Opinion
Case No. 19-cv-02237-HSG
2020-09-21
AMERICAN BANKERS INSURANCE COMPANY OF FLORIDA, Plaintiffs, v. NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, Defendant.
Edward James Tafe, Cna Coverage Litigation Group, Oakland, CA, Robert Charles Christensen, Colliau Carluccio Keener Morrow Peterson & Parsons, San Francisco, CA, for Defendant.
Edward James Tafe, Cna Coverage Litigation Group, Oakland, CA, Robert Charles Christensen, Colliau Carluccio Keener Morrow Peterson & Parsons, San Francisco, CA, for Defendant.
ORDER GRANTING SUMMARY JUDGMENT
Re: Dkt. No. 87
HAYWOOD S. GILLIAM, JR., United States District Judge
Pending before the Court is The Travelers Indemnity Company (as successor to Insurance Company of the Pacific Coast), The Phoenix Insurance Company, and The Charter Oak Fire Insurance Company's (collectively, "Travelers" or "Defendants") motion for summary judgment. Dkt. No. 87 ("Mot."), 96 ("Opp."), and 98 ("Reply"). The Court GRANTS Defendants’ motion.
In addition to their reply in support of the motion for summary judgment, Travelers also filed a brief styled as "evidentiary objections" to the declarations and accompanying exhibits that Plaintiffs submitted in support of their opposition to Travelers’ motion for summary judgment. See Dkt. No. 99. However, Travelers’ submission does not comply with the Civil Local Rules, which require that "[a]ny evidentiary and procedural objections to the motion must be contained within the [reply] brief or memorandum," and that any such brief or memorandum may not exceed 25 pages. See Civil L.R. 7-3(a), 7-4(b). The Court accordingly STRIKES the evidentiary objections from the record and does not consider them for purposes of this order.
I. BACKGROUND
This action consists of two consolidated cases, American Bankers Ins. Co. of Florida v. The City of Walnut Creek , No. 19-cv-2237, and The City of Walnut Creek v. Admiral Ins. Co. et al. , No. 19-cv-3556. Both actions stem from three underlying actions: Coleman et al. v. City of Walnut Creek , Contra Costa Superior Court, Case No. C-03-3157 ("Coleman I "), Coleman et al. v. City of Walnut Creek , Contra Costa Superior Court, Case No. C-12-2997 ("Coleman II "), and Garibian et al. v. City of Walnut Creek , Contra Costa Superior Court, Case No. C-14-0777 ("Garibian "). Underlying plaintiffs in those cases sued the City for its alleged failure to develop and maintain storm drains, which caused flooding and damage to their real property. The City settled each case. Dkt. No. 30 ¶¶ 10, 14 (First Amended Complaint). The City now alleges that its policies with Admiral Insurance Company, Travelers, Insurance Company of the State of Pennsylvania, Atlanta International Insurance Company, American Bankers Insurance Company of Florida, Transcontinental Insurance Company (National Fire Insurance Company of Hartford is their successor-in-interest), and Columbia Casualty Company (collectively, "Insurers") for some period between 1968 to 1986 should indemnify all damages and fees. Id. ¶¶ 21–34. The instant motion is filed by only Defendant Travelers.
A. Underlying Actions
On December 22, 2003, underlying plaintiffs Kenneth Coleman, Gina Coleman, Marc Malott, and Mary Malott filed the Coleman I action against the City. Dkt. No. 87-3 ("Esposito Decl.") at ¶ 7, Ex. 4 (Coleman I Compl.). The Coleman I complaint alleged that due to the "expansion of the development of the City of Walnut Creek ... and the diversion of ground water which results from the implementation of those plans," the underlying plaintiffs suffered property damage because of flooding. Id. In September 2006, the City settled with the underlying plaintiffs. Esposito Decl. at ¶ 8, Ex. 5 (Coleman II Compl.), Ex. A ("2006 Settlement Agreement"). As part of the 2006 Settlement Agreement, the City agreed to pay $50,000 the underlying plaintiffs and $32,500 their attorneys, to reimburse any "physical injuries to only real or personal property, appurtenances and possession, as well as repairs thereto" between the time of the settlement and December 31, 2012," and noted "the present expectation that [ ] funding will be available and that the Future Storm Drain Facilities will be completed." Id. at CF 000050–52, CF 000055–57.
In 2010, the City then notified the underlying plaintiffs that it did not intend to construct the storm drains noted in the 2006 settlement agreement. Coleman II Compl., Ex. B. The underlying plaintiffs then filed Coleman II on December 27, 2012, raising the same claims as Coleman I , and including new allegations of the City's breach of the 2006 settlement agreement. Coleman II Compl. On May 19, 2014, Carlos and Beatriz Garibian, Stanley and Jan Lindberg, Lauren Dodge, Michael Lannes, and Jeanne Dodge filed the Garibian action. Esposito Decl. at ¶ 9, Ex. 6 (Garibian Compl.). The Garibian underlying plaintiffs further alleged that "[i]n reasonable reliance on [the 2006 settlement agreement's] promise that the storm water system would be improved and repaired, Plaintiffs expended substantial monies on improvements to their properties." Id. at CF 000066.
The Court DENIES AS MOOT Travelers’ motion for judicial notice of the complaints in the underlying actions because the request is unnecessary and duplicative. At the summary judgment stage, the Court may reasonably consider the evidence presented by the parties and determine the extent to which it is relevant. It need not take judicial notice in order to consider the documents. Travelers includes the underlying complaints as exhibits attached to the Declaration of Mark Esposito. See Dkt. Nos. 87-3, Ex. 4, 5, 6. The Court further DENIES AS MOOT Travelers’ request for judicial notice of the docket of the Garibian action because the Court does not rely on any information contained in the docket.
Garibian and Coleman II were settled together on April 19, 2018, See Dkt. No. 87-2 ("Chorley Decl.") at ¶ 3, Ex. 19. As part of the 2018 settlement, the City agreed to pay underlying plaintiffs $297,837 and their attorneys $91,723. Id. at ADM 000172. The parties again contemplated the possibility that because "the cost of the Future Storm Drain Facilities is reasonably expected to exceed $10,000,000 due to unforeseen circumstances or unexpected costs, the City ... may decide not to complete" the facilities, and provided that the Coleman II and Garibian actions could be placed back on the court's calendar. Id. at ADM 000174.
B. Policies at Issue
Travelers issued three policies to Walnut Creek: (1) Policy No. TOP-58-00-86-24 issued by The Phoenix Insurance Company ("Phoenix Policy") for the period January 16, 1968 to January 16, 1971, (2) Policy No. OND-350276 issued by The Charter Oak Fire Insurance Company ("Charter Oak Policy") for the period January 16, 1971 to July 1, 1971, and (3) Policy No. PS-568-37-83 issued by the Insurance Company of the Pacific Coast ("ICPC Policy") for the period July 1, 1975 to July 1, 1976. See Dkt. No. 87-3 ("Esposito Decl."), Ex. 1 (Phoenix Policy), Ex. 2 (Charter Oak Policy), Ex. 3 (ICPC Policy) (collectively, the "Policies"). The Policies all provided general liability insurance coverage and had policy limits of $300,000. Id.
The Phoenix Policy provides in relevant part:
DEFENSE OF CLAIMS:
In connection with all coverages afforded by the policy, the insurance company
shall furnish all legal counsel and shall defend all claims made against the insured, even if such claim is groundless, false or fraudulent. The insurance company shall have the right, at its sole expense, to make such investigation, negotiation, and settlement of any claim or suit as it deems expedient.
...
POLICY PERIOD, TERRITORY
This insurance applies only to bodily injury or property damage which occurs during the policy period within the policy territory
...
Insured's Duties in the Event of Occurrence, Claim or Suit
(a) In the event of an occurrence, written notice containing particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the insured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable. The named insured shall promptly take at his expense all reasonable steps to prevent other bodily injury or property damage arising out of the same or similar conditions but such expenses shall not be recoverable under this policy.
(b) If a claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative.
Phoenix Policy at POL011, POL015, POL019.
The Charter Oak Policy provides in relevant part:
General Conditions
2. Application of Policy - Section I, II, III, and IV of this policy apply only to accidents, occurrences and loss which occur during the period this policy is in effect within the United States of America or Canada.
3. Sections II, III, and V - Insured's Duties in the Event of Loss, Accident or Occurrence.
(a) Section II and III -
(1) In the event of an accident or occurrence, written notice containing particulars sufficient to identify the insured and also reasonably obtainable information respecting time, place and circumstances thereof, and the names and address of the injured and of available witnesses, shall be given by or on behalf of the insured to the Travelers or any of its authorized agents as soon as practicable.
(2) If claim is made or suit is brought against the insured, the insured shall immediately forward to the Travelers every demand, notice, summons, or other process received by him or his representative.
...
(d) Occurrence - The word "occurrence" means an accident, including injurious exposure to conditions, which results, during the period this policy is in effect, in bodily injury or property damage neither expected nor intended from the standpoint of the Insured.
Charter Oak Policy at POL098, POL134.
The ICPC Policy provides in relevant part:
Policy Period, Territory
This policy applies only to occurrences which take place during the policy period anywhere in the world.
...
Definitions
(a) Occurrence. The word "occurrence" means an event or a continuous or repeated exposure to conditions which causes injury to persons or damage to property during the policy period that is
neither knowingly nor intentionally caused by or at the direction of the insured.
Notice of an Occurrence. Upon the happening of an occurrence written notice shall be given by or on behalf of the insured to the company or any of its authorized representatives as soon as practicable after an officer or employee in charge of reporting such losses to insurance companies learns of the occurrence. Such notice shall contain particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place and circumstances of the occurrence, the name and addresses of the injured and of available witnesses.
Notice of Claim or Suit. If claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice, summons, or other process received by him or his representative.
ICPC Policy at POL211, POL212.
After uncovering the Policies, the City first tendered notice to Travelers on January 31, 2017, for defense and indemnity of the three underlying actions. Esposito Decl., Ex. 8 at CF 000001. By this time, Coleman I had already been settled. The letter noted that "[t]he City [was] close to finalizing settlement with [the Coleman II and Garibian plaintiffs] in the consolidated actions," and that in addition to the property damage, "[t]he City will also be required, as part of the costs it must pay under the settlement to repair and remediate the storm drainage system which serves the Plaintiff's properties," at an estimated cost of $5 million. Id. at CF 000002. Travelers denied coverage on May 16, 2017. Esposito Decl., Ex. 15 at CF 000187–0000195.
II. LEGAL STANDARD
Summary judgment is proper when a "movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A fact is "material" if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute is "genuine" if there is evidence in the record sufficient for a reasonable trier of fact to decide in favor of the nonmoving party. Id. The Court views the inferences reasonably drawn from the materials in the record in the light most favorable to the nonmoving party, Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587–88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986), and "may not weigh the evidence or make credibility determinations," Freeman v. Arpaio , 125 F.3d 732, 735 (9th Cir. 1997), overruled on other grounds by Shakur v. Schriro , 514 F.3d 878, 884–85 (9th Cir. 2008).
The moving party bears both the ultimate burden of persuasion and the initial burden of producing those portions of the pleadings, discovery, and affidavits that show the absence of a genuine issue of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where the moving party will not bear the burden of proof on an issue at trial, it "must either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co. v. Fritz Cos. , 210 F.3d 1099, 1102 (9th Cir. 2000). Where the moving party will bear the burden of proof on an issue at trial, it must also show that no reasonable trier of fact could not find in its favor. Celotex Corp. , 477 U.S. at 325, 106 S.Ct. 2548. In either case, the movant "may not require the nonmoving party to produce evidence supporting its claim or defense simply by saying that the nonmoving party has no such evidence." Nissan Fire & Marine Ins. Co. , 210 F.3d at 1105. "If a moving party fails to carry its initial burden of production, the nonmoving party has no obligation to produce anything, even if the nonmoving party would have the ultimate burden of persuasion at trial." Id. at 1102–03.
"If, however, a moving party carries its burden of production, the nonmoving party must produce evidence to support its claim or defense." Id. at 1103. In doing so, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. , 475 U.S. at 586, 106 S.Ct. 1348. A nonmoving party must also "identify with reasonable particularity the evidence that precludes summary judgment." Keenan v. Allan , 91 F.3d 1275, 1279 (9th Cir. 1996). If a nonmoving party fails to produce evidence that supports its claim or defense, courts enter summary judgment in favor of the movant. Celotex Corp. , 477 U.S. at 323, 106 S.Ct. 2548.
III. ANALYSIS
Travelers raises several arguments in support of its request for summary judgment. See generally Mot. First, Travelers argues that the underlying actions did not seek recovery for property damage that occurred during the policy period of any of the policies. Id. at 16–20. Second, Travelers contends that the City failed to give timely notice of the underlying actions as required by the policies. Id. at 20–22. Finally, Travelers argues that the amounts requested are not covered by the Policies due to the City's breach of the no voluntary payments provision and are prophylactic in nature. Id. at 22–25. Because the Court finds that the City fails to show an occurrence of property damage during the policy periods, and alternatively that Travelers has established substantial prejudice due to the City's failure to timely tender notice, it GRANTS Travelers’ motion for summary judgement.
Because either ground is a sufficient basis for granting Travelers’ motion, the Court does not reach Travelers’ argument regarding the voluntary payments provision.
A. "Occurrences" under the Policies
Under California law, "[s]tandard comprehensive or commercial general liability insurance policies provide, in pertinent part, that the insurer has a duty to indemnify the insured for those sums that the insured becomes legally obligated to pay as damages for any covered claim ... and that the insurer has a duty to defend the insured in any action brought against the insured seeking damages for any covered claim." Buss v. Superior Court , 16 Cal.4th 35, 65 Cal.Rptr.2d 366, 939 P.2d 766, 773 (1997). "[T]he insurer's duty to defend runs to claims that are merely potentially covered," id. , and this requires "the possibility of actual indemnity coverage, not the mere existence of a plausible argument." Friedman Prof. Mgmt. Co. v. Norcal Mut. Ins. Co. , 120 Cal.App.4th 17, 15 Cal. Rptr. 3d 359, 373 (2004). Travelers’ principal argument is that the property damage alleged here does not qualify as an "occurrence" as defined in the Policies, such that it triggered Travelers’ duty to defend or indemnify. Mot. at 16–20. In response, the City argues that there is the possibility of actual indemnity coverage because the underlying actions stemmed from continuing injury to the plaintiffs from the City's early development, beginning in the early 1960s. Opp. at 5–9. "California courts have long recognized that coverage in the context of a liability insurance policy is established at the time the complaining party was actually damaged." Montrose Chem. Corp. v. Admiral Ins. Co. , 10 Cal. 4th 645, 669, 42 Cal.Rptr.2d 324, 913 P.2d 878 (1995) ; see also Remmer v. Glens Falls Indem. Co. , 140 Cal. App. 2d 84, 88, 295 P.2d 19 (Cal. Ct. App. 1956) ("The general rule is that the time of the occurrence of an accident within the meaning of an indemnity policy is not the time the wrongful act was committed, but the time when the complaining party was actually damaged."). The City relies on Montrose to argue that the injury here was continuous, beginning in the 1960s, such that damage occurred during the policy periods. Opp. at 7–9.
In Montrose , the California Supreme Court held that "[i]n the case of successive policies, bodily injury and property damage that is continuous or progressively deteriorating throughout several policy periods is potentially covered by all policies in effect during those periods." 10 Cal. 4th at 655, 42 Cal.Rptr.2d 324, 913 P.2d 878. There, the court found that contamination damage, which incepted in 1968, triggered the policies at issue (which provided coverage from 1982 to 1986) because they defined occurrence as "an accident, including continuous or repeated exposure to conditions." Id. at 656, 42 Cal.Rptr.2d 324, 913 P.2d 878. Similarly, in Stonewall Ins. Co. v. City of Palos Verdes Estates , the California Supreme Court found that "there was a ‘continuing injury’ (a continuous ‘occurrence,’ using the language of the policies) throughout the period from the beginning of the damage to the [ ] property for which the City was at fault until that damage became complete-so that all insurers whose policies were in force during any portion of that period covered the loss to the city arising out of that damage." 46 Cal.App.4th 1810, 54 Cal. Rptr. 2d 176 (1996), as modified (July 19, 1996). In Stonewall , the court found that a city's negligent operation of a stormwater system contributed "minor erosion damage," ultimately leading to a landslide that destroyed underlying plaintiff's property. Id. This "minor erosion damage" was sufficient to potentially trigger coverage for all policies during the negligent operation period. Relying on these cases, the City argues that the underlying property damage alleged here was continuous starting from the City's upstream development in the 1960s.
The express policy language of the ICPC Policy defines "occurrence" as "an event or a continuous or repeated exposure to conditions which causes injury to persons or damage to property during the policy period." ICPC Policy at POL212. Much like in Montrose , the "policy language unambiguously distinguishes between the causative event—an accident or ‘continuous and repeated exposure to conditions’—and the resulting ‘bodily injury or property damage.’ " 10 Cal. 4th at 669, 42 Cal.Rptr.2d 324, 913 P.2d 878. The Charter Oak Policy defines "occurrence" as "an accident, including injurious exposure to conditions, which results, during the period this policy is in effect, in bodily injury or property damage." Charter Oak Policy at POL134. This definition lacks the specific "continuous or repeated" language, but the same rationale that "[i]t is the latter injury or damage that must ‘occur’ during the policy period," and not necessarily the accident, applies. Montrose , 10 Cal. 4th at 669, 42 Cal.Rptr.2d 324, 913 P.2d 878. Accordingly, the Court agrees that if the City can show a continuous condition that led to the underlying damage, the policy language could support coverage such that a dispute of material fact exists.
Travelers argues that there is nothing in the Complaint, the underlying complaints, or the settlement agreements of the underlying cases to show that the injury or damage began in the 1960s. See Mot. at 17–20. Instead, Travelers argues that the allegations in the underlying complaints and settlement agreements show that underlying plaintiffs were not injured until, at the earliest, December 2000. Mot. at 18 (citing 2006 Settlement Agreement at CF 000051 (seeking recovery for damages incurred "at certain times within three years prior to December 22, 2003 and continuing thereafter."). Thus, according to Travelers, the damage did not occur during the policy periods such that it triggered coverage since the Policies’ terms ended in 1976 at the latest. Based on the evidence presented, the Court agrees.
The City alleges the upstream development began in the 1960s, but development does not constitute property damage or flooding sufficient to cause property damage to underlying plaintiffs. See Montrose , 10 Cal. 4th at 655, 42 Cal.Rptr.2d 324, 913 P.2d 878 (finding potential coverage where "property damage [ ] is continuous or progressively deteriorating throughout [the] policy periods"). Instead, "the time at which the property damage becomes manifest ... is ‘that point in time when appreciable damage occurs or is or should be known to the insured, such that a reasonable insured would be aware that his notification duty under the policy had been triggered.’ " Id. at 674, 42 Cal.Rptr.2d 324, 913 P.2d 878 (quoting Prudential-LMI Com. Ins. v. Superior Court , 51 Cal. 3d 674, 699, 274 Cal.Rptr. 387, 798 P.2d 1230 (1990) ), as modified (Dec. 13, 1990). Here, the City makes no allegations that it knew or should have known of any damage prior to the underlying actions. Additionally, none of the underlying complaints, settlement agreements, or even the mediation brief cited by the City regarding this precise fact provide information as to when damaging flooding constituting "appreciable damage" began. While the 2006 Mediation Brief in Coleman I noted that the flooding "resulted from the continued development of other properties both upstream and downstream of the [underlying] Plaintiff's properties without provision of adequate drainage," see Dkt. No. 96-2 ("Botha Decl."), Ex. 8 at 1, the Coleman I and Coleman II plaintiffs sought compensation for damage that occurred on or after December 2000. See Coleman I Compl. at CF 000009; Coleman II Compl. at CF 000024. Further, the Garibian plaintiffs alleged that "[f]or many years" the "surface waters flowing near and on Plaintiffs’ properties were disbursed without damage to Plaintiffs’ property." Garibian Compl. at CF 000065. The earliest indication of actual property damage from development was, as Travelers notes, in the 2006 Settlement Agreement where underlying plaintiffs sought damages incurred "within three years prior to December 22, 2003 and continuing thereafter." 2006 Settlement Agreement at CF 000051. These facts establish continuing property damage from development beginning in 2000 at the earliest, decades after the last policy in question expired. Because Plaintiff provides no evidence to put this material fact in dispute, the Court agrees that no "occurrence" triggered Travelers’ duty to indemnify or defend the underlying actions, warranting the entry of summary judgment on this basis.
The City's argument that Travelers’ inability to admit or deny whether the properties were damaged by flooding earlier somehow shows a genuine dispute of fact is unconvincing, and more importantly, irrelevant. California law focuses on when the damage occurred or was known or should have been known to the insured; an insurer's perspective on this question provides no meaningful evidence. See Prudential-LMI Com. Ins. , 51 Cal. 3d at 699, 274 Cal.Rptr. 387, 798 P.2d 1230. Similarly, the City's speculation that property damage may have existed prior to the Policies’ periods cannot support a duty to defend where the allegations in the underlying cases specifically detail that damage occurred afterwards. See Hurley Constr. Co. v. State Farm Fire & Cas. Co. , 10 Cal. App. 4th 533, 538, 12 Cal.Rptr.2d 629 (1992) ("A corollary to this rule is that the insured may not speculate about unpled third[-]party claims to manufacture coverage."). The underlying allegations simply fail to detail any damage prior to approximately December 2000, well after the Polices expired.
B. Timely Notice of Actions
Travelers also argues that the City failed to give notice, unduly prejudicing Travelers so as to preclude coverage. Mot. at 20–22. Even if the damages alleged occurred during the policy periods, the Court alternatively agrees that the failure to provide notice precludes coverage such that summary judgment is appropriate.
The Policies required the City to give notice of any covered occurrence "as soon as practicable," and provided that "insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative." See e.g. , Phoenix Policy at POL019. "Under California law, an insured's breach of these conditions will relieve the insurer of liability if it is actually prejudiced by the late notice." Collin v. Am. Empire Ins. Co. , 21 Cal.App.4th 787, 26 Cal. Rptr. 2d 391 (1994). The City tendered notice on January 31, 2017, and demanded that Travelers reimburse it for $5,346,837.94 in indemnification costs and $190,392.72 in defense costs. Esposito Decl. Ex. 7 at CF 000003. The City's only basis for contending that this notice was "as soon as practicable" is that "the City did not know of the existence of the policies, therefore it could not have provided written notice [sooner]." Opp. at 14. This is insufficient. The City does not present evidence regarding any sort of due diligence in the fourteen years after Coleman I was filed. Furthermore, the City's argument is undercut by Travelers’ evidence that the City tendered notice of a different suit under the ICPC Policy on February 8, 1993, thus indicating that the City was aware of at least one of the Policies. Esposito Decl. at ¶ 18, Ex. 15 at CF 000188. Still, it took the City over fourteen years to tender notice of the Coleman I suit, and three to five years for the Coleman II and Garibian suits. See Collin , 26 Cal. Rptr. 2d at 391 (finding that "[t]wo years does not readily fall within one's concept of ‘prompt.’ "). Thus, the Court finds there was late notice here.
The next question is whether Travelers was prejudiced by the City's failure to notify. "California's notice-prejudice rule requires an insurer to prove that the insured's late notice of a claim has substantially prejudiced its ability to investigate and negotiate payment for the insured's claim." Pitzer Coll. v. Indian Harbor Ins. Co. , 8 Cal.5th 93, 251 Cal.Rptr.3d 701, 447 P.3d 669, 674 (2019). "A finding of substantial prejudice will generally excuse the insurer from its contractual obligations under the insurance policy, unless the insurer had actual or constructive knowledge of the claim." Id. "Substantial prejudice means the insurer must prove that the lack of timely notice had an adverse effect on the ability of the insurer to investigate and prepare a defense in the underlying claim." Shell Oil Co. v. Winterthur Swiss Ins. Co. , 12 Cal.App.4th 715, 15 Cal. Rptr. 2d 815, 844 (1993). Here, Travelers argues that because it did not have the opportunity to participate in selection of defense counsel (under "approved rates") and did not have the opportunity to participate in settlement negotiations to achieve a more favorable outcome, it was prejudiced as a matter of law. Mot. at 22.
The City does not make any meaningful argument in response beyond noting that California has a strong policy preference against technical forfeitures with notice requirements, and urging that Travelers needs to show more than a "mere possibility" of prejudice. Opp. at 16–17. The California policy preference is encompassed in the requirement to show substantial prejudice. Thus, the City's first argument adds nothing meaningful to the analysis. And despite the City's pleas to the contrary, the Court finds that Travelers has sufficiently shown substantial prejudice. The City provided Travelers with its first notice fourteen years after Coleman I was filed and nine years after it was settled. This notice was also five years after Coleman II was filed, four years after Garibian was filed, and after the City had begun settlement negotiations with the underlying plaintiffs. In all three cases, Travelers was unable to lower defense costs or meaningfully influence the settlement negotiations because it never had the chance to participate in critical stages of the cases. See Select Ins. Co. v. Superior Court , 226 Cal. App. 3d 631, 637–638, 276 Cal.Rptr. 598 (Cal. Ct. App. 1990) (reversing summary judgment in favor of the insured where insured failed to give notice to the insurer "until four years after [the claims] had been filed and three months after [underlying plaintiff] had been awarded ... damages," on the ground that "lack of notice may have deprived his insurer not just of the opportunity to pay for [a] defense but of the opportunity to settle the [claim] for considerably less."). Importantly, Travelers relied on the lack of notice as the first reason for denial of coverage, such that it can now rely on the City's failure to perform this condition of the policy. See Esposito Decl., Ex. 15 at CF 000188–191.
Although Travelers does not detail the specifics regarding lower defense rates or substantive arguments it could have brought on behalf of the City, the prejudice is plain where Travelers could not contribute at all to the settlement discussions. The City's position is even more untenable where it held all the necessary information for years, and even tendered notice of a different suit under the ICPC Policy in 1993. Esposito Decl. at ¶ 18, Ex. 15 at CF 000188. Accordingly, because Travelers has shown late notice, the City's awareness of at least one of Travelers’ policies, and substantial prejudice from being unable to participate, the Court GRANTS Travelers’ motion for summary judgement.
The City requests more time for discovery in order to obtain Travelers’ loss reserves to determine whether the settlements were reasonable or the legal rates to show there was a lack of prejudice. However, "an insurer's loss reserve cannot be accurately equated with an admission of liability or the ‘value of a particular claim.’ " Sekera v. Allstate Ins. Co. , No. 14-cv-1162-JGB, 2017 WL 6550425, at *10, n.4 (C.D. Cal. Sept. 19, 2017). Additionally, the City has not provided its "Rule 56(d) argument in detail" as directed by the Court at the January 16, 2020 case management conference. Accordingly, the Court DENIES the City's request.
IV. CONCLUSION
For the reasons noted above, the Court GRANTS Travelers’ motion for summary judgment. The Clerk is directed to terminate The Travelers Indemnity Company, The Phoenix Insurance Company, and The Charter Oak Fire Insurance Company from the case.