Travelers Property Casualty Company Of America v. Liberty Surplus Insurance Co.

Filing 33

MEMORANDUM and ORDER signed by Senior Judge William B. Shubb on 2/22/2018 DENYING 11 Defendant's Motion for Summary Judgment. (Kirksey Smith, K)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA, a
Connecticut corporation,

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Plaintiff,

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v.

Defendants.

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MEMORANDUM AND ORDER RE: MOTION
FOR SUMMARY JUDGMENT

LIBERTY SURPLUS INSURANCE
CO., a Massachusetts
corporation; and DOES 1
through 10 inclusive,

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CIV. NO. 2:16-2752 WBS EFB

Plaintiff Travelers Property Casualty Company of
America (“Travelers”) seeks to compel defendant Liberty Surplus
Insurance Company (“Liberty”) to reimburse plaintiff for half of
the attorney’s fees plaintiff allegedly incurred while
intervening in a lawsuit on behalf of nonparty Dura Art Stone,
Inc. (“Dura”).

Presently before the court is defendant’s Motion

for Summary Judgment (Docket No. 11).
I.

Factual and Procedural Background
On September 11, 2012, the Regents of the University of

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California initiated a lawsuit (“the Regents Action”) against

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Howard S. Wright Construction Co. (“Wright Construction”) for

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alleged defects and damages to buildings on the University of

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California--Davis campus.

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October 31, 2012, Wright Construction filed a cross-complaint

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against Dura and various other subcontractors alleging claims for

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breach of contract and declaratory relief.

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receiving notice of the Regents Action, plaintiff agreed to

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intervene on behalf of Dura in the action.

(Compl. (Docket No. 1) ¶ 11.)

(Id.)

On

After

(Id. ¶ 12.)

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Regents Action is now settled and has been dismissed.

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The

Mot. for Leave at 5.)

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(Pl.’s

Plaintiff and defendant had both issued Dura a

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Commercial General Liability insurance policy.

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Stoller (“Stoller Decl.”) (Docket No. 11-4) ¶ 4; Decl. of David

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H. Waters (“Waters Decl.”) (Docket No. 11-3) ¶ 5.)

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suspended by the California Secretary of State on May 28, 2009

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for failure to comply with its obligations under the California

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Corporations Code.

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by the California Franchise Tax Board on August 1, 2011, for

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failure to comply with its tax obligations.

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suspended throughout the duration of the Regents Action, and was

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still suspended at the time this lawsuit was filed.

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(Waters Decl. ¶ 7.)

(Decl. of Evan H.

Dura was

Dura was also suspended

(Id.)

Dura remained

(Id. ¶ 8.)

On November 21, 2016, Travelers filed this complaint

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against Liberty asserting claims for (1) Declaratory Relief Re:

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Duty to Defend; (2) Declaratory Relief Re: Duty to Indemnify; and

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(3) Declaratory Relief Re: Allocation of Fees and Costs.

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II.

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Discussion
Defendant contends that it is entitled to summary
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judgment on the issue of whether it had a duty to defend and

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indemnify Dura, or an equitable duty and responsibility to pay

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fees and costs incurred by plaintiff on behalf of Dura.

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A.

Duty to Defend

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Throughout the Regents Action, Dura was suspended by

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the California Secretary of State and the Franchise Tax Board.

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Under the California Revenue and Taxation Code § 23301, a

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suspended company is barred from exercising its corporate powers,

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rights, and privileges.

See Cal. Rev. & T. Code § 23301.

The

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phrase “powers, rights, and privileges” has been interpreted to

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include a corporation’s right to engage in litigation activities

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and defend itself.

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v. Design MTC, 85 Cal. App. 4th 553, 560 (4th Dist. 2000) (when a

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corporation is suspended, it is “disabled from participating in

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any litigation activities”).

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See, e.g., Palm Valley Homeowners Ass’n Inc.

Although California Revenue and Taxation Code §

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19719(a) makes it a crime for any person “to exercise the powers,

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rights, and privileges of a corporation that has been suspended,”

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§ 19719(b) specifically excludes “any insurer, or counsel

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retained by an insurer on behalf of the suspended corporation,

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who provides a defense for a suspended corporation” from coming

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within the scope of this statute.

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see also Kaufman & Broad Cmtys., Inc. v. Performance Plastering,

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Inc., 136 Cal. App. 4th 212, 219 (3d Dist. 2006).

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while the suspended corporation is legally barred from defending

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itself, an insurance company may provide a defense for said

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corporation, so long as the insurer does so “in its own name, []

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not in the name of the suspended corporation.”
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Cal. Rev. & T. Code § 19719;

Accordingly,

El Escorial

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Owners’ Ass’n v. DLC Plastering, Inc., 154 Cal. App. 4th 1337,

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1350 (2d Dist. 2007), as modified on denial of reh’g (Oct. 3,

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2007).

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insurers that are obligated to defend suspended corporations.”

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Id.

In fact, the purpose of this exemption is to “protect[]

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Accordingly, although Dura was unable to defend itself,

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both plaintiff and defendant could have defended Dura, albeit not

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in Dura’s name.

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court turns to the language of the insurance policy to see if

Therefore, because doing so was not illegal, the

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such defense was obligated.

When analyzing the policy, there is

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no indication that defendant’s duties were to be extinguished or

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modified in any way if the insured corporation were to become

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suspended.

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provision that takes away or limits coverage reasonably expected

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by an insured must be conspicuous, plain and clear.”

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Farmers Ins. Exch., 32 Cal.4th 1198, 1204 (2004).

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policy, no limitations related to a corporation’s suspension are

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addressed at all.

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law that Dura’s suspension relieved defendant of its duty to

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defend, and defendant’s Motion for Summary Judgment on that

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ground must be denied.

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B.

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Under California law, an insurer’s right of equitable

The California Supreme Court has stated that “any

Haynes v.

In defendant’s

Thus the court cannot conclude as a matter of

Duty and Responsibility to Pay Fees and Costs

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contribution arises when several insurers are obligated to

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indemnify or defend the same insured.

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Maryland Cas. Co., 65 Cal. App. 4th 1279, 1293 (1st Dist. 1988).

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“One of the firm principles undergirding the doctrine of

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equitable contribution is that two or more insurers share an
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Fireman’s Fund Ins. Co. v.

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obligation to the common insured.”

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Cas. Co., 86 Cal. App. 4th 929, 937 (2d Dist. 2001).

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courts have noted that “[i]t would be wholly capricious if some

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insurers could avoid liability for contribution by exploiting the

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corporate suspension of an insured . . . leaving other insurers

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to bear the loss, but barred from recovering equitable

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contribution.”

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Angeles, 60 Cal. App. 4th 342, 347 (2d Dist. 1997).

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Am. Cont’l Ins. Co. v. Am.
California

Truck Ins. Exchange v. Superior Court of Los

Here, because the court cannot conclude as a matter of

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law that plaintiff and defendant were not both obligated to

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defend Dura, the court cannot conclude there was not a “common

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obligation that is legally due from multiple insurers,” which

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would provide a basis for contribution.

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Cal. App. 4th at 937.

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to make contribution to plaintiff for the money it incurred in

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defense of the Regents Action, and the court must therefore deny

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defendant’s Motion for Summary Judgment on that ground.

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Am. Cont’l Ins. Co., 86

Accordingly, defendant would have a duty

IT IS THEREFORE ORDERED that Defendant’s Motion for

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Summary Judgment (Docket No. 11) be, and the same hereby is,

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DENIED.

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Dated:

February 22, 2018

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