Opinion
Case No. EDCV 10-00810 VAP(DTBx)
08-19-2014
EMPLOYERS INSURANCE COMPANY OF WAUSAU, Plaintiff, v. LEXINGTON INSURANCE COMPANY, Defendants.
ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT; AND GRANTING DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT
[Motions filed on July 7, 2014]
This insurance coverage dispute arises out of a fatal accident at a construction site that occurred when a concrete pump boom fell down and struck several workers. At the time of the accident, the insured, Rick Concrete Construction ("Rick Concrete"), had an automotive liability policy with Plaintiff, Employers Insurance Company of Wausau ("Plaintiff" or "Wausau"), and a general commercial liability policy with Defendant, Lexington Insurance Company ("Defendant" or "Lexington"). Wausau agreed to defend Rick Concrete against the state court personal injury and subrogation claims arising out of this accident. Eventually, Wausau settled all claims brought by the injured workers, the family of the deceased worker, and the State Worker's Compensation Fund. Lexington refused to defend Rick Concrete on the basis that the accident was not covered under its general commercial liability ("CGL") policy. Wausau now seeks an equitable contribution from Lexington for the costs of defending and settling the claims against Rick Concrete.
Before the Court are Wausau's and Lexington's cross-Motions for Summary Judgment. The matter came before the Court for hearing on August 11, 2014. After reviewing and considering all papers filed in support of, and in opposition to, the Motions, and the arguments advanced at the hearing, the Court DENIES Plaintiff Wausau's Motion and GRANTS Defendant Lexington's Motion.
I. BACKGROUND
On February 10, 2006, Jairo Herredia Guillen died, and three other workers were injured, in an accident on a construction site in Murrieta, California ("accident"). The workers were struck by a concrete pump boom that suddenly fell to the ground, crushing Mr. Guillen and injuring the other workers. On March 13, 2007, Mr. Guillen's family filed a wrongful death action against Rick Concrete in the California Superior Court for the County of Riverside ("Guillen Action"). Rick Concrete tendered the Guillen Action to both Wausau and Lexington and asked them to defend it in the suit. Wausau agreed to defend Rick Concrete under a reservation of rights, but Lexington declined the tender on the basis the accident fell under an "Auto Exclusion" in the CGL policy and was not covered.
Ana B. Guillen, et al v. Rick Concrete Construction et al, No. RIC46744 (Mar. 13, 2007 Riverside Super. Ct.). The injured workers, Jose Zamorano, Tomas Flores, and Hector Lievanos, and the State Compensation Insurance Fund also filed actions for damages against Rick Concrete. (Allen Declaration ("Allen Decl.") ¶ 3.) All of these actions are collectively referred to as the "Guillen Action."
Wausau filed a suit for declaratory relief against Rick Concrete in the California Superior Court for the County of San Diego ("State Court Action"). In the State Court Action, Wausau sought a declaratory judgment that its automotive policy with Rick Concrete does not provide coverage for the accident. Rick Concrete filed a cross-complaint against Wausau, Lexington, and a third company, Driver Alliant Insurance Services, Inc. ("Driver"), for, inter alia, breach of contract and breach of the covenant of good faith and fair dealing based on the insurance companies' responses to Rick Concrete's tender of the wrongful death action. Lexington subsequently filed a complaint in intervention against Wausau seeking a judicial determination of Wausau's duty to defend Rick Concrete in the Guillen Action.
Employers Insurance Company of Wausau v. Rick Concrete Construct et al, No. 37-2007-00071934-CU-IC-CTL (July 27, 2007 San Diego Super. Ct.).
On July 30, 2008, the San Diego Superior Court issued a statement of decision finding that the accident fell within Wausau's automotive insurance policy. On July 1, 2010, the San Diego Superior Court issued a final judgment addressing Wausau's declaratory relief action, as well as Rick Concrete's cross-complaint. (Ex. I to Clairborne Decl. ("Super. Ct. Judgment").) Wausau appealed this decision.
Meanwhile, on June 2, 2010, Wausau filed this action against Lexington seeking declaratory relief in the form of a judicial determination of "the parties' rights and responsibilities" in regard to the Guillen Action. ("Complaint" or "Compl." (Doc. No. 1) ¶ 4.) Wausau claims that Lexington owes the primary duty to defend and indemnify Rick Concrete, and seeks reimbursement from Lexington for the costs of defending and settling the Guillen Action. (Id. ¶¶ 5-6.)
On January 11, 2011, the Court stayed this action pending the resolution of the appeal in the State Court Action. (See "Minute Order (1) Granting Defendant's Motion to Stay the Action; (2) Granting Defendant's Motion to Dismiss Plaintiff's Claim for Attorneys' Fees; and (3) Denying Defendant's Motion in all Other Respects" ("Stay Order")(Doc. No. 16).) On March 8, 2013, the California Court of Appeal issued its decision in the State Court Action. (Ex. M to Clairborne Decl. ("COA Op.").) The Court of Appeal affirmed the Superior Court's finding that the Wausau Policy covered the accident.
Employers Ins. Co. of Wausau v. Rick Concrete Construction, No. D058134 (Mar. 8, 2013 Cal. Ct. App.).
On April 7, 2014, the Court lifted the stay on this action and set a briefing schedule for cross-motions for summary judgment. On July 7, 2014, Wausau filed a Motion for Summary Judgment ("Pl.'s Mot.") (Doc. No. 38). In support of its Motion, Wausau submitted the following documents:
• Statement of Uncontroverted Facts ("PSUF") (Doc. No. 38-5);
• Compendium of Evidence ("Pl.'s COE") (Exs. 1-17) (Doc. No. 38-7 - 38-10) and the Declaration of Dale Amato ("Amato Decl.") (Doc. No. 38-2);
• Declaration of Lorrie Isaac ("Isaac Decl.") (Doc. No. 38-3);
• Request for Judicial Notice ("PRJN") (Doc. No 38-4).
Lexington filed an Opposition to Wausau's Motion on July 21, 2014 ("Def.'s Opp'n")(Doc. No. 41). In support of its Opposition, Lexington filed a Statement of Genuine Issues and its Separate Statement of Undisputed Facts ("DSGI") (Doc. No. 41-4) and the Declaration of Michael Clairborne in Support of the Request for Additional Time to Take Discovery Under Federal Rule of Civil Procedure 56(d) ("FRCP 56(d) Decl.") (Doc. No. 41-1). Wausau filed a Reply on July 28, 2014 ("Pl.'s Reply") (Doc. No. 43).
Lexington also filed a Motion for Summary Judgment ("Def.'s Mot.") on July 7, 2014. In support of its Motion, Lexington submitted the following documents:
• Statement of Undisputed Facts ("DSUF") (Doc. No. 39-2);
• Declaration of Michael Clairborne ("Clairborne Decl.") (Doc. No 39-3) and Exhibits A-M;
• Request for Judicial Notice ("DRJN") (Doc. No. 39-17) and Exhibits 1-3.
Wausau filed an Opposition to Lexington's Motion on July 21, 2014 ("Pl.'s Opp'n") (Doc. No. 40). In support of its Opposition, Wausau filed a Response to Lexington's Statement of Undisputed Facts, (Doc. No. 40-1), a Supplemental Request for Judicial Notice (Doc. No. 40- 2), and Exhibits 1-4. On July 28, 2014, Lexington filed a Reply ("Def.'s Reply") (Doc. No. 42).
The parties filed three different requests for judicial notice. Many of the requests are related to various court documents, including filings, court orders, discovery, documents introduced at trial, and transcripts of trial testimony from the two state court actions and this action. The court may "take notice of proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct relation to matters at issue." U.S. ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992). Accordingly, the Court takes judicial notice of these documents as they are all related to proceedings which have a direct relation to this action. In addition, although the Court may take judicial notice of the insurance policies Wausau and Lexington issued to Rick Concrete, it is not necessary as the Court may consider and rely on properly authenticated documents in the record in deciding a motion for summary judgment.
II. LEGAL STANDARD
A court shall grant a motion for summary judgment when there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party must show that "under the governing law, there can be but one reasonable conclusion as to the verdict." Anderson, 477 U.S. at 250.
Generally, the burden is on the moving party to demonstrate that it is entitled to summary judgment. Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir. 1998) (citing Anderson, 477 U.S. at 256-57); Retail Clerks Union Local 648 v. Hub Pharmacy, Inc., 707 F.2d 1030, 1033 (9th Cir. 1983). The moving party bears the initial burden of identifying the elements of the claim or defense and evidence that it believes demonstrates the absence of an issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Where the moving party has the burden at trial, "that party must support its motion with credible evidence . . . that would entitle it to a directed verdict if not controverted at trial." Celotex, 477 U.S. at 331. The burden then shifts to the non-moving party "and requires that party . . . to produce evidentiary materials that demonstrate the existence of a 'genuine issue' for trial." Id.; Anderson, 477 U.S. at 256; Fed. R. Civ. P. 56(a).
Where the non-moving party has the burden at trial, however, the moving party need not produce evidence negating or disproving every essential element of the non-moving party's case. Celotex, 477 U.S. at 325. Instead, the moving party's burden is met by pointing out that there is an absence of evidence supporting the non-moving party's case. Id. The burden then shifts to the non-moving party to show that there is a genuine dispute of material fact that must be resolved at trial. Fed. R. Civ. P. 56(a); Celotex, 477 U.S. at 324; Anderson, 477 U.S. at 256. The non-moving party must make an affirmative showing on all matters placed in issue by the motion as to which it has the burden of proof at trial. Celotex, 477 U.S. at 322; Anderson, 477 U.S. at 252. See also William W. Schwarzer, A. Wallace Tashima & James M. Wagstaffe, Federal Civil Procedure Before Trial § 14:144.
A genuine issue of material fact will exist "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson, 477 U.S. at 248. In ruling on a motion for summary judgment, a court construes the evidence in the light most favorable to the non-moving party. Scott v. Harris, 550 U.S. 372, 378, 380 (2007); Barlow v. Ground, 943 F.2d 1132, 1135 (9th Cir. 1991); T.W. Elec. Serv. Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630-31 (9th Cir. 1987).
III. FACTS
The following facts are either undisputed by the parties, or the Court deems them undisputed for the reasons noted.
A. The Accident
On June 27, 2005, Rick Concrete leased a 1995 "concrete pumper truck." (DSUF ¶ 18.) The concrete pumper truck is a single, self-propelled unit consisting of a tractor and a trailer, which is also referred to as a "pump" or "pumper." The tractor and trailer are designed to operate together as one unit to place concrete at construction sites. (DSUF ¶¶ 20, 21.) The concrete pumper truck is able to travel on the highway. (DSUF ¶¶ 21, 23.) The tractor of the unit acts as counterweight for the trailer when the "boom" is deployed and the trailer is in pumping mode. (DSUF ¶ 26.)
The Rental Agreement describes the "equipment" as a 1994 BSS52-16H Concrete Pump with a 1995 Kenworth Tractor Model. (Ex. B to Clairborne Decl.)
Wausau argues that the concrete pumper truck's primary purpose is to "place concrete on construction sites, but it is also designed to travel on roadways to get to and from construction sites," but does not dispute that the concrete pumper truck is a single unit consisting of a tractor and trailer designed to operate together or that the unit can travel on the highway.
The "boom" is a long cylinder or crane through which the concrete is pumped from the trailer to the location where the concrete is poured. (See Ex. 1 to Pl.'s COE at 6, 9.)
Wausau again argues that the primary purpose of the concrete pumper truck is to place concrete on construction sites, but does not dispute that the tractor functions as a counterweight.
On February 10, 2006, the concrete pumper truck was being used at the Wynfield construction site in Murrieta. (DSUF ¶ 29.) Howard Drew drove the concrete pumper truck to the edge of the paved roadway at the construction site and parked the truck in order to pour concrete onto lot 14. (DSUF ¶ 30; Ex. D to Clairborne Decl. ("Cal/OSHA Report") at 0144.) After the truck was parked, the four "outriggers" of the concrete pumper truck were extended in order to stabilize the truck so that the concrete boom could be extended and concrete poured. (DSUF ¶ 30.) Three of the outriggers were placed on asphalt; however, the fourth outrigger on the front left side of the truck was placed on soil. (DSUF ¶¶ 31, 32.)
Wausau objected to Lexington's DSUF ¶ 29, which states, "On February 10, 2006, Howard Drew drove the concrete pumper truck to the subject jobsite where the accident took place" on the basis that the evidence does not support the assertion that the concrete pumper truck was driven onto the jobsite on February 10, 2006. Instead, the work on the jobsite commenced on February 9, 2006, and the concrete pumper truck was driven from one location in the jobsite to the location of the accident on February 10, 2006.
An "outrigger" appears to be a metal leg that extends out horizontally from the truck and is placed on the ground in order to stabilize the truck while pumping concrete. (See Ex. 1 to Pl.'s COE at 4, 9.)
According to the report prepared by Terry Saville, the accident investigator from the California Division of Occupational Safety and Health ("Cal/OSHA"), the soil under the fourth outrigger was not properly compacted. (Cal/OSHA Report at 0145-46.) The soil had not been "de-grubbed" and re-compacted appropriately, and thus was not capable of supporting the weight of the outrigger. (DSUF ¶ 33; Cal/OSHA Report at 0146.) The concrete pumper was in operation for approximately two hours without incident. (DSUF ¶ 34; Cal/OSHA Report at 0144.) About three-quarters of the way through the concrete pouring job on lot 14, Mr. Drew, the concrete pumper truck operator, was instructed to stop pumping concrete and reposition the concrete boom so that it was extended to its maximum length. (DSUF ¶¶ 34, 37; Cal/OSHA Report at 144-45.) Although concrete was no longer pouring out of the boom, there was concrete in the delivery pipe attached to the boom as it was being extended. (Ex. C. to Clairborne Decl. ("Super. Ct. Trial Transcript") at 0117; Cal/OSHA Report at 0143.) When the concrete boom was extended the soil underneath the fourth outrigger was unable to support the load, and the outrigger "knifed" into the ground. (DSUF ¶ 35; Cal/OSHA Report at 144-45.) The outrigger sank approximately five feet into the ground, causing the weight of the concrete pumper truck to shift, in turn causing the concrete boom to fall to the ground suddenly. (DSUF ¶ 36; Cal/OSHA Report at 0140, 0144-45.) The concrete boom fell on four employees, fatally injuring Mr. Guillen and causing serious injuries to Mr. Zamorano, Mr. Flores, and Mr. Lievanos.
Wausau objects to Lexington's description that the soil "gave way" causing the outrigger to "sink into the ground" on the basis that the outrigger actually "punctured through the dirt soil." The Court has modified the language to mirror the description provided in the Cal/OSHA Report, but notes that the Report does describe the movement of the outrigger as "sank."
On March 13, 2007, the family of Mr. Guillen filed a wrongful death action against Rick Concrete. (DSUF ¶ 40.) On May 4, 2007, Rick Concrete tendered the Guillen Action to Wausau and Lexington. (PSUF ¶¶ 7, 9.) Wausau agreed to defend Rick Concrete, but Lexington refused. (PSUF ¶¶ 8, 10.) Wausau paid $602,574.46 to defend Rick Concrete in the Guillen Action. (PSUF ¶ 11.) Wausau paid $965,000.00 to settle the Guillen Action on behalf of Rick Concrete. (PSUF ¶ 12.)
B. Insurance Policies
1. Wausau Policy
Wausau issued a Commercial Auto Insurance policy to Rick Concrete for coverage from February 22, 2005 to February 22 2006 ("Wausau Policy" or "automotive policy"). (PSUF ¶ 1; DSUF ¶ 1.) The Wausau Policy provides liability coverage for "all sums an 'Insured' legally must pay as damages because of 'bodily injury' or 'property damage' to which this Insurance applies, caused by an 'accident' and resulting from the ownership, maintenance or use of a covered 'auto.'" (PSUF ¶ 2; DSUF ¶ 1.) The Wausau Policy has a limit of $1,000,000.00 for "any one accident or loss." (DSUF ¶ 1; Ex. A to Clairborne Decl. ("Wausau Policy") at 0009.)
Policy Number ASC-Z91-543219-035.
The Wausau Policy defines an "auto" as a "land motor vehicle, 'trailer' or semitrailer designed for travel on public roads but does not include 'mobile equipment.'" (DSUF ¶ 6.) "Mobile Equipment" is defined with six sub-parts. The relevant sub-part of the definition of "Mobile Equipment" states:
"Mobile equipment" means any of the-following types of land vehicles, including any attached machinery or equipment:
6. Vehicles not described in Paragraphs 1., 2., 3. or 4. above maintained primarily for purposes other than the transportation of persons or cargo. However; self-propelled vehicles with the following types of permanently attached equipment are not "mobile equipment" but will be considered "autos":
a. Equipment designed primarily for:
(1) Snow removal;
(2) Road maintenance, but not construction or resurfacing; or
(3) street cleaning;
b. Cherry pickers and similar devices mounted on automobile or truck chassis and used to raise or lower workers; and
c. Air compressors, pumps and generators, including spraying, welding, building cleaning, geophysical exploration, lighting or well servicing equipment.
(DSUF ¶ 9; Wausau Policy at 0097.)
The Wausau Policy contains an "Operations" exclusion which excludes coverage for: "'Bodily injury' or 'property damage' arising out of the operation of any equipment listed in Paragraphs 6.b. and 6.c. of the definition of 'mobile equipment.'" ("Operations Exclusion") (PSUF ¶ 2; DSUF ¶ 10.)
Finally, the Wausau Policy also includes an "Other Insurance" clause, which states in relevant part:
5. Other Insurance
a. For any covered "auto" you own, this Coverage Form provides primary insurance. For any covered auto you don't own, the insurance provided by this Coverage Form is excess over any other collectible Insurance.
d. When this Coverage Form and any other Coverage Form or policy covers on the same basis, either excess or primary, we w111 pay only our share. Our share is the proportion that the Limit of Insurance of our Coverage Form bears up to the total of the limits-of all the Coverage Forms and policies covering on the same basis.
(Wausau Policy at 0096.)
2. Lexington Policy
Lexington issued a Commercial General Liability Policy for coverage from February 22, 2005 to February 22, 2006 ("Lexington Policy" or "CGL Policy"). (PSUF ¶ 3; DSUF ¶ 12.) The Lexington Policy provides coverage for "those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damages' to which this insurance applies." (PSUF ¶ 4; DSUF ¶ 12.) There is a liability limit of $2,000,000.00 for each occurrence covered under the policy. (PSUF ¶ 3; DSUF ¶ 12.) Lexington has a right and a duty to defend Rick Concrete against any "suit" seeking damages covered under the policy. (DSUF ¶ 12.)
Policy Number 1138416.
Lexington lists the policy limit as $2,000,000.00 in its separate statement of undisputed material facts in opposition to Wausau's Motion; but lists the policy limit as $1,000,000.00 in its statement of undisputed facts submitted in support of its Motion. (See DSGI ¶ 12; DSUF ¶ 12.) The Lexington Policy states that there is an "each occurrence limit" of $2,000,000.00, and a "personal and advertising injury limit" of $1,000,000.00. Under the definitions provided in the Lexington Policy the personal and advertising injury limit would not apply to the underlying claim in this case. (See Section IV(13) of the Lexington Policy defining "occurrence" as an "accident; including continuous or repeated exposure to substantially the same general harmful conditions" and Section IV(14) of the Lexington Policy defining "Personal and Advertising Injury" as an injury arising out of one of the following offenses: false arrest, detention or imprisonment; malicious prosecution; the wrongful eviction; slander or libel of a person or organization or a person's or organization's goods, products or services; violations of a person's right of privacy; the use of another's advertising idea in your advertisement; and infringing upon another's copyright, trade dress or slogan in your advertisement (Ex. A to DRJN ("Lexington Policy") 0025, 0027.) Accordingly, the applicable policy limit is $2,000,000.00
The Lexington Policy has an "Aircraft, Auto, or Watercraft" exclusion ("Auto Exclusion") which applies in relevant part to:
"Bodily injury" or "property damage" arising out of the ownership, maintenance, use or entrustment to others of any . . ."auto" . . . owned or operated by or rented or loaned to any insured. Use includes operation and "loading or unloading."(PSUF ¶ 4; DSUF ¶ 13; Ex. A to DRJN ("Lexington Policy") at 0014.)
This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the "occurrence" which caused the "bodily injury" or "property damage" involved the ownership, maintenance, use or entrustment to others of any . . . "auto" . . . that is owned or operated by or rented or loaned to any insured.
In the Lexington Policy an "auto" is defined as a "land motor vehicle, trailer or semi-trailer designed for travel on public roads, including any attached machinery or equipment. But 'auto' does not include 'mobile equipment.'" (Lexington Policy at 0025.)
The Lexington Policy has an "Operations Exception" to the Auto Exclusion which provides that the exclusion does not apply to: "'Bodily injury' or 'property damage' arising out of the operation of any of the equipment listed in paragraph f.(2) or f.(3) of the definition of 'mobile equipment'". (PSUF ¶ 4.)
Under the Lexington Policy "Mobile Equipment" is defined in six sub-parts, (a)-(f). In subpart f.(2) and f.(3) "Mobile Equipment" is defined as:
12. "Mobile Equipment" means "any of the following types of land vehicles, including any attached machinery or equipment"
f. Vehicles not described in a., b., c. or d. above maintained primarily for purposes other than the transportation of persons or cargo. However, self-propelled vehicles with the following types of permanently attached equipment are not "mobile equipment" but will be considered "autos":
(2) Cherry pickers and similar devices mounted on automobile or truck chassis and used to raise or lower workers; and
(3) Air compressors, pumps and generators, including spraying, welding,
building cleaning, geophysical exploration, lighting and well servicing equipment.
(PSUF ¶ 4; DSUF ¶ 14; Lexington Policy at 0027.)
The Lexington Policy is modified by "Endorsement # 004" which contains a "Subsidence Exclusion" stating:
This policy does not provide coverage and the Company (or Insurer or We, if applicable) will not pay any defense expenses, claim expenses and/or any damages or losses, or any other loss, cost or expense, including, but not limited to losses, costs, or expenses related to, arising out of, based upon, attributable to, associated with, caused directly or indirectly by, or contributed to, or aggravated by "subsidence" regardless of any other cause, event, material, product and/or building component that contributed concurrently or in any sequence to that loss, cost or expense or to such defense expenses, claim expenses and/or any damages or losses.
For the purpose of this exclusion, the following definitions are added to the policy: "Subsidence" means earth movement of any kind whatsoever, including, but not limited to earthquake, landslide, "mine subsidence,"
"sinkhole collapse," earth sinking; rising or shifting, mud flow, expansion, contraction, consolidation, freezing, thawing, settling, falling away, caving in, eroding, flowing, tilting, or other movement, of land, earth or mud.
"Mine Subsidence" means subsidence of a man-made mine, whether or not mining activity has ceased.
"Sinkhole Collapse" means loss or damage caused by the sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or dolomite.
Finally, the Lexington Policy includes "Other Insurance" clause which is within Section V, "CONDITIONS" of the Policy. The relevant part of the Other Insurance clause states:
4. If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Policy, our obligations are limited as follows:
a. Primary Insurance
This insurance is primary except when b. Excess Insurance, below, applies. If this
insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in c. Method of Sharing, below.
b. Excess Insurance
This insurance is excess over:
(1) Any of the other insurance, whether primary, excess, contingent or on any other basis:
(d) If the loss arises out of the maintenance or use of aircraft, "autos" or watercraft to the extent not subject to Exclusion g. of SECTION I - COVERAGES, COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY.
When this insurance is excess, we will have no duty under Coverages A or B to defend the insured against any "suit" if any other insurer has a duty to defend the insured against that "suit". If no other insurer defends, we will undertake" to do so, but we will be entitled to the insured's rights against all those other insurers.
(DSUF ¶ 17; Lexington Policy at 0030-31.)
IV. DISCUSSION
A. Wausau's Obligations Under the Automotive Policy
In its Complaint, Wausau alleges it is not obligated to defend and indemnify Rick Concrete because its automotive policy did not provide coverage, and instead Lexington had the "primary (or exclusive)" responsibility for defending and indemnifying Rick Concrete. (Compl. ¶¶ 19, 28.) Wausau's obligations under the automotive policy have already been litigated in the State Court Action. In March 2013 the Court of Appeal affirmed the Superior Court's ruling that the accident is covered under Wausau's policy because (1) the concrete pumper truck is an "auto" as defined under the Policy; and (2) the Operations Exclusion of the Policy does not apply.
In staying this action, the Court noted that it would respect the factual and legal determinations already made in the State Court Action and will abide by California's collateral estoppel and res judicata principles for all issues that were previously litigated in state court. (Stay Order at 10.)
Accordingly, as Wausau concedes, this Court is precluded from considering whether Wausau has any obligations under its policy, as that issue has already been decided in the State Court Action. The State Court Action did not decide whether Lexington also had a duty to defend and indemnify Rick Concrete. Thus, the only issues before this Court are (1) whether Lexington also had a duty to defend to Rick Concrete under the Lexington Policy; and (2) if so, how much, if any, Lexington owes Wausau as reimbursement for the costs Wausau incurred defending and settling the claims against Rick Concrete.
Although acknowledging in its Opposition and Reply briefs that the issue of coverage under the Wausau Policy has already been litigated, Wausau at times appears to invite reconsideration of that issue by suggesting that Lexington be held "exclusively" or "100 percent" responsible for costs of defending and settling the Guillen Action. (See Pl.'s Mot. at 1, 3, 12.)
Wausau advances two theories to support its argument that the Lexington Policy also provides coverage for the accident. First, Wausau argues that the concurrent causation doctrine applies because there were two causes of the accident (1) the parking of the concrete pumper truck; and (2) the extension of the concrete boom in order to pour concrete in a more remote area of the construction site. Second, Wausau argues that the Lexington Policy provides coverage under the Operations Exception to the Auto Exclusion.
Lexington argues its CGL policy does not provide coverage for the accident because (1) the concurrent causation doctrine does not apply; (2) the State Court Action already determined that the accident "arose out of use of an auto," and that the accident did not "arise out of the operation of the pump" and thus the Lexington Operations Exception to the Auto Exclusion does not apply; (3) there is no coverage for the accident under the Subsidence Exclusion; and (4) even if there is coverage, the Lexington Policy is "excess." (See generally Def.'s Mot.) In support of its final argument, Lexington requests additional discovery pursuant to Rule 56(d) in order to establish that the Lexington Policy is excess pursuant to California Insurance Code section 11580.9(d).
B. Concurrent Causation Doctrine
Under the concurrent causation doctrine, when an injury is "caused jointly by an insured risk and by an excluded risk . . . the insurer is liable so long as one of the causes is covered by the policy." State Farm Mut. Auto. Ins. Co. v. Partridge, 10 Cal. 3d 94, 102 (1973); Zurich Specialties London Ltd. v. Bickerstaff, Whatley, Ryan & Burkhalter, Inc., 650 F. Supp. 2d 1064, 1071 (C.D. Cal. 2009).
In Partridge, a passenger in a truck was injured by a shotgun in the truck that accidently discharged when the driver of the truck, the insured, negligently drove his truck off road. The shotgun discharged because the insured had filed down the gun's trigger, making it a "hair trigger" that reacted when the truck went over a bump. The Supreme Court of California found that insured's automotive policy and homeowner's policy both provided coverage for the accident. The Court reasoned that although the accident was caused by the negligent "use" of the auto, an excluded risk under the homeowner's policy, it was also caused by the negligent filing of the gun's trigger mechanism, which was an insured risk under the homeowner's policy. Partridge, 10 Cal. 3d at 103.
Courts interpreting the language in Partridge have limited the concurrent causation doctrine to situations where there is an independent, non-auto related act of negligence that combines with an auto-related act of negligence. See Medill v. Westport Ins. Corp., 143 Cal. App. 4th 819, 834-35 (2006) (the Partridge holding only applies to "multiple causes that operated totally independently of one another."); Prince v. United Nat. Ins. Co., 142 Cal. App. 4th 233, 239 (2006) (same); Daggs v. Foremost Ins. Co., 148 Cal. App. 3d 726, 730 (1983) ("in order for Partridge to apply there must be two negligent acts or omissions of the insured, one of which, independently of the excluded cause, renders the insured liable for the resulting injuries."); Allstate Ins. Co. v. Jones, 139 Cal. App. 3d 271, 275 (1983) ("when two, independent, negligent acts concur to produce one injury, each act should be viewed separately to determine policy coverage.").
In the context of auto exclusions in homeowner's policies, Courts have not found that there is an "independent negligent act" when the second act, or risk, is dependent on the ownership, maintenance, operation, or use of a vehicle. See State Farm Fire & Cas. Co. v. Camara, 63 Cal. App. 3d 48, 52 (1976) (no concurrent causation because negligent design modification of a dune buggy arose out of the ownership and use of the vehicle and a passenger could only be exposed to that risk if the vehicle was in operation); Gurrola v. Great Sw. Ins. Co., 17 Cal. App. 4th 65 (1993) (no concurrent causation when insured negligently welded the chassis to the frame of the vehicle because the only exposure to the risk was through operation of the vehicle).
The Lexington Policy excludes coverage for accidents arising out of the use of an auto. Wausau has failed to identify an independent, non-auto related negligent act that caused the accident and is covered under the Lexington Policy. Wausau argues that the accident would not have happened without the extension of the concrete boom to its full length in preparation for the operation of the concrete pumper truck to pour concrete. Wausau has not argued, however, that the actual extension of the boom was negligent. In Reply, Wausau argues that "perhaps" Rick Concrete was negligent in the distance the truck was parked in relation to the location of the concrete pour, the direction the boom was aimed, the speed used to extend the boom to its full length, the extension of the boom directly over the workers who were finishing concrete below the boom, and the failure to adhere to necessary safeguards and safety manuals at the site. (Reply at 6-7.) Wausau does not argue that any of these alleged acts of negligence, independent of the parking of the concrete pumper truck, would have caused any injury. Accordingly, as there does not exist an independent, non-auto related negligent act, the concurrent causation doctrine does not apply.
C. Overlapping Coverage
Overlapping coverage between automotive and CGL polices, although unusual, is not prohibited. See Am. Star Ins. Co. v. Ins. Co. of the W., 232 Cal. App. 3d 1320, 1329 (1991) ("Insurers are loath to offer coverage for risks in CGL policies which are otherwise covered in general auto policies."). Typically, business auto policies and CGL policies have reciprocal exclusions and identical definitions that serve to limit the possibility of dual coverage for the same type of incident. Id. Here, for example, the Wausau and Lexington policies contain identical definitions of "auto" and "mobile equipment." In addition, the language in Wausau Policy's Operations Exclusion to auto coverage is identical to the language in the Lexington Policy's Operations Exception to its Auto Exclusion. The Wausau automotive policy provides coverage for accidents arising out of the use of an "auto" and excludes coverage for "'Bodily injury' or 'property damage' arising out of the operation of 'pumps.'" On the other hand, the Lexington CGL Policy excludes coverage for accidents arising from the use of an "auto," but provides coverage for "'Bodily injury' or 'property damage' arising out of the operation of any 'pumps'" through the Operations Exception to its Auto Exclusion.
The actual language of the Wausau Operations Exclusion and the Lexington Operations Exception references "the operation of any of the equipment listed in paragraph f.(2) or f.(3) of the definition of 'mobile equipment.'" Paragraph f.(3) of the definition of "mobile equipment" in both policies includes "pumps."
Despite the similarities in the language of the Wausau Operations Exclusion and the Lexington Operations Exception, "an entirely different rule of construction applies to exclusionary clauses as distinguished from coverage clauses." Partridge, 10 Cal. 3d at 101. "Whereas coverage clauses are interpreted broadly so as to afford the greatest possible protection to the insured, exclusionary clauses are interpreted narrowly against the insurer." Id. (internal citations omitted.); TRB Investments, Inc. v. Fireman's Fund Ins. Co., 40 Cal. 4th 19, 27-28 (2006) (same). "An exception to an exclusion is treated in the same manner as a coverage provision and therefore is interpreted broadly, consistent with the insured's reasonable expectations." Frontier Oil Corp. v. RLI Ins. Co., 153 Cal. App. 4th 1436, 1463 (2007); Aydin Corp. v. First State Ins. Co., 18 Cal. 4th 1183, 1192 (1998) (same); Nat'l Union Fire Ins. Co. v. Lynette C., 228 Cal. App. 3d 1073, 1082 (1991) ("exceptions to exclusions are somewhat analogous to coverage provisions and we construe coverage provisions broadly in favor of the insured; exclusions, by contrast, are construed strictly against the insurer."). Thus, "the fact that an accident has been found to 'arise out of the use' of a vehicle for purposes of an automobile policy is not necessarily determinative of the question of whether that same accident falls within a similarly worded exclusionary clause of a homeowner's policy." Id.; see also Am. Star Ins. Co., 232 Cal. App. 3d at 1329 ("the plain language of the policy must control in this case, even if it means a CGL policy and a non-CGL policy both provide coverage in this instance.").
1. Issue Preclusion
Lexington argues that the issue of whether the accident "arose out of the operation of any pump" was already decided in the State Court Action and thus Wausau is collaterally estopped from raising the issue again.
"Congress has specifically required all federal courts to give preclusive effect to state-court judgments whenever the courts of the State from which the judgments emerged would do so." Allen v. McCurry, 449 U.S. 90, 96 (1980). Accordingly, to determine the preclusive effect of the state court judgment, the court applies state law. Sosa v. DIRECTV, Inc., 437 F.3d 923, 927 (9th Cir. 2006). Under California law, issue preclusion prevents "relitigation of issues argued and decided in prior proceedings." Lucido v. Superior Court, 51 Cal. 3d 335, 341 (1990). "The threshold requirements for issue preclusion are: (1) the issue is identical to that decided in the former proceeding, (2) the issue was actually litigated in the former proceeding, (3) the issue was necessarily decided in the former proceeding, (4) the decision in the former proceeding is final and on the merits, and (5) preclusion is sought against a person who was a party or in privity with a party to the former proceeding." Castillo v. City of Los Angeles, 92 Cal. App. 4th 477 (2001). When those requirements are met, the propriety of preclusion depends upon whether application will further the public policies of "preservation of the integrity of the judicial system, promotion of judicial economy, and protection of litigants from harassment by vexatious litigation." Lucido, 51 Cal. 3d at 343.
The Superior Court concluded that the accident "arose out of parking the unit and the cause of the accident was the shifting of center of gravity when the boom changed . . . and the unit toppled over." (Super. Ct. Judgment at 5.) The Superior Court noted that it was not "a situation where someone was struck by pumped cement or something like that. The pump, in fact - the unit was not pumping. It was at the jobsite and it had been pumping and it was in operation as a pumper but it was not pumping." (Id.) In reaching its conclusion regarding the Operations Exclusion, the Superior Court noted that it must construe the exclusion language narrowly and resolve ambiguities in favor of the insured. (Id. at 4, 5.)
On appeal, Wausau argued that the Superior Court construed the language, "arising out of the operation of the pump" in the Operations Exclusion too narrowly. (See Ex. L to Clairborne Decl. ("Wausau Appellate Brief") at 49-55.) Specifically, Wausau argued that "arising out of" is a phrase that is interpreted broadly, and that the Superior Court erred in focusing on whether the pump was actually pumping at the time of the accident. Although Wausau acknowledged the pump was not actually pumping concrete at the time of the accident, Wausau argued that the pumping was only temporarily stopped so that the concrete boom could be repositioned in order to continue pumping. Wausau argued that repositioning the boom in order to continue concrete pumping is an action that "arises out of the operation of the pump," and thus the Operations Exclusion should apply.
The Court of Appeal affirmed the Superior Court's interpretation of the Operations Exclusion, noting that the phrase "arising out of" is narrowly construed against the insurer when used in an exclusion. (COA Op. at 49.) The Court of Appeal noted that in interpreting the terms, "the context in which they appear is critical" and that although in a "broad sense the positioning of the boom may be deemed part of the overall 'operation'" of the pump, "the exclusion, by its express terms, requires us to consider not the operation of any part of the covered 'auto,' but only the operation of the relevant equipment listed in subparagraph 6.c. - i.e., the pump. Consequently, the trial court did not err in focusing on whether the pump itself was operating at the time of the accident." (COA Op. at 49, 50.)
Thus, the Court of Appeal's conclusion that the accident did not "arise out of the operation of the pump" for the purpose of Wausau's Operations Exclusion was reached through a narrow construction of the language against the insurer. This finding is thus not "identical" to the question of whether the accident "arose out of the operation of the pump" under Lexington's Operations Exception, which is a coverage provision that is construed broadly in favor of the insured.
Accordingly, the Court is not bound by the finding in the State Court Action and proceeds to analyze whether, based on the undisputed facts before the Court, the accident "arose out of the operation of the pump" under the Lexington Policy's Operations Exception to the Auto Exclusion.
2. Operations Exception
In analyzing the terms of the provision, the Court applies the general rules of contract interpretation and interprets the policy to give effect to the "mutual intention" of the parties. MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 647 (2003). The "clear and explicit" meaning of an provision, interpreted in its "ordinary and popular sense" generally governs. Id.; Producers Dairy Delivery Co. v. Sentry Ins. Co., 41 Cal. 3d 903, 912 (1986). If the plain language of the policy is capable of two or more reasonable constructions, the provision is "ambiguous." MacKinnon, 31 Cal. 4th at 647. "Language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract." Id. An ambiguous insurance provision is construed broadly in favor of the insured and in order to protect a reasonable expectation of coverage. Id.
The phrase "arising out of" is usually interpreted as requiring only a "minimal causal connection or incidental relationship" in order to establish insurance coverage. See Vitton Const. Co. v. Pac. Ins. Co., 110 Cal. App. 4th 762, 767 (2003) ("minimal causal connection will suffice to trigger coverage under an "arising out of" clause."); Fireman's Fund Ins. Companies v. Atl. Richfield Co., 94 Cal. App. 4th 842, 849 (2001) ("arising out of" requires more than "but for" standard but not more than minimal causal connection.); Acceptance Ins. Co. v. Syufy Enterprises, 69 Cal. App. 4th 321, 328 (1999) (same). Thus, the Lexington Policy includes coverage for accidents with an "incidental relationship" to the operation of the pump.
It is undisputed that the concrete pumper truck was set up in order to pump concrete and had been pumping concrete for nearly two hours before the accident. The only reason that pumper was not pumping concrete at the time of the accident was because the boom was being extended in order to facilitate further concrete pumping. Broadly construed, extending the concrete boom to continue the operation of the pump has an "incidental relationship" to the operation of the pump. See Syufy, 69 Cal. App. 4th at 328 (minimal causal connection when worker had to pass through defective hatch in order to access work site). The undisputed facts support a finding that the extension of the boom, as a preparatory act to the operation of the pump, bore a minimal causal connection to the accident. Accordingly, under the Operations Exception to the Auto Exclusion in the Lexington Policy, the accident "arose out of the operation of the pump." Thus, the accident falls under the Operations Exception to the Auto Exclusion.
3. Subsidence Exclusion
Lexington argues that even if the accident falls under the Operations Exception, the accident is excluded under the Subsidence Exclusion. Wausau argues that the Subsidence Exclusion does not apply because (1) the Subsidence Exclusion does not specifically exclude coverage for damages arising from "bodily injury"; and (2) the language of the exclusion is ambiguous and thus must be resolved in favor of the insured.
The Lexington Subsidence Exclusion states, "This policy does not provide coverage and the Company (or Insurer or We, if applicable) will not pay any defense expenses, claim expenses and/or any damages or losses, or any other loss, cost or expense, including, but not limited to losses, costs, or expenses related to, arising out of, based upon, attributable to, associated with, caused directly or indirectly by, or contributed to, or aggravated by 'subsidence.'" (Lexington Policy at 0039 (emphasis added).) Although the Subsidence Exclusion does not specifically list damages from "bodily injury," the exclusion does states that it does not "provide coverage" and will not pay "any damages." "Coverage" and "damages" are not specifically defined in the definitions section of the Lexington Policy, and thus Wausau argues that the Subsidence Exclusion is ambiguous.
"Language in a contract must be interpreted as a whole," (MacKinnon, 31 Cal. 4th at 647) and must be read in its ordinary sense, "any ambiguity cannot be based on a strained interpretation of the policy language." Producers Dairy Delivery Co., 41 Cal. 3d at 912. Section I of the Lexington Policy addresses "Coverages." (Lexington Policy at 0011.) Sub-section A of Section I - Coverages, is titled "Coverage A. Bodily Injury and Property Damage Liability" and sub-section B is titled "Coverage B. Personal and Advertising Injury Liability." (Id. at 0011-12.) Under Sub-section A, the policy states it will pay "those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damages' to which this insurance applies." (Lexington Policy at 0011 (emphasis added).) Similarly, sub-section B refers to "those sums that the insured becomes legally obligated to pay as damages because of 'personal and advertising injury' to which this insurance applies." (Lexington Policy at 0020 (emphasis added).) Thus, it is clear that the Subsidence Exclusion's reference to "coverage" and "any damages" includes the types of damages listed under the coverage section of the policy. Wausau's argument that the broad limit of coverage for "any damages" should be limited to property damages is not consistent with the plain meaning of the words in the Subsidence Exclusion or an interpretation of the contract as a whole. Thus, by including the terms "coverage" and "any damages," the plain language of the Subsidence Exclusion includes damages related to a "bodily injury."
The Court notes that the language in subsidence exclusions is often explicitly limited to "property damages," but that does not mean that a subsidence exclusion may never apply to damages arising out of "bodily injury." See Cmty. Redevelopment Agency v. Aetna Cas. & Sur. Co., 50 Cal. App. 4th 329, 336 (1996) (example of subsidence policy excluding damages arising from bodily injury and property damage).
Next, the Court analyzes whether the Subsidence Exclusion applies to this accident. The language in the exclusion is broad and applies to "any damages":
related to, arising out of, based upon, attributable to, associate with, caused directly or indirectly by, or contributed to, or aggravated by "subsidence" regardless of any other cause, event, material, product and/or building component that contributed concurrently or in any sequence to that loss.(Lexington Policy at 0039.)
The definition of "subsidence" is similarly broad, defined as:
earth movement of any kind whatsoever, including but not limited to earthquake, landslide, "mine subsidence," "sinkhole collapse," earth sinking; rising or shifting, mud flow, expansion, contraction, consolidation, freezing, thawing, settling, falling away, caving in, eroding, flowing, tilting, or other movement, of land, earth or mud.
Wausau argues that the exclusion should be construed narrowly to apply only to the "traditional type of earth movement calamity" and that it was only "intended to apply to the cost of stabilizing land after an earth movement calamity." (Pl.'s Reply at 8.) In addition, Wausau identifies several examples of incidents that it believes would fall under the Subsidence Exclusion, i.e., if Rick Concrete caused an earth movement and incurs liability as a result, or if Rick Concrete exacerbates damage caused by an earth movement. Based on these possibilities Rick Concrete argues the exclusion is ambiguous because there are many possible scenarios to which it may apply. (Pl.'s Opp'n at 16.)
To adopt Wausau's interpretation, however, would ignore the plain language of the Subsidence Exclusion, which broadly excludes damages caused by "earth movement of any kind whatsoever." Typically, "contracts - even insurance contracts - are construed to avoid rendering terms surplusage." ACL Technologies, Inc. v. Northbrook Prop. & Cas. Ins. Co., 17 Cal. App. 4th 1773, 1785 (1993). Wausau's interpretation of the Subsidence Exclusion is contrary to the plain language of the exclusion, and would require ignoring several provisions. Furthermore, that an exclusion may apply in a variety of situations does not necessarily render it ambiguous. Wausau seems to suggest that it must only apply to one of the several possible scenarios it identifies, when in fact the exclusion could simply apply to all.
The Cal/OSHA Report describes the accident as caused when "the soil under the left front outrigger failed to support the load." (Cal/OSHA Report at 0145.) The Report finds that the soil under the left front outrigger had not been properly prepared, and thus the "placement of a compacted fill over the native soil failed" and the "the bearing capacity of soil under the left front outrigger failed to support the load." (Id. at 0145-46.) In other sections, the Report concludes that "the soil under the left front outrigger did not hold the load imposed by the concrete pumper"; the "soil could not support the load"; the "outrigger sank"; and finally, that the "outrigger punctured through the soil." (Id. at 0140, 0144- 0145.) These uncontradicted conclusions in the Cal/OSHA Report support Lexington's argument that "earth movement" or "sinking" "contributed to" the accident. Indeed, the accident would likely not have occurred if the outrigger was not placed on soil. (Super Ct. Trial Transcript at 0118.) Accordingly, the accident falls under the Subsidence Exclusion and is not covered by the Lexington Policy.
D. Lexington's Duty to Defend and Indemnify
Wausau seeks an equitable contribution from Lexington to cover the costs of defending and settling the Guillen Action. "Equitable contribution apportions costs among insurers sharing the same level of liability on the same risk as to the same insured, and is available when several insurers are 'obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others.'" Safeco Ins. Co. of Am. v. Superior Court, 140 Cal. App. 4th 874, 879 (2006) (quoting Maryland Cas. Co. v. Nationwide Mut. Ins. Co., 81 Cal. App. 4th 1082, 1089 (2000)).
When a settling insurer seeks an equitable contribution from a nonparticipating insurer for the costs of defense, the settling insurer bears the burden of establishing that the nonparticipating insurer had a duty to defend. Id. Generally, "[a] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity." Nat'l Steel Corp. v. Golden Eagle Ins. Co., 121 F.3d 496, 499 (9th Cir. 1997) (citing Montrose Chemical Corp. of Cal. v. Superior Court, 6 Cal. 4th 287, 295 (1993)). The insurer's duty to defend arises immediately upon notice of a covered claim against its insured if the facts known to the insurer indicate a potential or possibility for indemnity. Id. "An insurer has no duty only if, at the time of its decision, it can prove that the claim cannot fall within policy coverage." Id.
"When a duty to defend is shown, nonparticipating coinsurers are presumptively liable for both the costs of defense and settlement." Safeco Ins. Co. of Am., 140 Cal. App. 4th at 880. A settling insurer has met its burden of proof against a nonparticipating insurer when it makes a "prima facie showing of coverage under the nonparticipating insurer's policy - the same showing necessary to trigger the recalcitrant insurer's duty to defend." Id. Once the settling insurer has made a prima facie showing, the burden of proof then shifts to the nonparticipating insurer to prove the absence of actual coverage. Id. at 881. As discussed above, Lexington has demonstrated the accident falls under the Subsidence Exclusion, and thus there is no coverage under the Lexington Policy and Lexington is not required to contribute to costs of settling the Guillen Action.
Nevertheless, Wausau will be entitled to an equitable contribution for the costs of defending the action if Lexington owed a duty to defend. See Wausau Underwriters Ins. Co. v. Unigard Sec. Ins. Co., 68 Cal. App. 4th 1030, 1047 (1998) ("An insurer may have a duty to defend even when it ultimately has no obligation to indemnify, either because no damages are awarded in the underlying action against the insured or because the actual judgment is for damages not covered under the policy."). Lexington argues it never owed a duty to defend because the Lexington Policy only provides excess coverage for the accident. Lexington argues it is an excess policy under California Insurance Code section 111580.9(d) and pursuant to the "Other Insurance" clause in its Policy.
At the hearing, Lexington argued that it owed no duty to defend because the Subsidence Exclusion, which applies to this accident, includes language excluding "all costs," including costs related to defending any action. Even accepting this interpretation of the phrase "all costs" as accurate, Lexington would still have to demonstrate that at the time it refused to provide a defense it could prove that the claim could not fall within the policy coverage. Lexington has not met this burden as it was certainly possible, at the time Rick Concrete tendered the action, that the accident could fall within the Policy, triggering Lexington's duty to defend.
1. California Insurance Code Section 11580.9(d)
Lexington argues that its Policy is conclusively presumed to be excess under California Insurance Code section 11580.9(d) because the Wausau Policy "describes or rates" the concrete pumper truck involved in the accident. (Def.'s Mot. at 25 n.2.) Lexington requested, pursuant to Federal Rule of Civil Procedure 56(d), additional time to conduct discovery on this issue as it is not satisfied with Wausau's response to its request for production. Specifically, Lexington seeks to depose Sonya Lopez, the Underwriting Manager for Liberty Mutual Business Insurance in the Pacific Region, in order to "investigate" Ms. Lopez's declaration, which states that the concrete pumper truck was not listed as an insured vehicle in the Wausau Policy and Wausau did not collect a premium for the truck.
Lexington seeks additional time to investigate the Lopez declaration because it was received less than one week before the deadline to file an opposition to Wausau's Motion and the Declaration purports to be executed one day after it was sent. (Clairbourne Decl. ¶ 13.)
Wausau contends further discovery is unnecessary because the Lopez Declaration is sufficient. Moreover, Wausau argues that section 11580.9(d) is inapplicable because the Lexington Policy does not "apply to" the concrete pumper truck, it only applies to the "pump" attached to the truck. (Pl.'s Reply at 11.)
Section 11580.9(d) provides that "where two or more policies affording valid and collectible liability insurance apply to the same motor vehicle or vehicles in an occurrence out of which a liability loss shall arise, it shall be conclusively presumed that the insurance afforded by that policy in which the motor vehicle is described or rated as an owned automobile shall be primary and the insurance afforded by any other policy or policies shall be excess." Cal. Ins. Code § 11580.9(d). "In determining whether section 11580.9, subdivision (d), applies, the deciding factor is not the type of policy involved but whether it affords valid and collectible liability insurance that applies to the motor vehicle involved in the accident." Scottsdale Ins. Co. v. State Farm Mut. Auto. Ins. Co., 130 Cal. App. 4th 890, 903 (2005).
In Scottsdale, the California Court of Appeal considered whether a general commercial liability policy "applied to" a truck with a mounted cherry picker for the purposes of section 11580.9(d). 130 Cal. App. 4th at 904. The language in the CGL policy at issue in Scottsdale is almost identical to the language in the Lexington Policy. Like the Lexington CGL Policy, the Scottsdale CGL policy excluded coverage for injuries "arising out the ownership, maintenance, use, or entrustment to other of any 'auto,'" but provided coverage for "'[b]odily injury' arising out of the operation of any of the equipment listed in paragraph f.(2) or f.(3) of the 'definition of mobile equipment.'" Id. As in the Lexington Policy, paragraph f.(2) of the Scottsdale policy lists "[c]herry pickers and similar devices mounted on automobile or truck chassis and used to raise or lower workers." Id.
The Scottsdale court analyzed whether, in light of this language in the policy, the CGL policy "applied to" a truck with a mounted cherry picker. The court found that based on the provisions in the policy, it was clear that "the Scottsdale policy does not provide liability insurance for the truck involved in the incident. It provides liability insurance for the cherry picker mounted on the truck." Id. Here, as in Scottsdale, the Lexington Policy does not provide insurance coverage for the concrete pumper truck, rather, it provides insurance coverage for the operation of the "pump." (See Lexington Policy at 0027.) Accordingly, even if the Wausau Policy did in fact "describe or rate" the concrete pumper truck, section 11580.9(d) does not determine the priority of the policies because the Lexington Policy does not "apply to" the same vehicle, it only applies to the "pump." Therefore, the Court denies Lexington's request for additional discovery under Rule 56(d).
2. Other Insurance Clauses
Next, Lexington contends it had no duty to defend because the Policy only provides excess coverage for this particular accident. There is a distinction between primary and excess insurance coverage. "Primary coverage is insurance coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to liability . . . 'Excess' or secondary coverage is coverage whereby, under the terms of the policy, liability attaches only after a predetermined amount of primary coverage has been exhausted." Century Sur. Co. v. United Pac. Ins. Co., 109 Cal. App. 4th 1246, 1255 (2003) (quoting Olympic Ins. Co. v. Employers Surplus Lines Ins. Co., 126 Cal. App. 3d 593, 597-98 (1981) (original italics omitted)). Excess coverage refers to secondary insurance that "provides coverage after other identified insurance is no longer on the risk." Am. Cas. Co. of Reading, PA. v. Gen. Star Indem. Co., 125 Cal. App. 4th 1510, 1521 (2005) (quoting Century Sur. Co., 109 Cal. App. 4th at 1255). "The identification of the underlying primary insurance may be as to (1) a particular policy or policies that are specifically described or (2) underlying coverage provided by a particular and specifically described insurer." Id.
In support of its argument that it is an "excess policy," Lexington points to the "Other Insurance" clause in Section V, "CONDITIONS" of its Policy. The "Other Insurance" clause provides that if there exists other valid and collectible insurance, the Lexington Policy provides excess coverage if the loss arises out of the maintenance or use of an "auto," to the extent that loss is not excluded under the Auto Exclusion. The Wausau Policy also contains an "Other Insurance" clause, which provides that the Wausau Policy provides excess coverage for any covered "auto" not owned by the insured. In addition, the Wausau and Lexington policies both contain clauses governing the method of sharing the costs of defense and indemnification when more than one insurer provides excess or primary coverage.
An "auto" is "owned" for the purposes of the policy if it is "leased, hired, rented, or borrowed." (Wausau Policy at 0096.)
An "other insurance" clause purporting to reduce primary coverage to excess coverage is distinguishable from a true "excess" or secondary coverage policy. There are several types of "other insurance" clauses that attempt to limit a primary insurer's liability. The first type is a "pro rata" clause, which attempts to limit the insured's liability to "the total proportion that its policy limits bears to the total coverage available to the insured." Century Sur. Co., 109 Cal. App. 4th at 1255-56 (quoting Commerce & Indus. Ins. Co. v. Chubb Custom Ins. Co., 75 Cal. App. 4th 739, 743 (1999)); Croskey et al., Cal. Practice Guide: Insurance Litigation (2013) § 8:16 ("Rutter Insurance Litigation"). The second type is an "excess only" clause, which requires "exhaustion of other insurance; in effect, this insurer does not provide primary coverage but only acts as an excess insurer." Id. (quoting Commerce & Indus. Ins. Co, 75 Cal. App. 4th at 743); see also Rutter Insurance Litigation § 8:19. The third type is an "escape" clause, which "extinguishes the insurer's liability if the loss is covered by other insurance." Id. (quoting Commerce & Indus. Ins. Co., 75 Cal. App. 4th at 743); see also Rutter Insurance Litigation § 8:20.
Generally, contractual terms of an insurance policy are honored whenever possible. Fireman's Fund Ins. Co. v. Maryland Cas. Co., 65 Cal. App. 4th 1279, 1305 (1998). Thus, courts may honor other insurance clauses "when no prejudice to the interests of the insured will ensue." Id.; Hartford Cas. Ins. Co. v. Travelers Indem. Co., 110 Cal. App. 4th 710, 724 (2003). "Escape" clauses, however, are a type of "other insurance" clauses that are generally disfavored as against public policy because they allow an insurance company to "avoid the risk it was paid to cover" when other insurance exists. See Dart Indus., Inc. v. Commercial Union Ins. Co., 28 Cal. 4th 1059, 1080 (2002); Edmondson Prop. Mgmt. v. Kwock, 156 Cal. App. 4th 197, 204 (2007). "Excess only" clauses in primary liability policies are usually considered to be the functional equivalent of "escape" clauses and therefore are also treated with disfavor. Dart, 28 Cal. 4th at 1080; Fireman's Fund Ins. Co., 65 Cal. App. 4th 1279.
"When two primary insurance policies contain conflicting 'other insurance' clauses, courts may override 'excess only' clauses and instead prorate the costs of liability and defense according to the amount of coverage afforded by the policy. Dart, 28 Cal. 4th at 1080 ("the modern trend is to require equitable contributions on a pro rata basis from all primary insurers regardless of the type of 'other insurance' clause in their policies."); Commerce & Indus. Ins. Co., 75 Cal. App. 4th at 745 ("Because these types of provisions are disfavored, courts have developed a method of overriding them — When two or more applicable policies contain such clauses, both liability and the costs of defense should ordinarily be prorated according to the amount of coverage afforded.") (internal quotations omitted); Travelers Prop. Cas. Co. of Am. v. Safeco Ins. Co. of Illinois, 468 F. App'x 689, 692 (9th Cir. 2012) ("Where primary insurance policies contain conflicting excess clauses, the clauses are disregarded and the insurers must share in the defense and indemnity costs on a pro-rata basis."). A pro rata solution is only appropriate when the policies insure the same risk and operate on the same level of coverage, i.e., two primary insurance policies apply to the same damage or loss. Commerce & Indus. Ins. Co., 75 Cal. App. 4th at 745.
In determining whether to enforce an "excess only" clause, the Court considers "varying equitable considerations which may arise, and which affect the insured and the primary and excess carriers, and which depend upon the particular policies of insurance, the nature of the claim made, and the relation of the insured to the insurers." Fireman's Fund Ins. Co., 65 Cal. App. 4th at 1305; Hartford Cas. Ins. Co., 110 Cal. App. 4th at 725 (applying equitable considerations and affirming decision to enforce "excess only" clause because it was a narrow exception to the policy's operation as a primary policy).
The Coverage section of the Lexington Policy states that it will pay damages and defend the insured against any "bodily injury" to which the insurance applies. Coverage is not explicitly conditioned on the exhaustion of any underlying insurance, nor does it specifically identify any other insurance policies that must be exhausted before coverage applies. See Century Sur. Co., 109 Cal. App. 4th at 1255. The plain language of the coverage provisions of the Lexington Policy state that the Lexington Policy is primary, and thus Lexington had an immediate duty to defend. Accordingly, unless the Court enforces the "Other Insurance" clause, converting Lexington's coverage to excess, Lexington must contribute to the costs of defending the Guillen Action. See Fireman's Fund Ins. Co., 65 Cal. App. 4th at 1305 ("Thus, although a true excess insurer - one that is solely and explicitly an excess insurer providing only secondary coverage - has no duty to defend or indemnify until all the underlying primary coverage is exhausted or otherwise not on the risk, primary insurers with conflicting excess 'other insurance' clauses can have immediate defense obligations.").
At the hearing, Defense counsel cited to Hartford Accident & Indem. Co. v. Sequoia Ins. Co., 211 Cal. App. 3d 1285, 1302 (1989), in support of his argument that the Lexington Policy only provides excess coverage. In Sequoia, the policies that were identified as "excess" policies specifically limited coverage to amounts in excess of "underlying insurance." 211 Cal. App. 3d at 1292-93. As the Lexington Policy contains no such limitation, Hartford supports treating both the Lexington and Wausau policies as primary absent a statutory presumption changing the priority of the policies or equitable enforcement of the "other insurance" clause.
The Other Insurance clauses in the Lexington and Wausau Policies are both "excess only" clauses in that they covert the insurer's primary coverage to excess coverage in specific instances where other insurance exists. The Wausau and Lexington policies also provide that when the insurers are primary, they are entitled to pro rata contribution from other insurance companies that also provide coverage. As explained above, in this situation courts generally decline to enforce an "excess only" clause and instead require equitable contributions on a pro rata basis from all primary insurers. Nevertheless, courts have enforced "excess only" clauses when the clause applies narrowly to specified instances, the clause does not conflict with a similar clause in another policy or offend public policy, and the clause does not infringe on any rights of the insured. Hartford Cas. Ins. Co., 110 Cal. App. 4th at 727; see also California State Auto. Ass'n Inter-Ins. Bureau v. Progressive Cas. Ins. Co., 2012 WL 1438835, at *3 (N.D. Cal. Apr. 25, 2012) ("Progressive"); Peerless Ins. Co. v. St. Paul Surplus Lines Ins. Co., 2010 WL 2486795, *7-10 (S.D. Cal. June 15, 2010) (enforcing "excess only" clause when "[t]he policies are not in conflict, the insured is not prejudiced as it still receives full defense and indemnity, and both [the insurers] are providing coverage to the extent expressly set forth in their policies" and the inequities did not override the unambiguous language in the policy.).
In Hartford, the California Court of Appeal upheld the equitable enforcement of an "excess only" clause in a primary insurance policy. In that case, Hartford Casualty Insurance Company ("Hartford") filed a declaratory relief action against Travelers Indemnity Company ("Travelers") seeking a determination that, pursuant to Hartford's "other insurance" clause, Hartford did not owe the insured a duty to defend or indemnify and was entitled to reimbursement from Travelers for all costs expended in defending and indemnifying the underlying claim. Hartford's "excess only" clause provided that the policy was primary except in limited instances pertaining to fire insurance and additional insureds. Id. at 726. The Travelers policy also contained an "excess only" clause converting its coverage to excess when there exists other insurance for fire, extended coverage, builder's risk, or when the insured was an additional insured under another policy.
The court noted that Hartford's "excess only" clause did not purport to make the policy excess whenever other insurance exists to cover the loss. Instead, the clause only applied in limited situations and thus did not actually serve as the type of "escape" clause that is offensive to public policy. The court further noted that the Hartford "excess only" clause did not conflict with the Travelers' "excess only" clause in such a way that the insured would be left without coverage. Id. at 727. Finally, the Hartford court concluded that, "[b]ecause the policy terms, as they apply in this case, do not conflict or offend public policy and do not infringe on any rights of the insured, there is no reason to disregard the express terms of both policies." Id.
Similarly, in Progressive, a magistrate judge in the United States District Court for the Northern District of California enforced an "excess only" clause in a primary watercraft policy that provided excess coverage in instances where a non-covered watercraft was involved. 2012 WL 1438835 at *4-5. The court concluded there was no equitable reason to override the express language of the "excess only" clause because the clause applied to a limited and specific circumstance, did not conflict with the other insurance clause at issue in the homeowner's insurance policy in such a way as to deny coverage to the insured, and was not against public policy. Id.
Here, as in Hartford, the relevant sub-clause of the Lexington Policy's "excess only" clause is very narrow. It states that the Policy provides excess coverage when the loss falls under the Operations Exception of the Auto Exclusion, i.e., when the loss arises out of the use of an "auto," but is not excluded under the Lexington Auto Exclusion. This is a narrow limitation that, unlike a traditional "escape" clause, does not attempt to eliminate all of Lexington's primary coverage in the presence of other insurance.
This determination is limited to the clause applicable in this case. The court does not determine whether other sub-clauses in the Other Insurance clause may be sufficiently narrow to justify enforcement in some circumstances.
The Wausau Policy also includes an "excess only" clause that limits its primary coverage to situations where the covered vehicle is not owned by the insured. Thus, the Lexington "excess only" clause does not conflict with the Wausau "excess only" clause in such a way that Rick Concrete is prejudiced or left without coverage. Furthermore, the "excess only" clause applies to a situation where it is likely the insured has acquired specific other insurance, such as automotive liability insurance, to cover the loss at issue and may not dependant on the Lexington Policy. Thus, in this specific action, there is no equitable reason to override the express language of the Lexington Policy. Accordingly, Lexington is not required to reimburse Wausau for the costs of defending the Guillen Action.
It is possible the equities would weigh against enforcement of this sub-clause in a different factual scenario.
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V. CONCLUSION
For the foregoing reasons, the Court GRANTS Lexington's Motion and DENIES Wausau's Motion. Dated: August 19, 2014
/s/________
VIRGINIA A. PHILLIPS
United States District Judge