World Cleaners, Inc. v. Central National Insurance Company of Omaha
Filing
227
FINDINGS OF FACT AND CONCLUSIONS OF LAW by Judge Dale S. Fischer. See Findings of Fact for specifics. (jp)
Case 2:17-cv-04731-DSF-RAO Document 227 Filed 01/17/23 Page 1 of 9 Page ID #:5146
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WORLD CLEANERS, INC.,
Plaintiff,
v.
CENTRAL NATIONAL
INSURANCE COMPANY OF
OMAHA, now known as
OAKWOOD INSURANCE
COMPANY,
Defendant.
CV 17-4731 DSF (RAOx)
FINDINGS OF FACT AND
CONCLUSIONS OF LAW
AND RELATED
COUNTERCLAIMS AND THIRDPARTY CLAIM
In this case, Plaintiff World Cleaners, Inc. has sued Central
National Insurance Company of Omaha, now known as Oakwood
Insurance Company, for a declaration that Oakwood is and was
required to defend World in a suit by the Department of Toxic
Substances Control. Oakwood has brought counterclaims against
World as well as a third-party claim against Hartford Fire Insurance
Company for equitable contribution.
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The matter came before the Court on October 5, 2022, for a court
trial on written evidentiary submissions. 1 The Court now finds as
follows:
FINDINGS OF FACT 2
1
1.
The parties submitted Joint Stipulated Facts (Dkt. 199) and the
Court adopts and incorporates those Joint Stipulated Facts into
these Findings. Unless otherwise noted, the defined terms used
in these Findings are the same as those defined in the Joint
Stipulated Facts.
2.
World has not established that an “occurrence” as defined by the
Oakwood Policy 3 in question occurred within the Oakwood Policy
Period of September 1, 1984 to September 1, 1985.
3.
A potential “occurrence” took place on the World Property when a
valve was left open and perchloroethylene spilled on the floor of
World’s facility.
4.
This spill is the only colorable claim by World that a relevant
“occurrence” took place during the Oakwood Policy Period.
5.
However, World has not established that this spill happened
during the Oakwood Policy Period.
6.
World’s principal, Brian Sher testified at deposition, after having
his recollection refreshed, that the spill happened during the
The Court has ruled on evidentiary objections in a separate order.
Any finding of fact deemed to be a conclusion of law is incorporated into the
conclusions of law. Any conclusion of law deemed to be a finding of fact is
incorporated into the findings of fact. All factual findings are by a
preponderance of the evidence unless otherwise noted.
2
The “Oakwood Policy” is defined as the “CN/Oakwood Policy” in the Joint
Stipulated Facts.
3
2
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1984 Olympic Games, which took place in Los Angeles. Ex. 201 at
109:22-111:2. 4
7.
The Court finds this testimony not to be credible.
8.
In two separate depositions, Sher made clear that he did not
know what year the spill occurred. Ex. 201 at 95:13-96:8; Ex. 202
at 90:12-91:1.
9.
It was only after having his memory refreshed by a letter from
World’s counsel to Oakwood’s counsel that he placed the spill
during the 1984 Games. Ex. 201 at 109:22-111:2.
10.
World’s counsel has argued that Sher was harassed during the
depositions and this is the reason that he failed to remember the
timing of the spill. The Court has reviewed the relevant portions
of the deposition transcripts and finds that this is not a
reasonable or persuasive description of what happened during
the depositions. See generally Ex. 201, 202.
11.
The spill was also not mentioned by World in several responses to
Oakwood and DTSC regarding potential occurrences under the
Oakwood Policy and releases on the World Property. See Ex.
025, 028. 5 This further undercuts the credibility of Sher’s
testimony that the spill happened during the 1984 Olympic
Games or during the Oakwood Policy Period more generally.
The Court takes judicial notice of the fact that the 1984 Olympic Games
took place between July 28 and August 12, 1984. See https://olympics.com
/en/olympic-games/los-angeles-1984 (International Olympic Committee
website). Sher was clear that the spill took place during the Games, not
after. Ex. 201 at 110:18-21 (“Q: “ – after the 1984 Olympics; A: During the ’84
Olympics.; Q: During the Olympics?; A: Right.”). While Oakwood has not
argued this point, the alleged spill would appear to have occurred outside of
the Oakwood Policy Period even if Sher’s testimony were credited.
4
World does cite a spill from a drum falling in 1984, but it appears that
World no longer contends that any such event ever took place.
5
3
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12.
There is no corroborating evidence to support Sher’s testimony
regarding the timing of the spill. The sole evidence of timing is
Sher’s inconsistent testimony.
13.
Because there is insufficient evidence that the spill happened
within the Oakwood Policy Period, the Court makes no finding
whether the spill would have been considered “sudden and
accidental” within the meaning of the Oakwood Policy.
14.
As the Court previously found in its order regarding the motions
for summary judgment, Oakwood has failed to provide evidence
to support its assertion that Oakwood relied on false statements
by World’s lawyers when it decided to provide a defense to the
DTSC suit. Dkt. 170 at 12-15.
15.
The DTSC Suit presented a potential for coverage under the
Oakwood Policy when it was filed. The complaint in the DTSC
Suit alleged that World began utilizing PCE and other hazardous
chemicals from around 1981 and that during World’s operation
there were releases of hazardous substances into the ground. Ex.
22, ¶¶ 15, 17. These allegations presented the potential for
liability based on events that occurred during the Oakwood Policy
Period.
16.
The environmental consulting costs paid by Hartford during the
DTSC investigation were necessary for any litigation defense
against the DTSC regarding contamination of the Property.
17.
Therefore, those consulting costs would have been borne by
Oakwood during the subsequent DTSC Suit had they not already
been paid by Hartford.
18.
Oakwood’s assertion that the settlement amount of $850,000 paid
by Hartford to World would have completely remediated the
World Property and eliminated the need for the DTSC suit
against World is not supported by the evidence in the record.
a. Oakwood argues that based on the current estimate of
$971,000 for remediation, $850,000 would have been
4
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sufficient for remediation in 2013 when the Hartford/World
Settlement took place. See Oakwood Trial Brief at 25.
b. However, this is only conjecture that is not supported by
actual evidence, such as engineering estimates of
remediation costs made in or around 2013.
c. The assertion is also not supported by evidence from DTSC
to indicate that DTSC would have been satisfied with
remediation that could have been completed with $850,000
in 2013.
CONCLUSIONS OF LAW
1.
There is no dispute that for World to be entitled to indemnity
from Oakwood under the Oakwood Policy there must have been a
relevant “occurrence” as defined by the Oakwood Policy during
the Oakwood Policy Period.
2.
An “occurrence” is defined in the Oakwood Policy as “an accident,
including continuous or repeated exposure to conditions, which
results in … property damage … neither expected nor intended
from the standpoint of the Insured.” Stipulated Facts ¶ 12.
3.
Because World has not established that a relevant “occurrence”
happened within the Oakwood Policy Period, World is not
entitled to indemnification from Oakwood or to any continued
defense.
4.
However, Oakwood previously had a duty to defend World
against the DTSC Suit.
5.
“An insurer must defend its insured against claims that create a
potential for indemnity under the policy.” Scottsdale Ins. Co. v.
MV Transp., 36 Cal. 4th 643, 654 (2005). The insurer’s “duty to
indemnify runs to claims that are actually covered,” while the
“duty to defend runs to claims that are merely potentially
covered, in light of facts alleged or otherwise disclosed.” Buss v.
Superior Court, 16 Cal. 4th 35, 46 (1997). “The determination
5
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whether the insurer owes a duty to defend usually is made in the
first instance by comparing the allegations of the complaint with
the terms of the policy.” Montrose Chem. Corp. v. Superior
Court, 6 Cal. 4th 287, 295 (1993). In order to trigger an insurer’s
duty to defend, “the insured need only show that the underlying
claim may fall within policy coverage; the insurer must prove
it cannot.” Id. at 300 (emphasis in original).
6.
“Once the defense duty attaches, the insurer is obligated to
defend against all of the claims involved in the action, both
covered and noncovered, until the insurer produces undeniable
evidence supporting an allocation of a specific portion of the
defense costs to a noncovered claim.” Horace Mann Ins. Co. v.
Barbara B., 4 Cal. 4th 1076, 1081 (1993). Insurers are required
to defend when unresolved factual disputes could give rise to
liability under the policy, unless the insurer can demonstrate it is
entitled to judgment as a matter of law. Id. at 1083.
7.
Oakwood was obligated to pay defense costs to World in the
DTSC Suit because, given the allegations in the DTSC Suit, there
was at least the potential for coverage under the Oakwood Policy
when the claim was tendered and the defense was undertaken.
8.
Oakwood is not entitled to reimbursement for defense costs paid
before it became clear that there was no coverage under the
Oakwood Policy. Buss v. Superior Ct., 16 Cal.4th 35 (1997).
9.
As found in the Court’s summary judgment order and repeated
above, there is insufficient evidence that any alleged
misrepresentations by World’s counsel caused Oakwood to
provide a defense or ultimately affected the potential for coverage
under the Oakwood Policy.
10.
The Court declines to impose the constructive trust for the
remediation of the World Property requested by Oakwood.
a. “A constructive trust may only be imposed where the
following three conditions are satisfied: (1) the existence of
6
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a res (property or some interest in property); (2) the right of
a complaining party to that res; and (3) some wrongful
acquisition or detention of the res by another party who is
not entitled to it.” Burlesci v. Petersen, 68 Cal. App. 4th
1062, 1069 (1998) (emphasis in original).
b. Oakwood argues that the $850,000 from Hartford to World
should have been used by World to remediate the World
Property but was improperly taken by Sher for personal
use.
c. This issue does not affect Oakwood given that the Court
has found that Oakwood has no obligation to indemnify
World for remediation of the World Property. In other
words, Oakwood has not shown that it has any right or
interest in either the $850,000 settlement amount or the
World Property.
d. Oakwood argues that had the $850,000 been used for
remediation, the DTSC Suit would never have been filed
and Oakwood’s duty to defend would not have been
triggered.
e. Oakwood has not sufficiently substantiated this assertion
with evidence.
f. But even if the assertion were true, Oakwood has not
connected the alleged harm to Oakwood to the imposition of
a constructive trust for the benefit of remediating the
World Property.
11.
“Equitable indemnity applies in cases in which one party pays a
debt for which another is primarily liable and which in equity
and good conscience should have been paid by the latter party.”
United Servs. Auto. Ass’n v. Alaska Ins. Co., 94 Cal. App. 4th
638, 644-45 (2001) (internal quotation marks omitted).
a. Oakwood has not established that Hartford acted
inequitably when it settled with World. Specifically,
7
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Oakwood has not established any duty on the part of
Hartford to structure the settlement with World to limit
Oakwood’s coverage exposure or to ensure that the
$850,000 payment was used on remediation of the World
Property.
b. Because the Court finds that Oakwood has failed to support
its assertion that use of the $850,000 on remediation would
have prevented the DTSC Suit, there is an insufficient
basis to order World or Sher to provide equitable
indemnification or subrogation to Oakwood for the costs
associated with the DTSC suit.
12.
“In the insurance context, the right to contribution arises when
several insurers are obligated to indemnify or defend the same
loss or claim, and one insurer has paid more than its share of the
loss or defended the action without any participation by the
others. Where multiple insurance carriers insure the same
insured and cover the same risk, each insurer has independent
standing to assert a cause of action against its coinsurers for
equitable contribution when it has undertaken the defense or
indemnification of the common insured. Equitable contribution
permits reimbursement to the insurer that paid on the loss for
the excess it paid over its proportionate share of the obligation,
on the theory that the debt it paid was equally and concurrently
owed by the other insurers and should be shared by them pro
rata in proportion to their respective coverage of the risk.”
Fireman’s Fund Ins. Co. v. Maryland Cas. Co., 65 Cal. App. 4th
1279, 1293 (1998).
13.
Oakwood is not entitled to equitable contribution from Hartford
for defense costs because Hartford paid, if anything, more than
its fair share of defense costs.
a. While Hartford’s costs were incurred during an
investigative proceeding and Oakwood’s were incurred
during a later civil suit involving the same general subject
8
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matter, the significant sum paid by Hartford for
environmental consulting work – approximately $1.8
million – should be included in the equitable analysis
because those consulting costs would have been borne by
Oakwood had they not been done during the investigative
stage.
b. When the consulting costs are included in the analysis,
Hartford contributed at least $1.8 million to the costs of
defense that would have been required in defending the
DTSC Suit while Oakwood only paid approximately
$480,000 in total.
c. The Court finds that this allocation of defense costs is more
than equitable to Oakwood and no equitable contribution
from Hartford to Oakwood is appropriate.
DISPOSITION
In summary, the Court finds in favor of Oakwood with respect to
World’s declaratory relief claim against Oakwood, in favor of World
with respect to Oakwood’s counterclaims against World, and in favor of
Hartford with respect to Oakwood’s third-party claim against Hartford.
Judgment will be entered consistent with these Findings.
Date: January 17, 2023
___________________________
Dale S. Fischer
United States District Judge
9
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