Opinion
D070657
09-28-2017
SEQUOIA INSURANCE COMPANY, Plaintiff and Appellant, v. NORTHFIELD INSURANCE COMPANY, Defendant and Respondent.
Hirsch Closson, Robert V. Closson and Lisa G. Shemonsky for Plaintiff and Appellant. Worthe, Hanson & Worthe and John R. Hanson for 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-00010730-CU-IC-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Joan M. Lewis, Judge. Affirmed. Hirsch Closson, Robert V. Closson and Lisa G. Shemonsky for Plaintiff and Appellant. Worthe, Hanson & Worthe and John R. Hanson for Defendant and Respondent.
This appeal arises out of a dispute between insurers over the effect of their respective other insurance or excess insurance policy clauses. Plaintiff and appellant Sequoia Insurance Company (Sequoia) provided a defense to Full Spectrum Management, Inc. (Spectrum), which was named as a defendant in an underlying personal injury lawsuit seeking damages against Spectrum for its allegedly negligent acts or omissions during its property management of an apartment building. Sequoia undertook Spectrum's defense in that action under its commercial general liability (CGL) policy issued to the owners of the apartment building. The Sequoia policy also named as insureds the owners' retained property managers, such as Spectrum.
Defendant and respondent Northfield Insurance Company (Northfield), which separately insured Spectrum with a CGL policy, declined to participate in funding Spectrum's defense, claiming that a specialized "other insurance" clause in Northfield's policy, a "Real Estate Property Managed" endorsement, operated as a limitation on coverage or as an excess clause relieving Northfield of any duty to defend Spectrum when a primary insurer, such as Sequoia, was doing so. (Hartford Casualty Ins. Co. v. Travelers Indemnity Co. (2003) 110 Cal.App.4th 710, 725, fn. 12 (Hartford) [typical forms of "other insurance" clauses on priority of policies include (1) standard pro rata provisions, (2) excess clauses in which one insurer does not become liable " 'except to the extent that the loss exceeds such other valid and collectible insurance,' " or (3) escape clauses that provide one insurer " 'is not liable for any loss that is covered by other insurance,' " such that existence of other insurance extinguishes insurer's liability to that extent].)
In the current action, Sequoia sought declaratory relief on policy obligations and equitable contribution from Northfield for a portion of Spectrum's defense costs. The trial court resolved cross-motions by the parties by granting summary judgment to Northfield on the basis that its "Real Estate Property Managed" endorsement relieved it of any duty to defend Spectrum. (Code Civ. Proc., § 437c; all further statutory references are to this code unless noted.) Sequoia's competing motion for summary adjudication of declaratory relief on equitable contribution rights against Northfield was denied. The court entered summary judgment in favor of Northfield.
On appeal, Sequoia argues the trial court incorrectly interpreted the respective other insurance clauses in the policies. Sequoia claims the general rule should apply, that competing excess or "escape" clauses in primary policies should be disregarded. (Dart Industries, Inc. v. Commercial Union Ins. Co. (2002) 28 Cal.4th 1059, 1080 (Dart Industries) ["modern trend" requires equitable contributions on a pro rata basis from each primary insurer despite most "other insurance" clauses to the contrary].) Sequoia contends that Northfield issued primary insurance to Spectrum and that Northfield's specialized endorsement fails to qualify as a modification to its defense duties. Without a successful modification of policy obligations, Northfield would not escape this claim for equitable contribution.
In view of the literal terms of the respective other insurance clauses, including the Northfield "Real Estate Property Managed" endorsement language, and the negligence allegations in the underlying case against Spectrum, we agree with the trial court's policy interpretation in favor of Northfield in this instance. We affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Policies
Sequoia issued a CGL policy insuring the apartment building's owners, and also designating as insured parties those persons or organizations acting as real estate managers (including Spectrum). Sequoia's policy conditions contained a lengthy standard "other insurance" clause, of a pro rata nature with a method of sharing, that stated its coverage would be primary unless certain exceptions applied. The applicability of this standard other insurance provision is not argued here, because Sequoia's policy included a separate "Other Insurance" endorsement stating it changed and modified the policy's liability coverage sections as follows: "The Coverage afforded under this policy shall be excess as to any valid and collectible insurance. When this insurance is excess, we shall have no duty to defend any claims or suit that any other insurer has a duty to defend. If no other insurer defends we shall undertake to do so, in doing so we shall be entitled to the insured's rights against all those other insurers."
The two owners of the accident location, the Riverside Jurupa Royale Apartments, are San Timoteo Co., LP and its affiliate The Kilroy Cos., LLC (collectively the owners). It is settled that "the insureds do not always have to be parties to a contribution action by their insurers. . . . [A] court's resolution of the contribution issue must be 'based on the particular circumstances of the case.' " (Hartford Cas. Insurance Co. v. Mt. Hawley Ins. Co. (2004) 123 Cal.App.4th 278, 303 (Mt. Hawley Ins. Co.).)
Northfield issued a CGL policy insuring Spectrum, providing for indemnification against liability for many of the same risks encompassed by Sequoia's policy. It also contained a standard "other insurance" clause that stated Northfield was providing primary insurance, subject to stated exceptions and with a method of pro rata sharing among other insurers (again, the applicability of this standard provision is not argued here). Northfield's policy included an endorsement changing and modifying the policy, entitled "Real Estate Property Managed" (referred to here as the "management endorsement"), reading in relevant part as follows: "This endorsement modifies insurance provided under the following: COMMERCIAL GENERAL LIABILITY COVERAGE PART [¶] . . . [¶] With respect to your liability arising out of your management of property for which you are acting as real estate manager this insurance is excess over any other valid and collectible insurance available to you."
B. Underlying Lawsuit
The owners entered into a property management agreement (PMA) that applied to this apartment building, with the predecessor of Spectrum (Heyming & Johnson, LP; not a party to this appeal). The PMA contained an indemnity clause providing that the owners would indemnify their managing agent (Spectrum) from all costs and liabilities associated with claims for damages, including injury claims, "in any way relating to the management of the premises by the Agent," and specifying that the owners would carry, at their expense, public liability and other insurance "as shall be adequate to protect the interests of the Agent and Owner, the policies for which shall name the Agent as well as the Owner as the party insured."
Spectrum was named as a defendant in a personal injury lawsuit (the underlying Smith action), alleging Spectrum, as an owner, operator or manager of the apartment building, was liable for damages for its negligent acts or omissions. Ms. Smith fell down an unlighted and unrepaired staircase at the building, suffering traumatic brain and spinal cord injuries and paralysis. She alleged that the accident could have been avoided if not for the property management firm's severe and intentional neglect at the building, as follows: "For several months preceding Ms. Smith's fall, the lights in the courtyard area around Ms. Smith's apartment had been out. This had caused the area to become pitch black at night. Neighbors complained to the management and to the manager on the [premises], on several occasions about the lights being out and how that created a dangerous situation. Unfortunately, nothing was ever done about it before Ms. Smith was injured on September 12, 2014. Neighbors also complained during this time to the management about the poor condition of the stairwell that Ms. Smith fell down. Again, the complaints were ignored and nothing was done about it."
As far as the record shows, the only defendants named in the underlying negligence complaint (Smith v. Spectrum (Super. Ct. Riverside County, 2014, RIC1410139) (Smith action)) were Spectrum, its predecessor, HJ Property Management, Inc. and Doe defendants. Apparently, the owners were not named as defendants in the Smith action.
Spectrum tendered the defense of the Smith action to Sequoia, which accepted it. Sequoia requested that Northfield participate in funding the defense of the Smith action.
Northfield informed Spectrum that it would not participate in providing a defense to Spectrum because it provided only excess coverage over Sequoia's coverage. Northfield stated that "because you have valid and collectible coverage from Sequoia, Northfield declines to defend you at this time for the reasons discussed below,'' i.e., stating that the insurance did not apply within the meaning of the insuring clause in the policy.
C. The Present Action and Motion Proceedings
Sequoia filed this action against Northfield on theories of declaratory relief and equitable contribution. The first cause of action for declaratory relief sought a declaration from the court that the Northfield policy applied to the Smith action, so that it was obligated to pay an equitable share of the defense costs. The second cause of action for equitable contribution sought an award of damages representing an equitable contribution from Northfield toward the defense costs paid by Sequoia in connection with Spectrum's defense in the Smith action.
The parties do not discuss the dollar amounts of coverage in terms of when an excess policy is triggered, or whether recovery or expenses in the Smith action have been established. The record shows that Sequoia's declarations page listed the coverage amount of $1 million per occurrence, and a general aggregate limit of $2 million. Northfield's declarations page of coverage likewise gave an amount of $1 million per occurrence, and stated that the management endorsement was subject to the general aggregate limit of $2 million. Northfield admits that if necessary for the Smith expenses, its excess coverage could ultimately come into play.
Sequoia filed its motion for summary adjudication seeking a determination that Northfield had an obligation to contribute to the defense of their mutual insured, Spectrum. Sequoia argued the Smith action gave rise to a potential covered claim and therefore triggered Northfield's duty to defend Spectrum in it as a primary insurer. Sequoia contended its own "excess other insurance" clause was equivalent to Northfield's management endorsement, and that Northfield's endorsement was an unenforceable escape clause. Sequoia's senior claims adjuster Vicky Cowley's declaration represented as facts that Sequoia's policy and Northfield's policy were each primary and contained "an equivalent excess other insurance clause."
Northfield's cross-motion for summary judgment asserted it had no obligation to pay any portion of the defense costs because the terms of its policies excused it from any obligation to defend Spectrum, once Sequoia undertook that defense. Its attorney's declaration represented, "Northfield does not believe there are any issues as to whether there is the potential for coverage under either the Northfield or Sequoia policies." Northfield sought to have the trial court weigh the equities and determine that Sequoia was not entitled to equitable contribution, while Sequoia was defending the Smith action and remaining solvent. (Hartford, supra, 110 Cal.App.4th 710, 724 ["In evaluating competing claims for equitable contribution, the trial court exercises its discretion to weigh the equities to ' " 'accomplish ultimate justice.' " ' "]; Fireman's Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279, 1305-1306 (Fireman's Fund).)
Northfield further argued that the equities favored it, because the PMA had specified that the owners would indemnify and procure a policy of insurance protecting themselves and also Spectrum, and did so from Sequoia. Northfield qualified this argument both at the trial level and on appeal, as follows: "Northfield does not argue that the indemnity clause contained in the [PMA] precludes Sequoia's claim for equitable contribution. Rather, the property management agreement as a whole expresses the intent of [Owners] and [Spectrum] that [Owners] would bear the sole cost and expense of providing insurance to protect [Spectrum's] interests."
Northfield thus claimed, "[C]ontrary to Sequoia's assertion, this matter does not involve two escape clauses or 'other insurance' clauses, but Sequoia's own boilerplate 'other insurance' clause and Northfield's specifically drafted endorsement making the Northfield policy excess where a loss arises from [Spectrum's] property management activities. Accordingly, contrary to what Sequoia argues, the policies are complementary and work together to meet the policies' expectations that the Sequoia policy would provide [Spectrum] with primary coverage and the Northfield policy would provide it with excess insurance. Under such circumstances where policies do not conflict, and no prejudice to the insured results, the courts will honor 'excess insurance' clauses." (Citing Fireman's Fund, supra, 65 Cal.App.4th 1279, 1304-1305.)
Northfield advanced as persuasive the reasoning of an out-of-state case, Woodson v. A & M Investments, Inc. (La. Ct.App. 1991) 591 So.2d 1345, 1347 (Woodson), to show that at least one other court had found that such management endorsement language was not in conflict with similar other insurance provisions. In that case, the court determined that such a property management endorsement clearly provided only excess coverage, that did not go into effect until the primary insurer had paid its policy limits for defense of a claim. (Id. at pp. 1347-1348.)
Although Northfield obtained a continuance to investigate whether there was another operative insurance policy, it found there was not and the court proceeded to decide the case as submitted. (§ 437c, subd. (h).)
In opposition to Northfield's motion, Sequoia submitted a declaration from the owners' official, Michael J. Kilroy, denying that he had ever discussed with Spectrum or its predecessor the terms of the PMA with respect to indemnity, insurance or the priority of insurance policies, or any issues about active negligence at the apartment building. Kilroy said the owners never got a copy of Spectrum's own CGL policy and he was "unaware that [Spectrum's] insurance policy contained a specific endorsement that purported to limit its liability arising out of its management of the [building]." Sequoia thus argued that there was no intent on the part of the insureds to obtain only partial or excess coverage from Northfield. Sequoia contended that instead, both it and Northfield "are primary insurers which had immediate obligations to defend. Both had endorsements which indicated that they were excess of any other insurance. California law on this subject is clear: the conflicting clauses are disregarded and both insurers are obligated to participate pro rata in the defense and indemnity of their mutual insured."
After hearing argument, the trial court ruled in favor of Northfield, concluding the applicable management endorsement carved out an exception from coverage, such that it amounted to a limitation of primary coverage in one particular circumstance, Spectrum's property management activities, "and in that circumstance it is excess." Additionally, the court ruled that the PMA "reflects the intent of the parties that Sequoia's insured, at its sole expense, was to obtain insurance for Spectrum as an insured." The court further found it was not inequitable to find that Northfield provided an excess only policy with respect to the underlying action. The court granted Northfield's motion, ruling that Sequoia must "at its sole expense bear the costs of defense of the underlying action until such time as Northfield's excess policy is triggered." This appeal followed.
The trial court's ruling sustained Northfield's evidentiary objections to the Cowley declaration on grounds of lack of foundation, etc., for its legal conclusions. Northfield's evidentiary objections to the Kilroy declaration were overruled. Sequoia does not challenge those rulings on appeal. The record is adequate to present the legal issues about defense duties without regard to the Cowley declaration.
DISCUSSION
Sequoia contends the court erred in concluding "that Northfield's excess 'other insurance' clause was superior to Sequoia's excess clause." Sequoia takes the position that both Sequoia and Northfield provided primary general liability insurance policies to a mutual insured, and both primary policies contained equivalent excess other insurance clauses that justified an equitable contribution ruling to prorate the defense expenses from the underlying action. To examine these arguments, we evaluate whether the Northfield policy and endorsements supplied primary coverage to Spectrum, under all the relevant circumstances disclosed by the record.
I
STANDARD OF REVIEW
The parties disagree on the appropriate standard of review. Sequoia argues for de novo treatment of the legal issues resolved by the trial court on policy interpretation. A trial court's ruling to grant summary judgment should be upheld only if no triable issue as to any material fact exists, entitling the moving party to judgment as a matter of law. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) In reviewing the parties' supporting and opposing papers, the appellate court applies the same standard as the trial court in determining if triable issues of material fact exist. (Underwriters of Interest Subscribing to Policy Number A15274001 v. ProBuilders Specialty Ins. Co. (2015) 241 Cal.App.4th 721, 727 (Underwriters of Interest).) The dispositive legal questions are decided by de novo review of the record, "considering all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained." (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.)
In contrast, Northfield seeks to have us apply an abuse of discretion standard, on the basis that this was an ultimate equitable determination by the trial court in allocating liability, by weighing the equities to find that these were not two equally responsible primary insurers. (Fireman's Fund, supra, 65 Cal.App.4th 1279, 1305-1306; see Hartford, supra, 110 Cal.App.4th 710, 724 [allocation of damages between coinsurers is an equitable matter].) Classically, abuse of discretion is evaluated by considering whether, in light of applicable law and considering all relevant circumstances, the court's ruling exceeds the bounds of reason. (Denham v. Superior Court (1970) 2 Cal.3d 557, 566.)
We do not view this summary judgment ruling as a substantive exercise of the trial court's equity powers, such that abuse of discretion review would be appropriate. This is not, as in Fireman's Fund, supra, 65 Cal.App.4th 1279, 1289, 1305-1306, a case in which the parties agree they are primary coinsurers on the same risk, such that the allocation of the costs of defending and settling an underlying case between them is an equitable matter. Instead, the legal issues relate to whether both parties should be characterized as primary insurers in this instance, under the terms of their policies. (Certain Underwriters at Lloyds, London v. Arch Specialty Ins. Company (2016) 246 Cal.App.4th 418, 428-429 (Arch Specialty) [availability of equitable contribution relief may be decided as a matter of law, subject to de novo review].) The trial court in this case was interpreting questions of law presented by the respective insuring agreements, to determine whether Sequoia and Northfield were true coinsurers that each provided primary coverage to Spectrum, as evaluated by their coverage provisions compared to the allegations of the underlying action. (Fireman's Fund, supra, at p. 1295 ["Equitable contribution thus assumes the existence of two or more valid contracts of insurance covering the particular risk of loss and the particular casualty in question."].)
The trial court's policy interpretation properly addressed preliminary legal issues on coverage questions, for purposes of determining the existence of defense duties as they might give rise to equitable contribution obligations. (Maryland Casualty Co. v. Nationwide Mutual Ins. Co. (2000) 81 Cal.App.4th 1082, 1089 [purpose of such rules are " 'to accomplish substantial justice by equalizing the common burden shared by coinsurers, and to prevent one insurer from profiting at the expense of others.' "].) We cannot address or review the substantive entitlement to equitable contribution as a discretionary matter, without determining whether Northfield is a primary insurer for purposes of evaluating defense duties arising from the negligence allegations of the Smith action. The scope of coverage afforded as a matter of law, on the record provided, will be considered according to de novo summary judgment review standards.
II
POLICY INTERPRETATION
A. Basic Rules
We apply well accepted rules of policy interpretation to consider whether Northfield's management endorsement, which states that it modifies the liability coverage otherwise provided, as a matter of law served to limit primary coverage in one particular circumstance as it specifies (i.e., "liability arising out of your management of property for which you are acting as real estate manager"). Insurance contracts are subject to ordinary rules of contractual interpretation. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264-1265; AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 821-822.) The courts endeavor to give effect to the mutual intention of the parties, and to protect "the objectively reasonable expectations of the insured." (Id. at p. 822.) The court interprets policy language in context, with regard to its intended function in the policy. (Bank of the West, supra, at pp. 1264-1265.)
" '[I]f there is a conflict in meaning between an endorsement and the body of the policy, the endorsement controls.' " (Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 50, fn. 4.) "[T]o be enforceable, any provision that takes away or limits coverage reasonably expected by an insured must be 'conspicuous, plain and clear.' [Citation.] Thus, any such limitation must be placed and printed so that it will attract the reader's attention . . . . The burden of making coverage exceptions and limitations conspicuous, plain and clear rests with the insurer." (Haynes v. Farmers Ins. Exchange (2004) 32 Cal.4th 1198, 1204.)
At argument in the trial court, counsel for Sequoia raised as new arguments that (1) the management endorsement first mentions property damage and should be applicable only to property damage, and (2) it was not sufficiently conspicuous to be enforced. The court declined to consider those theories because they had not been argued in the papers on file. Those claims are not raised on appeal and we need not consider them.
"Historically, 'other insurance' clauses were designed to prevent multiple recoveries when more than one policy provided coverage for a particular loss. [Citation.] ' "[T]he application of 'other insurance' clauses requires, as a foundational element, that there exist multiple policies applicable to the same loss." [Citation.]' [¶] Primary coverage provides immediate coverage upon the 'occurrence' of a 'loss' or the 'happening' of an 'event' giving rise to liability. [Citation.] It is defined as 'insurance coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to liability. [Citation.]' [Citation.] In the context of liability insurance, a primary insurer generally has the primary duty to defend and to indemnify the insured, unless otherwise excused or excluded by specific policy language. [Citation.] Excess insurance provides coverage after other identified insurance is no longer on the risk. 'Excess' coverage means 'coverage whereby, under the terms of the policy, liability attaches only after a predetermined amount of primary coverage has been exhausted.' " (Fireman's Fund, supra, 65 Cal.App.4th 1279, 1304; italics omitted.)
In interpreting the respective excess or "other insurance" clauses in this context, an appropriate, but not determinative, consideration is whether any prejudice to the interests of the insured will ensue, such as depriving the insured of any coverage if both clauses are enforced. (Fireman's Fund, supra, 65 Cal.App.4th at pp. 1304-1305.) Policy language varies, and each case is treated differently for interpretation of the words in the policies, using a plain meaning analysis whenever possible. (Hartford, supra, 110 Cal.App.4th 710, 719; Underwriters of Interest, supra, 241 Cal.App.4th 721, 732 [exceptions exist to general rule of plain language reading of clauses].)
B. Application of "Other Insurance" Principles
Although contractual terms of insurance coverage are generally honored in applying excess "other insurance" clauses, exceptions exist. (Fireman's Fund, supra, 65 Cal.App.4th 1279, 1304-1305.) "For example, where two or more primary insurers' policies contain excess 'other insurance' clauses purporting to be excess to each other, the conflicting clauses will be ignored and the loss prorated among the insurers on the ground the insured would otherwise be deprived of protection. [Citations.] Thus, although a true excess insurer--one that is solely and explicitly an excess insurer providing only secondary coverage--has no duty to defend or indemnify until all the underlying primary coverage is exhausted or otherwise not on the risk, primary insurers with conflicting excess 'other insurance' clauses can have immediate defense obligations." (Ibid.; italics omitted.)
Making an equitable determination in this context is required when two policies have "covered the same event." (Century Surety Co. v. United Pacific Ins. Co. (2003) 109 Cal.App.4th 1246, 1259-1260.) In Signal Companies, Inc. v. Harbor Ins. Co. (1980) 27 Cal.3d 359, 369, the Supreme Court explained, "We expressly decline to formulate a definitive rule applicable in every case in light of varying equitable considerations which may arise, and which affect the insured and the primary and excess carriers, and which depend upon the particular policies of insurance, the nature of the claim made, and the relation of the insured to the insurers." One such guideline is clear:
" ' "The reciprocal rights and duties of several insurers who have covered the same event do not arise out of contract, for their agreements are not with each other. . . . Their respective obligations flow from equitable principles designed to accomplish ultimate justice in the bearing of a specific burden. As these principles do not stem from agreement between the insurers their application is not controlled by the language of their contracts with the respective policy holders." ' " (Century Surety Co., supra, at pp. 1259-1260.)
In an appropriate case, where competing other insurance clauses would deprive the insured of all protection and are thus "mutually repugnant," "the only proper result is to ignore all of the clauses and require some equitable pro rata apportionment. This result is consistent with the public policy disfavoring escape clauses whereby promised coverage evaporates in the presence of other insurance." (Century Surety Co., supra, 109 Cal.App.4th at p. 1260.) But in the case before us, it is not clear, in the first instance, that the two policies here "covered the same event." (Id. at p. 1259.) Only if so would each insurer be obligated to jointly defend the same underlying claim of loss. (Fireman's Fund, supra, 65 Cal.App.4th 1279, 1293.)
III
EXTENT OF SPECTRUM'S BUSINESS ACTIVITIES
Northfield does not dispute that Spectrum purchased its policy to provide "primary" coverage for at least some of Spectrum's activities, and there was at least some potential for coverage. Its CGL declarations page stated limits for insurance on damages to premises, medical expenses, products and completed operations, and also "Personal and Advertising Injury." The declarations list the "business description" of the insured management company as "property management."
Both of the subject policies contained standard CGL other insurance terms, that were modified or replaced. Sequoia's endorsement is entitled simply, "Other Insurance." The parties continue to dispute whether Northfield's management endorsement was specially drafted or tailored to disallow otherwise available primary coverage, for certain of Spectrum's activities. That management endorsement shows a form number, CG2270 (11/85), with an Insurance Services Office, Inc. (ISO) copyright date of 1984. According to Sequoia, that management endorsement is functionally equivalent to its own "other insurance" endorsement, and should be read as a standardized type of agreement by Northfield to provide primary coverage to Spectrum. It is not significant here whether this was a manuscript or a form endorsement, as we are required to interpret the plain language of each provision in context within each policy.
Only the defense duties under Northfield's policy are now at issue, not indemnification. (Underwriters of Interest, supra, 241 Cal.App.4th 721, 730, fn. 6 [other insurance clauses are analyzed separately for duty to defend or indemnify].) The Smith action for personal injury damages alleges Spectrum was negligent in performing its duties at the apartment building. Sequoia repeatedly argues the court erred by failing "to consider the fact that [Spectrum] was in the business of managing property. Property management is all [Spectrum] does, and therefore, an excess clause which purports to apply only when it is acting as a real estate manager is essentially an excess clause which applies in ALL circumstances." Sequoia seeks to distinguish Hartford, supra, 110 Cal.App.4th 710, 726-727, insofar as it approved allowing one of two primary policies to carve out "narrow exceptions to their operation as primary insurance." (Ibid.) In that case, where the insured had been named as an additional insured under another policy, the second policy became "excess by definition." (Ibid.) The court stated that the parties and the insurers could have legitimately intended to create a specific event or situation for which the second insurer would have excess liability only, e.g.: "A clause that carves out this intended exception to primary coverage is not similar to an escape clause, where the insurer appears to offer coverage that in fact evaporates in the presence of other insurance." (Ibid.)
Sequoia suggests there is no evidence that Spectrum engages in any other business activity that could possibly create any additional risk, for which Northfield's policy would become an excess one. Northfield simply responds, "Spectrum was under no obligation, contractual or otherwise, to [Owners] or to Sequoia, to purchase any insurance, much less primary insurance as [Owners were] contractually bound to provide coverage. [Spectrum] had every right to obtain for itself as much or as little insurance as it desired."
In Underwriters of Interest, supra, 241 Cal.App.4th 721, this court was considering facts involving the rights of two successive primary insurers. Under those circumstances, we suggested that Hartford, supra, 110 Cal.App.4th 710 appears to have "involved such peculiar facts and specialized endorsements that it provides little guidance here." (Underwriters of Interest, supra, at p. 733.) The current case is different, because the dispute is over whether Sequoia and Northfield are each primary insurers, when considering the operation of Northfield's management endorsement. That endorsement should be interpreted in light of the evidence provided, or the lack thereof, about the scope of Spectrum's business activities. (See Hartford, supra, at pp. 719-720 [coverage analysis about tenant's status as an insured included various activities related to its business presence on the leased premises].)
We think that from the Northfield policy language, it is possible to determine that Spectrum might seek its primary insurance coverage from Northfield for various functions that any business carries out, that are not necessarily related to its professional activities in carrying out property management functions for the owners at this apartment building. For example, Spectrum might be sued for premises liability by guests on its own business premises. Members of the public might seek recovery from it for alleged advertising injury. The Northfield policy might be called upon to provide primary coverage for Spectrum's business activities that are unrelated to the owners' buildings and interests. (Hartford, supra, 110 Cal.App.4th 710, 719-720.)
We cannot accept Sequoia's argument that all of Spectrum's activities were necessarily confined to the same activities covered by the Sequoia policy, such that the Northfield policy is necessarily also primary in nature. Instead, the trial court had some basis in the record to consider whether the management endorsement served as a limitation of primary coverage in one particular identified circumstance, that is, property management at the apartment building, for which these owners retained Spectrum. We next evaluate the correctness of its conclusions.
IV
APPLICATION OF STANDARDS
A. Authorities on Contractual Intent of Insureds
In Fireman's Fund, supra, 65 Cal.App.4th 1279, the court broadly stated, "where multiple insurers or indemnitors share equal contractual liability for the primary indemnification of a loss or the discharge of an obligation, the selection of which indemnitor is to bear the loss should not be left to the often arbitrary choice of the loss claimant, and no indemnitor should have any incentive to avoid paying a just claim in the hope the claimant will obtain full payment from another coindemnitor." (Id. at p. 1295; italics added.)
Some of the relevant other insurance case law has discussed the existence of a related indemnity agreement that specifically addressed the type of insurance to be provided under it, to protect an insured. It is possible to discern the reasonable expectations of an insured from the linkage of an applicable indemnity provision with the purpose of the insurance coverage to be provided under that provision. (Edmondson Property Management v. Kwock (2007) 156 Cal.App.4th 197, 204-206 (Kwock); Mt. Hawley Ins. Co., supra, 123 Cal.App.4th at p. 289 ["As a general matter, 'the courts will assess whether the factual circumstances "create[ ] a relationship between the indemnity contract and the insurance allocation issues . . . ." ' "].)
In Kwock, supra, 156 Cal.App.4th 197, the court was required to examine an indemnity agreement between a property owner and the property manager, to determine which type of alleged underlying negligence would be within the scope of the coverage the owner had procured for the insured manager. Contract interpretation of the indemnity agreement's specific provisions was thus required to determine what conduct would potentially come within the scope of coverage (and defense duties), and whether the parties evidently intended "to make the insurance obtained by the indemnitor primary to any obtained by the indemnitee?" (Kwock, supra, at p. 207, italics omitted; Mt. Hawley Ins. Co., supra, 123 Cal.App.4th at p. 282.) However, "[i]f either of these prongs is missing, the general policy supporting equitable contribution trumps." (Kwock, supra, at p. 207.)
Kwock, supra, 156 Cal.App.4th 197 involved a dispute among two primary insurers about contribution to a personal injury settlement one of them had paid to a child injured when falling off a roof at the apartment complex where she lived. Both the owner (Kwock) and the property manager (Edmondson) were sued and defended by their mutual insurer, Capital. Edmondson had its own additional primary policy from Farmers. After Capital paid the victim under its policy, Farmers refused to contribute to the settlement, "claiming that the indemnity provision of the property management agreement rendered its coverage excess and to require contribution would be to nullify the indemnity agreement." (Id. at p. 200.) As the appellant, Farmers did not rely on its "other insurance" clause, instead claiming it should not have to pay because of the operation of the related indemnity provision in the underlying property management agreement. (Ibid.)
Because of how the issues had been framed on appeal, the court in Kwock, supra, 156 Cal.App.4th 197 did not base its holding on whether the other insurance clause of the second primary insurer was unenforceable. Instead, the court assumed two primary policies were involved, and went on to address one insurer's contentions that the controlling document, for purposes of interpreting the policies, was the indemnity agreement between the insured property manager and the owner of the property. The appellate court in Kwock affirmed the trial court's ruling requiring equitable contribution between the two primary insurers. The court decided that the indemnity provision found in the property management contract did not preclude Capital from seeking contribution from Farmers for the settlement paid, because the relationship between the documents was inconclusive. (Id. at pp. 202, 204, 208-209.) Also in Kwock, there was no contractual provision "converting Farmers' primary policy to an excess policy," and therefore the two primary insurers each had to contribute to the settlement amount. The indemnity provision was not to the contrary. (Id. at p. 209.)
In Hartford, supra, 110 Cal.App.4th 710, the underlying personal injury case that gave rise to the equitable contribution dispute between two insurers occurred when a tenant's employee was accidentally killed at the tenant's business premises. The respective insurers held policies for the tenant and the manager of the premises. The tenant's policy (Hartford; also insuring the landlord as an additional insured) was a primary policy, and it paid a settlement to the employee's heirs. The other policy (Travelers, for the landlord) also contributed to the settlement, but reserved rights to seek contribution. Travelers thus contended its policy was a primary one, "except in the specific instance that does apply in this case—when the insured is named as an additional insured under another policy, which makes the Travelers policy excess by definition." (Id. at p. 727.) This holding was not restricted to the additional insured category, but instead focused on whether a specific instance was identified in the excess other insurance clause, that successfully restricted the scope of coverage.
In Hartford, supra, 110 Cal.App.4th 710, 727-728, the court discussed related facts about the indemnity clause in the landlord's and tenant's lease. However, the court expressly stated that its equitable contribution analysis was based on the language of the relevant policies, and that its references to the indemnity terms of the lease served only to highlight the intent of the parties. (Ibid.) The proper result was that the landlord's Travelers insurance policy as written was an excess policy, and as an excess insurer, it was not required to equitably contribute to the settlement paid in the underlying personal injury case. (Ibid.)
In Mt. Hawley Ins. Co., supra, 123 Cal.App.4th 278, the court acknowledged that pursuant to Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, an indemnity agreement will not always prevail over provisions in an insurance policy, for purposes of resolving two levels of priority of insurance coverage (primary and excess). Each case turns on its own facts of the circumstances of the injury and the language of the indemnity contract. (Id. at p. 633.) In Mt. Hawley Ins. Co., the court was interpreting a contractor-subcontractor contract with an indemnification agreement, which in that industry can " 'nullify a right to contribution.' [Citation.] Similarly, 'an indemnity agreement between the insureds or a contract with an indemnification clause, such as is commonly found in the construction industry, may shift an entire loss to a particular insurer notwithstanding the existence of an "other insurance" clause in its policy.' " (Id. at pp. 292-293.) In those particular circumstances, the court concluded that it would be inappropriate to interpret the respective insurance policies between the general contractor and the subcontractor to "negate the indemnity provision in the construction contract." (Id. at p. 282.)
B. Effect of Subject PMA Indemnity Clause upon Policy Terms
In this context involving interpretation of excess other insurance clauses, where the relevant facts include a related indemnity agreement among insured parties, its terms can be examined to "highlight" the intent of the parties on the policyholders' reasonable expectations of coverage. (Hartford, supra, 110 Cal.App.4th 710, 728.) In reaching its conclusions in this case, the trial court found it significant that the PMA between the owners and Spectrum reflected their intent that the owners were solely responsible for obtaining insurance for Spectrum in connection with its performance of property management duties at the apartment building.
According to Sequoia, if we assume that Spectrum was allegedly actively negligent in managing the apartment building, the PMA indemnity clause would not be enough to provide Spectrum with the appropriate degree of recovery rights against the owners, on an indemnity basis. Sequoia relies on Kwock, supra, 156 Cal.App.4th 197, 204, for the statement that "in some cases, the presence of an indemnity clause may render one of two primary insurance policies excess to the other. [Citation.] This is a function of the contractual language and intent of the insureds." (See Mt. Hawley Ins. Co., supra, 123 Cal.App.4th 278, 289 [courts will assess whether the factual circumstances have created a relationship between an indemnity contract and insurance allocation issues].) Sequoia disagrees that any relationship between the PMA and the equitable contribution issues exists, in support of Northfield's excess clause policy interpretation.
We are mindful that the right to equitable contribution between insurers exists independently of the rights of the insured. (Fireman's Fund, supra, 65 Cal.App.4th at p. 1295.) Such equitable contribution considerations must be distinguished from an insurer's right to pursue third parties that its insured could have pursued. (See id. at pp. 1291-1292 ["In the case of insurance, subrogation takes the form of an insurer's right to be put in the position of the insured in order to pursue recovery from third parties legally responsible to the insured for a loss which the insurer has both insured and paid"].) Here, Sequoia is not asserting rights that Spectrum has against Northfield or other third parties such as the owners.
This PMA required that the owners would carry, at their expense, public liability and other insurance "as shall be adequate to protect the interests of the Agent and Owner, the policies for which shall name the Agent as well as the Owner as the party insured." According to the owners' executive, Kilroy, they never got a copy of Spectrum's CGL policy and were "unaware that [Spectrum's] insurance policy contained a specific endorsement that purported to limit its liability arising out of its management of the [building]." Northfield relied on the PMA as evidence submitted for the limited purpose of supporting its claim that it would not be inequitable to enforce the management endorsement as an excess clause, because no prejudice to the insured, Spectrum, would result, due to Sequoia's separate duties to defend. It suggests Spectrum did not want to pay a premium price for primary coverage in this instance, although the parties have not briefed the issue of the relative cost levels of insurance.
For purposes of evaluating the obligations between Sequoia and Northfield, the PMA identifies the interests of the owners and Spectrum, to be served from coverage by "adequate" liability insurance, as including protection from injury claims that are "in any way relating to the management of the premises by the Agent." To the extent that the parties are arguing that the PMA indemnity clause gives rise to a separate set of rights on indemnification as between the owners and Spectrum, it is necessary here to keep that policy or contractual analysis separate from the dispute on equitable contribution between the two insurers. Even considering the PMA as evidence about the intent of the owners, that they would provide Spectrum with insurance, it does not explain the effect of the insurance they obtained upon other coverage Spectrum might have obtained. The PMA does not clearly define what would be "adequate" insurance to be provided by the owners in these circumstances, as primary or excess. It gives equal status to the interests of the owners and the manager. This PMA is essentially neutral as to the type of insurance to be procured. It also does not provide a separate source of indemnity that can be accessed by the respective insurers. (Cf. Fireman's Fund, supra, 65 Cal.App.4th 1279, 1295 [discussing cases in which "where multiple insurers or indemnitors share equal contractual liability for the primary indemnification of a loss . . . ."; italics added.].)
To decide the issues before us, it is not necessary to weigh in on the scope or nature of the indemnity clause in the PMA, as applying to active or passive negligence.
Because this is an action between insurers for equitable contribution, the expectations of the insured parties play only a limited role. The respective rights of multiple insurers that covered the same event do not arise out of any contracts with each other, but instead are evaluated under equitable principles designed to accomplish ultimate justice. (Arch Specialty, supra, 246 Cal.App.4th 418, 429.) "Since these principles do not stem from agreement between the insurers, their application is not controlled by the language of their contracts with the respective policy holders." (Ibid.)
In this regard, the declaration provided by the owners' executive Kilroy, about his lack of discussion with the property managers about the type of insurance coverage being provided, is not of assistance for policy interpretation. We can find no strong relationship between the indemnity terms of the PMA and the relevant insurance interpretation or allocation issues, beyond establishing that the owners had to buy "adequate" insurance for Spectrum, to protect their respective interests.
Without stronger guidance in the record on the appropriate priority of the policies, the analysis in this case must principally be based on their plain language. We next examine the management endorsement as written, as well as the Sequoia contractual provisions, to determine if Northfield issued primary or excess coverage to Spectrum under these circumstances.
C. Scope of Insurer's Duties as Limited by Management Endorsement
Equitable contribution assumes the existence of two or more valid contracts of insurance covering the particular risk of loss and the particular casualty in question. (Fireman's Fund, supra, 65 Cal.App.4th 1279, 1295-1296.) Sequoia's action sought equitable contribution by alleging Northfield is a co-insurer of a mutual insured. Sequoia has consistently contended that Northfield's management endorsement is merely a disfavored escape clause, but its argument depends on a characterization of both the Sequoia and Northfield policies as primary coverage. (Kwock, supra, 156 Cal.App.4th at p. 203 [courts disfavor enforcement of escape clause that would allow primary coverage to "evaporate in the presence of other insurance"].)
Northfield responds that due to the operation of the management endorsement, it did not provide primary coverage to Spectrum for purposes of the underlying Smith action. Although Northfield did not raise any dispute on whether there was the potential for coverage under either the Northfield or Sequoia policies, it contended that its own policy was made into an excess clause, through the "carve out" analysis of Hartford, supra, 110 Cal.App.4th 710, 727. Northfield argues that insurers may legitimately write a clause that carves out an intended exception to primary coverage, without it becoming a disfavored escape clause. (Ibid.)
In Arch Specialty, supra, 246 Cal.App.4th 418, the court decided a dispute between successive primary insurers by concluding that the "other insurance" clause in one of the policies could not enforced under equitable contribution principles. As one ground of its holding, the court rejected one primary insurer's claims that even if it was required to indemnify a covered loss, it should not have to pay defense costs only because of the placement of its restrictive "other insurance" language in the "coverage" section of its policy. (Id. at pp. 429, 436.)
The more relevant, second holding in Arch Specialty, supra, 246 Cal.App.4th 418, 436-437, is based on its interpretation of Hartford, supra, 110 Cal.App.4th 710, as indicating that insurers are permitted to write policies that contain " 'narrow exceptions to their operation as primary insurance.' " (Id. at p. 726.) The narrow exception in Hartford, was one in which the policy had declared it would be excess "in the situation where the parties and the insurers are most likely to intend that result—when the insured is covered as an additional insured on another party's policy for some specific event or situation." (Ibid.) However, in Arch Specialty, the court ruled that the subject "other insurance clause is not limited to a specific factual situation but purports to apply whenever there is other insurance." (Arch Specialty, supra, at p. 436.) That was not within the narrow exceptions allowed and thus the clause was unenforceable under equitable contribution principles applicable to primary insurers. (Ibid.)
As an example of a permissibly narrow excess other insurance clause, Northfield cites to Woodson, supra, 591 So.2d 1345. In that case, the Louisiana court interpreted two policies covering an owner of property and his real estate manager, as granting different levels of coverage regarding an underlying personal injury case in which they were both sued for premises liability. The owner's CGL policy (Pelican) had also named the real estate manager as an insured, while the manager had purchased its own CGL policy from a second insurer, South Carolina. The owner's policy contained a standard other insurance clause. The South Carolina policy contained an endorsement identical to the operative portion of the management endorsement in our case: "With respect to your liability arising out of your management of property for which you are acting as real estate manager this insurance is excess over any other valid and collectible insurance available to you." (Id. at p. 1347.) The Louisiana court decided that there was no conflict between the policies, because the South Carolina policy intent was clearly expressed in the endorsement as providing only excess insurance for such identified circumstances, in which the manager was acting as real estate manager for the subject property. The owner's policy was deemed primary and solely liable for paying the loss. (Ibid.)
Northfield also argues the persuasiveness of an unpublished, federal district court decision that is now being appealed, Atain Specialty Ins. Co. v. Sierra Pac. Mgmt. Co. (E.D.Cal. 2016) 2016 U.S. Dist. LEXIS 152874. That case discusses policy interpretation issues regarding the costs of defending an underlying personal injury lawsuit. The district court's decision in that case is not final authority on which we may rely. We note, however, that it relied on Hartford, supra, 110 Cal.App.4th 710, 724-728 to conclude that a "Real Estate Property Managed" endorsement amounted to an excess clause, that was not a disfavored escape clause and was accordingly enforceable under those circumstances.
Sequoia continues to argue that Northfield's excess clause should be not held "superior" to its own excess clause and that general rules of disregarding conflicting excess clauses should be followed, to allow proration here. (Dart Industries, supra, 28 Cal.4th at p. 1080.) We have already rejected Sequoia's argument that it was impossible for Northfield's management endorsement to "carve out" an intended exception from primary coverage of Spectrum's activities during its property management business (pt. III, ante). (Hartford, supra, 110 Cal.App.4th at p. 726.) Also, we have found no sufficiently strong relationship between the indemnity terms of the PMA and the relevant insurance policy language, to assist in policy interpretation. (Kwock, supra, 156 Cal.App.4th 197, 204.) The PMA established that the owners had to buy "adequate" insurance for Spectrum, to protect their respective interests, but the level of protection was not specified by the PMA in a manner that would, as a matter of law, permit equitable contribution analysis between these two insurers as primary insurers.
We do not read the Northfield policy, and its management endorsement in context, as covering the same risks of loss as the Sequoia policy, under the circumstances described in the Smith action. Here, as in Hartford, supra, 110 Cal.App.4th 710, 726- 727, Northfield's management endorsement contains a relatively narrow exception to its policy's operation as primary insurance for Spectrum, as regards the Smith allegations. The management endorsement amounts to a limitation of coverage for Spectrum's property management duties, whenever there is other insurance. It is conceivable that Spectrum had business dealings that were exclusive of its work for the owners at this apartment building, and accordingly Northfield could write a primary policy applicable to some of Spectrum's activities and not others, by carving out a specific situation in which the insurance would become an excess policy. The management endorsement does not amount to an escape clause that provided only illusory coverage in the presence of other insurance. It would not nullify or negate the PMA to interpret the Northfield policy as excess under these circumstances. (Mt. Hawley Ins. Co., supra, 123 Cal.App.4th 278, 282, 291-292.)
Here, as in Hartford, supra, 110 Cal.App.4th 710, the language of the two policies does not conflict, because Sequoia provided primary coverage for Spectrum's actions in managing the apartment building, while Northfield provided excess coverage for those identified actions. "Equity should not be employed to override the terms of the insurance policies in this case." (Id. at p. 727.) In view of the dispositive policy interpretation issues, the trial court was not required to engage in any discretionary evaluation of the equities between the two sets of insureds, the owners and Spectrum, as they are affected by the PMA to which they were parties. The trial court correctly concluded that Northfield's excess "other insurance" clause, placed in the management endorsement, carved out an exception to primary insurance it otherwise granted to Spectrum, and therefore Sequoia was not entitled to equitable contribution for the defense duties in the Smith action, at least until excess coverage became necessary.
DISPOSITION
The judgment is affirmed. Costs on appeal to Northfield.
HUFFMAN, Acting P. J. WE CONCUR:
HALLER, J.
AARON, J.