Opinion
No. B244899.
03-05-2015
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Plaintiff and Appellant, v. TOKIO MARINE AND NICHIDO FIRE INSURANCE COMPANY et al., Defendants and Respondents.
[Modification of opinion (233 Cal.App.4th 1348, ___ Cal.Rptr.3d ___), upon denial of rehearing]
THE COURT. — IT IS ORDERED that the opinion filed herein on February 4, 2015 be modified as follows and the petition for rehearing is DENIED:
1. On page 2, in the first sentence of the second paragraph [233 Cal.App.4th 1350, advance report, 2d full par. of opn., lines 1 and 2, and fn. 2], delete the words "the costs of defending the Daer action as well as" and delete footnote 2.
2. On page 4 [233 Cal.App.4th 1352, advance report, 1st par.], delete the second paragraph in its entirety and replace it with the following sentence:
According to Yokohama, Costco terminated it as a vendor in 1996 and ceased all purchases from Yokohama in September 1997.
3. On page 5, in the first sentence of the last paragraph [233 Cal.App.4th 1353, advance report, 4th full par. of opn., lines 1 and 2], delete the words "the costs of defense of, and."
4. Starting on p. 12, delete the two full paragraphs under the heading "2. Interpretation of indemnity provision of Supplier Agreement" [233 Cal.App.4th 1359, advance report, 1st and 2d full par.], and insert in their place the following six paragraphs:
National Union contends on appeal that the "trial court improperly failed to rule on the effect of Yokohama's refusal to defend"; Yokohama concedes that the trial court did not rule on the matter. National Union argues that this question is fundamental to its claim for contractual indemnity, as its resolution determines which party will bear the burden of proof at trial on the issue of indemnity.
[234 Cal.App.4th 1206b]
National Union's argument begins with the language of the indemnity provision at issue, which is contained in paragraph 10.2 of the Supplier Agreement. It states: "10.2 [Yokohama] shall indemnify, defend, and hold [Costco] harmless from all liability and expense, actual or alleged, death of or injury to any person, damage to any property, or any other damages or loss, by whomsoever suffered, (including without limitation, reasonable attorneys' fees) which [Costco] may incur as a result of any claim, suit or action against [Costco] arising out of defective design, workmanship or materials in any Product manufactured by [Yokohama] hereunder, including the failure to provide adequate warnings, labeling instructions as required by all applicable law; provided that such indemnity is expressly limited by its terms and does not include indemnification of [Costco] for any liability arising out of the actions or negligence of [Costco]." (Italics added.)
National Union maintains that the plain meaning of this language is that, although Yokohama's obligation to indemnify Costco was limited to Costco's liability not founded upon its own negligence (e.g., products liability as the seller of a defective product), Yokohama was required to defend Costco against the Daer action whether or not it asserted a negligence cause of action against Costco. Thus, National Union argues that the exception to Yokohama's obligations under paragraph 10.2 (italicized above) provides that Yokohama's obligation to indemnify Costco does not extend to liability imposed on account of the latter's negligence; there is no similar limitation which affects Yokohama's duty to defend Costco in a lawsuit alleging a defective Yokohama tire. Costco tendered defense of the Daer action to Yokohama, but received no response. Costco thus asserts that Yokohama breached its duty to defend the Daer action.
Having concluded that Yokohama was in breach of its duty to defend, National Union next cites Washington law to the effect that "the failure of the indemnitor to defend the action when the subject matter of the suit is within the scope of the indemnity agreement is itself a breach of contract and entitles the indemnitee to recover from the indemnitor the amount of any reasonable settlement made in good faith." (Northern Pacific Railway Co. v. National Cylinder Gas Divivision of Chemetron Corp. (1970) 2 Wn.App. 338, 345 [467 P.2d 884, 889].) Moreover, under California evidentiary law, where the indemnitor refuses to defend, the settlement becomes `"presumptive evidence of liability of the indemnitee and of the amount ..., but it may be overcome by proof from the indemnitor that the settlement was unreasonable...."' (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 130 , quoting Peter Culley & Associates v. Superior Court (1992) 10 Cal.App.4th 1484, 1497 .) From the foregoing, National Union concludes that in order to prevail on its indemnity claim, it has only to prove that "(1) Costco's defense was tendered to Yokohama and was not accepted; (2) its settlement
[234 Cal.App.4th 1206c]
was an `expense' on account of `alleged' `liability'; (3) the settlement was reasonable; and (4) the alleged liability represented by the settlement was within the indemnity provision" of the Supplier Agreement. National Union thus contends that the trial court erred in ruling that it was National Union's burden to prove that the tire was defective.
Yokohama challenges the assertion that it breached a duty to defend Costco against the Daer action. It argues that, unlike California law, in Washington, a contractual indemnitor's obligation to defend claims brought against its indemnitee is not determined by the allegations of the complaint, but instead "by the facts known at the time of the tender of defense." (George Sollitt Corp. v. Howard Chapman Plumbing & Heating, Inc. (1992) 67 Wn.App. 468, 472 [836 P.2d 851, 853].) Thus, for example, in the cited case, the appellate court referenced the defendant's answers to the plaintiff's interrogatories in determining that "this is not a case of sole negligence," thereby concluding that the defendant had a contractual duty to defend. (Ibid.)
We express no opinion on the proper resolution of this issue. We agree with National Union, however, that the trial court erred in failing to rule on whether the Supplier Agreement obligated Yokohama to assume Costco's defense of the Daer action at the time of tender. Because we remand this matter for a new trial, the parties will have the opportunity to argue the issue to the trial court and obtain a ruling which, in turn, will determine their respective burdens in prosecuting and defending this lawsuit.
There is no change in the judgment. Petitions for rehearing are denied.