Opinion
H037082
09-27-2012
FOVEON, INC., et al., Plaintiffs and Appellants, v. ADVANCED SEMICONDUCTOR, INC., et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Santa Clara County
Super. Ct. No. CV111653)
This is a dispute over who must bear the loss of consigned goods destroyed in a factory fire. The goods had been consigned pursuant to bailment contracts, each of which contained an insurance clause stating that the bailors "will be responsible for insurance coverage for all consigned materials." After the fire, the bailors and their insurer sued the bailee in an attempt to recover for the loss. The trial court granted the bailee's summary judgment motion. (Code Civ. Proc., § 437c.) The trial court held that the insurance clause made the bailee an implied co-insured and the bailors had to look solely to insurance proceeds to cover their losses, even loss occasioned by the bailee's negligence. We conclude that the trial court's interpretation is the only reasonable one. Accordingly, we affirm. I. B ACKGROUND
Plaintiffs are Foveon Inc. (Foveon), Entropic Communications, Inc. (Entropic), and St. Paul Fire and Marine Insurance Co. (St. Paul). Defendants are Advanced Semiconductor Engineering, Inc., ASE Inc., ASE (U.S.) Inc., and ASE (Chung-Li) Inc. (collectively ASE). Foveon, Entropic, and nonparty Airgo Networks, Inc. (Airgo) (collectively customers), contracted with ASE to process customers' silicon wafers into finished products. Each of the contracts (also known as "quotes") contained the following pertinent terms:
"ASE shall not be liable for delays in delivery of goods caused by . . . circumstances beyond the control of ASE. [¶] ASE shall not be liable for damages arising directly or indirectly from the sale, use or failure of any semiconductor devices/products assembled or tested by ASE . . . . [¶] ASE assumes no obligation or liability of any kind with respect to claims of infringement . . . . [¶] [Customer] will be responsible for insurance coverage for all consigned materials and equipment in transit and in-house. [¶] . . . [¶] ASE liabilities are limited only to the value added." (Italics added.)
Customers obtained policies of insurance from St. Paul. ASE did not purchase insurance. Customers delivered their goods to ASE's factory in Taiwan where, sometime thereafter, a fire broke out and destroyed the goods. Airgo lost property valued at least $4.1 million. Foveon and Entropic lost property valued at $311,585.92 and $227,907.54, respectively. Pursuant to its policies of insurance with customers, St. Paul paid $4.1 million to Airgo and $100,000 each to Foveon and Entropic. Plaintiffs sued ASE for breach of contract, bailment, and negligence, claiming that ASE was responsible for the fire. Foveon and Entropic sought damages for their uninsured losses and St. Paul, as subrogree of each of the three customers, sought to recover the amounts it paid under the three policies. Airgo did not sue.
In support of this fact ASE submitted its verified responses to interrogatories. Plaintiffs objected, citing a section of the Discovery Act (Code Civ. Proc., § 2030.410) and Great American Ins. Cos. v. Gordon Trucking, Inc. (2008) 165 Cal.App.4th 445, 450, for the proposition that a party may not rely upon its own interrogatory responses in support of a summary judgment motion. The trial court did not rule on the objection. That means that we presume that the court overruled it and the objection is preserved for appeal. (Reid v. Google, Inc. (2010) 50 Cal.4th 512, 533.) Nevertheless, although plaintiffs mention the objection in a footnote in the opening brief, they cite no authority and provide no argument or analysis in support. An appellate court "will not develop the appellants' arguments for them." (Dills v. Redwoods Associates, Ltd. (1994) 28 Cal.App.4th 888, 890, fn. 1; see also Cal. Rules of Court, rule 8.204(a)(1)(B).) Plaintiffs' failure to argue the point in the opening brief means that ASE had no reason to discuss it in the respondent's brief. Accordingly, we treat the objection as waived. (Christoff v. Union Pacific Railroad Co. (2005) 134 Cal.App.4th 118, 125-126.)
ASE filed a motion for summary judgment arguing, among other things, that the insurance clause obligated customers to obtain insurance coverage for the mutual benefit of the parties to the bailment contracts. Plaintiffs disputed that interpretation, claiming that the clause meant only that customers had to pay for their own insurance if they chose to obtain coverage. The trial court rejected plaintiffs' interpretation, agreeing with ASE that the insurance clauses "were intended to be for the mutual benefit of both plaintiffs and defendants. Pursuant to the contract provision at issue, [customers] agreed to shoulder the risk which the law would otherwise have placed upon defendants as bailees. The court took into consideration the circumstances under which the contract was made, and the matter to which it relates. (See Civ. Code, § 1647.) [¶] Viewed under third party beneficiary principles, the court finds defendants were intended third party beneficiaries of the insurance contracts issued by [St. Paul]." Plaintiffs have appealed from the judgment.
II. DISCUSSION
A. Issue and Standard of Review
In order to prevail on a motion for summary judgment, a defendant must show that one or more elements of the plaintiff's cause of action cannot be established or that there is a complete defense to that cause of action. (Code Civ. Proc., § 437c, subd. (p)(2).) In this case, if, as ASE maintains, the insurance clause obligates customers to obtain insurance for the benefit of both parties to the contract such that customers must look solely to the insurance proceeds to cover their losses, then summary judgment is appropriate because plaintiffs would be unable to prove a necessary element (damages) of each cause of action. On the other hand, if, as plaintiffs argue, the clause means simply that customers had to pay for their own insurance coverage, then the clause would have no effect upon plaintiffs' claims against ASE and those claims must be tried. The trial court accepted ASE's interpretation and granted the summary judgment motion. We review that conclusion de novo. (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.)
Our only concern is interpretation of the insurance clause. There are no factual issues. In interpreting the contract language, our goal is to give effect to the parties' mutual intent at the time of contracting. (Civ. Code, § 1636; Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264.) "It is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation." (Titan Group, Inc. v. Sonoma Valley County Sanitation Dist. (1985) 164 Cal.App.3d 1122, 1127.) Thus, with a written contract, we ascertain the parties' intent from the writing alone, if possible. (Civ. Code, § 1639.) Extrinsic evidence is admissible to construe a written instrument when the language of the instrument is ambiguous. The test is whether the evidence presented is relevant to prove a meaning to which the language is "reasonably susceptible." (Pacific Gas & Elec. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37.)
" 'When a dispute arises over the meaning of contract language, the first question to be decided is whether the language is "reasonably susceptible" to the interpretation urged by the party. If it is not, the case is over. [Citation.] If the court decides the language is reasonably susceptible to the interpretation urged, the court moves to the second question: what did the parties intend the language to mean?' " (Oceanside 84, Ltd. v. Fidelity Federal Bank (1997) 56 Cal.App.4th 1441, 1448.) The court looks to the whole of the contract "so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." (Civ. Code, § 1641.) The court must choose an interpretation that will make the contract "lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties." (Id. § 1643.) "In cases of uncertainty not removed by the preceding rules, the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist." (Id. § 1654.) "[T]his canon applies only as a tie breaker, when other canons fail to dispel uncertainty." (Pacific Gas & Elec. Co. v. Superior Court (1993) 15 Cal.App.4th 576, 596, abrogated on other grounds by Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376-377.)
B. The Insurance Clause Was Intended for the Mutual Benefit of the Parties to the Bailment Contracts
The instant contracts were created within the context of a bailment relationship. "A bailment is generally defined as 'the delivery of a thing to another for special object or purpose . . . .' " (Windeler v. Scheers Jewelers (1970) 8 Cal.App.3d 844, 850.) Where the bailor consigns goods for the mutual benefit of bailor and bailee, the bailee (also known as a depositary) is considered a bailee for hire. (Civ. Code, § 1851.) Absent an agreement to the contrary, a bailee for hire is held to the standard of ordinary care in relation to the consigned goods and is liable only for loss or injury resulting from the bailee's failure of ordinary care. (Haidinger-Hayes, Inc. v. Marvin Hime & Co. (1962) 206 Cal.App.2d 46, 60; Civ. Code, § 1852.) The bailee is not otherwise an insurer of the goods. (Homan v. Burkhart (1930) 108 Cal.App. 363, 366.) Thus, customers, as bailors, bore the risk of loss caused by acts beyond the control of ASE. ASE, the bailee, would be liable for losses resulting from its own negligence.
The insurance clause states simply that customers "will be responsible for insurance coverage for all consigned materials and equipment in transit and in-house." Plaintiffs argue that the clause means that customers must pay for their own insurance but it does not obligate them to purchase coverage. As plaintiffs' counsel argued below, "Insurance is completely up to [the customers]." Plaintiffs point out that the word "responsible" is used elsewhere in the contract to require the customer to pay, as where the customer "is responsible for all bank charges," and "responsible for all costs incurred . . . to transport" the goods so that to be "responsible for" insurance coverage means just that they had to pay for it. In the cited examples, however, that for which the customer is responsible is described as charges or costs. The insurance clause makes the customer responsible for coverage. The only reasonable interpretation of that is that the customer is obligated to obtain coverage. If the insurance clause means that insurance coverage is left to the discretion of the customer, why would the parties put it in the contract? " '[O]ne who states "I promise to render a future performance, if I want to when the time arrives," has made no promise at all.' " (See Asmus v. Pacific Bell (2000) 23 Cal.4th 1, 15, quoting 2 Corbin on Contracts (1995) § 5.32, pp. 175-176.) Plaintiffs' interpretation of the insurance clause puts the purchase of insurance wholly under the customers' control. It is no promise at all. The only way the clause is effective as a contract term is if it obligates the customer to obtain insurance coverage on the consigned goods.
In our view, the insurance clause unambiguously requires the customer to obtain insurance coverage on the consigned goods but the intended effect of that provision is not spelled out. Thus, the next question is whether the parties intended the coverage to benefit customers only, in which case customers, or their insurer, could proceed against ASE for losses for which ASE would be liable; or whether the insurance was to cover losses caused by ASE's negligence as well as loss caused by circumstances beyond its control. The parties cite numerous cases from within and without the state, most of which conclude that clauses similar to the clause before us were intended to benefit both sides of the agreement. (See Annot., Bailee's Liability as Affected by Bailment Condition that Bailor Procure Insurance (1978) 83 A.L.R.3d 519.) The cases have limited utility given the differing language of the contracts and the reliance by several of the courts upon extrinsic evidence. (See, e.g., Dresser Indus. v. Foss Launch & Tug Co. (1977) 560 P.2d 393, 394 [contract made bailor "responsible for providing its own insurance coverage."]; Liberty Mut. Fire Ins. Co. v. Auto Spring Supply Co. (1976) 59 Cal.App.3d 860, 863 [landlord testified that she "looked only to the insurance for recovery in the event of fire loss."]; Dillingham Tug v. Collier Carbon & Chemical Corp (9th Cir. 1983) 707 F.2d 1086, 1089 [contract specified that one party was to look solely to its insurance for the recovery of any loss]; Parsons Manufacturing Corp. v. Superior Court (1984) 156 Cal.App.3d 1151, 1162 [lease exempted lessee from liability for fire damage, obligating lessor to obtain fire insurance to benefit lessor and lessee]; Fire Ins. Exchange v. Hammond (2000) 83 Cal.App.4th 313, 320-321 [express provision making lessees liable for negligent damage to premises].)
One case that comes close to this one is Fred A. Chapin Lumber Co. v. Lumber Bargains, Inc. (1961) 189 Cal.App.2d 613, 615 (Chapin). Chapin involved an insurance clause in a lease that provided: " 'Lessor agrees to maintain in full force and effect and to pay all premiums for fire, earthquake and storm insurance to cover the value of the buildings.' " (Ibid.) The lessee negligently caused a fire that destroyed the buildings and the lessor sued. Chapin upheld a judgment in favor of the lessee, interpreting the insurance clause to mean that the lessor's promise to purchase insurance was for the benefit of both parties and that the lessor would look solely to insurance proceeds in the event of a loss. (Ibid.) There would have been no reason to include the clause if it were not intended for the parties' mutual benefit. The lessee could have protected itself against liability for its own negligence by purchasing insurance. And since the lease did not obligate the lessor to rebuild or repair in the event of a fire, the lessee had no reason to require the lessor to maintain insurance solely for the lessor's benefit. (Id. at pp. 616-617.) "Unless the insurance provision required that the insurance should be maintained for the benefit of the lessee as well as of the lessor, it serves no reasonable purpose. On the other hand, if this provision requires the maintenance of such insurance for the benefit of the lessee as well as the lessor the purpose for its existence is obvious." (Id. at p. 620.)
According to plaintiffs, Chapin makes sense only because both landlord and tenant could have obtained "similar, but redundant, first-party fire insurance policy covering the same property." Plaintiffs maintain that the holding has no bearing here because ASE could not have obtained first-party insurance covering customers' goods. But ASE could have obtained insurance covering the full value of the goods, regardless of the extent of ASE's own interest in the goods. "A carrier or depositary of any kind has an insurable interest in a thing held by him as such, to the extent of its value." (Ins. Code, § 285.) And ASE could certainly have insured against its own liability as well. Had ASE obtained insurance, it would have been entitled to collect the entire amount of the loss covered by the insurance, although it would have held any excess above its own interest for the benefit of customers. (Willamette Nav. Co. v. Hartford Fire Ins. Co. (1923) 287 F. 464, 466.) Thus, as in Chapin, one reasonable purpose of the insurance clause could have been to avoid the cost of duplicate insurance coverage, reducing bailment costs while protecting both bailor and bailee. The only extrinsic evidence submitted (evidence that ASE did not purchase insurance) supports that interpretation.
ASE stated that it did not purchase insurance in reliance upon the insurance clause. The second part of that statement is evidence of the undisclosed subjective intent of the party and is irrelevant to determining the meaning of contractual language. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1166, fn. 3.)
Also like Chapin, the contracts in this case did not require the owner of the property to replace it in the event it was destroyed, which might have given the other party some reason for wanting the owner to obtain its own insurance coverage. Absent such a provision, we can conceive of no reason why ASE would want to require customers to obtain insurance if it was for customers' benefit only.
Plaintiffs point to the clauses relieving ASE from liability for shipping delays or patent infringement. This shows, plaintiffs maintain, that if ASE had intended to exempt itself from liability for negligent damage of the goods it would have written that into the contracts. Plaintiffs' comparison of the insurance clause to the clauses limiting ASE's liability for specific kinds of loss is inapt. The latter are exculpatory clauses. Many kinds of exculpatory clauses are unlawful (Civ. Code, § 1668). Others may be lawful but they are not looked upon with great favor under the law. (See generally, Tunkl v. Regents of University of California (1963) 60 Cal.2d 92.) The law tends to disfavor exculpatory clauses because they can deprive a victim of compensation. (Smoketree-Lake Murray, Ltd. v. Mills Concrete Construction Co. (1991) 234 Cal.App.3d 1724, 1734.) Consequently, courts insist upon specificity. (See Gulf Compress Co. v. Harrington (1909) 119 S.W. 249, 250 [clause making bailee "not responsible" for loss did not exempt the bailee from liability for its own negligence].) That is likely the reason why each of the exculpatory clauses specifies the type of loss for which the parties agreed ASE would have no liability at all.
Civil Code section 1668 provides in full: "All contracts which have for their object, directly or indirectly, to exempt any one from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law."
An insurance clause is not an exculpatory clause; it is more like an indemnity agreement. Unlike an exculpatory clause, which exempts a party from liability and can result in an uncompensated loss, an agreement to indemnify is aimed at ensuring that the loss will be compensated. (Smoketree-Lake Murray, Ltd. v. Mills Concrete Construction Co., supra, 234 Cal.App.3d at p. 1734.) Chapin implicitly recognized the difference in rejecting the lessor's argument that the insurance clause in that case was tantamount to exonerating the lessee from liability for negligence. The Chapin court explained that the public policy that makes exculpatory agreements unlawful, "does not purport to prohibit the parties to a contract from agreeing that one of them shall maintain fire insurance and apply the proceeds therefrom toward the reimbursement of any fire loss covered by such insurance, although caused by the other's negligence." (Chapin, supra, 189 Cal.App.2d at p. 616.) That is, public policy does not preclude our accepting the implication that the parties intended that customers would purchase insurance to cover loss for which ASE might be liable as well as loss caused by circumstances beyond ASE's control.
Plaintiffs argue that since the contracts were drafted by ASE they should be interpreted against ASE. But to do so would require that we accept an unreasonable interpretation of the clause. Principles of contract interpretation do not demand such a result. Plaintiffs cite one bailment case (the only one of which we are aware) in which the court held that it could not interpret a bailment contract drafted by the bailee as giving the bailee the benefit of the bailor's insurance unless the contract contained express language so stating. (United States Fire Ins. Co. v. Saks & Co. (1940) 174 Misc. 38, 39-40 [20 N.Y.S.2d 39, 40].) We have no quarrel with the notion that parties should express their intent as clearly and explicitly as possible. Indeed, the clause before us could have stated explicitly that customers' insurance coverage was intended to benefit both sides to the contract. But the absence of such language is not determinative. "An interpretation which will give effect and purpose to a provision is more reasonable than one which leaves it devoid of effect or purpose." (Chapin, supra, 189 Cal.App.2d at p. 620.) In the present case, no purpose can be ascribed to the insurance clause unless it is interpreted as requiring customers to insure the goods for the benefit of both parties. Any other interpretation would make the clause inoperative or illusory.
Plaintiffs suggest that the bailment contracts were contracts of adhesion, noting that they had "no opportunity to negotiate special terms." We can find no evidence in the record to support the point.
C. Customers Must Look Solely to Insurance Proceeds
Foveon and Entropic argue that even if the contract may be read as ASE asserts, ASE is still liable for the uninsured losses. Chapin again proves helpful. As Chapin explained, if the parties agree that one of them will maintain insurance for their mutual protection and the obligated party does not maintain the insurance, then that party's "liability for breach of the lease would offset the lessee's liability for negligent use of the premises; except as hereinafter noted, the amount of damages recoverable upon these respective liabilities would be the same." (Chapin, supra, 189 Cal.App.2d at p. 617.)
Since we have concluded that the parties intended that customers would secure insurance coverage for the benefit of both ASE and themselves, if customers breached that obligation by failing to obtain any coverage, they would be liable for breach of the contract, and ASE's damages would be measured by the extent of the loss customers had agreed to insure, which, in this case, is coverage for "all consigned material and equipment." The result is no different just because Foveon and Entropic obtained coverage for some, but not all, of the goods. ASE's liability for the uninsured loss is offset by these customers' liability for breach of the bailment contract.
The only case Foveon and Entropic cite in support of their argument is Agra-By-Products v. Agway (1984 N.D.) 347 N.W.2d 142. The case is not controlling and, in any event, is distinguishable. In Agra-By-Products the lessor sued the lessee for negligent destruction of the leased premises, seeking to recoup its uninsured loss. The lease at issue obligated the lessor to maintain " 'said insurance' " on the buildings. " 'Said insurance' " referred to the insurance policy that was attached to the lease. (Id. at p. 151.) The reviewing court concluded that the lessee was limited in its protection to the extent of the coverage evidence by the policy attached to the lease. Since that policy did not provide full coverage, and since the lease did not otherwise exempt the lessee from liability for its negligence, the lessee was liable for the uninsured portion of the loss. (Ibid.) The instant contracts do not reference any particular policy of insurance. Rather, they provide that customers will be responsible for insurance coverage for "all" consigned material. Customers' failure to obtain coverage for all the goods is a breach of the bailment contract, damages for which are offset by ASE's liability to customers. In other words, customers must look solely to the insurance proceeds. They have no claim against ASE for their uninsured losses.
D. There Is No Factual Dispute to Be Tried
Contrary to plaintiffs' alternative argument, it is not necessary to remand for trial and the introduction of extrinsic evidence pertaining to the parties' intent. If plaintiffs had extrinsic evidence to support their interpretation of the insurance clause they were bound to submit it in opposition to the summary judgment motion. ASE's interpretation of the contract language was sufficient to show that plaintiffs' action had no merit. In order to avoid summary judgment plaintiffs had the burden of producing "substantial responsive evidence sufficient to establish the existence of a triable issue of material fact on the issues raised" by the complaint. (Eisenberg v. Alameda Newspapers, Inc. (1999) 74 Cal.App.4th 1359, 1376.) "We may assume that plaintiffs understood their burden in this regard and that they proffered all the facts made available to them through discovery" to support an alternate interpretation of the insurance clause. (Leek v. Cooper (2011) 194 Cal.App.4th 399, 417.) Plaintiffs produced no extrinsic evidence. Consequently, there is no factual dispute to be resolved.
The parties implicitly concede that the failure of customers' claims defeats St. Paul's subrogation claim as well. Subrogation, in the context of insurance, is the right of the insurer to be put in the position of its insured against third parties legally responsible to the insured. If the insured customers have no claim against ASE, St. Paul has no claim either. (Gordon v. J.C. Penney Co. (1970) 7 Cal.App.3d 280, 285.)
III. DISPOSITION
The judgment is affirmed.
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Premo, J.
WE CONCUR:
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Rushing, P.J.
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Duffy, J.
Foveon, Inc., et al. v. Advanced Semiconductor, Inc., et al.
H037082
Retired Associate Justice of the Court of Appeal, Sixth Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
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