Opinion
Case No. 5:19-cv-01060-EJD
09-24-2020
FIRST NATIONAL INSURANCE COMPANY OF AMERICA, Plaintiff, v. Juana AYALA, et al., Defendants.
Blake Justin Russum, Ropers Majeski PC, Redwood City, CA, for Plaintiff. Matthew Yuji Minae, Randy M. Hess, Adleson, Hess & Kelly, APC, Campbell, CA, for Defendants.
Blake Justin Russum, Ropers Majeski PC, Redwood City, CA, for Plaintiff.
Matthew Yuji Minae, Randy M. Hess, Adleson, Hess & Kelly, APC, Campbell, CA, for Defendants.
ORDER GRANTING MOTION FOR SUMMARY JUDGMENT
Re: Dkt. No. 63
EDWARD J. DAVILA, United States District Judge
Plaintiff First National Insurance Company of America ("First National") initiated this declaratory relief action seeking a determination that it has no duty to defend or indemnify Defendant Juana Ayala ("Ayala") in an underlying wrongful death action brought against her by the parents of the toddler decedent, Defendants Shannon Bernard ("Bernard") and Maria Vega ("Vega"), entitled Bernard v. Ayala , Santa Clara County Superior Court, Case Number 114 CV263148 (the "Underlying Action"). Presently before the Court is First National's motion for summary judgment. Dkt. No. 63. First National contends that the claims in the Underlying Action are for losses arising out of, or in connection with, the operation of a family day care home, and therefore California Insurance Code § 676.1(c) eliminates any potential coverage. First National also contends that the Daycare Exclusion in the Homeowners Policy similarly precludes coverage. Bernard and Vega (collectively "Defendants") oppose the motion and cross move for summary judgment. In the alternative, Defendants seek a stay of this case pending final adjudication of the Underlying Action. Dkt. No. 68. First National filed a reply brief. Dkt. No. 74. Based upon all pleadings filed to date and the undisputed the evidence, the Court will grant First National's motion.
All statutory references are to California codes unless indicated otherwise.
At the direction of the Court (Dkt. No. 51), First National's motion for summary judgment is a preliminary motion limited to two discreet overage issues. First National contends that there are numerous other exclusions in the Homeowners Policy that operate to preclude coverage which will need to be addressed in the event this preliminary motion does not resolve the case.
Defendants raise numerous evidentiary objections to First National's evidence, none of which require exclusion of evidence relevant to the parties' summary judgment motions. Dkt. Nos. 68-1, 68-2. Many of the objections are to evidence the Court finds irrelevant (e.g. , an exemplar of an option for Home Day Care Coverage endorsement attached as Exhibit B to Rosenbaum Decl.), and therefore will not be addressed. Defendants raise several other evidentiary objections to the form of certain evidence, but Defendants do not actually dispute the underlying facts First National seeks to establish through such evidence. For example, First National relies on its investigation file for evidence that K.B. was not a relative of Ayala. Dkt. No. 68-1 at 7. Defendants object that "[t]his purported fact is not supported by admissible evidence." Id. Yet, Defendants do not dispute that K.B. is not a relative of Ayala. Indeed, evidence that K.B. is not a relative of Ayala is contained within Defendants' own submissions. See Deposition of Ayala, Dkt. No. 68-3; Decl. of Bernard, Dkt. No. 68-4. There are many more objections like this one where Defendants do not dispute the underlying fact asserted by First National and where that same underlying fact is otherwise established through Defendants' submissions. All such objections are overruled.
The facts giving rise to this suit are tragic and the loss to the parents of K.D. is beyond measure. Bernard and Vega's toddler son, K.B., was brutally assaulted at Ayala's home and died.
A. Ayala's Homeowners Policy
First National issued a Quality-Plus Homeowners Policy to Ayala, policy number OA3487649, effective from February 14, 2012 to February 14, 2013 ("Homeowners Policy"). Defendant Shannon Bernard's and Maria Vega's Responsive Separate Statement in Opposition to First National's Motion for Summary Judgment, (Dkt. No. 68-1 at 2). Section II – Liability Coverages, Coverage E, Personal Liability of the Homeowners Policy provides:
If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, we will:
1. pay up to our limit of liability for the damages for which the insured is legally liable; and
2. provide a defense at our expense by counsel of our choice even if the allegations are groundless, false or fraudulent.
We may investigate and settle any claim or suit that we decide is appropriate. Our duty to settle or defend ends when the amount we pay for damages resulting from the occurrence equals our limit of liability.
Id. at 2 (emphasis added). The Homeowners Policy contains the following exclusion pertinent to the pending motion:
1. Coverage E - Personal Liability and Coverage F - Medical Payments to Others do not apply to bodily injury or property damage :
* * *
h. Which results from the legal liability of any insured because of home care services, day care, and any other hospice related activity provided to any person on a regular basis by or at the direction of:
(1) any insured ;
(2) any employee of any insured ;
(3) any other person actually or apparently acting on behalf of any insured .
Regular basis means more than 20 hours per week. This exclusion does not apply to:
(1) home care services provided to the relatives of any insured ;
(2) occasional or part-time home care services provided by any insured under 23 years of age.
Id. at 3-4 (emphasis added). The Homeowners Policy does not provide home day care insurance coverage pursuant to a separate insurance endorsement. Id. at 2.
B. Tender and Underlying State Court Action
On or around September 18, 2012, prior to the filing of the complaint in the Underlying Action, Ayala tendered the wrongful death claim asserted against her by Bernard and Vega for defense and indemnity under the Homeowners Policy. Id. at 4. Upon receipt of the claim, First National conducted an investigation into the death of K.B. Id. Defendant Ayala gave a recorded statement as part of this investigation. Id. at 5. During her recorded statement, Ayala said she "took care" of K.B. for six months. Decl. of Sarah Rosenbaum in Support of Plaintiff's Motion for Summary Judgment, Ex. G, Dkt. No. 62-8 at 95. Ayala also stated that she told Vega she would take care of K.B. as "a favor" while Vega looked for a daycare. Id. at 96. Ayala denied running a "daycare." Id. The information in Ayala's recorded statement to First National is consistent with the information stated in the declaration of K.B.'s father, Bernard. See Decl. of Shannon Bernard ¶¶ 3-5, Dkt. No. 68-4. Ayala was to watch K.B. on a temporary basis "at basically no charge other than payment of costs." Id. Ayala agreed to cook for and feed K.B. while he was at Ayala's home, and so Bernard "provided $100 a week simply to cover these expenses." Id. at ¶ 5. First National also obtained recorded statements from Ayala's children, Noemi Fuentes and Jesus Fuentes Ayala, who confirmed that Ayala had taken care of K.B. Dkt. No. 68-1 at 7.
On January 17, 2013, an paralegal assistant at the Boccardo Law Firm emailed First National on behalf of Defendants, stating that K.B. "had been attending the daycare—along with several other children—for several months Monday-Friday from 9-6, as both parents work." Dkt. No. 62-8 at 112. Upon completion of its investigation, First National issued a letter to Ayala on March 11, 2013, declining to provide a defense or indemnification of the yet to be filed Underlying Action. Dkt. No. 68-1 at 8. The declination letter set forth the basis for the declination of coverage, including First National's analysis of the applicability of Insurance Code § 676.1(c). Id. at 9. According to First National, its investigation confirmed that in addition to caring for K.B., Ayala had cared for two grandchildren at her home, and that the care had been provided every weekday for months for periods of less than 24 hours per day. Id. at 10-11. Based on these findings, First National concluded that Ayala's home qualified as a small family day care home for which Insurance Code § 676.1(c) eliminated coverage. Id. at 11.
The objections to this email are overruled. The email is not hearsay under Federal Rule of Evidence 801(d)(2).
In April of 2014, Bernard and Vega filed the Underlying Action against Ayala alleging negligence, premises liability, and wrongful death. Id. at 12. The original complaint in the Underlying Action contains the following allegations:
First National's request for judicial notice of the original complaint is granted.
DEFENDANT AYALA WAS OPERATING A DAYCARE CENTER FOR CHILDREN. PLAINTIFFS ENTRUSTED THE CARE OF THEIR CHILD, KADEN BERNARD, TO DEFENDANT AYALA IN RETURN FOR PAYMENT OF FEES. DEFENDANT AYALA NEGLIGENTLY AND CARELESSLY HIRED DEFENDANT BENITEZ WHO NEGLIGENTLY AND CARELESSLY ASSAULTED THE MINOR CHILD WHILE IN THE CARE OF DEFENDANT AYALA AND IN THE COURSE AND SCOPE OF EMPLOYMENT OF HIS EMPLOYER, WHICH RESULTED IN KADEN BERNARD'S DEATH.
Id. Bernard's counsel, Mr. Stein of The Boccardo Firm, deposed Ayala in the Underlying Action on October 17, 2014. Decl. of Randy Hess, Ex. B, Dkt. No. 68-3; Decl. of Jaclyn D. Conover, Ex. C, Dkt. No. 73-1. Consistent with the information stated in The Boccardo Law Firm's January 17, 2013 email to First National, Ayala testified that in addition to looking after her grandchildren while their parents worked, she took care of K.B. at her home. Dkt. No. 73-1 at 25-28. Ayala agreed to watch the then six month old K.B. on a temporary basis as a favor to Defendants. Id. at 27-28, 30. Ayala took care of K.B. for approximately six months, Monday through Friday, from 9:00 a.m. to 6:00 p.m., before he was assaulted and died. Id. at 29, 31, 33. Defendants paid Ayala $100 a week. Id. at 31.
According to Bernard and Vega, Benitez was Ayala's long-time boyfriend. Dkt. No. 32 at 11; see also Dkt. No. 73-1 at 50 (providing Ayala's testimony that Benitez was her partner).
Defendants' failure to identify and produce the October 17, 2014 transcript of Ayala's deposition with their Initial Disclosures is an inexcusable violation of the Federal Rules of Civil Procedure. Defendants' counsel in the Underlying Action took Ayala's deposition and her testimony is arguably the most critical evidence in this coverage case. Even more egregious is that Defendants failed to produce Ayala's transcript; objected to certain portions of First National's evidence when they knew or should have known that First National's evidence was fully consistent with Ayala's deposition testimony; and then submitted excerpts of the deposition transcript in opposition to First National's summary judgment motion and in support of their own.
Over four years after Bernard and Vega filed the Underlying Action, Ayala tendered the original complaint in the Underlying Action to First National and requested reconsideration of the March 11, 2013 declination. Dkt. No. 68-1 at 13-18. On February 25, 2019, First National reaffirmed its declination of coverage. Id. at 15.
The Underlying Action was stayed for several years pending the resolution of the criminal case against Benitez. Id. On September 30, 2019, Bernard and Vega sought leave to lift the stay in the Underlying Action for the limited purpose of filing an amended complaint. Id. On October 1, 2019, Bernard and Vega filed a First Amended Complaint ("FAC"). Id. at 16. The following allegations appear in the FAC:
b. Defendant Ayala was a personal friend of Plaintiffs. On April 11, 2012, and for some time prior thereto, defendant Ayala, as a favor to Plaintiffs, agreed to watch Kaden Bernard, a minor, for sporadic times while his parents, Shannon Bernard and Maria Vega were at work.
c. At all times herein mentioned, defendants Ayala knew or should have known that this undertaking created a duty to care for, supervise, protect and prevent harm from befalling Kaden Bernard, and to ensure that he was safe while in her care.
d. At all times herein mentioned, defendant Ayala negligently and carelessly failed to exercise reasonable care in supervising, protecting and preventing harm from befalling Kaden Bernard. Said failure to exercise reasonable care added to the risk of, and was a substantial factor in causing personal injury to, and the death of, Kaden Bernard.
Id. at 16-17.
C. Coverage Action
On February 26, 2019, First National initiated the instant coverage action against Ayala, Bernard and Vega, asserting claims for (1) Declaratory Relief-No Duty to Defend, (2) Declaratory Relief-No Duty to Indemnify and (3) Declaratory Relief-Failure to Cooperate. Compl. ¶¶ 30-45. The Clerk entered default as to Ayala on August 13, 2019. Dkt. No. 22.
D. Status of Criminal Action
Benitez has pled guilty to voluntary manslaughter, two counts of felony lewd and lascivious acts by force with a minor under 13, and one count of kidnapping in connection with K.B.'s death. Dkt. No. 45 at 11.
II. STANDARDS
A motion for summary judgment should be granted if there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(a) ; Addisu v. Fred Meyer, Inc. , 198 F.3d 1130, 1134 (9th Cir. 2000). The moving party bears the initial burden of informing the Court of the basis for the motion and identifying the portions of the pleadings, depositions, answers to interrogatories, admissions, or affidavits that demonstrate the absence of a triable issue of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
If the moving party meets this initial burden, the burden shifts to the non-moving party to go beyond the pleadings and designate "specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e) ; Celotex , 477 U.S. at 324, 106 S.Ct. 2548. The court must regard as true the opposing party's evidence, if supported by affidavits or other evidentiary material. Id. However, the mere suggestion that facts are in controversy, as well as conclusory or speculative testimony in affidavits and moving papers, are not sufficient to defeat summary judgment. See Thornhill Publ'g Co. v. GTE Corp. , 594 F.2d 730, 738 (9th Cir. 1979). To meet this burden, the non-moving party must come forward with admissible evidence. Fed. R. Civ. P. 56(c) ; see also Hal Roach Studios, Inc. v. Feiner & Co., Inc. , 896 F.2d 1542, 1550 (9th Cir. 1989).
A genuine issue for trial exists if the non-moving party presents evidence from which a reasonable jury, viewing the evidence in the light most favorable to that party, could resolve the material issue in his or her favor. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; Barlow v. Ground , 943 F.2d 1132, 1134-36 (9th Cir. 1991). Conversely, summary judgment must be granted where a party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, on which that party will bear the burden of proof at trial." Celotex , 477 U.S. at 322, 106 S.Ct. 2548.
III. DISCUSSION
A standard insurance policy generally imposes two separate duties on an insurer: a duty to defend the insured, and a duty to indemnify the insured. Hartford Cas. Ins. Co. v. Swift Distribution, Inc. , 59 Cal.4th 277, 286-87, 172 Cal.Rptr.3d 653, 326 P.3d 253 (2014). A liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity. Montrose Chemical Corp. v. Superior Court , 6 Cal.4th 287, 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (1993) (quoting Gray v. Zurich Insurance Co. , 65 Cal.2d 263, 54 Cal.Rptr. 104, 419 P.2d 168 (1966) ). "Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded. [Citations.]" Montrose , 6 Cal.4th at 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (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 determined by reference to the policy, the complaint, and all facts known to the insurer from any source." Montrose , 6 Cal.4th at 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153. "An insurer must defend against a suit even ‘where the evidence suggests, but does not conclusively establish, that the loss is not covered.’ " Hartford Cas. Ins. Co. , 59 Cal. 4th at 287, 172 Cal.Rptr.3d 653, 326 P.3d 253 (quoting Montrose , 6 Cal.4th at 299, 24 Cal.Rptr.2d 467, 861 P.2d 1153 ). The duty to defend arises when the insurer "becomes aware of, or if the third party lawsuit pleads, facts giving rise to the potential for coverage under the insuring agreement," even if those facts are disputed, groundless, false or fraudulent. Waller v. Truck Ins. Exch., Inc. , 11 Cal. 4th 1, 19, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995). The insurer must defend so long as under "the facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be amended to state a covered liability." Hartford Cas. Ins. Co. , 59 Cal. 4th at 287, 172 Cal.Rptr.3d 653, 326 P.3d 253 (quoting Scottsdale Ins. Co. v. MV Transp. , 36 Cal. 4th 643, 654, 31 Cal.Rptr.3d 147, 115 P.3d 460 (2005) ). Doubt as to whether an insurer must defend is resolved in favor of the insured. Id. However, "if, as a matter of law, neither the complaint nor the known extrinsic facts indicate any basis for potential coverage, the duty to defend does not arise in the first instance." Scottsdale Ins. Co. , 36 Cal. 4th at 655, 31 Cal.Rptr.3d 147, 115 P.3d 460.
A. Insurance Code § 676.1 Eliminates Any Potential for Coverage
Insurance Code § 676.1(c) prohibits homeowners policies from providing liability coverage for losses arising out of, or in connection with, an insured's provision of daycare from a residence. Specifically, § 676.1(c) provides:
It shall be against public policy for a residential property insurance policy to provide coverage for liability for losses arising out of, or in connection with, the operation of a family day care home. This coverage shall only be provided by a separate endorsement or insurance policy for which premiums have been assessed and collected.
Cal. Ins. Code § 676.1(c). Thus, the Insurance Code "requires a formal separate between the provision of homeowners insurance and of the day care insurance." Farmer v. Allstate Ins. Co. , 171 Fed. Appx. 111 (9th Cir. 2006). It is undisputed that Ayala did not obtain a separate endorsement or insurance policy that provided coverage for liability for losses arising out of, or in connection with, the operation of a family day care home.
The California Child Care Facilities Act defines the terms "family day care home" as "a home that regularly provides care, protection, and supervision for 14 or fewer children, in the provider's own home, for periods of less than 24 hours per day, while the parents or guardians are away, and is either a large family day care home or a small family day care home." Cal. Health and Safety Code § 1596.78(a). A "small family day care home" is defined as home that provides care, protection, and supervision for eight or fewer children, including children under 10 years of age who reside at the home. Cal. Health and Safety Code § 1596.78(c).
Here, the undisputed evidence shows that Ayala was providing care, protection, and supervision for eight or fewer children, including children under 10 years of age who reside at the home, when K.B. was brutally assaulted by Benitez. Thus, Ayala's and Defendants' arrangement for the care of K.B. meets the definition of "small family day care home" as defined by Health and Safety Code § 1596.78(c).
Defendants object to First National's evidence as inadmissible hearsay and documents for which no competent foundation has been established. The objections are overruled. Moreover, evidence that operates a "small family day care home" as defined by § 1596.78(c) may be found in Defendants' own submissions. See Ayala's deposition testimony, Dkt. No. 68-3.
Defendants nevertheless argue that Ayala was not operating a day care for a variety of reasons. First, Defendants argue that the undisputed evidence establishes that Ayala watched K.B. only as a favor to his parents. Relatedly, Defendants argue that undisputed evidence establishes that Ayala agreed to "watch" K.B. "at basically no charge" and that the $100 a week they did pay Ayala was intended solely to cover the expense of cooking and feeding K.B. Decl. of Shannon Bernard ¶¶ 3-5, Dkt. No. 68-4. Section 1596.78(c), however, makes no distinction between "care, protection and supervision" for children that is provided for altruistic reasons and "care, protection and supervision" for children that is provided for financial gain or for any other reasons. Further, that the $100 payment was for expenses rather than for "watching" K.B. is a meaningless distinction. All that is required under § 1596.78(c) is that the home provides "care, protection, and supervision." Surely providing care to a child includes providing meals when that child is not independent enough to do so on his or her own. K.B. was a young toddler at the time Ayala was watching him. Defendants' $100 payment for purchasing and preparing K.B.'s meals was a payment for K.B.'s "care" within the meaning of § 1596.78(c).
Second, Defendants argue that the undisputed evidence establishes that Defendants intended for Ayala to watch K.B. on a temporary, short term basis. That may very well have been Defendants' and Ayala's intent; the evidence, however, is that Ayala watched K.B. regularly Monday through Friday, while K.B.'s parents worked, for approximately six months. In any event, the applicability of § 1596.78(c) does not depend on the permanency of the care arrangement. The only temporal requirement is that the care must be for less than 24 hours per day. Here, it is undisputed that Ayala watched K.B. for less than 24 hours per day.
Third, Defendants argue that Ayala has consistently denied running a day care, and therefore there exists a triable issue of fact precluding summary judgment. Ayala's subjective belief about what does or does not constitute running a day care, however, is not dispositive of the coverage issue. Rather, the issue is whether Ayala operated a statutorily defined "family day care home" which is a legal determination that depends upon whether a home provides regular care, protection, and supervision. The case of Hoffman-Haag v. Transamerica Ins. Co. , 1 Cal. App. 4th 10, 1 Cal.Rptr.2d 805 (1991), a case relied upon by First National, illustrates this point. According to the stipulation of facts in Hoffman-Haag , the plaintiffs left their infant daughter, Gwenevier, in the care of the insured. Id. at 12, 1 Cal.Rptr.2d 805. The plaintiffs paid the insured $70 a week "for Gwenevier's care." Id. In addition to Gwenevier, the insured was caring for her own four children and one additional unrelated child for which she was also receiving payment. Id. While in the insured's care, Gwenevier fell down a set of stairs and died as a result of the injuries she sustained. Id. The insurance company denied coverage of the plaintiffs' claim. Id. at 12-13, 1 Cal.Rptr.2d 805. The trial court found that the insured was not engaged in a business within the meaning of the "business pursuits" exclusion in the policy, and accordingly entered judgment against the insurance company. Id. at 13, 1 Cal.Rptr.2d 805. The insurance company filed a motion for a new trial and to vacate the judgment on the basis of California Insurance Code § 676.1(c), which the court granted. Id. at 13, 1 Cal.Rptr.2d 805. The trial court's ruling was affirmed on appeal. Id. at 16, 1 Cal.Rptr.2d 805. Here, as in Hoffman-Haag , the undisputed facts establish that Defendants' and Ayala's intent was for Ayala to provide care, protection and supervision of K.B.; that Defendants paid Ayala for K.B.'s care; and that Ayala was caring for two other children at the same time. Section 676.1(c) therefore applies to bar coverage.
Bernard's subjective belief is also not dispositive of the coverage issue.
First National also relies on State Farm Gen. Ins. Co. v. J.R. , 2006 WL 2507032, at *1 (Cal. Ct. App. Aug. 31, 2006). Pursuant to Rule 8.1115 of the California Rules of Court, however, this unpublished decision must not be cited or relied on by a court or a party in any other action.
Defendants next contend that there are exceptions for "family day care homes" listed in Health and Safety Code § 1596.792 that First National must show are inapplicable in order to conclusively negate coverage. Specifically, Defendants cite to subsections (d) and (f) of § 1596.792, which remove from licensing requirements "[a]ny family day care home providing care for the children of only one family in addition to the operator's own children" and "[a]ny arrangement for the receiving and care of children by a relative," respectively. Defendants argue that because Ayala provided care for only one family (K.B.'s family) in addition to her own grandchildren, § 1596.792(d) or (f) excludes her residence from the homeowners insurance prohibition of Insurance Code § 676.1(c).
Defendants' argument is unpersuasive. Whether Ayala was required to have a license to operate a family day care home is not at issue in this case. Moreover, although the Health and Safety Code has exceptions for purposes of licensing, Insurance Code § 676.1(c) does not have any exceptions that narrow the homeowners insurance prohibition. The California Legislature could have enacted exceptions to Insurance Code § 676.1(c), but for whatever reason, did not do so. In the absence of an expression of legislative intent, there is no basis to import and read into Insurance Code § 676.1(c) exceptions to licensing requirements stated in Health and Safety Code § 1596.792.
Neither party has submitted legislative history of § 676.1(c).
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Moreover, even if there were a legitimate basis to read exceptions into Insurance Code § 676.1(c), the exceptions relied upon by Defendants would not apply under the facts of this case. The exception stated in Health and Safety Code § 1596.792(d) would not apply because Ayala did not provide care for K.B. and her "own children." Rather, Ayala provided care for K.B. and her grandchildren. Defendants' argument regarding the applicability of Health and Safety Code § 1596.792(f) is even more strained. Subsection (f) excepts from licensing requirements "arrangement[s] for the receiving and care of children by a relative." Even if such an exception were read into Insurance Code § 676.1(c), it would not apply because Ayala was watching K.B. in addition to her own grandchildren, and it is undisputed that K.B. is not related to Ayala. On its face, Insurance Code § 676.1(c) precludes coverage under Ayala's Homeowners Policy for Bernard and Vega's claims.
B. Exclusion 1.h. Similarly Precludes Coverage
Pursuant to Exclusion 1.h., Ayala's Homeowners Policy excludes coverage for "bodily injury" which results from the liability of any insured because of home care services, or day care, provided to any non-relative person on a regular basis. The exclusion further provides that regular basis means more than 20 hours per week.
As discussed above, Ayala cared for K.B., a non-relative child, in her home for approximately six months, from 9:00 a.m. to 6:00 p.m., Monday through Friday. Ayala provided this full time care while Defendants were at work. Defendants paid Ayala for purchasing and preparing food for K.B. The Court finds that this arrangement is "day care" within the meaning of Exclusion 1.h., even if the care was provided only for a temporary basis and/or only as a favor. Exclusion 1.h. does not distinguish between care that is formal or informal, temporary or long-term, profitable or altruistic. In the Underlying Action, Defendants are seeking an award of damages against Ayala for causing K.B.'s death while performing, or failing to adequately perform those services at her home. Therefore, Exclusion 1.h. precludes coverage for the claims against Ayala in the Underlying Action.
C. The Amended Complaint Does Not Impact Coverage
The original complaint in the Underlying Action alleges, on its face, that Ayala was operating a daycare for children at the time of the incident. This allegation, in conjunction with the facts known, forecloses the possibility of any coverage under Ayala's Homeowners Policy. The FAC does not give rise to coverage any more than the original complaint did. This is because under California law, the duty to defend is determined not just by reference to the allegations in the operative complaint but by "those facts known by the insurer at the inception of a third party lawsuit," Montrose , 6 Cal.4th at 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153, or "from the facts and inferences known to an insurer from the pleadings, available information and its own investigations at the time of the tender of defense" CNA Casualty of California v. Seaboard Surety Co. , 176 Cal. App. 3d 598, 610, 222 Cal.Rptr. 276 (1986).
Here, First National determined on the basis of the Underlying Action and the facts known at the time of tender, that there was no potential for coverage. That determination was correct for the reasons already discussed above. Once First National determined, on the basis of the lawsuit itself and the extrinsic facts known to it at that time, that there was no potential for coverage, First National did not have a continuing duty to investigate or monitor the lawsuit to see if the third party later made some new or amended claim not found in the original lawsuit. Gunderson v. Fire Ins. Exch. , 37 Cal. App. 4th 1106, 1117, 44 Cal.Rptr.2d 272 (1995). Thus, even if the bare allegations in the FAC now suggest a potential for liability when none was previously suggested in the original complaint, the extrinsic evidence known to First National at the time of tender conclusively eliminated the potential for coverage. Defendants are not the arbiter of coverage under First National's policy, see Hurley Constr. Co. v. State Farm Fire & Cas. Co. , 10 Cal. App. 4th 533, 538, 12 Cal.Rptr.2d 629 (1992), and "where the extrinsic facts eliminate the potential for coverage, the insurer may decline to defend even when the bare allegations in the complaint suggest potential liability" Waller v. Truck Ins. Exchange, Inc. , 11 Cal.4th 1, 19, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995).
IV. CONCLUSION
First National's motion for summary judgment is GRANTED. Defendants' motion for summary judgment is DENIED.