the terms of the Policy”).
If there was no potential for coverage under the insurance policy based on the underlying complaint and extrinsic facts made known to the insurer, then the insurer has not breached the insurance contract by refusing to defend. Montrose I, 6 Cal.4th at 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (holding that duty to defend ends when it is apparent there is “no potential for coverage”). “The insured has the burden of showing that there was an ‘occurrence’ ” covered by the policy. Blue Ridge Ins. Co. v. Stanewich, 142 F.3d 1145, 1148 (9th Cir. 1998).
In interpreting an insurance policy, the Court first looks to the language of the policy itself. “Where no dispute surrounds material facts, interpretation of an insurance policy presents solely a question of law.” Jauregui v. Mid-Century Ins. Co., 1 Cal.App.4th 1544, 1548, 3 Cal.Rptr.2d 21 (1991). The “clear and explicit meaning” of the provisions “interpreted in their ordinary and popular sense... controls judicial interpretation unless [the disputed terms are] used by the parties in a technical sense, or unless a special meaning is given to them by usage.” Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal.4th 645, 666, 42 Cal.Rptr.2d 324, 913 P.2d 878 (1995) (“Montrose II”).
Additionally, “any provision that takes away or limits coverage reasonably expected by an insured must be conspicuous, plain and clear.” Haynes v. Farmers Ins. Exch., 32 Cal.4th 1198, 1204, 13 Cal.Rptr.3d 68, 89 P.3d 381 (2004) (internal quotation marks and citations omitted). California courts do not apply coverage limitations if the insured has an objectively reasonable expectation of coverage under the policy, and the limitation on that reasonably expected coverage is either (1) not conspicuous, or (2) not plain and clear. Travelers Prop. Cas. Co. of Am. v. Superior Court, 215 Cal.App.4th 561, 578, 155 Cal.Rptr.3d 459 (2013) (“Travelers”). The insurer has the burden of showing that a limitation on coverage reasonably expected under the policy is conspicuous, plain, and clear. Haynes, 32 Cal.4th at 1204, 13 Cal.Rptr.3d 68, 89 P.3d 381 (“The burden of making coverage exceptions and limitations conspicuous, plain and clear rests with the insurer.” (citations omitted)).
The Court first identifies the relevant contractual language. Second, the Court discusses whether the tow truck was a covered vehicle under the State Farm Policy and whether an exclusion in the policy, specifically the “car business” exclusion applies. Third, the Court addresses whether any limitations on coverage are “conspicuous, plain, and clear.” Fourth, the Court discusses whether, despite a lack of coverage under the policy, there was a potential for coverage under the policy that triggered the duty to defend. Finally, the Court addresses Plaintiffs’ arguments that, notwithstanding a lack of coverage in the policy, Defendant has waived or is estopped from asserting coverage defenses.
1. The Contractual Language
The State Farm Policy at issue here begins with a declarations page specifying the insured as Vincent Marentes and listing the covered car as Marentes’ 2003 Chevrolet Impala. State Farm Policy at 3. The declarations page also states that the policy includes the provisions of an attached policy booklet, which specifies the substantive terms of the State Farm Policy. Id. at 5.
Under the “LIABILITY COVERAGE” section of the policy booklet, the State Farm Policy provides an “Insuring Agreement,” which states that “We will pay damages an insured becomes legally liable to pay because of: [a] bodily injury to others; and [b] damage to property caused by an accident that involves a vehicle for which that insured is provided Liability Coverage by this policy.” State Farm Policy at 10 (bold and italics in original). On the same page, the State Farm Policy defines an “Insured” to be:
1. you and resident relatives for:
a. the ownership, maintenance, or use of:
(1) your car;
(2) a newly acquired car,
(3) a trailer, and
b. the maintenance or use of:
(1) a non-owned car; or
(2) a temporary substitute car;
Id. at 10 (bold and italics in original).
The section prior to the Liability Coverage section provides definitions to each of the terms written in bold and italics under the definition of who is the “insured.” The Definitions section, after a preamble, organizes the terms in alphabetical order:
DEFINITIONS
We define certain words and phrases below for use throughout the policy. Each coverage includes additional definitions only for use with that coverage. These definitions apply to the singular, plural, possessive, and any other form of these words and phrases. Defined words and phrases are printed in boldface italics.
Car Business means a business or job where the purpose is to sell, repair, service, deliver, test, road-test, park, or store land motor vehicles or any type of trailer.
Newly Acquired Car means a car newly owned by you. A car ceases to be a newly acquired car on the earlier of:
1. the effective date and time of a policy, including any binder, issued by us or any other company that describes the car as an insured vehicle; or
2. the end of the 14th calendar day immediately following the date the car is delivered to you.
Non-Owned Car means a car that is in the lawful possession of you or any resident relative and that neither:
1. is owned by:
a. you;
b. any resident relative;
c. any other person who resides primarily in your household; or
d. an employer of any person described in a., b., or c. above; nor
2. has been operated by, rented by, or in the possession of:
a. you; or
b. any resident relative
during any part of each of the 31 or more consecutive days immediately pri- or to the date of the accident or loss.
Temporary Substitute Car means a car that is in the lawful possession of the person operating it and that:
1. replaces your car for a short time while your car is out of use due to its:
a. breakdown;
b. repair;
c. servicing;
d. damage; or
e. theft; and
2. neither you nor the person operating it own or have registered.
Trailer means:
1. a trailer:
a. designed to be pulled by a private passenger car,
b. not designed to carry persons; and
c. while not used as premises for office, store, or display purposes; or
2. a farm implement or farm wagon while being pulled on public roads by a car.
Your Car means the vehicle shown under “YOUR CAR” on the Declarations Page. Your Car does not include a vehicle that you no longer own or lease.
Id. at 8-9(bold and italics in original).
The Liability Coverage section also contains a number of exclusions eliminating coverage under the policy, one of which is the car business exclusion:
Exclusions
THERE IS NO COVERAGE FOR AN INSURED:
7. WHILE MAINTAINING OR USING A VEHICLE IN CONNECTION WITH THAT INSURED’S EMPLOYMENT IN OR ENGAGEMENT OF ANY KIND IN A CAR BUSINESS. This exclusion does not apply to:
a. yoi^;
b. any resident relative; or
c. any agent, employee, or business partner of a. or b. above while maintaining or using your car, a newly acquired car, a temporary substitute car, or a trailer owned by you;
Id. at 11-12(bold and italics in original). As written above, the Definitions section of the State Farm Policy defines a Car Business to mean “a business or job where the purpose is to sell, repair, service, deliver, test, road-test, park, or store land motor vehicles or any type of trailer.” Id. at 8 (bold and italics in original).
2. Analysis of Coverage Under the State Farm Policy
Defendant argues that Marentes’ accident with Bichegkueva was excluded from coverage because (1) the tow truck was not a covered vehicle, and (2) the car business exclusion excluded the accident from coverage. Mot. at 12-15. If Defendant prevails on either ground, the State Farm Policy does not cover Marentes and Bichegkue-va’s accident. The Court first addresses whether the car business exclusion applies and then addresses whether the tow truck was a covered vehicle under the State Farm Policy.
i. Car Business Exclusion
Defendant argues that the car business exclusion excludes the accident between Marentes and Bichegkueva from coverage under the State Farm Policy. Id. Under the car business exclusion, the State Farm Policy excludes coverage while the insured is “maintaining or using a vehicle in connection with that insured’s employment in or engagement of any kind in a ear business.” State Farm Policy at 10. The definition of a car business is a “business or job where the purpose is to sell, repair, service, deliver, test, road-test, park, or store land motor vehicles or any type of trailer.” Id. at 8.
Plaintiffs do not argue that the car business exclusion is inapplicable to the accident at issue here. The undisputed facts show that the underlying accident occurred when Marentes rear-ended Bicheg-kueva while driving a tow truck. ECF No. 40-1; Police Report at 13. Plaintiffs do not dispute that Extreme Towing owned the tow truck, that the tow truck was covered by Extreme Towing’s insurance, or that Marentes was driving home from a tow job for Extreme Towing at the time of the accident. ECF No. 40-1; Police Report at 13. In fact, Plaintiffs make no argument that the accident was outside the scope of Marentes’ employment with Extreme Towing. Bichegkueva Resp. at 3-4. Moreover, Plaintiffs do not challenge the fact that Extreme Towing “deliver[s]... [and] park[s]” cars, which makes it a car business under the State Farm Policy. State Farm Policy at 8. Accordingly, the Court finds that Marentes was using the tow truck “in connection with that insured’s employment in or engagement of any kind in a car business.” Id. at 10. Thus, because the car business exclusion excluded the accident from coverage, the State Farm Policy does not cover Marentes’ accident with Bichegkueva.
ii. Whether the Tow Track Was a Covered Vehicle
Defendant also argues that the tow truck is not a covered vehicle under the policy. Mot. at 12-15. The State Farm Policy provides coverage for five categories of vehicles: “(1) your car; (2) a newly acquired car; (3) a trailer;... [4] a non-owned car; or [5] a temporary substitute car.” State Farm Policy at 10. The Court addresses each in turn.
First, “your car” is defined as the “vehicle shown under “YOUR CAR” on the Declarations Page,” which in this case is Marentes’ 2003 Chevrolet Impala. Id. at 3. Here, the tow truck was not Marentes’ 2003 Chevrolet Impala, the car listed on the State Farm Policy’s Declarations Page.
Second, a “newly-acquired car” is defined as a car “newly owned by you.” Id. at 8. Here, Extreme Towing owned the tow truck, not Marentes. ECF No. 40-1.
Third, “trailer” is defined as a trailer “designed to be pulled by a private passenger car.” Id. at 9. Here, the tow truck was not a trailer.
Fourth, a “non-owned car” is defined as a car in the insured’s lawful possession that is neither owned by “[a] you; [b] any resident relative; [c] any other person who resides primarily in your household; or [d] an employer of any person described in a., b., or c. above.” Id. at 8. As mentioned above, the tow truck was owned by Extreme Towing, Marentes’ employer. ECF No. 40-1. Therefore, the tow truck is not covered because it is a car owned by “an employer of [Marentes].” State Farm Policy at 8.
Finally, a “temporary substitute car” is a car that replaces “your car,” the 2003 Chevrolet Impala, while “your car” is “out of use due to its” breakdown, repair, servicing, damage, or theft. Id. at 8. The record contains no evidence that Marentes’ 2003 Chevrolet Impala was “out of use” when the accident occurred. In fact, Marentes admits that it was not out of use. Marentes Deposition at 17.
Accordingly, the tow truck does not fall into any of the five categories of covered vehicles and thus Marentes’ accident was not covered under the terms of the State Farm Policy.
The Court next turns to whether limitations on coverage present in the car business exclusion and in the definitions of covered vehicles are “conspicuous, plain, and clear.” Haynes, 32 Cal.4th at 1204, 13 Cal.Rptr.3d 68, 89 P.3d 381.
3. Requirement that Exclusions Be Conspicuous, Plain, and Clear
As noted above, “any provision that takes away or limits coverage reasonably expected by an insured must be conspicuous, plain and clear.” Haynes, 32 Cal.4th at 1204, 13 Cal.Rptr.3d 68, 89 P.3d 381 (internal quotation marks and citation omitted). California courts do not apply coverage limitations if the insured has an objectively reasonable expectation of coverage under the policy, and the limitation on that reasonably expected coverage is either (1) not conspicuous, or (2) not plain and clear. Travelers, 215 Cal.App.4th at 578, 155 Cal.Rptr.3d 459.
The Court need not reach the threshold issue of Marentes’ objectively reasonable expectation of coverage under the State Farm Policy because the Court finds below that the limitations on coverage are conspicuous, plain, and clear. See Travelers, 215 Cal.App.4th at 578, 155 Cal.Rptr.3d 459 (finding limitation of coverage to be conspicuous, plain, and clear after assuming a reasonable expectation of coverage). Nonetheless, the Court notes that Mar-entes likely conceded that he did not have an expectation of coverage under the policy. When asked why Marentes did not tender the accident to Defendant in a deposition, he responded, “Because [the accident]—it wasn’t involving my cars, my personal cars.” Marentes Deposition at 26-27.
The Court first addresses whether the car business exclusion is conspicuous, plain, and clear and then addresses whether the definitions excluding the tow truck from being a covered vehicle are conspicuous, plain, and clear. Once again, only one of the limitations need to be conspicuous, plain, and clear for coverage to be precluded under the State Farm Policy.
i. Car Business Exclusion
Plaintiffs make no argument that the car business exclusion is not “ ‘conspicuous, plain, and clear.’ ” Haynes, 32 Cal.4th at 1204, 13 Cal.Rptr.3d 68, 89 P.3d 381. Nonetheless, the Court addresses the issue to ensure that Defendant has met its burden “of making coverage exceptions and limitations conspicuous, plain and clear.” Id. The Court first considers whether the exclusion is conspicuous and then addresses whether it is “plain and clear.”
First, to determine conspicuousness, California courts look to “how a coverage-limiting provision actually has been positioned and printed within the policy at issue.” Haynes, 32 Cal.4th at 1209, 13 Cal.Rptr.3d 68, 89 P.3d 381. Exclusionary clauses have been found to be conspicuous as a matter of law where the clause is written under headings indicating a limitation of coverage such as “Exclusions” and printed in a size and intensity identical to the rest of the policy. See Nat’l Ins. Underwriters v. Carter, 17 Cal.3d 380, 385, 131 Cal.Rptr. 42, 551 P.2d 362 (1976) (finding conspicuous, plain, and clear the last of eight exclusions written “in printing of size and intensity identical to that of the rest of the policy”); Dominguez v. Fin. Indem. Co., 183 Cal.App.4th 388, 399, 107 Cal.Rptr.3d 739 (2010) (finding conspicuous limiting language placed in a policy under the headings “Exclusions” or “Reduction in Coverage”). Here, the car business exclusion is the seventh item in the “Exclusions” section of the policy and is written in all capital letters, causing it to stand out from the text of the policy provisions not containing exclusions. State Farm Policy at 11. Thus, as in Carter and Dominguez, the car business exclusion here is conspicuous.
Second, to be plain and clear, exclusions must be “stated precisely and understandably, in words that are part of the working vocabulary of the average layperson.” Dominguez, 183 Cal.App.4th at 396, 107 Cal.Rptr.3d 739. Applying this standard, courts find limiting language to not be plain and clear where the provision is ambiguous, the provision uses complicated words not within the knowledge of average lay persons, or where the language is “confusing.” Haynes, 32 Cal.4th at 1211, 13 Cal.Rptr.3d 68, 89 P.3d 381 (finding exclusion not plain and clear because the exclusion used ambiguous terms that were not obvious on their face, involved cross-references between multiple definitions and documents not in the insured’s possession, and used “confusing language surrounding and introducing the actual text of the” exclusion); see also Ponder v. Blue Cross of S. Cal., 145 Cal.App.3d 709, 723, 193 Cal.Rptr. 632 (1983) (holding that clause excluding coverage for “temporomandibu-lar joint syndrome” without a definition for that disease was not plain and clear because it is a “technical medical term”). However, if the limiting language “clearly applies,” courts have held the limiting language to be plain and clear. Travelers, 215 Cal.App.4th at 578, 155 Cal.Rptr.3d 459 (finding language conspicuous, plain, and clear where “the exclusion clearly applied”).
Here, the exclusion specifically states that “there is no coverage for an insured: ... while maintaining or using a vehicle in connection with that insured’s employment in or engagement of any kind in a car business.” Id. The term “car business” is defined as “a business or job where the purpose is to sell, repair, service, deliver, test, road-test, park, or store land motor vehicles or any type of trailer.” Id. at 4. The exclusion and corresponding definition are not ambiguous. The language does not use any undefined term of art, and Plaintiffs do not dispute that the terms of the car business exclusion unambiguously apply to Marentes’ accident with Biehegkueva. Travelers, 215 Cal.App.4th at 578, 155 Cal.Rptr.3d 459 (finding language conspicuous, plain, and clear where “the exclusion clearly applie[d]”). Additionally, the exclusion and corresponding definition do not use complicated words that are not in “the vocabulary of average lay persons.” Ponder, 145 Cal.App.3d at 723, 193 Cal.Rptr. 632. Finally, the language of the exclusion is simple and is not “confusing.” Haynes, 32 Cal. 4th at 1211, 13 Cal.Rptr.3d 68, 89 P.3d 381. Accordingly, the Court finds the car business exclusion to be conspicuous, plain, and clear.
ii. Non-Covered Vehicle Exclusions
Plaintiffs argue that the definition of a covered non-owned car, which excludes employer-owned vehicles, is not “conspicuous, plain, and clear.” Bichegkueva Resp. at 23 (citing Haynes, 32 Cal.4th at 1204, 13 Cal.Rptr.3d 68, 89 P.3d 381). The Court first discusses whether the definition of non-owned car is conspicuous and then discusses whether it is plain and clear.
With respect to the conspicuousness requirement, Plaintiffs argue that the exclusion of employer-owned cars is not conspicuous because it was not in bold and capital letters and it was placed in the Definitions section, rather than the Exclusions section of the policy. Biehegkueva Resp. at 23. California courts have regularly held that limitations of coverage made through defined terms in the definitions section of a policy are conspicuous. In S & H Ins. Co. v. Cal. State Auto. Ass’n Inter-Ins. Bureau, 139 Cal.App.3d 509, 188 Cal.Rptr. 722 (1983), the California Court of Appeal held that a policy limitation made in a definition was conspicuous because “each defined term, such as ‘automobile,’ is set with bold print in quotation marks, effectively drawing attention to the entire subheading of ‘DEFINITIONS.’” Id. at 516, 188 Cal.Rptr. 722. Additionally, “the definitions themselves begin on the first page of the pertinent part of the policy, a position more proximate in relation to the liability section than the designated ‘EXCLUSIONS’ themselves.” Id.; see also Nat’l Auto. & Cas. Ins. Co. v. Stewart, 223 Cal.App.3d 452, 460, 272 Cal.Rptr. 625 (1990) (finding limiting definition of “non-owned automobile” sufficiently conspicuous even though the definition section was placed at the end of the insurance policy).
Here, the exclusion of employer-owned cars is located in the Definitions section of the policy under the definition of “non-owned car.” State Farm Policy at 8. The State Farm Policy explicitly states at the beginning of the Definitions section that defined terms will be written in bold and italics throughout the policy. Id. The defined term, “non-owned car,” is set off in bold and italics throughout the policy and in the Definitions section, which signifies that the term is defined in the Definitions section. S & H, 139 Cal.App.3d at 516, 188 Cal.Rptr. 722. This use of defined terms is even clearer than S & H where the body of the policy at issue did not indicate which terms in the policy had definitions in the Definitions section. Id. In the instant case, the Definitions section is also located conspicuously as the first major section in the State Farm Policy, immediately prior to the Liability Coverage section. Id. Thus, “this is not a case in which an exclusionary clause is hidden in fine print in a policy section bearing no clear relationship to the insuring clause.” Zubia v. Farmers Ins. Exchange, 14 Cal.App.4th 790, 796, 18 Cal.Rptr.2d 65 (1993) (as modified). Moreover, “[c]ontrary to plaintiffs’ suggestion, the fact that the [limiting] provision and its subheading are printed in the same typeface as other provisions and subheadings does not render the [limiting] provision inconspicuous.” Id. at 795-96, 18 Cal.Rptr.2d 65. Just as in S & H and Nat’l Auto., the limitations provided in the definitions section of the policy here are sufficiently conspicuous.
With respect to the plain and clear requirement, Plaintiffs argue without elaboration that the “sentence structure” of the definition of a non-owned car “is unclear to the average layperson.” Bichegkueva Resp. at 23. The Court reproduces below the definition of non-owned car:
Non-Owned Car means a car that is in the lawful possession of you or any resident relative and that neither:
1. is owned by:
a. you-,
b. any resident relative-,
c. any other person who resides primarily in your household; or
d. an employer of any person described in a., b., or c. above;
State Farm Policy at 8.
However, Plaintiffs do not argue that the above exclusion of an employer-owned car in the definition of “non-owned car” is ambiguous or confusing. Compare Haynes, 32 Cal.4th at 1211, 13 Cal.Rptr.3d 68, 89 P.3d 381 (finding exclusion to not be plain and clear where an ambiguous term was left undefined). The “non-owned car” definition also does not use any complicated words that are outside “the vocabulary of average lay persons.” Compare Ponder, 145 Cal.App.3d at 723, 193 Cal.Rptr. 632 (holding that clause excluding coverage for temporomandibular joint syndrome without a definition for that disease was not plain and clear). Finally, the sentence structure is not so complicated that an average lay person could not understand it. See State Farm Mut. Auto. Ins. Co. v. Morris, 2016 WL 3947611, at *7 (D. Haw. July 19, 2016) (finding, under Hawaii law, that the plain language of an identical definition of non-owned car excluded coverage and that an average lay person would be able to understand that it excluded coverage). Additionally, the definition is not more complicated than other exclusionary clauses that have been found to be plain and clear by California courts. See Dominguez, 183 Cal.App.4th at 402, 107 Cal.Rptr.3d 739 (finding the following language to be plain and clear: “If this policy provides coverage that exceeds the mini mum limits required by the applicable Financial Responsibility Law of the State of California, or the state in which the accident occurs, then such amounts in excess of the minimum limits shall not apply to a loss where the operation, maintenance or use of your insured car is by a person other than you, a relative, and an agent or employee of you or a relative in the course and scope of their agency or employment. However, this limitation/reduction does not apply to any liability incurred by you or a relative.”). Accordingly, the Court finds the exclusion of employer-owned cars in the definition of non-owned cars to be plain and clear.
Accordingly, the contract excludes coverage for the tow truck that was driven by Marentes through language that is conspicuous, plain, and clear. The Court next considers whether, at any time, a potential for coverage existed under the State Farm Policy.
4. Potential for Coverage
As described above, an insurer still has a duty to defend if, despite an eventual finding that an insurance policy does not provide coverage, the insurer is in possession of facts showing a potential for coverage. Montrose I, 6 Cal.4th at 296, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (holding that duty to defend ends when it is apparent there is “no potential for coverage”); Buss, 16 Cal.4th at 47-48, 65 Cal.Rptr.2d 366, 939 P.2d 766 (“[I]n an action wherein all the claims ai’e at least potentially covered, the insurer has a duty to defend.”); CNA Cas. of Cal. v. Seaboard Surety Co., 176 Cal.App.3d 598, 605, 222 Cal.Rptr. 276 (1986) (duty to defend existed if there was “any potential liability arising from facts available to the insurer from the [third-party] complaint or other sources available to [the insurer] at the time of the tender of the defense.”).
Here, Plaintiffs do not argue and provide no evidence showing that Defendant was in possession of information creating a potential for coverage under the State Farm Policy. In the letter from Aaron to Defendant tendering the defense and indemnity of the underlying lawsuit concerning the accident to State Farm, Aaron states that “[t]he incident giving rise to the lawsuit involves a motor vehicle collision in which Mr. Marentes was driving a tow truck, owned by his employer, Extreme Towing, Inc. At the time of the incident Mr. Marentes was returning home from a towing operation he performed on behalf of Extreme Towing, Inc.” ECF No. 40-1. Above, the Court concluded there was no coverage under the State Farm Policy based on the same facts. Plaintiffs point to no additional evidence showing that Defendant was in possession of facts indicating potential coverage. Accordingly, the Court finds that there was never potential coverage for the accident between Marentes and Bichegkueva, and Defendant never had a duty to defend Marentes under the terms of the State Farm Policy.
5. Waiver and Estoppel
Plaintiffs argue that, even if there is no coverage under the policy, Defendant waived or should be estopped from asserting its coverage defenses because Defendant allegedly provided a defense to Mar-entes without explicitly reserving its right to assert coverage defenses at a later time. Bichegkueva Resp. at 23-25. The burden is on the insured to prove that the assumption of a defense establishes waiver or estoppel. State Farm Fire & Cas. Co. v. Jioras, 24 Cal.App.4th 1619, 1628-31, 29 Cal.Rptr.2d 840 (1994) (holding that the insured failed to meet its burden where the insurer had reserved its rights to assert coverage defenses).
Under California law, an insurer is precluded from asserting noncoverage in an action concerning an insurance policy if the insurer assumed the defense of the insured without disclaiming liability or giving notice of the insurer’s reservation of rights. Garamendi v. Golden Eagle Ins. Co., 116 Cal.App.4th 694, 719, 10 Cal.Rptr.3d 724 (2004) (“If a liability insurer, with knowledge of a ground of forfeiture or noncoverage under the policy, assumes and conducts the defense of an action brought against the insured, without disclaiming liability and giving notice of its reservation of rights, it is thereafter precluded in an action upon the policy from setting up such ground of forfeiture or noncoverage.”).
California courts analyze an insurer’s assumption of an insured’s defense under theories of waiver and estop-pel. To waive a coverage defense, the insurer needs to “intentionally relinquish ] a known right.” Id. at 720, 10 Cal.Rptr.3d 724. In contrast, for estoppel to apply, two conditions must be satisfied. First, the insurer needs to have “acted in such manner as to cause the insured reasonably to believe the insurer had relinquished” a coverage defense, which, in the insurance context, also means that there must be potential coverage under the insurance policy. Id.; Ringler Assocs. Inc. v. Maryland Cas. Co., 80 Cal.App.4th 1165, 1190, 96 Cal.Rptr.2d 136 (2000) (finding no estoppel where no coverage potentially existed under the policy). Second, the insured needs to have “relied upon [the insurer’s assumption of the insured’s defense] to [the insured’s] detriment.” Garamendi, 116 Cal.App.4th at 719, 10 Cal.Rptr.3d 724.
An adequate reservation of rights will prevent waiver or estoppel. Id. (finding estoppel only because there was no reservation of rights). A reservation of rights does not need to specifically address each coverage defense, but can be general. Jioras, 24 Cal.App.4th at 1627, 29 Cal.Rptr.2d 840 (“[T]he insurer accepted the defense subject to a “global” reservation of rights, and a generalized reservation of rights is deemed adequate for [reserving his rights].”); Cal. Union Ins. Co. v. Poppy Ridge Partners, 224 Cal.App.3d 897, 901-02, 274 Cal.Rptr. 191 (1990) (finding that a reservation of rights with respect to specific grounds still was an effective general reservation of rights with respect to other potential grounds for noncoverage where the reservation of rights referred to “any rights”). Additionally, where an insured has counsel, a reservation of rights is likely to be effective because counsel will be able to explain the meaning of the reservation of rights to the insured. See Jioras, 24 Cal.App.4th at 1627, 29 Cal.Rptr.2d 840 (finding a reservation of rights to be effective where “discussions were held in the presence of [the insured’s] son-in-law lawyer who was sophisticated in such matters”).
Here, Defendant’s appointed counsel for Marentes, Cholakian, associated as counsel in the underlying action, Marentes I, on May 12, 2015. Bichegkueva Resp. at 6. The Court first addresses the threshold question of whether Defendant sufficiently reserved its rights before the representation began. See Jioras, 24 Cal.App.4th at 1627, 29 Cal.Rptr.2d 840 (finding no estoppel due to the insurer’s reservation of rights). Before May 12, 2015, there are two pieces of correspondence sent to Marentes relevant to the reservation-of-rights analysis. First, on September 23, 2014, Defendant denied coverage to Marentes because the tow truck was not a covered vehicle under the policy. ECF No. 40-6. Second, on March 12, 2015, Defendant sent a letter to Marentes in which Defendant stated that it would provide Marentes a defense and would be issuing a full reservation of rights. Def. March 12, 2015 Letter, Specifically, the March 12, 2015 letter to Bichegkueva’s counsel stated: (1) that Defendant would provide Mar-entes “a defense under a full reservation of rights,” (2) that Defendant’s appointed counsel would “contact Mr. Marentes shortly,” and (3) that Defendant would “also be issuing a full reservation of rights to Mr. Marentes.” Def. March 12, 2015 Letter. Additionally, the March 12, 2015 letter stated that Defendant did “not intend, by this letter, to waive any rights under the policy or any policy defense” and that Defendant “specifically reserves its right to assert defenses at any time.” Def. March 12, 2015 Letter.
Defendant’s statement that the defense would be subject to a “full reservation of rights” is sufficient under Jioras and Poppy Ridge to reserve Defendant’s rights under the policy. See Jioras, 24 Cal.App.4th at 1627, 29 Cal.Rptr.2d 840 (“[T]he insurer accepted the defense subject to a “global” reservation of rights, and a generalized reservation of rights is deemed adequate for this purpose.”); Poppy Ridge, 224 Cal.App.3d at 901-02, 274 Cal.Rptr. 191 (“[T]he capitalized last sentence of each of the first two letters [reserving] ‘any rights,’ adequately reserved Cal Union’s rights under the policies .... ”). Moreover, Aaron, Marentes’ counsel, and not Marentes made the decision to allow Cholakian to associate as counsel on May 12, 2015. See Marentes Decl. ¶ 9 (indicating that Marentes had no knowledge that Cholakian had been representing him until at least May 28, 2015); Bichegkueva Resp. at 6 (conceding that Aaron’s firm allowed Cholakian to associate as counsel). Thus, as in Jioras, the presence of counsel makes it unlikely that Marentes did not understand that Defendant was reserving its right to assert coverage defenses. See Jioras, 24 Cal.App.4th at 1627, 29 Cal.Rptr.2d 840 (finding a reservation of rights to be effective where “discussions were held in the presence of Khosrovani’s son-in-law lawyer who was sophisticated in such matters”). Thus, the March 12, 2015 letter constitutes an adequate reservation of rights, and Plaintiffs’ claims for estoppel and waiver fail.
Accordingly, because the accident between Marentes and Bichegkueva was not potentially covered under the State Farm Policy, and Plaintiffs’ estoppel and waiver arguments fail, the Court GRANTS Defendant’s motion for summary judgment with respect to Plaintiffs’ claim for breach of contract.
B. Breach of the Implied Covenant of Good Faith and Fair Dealing
Plaintiffs’ second cause of action is breach of the implied covenant of good faith and fair dealing, which is a covenant implied in all insurance contracts under California law. See Hanson ex rel. Hanson v. Prudential Ins. Co. of Am., 783 F.2d 762, 766 (9th Cir. 1985). The implied covenant of good faith and fair dealing “prevents a party from acting in bad faith to frustrate the contract’s actual benefits.” Guz v. Bechtel Nat’l Inc., 24 Cal.4th 317, 353 n.18, 100 Cal.Rptr.2d 352, 8 P.3d 1089 (2000). A claim for breach of the implied covenant of good faith and fair dealing requires that “(1) benefits due under the policy must have been withheld; and (2) the reason for withholding benefits must have been unreasonable or without proper cause.” Love v. Fire Ins. Exch., 221 Cal.App.3d 1136, 1151, 271 Cal.Rptr. 246 (1990). The mere denial of benefits does not demonstrate bad faith. See Safeco Ins. Co. of Am. v. Guyton, 692 F.2d 551, 557 (9th Cir. 1982) (where a policy dispute involved a genuine legal issue concerning liability, insurer could not have been acting in bad faith by refusing to pay claim). Rather, “[tjhere must be proof the insurer failed or refused to discharge its contractual duties not because of an honest mistake, bad judgment, or negligence, ‘but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement.’ ” Century Sur. Co. v. Polisso, 139 Cal.App.4th 922, 949, 43 Cal.Rptr.3d 468 (2006) (quoting Chateau Chamberay Homeowners Ass’n v. Assoc. Int’l Ins. Co., 90 Cal.App.4th 335, 346, 108 Cal.Rptr.2d 776 (2001)).
Howe