Opinion
A148343
02-05-2018
AIG SPECIALTY INSURANCE CO., Plaintiff and Appellant, v. INTERSTATE FIRE & CASUALTY CO., Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Francisco County Super. Ct. No. CGC-14-542477)
In this action for reformation of an insurance contract, plaintiff AIG Specialty Insurance Company (AIG) appeals following the trial court's order granting summary judgment to defendant Interstate Fire and Casualty Company (Interstate). We affirm.
BACKGROUND
In September 2010, Willis Insurance Services of California (Willis Insurance)—a retail insurance broker, dealing directly with parties seeking insurance—contacted Swett & Crawford—a wholesale insurance broker, assisting retail brokers in placing coverage—requesting assistance in securing insurance for S.N. Barnes, LP (Barnes LP). James Lynch of Swett & Crawford contacted Interstate to solicit quotes for primary general liability and excess liability insurance. Interstate subsequently issued a one-year insurance policy to Barnes LP for commercial general liability and $3 million excess liability coverage. No excess automobile liability coverage was sought or issued in this 2010 policy.
" ' "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. [Citation.] . . . . [¶] '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." ' " (American Casualty Co. of Reading, PA. v. General Star Indemnity Co. (2005) 125 Cal.App.4th 1510, 1521, italics omitted.)
On September 21, 2011, seven days before the expiration of the 2010 policy, Lynch sent an email to Interstate about renewing the Barnes LP policy. Kesa Harris of Interstate worked with Lynch on the renewal of the excess insurance coverage; another Interstate employee worked with him on the primary liability coverage. Lynch's email stated, "need ASAP . . . . they want [to] renew it on Friday. GL and $3M excess (x GL only)." By the term "x GL," Lynch meant excess general liability. Harris testified at her deposition that, although she did not remember working with Lynch on this renewal policy, she understood "x GL only" to mean excess general liability only.
Lynch's September 21, 2011 cover email stated, in its entirety: "TJ (and Helen) - [¶] Attached is the renewal submission on this one . . . not sure if the original made it's way to you, so I thought I send to you directly. [¶] Of course, need ASAP . . . . they want renew it on Friday. GL and $3M excess (x GL only). [¶] They are focused on one, large job - 'Tracey Gateway Project' - a large commercial project in Tracey, CA. [¶] Please see attached Acords and supp app. No prior loss runs (came out of semi-retirement for the job). [¶] Thanks, [signature block omitted]."
The email also stated, "Please see attached Acords and supp app." An ACORD (Association for Cooperative Operations Research and Development) application is a standard application used in the insurance industry to submit information to an insurance company. The ACORD application attached to Lynch's email was prepared by Willis Insurance and included an "Umbrella Section," which listed as "Underlying Insurance" both the primary liability insurance provided by Interstate and an expired automobile liability insurance issued by another insurance company. Interstate does not dispute that this indicated an intent that excess auto liability insurance be included in the renewal policy from Interstate.
"Umbrella policies are usually excess policies in the sense that they afford coverage that is excess over underlying insurance." (Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2017) ¶ 8:203.)
At her deposition, Harris testified that typically, when she received a request to renew an insurance policy, she "may glance through the renewal ACORD app" in order to "see if boxes have been checked or just make sure it's not a blank ACORD app," but she would not look at the specific coverage requested in the ACORD application. Instead, she would base coverage "off of quoting per expiring or if anything's changed, the producer or the broker would put it in a cover email." Harris testified Interstate did not require its underwriters to review ACORD applications accompanying renewal requests; however, another Interstate employee testified underwriters were supposed to review ACORD applications with renewals.
Harris provided Lynch with a quote for excess coverage which only listed excess general liability and did not include excess auto liability coverage. For reasons not relevant here, Lynch solicited a quote for primary general liability insurance from another carrier and asked Harris if Interstate would "sit over [the other carrier's] quote." Harris agreed and provided a revised premium quote, noting "terms and conditions will remain the [sic] unchanged per expiring." Lynch accepted the coverage on behalf of Barnes LP effective September 28, 2011. Harris subsequently prepared an underwriting summary of the excess coverage policy that did not indicate auto liability was included in the excess coverage.
In October 2011, Norman Barnes was involved in an auto accident causing serious injuries to the driver of another vehicle. AIG's complaint alleges that at the time of the accident, Norman Barnes was acting within the scope of his employment at Barnes LP; Interstate does not dispute this allegation for purposes of summary judgment. The injured driver was apparently a highly paid employee who suffered head trauma in the accident.
In November 2011, Lynch asked Harris to add the excess auto liability coverage, which she agreed to do at no additional premium. However, Harris stated the excess auto coverage would apply starting in November, and declined Lynch's request that Interstate "backdat[e]" its effective date to September 28, 2011, when the renewed policy began.
The injured driver sued Barnes LP, and Barnes LP sued Swett & Crawford for professional negligence and Interstate for reformation of the insurance policy. The injured driver and Barnes LP eventually settled for $4 million. Barnes LP's primary auto liability insurer paid its policy limit of $1 million toward the settlement. The remaining $3 million was paid by Swett & Crawford's insurance carrier pursuant to a settlement between Barnes LP and Swett & Crawford, in exchange for which Barnes LP dismissed its claim against Swett & Crawford and assigned to Swett & Crawford its claims against Interstate.
In October 2014, AIG filed the instant lawsuit against Interstate, alleging claims for reformation, equitable subrogation, and breach of contract. Interstate moved for summary judgment, arguing (1) AIG could not prove mutual mistake as required for its reformation claim, and (2) without reformation of the insurance contract, AIG's other claims fail. The trial court granted the motion, finding: "The undisputed facts show that: 1) Interstate never agreed to provide excess insurance over the [primary insurer's] automobile liability policy for the date of the accident involving Mr. Barnes and 2) Interstate had no obligation, by contract or otherwise, to provide such coverage. AIG's argument that a jury could find that, contrary to her testimony, Ms. Harris did know that Barnes [LP] wanted such coverage and agreed to that coverage, but mistakenly failed to include that coverage in the policy documents is speculative."
AIG sued in its capacity as successor in interest to Swett & Crawford's insurance carrier, as subrogee of Swett & Crawford in its capacity as assignee of Barnes LP.
DISCUSSION
"To obtain summary judgment, defendant must show plaintiffs cannot establish an element of their causes of action, or show a complete defense thereto. [Citation.] It bears the burden to 'make a prima facie showing of the nonexistence of any triable issue of material fact.' [Citation.] If defendant makes this showing, plaintiffs must show some triable issue of material fact does exist. [Citation.] Plaintiffs 'may not rely upon the mere allegations or denials of [their] pleadings,' but must 'set forth the specific facts showing that a triable issue of material fact exists.' [Citation.] 'The party opposing the summary judgment must make an independent showing by a proper declaration or by reference to a deposition or another discovery product that there is sufficient proof of the matters alleged to raise a triable question of fact if the moving party's evidence, standing alone, is sufficient to entitle the party to judgment. [Citations.] To avoid summary judgment, admissible evidence presented to the trial court, not merely claims or theories, must reveal a triable, material factual issue. [Citation.] Moreover, the opposition to summary judgment will be deemed insufficient when it is essentially conclusionary, argumentative or based on conjecture and speculation.' [Citation.] [¶] On appeal, 'we must independently examine the record to determine whether triable issues of material fact exist.' " (Trujillo v. First American Registry, Inc. (2007) 157 Cal.App.4th 628, 635 (Trujillo).)
"When, through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that intention . . . ." (Civ. Code, § 3399.) "In reforming the written agreement, a court may 'transpose[], reject[], or suppl[y]' words [citation], but has ' "no power to make new contracts for the parties" ' [citation]. Rather, the court may only reform the writing to conform with the mutual understanding of the parties at the time they entered into it, if such an understanding exists." (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524 (Hess).) The parties agree that entitlement to reformation must be shown by clear and convincing evidence. (See Shupe v. Nelson (1967) 254 Cal.App.2d 693, 700 ["In order to reform a written instrument, the party seeking relief must prove the true intent by clear and convincing evidence."].)
" ' "[W]here the plaintiff's ultimate burden of proof will be by clear and convincing evidence, the higher standard of proof must be taken into account in ruling on a motion for summary judgment or summary adjudication . . . ." ' " (Johnson & Johnson v. Superior Court (2011) 192 Cal.App.4th 757, 762.)
I. Mutual Mistake
"In determining whether a mutual mistake has occurred, a court may consider parol evidence. [Citation.] . . . . Extrinsic evidence is necessary because the court must divine the true intentions of the contracting parties and determine whether the written agreement accurately represents those intentions." (Hess, supra, 27 Cal.4th at p. 525.) "Where . . . the extrinsic evidence is not in conflict, the determination of whether a mutual mistake occurred is a question of law." (Id. at p. 527.)
In support of its summary judgment motion, Interstate submitted the following evidence: the 2010 policy did not provide excess auto liability coverage; Lynch's cover email requesting renewal of the 2010 policy stated the excess coverage requested was "$3M excess (x GL only)"; Harris interpreted that to mean Barnes LP wanted excess coverage for general liability only and provided a quote that did not include excess auto coverage; Lynch's email requesting Interstate provide excess coverage over another carrier's primary general liability insurance similarly did not indicate Barnes LP was also seeking excess auto coverage; Harris told Lynch she would provide a new quote and "terms and conditions will remain the [sic] unchanged per expiring"; Harris's underwriting summary did not include excess auto coverage as part of the insurance policy; and when, in November 2011, Lynch requested excess auto coverage be added, Harris declined to make its effective date the beginning date of the policy renewal. With this evidence, Interstate made a prima facie showing of the absence of a mutual mistake regarding the provision of excess auto coverage.
The burden thus shifted to AIG to show the existence of a triable issue of material fact. AIG points to the ACORD application attached to Lynch's September 21, 2011 email which includes excess auto coverage, the statement in Lynch's cover email asking Interstate to "see attached Acords and supp app," and the testimony of an Interstate employee that underwriters were supposed to review ACORD applications submitted with policy renewal requests. From this evidence, AIG argues, a jury could infer that Harris read the ACORD application and intended to include excess auto coverage in the renewed policy, but mistakenly omitted it. Assuming this evidence would otherwise be sufficient to create a dispute of fact, the inference is defeated by Harris's unequivocal testimony that she did not review ACORD applications submitted with renewals, but only glanced at them to ensure they were not blank. AIG argues this testimony is so self-serving and improbable that a factfinder could not only reject it, but could also consider it as affirmative evidence that Harris did read the ACORD application and intended the contract to include excess auto coverage.
"If a party is otherwise entitled to summary judgment pursuant to this section, summary judgment shall not be denied on grounds of credibility . . . , except that summary judgment may be denied in the discretion of the court . . . if a material fact is an individual's state of mind, or lack thereof, and that fact is sought to be established solely by the individual's affirmation thereof." (Code Civ. Proc., § 437c, subd. (e).) " 'If the moving party's evidence is not controverted, the court must ordinarily accept it as true for purposes of the [summary judgment] motion. In other words, the judge generally lacks discretion to deny the motion and send the case to trial simply to allow the opposing party to cross-examine the affiants or otherwise test their credibility.' [Citation.] The [witnesses'] declarations may well be self-serving, 'but where (as here) [they are] uncontradicted, case law establishes that such a showing can provide the basis for summary judgment.' " (Trujillo, supra, 157 Cal.App.4th at p. 636.) Thus, AIG's attack on Harris's testimony as self-serving and improbable is insufficient to defeat Interstate's showing on summary judgment. To the extent the trial court had discretion to deny summary judgment pursuant to Code of Civil Procedure section 437c, subdivision (e), AIG has shown no abuse of discretion by the trial court's refusal to do so. (See Trujillo, at p. 636 ["[T]he court has discretion to deny summary adjudication where a witness's own statement is the only evidence of his or her state of mind. [Citation.] '[H]owever, the converse is also true, and a court has the discretion to grant a motion for summary [judgment] under such circumstances as well.' "].)
AIG's reliance on Donchin v. Guerrero (1995) 34 Cal.App.4th 1832 (Donchin) is unavailing. In that case, the fact in question was whether a landlord had prior knowledge of the vicious propensities of two dogs that attacked the plaintiff. (Id. at p. 1835.) The landlord moved for summary judgment, submitting a declaration that he had no such knowledge. (Ibid.) In opposition, among other evidence, the plaintiff submitted a declaration from her attorney's legal secretary stating the landlord called her after receiving the complaint and said he was unaware his tenant had dogs, but subsequently, "in the face of a lease mentioning the dogs and the tenant's declaration [that the landlord] saw the rottweilers regularly," the landlord admitted in interrogatory responses that he knew of the dogs and had played with them several times. (Id. at pp. 1840-1841.) The court reasoned: "Assuming the truth of [the legal secretary's] declaration, [the landlord's] initial conversation with her represented a false exculpatory statement attempting to show he had no liability for what the rottweilers did to [the plaintiff]. [¶] The law of California and other jurisdictions has long recognized a false exculpatory statement is evidence of a guilty conscience in the context of criminal cases. The underlying principle is that a false statement is evidence of a declarant's state of mind and demonstrates his knowledge he has committed a wrong. Furthermore, from this consciousness of guilt the jury is entitled to infer other facts bearing on a defendant's guilt. The logic of this principle applies as much in civil cases as it does in criminal prosecutions." (Id. at pp. 1840-1841.) Thus, the court concluded, "[the landlord's] false exculpatory statement denying he knew his tenant had dogs on the leased property is evidence of the falsity of his later denial he knew the rottweilers had vicious propensities." (Id. at p. 1843.)
Thus, in Donchin, the relevant fact pattern was "a denial of knowledge about one incriminating fact followed by an admission of knowledge of that fact accompanied by a denial of another incriminating fact . . . ." (Donchin, supra, 34 Cal.App.4th at p. 1843.) AIG has submitted no evidence that Harris made other exculpatory statements about the excess auto coverage which she subsequently conceded were false, from which a jury might infer that her testimony about her practice of reviewing ACORD applications was also false. Instead, AIG simply speculates that her testimony about ACORD applications was false and argues this speculation constitutes affirmative evidence that she did read the ACORD application. Donchin does not support this argument.
Finally, AIG points to statements in internal Interstate records made by other Interstate employees after the renewal policy issued. The first statement appeared in a January 2012 email exchange between Interstate employee Julie Simpkins and her supervisor. In the email exchange, Simpkins is helping gather information to assist Interstate in "mak[ing] a decision on whether to reform" the renewal policy. Simpkins informs her supervisor about a proposal from Swett & Crawford that Interstate add the excess auto coverage effective from the date of the renewal policy and charge a premium up to the amount of the claim limit. AIG highlights the following portion of the exchange, written by Simpkins: "Why wasn't it [the excess auto coverage] scheduled or questioned by the underwriter at renewal even if it hadn't been on the prior Umbrella application (I haven't located that to know) or scheduled on the prior policy? This is an exposure we would have covered probably at no additional or minimal additional charge. Could the argument be made that by listing it on the app, it was a request to have it covered and since we didn't specifically exclude automobile, the error in not scheduling it at inception would be ours?" AIG argues this constitutes an admission that Interstate made a mistake. As an initial matter, although Simpkins's signature block identifies her as an Interstate "Product Manager," AIG provides no evidence regarding her job duties or role at Interstate. In any event, to the extent the email constitutes an admission that Interstate made a mistake in failing to notice that Barnes LP requested excess auto coverage, such an admission does not constitute evidence that, at the time of contract formation, Interstate intended to include excess auto coverage but mistakenly excluded it from the policy. To the extent Simpkins is opining that Harris intended to include excess auto coverage in the insurance policy but mistakenly omitted it, AIG cites no evidence that this opinion is anything other than bare speculation. (Trujillo, supra, 157 Cal.App.4th at p. 635 [" 'the opposition to summary judgment will be deemed insufficient when it is . . . based on conjecture and speculation' "].)
The second internal statement identified by AIG was made in August 2013 by an employee with an unidentified position. In an internal claim history report, this employee wrote: "Case settled at mediation without our participation. Primary [auto liability insurer] and AIG for agent settled the case for $4 million. Going off task. Should AIG sue us, please put me back on task." We fail to see the relevance of this statement. That an Interstate employee recognized AIG might sue is hardly an admission of liability.
In sum, we agree with the trial court that, after Interstate's prima facie showing, AIG failed to submit evidence showing the existence of a triable issue of fact regarding a mutual mistake over the inclusion of excess auto coverage.
II. Inequitable Conduct
AIG argues that, even if failed to show a triable issue of fact regarding mutual mistake, its evidence that Interstate's conduct was inequitable precludes summary judgment. AIG relies on American Surety Co. v. Heise (1955) 136 Cal.App.2d 689, which held: "It appears to be the rule that reformation of an insurance policy may be had, in general, where, by reason of fraud, inequitable conduct or mutual mistake, the policy as written does not express the actual and real agreement of the parties. More particularly, if by inadvertence, accident, or mistake the terms of a contract of insurance are not fully or correctly set forth in the policy, it may be reformed in equity so as to express the actual contract intended by the parties, if the mistake is mutual or if there has been fraud or inequitable conduct by one of the parties to the contract." (Id. at pp. 695-696, italics added.)
AIG argues Harris's failure to follow Interstate's internal policy that ACORD applications be reviewed with renewal applications constitutes "inequitable conduct" warranting reformation of the contract. We disagree. AIG cites no authority that conduct resulting in a unilateral mistake unknown to the other party is sufficient to warrant reformation. Such a conclusion would contravene Civil Code section 3399. Instead, as one treatise provides, inequitable conduct warranting reformation occurs when, for example, "one party knew or suspected the policy contained different terms and was attempting to take advantage." (Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2017) § 5:127.)
Moreover, as Interstate notes, there is authority rejecting AIG's argument. In Bank of Fruitvale v. Fidelity & Casualty Co. of New York (1917) 35 Cal.App. 666, a bank told an insurance carrier it wanted coverage on Saturdays until 9 p.m. (Id. at p. 667.) The carrier issued a policy covering the bank only until 8:30 on Saturdays, "without calling attention to the change." (Id. at pp. 667, 670.) The bank was robbed at 8:34 and sued the carrier for reformation. (Id. at p. 668.) The court rejected the claim. After quoting Civil Code section 3399 (which has not been subsequently amended), the court reasoned: "The only fact alleged in the complaint which it is claimed entitles plaintiff to the benefit of the application of this section of the code is that the defendant did not issue a policy covering the particular risk applied for. This circumstance would have justified plaintiff in refusing to accept the policy; but it is far from constituting fraud, or a mutual mistake of the parties, or a mistake of one party which the other at the time knew or suspected—the conditions enumerated in the section necessary to entitle a party to a revision of a contract. Certainly no facts are pleaded showing that the defendant knew or could have known that the plaintiff would not examine the policy when issued to it; nor that the defendant or its agent took any affirmative action to prevent such examination. The plaintiff is, therefore, not entitled to a revision of the policy." (Id. at pp. 670-671.) Similar reasoning appears in Taff v. Atlas Assur. Co. (1943) 58 Cal.App.2d 696, which held, in an action for reformation: "Where the insured alleges as a fact that the defendant did not issue a policy covering the particular risk which he claims to have specified, he must in an action for revision allege more than the neglect of the insurer to cover such risk and his own demand for such coverage. If the insurer does not grant the coverage applied for, the insured may reject the policy. However, the mere failure to issue the policy requested does not necessarily constitute fraud or actionable mistake." (Id. at p. 703.) Evidence that Interstate failed to follow its own internal policies for reviewing renewal ACORD applications does not constitute inequitable conduct warranting reformation of the contract.
In sum, we agree with the trial court that AIG failed to demonstrate a triable issue of material fact with respect to its claim for reformation. AIG's arguments on its remaining claims for breach of contract and equitable subrogation concede that their viability rests on the reformation claim. We therefore affirm the order granting summary judgment to Interstate.
Because of this conclusion, we need not consider Interstate's alternative argument that AIG lacks standing.
DISPOSITION
The judgment is affirmed. Respondent is awarded its costs on appeal.
/s/_________
SIMONS, J. We concur. /s/_________
JONES, P.J. /s/_________
BRUINIERS, J.