Summary
relying on Truck and holding that an insurer could obtain contribution from another insurer where it tendered defense of claim in a timely manner and noting that all that was required was timely notice of possibility of contribution
Summary of this case from Ins. Co. of Pa. v. Great N. Ins. Co.Opinion
No. C 99-4509 CRB
May 8, 2000
MEMORANDUM AND ORDER
Now before the Court are plaintiff's motion for summary judgment and defendant's cross-motion for summary judgment. After carefully considering the papers filed by the parties, and having had the benefit of oral argument, plaintiff's motion is GRANTED in part, and DENIED in part, and defendant's motion is DENIED.
I. BACKGROUND
This lawsuit arises out of an injury caused by the explosion of a water line connection at the intersection of Silver Avenue and Colby Street in San Francisco on May 1, 1997. The injury was sustained by an employee of AB Construction, Inc. ("AB"), a subcontractor of Esquivel Grading and Paving ("Esquivel"). The City and County of San Francisco ("CCSF") contracted with Esquivel to complete pavement renovation and replacement of an old water pipe. The injured employee sued CCSF in a personal injury lawsuit and CCSF cross-complained against Esquivel, among others.
The plaintiff, Travelers Indemnity Co. ("Travelers"), defended its insureds, Esquivel and CCSF, in the personal injury case, and paid to settle the lawsuit. Travelers subsequently filed a complaint in San Francisco Superior Court against defendant Navigators Insurance Co. ("Navigators"), AB's insurer, seeking declaratory relief and equitable subrogation or, in the alternative, equitable contribution. Travelers alleges that Navigators failed to defend Esquivel or to indemnify Travelers, pursuant to a blanket endorsement insuring Esquivel as an additional insured under AB's insurance policy with Navigators. Defendant removed the case to federal court based on diversity of citizenship. Both parties filed motions for summary judgment
II. LEGAL STANDARD
Summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). An issue is "genuine" only if there is a sufficient evidentiary basis on which a reasonable fact finder could find for the nonmoving party, and a is "material" only if it could affect the outcome of the suit under law. See Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248-49 (1986). A principal purpose of the summary judgment procedure is to identify and to dispose of factually unsupported claims. See Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial'" Matsushita Elec. Ind. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986).
III. UNDISPUTED FACTS
A. The Subcontract
The parties agree that on December 23, 1996, Esquivel, a general contractor, and AB, a subcontractor, formed a contract. The contract contained an insurance provision requiring AB to procure and to maintain commercial general liability and personal injury insurance covering Esquivel and AB.
B. Navigators' Policy
The parties also agree that Navigators provided primary liability coverage to AB under a Commercial General Liability ("CGL") policy effective April 18, 1997 to April 18, 1998. The declaration page lists two line items for which Navigators charged a separate premium: (1) "Excavation" and, (2) "Contractor-Subcontracted Work." (Brian S. O'Malley declaration ("O'Malley decl."), Exhibit C, p. AB00007.) The policy includes endorsement ANF 043, a Blanket Additional Insured ("blanket") Endorsement. As part of the policy, the blanket endorsement is effective the date the policy was issued, April 18, 1997. The blanket endorsement amended the "Who is an Insured" provision of the policy to include as an insured:
"Any person or organization that the named insured is obligated b virtue of a written contract or agreement to provide insurance such as is afforded by this policy and is approved by the company in writing within 30 days."
C. The Underlying Lawsuit
There is no dispute that the date of loss in the underlying lawsuit was May 1, 1997. In addition, the parties agree that after the date of loss, Navigators received a request for approval, via a certificate of insurance, identifying Esquivel as an additional insured. Esquivel was named as a certificate holder on the certificate of insurance issued August 4, 1997, and the certificate and an additional insured endorsement were approved by Navigators' underwriter, William Vaughn, on August 7, 1997. (William Vaughn deposition ("Vaughn depo."), Exhibit 6.)
The parties dispute whether the evidence shows that Esquivel, rather than AB, made the request. The dispute is immaterial to the issue of contract interpretation.
On August 7, 1997, the injured AB employee filed suit against CCSF. CCSF cross-claimed against Esquivel, AB, and Travelers on November 21, 1997. In January 1998, Travelers tendered defense of CCSF's cross-claim against Esquivel to Navigators. (Diane Frazier declaration ("Frazier decl."), Exhibit F.) Navigators denied the request based on their investigation showing that an additional insured certificate was never approved by Navigators. (Frazier decl. Exhibit G.) The entire underlying action was resolved pursuant to a stipulated settlement in May 1999. Travelers subsequently brought this action for declaratory relief and equitable subrogation, or in the alternative, equitable contribution.
Navigators no longer asserts that the certificate was never approved.
IV. CONTRACT INURPRETATION
Because there is no dispute regarding the relevant facts, the only issue before the Court is the interpretation of Navigators' insurance policy, including the blanket endorsement. Interpretation of an insurance policy is a question of law. See Maryland Casualty Co. v. Nationwide Insurance Co., 65 Cal.App.4th 21, 29 (1998). The ordinary rules of contract interpretation apply to insurance contracts. See Bank of the West v. Superior Court, 2 Cal.4th 1254, 1264 (1992). The fundamental goal of contract interpretation is to give effect to the mutual intent of the parties at the time the contract was formed. Cal. Civ. Code § 1636. The intent is to be inferred, if possible, solely from the written provisions of the contract. See Adler v. Western Home Insurance Co., 878 F. Supp. 1329, 1332 (Cal. C.D. 1995). In construing insurance contracts, the entire contract is to be construed together, with the endorsements, for the purpose of giving force and effect to ] 16 each clause. See Narver v. California State Life Ins. Co., 211 Cal. 176, 181 (1930); Adler., 878 F. Supp. at 1333. Clear and explicit contractual language governs. Cal. Civ. Code § 1638. If a policy provision is capable of two or more reasonable constructions, the ambiguity is resolved by interpreting the provision in the sense the insurer believed the insured understood it at the time of contract formation. See Maryland, 65 Cal.App.4th at 28-29. If these rules do not eliminate the uncertainty, a court must construe the applicable language against the drafter. See id. at 29.
Travelers asserts that the blanket endorsement afforded coverage to Esquivel effective on the date the policy was issued to AB. Navigators counters that coverage under the blanket endorsement became effective when Esquivel. the additional insured, received Navigators' approval. The question of whether the blanket endorsement extended coverage to an additional insured on the date the policy was issued or on the date the certificate of insurance was approved is a matter of first impression for the Court.
A. Contractual Language
To determine the date that Esquivel became an additional insured under Navigators' policy, the Court must examine the contractual language in two separate documents: (1) the subcontract between AB and Esquivel, and (2) the blanket endorsement actually contained in the Navigators' policy. See National Union Fire Insurance Co. V. Nationwide Insurance Co., 69 Cal.App.4th 709, 719 (1999).
1. Subcontract between AB and Esquivel
First, AB agreed to procure insurance for Esquivel, expressed in a written contract dated December 23, 1996. The explicit contract language required AB, not Esquivel, to procure and maintain insurance at its own expense. Therefore, Esquivel was not required to make a direct request to Navigators to be added to AB's policy. The parties' intent is clear. AB was to maintain insurance covering Esquivel "at all times" during the agreement The contract required AB to deliver a certificate of insurance and an additional insured endorsement, but merely for the purpose of "evidencing the existence and amount of insurance required." (Ralph Esquivel decl. Exhibit A.)
2. Navigators' policy and blanket endorsement
Second, AB purchased a policy from Navigators that became effective on April 18, 1997. AB paid a premium for a policy that included a blanket additional insured endorsement. By including this blanket endorsement, AB contemplated providing coverage for parties whom it was required to procure insurance coverage for by contract.
Courts in other jurisdictions have determined that blanket endorsements, similar to the one used by Navigators, automatically extend additional insured status to organizations or persons by virtue of the contract requiring insurance. See Sonat Exploration v. Falcon Drilling. Co. Inc., No. CIV.A.98-2187, 2000 WL 144068, at *1 (W.D. La. Jan. 26, 2000) (holding that because contract required Falcon to name Sonat as an additional insured, Sons was an insured under the blanket endorsement);City of Cedar Rapids v. Insurance Company of North America, 562 N.W.2d 156, 157 (Iowa 1997) (determining that city was an additional insured by virtue of blanket endorsement and contract requiring insurance coverage); Rosato v. Karl Kock Erecting Co. Inc., 865 F. Supp.104, 106 (E.D.N.Y. 1994) (determining that because subcontract obligated subcontractor to insure contractor, contractor was an additional insured under the blanket additional insured endorsement); Gulf Oil Corp. v. Mobile Drilling Barge, 441 F. Supp.1, 6 (E.D. La. 1975) (same); Prisco Serena Sturm Architects, Ltd. v. Liberty Mutual Insurance Company, 1995 WL 729292 (N.D. Ill. 1995) (PSSA was additional insured pursuant to insurance policy and contract referenced in the policy). In effect, automatic insureds are considered additional insureds as of the date the named insured was required by contract to purchase insurance for another party.
In Gulf Oil Corp., Shell entered a drilling contract with ODECO that included a provision requiring that Shell be named as a co-insured on ODECO's insurance policy. See Gulf Oil Corp., 441 F. Supp. at 5. The drilling contract was effective December 28, 1970, and ODECO's policy with Highlands insurance company began on July 1, 1970. Id. at 6. The policy contained a blanket endorsement which extended the definition of insured to include "any person or organization to whom or to which the Named Insured is obligated by I virtue of a written contract to provide insurance such as afforded by this policy . . ." Id. The date of loss was December 30, 1970. A few days after the date of loss, on January 1, 1971, another endorsement was added that specifically named Shell as an additional insured. See id. The court held that Shell was automatically covered as an additional insured on Highlands' policy on December 28, 1970, the effective date of the contract, even though the endorsement that specifically added Shell as an additional insured was effective after the date of loss. Id.
Gulf Oil Corp., is factually similar to the instant case. Esquivel had a contract that required AB to purchase insurance for Esquivel. AB had an effective insurance policy in force on the date of loss that included a blanket endorsement. After the date of loss, Esquivel obtained proof that it was specifically named as an additional insured. As in Gulf Oil Corp., Esquivel was an additional insured by virtue of the blanket endorsement even though it was not specifically named by Navigators as an additional insured until after the date of loss.
B. Effect of the Approval Clause
Navigators' blanket endorsement was different from the industry standard blanket endorsement because Navigators included a unique 30-day approval clause. Navigators' blanket endorsement extended coverage to organizations or persons "that the named insured is obligated by virtue of a written contract or agreement to provide insurance such as is afforded by this policy and is approved by the company in writing within 30 days." (O'Malley decl. Exhibit C, p. A800027) (emphasis added.) The clause is patently ambiguous because it does not include a reference point for the 30-day period and it does not explain what the "approval" or "disapproval" may be based upon. Navigators' policy is also silent on these issues.
1. The Underwriter's Position
According to Navigators' underwriter, Mr. Vaughn, the clause requires that the party seeking to become an additional insured obtain Navigators' approval within 30 days of the party's request. (Vaughn depo. p. 55.) Requests for approval are made by submitting a certificate of insurance to Navigators. In this case, Esquivel was named on a certificate of insurance and an additional insured endorsement on August 4, 1997, which Mr. Vaughn approved three days later. Mr. Vaughn testified that according to "office procedure," if Navigators approved Esquivel within 30 days from the issuance date, the effective date was the issue date stated on the certificate of insurance, which was August 4, 1997. (Vaughn depo. pp. 55:8-12, 65-66.) 2. Navigators' Position
Mr. Vaughn also submitted a declaration stating that Esquivel was not a named, additional, or defined insured under Navigators' policy. However, Mr. Vaughn's opinion as to whether Esquivel is a covered insured is a matter of contract interpretation and is therefore inadmissible evidence. See Chatton v. National Union Fire Insurance Co., 10 Cal.4th 846, 865 (1992).
Navigators contends that the plain language reflected on the certificate of insurance controls and that coverage is triggered on the date the certificate is approved. Therefore, Navigators asserts that it began insuring Esquivel on August 7, 1997, the date Mr. Vaughn approved Esquivel's certificate of insurance.
3. Travelers' Position
Travelers agrees that Navigators had 30 days to approve Esquivel after the certificate was issued. According to Travelers, Esquivel met both requirements of the blanket endorsement. First, it was an organization that AB was obligated by virtue of a written contract to provide insurance. Second, Navigators approved Esquivel within 30 days after Esquivel was issued a certificate of insurance. Therefore, Travelers concludes, Esquivel was insured under the blanket endorsement provision, which was effective April 18, 1997.
4. Esquivel was insured effective April 18, 1997
Navigators' position that Esquivel was not an insured prior to August 7, 1997, is not supported by the evidence. First, the effective date of the policy and the blanket endorsement was April 18, 1997. There is nothing in the policy or in the blanket endorsement that suggests that the parties intended that coverage for additional insureds covered by the blanket endorsement would be different, that is, that coverage would not begin until Navigators "approved" the insured. Rather, the fact that AB paid a premium for the blanket endorsement at the outset and did not pay an additional premium at the time Navigators "approved" Esquivel (or, at least, there is nothing in the record that demonstrates that an additional premium was paid), confirms that the parties intended that the blanket endorsement coverage would commence at the beginning of the policy period.
Second, there is nothing in the extrinsic evidence which suggests that the parties intended that the effective date of coverage for those covered by the blanket endorsement would be different from what is stated in the policy. The record is silent as to the purpose of Navigators' 30-day clause or the parties' understanding of the clause at the time the policy was issued. At oral argument, Navigators agreed that the industry standard blanket endorsement provides automatic coverage, but attempted to distinguish Navigators' blanket endorsement by asserting that its blanket endorsement was specifically customized for its insureds. However, this assertion is inconsistent with the testimony of Navigators' underwriter, William Vaughn. Mr. Vaughn explained that Navigators does not use the industry standard form because "we have a blanket occasional insureds endorsement, which contains wording directly copied from the CG20101185 [industry standard form], which accomplishes the same purpose." (Vaughn depo. p. 44:15-21.)
Insurance Service Organization ("ISO") created the CG20101185 form. ISO is a nonprofit trade association that provides rating, statistical, and actuarial policy forms and related drafting services to approximately 3,000 nationwide property or casualty insurers. Policy forms developed by ISO are approved by its constituent insurance carriers and then submitted to state agencies for review. Most carriers use the basic ISO forms, at least as the starting point for their general liability policies. See Montrose Chemical Corp. v. Admiral Ins. Co., 10 Cal, 4th 645, 671 n. 13 (1995).
Third, Navigators' post-hearing argument as to the purpose of the approval clause actually supports a construction of the blanket endorsement as providing coverage for Esquivel effective April 18, 1997. After oral argument, Navigators submitted a letter brief attempting to explain its approval requirement. Navigators explained that the approval process "allows Navigators to preclude its named insured from exposing it to unlimittd and unknown risks for entities or activities that it is unwilling to accept" As an example, Navigators described that while it may have covered Esquivel for water operations, it might have been unwilling to extend coverage to a nuclear power plant operator as an additional insured. Navigators' example demonstrates that approval of an additional insured is based on the nature and activities of the additional insured, not on whether after the effective date of the policy the additional insured was involved in an accident arising from a risk that Navigators was willing to accept. In this case, Esquivel was engaged in water operations, a risk which Navigators agreed to insure and in fact "approved." The underlying lawsuit arose from those water operations. Thus, the purpose of the approval clause was met in this case. To hold that coverage did not commence until Navigators "approved" Esquivel would give Navigators an incentive to withhold approval for as long as possible, and would frustrate the parties' intent that Navigators provide coverage for all parties whom by contract AB was obligated to procure insurance and are engaged in activities for which Navigators is willing to accept the risk.
Fourth, the testimony of Navigators' own underwriter, Mr. Vaughn, contradicts Navigators' position as to the effective date of the blanket endorsement. According to Mr. Vaughn, the effective date was August 4, 1997, the issue date of the certificate. (Vaughn depo. pp. 65-66.) Navigators asserts that the effective date was August 7, 1997, the approval date of the certificate. (Navigators' motion p. 4:16-19.) Mr. Vaughn's position is not supported by anything in the policy or in the blanket endorsement Nothing in the language of those documents suggests that the effective date of the blanket endorsement coverage is the date a certificate of insurance is issued. A certificate of insurance is not even mentioned in the policy or in the endorsement.
Fifth, while Navigators contends that Esquivel was not covered until Navigators approved Esquivel's certificate of insurance and additional insured endorsement Mr. Vaughn testified that the additional insured endorsement was unnecessary because Navigators' policy included a blanket insured endorsement. (Vaughn depo. pp. 43-4.) Some contractors in the industry insist that the subcontractor use ISO's "official" industry standard additional insured endorsement. (Vaughn depo. p. 44.) However, according to Mr. Vaughn, he would not usually complete a separate additional insured endorsement because Navigators uses a blanket endorsement, which contains wording directly copied from the ISO form. (Vaughn depo. pp. 43-44.) Because the blanket endorsement "accomplished the same purpose," the ISO additional insured form was "unneeded" (Vaughn depo. p. 44.)to provide coverage for Esquivel.
Finally, Navigators' position that the certificate of insurance approval date triggers coverage is belied by the certificate of insurance itself; it explicitly states that it is issued for information only and confers no rights upon the certificate holder. A certificate of insurance is merely evidence that the certificate holder is an additional insured on Navigators' policy. (O'Malley decl; Vaughn depo. Exhibit 6.)
In sum, the effective date of Navigators' coverage for Esquivel is ambiguous because the language of the blanket endorsement is capable of two or more reasonable constructions. Therefore, the ambiguity is resolved by interpreting the ambiguous provision in the way that Navigators believed AB would reasonably and objectively have understood it when the policy was issued. See Acceptance Insurance Co. v. Syufy Enterprises, 69 Cal.App.4th 321, 326 (1999); Maryland Casualty Co., 65 Cal.App.4th at 28-29. As set forth above, the language of the policy and the testimony of Navigators' underwriter demonstrate that AB reasonably and objectively understood that on the date it purchased the policy from Navigators, it had procured coverage for Esquivel as Esquivel was an organization whom AB, the named insured, was obligated by virtue of a written contract to provide insurance. Moreover, because the certificate was issued on August 4, 1997, and given hand-written approval by Navigator's underwriter on August 7, 1997, Esquivel was "approved by the company in writing within 30 days." (Vaughn depo. pp. 54-55.) Therefore, Esquivel qualified as an insured under the blanket endorsement. Because the blanket endorsement "triggered" coverage, Esquivel was covered on the date the blanket endorsement was effective, which was April 18, 1997.
C. Ambiguity Favors Coverage
In resolving Navigators' ambiguous blanket endorsement, the Court considered the contractual language, the context of the subcontract and Navigators' policy, the underwriter's testimony as to the purpose of the blanket endorsement and certificate of insurance, and Navigators' argument as to the purpose of the approval clause. However, even if the ambiguity remained unresolved after considering these sources, the Court would resolve the ambiguity against the insurer and in favor of coverage. See Acceptance Insurance Co. v. Syufy Enterprises, 69 Cal.App.4th 321, 327 (1999).
V. Navigators' Affirmative Defenses
Navigators asserts the affirmative defenses of concealment and misrepresentation on the ground that Esquivel did not disclose the May 1, 1997 loss when the certificate of insurance was issued. Mr. Vaughn testified that if he knew of the accident he would not have added Esquivel to the policy or lie would have excluded the May 1, 1997 accident. (Vaughn decl. ¶ 4.) However, because the issue in dispute is interpretation of Navigators' ambiguous blanket endorsement, to Court resolves the ambiguities by interpreting the provision in the sense Navigators believed AB understood it at the time of contract formation.See Maryland, 65 Cal.App.4th at 28-29. Mr. Vaughn's testimony is irrelevant to the issue of the parties' intent or of AB's understanding of the contract at the time the contract was entered.
As is set forth above, the parties intended for coverage to continence effective April 18, 1997. There is nothing in the policy, the blanket endorsement, or the extrinsic evidence that suggests that the parties also intended that Navigators could withhold its approval of Esquivel if after the effective date of the blanket endorsement (and after Navigators had been paid a premium for the blanket endorsement), Esquivel was involved in an accident arising from precisely the type of risk which Navigators had agreed to insure.
VI. LIABILITY
Travelers' first and second causes of action are for equitable subrogation or, in the alternative, equitable contribution. Travelers asserts that Navigators must indemnify Travelers, in whole or in part, because Travelers settled the underlying lawsuit for $850,000 and incurred $12,868.14 in legal fees and $7,158.15 in costs on behalf of Esquivel. (Frazier decl. ¶ 7.) Subrogation is the "insurers's right to be put in a position of the insured in order to pursue recovery form third parties legally responsible to the insured for a loss which the insurer has both insured and paid." Fireman's Fund v. Maryland Casualty, 65 Cal.App.4th 1279, 1291-92 (1998). Equitable contribution is the right to recover from a co-obligor who shares the obligation to indemnify or defend the same loss or claim. See id. at 1293.
A. Equitable Contribution Applies
Travelers' initial claim for subrogation was based on its belief that the operative endorsement covering Esquivel was the separate "additional insured" endorsement that was issued with the certificate of insurance. That endorsement provided that Navigators' policy was primary and that the amount of its liability was not reduced by the existence of other insurance. (O'Malley supp. decl. Exhibit A, AB00084.) After Mr. Vaughn testified that the blanket endorsement was operative and the "additional insured" endorsement was unnecessary, Travelers amended its complaint to add a cause of action for contribution. Because the blanket endorsement triggered coverage, the applicable indemnity provision for situations when other insurance exists is found in Navigators' policy, not in the "additional insured endorsement."
Navigators' policy insuring Esquivel and Travelers' policy insuring Esquivel contain identical "Other Insurance" provisions. The language in both policies provides that "this insurance is primary" and that if other insurance is also primary, the insurers will share the loss by the "equal shares" method. Under this method, "each insurer contributes equal amounts until it has paid its applicable limit of insurance or until none of the loss remains, whichever comes first." (O'Malley supp. decl. Exhibit A, AB00017-18; Frazier supp. decl. Exhibit A, section IV, 4a-c.) Therefore, Travelers is not entitled to full subrogation rights against Navigators, but it may recover for contribution.
On May 1, 2000, Travelers filed a supplemental declaration asserting for that Travelers provided excess coverage over Navigators' policy pursuant to an endorsement to Travelers' policy titled, "Other Insurance — Additional Insureds." Travelers' submission was filed with the Court over two weeks after the Court heard oral argument on the parties' motions for summary judgment and after post-hearing letter briefs were due. Rule 56 of the Federal Rules of Civil Procedure requires that affidavits be filed prior to the day of the hearin. It also allows parties to request consideration of late affidavits. See Fed.R.Civ.P. 56(c), (f) Because of Travelers' untimely filing and because permission for late filing was neither sought nor granted, the supplemental declaration cannot be relied upon at this late date to establish that Travelers was an excess carrier over Navigators. See Ashton-Tate Corp. v. Ross, 916 F.2d 516, 520 (9th Cir. 1990).
Notwithstanding Travelers' untimeliness and the fact that the endorsement was available to Travelers at the time of the summary judgment hearing, the "additional insureds" endorsement does not even apply to Esquivel. It is undisputed that Esquivel was the named insured on Travelers' policy. Therefore. the coverage afforded to Esquivel is described m the policy, not in the "additional insureds" endorsement.
To recover under equitable contribution, Travelers must demonstrate that Navigators insured Esquivel, covered the same risk, and failed to pay its share of the loss. See Maryland Casualty v. Nationwide, 65 Cal.App.4th 21, 27 (1998). In determining whether one insurer is entitled to contribution from the other, courts consider four factors: (1) the nature of the claim, (2) the relation of the insured to the insurers, (3) the particulars of each policy, and (4) any other equitable considerations. See Truck Insurance Exchange v. Unigard Insurance Co., 2000 WL 362030 *4 (Cal.App. 2 Dist. April 10, 2000). Navigators argues that based on an analysis of the Truck factors, Travelers' contribution claim is barred and should be denied as a matter of law. Each of Navigators' arguments is discussed below.
1. Nature of the Claim
Navigators improperly relies on Truck for the assertion that Travelers' contribution claim is barred because Esquivel tendered the underlying lawsuit to Travelers and not to Navigators. In Truck Applied Inc. was the defendant in numerous construction defect lawsuits. Truck Insurance Exchange ("Truck") and a co-insurer, Unigard. defended and indemnified Applied. However, in some of the lawsuits only Truck provided a defense because neither Applied nor Truck tendered the defense to Unigard until after settlement. See Truck at *1-2. Truck sued Unigard for contribution relating to those lawsuits. The Truck court held that Truck did not have a right to contribution in those lawsuits in which it did not tender the defense or otherwise put Unigard on notice of a potential claim for contribution. See Truck at *1142
Navigators contends that the Truck court barred Truck's contribution claim against Unigard because Applied tendered the defense to Truck and not to Unigard. Navigators asserts that the Truck court was not concerned with and did not even mention whether or not Truck tendered the underlying claim to Unigard. "Rather it considered whether or not the insured, Applied, tendered to Unigard."
Navigators' argument fails because it is based on a misstatement of the holding in Truck. The court explicitly stated that "if Truck had notified Unigard about potential contribution at the beginning of the [Cimarron] litigation. Ungiard would have had two options," to not participate in the defense or to join the defense. See Truck at *8 (emphasis added). TheTruck court stressed the importance of notifying a co-insurer early on that a claim of contribution is possible so that the co-insurer can investigate the matter and decide whether to join the defense. See id. When Truck undertook the defense, it should have notified Unigard of the possiblity of contribution. See id. at 3. In sum, the Truck court concluded that "because the cases were not tendered to Unigard, Truck should have notified Unigard of the potential for contribution." See id. at 10. Truck does not stand for, or even remotely suggest, the proposition that a contribution claim is barred unless the insured, rather than the co-insurer, gives notice of the underlying claim.
2. Relationship of the insured to the insurers
Next, Navigators asserts that Travelers' contribution claim is barred because when Navigators and Esquivel formed their relationship, Esquivel failed to disclose the May 1, 1997 accident. This argument fails for the reasons stated in part V. supra.
3. Particulars of the policy
Navigators contends that Travelers' contribution claim is barred because Esquivel violated the "notice" and "cooperation" provisions of Navigators' policy, and in particular, that Esquivel "never gave notice of the underlying claim to Navigators." This argument is futile for the reasons discussed under the "Nature of the Claim," supra. The parties do not dispute, and the evidence establishes, that Travelers notified Navigators of the underlying claim when it tendered Esquivel's defense to Navigators in January 1998. In fact, tendering the defense is more than what is required to satisfy the `notice' requirement. The Truck court held that "Truck did not have to tender the defense to Unigard," it merely had to notify Unigard of the possibility of contribution. See Truck. 2000 WL 3762030 at *3.
Navigators' argument that Travelers tried to "escape" the approval clause in the policy is equally unpersuasive. First Navigators refers to the approval clause as a "notification process," which "allows Navigators to preclude its named insured from exposing it to unlimited and unknown risks." Yet Navigators fails to demonstrate that Esquivel was an unknown risk. Moreover, when Navigators was "notified" of Esquivel by means of the certificate of insurance, it approved Esquivel This evidence demonstrates that the underlying claim for damages occuring on the excavation work-site was the type of risk that the parties intended to insure.
Second, Navigators correctly states that the blanket endorsement required Navigators' approval of an additional insured. Esquivel satisfied this condition on August 7, 1997 when the certificate of insurance was approved by Navigators.
4. Other equitable considerations
Finally, Navigators argues that Travelers' contribution claim is barred by the equitable doctrine that "he who takes the benefit must bear the burden" because Travelers collected a premium from Esquivel. The principle relied upon by Navigators was discussed in Truck. The Truck court explained that imposing a contribution claim against Unigard. when it had no notice of the litigation, "would subject it to a significant financial burden even though it did not enjoy any of the concomitant benefits the right to participate in and control the defense." Truck at *8.
The equitable doctrine espoused in Truck does not apply here. First, Navigators ignores the benefit it received by collecting a premium from AB for a policy containing a blanket endorsement. Second, Travelers tendered Esquivel's defense to Navigators less than two months after CCSF sued Esquivel. Therefore, Navigators had the opportunity to enjoy the benefits of participating in and controlling the defense.
In sum, Navigators has not demonstrated that Travelers' claim for contribution is barred as a matter of law or that there is a genuine dispute as to whether the claim is barred.
B. Duty to Defend
An insured is reasonably entitled to expect that an additional insured endorsement is included the obligation to defend when there is no language expressly or implicitly excluding the duty. See Maryland Casualty, 65 Cal.App.4th at 30-31. A fundamental tenant of 17 insurance law is that the duty to defend is broader than the duty to indemnify. See id. at 30, citing Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287, 300 (1993). The duty to defend begins when a potential for coverage exists, and the duty continues until the insurer proves otherwise. See Maryland, at 32-33. The defense duty arises when the plaintiff alleges a potential for coverage. See id. at 33.
Here, the Navigators' policy explicitly includes a duty to defend. The policy states, "We will pay those sums that the insured becomes legally liable to pay as damages . . ." and, "we will have the right and duty to defend any suit seeking those damages." However, the blanket endorsement limits Navigators' liability to "liability arising out of [AB's] ongoing operations performed for [Esquivel]."
Navigators asserts that, even assuming Esquivel was an additional insured on the date of loss, it did not owe a duty to defend Esquivel because Esquivel is an insured only for liabilities arising out of AB's operaions for Esquivel. According to Navigators, because CCSF was solely liable for the damages, and Travelers settled the underlying dispute on behalf of CCSF, not Esquivel. Esquivel was not covered.
Navigators is incorrect that it did not owe a duty to defend Esquivel as a matter of law. The duty to defend begins when a potential for coverage exists. See Maryland, 65 Cal.App.4th at 32-33. "The insured need only show that the underlying claim may fall within policy coverage."Id. at 32 (emphasis added). Navigators improperly shifts the burden on Travelers to show that the accident arose out of AB's operations. (Opp. p. 7.) The duty to defend continues until the insurer proves otherwise.See Maryland, 65 Cal.App.4th at 33.
CCSF cross-claimed against Esquivel alleging that Esquivel was negligent and that Esquivel breached its obligation to exercise due care in performing work pursuant to the construction contract. Navigators relies on the injured worker's allegation that CCSF was solely liable. (Opp. p. 8.) However, the injured worker's allegation did not eliminate Esquivel's potential for liability in light of CCSF's allegation that Esquivel was at fault. Because liability was disputed and the loss may have fallen within Navigators' policy coverage, Navigators had an obligation to defend Esquivel when Travelers first notified Navigators that Esquivel could potentially be covered under Navigators' policy to AB
In addition, the evidence in the record does not establish whether Travelers settled the underlying case on behalf of CCSF, or Esquivel, or both. The entire case was settled between the injured employee and both CCSF and Esquivel. (Frazier decl. ¶ 3.) Travelers insured Esquivel and it also provided coverage for CCSF under Esquivel's policy as required by the contract between Esquivel and CCSF. (Frazier decl. ¶ 2.) A stipulated settlement was made under Esquivel's policy with Travelers. (Frazier decl. ¶ 3.) The injured employee released both CCSF and Esquivel from all liability. (Frazier decl Exhibit C.) Esquivel was listed as the account same on the final settlement check paid by Travelers to the injured employee. (Frazier decl. Exhibit A.) However, because CCSF was also covered under Esquivel's policy, it is not clear which party was liable. In any event at the time Travelers tendered the cross-claim to Navigators, there was at least the potential that Esquivel was liable for the injury to AB's employee arising out of AB's operations for Esquivel. Therefore, Navigators owed a duty to defend Esquivel when Travelers tendered its defense in January 1998.
Travelers submits billing statements totaling over $20,000 in legal fees and costs. Frazier decl. ¶ 7; Exhibit E.) Notations on the statements indicate that CCSF was reimbursed for defense fees and costs. Because Navigators owed a defense to only Esquivel, not CCSF, the Court cannot determine from the record what amount was incurred in defense of Esquivel. Therefore, the Court GRANTS Travelers' motion with respect to a ruling that Travelers is entitled to reimbursement for half of the defense of Esquivel and, DENIES Travelers' motion with respect to the amount spent defending Esquivel. The Court cannot determine from the record how much, if any, Travelers paid for Esquivel's defense costs.
C. Duty to Indemnify
The obligation to indemnify is distinguishable from the duty to defend. The duty to defend may exist even when coverage is in doubt and ultimately is not established. See Montrose, 10 Cal.4th 645, at 660. The obligation to indemnify, on the other hand, arises when the insured's underlying liability is established. See id. Although an insurer may have "a duty to defend, it ultimately may have no obligation to indemnify. See id.
Here, Esquivel's underlying liability has not been established. As described above, the record is unclear as to the liability of the parties. Travelers paid $850,000 to settle the injured worker's claims against CCSF and CCSF's claims against Esquivel. It is unclear how much, if any, of that amount should be attributed to Esquivel and how much to CCSF. Navigators' reliance on the injured worker's assessment of liability is insufficient to establish that Esquivel was not at all liable for the loss. Therefore, Navigators may or may not owe a duty to indemnify Travelers.
In sum, because liability is disputed, there are material issues of fact regarding Navigators' duty to indemnify. These are factual findings that cannot be detennined on the parties' motions for summary judgment Therefore, the Court DENIES both motions for summary judgment on the issue of the duty to indemnify.
VII. SANCTIONS
Navigators moves for a Court order imposing sanctions in the amount of $24,792.98 against Travelers for violating Rule 11 of the Federal Rules of Civil Procedure. Navigators' motion is DENIED because Travelers has demonstrated that Esquivel was covered by Navigators' policy on the date of loss. Therefore, Travelers' claims are not frivolous.
VIII. CONCLUSION
For the foregoing reasons, plaintiff's motion for summary judgment is GRANTED in part, and DENIED in part. Plaintiff's motion is GRANTED as to coverage on the ground that Esquivel was covered by the blanket endorsement, which was effective on April 18, 1997, prior to the date of loss. Plaintiff's claim for contribution is GRANTED, in part, on the ground that Navigators had a duty to defend. However, the record does not demonstrate how much Travelers paid on behalf of Esquivel as opposed to CCSF. Plaintiff's claim for subrogation is DENIED and its motion with respect to defendant's breach of a duty to indemnify is DENIED on the pound that the record does not demonstrate how much, if any, of the $850,000 settlement was made on behalf of Esquivel as opposed to CCSF. Defendant's motions for summary judgment and for an order imposing sanctions are DENIED.
The parties are ordered to attend a further status conference at 8:30 a.m. on June 2, 2000. Prior to the conference, the parties shall meet and confer in an attempt to agree on how the remaining issues in this lawsuit should be resolved. The parties shall file a Joint Case Management Conference Statement that includes the parties' plan for resolving these issues by May 26, 2000.
IT IS SO ORDERED.
Travelers Indem Ill v. Navigators Ins Co, (N.D.Cal. 2000)
Travelers Indem Ill v. Navigators Ins Co Case Number: 3:99-cv-04509 United States District Court, N.D. California May 9, 2000
I, the undersigned, hereby certify that I am an employee in the office of the Clerk, U.S. District Court, Northern District of California.
That on May 9, 2000, I SERVED a true and correct copy(ies) of attached, by placing said copy(ies) in a postage paid envelope addressed to the person(s) hereinafter listed, by depositing said envelope in the U.S. Mail, or by' placing said copy(ies) into an inter-office delivery receptacle located in the Clerk's office.