CA Trial Court Grants Summary Judgment for Scottsdale Insurance Company in Nightclub Case

San Bernardino County, CA

Thee Sombrero v. Scottsdale Insurance Company

On October 11, 2016, a California trial court granted summary judgment for Scottsdale Insurance Company, finding a property owner who lost a permit to operate a nightclub and rental income due to the negligence of Scottsdale’s insured security guard failed to establish covered “property damage.”  In the underlying action, the plaintiff property owner Thee Sombrero alleged Scottsdale’s insured security guard Crime Enforcement Services (CES) failed to obtain a business license and negligently failed to frisk patrons.  In turn, this allegedly allowed violence to erupt at Thee Sombrero’s nightclub.  As a result, the City of Colton cracked down on Thee Sombrero, bringing proceedings to revoke its Conditional Use Permit to operate a nightclub.  Thee Sombrero was ultimately able to negotiate a modified permit that allowed it to operate a less-lucrative banquet hall at the property. 

Thee Sombrero sued CES and others, obtaining a Judgment against CES for over $923,000.  This amount represented the difference in value of Thee Sombrero’s property as a banquet hall as opposed to a nightclub. 

Thee Sombrero then sued Scottsdale as a judgment creditor, seeking to collect the $923,000 Judgment. Scottsdale moved for summary judgment on the ground the Judgment was for the loss of an “intangible” legal interest, namely a permit to operate a nightclub, and sought purely economic damages.  As such, the Judgment was not for “property damage” (i.e., damage to or loss of use of “tangible” property).  Thee Sombrero argued it lost the use of the property as a nightclub, and/or that CES built an unauthorized VIP entrance through which a gunman entered, constituting “property damage.” 

Judge Janet M. Frangie of the San Bernardino Superior Court agreed with Scottsdale, finding as a matter of law the underlying Judgment was for strictly economic loss rather than for physical injury to any “tangible” property.  She further agreed with Scottsdale that the allegations concerning a purported VIP entrance were not pled, and arguments on summary judgment are framed by the pleadings.  In any event, the deliberate building of a VIP entrance does not constitute an “occurrence,” or accident, as required for “property damage” coverage. 

Plaintiff was represented by Guinevere Malley of the Law Office of Guinevere Malley.

Defendant, Scottsdale, was represented by Alan B. Yuter and Rachel E. Hobbs of Selman Breitman LLP.

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