                                                                                      FILED
                               NOT FOR PUBLICATION                                     MAR 03 2011

                                                                                  MOLLY C. DWYER, CLERK
                       UNITED STATES COURT OF APPEALS                               U .S. C O U R T OF APPE ALS




                                FOR THE NINTH CIRCUIT



 JOSEPH L. MARTINEZ and                                 No. 09-56550
 KRISTIN J. MARTINEZ,
                                                        D.C. No. CV07-7569-R
                Plaintiffs/Appellants,

   v.                                                   MEMORANDUM *

 LINCOLN GENERAL INSURANCE
 COMPANY,

                Defendant/Appellee.


                       Appeal from the United States District Court
                          for the Central District of California
                        Manual L. Real, District Judge, Presiding

                        Argued and Submitted February 17, 2011
                                 Pasadena, California

Before: RYMER and BYBEE, Circuit Judges, and QUIST, Senior District Judge.**



        This matter arises out of an underlying construction defect lawsuit in which

Joseph and Kristin Martinez (the “Martinezes”) obtained a judgment against the

         *
              This disposition is not appropriate for publication and is not precedent except as
provided by 9th Cir. R. 36-3.
        **
             The Honorable Gordon J. Quist, Senior District Judge for the U.S. District Court
for Western Michigan, Grand Rapids, sitting by designation.
contractor they hired to remodel their home, Rumreich, Inc. In the case before us, the

Martinezes seek payment of that judgment from Lincoln General Insurance Co.

(“LGIC”) under the general liability insurance policy (the “Policy”) it issued to

Rumreich, Inc. The district court found in favor of LGIC on the grounds that the

Martinezes had not met their burden of establishing that the Policy actually covered

the relief awarded in the judgment. We reverse.

      The district court concluded that the assignment granted by Rumreich, Inc.’s

Chapter 7 trustee was void because any claims that arose against LGIC would be non-

estate property. We disagree. First, although accruing post-petition, any claims

Rumreich, Inc. held against LGIC were “sufficiently rooted in the pre-bankruptcy

past” to qualify as estate property. Segal v. Rochelle, 382 U.S. 375, 380, 886 S. Ct.

511, 515 (1966). And second, because the Policy itself existed pre-petition and was

part of the bankruptcy estate, In re Minoco Grp. of Cos., Ltd., 799 F.2d 517, 519 (9th

Cir. 1986), so too were any rights Rumreich, Inc. held against LGIC under the policy.

Therefore, the Martinezes were free to proceed both as assignees and judgment

creditors.

      The district court concluded that the burden of establishing that property

damage first manifested after the Policy’s effective date rests with the Martinezes. We

agree. It is an element of the Policy’s insuring clause (i.e., necessary to establish

coverage), for which the Martinezes bear the burden, not an “exclusion” from


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coverage, for which LGIC bears the burden.           See FMC Corp. v. Plaisted and

Companies, 61 Cal. App. 4th 1132, 1159-1160 (Cal. Ct. App.1998); Collin v. Am.

Empire Ins. Co., 21 Cal. App. 4th 787, 807 (Cal. Ct. App. 1994).

         The district court concluded that the Martinezes had not presented any “credible

evidence of the timing of the first manifestation of damages.” The problem with this

finding is that the district court repeatedly sustained objections to the Martinezes’

counsel’s attempt to introduce evidence of manifestation. Tr. 81-84, 102-105. This

was prejudicial error. It was relevant to establish when the defects the arbitrator

referenced manifested themselves to the Martinezes; the approximate dates of the

Martinezes’ smelling mold and noticing mildew, for example, were relevant to this

issue.

         We hold that the district court erroneously prevented the Martinezes from

submitting proof on this important issue. We remand the case with instructions that

the district court hear the evidence on the issue of manifestation. Furthermore, we do

not limit the range of relevance to the specific questions referenced above. We

emphasize to the parties and the district court that all reasonable indicia of

manifestation – whether smell or other sensory perception – as it may relate to any

specific or type of damage as found by the arbitrator or noted by someone else is

relevant and not prejudicial.      The district court must readdress the question of

manifestation after hearing all of the relevant evidence on the issue.


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      There are other questions presented to us by the parties which should be ruled

upon by the district court in the first instance.

      REVERSED AND REMANDED.




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