MGA Entertainment Inc et al v. The Hartford Insurance Group
Filing
706
ORDER by Judge David O. Carter: RULING ON MOTIONS: The Court: (1) GRANTS IN PART and DENIES IN PART the Evanston Defendants' Motion for Relief from Judgment (Dkt. 636); (2) DENIES the Evanston Defendants' Motion of Leave to File Amended An swer and Cross-Claims (Dkt. 633); and (3) GRANTS the Lexington Defendants' Motion to Clarify and Amend Order (Dkt. 590) filed by National Union Fire Insurance Company (National), Chartis Specialty Insurance Company (Chartis) (collectively, Umbrella Insurers), and Lexington Insurance Company (Lexington). Because the parties are familiar with the facts of the case, the Court does not recount them here. (See document for further details.) (rla)
1
O
2
3
4
5
6
7
8
UNITED STATES DISTRICT COURT
9
CENTRAL DISTRICT OF CALIFORNIA
10
SOUTHERN DIVISION
11
12
13
14
15
16
17
18
19
20
21
22
)
MGA ENTERTAINMENT, INC., et al. ) Case No.: SACV 08-0457 DOC(RNBx)
)
) Consolidated with: CV 10-7692-DOC(RNBx),
Plaintiffs,
) CV 10-355- DOC(RNBx), CV 09-7461-DOC(RNBx)
)
vs.
)
) ORDER RULING ON MOTIONS:
1) GRANTING IN PART AND
)
THE HARTFORD INSURANCE
DENYING IN PART EVANSTON
)
GROUP, et al.,
DEFENDANTS’ MOTION FOR
)
RELIEF FROM JUDGMENT
)
Defendants.
[Dkt. 636]
)
2) DENYING EVANSTON
)
DEFENDANTS’ MOTION FOR
)
LEAVE TO AMEND ANSWER
)
AND COUNTERCLAIMS [Dkt.
)
633]
)
3) GRANTING LEXINGTON
)
DEFENDANTS’ MOTION FOR
)
RELIEF FROM JUDGMENT
)
[Dkt. 590]
)
23
24
Before the Court are three motions. The Court: (1) GRANTS IN PART and DENIES IN
25
PART the Evanston Defendants’ Motion for Relief from Judgment (Dkt. 636); (2) DENIES the
26
Evanston Defendants’ Motion of Leave to File Amended Answer and Cross-Claims (Dkt. 633);
27
and (3) GRANTS the Lexington Defendants’ Motion to Clarify and Amend Order (Dkt. 590)
28
filed by National Union Fire Insurance Company (“National”), Chartis Specialty Insurance
-1-
1
Company (“Chartis”) (collectively, “Umbrella Insurers”), and Lexington Insurance Company
2
(“Lexington”). Because the parties are familiar with the facts of the case, the Court does not
3
recount them here.
4
I.
Unhappy With It
5
6
The Court Will Reconsider Its Prior Order Given that All Parties Are
The Evanston Defendants, Lexington, and the Umbrella Insurers have moved for relief
7
from judgment of the Court’s prior order (“Prior Order”) (Dkt. 521), although on different
8
grounds.
9
10
11
a. The Parties Have Failed State the Correct Legal Standard By Which
Their Motions Should Be Evaluated
As an initial matter, the Court notes that not a single opening brief by any movant in any
12
of these motions provided the correct legal standard under which to evaluate whether the movant
13
was entitled to relief. See Evanston Defs. Mem. in Opp’n and Cross-Motion for Relief From J.
14
(Dkt. 637) at 1:7 (blithely referencing “Rule 60(b) and 59(e)” but failing to mention any case
15
law regarding these rules and entirely ignoring Local Rule 7-18); Lexington Defs. Mem. in
16
Support of Mot. for Relief From J. (Dkt. 590) at 1:9 (same); Evanston Defs. Mem. in Support of
17
Mot. for Leave to File Amended Answer and Counterclaims (Dkt 634) at 5-7 (curiously
18
devoting pages to Federal Rule of Civil Procedure 15, despite the fact that Rule 16 applies).
19
While the Court is happy to reconsider its prior rulings, the Court is not inclined to
20
consider any more motions that fail to provide the correct legal standard. In this case the Court
21
has already had to contend with one motion to reconsider – disguised as a mere correction of a
22
typo – that failed to state the correct legal standard. See MGA Entm’t v. Hartford Ins. Group,
23
EDCV 08-0457-DOC, 2012 WL 528313 at *1, 2012 U.S. Dist. LEXIS 20459 at *1 (C.D. Cal.
24
Feb. 16, 2012) (analyzing motion titled “Request for Correction” as a motion for reconsideration
25
and amendment of the Court’s prior order). In addition, the Court has been subjected to multiple
26
summary judgment motions in which the Evanston Defendants failed to mention the controlling
27
substantive state law. See MGA Entm’t, Inc. v. Hartford Ins. Group, 2012 U.S. Dist. LEXIS
28
-2-
1
24000 (C.D. Cal. Feb. 24, 2012) (denying summary judgment because movants “neither cite nor
2
discuss the controlling law”).
As it appears inevitable that the parties will continue to file motions in this case, they are
3
4
highly encouraged to: (1) include a section in their briefs entitled “Legal Standard” which
5
accurately describes the Federal Rule of Civil Procedure under which they are moving and, if
6
relevant, the accompanying Local Rule; and (2) explain in the body of their brief how the facts
7
or substantive law satisfy that legal standard.1
b. Nonetheless, the Court Will Reconsider Its Prior Order
8
Federal Rule of Civil Procedure 60(b)(6) provides for relief from judgment based on “any
9
10
other reason that justifies relief.” Fed. R. Civ. P. 60(b)(6); Phelps v. Alameida, 569 F.3d 1120,
11
1131 n.12 (9th Cir. 2009). Here, the reason justifying relief is that both the movant and non-
12
movant insurers involved in the motion resolved by the Prior Order now seek reconsideration,
13
and all the other parties in this case – the other insurer as well as the mutual insured – have
14
joined in at least one of these motions. While the definition of a compromise may be that every
15
party is equally unhappy, the Court reconsiders its Prior Order due to an abundance of caution
16
that its decision was not just a compromise, but also bad law.
Thus, the Court GRANTS all parties’ Motions for Relief from Judgment to the extent
17
18
they ask the Court to reconsider its Prior Order (Dkt. 521). See MGA Entm’t, Inc. v. Hartford
19
Ins. Group, ED CV 08-0457-DOC, 2012 WL 628203, 2012 U.S. Dist. LEXIS 23998 (C.D. Cal.
20
Feb. 24, 2012). However, in reconsidering its Prior Order, the Court concludes that not all the
21
parties are entitled to the specific changes in the Prior Order that they seek. Section II of this
22
order addresses the parties’ arguments regarding the specific changes to the Prior Order.
23
24
25
1
The Court appreciates that Lexington and the Umbrella Insurers provided a legal standard and
26
well-written argument in their Reply to their Motion. See Lexington Defs. Reply (Dkt. 651) at
27
3-4. However, the Court is baffled as to why these parties waited until the Reply to explain the
28
basis of their motion.
-3-
1
Section III addresses the Evanston Defendants’ separate motion for leave to amend their answer
2
and cross-claims.
3
II.
4
For the reasons stated below, the Court changes its Prior Order (Dkt. 521) to: (1) add an
The Court Makes Several Changes to the Prior Order
5
explanation as to why the pie is $38.9 million and not larger; (2) decrease the denominator from
6
9 to 7; (3) reduce the amounts Lexington and the Umbrella Insurers overpaid by the amounts
7
they received in settlement with C & F; (4) add an explanation as to why the Evanston
8
Defendants’ have an equitable subrogration liability to Chartis; (6) increase the amount the
9
Evanston Defendants owe Chartis and National; and (6) reduce the prejudgment interest on the
10
11
12
Evanston Defendants’ equitable subrogation liability from 10 to 7 percent.
a. The Court’s Prior Order
The Court’s Prior Order (Dkt. 521) granted summary judgment to Lexington and the
13
Umbrella Insurers on their respective equitable contribution and equitable subrogation claims
14
against the Evanston Defendants.
15
Equitable contribution is a cause of action to “apportion a loss between two or more
16
insurers who cover the same risk . . . so that each pays its fair share and one does not profit at
17
the expense of the others.” Fireman’s Fund Ins. Co. v. Maryland Cas. Co., 65 Cal. App. 4th
18
1279, 1296, 77 Cal. Rptr. 2d 296, 306 (1998); Monticello Ins. Co. v. Essex Ins. Co., 162 Cal.
19
App. 4th 1376, 76 Cal. Rptr. 3d 848, 856 (2008). Under California law, “[t]here is no single
20
method of allocating defense or indemnity costs among co-insurers.” Golden Eagle Ins. Co. v.
21
Insurance Co. of the West, 99 Cal. App. 4th 837, 854, 121 Cal. Rptr. 2d 682, 693 (2002). The
22
Court adopted the commonly-used “time on the risk” method, which provides for
23
“apportionment based upon the relative duration of each primary policy as compared with the
24
overall period of coverage during which the ‘occurrences’ ‘occurred.’” See id.
25
Under the “time on the risk” method, courts determine a specific insurer’s “fair share” by
26
calculating: (1) a denominator, which is the total number of insurance policies that created a
27
duty to defend the insured in the underlying action; (2) a numerator, which is the total number
28
of insurance policies that created a duty to defend and are owned by the specific insurer whose
-4-
1
share the Court is calculating; (3) a fair share fraction, which is the numerator divided by the
2
denominator; and (4) the pie, which is the total amount of defense fees the insured incurred in
3
the underlying action for which the insurers owed a duty to defend. The specific insurer’s “fair
4
share” is the fair share fraction multiplied by the pie.
5
6
7
Regarding Lexington’s equitable contribution claim, the Court calculated Lexington and
Evanston’s respective fair shares by calculating:
(1) a denominator of 9, which is the total of two Hartford Policies (calendar years 1999
8
and 2000), two Lexington policies (calendar years 2001 and 2002), three C & F policies
9
(calendar years 2003, 2004, 2005), and two Evanston policies (2006, 2007) [9 = 2 Hartford + 2
10
11
Lexington + 3 C & F + 2 Evanston.]. See Order (Dkt. 521) at 17.
(2) a numerator of 2 for Lexington, reflecting the two Lexington policies that the court
12
had previously held created a duty to defend, and 2 for Evanston, reflecting the two Evanston
13
policies that the court had previously held created a duty to defend. See id.
14
(3) a fair share fraction of 2/9 for Lexington, and 2/9 for Evanston. See id.
15
(4) a pie of $38,906,029, which is the total amount of defense fees that Lexington and the
16
Umbrella Insurers paid the insured as of October 7, 2009, in the underlying action for which
17
Lexington and Evanston owed a duty to defend. See id. at 26.
18
The Order calculated Evanston’s “fair share” for purposes of equitable contribution as
19
$8,645,784, which is the 2/9 fair share fraction multiplied by the $38,906,029 pie. The Order
20
then divided this fair share between Lexington and the Umbrella Insurers. See id.
21
b. The Parties’ Motions for Relief From Judgment
22
The parties seek the following specific changes to the Court’s Prior Order (Dkt. 521).
23
Lexington and the Umbrella Insurers, joined by another insurer Crum & Forster (“C & F”) and
24
their mutual insured, MGA Entertainment (“MGA”), argue that this Court should change the
25
denominator from 9 to 7. The Evanston Defendants argue that this Court should: (1) increase
26
the pie to roughly $155 million, which is the total that all insurers – primary insurers (Evanston,
27
Lexington, C & F and non-party Hartford) and the Umbrella Insurers – have paid MGA as of the
28
Evanston Defendants’ recent settlement with MGA; (2) retain the denominator of 9; (3) reduce
-5-
1
the amounts Lexington and the Umbrella Insurers overpaid by the amounts they received in
2
settlement with C & F; (4) eliminate the Evanston Defendants’ liability to Chartis; and (5)
3
reduce the prejudgment interest from 10 to 7 percent.
c. The Pie Is Only $38.9 Million Because that Sum Reflects the Total Fees
4
5
Paid By Party Insurers Before Evanston Agreed to A Denominator of 7,
6
Not Including Overages
The Court rejects the Evanston Defendants’ argument that the pie should be increased
7
8
from $38.9 to $155 million. However, the Court will add an explanation to the Prior Order as to
9
why the pie is $38.9 million and not larger. Accordingly, the Court DENIES the Evanston
10
Defendants’ Motion for Relief from Judgment to the extent it seeks to increase the pie and
11
ADDS the following to the Prior Order’s (Dkt. 521):
In its Prior Order, the Court allocated Lexington and Evanston’s respective fair shares of
12
13
a “pie” of $38,906,029. Although the Evanston Defendants did not dispute this pie in their
14
previous briefing, they now argue that the pie should be increased to include all the payments to
15
the insured by all insurers in this action, including payments to MGA by Evanston due to a
16
recent settlement and by a non-party insurer, Hartford. The Court rejects the Evanston
17
Defendants argument because a legally-significant event occurred in November 2009 that merits
18
treating the insured’s defense fees as two “pies”: Evanston’s agreement to allocate future
19
payments to MGA among the other insures using a denominator of 7. Evanston’s November
20
2009 agreement created at least two “pies”: (1) a pie comprised of $38,906,029, which is the
21
total amount of payments to MGA by Lexington and the Umbrella Insurers prior to the Evanston
22
Defendants’ November 2009 agreement, not including “overages”2; and (2) a pie comprised of
23
other fees incurred by MGA that are subject to Evanston’s November 2009 agreement.
24
25
2
“Overage”
is the term the Court used in its prior order to refer to defense fees and costs
26
incurred by the insured, MGA, that exceed the hourly rate limit imposed by California Civil
27
Code § 2860(c). See February 10, 2010, Order (Dkt. 165) at 12:7-8. This Court previously
28
granted MGA summary judgment against Evanston on the issue of whether Evanston was liable
-6-
Where insurers have “agreed among themselves on the method of allocation” of an
1
2
insured’s defense costs, those insurers are “bound by [their] choices.” Scottsdale Ins. Co. v.
3
Century Sur. Co., 182 Cal. App. 4th 1023, 1037, 105 Cal. Rptr. 3d 896, 907 (2010) (rejecting
4
insurer’s argument “that it can agree to one method of allocation with every other insurer on the
5
risk, but obtain a different method of allocation . . . when seeking equitable contribution”); see
6
also 64 A.L.R. 213 (“Although, of course, co-obligors cannot, by any agreement among
7
themselves, affect their liability to the common creditor, they may regulate their rights and
8
liability as among themselves; and in determining the rate or proportion of contribution, their
9
contract fixing the same will be followed.”). A formal contract is not necessary to show an
10
insurer’s agreement to allocate the defense costs; rather, an insurer is bound by even a
11
handwritten scrawl on an attorney’s bill. See Scottsdale, 182 Cal. App. 4th at 1034, 1034 n.27
12
(holding that insurer in equitable contribution case was “bound by” its prior statements
13
regarding the fraction it paid of certain defense costs, including “a handwritten notation on a bill
14
stating ‘Ok to pay . . . 1/2 share’”).
The undisputed evidence submitted by both parties for the motion resolved by the Prior
15
16
Order shows that the Evanston Defendants agreed to a denominator of 7 in November 2009.
17
The Lexington Defendants submitted an affidavit stating that “on or around November 2009,
18
Evanston . . . began to contribute 2/7ths of MGA’s defense costs invoiced to its insurers . . . .”
19
Schmidt Decl. (Dkt. 335) at ¶ 9. In addition, the Lexington Defendants submitted evidence that,
20
“as of October 7, 2009, the Evanston Defendants had not yet begun to participate in MGA’s
21
defense.”3 Evanston Defs. Statement of Genuine Issues Regarding National and Chartis
22
23
for overages, holding that the “hourly rate limitation of California Civil Code § 2860(c) is not
24
applicable to fees incurred when Evanston was in breach of its duty to defend.” Id. at 11-16, 20.
25
3
Although the Evanston Defendants’ Statement of Genuine Issues states that they “[d]ispute[]
26
that Evanston had not yet begun to participate in MGA’s defense,” this bald assertion is not
27
supported by any documentation. Because the Evanston Defendants have not provided evidence
28
contradicting this fact, the dispute is not genuine and does not preclude summary judgment.
-7-
1
(Sealed Dkt. 423) at 26. Finally, the Evanston Defendants do not dispute that “[a]fter the Court
2
held that [Crum & Forster and Evanston] had a duty to defend” – a decision which was issued
3
on June 24, 2009 – “Crum & Forster and Evanston agreed to contribute 3/7 and 2/7 shares of
4
MGA’s defense costs going forward.” Evanston Defs. Statement of Genuine Issues Regarding
5
Lexington (Sealed Dkt. 403) at 36; Evanston Defs. Statement of Genuine Issues Regarding
6
National and Chartis (Sealed Dkt. 423) at 35.
7
The Evanston Defendants’ Motion for Relief from Judgment does not mention their
8
November 2009 agreement and instead argues that the Prior Opinion’s holding that Evanston
9
and Lexington had “an equal and undivided duty” to defend their mutual insured, MGA,
10
requires the Court to adopt the Evanston Defendants’ proposed pie. Evanston Defs. Mem. in
11
Opp’n and Cross-Motion (Dkt. 637) at 4-5. In Centennial Insurance v. US Fire Insurance, the
12
court expressly rejected the same argument by a defendant insurer in an equitable contribution
13
action. Centennial Ins. Co. v. United States Fire Ins. Co., 88 Cal. App. 4th 105, 114, 105 Cal.
14
Rptr. 2d 559, 564 (2001). The defendant insurer argued that its method for calculating each
15
insurer’s fair share was best “because each of the insurers in this case owed their mutual insured
16
. . . a ‘complete duty to defend’ the entire claim.” Id. The court rejected the argument because
17
it “confuses the rules applicable to equitable contribution among insurers with those pertinent to
18
the relationship between an insurance carrier and its own insured.” Id. at 114-15. The court
19
explained that an insurer’s duty to defend its insured is “governed by the contract of insurance
20
between [those] parties,” whereas an insurer’s right to equitable contribution from other insurers
21
is based in equitable principles, not contract. Id. at 115. This Court follows the excellent logic
22
of Centennial and rejects the Evanston Defendants’ argument that the Court is bound to adopt
23
their method of allocation for this equitable contribution action simply because this Court has
24
found that the insurers involved in this action each owed a duty to defend.
25
Thus, Evanston’s November 2009 agreement to adhere to a denominator of 7 for future
26
fees created at least two “pies”: (1) a pie comprised of $38,906,029, which is the total amount
27
paid to MGA by Lexington and the Umbrella Insurers prior to the Evanston Defendants’
28
November 2009 agreement, not including “overages”; and (2) a pie comprised of other fees
-8-
1
incurred by MGA that are subject to Evanston’s November 2009 agreement.4 The Court’s Prior
2
Order addressed only the $38.9 million pie because that was the only sum on which any party
3
moved. The Court appropriately refrained from conflating the $38.9 million pie and the other
4
pie because the analysis would be different; whereas the Evanston Defendants were free to argue
5
any denominator regarding the $38.9 million pie, they were bound by their agreement to a
6
denominator of 7 for the other pie.
Because the Court concludes that there are at least two pies, the Court does not address
7
8
the parties’ other arguments regarding whether the Evanston Defendants’ recent settlement with
9
MGA included overages and whether Evanston is solely liable for these overage fees. See
10
Lexington Defs. Opp’n (Dkt. 652) at 6-8. These sums belong to a different pie than the
11
$38,906,029 pie which is the subject of the present litigation.
d. The Court Reduces the Denominator From 9 to 7 to Prevent an
12
13
Inequitable Result, Namely, the Evanston Defendants Benefitting From
14
Their Failure to Implead the Non-Party Insurer Hartford
The Court changes the denominator in its Prior Order from 9 to 7 to prevent an
15
16
inequitable result, namely, the Evanston Defendants benefitting from their failure to implead the
17
non-party insurer Hartford. Accordingly, the Court GRANTS the Lexington Defendants’
18
Motion for Relief from Judgment. The Court VACATES the Prior Order’s (Dkt. 521) holding
19
that the denominator in this equitable contribution action is 9, located on pages 17:13-18:3, and
20
replaces it with the following:
21
22
4
The Court refers to only two pies here for the sake of simplicity. However, the Court agrees
23
with C & F’s statements at oral argument that there are actually 3 “pies”: (1) a pie of
24
$38,906,029, which is the total amount of defense fees that Lexington and the Umbrella Insurers
25
paid the insured as of October 7, 2009, in the underlying action prior to the Evanston
26
Defendants’ November 2009 agreement; (2) a pie comprised of an indeterminate amount of
27
“overages”; and (3) a pie comprise of the remaining defense fees and costs which fall into
28
neither of the first two categories.
-9-
1
2
3
i. The Non-Evanston Insurers’ New Argument Avoids the Logical
Inconsistencies of Its Previous Arguments
In the earlier motion resolved by the Prior Order, the Evanston Defendants argued that
4
the denominator should include two insurance policies of a non-party insurer, Hartford. The
5
Evanston Defendants contended that the logic of the Court’s prior holding – that Evanston’s
6
policies created a duty to defend – compels the same conclusion regarding similar language in
7
Hartford’s two insurance policies. See Evanston Defs. Opp’n to Summary J. (Dkt. 399) at
8
21:15-22:11; Evanston Defs. Opp’n and Cross Motion (Dkt. 637) at 4:1-4, 10-11 (explaining
9
that the reasoning required to hold that the Hartford policies do not create a duty to defend is
10
contrary to the “June 24, 2009 ruling that there was a duty o defend based on the non-time-
11
specific disparagement allegations in the SAAC.”); see also Order (Dkt. 480) (denying Evanston
12
Defendants’ motion on the duty to defend); Order (Dkt. 510) (granting summary judgment to
13
Evanston Defendants’ insured on the duty to defend issue).
14
In response, Lexington and the Umbrella Insurers simply argued that the Hartford’s two
15
policies did not create a duty to defend, relying on interpretations of the policies’ language that
16
this Court had previously rejected in interpreting similar language in Evanston’s policies. The
17
Court rejected Lexington and the Umbrella Insurers’ argument because it required this Court to
18
adopt a logical inconsistency: interpreting contract language to create a duty to defend for one
19
insurer, but not for another insurer. Thus, although the Evanston Defendants cited no authority
20
for their position, the Court adopted the Evanston Defendants’ denominator of 9 to avoid the
21
logical inconsistency created by the other insurer’s arguments for a denominator of 7.
22
However, the Court is now confronted by a new, more persuasive argument. Aside from
23
Evanston, every insurer party to this action, as well as their mutual insured, now contend that
24
this Court should exclude the two Hartford policies from the denominator to prevent an
25
inequitable result, namely, the Evanston Defendants benefitting from their failure to implead the
26
non-party insurer Hartford. See Lexington Defs. Mot. (Dkt. 590) at 2-3. As these parties note,
27
the Evanston Defendants could have impleaded Hartford under Federal Rule of Civil Procedure
28
14, but chose not to do so throughout the duration of this case. See Travelers Prop. Cas. Co. of
-10-
1
Am. v. Liberty Surplus Ins. Corp., CV08-4066 CAS(OPX), 2009 WL 1044625 at *1-3 (C.D.
2
Cal. Apr. 17, 2009) (granting defendant insurer’s motion under Rule 14(a) to implead another
3
insurer in an action brought by plaintiff insurer for equitable contribution and subrogation); 2
4
Law and Prac. of Ins. Coverage Litig. § 15:1014 (noting that in an “equitable contribution”
5
cases, Rule 14 is a “means by which an insurer defending a policyholder’s coverage action can
6
effect the joinder of other insurers to share in the loss.”); A Cyc. of Federal Proc. § 72:2 (3rd
7
ed.) (Noting that in an “equitable contribution” case a co-insurer “may be impleaded even
8
though the party will not be liable to the defendant until judgment has been rendered against the
9
defendant.”); Rutter Cal. Prac. Guide Fed. Civ. Pro. Before Trial Ch. 7-F (“Impleader [under
10
Rule 14] is most commonly used for claims against a third party for . . . subrogation . . . or
11
contribution among joint tortfeasors.”).
ii. On An Issue of First Impression, the Court Holds that A Defendant
12
13
Insurer In An Equitable Contribution Action that Failed to
14
Implead Other Insurers May Not Reduce Its Fair Share Fraction
15
By Arguing On Summary Judgment that the Fraction’s
16
Denominator Should Include the Non-Party Insurers
17
Thus, this case presents an issue of first impression: if a defendant insurer in an equitable
18
contribution action fails to implead another insurer, may the defendant insurer reduce its fair
19
share fraction on summary judgment by arguing that the fraction’s denominator should include
20
that non-party insurer? The Court answers this question in the negative.5
21
In reaching this conclusion, the Court is guided by the general principle that equitable
22
contribution is a cause of action to “apportion a loss between two or more insurers who cover
23
24
5
Neither the parties nor this Court’s research have revealed any authority on this issue. In
25
addition, at least one court has recently noted the lack of authority dealing with a similar
26
situation: “an equitable contribution case in which the amounts paid by all participating insurers
27
were not before the court.” Scottsdale Ins. Co. v. Century Sur. Co., 182 Cal. App. 4th 1023,
28
1035, 105 Cal. Rptr. 3d 896, 905 (2010).
-11-
1
the same risk . . . so that each pays its fair share and one does not profit at the expense of the
2
others.” Fireman’s Fund Ins. Co. v. Maryland Cas. Co., 65 Cal. App. 4th 1279, 1296, 77 Cal.
3
Rptr. 2d 296, 306 (1998). An insurer’s right to equitable contribution “is not a matter of
4
contract, but flows ‘from equitable principles designed to accomplish ultimate justice in the
5
bearing of a specific burden.” Id. 1294-95.
In considering the equities, the Court notes that the Evanston Defendants’ failure to
6
7
implead Hartford inures entirely to the benefit of the primary insurer that refused to defend its
8
insured until after this Court ordered it to do so – Evanston – while potentially preventing the
9
first primary insurer to defend – Lexington – from ever obtaining complete relief. While the
10
Court’s inclusion of the two Hartford policies in the denominator is a de facto determination that
11
those policies created a duty to defend, such a determination does not bind Hartford because
12
Hartford is not a party to this action. See Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d
13
708, 713 (9th Cir. 2001) (explaining that the doctrine of res judicata, also referred to as claim
14
preclusion, bars any claims in a later case that could have been raised in a prior case only if the
15
prior case involved the same parties or parties in privity). Because Hartford is not bound by the
16
Court’s de facto conclusion, Lexington might never be able to recover from Hartford even if
17
Lexington brought a separate lawsuit against Hartford. If Lexington can not recover from
18
Hartford, Lexington will not be made whole, while Evanston will have evaded paying its fair
19
share.
20
Furthermore, at least one California court has rejected the allocation method proposed by
21
an insurer where the insurer did not take “steps to involve the other insurers in this equitable
22
contribution action” and where the insurer “stood to benefit financially in their absence.”
23
Scottsdale Ins. Co. v. Century Sur. Co., 182 Cal. App. 4th 1023, 1035, 105 Cal. Rptr. 3d 896,
24
905 (2010). Here, like in Scottsdale, the Evanston Defendants could have impleaded other
25
insurers at any time, but “stood to gain if the other insurers were not present, and stood to lose if
26
they were.” See id. Thus, like in Scottsdale, the Evanston Defendants are precluded from
27
raising their denominator argument now, given that an equitable contribution action requires the
28
-12-
1
Court to balance the equities and that allowing an insurer to benefit from its failure to implead
2
other insurers is inequitable.
3
In sum, the Court adopts the following rule: in an equitable contribution action, a
4
defendant insurer that failed to implead other insurers may not reduce its fair share fraction on
5
summary judgment by arguing that the fraction’s denominator should include the non-party
6
insurers. Accordingly, the Court GRANTS the Lexington Defendants’ Motion for Relief from
7
Judgment and VACATES the Prior Order’s holding that the denominator in this equitable
8
contribution action is 9. Instead, the Court holds that the denominator is 7, reflecting the 7
9
policies belonging to primary insurers who are parties to this case (Evanston, Lexington, and C
10
11
12
13
& F) and which the Court has already held created a duty to defend.
e. The Amounts that the Lexington and the Umbrella Insurers Overpaid Are
Reduced By the Amounts They Received From C & F in Settlement
“An insurer can recover equitable contribution only when that insurer has paid more than
14
its fair share.” Scottsdale Ins. Co. v. Century Sur. Co., 182 Cal. App. 4th 1023, 1036, 105 Cal.
15
Rptr. 3d 896, 906 (2010). If the plaintiff insurer “has not paid more than its fair share, it cannot
16
recover, even against an insurer who has paid nothing.” Id.
17
In determining the amount that Lexington and the Umbrella Insurers overpaid, the Prior
18
Order did not take into account the payments they received from C & F in settlement. The
19
Court agrees with the Evanston Defendants that this was error, although not for the reasons the
20
Evanston Defendants provide. See Evanston Defs. Opp’n and Cross Motion (Dkt. 637) at 2.
21
While the Lexington and Umbrella Insurers argue that these payments were “irrelevant,” they
22
cite no authority for this proposition and Scottsdale would appear to indicate otherwise. See
23
Lexington Defs. Opp’n (Dkt. 652) at 9.
24
25
26
f. Putting It All Together: Lexington and Evanston’s New Fair Share
Calculations
As noted previously, under the “time on the risk” method, courts determine a specific
27
insurer’s “fair share” by calculating: (1) a denominator, which is the total number of insurance
28
policies that created a duty to defend the insured in the underlying action; (2) a numerator,
-13-
1
which is the total number of insurance policies that created a duty to defend and are owned by
2
the specific insurer whose share the Court is calculating; (3) a fair share fraction, which is the
3
numerator divided by the denominator; and (4) the pie, which is the total amount of defense fees
4
the insured incurred in the underlying action for which the insurers owed a duty to defend. The
5
specific insurer’s “fair share” is the fair share fraction multiplied by the pie.
i. Lexington and Evanston’s Fair Shares Are Each $11,116,008
6
Regarding Lexington’s equitable contribution claim, the Court recalculates Lexington
7
8
and Evanston’s respective fair shares as follows:
(1) a denominator of 7, which is the total of two Lexington policies (calendar years 2001
9
10
and 2002), three C & F policies (calendar years 2003, 2004, 2005), and two Evanston policies
11
(2006, 2007) [7 = 2 Lexington + 3 C & F + 2 Evanston.].
(2) a numerator of 2 for Lexington, reflecting the two Lexington policies that the court
12
13
had previously held created a duty to defend, and 2 for Evanston, reflecting the two Evanston
14
policies that the court had previously held created a duty to defend.
15
(3) a fair share fraction of 2/7 for Lexington, and 2/7 for Evanston.
16
(4) a pie of $38,906,029.
17
The fair share is the fair share fraction multiplied by the pie. Thus, Lexington’s fair
18
share is $11,116,008 and Evanston fair share is $11,116,008. [$11,116,008 = $38,906,029 *
19
2/7].
20
ii. Lexington Overpaid $1,492,267
21
The amount Lexington overpaid is: (1) the amount Lexington paid into the pie; (2) minus
22
reimbursements Lexington received from other insurers for the fees that Lexington paid into the
23
pie; and (3) minus Lexington’s fair share. Here, Lexington paid into the pie $20 million.
24
Lexington received $7,391,725.50 in reimbursement from C & F. See Khetan Decl. Ex. 3
25
(Sealed Dkt. 638) at 5 (January 2012 settlement between Lexington and C & F). Lexington’s
26
revised fair share is $11,116,008.
27
28
Thus, the amount that Lexington overpaid is $1,492,267. [$1,492,267 = $20,000,000 –
$7,391,725.50 – 11,116,008].
-14-
1
2
iii. Evanston Shall Reimburse Lexington for the $1,492,267 that
Lexington Overpaid
3
Because the Evanston Defendants have not paid any of its fair share ($11,116,008) of the
4
$38.9 million pie, Lexington is entitled to reimbursement from the Evanston Defendants for the
5
amount that Lexington overpaid ($1,492,267).
6
7
8
9
10
Accordingly, the Court ORDERS Evanston to reimburse Lexington for the $1,492,267
that Lexington overpaid.
g. The Evanston Defendants’ Have An Equitable Subrogration Liability to
Chartis Because It Was Not A Volunteer
The Evanston Defendants correctly note that the Court’s prior Order (Dkt. 521) is
11
logically inconsistent because it explicitly refrains from addressing one of the Evanston
12
Defendants’ arguments against Chartis’s equitable subrogation claim, but nonetheless requires
13
the Evanston Defendants to pay Chartis for this claim. See Evanston Defs. Opp’n and Cross
14
Motion (Dkt. 637) at 2, 7. While the Court greatly appreciates the Evanston Defendants
15
bringing this logical inconsistency to the Court’s attention, the remedy the Evanston Defendants
16
seek is improper. Rather than simply eliminate the Evanston Defendants’ liability to Chartis –
17
the remedy desired by the Evanston Defendants – the Court will address the Evanston
18
Defendants’ argument on the merits.
19
The Court holds that Chartis did not act as a volunteer when it defended its insured,
20
MGA and thus Chartis is not precluded from recovering under a theory of equitable subrogation.
21
Accordingly, the Court VACATES the prior Order (Dkt. 521) regarding the text on pages 20:21-
22
21:17 and replaces it with the following.
23
24
25
i. Categories and Subcategories of Insurance
1. There Are Two Categories of Insurance: Primary versus
Secondary
26
27
28
-15-
1
Insurance policies are often grouped into two categories based on the terms of their
2
policies: (1) “primary”; and (2) “secondary,” which is often confusingly referred to as “excess.”6
3
“Primary” insurance “provides coverage immediately upon the occurrence of . . . an event giving
4
rise to liability,” such as an allegation in a complaint against the primary insurer’s insured. See
5
Legacy Vulcan Corp. v. Superior Court, 185 Cal. App. 4th 677, 689, 110 Cal. Rptr. 3d 795, 803
6
(2010). In contrast, “secondary” insurance provides coverage in relation to the coverage
7
provided by another insurer. See id.; compare Rutter Cal. Prac. Guide Ins. Lit. Ch. 8-C § 8:176
8
(“Primary insurance . . . provides immediate coverage upon the ‘occurrence’ of a ‘loss’ or the
9
‘happening’ of an ‘event’ giving rise to liability.”) with id. at § 8:177 (“Excess insurance . . .
10
provides coverage after other identified insurance is no longer on the risk.”).
11
Here, it is undisputed that Evanston, Lexington, and C & F are MGA’s primary insurers.7
12
2. Two Subcategories of Secondary Insurance: Umbrella versus
Excess
13
There are several subcategories of secondary insurance, the two relevant ones being: (1)
14
15
“excess”; and (2) “umbrella.” See Powerine Oil Co., Inc. v. Superior Court, 37 Cal. 4th 377,
16
398 (2005). “[U]mbrella” secondary insurance “cover[s] occurrences that are not covered by
17
underlying policies of insurance.” Id. at 398 n.9 (2005) (emphasis added). In contrast, “excess”
18
secondary insurance “attaches upon the exhaustion of underlying insurance coverage for a
19
claim.” Id. at 398 n.8; see also Legacy Vulcan Corp. v. Superior Court, 185 Cal. App. 4th 677,
20
689, 110 Cal. Rptr. 3d 795, 803 (2010) (comparing primary, excess, and umbrella insurance and
21
22
6
See, e.g., Century Indem. Co. v. London Underwriters, 12 Cal. App. 4th 1701, 1707 n.5, 16
23
Cal. Rptr. 2d 393, 397 n.5 (1993) (noting parties confusion of the terms “excess” and “umbrella”
24
when in fact the latter is a subcategory of the former).
25
7
The Court previously granted summary judgment to MGA and held that these three primary
26
insurers – Evanston, Lexington, and C & F – owed a duty to defend their mutual insured, MGA,
27
because the allegations in the underlying litigation (the SAAC and FAAC) created at least a
28
potential for coverage under each of the primary insurers’ policies.
-16-
1
explaining that “excess insurance provides coverage only upon the exhaustion of specified
2
primary insurance,” whereas “[u]mbrella insurance provides coverage for claims that are not
3
covered by the underlying primary insurance”); Rights and Responsibilities of Excess Insurers,
4
78 Denv. U. L. Rev. 29, 31 (2000) (“By essentially dropping down to provide primary coverage
5
or by filling a gap in primary coverage, an umbrella policy broadens the insured’s primary
6
coverage where an excess policy does not.”).8
3. The Umbrella Insurers Defended Their Insured Based on
7
Their Belief that the Umbrella Coverage Was Triggered
8
9
The Umbrella Insurers argue that they defended their insured, MGA, based on the
10
umbrella provision in their respective policies. Specifically, National relied on the provision in
11
its 2001 Policy under the heading “Umbrella Policy” that states National “will pay . . . those
12
sums . . . the Insured becomes legally obligated to pay as damages . . . because of . . . Personal
13
Injury or Advertising Injury not covered by Scheduled Underlying Insurance . . . .” See Parker
14
Decl. Ex. B (Dkt. 346) at 42 (National’s 2001 Policy language) (emphasis added); id. at Ex. C
15
104-05 (National letter to MGA explaining basis for insurer’s acceptance of defense). The 2001
16
Policy lists Evanston as an insurer under the heading “Schedule of Underlying Insurance.” See
17
id. at Ex. B at 63 (identifying the Evanston policy by the following three lines: “EVANSTON
18
INSURANCE CO.”; “00GLP1005176”; and “01/01101 01101102”).
Similarly, Chartis relied on the provision in its 2002 Policy under the heading
19
20
“Commercial Umbrella Policy Form” that states Chartis “ha[s] the right and duty to defend any
21
22
8
The categories “primary” versus “secondary” and “excess” versus “umbella” are simply
23
shorthand used to classify the types of language in various insurance policies. The Court uses
24
this shorthand to explain the errors in the Evanston Defendants’ argument that the Umbrella
25
Insurers were volunteers, but keeps in mind that a Court must “look to the specific language of
26
the [secondary insurer’s] policy to ascertain the existence of a duty to defend.” Ticor Title Ins.
27
Co. v. Employers Ins. of Wausau, 40 Cal. App. 4th 1699, 1707, 48 Cal. Rptr. 2d 368, 373
28
(1995).
-17-
1
claim or suit seeking damages . . . sought for . . . Personal Injury or Advertising injury covered
2
by this policy but not covered by any underlying insurance listed in the Schedule of Underlying
3
Insurance or any other underlying insurance providing coverage to the Insured.” Parker Decl.
4
Ex. A (Dkt. 346) at 7 (Chartis’ 2002 Policy language) (emphasis added); id. at Ex. D 131-32
5
(Chartis letter to MGA explaining basis for insurer’s acceptance of defense).
These provisions in the National 2001 and Chartis 2002 Policies each created “umbrella”
6
7
secondary insurance coverage because each phrase committed its respective insurer to “cover
8
occurrences that are not covered by underlying policies of insurance.” See Powerine Oil Co.,
9
Inc. v. Superior Court, 37 Cal. 4th 377, 398 n.9 (2005) (defining “umbrella” secondary insurer).
10
ii. A Secondary Insurer’s Payment to Its Insured Is Not Voluntary for
11
Purposes of Equitable Subrogation Where the Primary Insurer
12
Disputed that It Owed A Duty to Defend and, If the Primary
13
Insurer Was Correct, the Secondary Insurer’s Duty Would Be
14
Triggered
An insurer is a “volunteer” if it has “no interest to protect” by paying its insured. See
15
16
State Farm Fire & Casualty Co. v. Cooperative of Am. Physicians, Inc., 163 Cal. App. 3d 199,
17
203, 209 Cal. Rptr. 251, 253 (1984). However, an insurer’s interest need not be an actual legal
18
obligation to its insured. Home Ins. Co. v. Zurich Ins. Co., 96 Cal. App. 4th 17, 27, 116 Cal.
19
Rptr. 2d 583, 591 (2002) (“[A]n insurer who pays a claim for which it is not legally responsible
20
may be entitled to equitable subrogation.”).
21
The exact definition of an “interest to protect” is not entirely clear from California courts’
22
decisions, perhaps because equitable subrogation requires courts to engage in the inexact science
23
of balancing equities. After reviewing several authorities, however, this Court concludes that a
24
secondary insurer’s interest includes even its reasonable but incorrect belief that it might owe a
25
duty to defend.9 Such a reasonable belief exists where: (1) the primary insurer disputes that it
26
27
9
See Fireman’s Fund Ins. Co. v. Maryland Cas. Co., 21 Cal. App. 4th 1586, 1601 n.12, 26 Cal.
28
Rptr. 2d 762, 771 n.12 (1994) (noting that an insurer is not a volunteer for purposes of equitable
-18-
1
owes a duty to defend; and (2) if the primary insurer is correct that it owes no duty to defend, the
2
secondary insurer would owe a duty to defend their mutual insured. See Chicago Title Ins. Co.
3
v. AMZ Ins. Services, Inc., 188 Cal. App. 4th 401, 432, 115 Cal. Rptr. 3d 707, 733 (2010)
4
(holding that party was not a volunteer for purposes of equitable subrogation where, at the time
5
the payment was made, the defendant insurer disputed that it was liable to the insured and, if the
6
defendant insurer were correct, the plaintiff would be liable to the insured).
7
Here, as the Umbrella Insurers argue, the Umbrella Insurers acted not as volunteers but
8
rather to protect an interest because they had a reasonable belief that they might owe a duty to
9
defend MGA. See Umbrella Insurers Reply (Sealed Dkt. 441) at 4-8; Lexington Defs. Opp’n to
10
Cross-Motion (Dkt. 652) at 10. Their belief was reasonable because: (1) the Evanston
11
Defendants disputed that it owed a duty to defend; and (2) if the Evanston Defendants were
12
correct that it owed no duty to defend, the Umbrella Insurers would owe a duty to defend MGA.
13
Here, the first prong is satisfied because Evanston twice disputed that it owed a duty to defend.
The second prong is satisfied because the Umbrella Insurers’ policies created a duty to
14
15
defend MGA for claims “not covered by” the Evanston Policy. The National 2001 Policy
16
required National to defend claims “not covered by Scheduled Underlying Insurance,” and
17
defined such insurance as the Evanston 2001 Policy.10 Similarly, the Chartis 2002 Policy
18
19
subrogation where it “pays on the good faith, reasonable belief it might be liable” to the insured,
20
even if the insurer maintains that a court will ultimately conclude the insurer has no liability);
21
Pines of La Jolla Homeowners Assn. v. Indus. Indem., 5 Cal. App. 4th 714, 726, 7 Cal. Rptr. 2d
22
53, 60 (1992) (“Where an insurer settles in good faith prior to a judicial determination of
23
coverage, such insurer is not a mere volunteer and is entitled to pursue recovery [via]
24
subrogation . . . of amounts it paid which were in fact covered by the non-settling insurer.”)
25
disapproved on other grounds by Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal. 4th 645,
26
684-85 (1995).
27
10
See Parker Decl. Ex. B (Dkt. 346) at 42 (“[National] will pay . . . those sums . . . the Insured
28
becomes legally obligated to pay as damages . . . because of . . . Personal Injury or Advertising
-19-
1
created a “duty to defend any claim . . . not covered by . . . any other underlying insurance
2
providing coverage to the Insured.” Because the term “any other underlying insurance” is not
3
defined, California contract interpretation rules “resolve that ambiguity in favor of the
4
objectively reasonable expectations of the insured.” Legacy Vulcan Corp. v. Superior Court,
5
185 Cal. App. 4th 677, 691, 110 Cal. Rptr. 3d 795, 805 (2010) (interpreting undefined phrase
6
“any other underlying insurance” in umbrella policy). Given that Evanston was undisputedly
7
MGA’s GLC primary insurer in 2002, MGA’s reasonable expectations would have been that
8
this term meant Evanston’s 2002 policy.11 Thus, if Evanston were correct that it did not owe a
9
duty to defend, the Umbrella Insurers would owe a duty to defend.
10
11
12
Injury not covered by Scheduled Underlying Insurance . . . .”); id. at 63 (listing “EVANSTON
13
INSURANCE CO.” and “00GLP1005176” and “01/01101 01101102” under the heading
14
“Schedule of Underlying Insurance”).
15
11
See Parker Decl. Ex. A (Dkt. 346) at 7 (“[Chartis] ha[s] the right and duty to defend any claim
16
or suit seeking damages . . . sought for . . . Personal Injury or Advertising injury covered by this
17
policy but not covered by any underlying insurance listed in the Schedule of Underlying
18
Insurance or any other underlying insurance providing coverage to the Insured.”). Curiously,
19
unlike the National 2001 Policy, the Chartis 2002 Policy does not appear to define the phrase
20
“any underlying insurance listed in the Schedule of Underlying Insurance.” Compare Parker
21
Decl. Ex. A (Dkt. 346) at 24 (Chartis’ 2002 Policy that does not name a specific insurer under
22
the heading “GENERAL LIABILITY” in its “Schedule of Underlying Insurance.”) with id. at
23
Ex. B at 63 (National 2001 Policy identifying Evanston as an insurer under the heading
24
“Schedule of Underlying Insurance”). However, the Court need not determine the meaning of
25
the undefined phrase in the Chartis 2002 Policy because it concludes that Chartis reasonably
26
believed it had an interest to protect based on the other phrase “any other underlying insurance
27
providing coverage to the Insured.” See id. at Ex. A (Dkt. 346) at 7 (Chartis’ 2002 Policy
28
language).
-20-
1
The present case is like Chicago Title Insurance Co. v. AMZ Insurance Services, Inc., in
2
which the court held that a plaintiff “acted not as a volunteer, but to protect [an] interest” – and
3
thus was not precluded from seeking equitable subrogration – because, “at the time” the plaintiff
4
paid the insured, there was “a dispute whether [defendant insurers] or [plaintiff] was responsible
5
for covering [insured’s] loss.” Chicago Title Ins. Co. v. AMZ Ins. Services, Inc., 188 Cal. App.
6
4th 401, 433, 115 Cal. Rptr. 3d 707, 733-34 (2010). The insured sought compensation from
7
both the plaintiff and the defendant insurer. Id. The defendant insurers “asserted, and
8
continue[d] to assert, [that] they ha[d] no liability” under their insurance policy. Id. The court
9
reasoned that the dispute and plaintiff’s “potential liability created the necessary interest for
10
[plaintiff] to protect.” Id. Because the plaintiff had an interest to protect, it did not act as a
11
volunteer by paying the insured. Id.
12
Here, like in Chicago Title, the Umbrella Insurers were protecting an interest by paying
13
their insured because the Evanston Defendants disputed whether they or the Umbrella Insurers
14
owed a duty to defend their mutual insured. Like in Chicago Title, the insured, MGA, sought
15
compensation from both the Umbrella Insurers and Evanston Defendants. Id. Like in Chicago
16
Title, the Evanston Defendants created the dispute by “assert[ing], and continu[ing] to assert,”
17
that they owed no duty to defend MGA. Id. If the Evanston Defendants were correct that they
18
owed no duty to defend, the Umbrella Insurers owed a duty to defend. Thus, the Umbrella
19
Insurers had a reasonable belief that they might be liable to MGA.12 Because they had this
20
21
12
At oral argument, the Evanston Defendants stated that if the Umbrella Insurers had a
22
reasonable belief that the Umbrella Insurers owed a duty to defend, then the Evanston
23
Defendants had a reasonable belief that the Evanston Defendants did not owe a duty to defend.
24
To the extent the Evanston Defendants argue that this Court’s holding regarding the Umbrella
25
Insurers’ reasonable belief contradicts the Court’s prior holding that the Evanston Defendants do
26
owe a duty to defend, the Evanston Defendants are simply wrong on the law. The Umbrella
27
Insurers’ belief is reasonable not because of the language in Evanston’s policy, but rather
28
because Evanston disputed that the language in its policy made Evanston owe a duty to defend.
-21-
1
reasonable belief, they had an interest to protect. Because they had an interest to protect, they
2
did not act as volunteers by paying their insured and thus are not precluded from seeking
3
equitable subrogation.
4
Well after the Umbrella Insurers defended the insured, this Court concluded that the
5
Evanston Defendants did owe a duty to defend, and thus the Umbrella Insurers’ were incorrect
6
in believing that they owed a duty to defend. However, the fact that the Umbrella Insurer’s had
7
a reasonable but incorrect belief that they owed a duty to defend does not preclude their
8
recovery. See Home Ins. Co. v. Zurich Ins. Co., 96 Cal. App. 4th 17, 27, 116 Cal. Rptr. 2d 583,
9
591 (2002) (“[A]n insurer who pays a claim for which it is not legally responsible may be
10
entitled to equitable subrogation.”); cf. Clarendon Am. Ins. Co. v. Mt. Hawley Ins. Co., 588 F.
11
Supp. 2d 1101, 1106 (C.D. Cal. 2008) (noting, for purposes of equitable indemnity claim, that
12
“the fact that [plaintiff insurer] may have provided payment while unsure of its obligation does
13
not bar recovery once its obligation has been determined”); State Farm Fire & Cas. Co. v. E.
14
Bay Mun. Util. Dist., 53 Cal. App. 4th 769, 778-79, 62 Cal. Rptr. 2d 72, 77 (1997) (holding that
15
plaintiff insurer that paid its insured when others refused to do so was not a volunteer despite
16
“authority suggesting that [plaintiff insurer’s] policy exclusions would have precluded
17
coverage” because “the equities clearly favor” the plaintiff insurer where defendant was
18
“waiting, reviewing, reestimating – and all the while the insureds [were] living with the loss”
19
and “[t]o hold otherwise will only result in tardy satisfaction of legitimate claims and lead to
20
more litigation as insurers are forced to justify their denial of coverage when defending bad faith
21
claims”).
22
In sum, the Umbrella Insurers acted not as volunteers, but rather to protect an interest,
23
because they had a reasonable belief that they might owe a duty to defend MGA. Their belief
24
was reasonable because the Evanston Defendants disputed that they owed a duty to defend and,
25
if the Evanston Defendants were correct, the Umbrella Insurers would owe a duty to defend
26
MGA. Because the Umbrella Defendants are not volunteers, they are not precluded from
27
seeking equitable subrogation.
28
-22-
1
iii. The Evanston Defendants’ Cases Are Inapposite Because They
2
Involved Different Contract Language and A Different Cause of
3
Action than Those in the Present Case
4
The Evanston Defendants argue that Chartis was a volunteer because the Chartis 2002
5
Policy did not create a duty to defend MGA even if the Evanston Defendants owed no duty to
6
defend MGA. The Evanston Defendants argue that Chartis owed no duty to defend because at
7
least one of the primary insurers, Lexington, had agreed to defend MGA. The Evanston
8
Defendants rely on two California cases. See Evanston Defs. Opp’n to National and Chartis’
9
Summary J. (Dkt. 422) at 13-14 (citing Padilla Const. Co., Inc. v. Transp. Ins. Co., 150 Cal.
10
App. 4th 984 (2007) and Republic W. Ins. Co. v. Fireman's Fund Ins. Co., 241 F. Supp. 2d 1090,
11
1094 (N.D. Cal. 2003)). The Evanston Defendants’ argument is a red herring because these two
12
cases involve: (1) a different cause of action – an insurer’s duty to defend – than the equitable
13
subrogration cause of action at issue here; and (2) different contract language than the umbrella
14
secondary insurance at issue here.
15
First, both Padilla and Republic Western were actions between an insured and its insurer
16
in which the court held that the insurer owed no duty to defend; these cases say nothing about
17
the cause of action here, which is an umbrella insurer’s cause of action for equitable subrogation
18
against a primary insurer. See Padilla, 150 Cal. App. 4th at 988 (describing the issue before the
19
court as “whether an excess insurer has a duty to ‘drop down’ and defend in an underlying
20
action”); Republic Western, 241 F. Supp. 2d at 1092-93. The test to determine whether a duty to
21
defend exists is different than the test to determine whether an insurer is a volunteer for
22
equitable subrogation. The duty to defend exists where the allegations in the underlying
23
complaint are “merely potentially covered, in light of facts alleged or otherwise disclosed” in
24
the underlying suit. Buss, 16 Cal. 4th at 46; see also Pension Trust Fund for Operating
25
Engineers v. Federal Ins. Co., 307 F.3d 944, 951 (9th Cir. 2002) (“California courts have
26
repeatedly found that remote facts buried within causes of action that may potentially give rise
27
to coverage are sufficient to invoke the defense duty.”). In contrast, an insurer is not a volunteer
28
for purposes of equitable subrogation where the insurer has a “reasonable belief it might” owe a
-23-
1
duty to defend its insured, even if that belief is ultimately proven incorrect. See Fireman’s Fund
2
Ins. Co. v. Maryland Cas. Co., 21 Cal. App. 4th 1586, 1601 n.12, 26 Cal. Rptr. 2d 762, 771 n.12
3
(1994); Home Ins. Co. v. Zurich Ins. Co., 96 Cal. App. 4th 17, 27, 116 Cal. Rptr. 2d 583, 591
4
(2002) (“[A]n insurer who pays a claim for which it is not legally responsible may be entitled to
5
equitable subrogation.”). In short, a secondary insurer can have a reasonable belief that it might
6
owe a duty to defend for purposes of equitable subrogation without having a correct belief that it
7
owed a duty to defend. Given the difference between the volunteer rule for purposes of
8
equitable subrogation and the duty to defend, both Padilla and Republic Western are inapposite
9
to the present case.
Furthermore, Padilla and the present case are different because the policy in the former
10
11
used the word “and,” whereas the latter uses the word “or” – a deceptively small distinction that
12
is the bread and butter of lawyering. In Padilla, the umbrella insurer’s policy created a duty to
13
defend only those claims “not covered by” both the scheduled underlying insurer “and” other
14
“insurance available to the insured.” Padilla Const. Co., Inc. v. Transp. Ins. Co., 150 Cal. App.
15
4th 984, 994, 58 Cal. Rptr. 3d 807, 815 (2007) (umbrella insurance clause created a duty to
16
defend claims “not covered under . . . ‘scheduled underlying insurance’; and . . . ‘unscheduled
17
underlying insurance,’” and defining “Unscheduled underlying insurance” as “insurance policies
18
available to an insured, whether: . . . (1) primary; . . . (2) excess; . . . (3) excess-contingent; or . .
19
. (4) otherwise”). In contrast, in the present case, Chartis’s 2002 Policy created a duty to defend
20
those claims “not covered by” either the scheduled underlying insurer “or any other underlying
21
insurance providing coverage to the Insured.” See Parker Decl. Ex. A (Dkt. 346) at 7. In sum,
22
whereas the Padilla insurer’s duty to defend existed only if two conditions were satisfied, the
23
Chartis 2002 Policy’s duty to defend existed if either one of two conditions were satisfied.13
24
25
13
In addition, to the extent the Evanston Defendants argue that the policy in Padilla is the same
26
as that in the National’s 2001 Policy, the Evanston Defendants are wrong. National’s 2001
27
Policy created a duty to defend those claims “not covered by” the scheduled underlying
28
insurance – with no “and” or “or” at all. See id. Ex. B (Dkt. 346) at 42. Thus, the National 2001
-24-
1
Republic Western is even farther afield from the policy language of the present case.
2
Republic Western does not mention what conditions triggered the insurer’s duty to defend,
3
instead focusing on a part of the policy that stated “[w]e will consider the policy limits of
4
liability as listed in the Primary Insurance Schedule to be available regardless of any defense
5
which the insurer who provides the policy may assert because of your failure to comply with any
6
condition of the policy, or the inability of the insurer to pay by reason of bankruptcy or
7
insolvency.” Republic W. Ins. Co. v. Fireman's Fund Ins. Co., 241 F. Supp. 2d 1090, 1094
8
(N.D. Cal. 2003). Given that Republic Western does not discuss the part of the insurance
9
contract specifying what triggered the duty to defend, that case offers no guidance to this court.
10
11
12
13
14
15
In sum, the Evanston Defendants’ two cases do not persuade the Court to deviate from its
conclusion that the Umbrella Insurers are not volunteers.
h. Because the Umbrella Insurers Were Not Volunteers, They May Collect
Their Total Loss From Evanston, But They Chose Not to Do So
i. The Umbrella Insurers’ Total Loss is $12,608,278
As explained above and in the Prior Order, the Umbrella Insurers have satisfied all the
16
elements of equitable subrogration. Because an insurer’s duty to defend requires it to defend the
17
entire action, that is, to pay for all the insured’s defense fees and costs, Evanston was required to
18
pay all the defense fees and costs of MGA. See Buss v. Superior Court, 16 Cal. 4th 35, 46, 49
19
(1997). Because the Umbrella Insurers stand in the shoes of their insured, MGA, they are
20
entitled to collect all their defense fees and costs from Evanston.
21
The Umbrella Insurers’ total loss is their payments for MGA’s defense fees and costs
22
minus any reimbursements they have received from other insurers for these fees and costs. As
23
noted in the Prior Order, the Umbrella Insurers’ payments for defense fees and costs totaled
24
$18,906,029. Evanston reimbursed the Umbrella Insurers $689,477. C & F reimbursed the
25
Umbrella Insurers $5,608,275.50. See Khetan Decl. Ex. 3 (Sealed Dkt. 638) at 5 (January 2012
26
27
Policy’s duty to defend existed if one condition was satisfied, whereas the Padilla insurer’s duty
28
to defend existed only if two conditions were satisfied.
-25-
1
settlement between National and C & F). Thus, Umbrella Insurers’ total loss is $12,608,278.
2
[$12,608,278 = $18,906,029 – $689,477 – $5,608,275.50].
ii. However, the Court Reduces the Evanston Defendants’ Liability at
3
4
the Request of the Umbrella Insurers to Avoid Providing the
5
Evanston Defendants With an Equitable Contribution Claim
At oral argument, however, the Umbrella Insurers explained that they wish to limit their
6
7
recovery from the Evanston Defendants to avoid providing the Evanston Defendants with an
8
equitable contribution claim against the other insurers with whom the Umbrella Insurers have
9
settled. Specifically, the Umbrella Insurers requested that the Court reduce the Umbrella
10
Insurers’ recovery so that the Evanston Defendants’ total liability – for Lexington’s equitable
11
contribution plus the Umbrella Insurers’ equitable subrogation claims – does not exceed
12
$10,919,015. See Response to 4/12/2012 Order (Dkt. 684) at 8 n.1 (explaining basis for
13
$10,919, 015 calculation). As the Court explained at oral argument, it is happy to reduce the
14
Umbrella Insurer’s recovery to at their request.14
Accordingly, although the Umbrella Insurers would be entitled to recover their entire loss
15
16
from the Evanston Defendants, the Court limits the Umbrella Insurers’ recovery at their request
17
so that the Evanston Defendants’ total liability does not exceed $10,919,015. The Court deducts
18
from $10,919,015 the amount that the Evanston Defendants are liable to Lexington, which is
19
$1,492,267. Thus, the Evanston Defendants’ liability to the Umbrella Insurers for their
20
equitable subrogation claim is $9,426,748. [= $10,919,015 – 1,492,267]
Accordingly, the Court ORDERS Evanston to pay the Umbrella Insurers $9,426,748 for
21
22
their equitable subrogation claim.
i. The Court Reduces the Prejudgment Interest on the Evanston
23
Defendants’ Equitable Subrogation Liability from 10 to 7 percent
24
25
26
14
The Court expresses no opinion as to whether this $10,919,015 number actually accomplishes
27
the Umbrella Insurers’ goal of eliminating an equitable contribution claim by the Evanston
28
Defendants against the other insurers with whom the Umbrella Insurers have settled.
-26-
1
The Court’s prior Order (Dkt. 521) imposed a 10 percent prejudgment interest on
2
payments for both the equitable contribution and equitable subrogation claims. The Evanston
3
Defendants correctly note that the California Constitution states that “[i]n the absence of the
4
setting of such rate by the Legislature, the rate of interest on any judgment rendered in any court
5
of the state shall be 7 percent per annum.” Cal. Const. art. XV, § 1; see Evanston Defs. Opp’n
6
and Cross Motion (Dkt. 637) at 2. However, the Evanston Defendants neglect to mention that
7
liability for the breach of a “contract entered into after January 1, 1986,” is subject to
8
prejudgment interest at “10 percent per annum after a breach.” Cal. Civ. Code § 3289 (West).
9
Because the Umbrella Insurers’ claims for equitable subrogration are based on
10
Evanston’s 2001 and 2002 Policies with MGA, those claims are based on contract and thus
11
subject to 10 percent prejudgment interest. See Clarendon Nat. Ins. Co. v. Ins. Co. of W., CV F
12
99 5461 SMS, 2006 WL 2594452 at *3 (E.D. Cal. Sept. 11, 2006) (extensively analyzing the
13
issue and holding that 10 percent statutory prejudgment interest applied to secondary insurer’s
14
equitable subrogration claim because such claims are based in insured’s breach of contract claim
15
against its primary insurer). Thus, the Court does not change that the Prior Order regarding the
16
Evanston Defendants’ liability for 10 percent prejudgment interest on the Umbrella Insurers’
17
equitable subrogration claim.
18
19
However, because Lexington’s equitable contribution claim is based in equity, not on a
breach of contract, the Court reduces the prejudgment interest on that claim to 7 percent.
20
Accordingly, the Court VACATES the prior Order (Dkt. 521) regarding the 10 percent
21
prejudgment interest on Lexington’s equitable contribution claim and REPLACES the interest
22
rate with 7 percent.
23
j. Conclusion
24
In sum, the Court changes its Prior Order (Dkt. 521) to: (1) add an explanation as to why
25
the pie is $38.9 million and not larger; (2) decrease the denominator from 9 to 7; (3) reduce the
26
amounts Lexington and the Umbrella Insurers overpaid by the amounts they received in
27
settlement with C & F; (4) add an explanation as to why the Evanston Defendants’ have an
28
equitable subrogration liability to Chartis; (5) increase the amount the Evanston Defendants owe
-27-
1
Chartis and National; and (5) reduce the prejudgment interest on the Evanston Defendants’
2
equitable subrogation liability from 10 to 7 percent.
These holdings do not change the Court original holding that the Evanston Defendants
3
4
are liable to Lexington under a theory of equitable contribution and to the Umbrella Insurers
5
under a theory of equitable subrogation. However, these holdings do change the amount by
6
which the Evanston Defendants are liable. The Court summarizes these changes as follows:
(1)
7
The Court ORDERS the Evanston Defendants to reimburse Lexington for the
8
$1,492,267 that Lexington overpaid. The Court VACATES its previous holding
9
that this amount was $4,444,444.44, which failed to account for Lexington’s
settlement with C & F.
10
(2)
11
The Court ORDERS the Evanston Defendants to pay the Umbrella Insurers
12
$9,426,748 for their equitable subrogation claim. The Court VACATES its
13
previous holding that this amount was only $4,048,122.66.
III.
14
The Court Denies the Evanston Defendants’ Motion to Amend Their Answer
and Cross-Claims
15
The Evanston Defendants have also moved for leave to amend their answer and cross-
16
17
claims to add additional cross-claims for equitable contribution, equitable subrogation, and
18
equitable indemnity against every insurer that is already a party to this action.15 See Evanston
19
Defs. Mot. Amended Answer and Cross-Claims (Dkt. 633); Khetan Decl. Ex. B (Dkt.635). The
20
Court DENIES the Evanston Defendants’ Motion.
a. The Court Denies As Futile the Evanston Defendants’ Claims Against the
21
Umbrella Insurers
22
23
24
25
15
The Evanston Defendants’ failure to add Hartford reinforces the Court’s belief that it would be
26
inequitable to include Hartford in the denominator, as the Evanston Defendants appear to desire
27
to “benefit financially in [Hartford’s] absence.” See Scottsdale Ins. Co. v. Century Sur. Co., 182
28
Cal. App. 4th 1023, 1035, 105 Cal. Rptr. 3d 896, 905 (2010).
-28-
1
This Court has already held that the Umbrella Insurers owed no duty to defend because
2
all the primary insurers who are a party to this action owed a duty to defend. See Order (Dkt
3
679). Because the Umbrella Insurers owed no duty to defend, the Evanston Defendants can not
4
recover from the Umbrella Insurers under a theory of equitable contribution, equitable
5
subrogation, or equitable indemnity. Accordingly, the Evanston Defendants’ Motion is
6
DENIED as to the Umbrella Insurers because it would be futile.
7
8
9
b. The Court Denies For Lack of Good Cause the Evanston Defendants’
Motion for Leave to Add Cross-Claims Against Other Primary Insurers
Where, as here, a court provided a “pretrial scheduling order that established a timetable
10
for amending the pleadings” and that deadline has “expired,” the ability to amend is evaluated
11
under the stricter Federal Rule of Civil Procedure 16 rather than the more liberal Rule 15.
12
Coleman v. Quaker Oats Co., 232 F.3d 1271, 1294 (9th Cir. 2000); see also Order (09-7461 Dkt
13
49) (setting September 13, 2010, deadline to amend the pleadings). Rule 16 requires a party to
14
satisfy the requirements of Rule 15, as well as show “good cause” for its delay in seeking leave
15
to amend. See Fed. R. Civ. P. 16(b)(4); Coleman, 232 F.3d at 1294.
16
To allow the Evanston Defendants to amend would allow a non-defending insurer to drag
17
defending insurers through years of litigation regarding the former’s refusal to defend and then
18
to expose the defending insurers to new claims seven weeks before trial, all because the non-
19
defending insurer finally chose to settle with its insured after denying a defense for over 20
20
months. Essentially, allowing the Evanston Defendants to amend punishes insurers who agreed
21
to defend the insured and rewards the non-defending insurer for refusing to settle meritorious
22
claims by its insured. That is not equity; it is extortion. It is also contrary to well-established
23
precedent which holds that a district court may deny a motion to amend where, as here,
24
discovery has closed and summary judgments motions have already been made. See Matsumoto
25
v. Republic Ins. Co., 792 F.2d 869, 872 (9th Cir. 1986) (denial of leave to amend was not abuse
26
of discretion where “motion was made after discovery had commenced and at the same time
27
[that movant’s opponant] moved for summary judgment”); Solomon v. N. Am. Life & Cas. Ins.
28
Co., 151 F.3d 1132, 1139 (9th Cir. 1998) (denial of leave to amend was not abuse of discretion
-29-
1
where motion was made “on the eve of the discovery deadline” and thus amendment could
2
cause “undue delay and prejudice”).
3
4
Accordingly, the Court DENIES the Evanston Defendants’ Motion of Leave to File
Amended Answer and Cross-Claims (Dkt. 633).
5
IV.
6
For the foregoing reasons, the Court DENIES the Evanston Defendants’ Motion for
7
8
Disposition
Leave to File Amended Answer and Cross-Claims (Dkt. 633).
The Court GRANTS all parties’ Motions for Relief from Judgment (Dkts. 590, 636) to
9
the extent they ask the Court to reconsider its Prior Order (Dkt. 521). See MGA Entm’t, Inc. v.
10
Hartford Ins. Group, ED CV 08-0457-DOC, 2012 WL 628203, 2012 U.S. Dist. LEXIS 23998
11
(C.D. Cal. Feb. 24, 2012).
12
Regarding the specific relief sought by each party, the Court GRANTS the Lexington
13
Defendants’ Motion for Relief from Judgment (Dkt. 590), VACATES the Prior Order’s holding
14
on pages 17:13-18:3 that the denominator in this equitable contribution action is 9, and replaces
15
it with the text in this order holding that the denominator is 7.
16
17
18
Regarding the specific relief sought by the Evanston Defendants’ Motion for Relief from
Judgment (Dkt. 636), the Court:
(1)
explanation in this order as to why the pie is $38.9 million and not larger;
19
20
DENIES the Motion to the extent it seeks to increase the pie, but adds the
(2)
GRANTS the Motion to the extent it seeks to reduce the amounts Lexington
21
and the Umbrella Insurers overpaid by the amounts they received in settlement
22
with C & F;
23
(3)
DENIES the Evanston Defendants’ request to eliminate their liability to
24
Chartis, but adds the explanation in this order as to why the Evanston
25
Defendants’ have an equitable subrogration liability to Chartis;
26
(4)
INCREASES the amount the Evanston Defendants owe Chartis and National
27
after reconsidering the Evanston Defendants’ liability to these Umbrella
28
Insurers;
-30-
1
(5)
GRANTS the request to reduce the prejudgment interest on the Evanston
2
Defendants’ equitable contribution liability from 10 to 7 percent, but DENIES
3
the request regarding the Evanston Defendants’ equitable subrogration
4
liability.
5
These holdings do not change the Prior Order’s ruling that the Evanston Defendants are
6
liable to Lexington under a theory of equitable contribution and to the Umbrella Insurers under a
7
theory of equitable subrogation. However, these holdings do change the amount by which the
8
Evanston Defendants are liable to the other insurers. Thus, the Court ORDERS the Evanston
9
Defendants to pay:
10
(3)
its previous holding that this amount was $4,444,444.44.
11
12
13
Lexington $1,492,267 for its equitable contribution claim. The Court VACATES
(4)
The Umbrella Insurers $9,426,748 for their equitable subrogation claim. The
Court VACATES its previous holding that this amount was only $4,048,122.66.
14
15
16
17
DATED: April 18, 2012
__________________________________
DAVID O. CARTER
UNITED STATES DISTRICT JUDGE
18
19
20
21
22
23
24
25
26
27
28
-31-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?