Opinion
2d Civil No. B225270
01-24-2012
NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, Cross-Complainant and Appellant, v. GREAT AMERICAN INSURANCE CO., Cross-Defendant and Respondent.
Troutman Sanders LLP, Monique M. Fuentes, Siavash Daniel Rashtian; Carroll, Burdick & McDonough LLP and Laurie J. Hepler for Appellant. Clyde & Co US LLP, Peter J. Whalen, Jennifer D. McKee, Kathryn C. Ashton for Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Super. Ct. No. CIV 236710)
(Ventura County)
Tainted onions are sold to a restaurant chain resulting in the injury or death of hundreds from Hepatitis A. Appellant National Fire Insurance Company of Hartford (National Fire) and respondent Great American Insurance Company (Great American) are the primary and excess insurers for the Castellini Company, the wholesaler which marketed the onions. National Fire foresaw that its limits of coverage would be exhausted by the indemnity claims made against Castellini. While the litigation was pending, National Fire tendered its policy limits to Great American in an effort to relieve itself of its duties of defense and indemnification. Following an exchange of e-mails in which the terms of the Tender Agreement were discussed, Great American replied, "Agreed."
At issue is the meaning and effect of the Tender Agreement. National Fire asserts the Tender Agreement obligated Great American to indemnify it for all claims made against Castellini as well as claims made against other parties who were named as additional insureds in National Fire's policy. Great American contends that the Tender Agreement was limited to liability claims brought against Castellini and did not apply to the additional insureds covered by National Fire's policy.
National Fire and Great American each sought summary adjudication of National Fire's claim that it be indemnified by Great American for $3.5 million National Fire paid in settlement to a third insurance carrier, American Guarantee Insurance Company, which sought partial reimbursement from National Fire for sums it had paid to settle third party claims arising from the Hepatitis A outbreak. The trial court granted summary adjudication to American Guarantee on all but one cause of action contained in National Fire's cross-complaint on the ground that in settling with American Guarantee, National Fire had settled its own potential liability and not a third party claim against an insured. The court subsequently sustained Great American's demurrer to the remaining cause of action. We reverse the judgment on the grounds that summary adjudication and the sustaining of the demurrer were improper because issues of material fact exist as to the parties' intent in entering into the Tender Agreement.
The case relied on by the trial court, United Services Automobile Assn. v. Alaska Ins. Co. (2001) 94 Cal.App.4th 638, involved a bad faith claim against an insurer and is inapposite to the issues involved in this case.
We requested supplemental briefing concerning the ability of a primary insurer to shift its obligation to an excess insurer and thereby relieve itself from liability to its insureds for defense and indemnity. (Chubb/Pacific Indemnity Group v. Insurance Co. of North America (1987) 188 Cal.App.3d 691; see also AICCO, Inc. v. Insurance Co. of North America (2001) 90 Cal.App.4th 579.) Following oral argument, we are persuaded that resolution of the issues before this court does not implicate these concerns. We express no opinion concerning how, if at all, they may apply in the ensuing litigation. We resolve this matter solely on the questions of fact raised in the respective motions.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
National Fire and Great American were the primary and excess insurers of Castellini Company (Castellini), a wholesale supplier of vegetables and other food products. The National Fire policy had limits of $1 million per occurrence and $2 million in the aggregate. Great American's policy was a commercial umbrella liability policy with limits of $20 million per occurrence and in the aggregate.
In November 2003, a large outbreak of Hepatitis A occurred in Pennsylvania injuring or killing more than 600 people. The source of the outbreak was traced to green onions used by the Chi Chi's Mexican Restaurant chain (Chi Chi's) in its salsa and other menu items. The onions were grown in California. The growers sold the onions to Castellini. Sysco Corporation (Sysco), a distributor of food products and supplies to restaurants, delivered the tainted onions to Chi Chi's.
After months of negotiations, on November 30, 2005, National Fire sent an e-mail to Great American in which National Fire offered to pay $1,250,000 to Great American in exchange for Great American's agreement to take over the defense and indemnity of the "Chi Chi's claims." Great American e-mailed a one-word response: "Agreed."
Subsequently, Chi Chi's and its insurance carriers paid tens of millions of dollars in damages to settle claims and lawsuits arising out of the outbreak. To recoup its losses, Chi Chi's and its insurance carriers filed a lawsuit in Ventura County Superior Court against Castellini, Sysco, and the California growers. Chi Chi's also initiated arbitration proceedings against Sysco in Pennsylvania in September 2005. The arbitrator determined that the source of the Hepatitis A virus was raw green onions delivered to Chi Chi's by Sysco and provided to Sysco by Castellini. The arbitrator concluded that Sysco was liable to Chi Chi's because it had breached express and implied warranties. In making its award, the arbitrator characterized Sysco as "an essentially innocent seller/warehouseman/carrier" and found that "there is no proof of negligence by Sysco." The arbitration resulted in an award against Sysco in the sum of $50,472,801.91. Of that amount, $10,176,663.20 was awarded as interest, attorney fees and costs incurred by Chi Chi's and its insurance carriers. The arbitration award was confirmed and a judgment was entered by the Philadelphia Court of Common Pleas on November 20, 2007.
Chi Chi's insurance carriers intervened in the arbitration because they paid over $30 million to resolve the outbreak claims against Chi Chi's.
In May 2008, American Guarantee, one of Sysco's insurance carriers, filed a complaint in intervention against Castellini, National Fire and Great American in the Ventura lawsuit. The complaint sought contractual and equitable indemnity, equitable subrogation, equitable contribution, breach of contract, products liability and declaratory relief.
In January 2009, National Fire filed a cross-complaint in the Ventura lawsuit against American Guarantee, Castellini and Great American. With respect to Great American, National Fire alleged causes of action for declaratory relief, waiver, equitable estoppel, unjust enrichment and equitable contribution.
In March 2009, American Guarantee settled with Great American and dismissed it from the action. American Guarantee continued to pursue National Fire for over $900,000 in indemnity and at least $10 million in defense and supplementary payments for its alleged breach of duty to Sysco.
In August and September 2009, National Fire filed summary judgment motions against American Guarantee and Great American on the ground that National Fire had exhausted its policy limits and discharged its duties to defend and indemnify through its Tender Agreement with Great American. Both American Guarantee and Great American filed summary judgment motions against National Fire contending that the Tender Agreement did not relieve National Fire of its duties of defense and indemnification. In support of their motions, National Fire and Great American submitted the deposition testimony and declarations of various employees of the respective companies involved in negotiating the Tender Agreement as well as correspondence between the parties leading up to the Tender Agreement.
Just prior to the scheduled hearing on the motions for summary judgment, American Guarantee and National Fire entered into a settlement agreement in which National Fire agreed to pay $3.5 million to American Guarantee in exchange for dismissal from the action.
Due to the settlement agreement, only Great American's motion for summary judgment was heard and decided. The trial court granted Great American's motion for summary adjudication on all causes of action in National Fire's cross-complaint except the first cause of action. As to that cause of action, the trial court granted National Fire's motion to file a supplemental cross-complaint reflecting its recent settlement with American Guarantee and stating the relief it sought from Great American.
Instead of a supplemental complaint, National Fire filed a first amended cross-complaint against Great American alleging causes of action for declaratory relief and equitable contribution. National Fire again alleged that it had exhausted its policy limits by entering into the Tender Agreement with Great American and the Tender Agreement imposed a duty on Great American to defend and indemnify. National Fire sought reimbursement from Great American for the $3.5 million National Fire paid in settlement to American Guarantee.
Great American filed a demurrer to National Fire's first amended cross-complaint. The trial court sustained the demurrer on the ground that in settling with American Guarantee, National Fire had settled its own potential liability and did not settle a third party claim against an insured. The court granted leave to amend, but National Fire declined to do so and filed this appeal from the judgment of dismissal of the first amended cross-complaint and the prior order granting summary adjudication to Great American on the original cross-complaint.
The parties dispute whether National Fire's first amended complaint was proper because the court permitted the filing of a supplemental complaint. We need not address the propriety of National Fire's conduct in this regard because we reverse the judgment on substantive, not procedural, grounds.
DISCUSSION
Standard of Review
"The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties' pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) Summary judgment is appropriate "if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." (Code Civ. Proc., § 437c, subd. (c).) A defendant who moves for summary judgment or summary adjudication bears the initial burden to show that the cause of action has no merit—that is, "that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to that cause of action." (Id. at subds. (a), (p)(2).)
On appeal, we conduct a de novo review of the record to "determine with respect to each cause of action whether the defendant seeking summary judgment has conclusively negated a necessary element of the plaintiff's case, or has demonstrated that under no hypothesis is there a material issue of fact that requires the process of trial, such that the defendant is entitled to judgment as a matter of law." (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 334.) We apply the same procedure used by the trial court: We examine the pleadings to ascertain the elements of the plaintiff's claim; the moving papers to determine whether the defendant has established facts justifying judgment in its favor; and, if the defendant did meet this burden, plaintiff's opposition to decide whether he or she has demonstrated the existence of a triable issue of material fact. (Knapp v. Doherty (2004) 123 Cal.App.4th 76, 84-85.)
Principles of Contract Interpretation
"The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties." (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264.) "A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." (Civ. Code, § 1636.) "The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed." (Civ. Code, § 1644.) "A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates." (Civ. Code, § 1647.) Extrinsic evidence is admissible to interpret an agreement when a material term is ambiguous. (Code Civ. Proc., § 1856, subd. (g); Los Angeles City Employees Union v. City of El Monte (1985) 177 Cal.App.3d 615, 622.)
The Tender Agreement
On November 30, 2005, after several months of negotiation, National Fire sent an e-mail to Great American in which National Fire offered $1,250,000 to Great American in exchange for Great American's agreement to take over the defense and indemnity of the "Chi Chi's claims." The e-mail states:
"This will confirm our ongoing discussions regarding National Fire Insurance Company of Hartford ("CNA") offer to tender the primary limits of its policy in effect from September 1, 2003 to September 1, 2004 with regard to the claims against Castellini stemming from the Hepatitis A outbreak at the Beaver County, Pennsylvania Chi-Chi's restaurant (collectively the "Chi-Chi's claims"). As you know we have differing opinions on the number of occurrences that exist as to the Chi-Chi's claims. This offer is made in order to compromise and resolve that issue and to allow Great American to take over and direct the ongoing defense of the Chi-Chi's claims, the majority of which are now asserted as subrogation and contribution actions by Chi-Chi's carriers against Castellini and its suppliers and proceeding in Ventura County, California state court.
"For the above reasons, and those set forth in Sean Hanifin's letter to Peter Whalen dated August 25, 2005, and based on our ongoing discussions, CNA hereby tenders - and Great American has indicated it will accept - $1,250,000.
"We agree that this tender is limited to and encompasses the entire remaining limits of primary coverage available to Castellini for claims arising out of the Pennsylvania Hepatitis A outbreak, whether those claims are asserted by injured patrons of Chi-Chi's, by Chi-Chi's directly, by any of Chi-Chi's carriers seeking subrogation, contribution or indemnity, or by any other entity claiming the benefit of said primary coverage.
"It is agreed that this payment will exhaust the available primary coverage for the Chi-Chi's claims, thereby removing CNA from any ongoing defense obligations arising out of the Chi-Chi's claims from the date of payment of the tender.
"CNA will pay defense fees and costs incurred for Castellini, and will also resolve those claims for reimbursement of defense cost and expenses for any entity which CNA has accepted as an 'additional insured' under its primary policy, until the date Great American receives CNA's payment. It is understood that Great American may have different opinions with regard to coverage for various entities seeking additional Insured status by contract or under its policy.
"CNA will not agree to any settlements, make or authorize any settlement offers or be involved in any settlement discussions, other than settlements as to which binding agreements already have been reached ($90,500 have been paid in settlements to date). Please note that several claims are presently scheduled to be mediated with codefendant suppliers in Pittsburgh on December 20, 2005. You may wish to contact defense counsel Gary Becker to discuss how you wish to proceed at those mediations.
"Claims stemming from the Hepatitis A outbreak at the Knoxville, Tennessee O'Charley's restaurant (the 'Tennessee claims') are not part of this proposal. CNA will continue to provide defense and indemnity to Castellini for the Tennessee claims until such time as those claims are resolved, or in the event they exhaust the remainder of the $1 million 'each occurrence' limit applicable there.
"Please respond with your acceptance of this offer, and we will arrange for payment, and advise the necessary parties accordingly."
Great American accepted the tender in a one word e-mail stating, "Agreed."
According to National Fire, the Tender Agreement and its payment to Great American exhausted its policy limits for the Chi Chi's claims, thereby discharging it from "any ongoing defense obligations" arising out of such claims and "obligating Great American to step into the shoes of National Fire to defend and settle the Chi Chi's claims." Great American asserts that by entering into the agreement it did not intend to take over National Fire's total liability but only the liability arising from the claims against Castellini.
Issues of Material Fact as to the Parties' Intent Precludes Summary Judgment
Both parties assert that the plain language of the Tender Agreement supports their respective interpretations. The parties dispute the meaning of several terms in the Tender Agreement, however, including, but not limited to, the meaning of "the Chi Chi's claims." In support of their motions for summary judgment/summary adjudication, both parties submitted parol evidence to demonstrate their intent in entering into the agreement. This extrinsic evidence included the declarations and deposition testimony of several employees of both companies who were involved in negotiating the Tender Agreement and correspondence between the parties negotiating the terms of the Tender Agreement.
" '[W]hen, as here, ascertaining the intent of the parties at the time the contract was executed depends on the credibility of extrinsic evidence, that credibility determination and the interpretation of the contract are questions of fact that may properly be resolved by the jury.'" (Wolf v. Walt Disney Pictures and Television (2008) 162 Cal.App.4th 1107, 1127; see also Horsemen's Benevolent & Protective Assn. v. Valley Racing Assn. (1992) 4 Cal.App.4th 1538, 1560 ["If the meaning or intent is to be determined one way according to one view of the facts and another way according to another view, the determination of the disputed matter must be left to the jury"].) As the Tender Agreement is reasonably susceptible of different interpretations, material issues of fact remain unresolved. (See Lewis Food Co. v. Fireman's Fund Ins. Co. (1962) 207 Cal.App.2d 515, 524-525 ["The question as to the intent of the parties to an ambiguous agreement that does not clearly express their intention is one of fact"].)
Conclusion
The scope and effect of the Tender Agreement depend for resolution on the weight and credibility to be given to conflicting extrinsic evidence. Accordingly, we reverse the orders of the trial court granting summary adjudication and sustaining the demurrer.
The judgment is reversed. Appellant shall recover costs on appeal.
NOT TO BE PUBLISHED.
PERREN, J. We concur:
YEGAN, Acting P.J.
COFFEE, J.
Frederick H. Bysshe, Jr., Judge
(Assigned by the Chief Justice pursuant to art VI, § 6 of the Cal. Const.)
--------
Superior Court County of Ventura
Troutman Sanders LLP, Monique M. Fuentes, Siavash Daniel Rashtian; Carroll, Burdick & McDonough LLP and Laurie J. Hepler for Appellant.
Clyde & Co US LLP, Peter J. Whalen, Jennifer D. McKee, Kathryn C. Ashton for Respondent.