Navigators Specialty Insurance Company v. St Paul Surplus Lines Insurance et al

Filing 108

ORDER by Judge Samuel Conti denying 90 Motion for Summary Judgment; granting 93 Motion for Summary Judgment. (sclc1, COURT STAFF) (Filed on 6/17/2015)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA united States District Court For the Northern District of California 8 9 10 11 12 13 14 15 16 17 NAVIGATORS SPECIALTY INSURANCE COMPANY, ) Case No. 13-cv-03499 SC ) ) ORDER ON CROSS MOTIONS FOR Plaintiff, ) SUMMARY JUDGMENT ) v. ) ) ) ST. PAUL SURPLUS LINES INSURANCE ) COMPANY, LIBERTY SURPLUS ) INSURANCE CORPORATION, TRAVELERS ) PROPERTY CASUALTY COMPANY OF ) AMERICA, NORTH AMERICAN CAPACITY ) INSURANCE COMPANY, and DOES 1 ) through 100, inclusive, ) ) Defendants. ) ) 18 19 20 21 I. INTRODUCTION This matter concerns an action by Navigators Specialty 22 Insurance Company ("Navigators") against several insurance 23 carriers, including defendant North American Capacity Insurance 24 Company ("NAC"), for contribution of defense fees incurred in the 25 defense of Navigator's named insured, McDevitt & McDevitt 26 Construction Corporation ("McDevitt"), for claims arising from a 27 construction project in Petaluma, California. 28 are Navigators' and NAC's cross motions for summary judgment as to Now before the Court 1 NAC's duty to defend McDevitt under California law. Both motions 2 are fully briefed,1 and the Court finds them suitable for 3 disposition without oral argument pursuant to Civil Local Rule 7- 4 1(b). The essential facts are undisputed. Because McDevitt is not an additional insured to the NAC 5 defend McDevitt. 8 united States District Court insurance policy, Navigators cannot prove that NAC had a duty to 7 For the Northern District of California 6 reimbursement of defense fees and costs from NAC. 9 Navigators' partial motion for summary judgment as to NAC's duty to 10 Navigators therefore has no right to Accordingly, defend is DENIED and NAC's motion for summary judgment is GRANTED. 11 II. BACKGROUND 12 This case involves causes of action for declaratory relief, 13 14 equitable contribution, and equitable subrogation arising out of 15 NAC's alleged breach of its duty to defend and indemnify 16 Navigators' named insured, McDevitt, against two underlying and 17 consolidated actions for alleged construction defects ("Underlying 18 Actions"). 19 McDevitt as an additional insured under F&M Steel, Inc.'s ("F&M") 20 insurance policy with NAC ("NAC Policy"). A. 21 Navigators alleges that NAC had a duty to defend The Underlying Actions The Underlying Actions arose out of alleged defects in the 22 23 design and construction of a commercial condominium complex located 24 at 3820 Cypress Drive in Petaluma, California ("Project"). 25 McDevitt was the general contractor for the Project, and F&M 26 1 27 28 ECF Nos. 90 ("Navigators' Mot."); 92 ("NAC's Opp'n"); 96 ("Navigators' Reply"); 93 ("NAC's Mot."); 99 ("Navigators' Opp'n"); 101 ("NAC's Reply"). 2 1 subcontracted with McDevitt to provide "a complete structural steel 2 package" for the Project ("Subcontract"). 3 Facts ("JSF") ¶ 3. 4 subcontract was completed in June of 2005. 5 performed "EXTRA" work on the Project in November 2005, consisting 6 of the installation of a lavatory sink bracket in unit four of the 7 condominium complex. Joint Stipulation of F&M’s original scope of work under the In addition, F&M Id. ¶ 5. united States District Court For the Northern District of California 8 In the first of the Underlying Actions, a condominium 9 association sought damages from McDevitt and F&M for alleged 10 construction defects to the Project's common areas. 11 Condo Assoc. v. MMM Enterprises, LLC, et al., Sonoma County 12 Superior Court Case No. SCV248794 ("3820 Cypress Action"). 13 Navigators defended McDevitt in the 3820 Cypress Action, and NAC 14 defended F&M. 15 3820 Cypress In the second of the Underlying Actions, the owners of units 16 three, nine, ten, and eleven of the Project sought damages from 17 McDevitt and F&M for alleged construction defects to those units. 18 Point Reyes Bird Observatory, et al. v. MMM Enterprises, LLC, et 19 al., Sonoma County Superior Court Case No. SCV250623 ("PRBO 20 Action"). 21 F&M. Again, Navigators defended McDevitt, and NAC defended 22 On February 4, 2013, the 3820 Cypress Action and the PRBO 23 Action were consolidated (collectively "Underlying Actions"). 24 Navigators tendered the defense of McDevitt for the Underlying 25 Actions to NAC, asserting that Navigators was entitled to NAC's 26 participation in the defense and indemnity of McDevitt because 27 McDevitt was allegedly an additional insured under the NAC Policy. 28 In response, NAC disclaimed coverage by letter, asserting that 3 1 McDevitt was not an additional insured under F&M's policy. 2 B. The Policies 3 F&M's Subcontract with McDevitt required F&M to "obtain a 4 comprehensive policy of public liability insurance . . . 5 includ[ing] coverage for liability assumed under contract or 6 agreement and completed operations coverage . . ." 7 NACC000002. united States District Court For the Northern District of California 8 The Subcontract further provided that the subcontractor shall name [McDevitt] . . . as additional insureds. The following language will be included by endorsement . . . : "It is further agreed that such insurance as is afforded by this policy for the benefit of the above additional insured(s) shall be PRIMARY insurance as respects any claims . . . arising out of the named insured’s operations . . ." 9 10 11 12 JSF, Ex. 1 at Id. The NAC Policy provided F&M commercial general liability 13 14 coverage for bodily injury and property damage during the policy 15 period of October 1, 2005 to October 1, 2006 only if 16 (1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; and 17 18 (2) The "bodily injury" during the policy period. or "property damage" occurs 19 JSF, Ex. 11 at NAC000045. 20 Pursuant to the Subcontract, F&M also obtained an additional 21 insured endorsement modifying the NAC Policy so as to include 22 [a]ny person or organization to which you are obligated by virtue of written contract to provide insurance such as is afforded by this policy, but only with respect to (1) occurrences taking place after such written contract has been executed and (2) occurrences resulting from work performed by you during the policy period, or occurrences resulting from the conduct of your business during the policy period.2 23 24 25 26 27 28 2 The only specially defined terms are the words “you” -- defined as the named insured, F&M (JSF, Ex. 11 at NAC000052) -- and 4 1 JSF ¶ 17, Ex. 12 ("AI Endorsement") (emphasis added). Navigators 2 claims that McDevitt qualified as an additional insured under this 3 provision. NAC disagrees, arguing that the work performed by F&M 4 that allegedly caused the occurrences giving rise to the Underlying 5 Actions -- that is, the property damage to the common areas and 6 units three, nine, ten, and eleven of the Project -- occurred prior 7 to the policy period. 8 united States District Court For the Northern District of California C. Litigation History 9 Navigators filed a Third Amended Complaint for declaratory 10 relief regarding defendants' duty to defend and indemnify McDevitt 11 in the Underlying Actions, equitable contribution regarding defense 12 costs associated with the Underlying Actions, and equitable 13 subrogation, naming NAC and three other insurance companies as 14 defendants. ECF No. 55 ("Compl."). The defendant insurance 15 companies insured McDevitt's subcontractors. The subcontractors 16 were defendants -- along with McDevitt -- in the Underlying 17 Actions. Navigators argues that it is entitled to contribution 18 from the defendant insurance companies for the defense costs and 19 indemnity it incurred in the Underlying Actions on behalf of 20 McDevitt because McDevitt was allegedly an additional insured under 21 the policies issued by the defendants to McDevitt's subcontractors. 22 On April 24, 2015, Navigators filed a motion for summary 23 judgment as to NAC's duty to defend McDevitt in the Underlying 24 Actions. NAC filed a cross motion for summary judgment on May 8, 25 2008. Both motions are now before the Court. 26 27 28 “occurrence” -- defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions” (Id. at NAC000063). 5 1 III. LEGAL STANDARD Entry of summary judgment is proper "if the movant shows that 4 there is no genuine dispute as to any material fact and the movant 5 is entitled to judgment as a matter of law." 6 56(a). 7 party must either produce evidence negating an essential element of 8 united States District Court A. 3 For the Northern District of California 2 Summary Judgment the nonmoving party's claim or defense or show that the nonmoving 9 party does not have enough evidence of an essential element to Fed. R. Civ. P. "In order to carry its burden of production, the moving 10 carry its ultimate burden of persuasion at trial." 11 Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th 12 Cir. 2000). 13 all justifiable inferences are to be drawn in his favor." 14 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). 15 judgment should be entered against a party that fails to make a 16 showing sufficient to establish the existence of an element 17 essential to its case. 18 (1986). 19 B. 20 Nissan Fire & "The evidence of the nonmovant is to be believed, and Summary Celotex Corp. v. Catrett, 477 U.S. 317, 323 Insurance Contract Interpretation Where the underlying facts are undisputed, interpretation of an 21 insurance policy is a question of law. 22 Mendez, 213 Cal. App. 3d 41, 45 (1989); see also Legacy Vulcan 23 Corp. v. Super. Ct., 185 C.A. 4th 667, 688 (2010) ("Contract 24 interpretation, including the resolution of any ambiguity, is 25 solely a judicial function, unless interpretation turns on 26 credibility of extrinsic evidence."). 27 28 Merced Mut. Ins. Co. v. California courts follow four basic rules of construction when interpreting an insurance policy: 6 1 2 3 4 (a) Unambiguous policy terms are given their "plain meaning" in the "context" of the policy and of the way in which they are used. (b) In the absence of a plain meaning, that is, where the terms are in fact ambiguous, they are construed so as to give effect to the insured's "objectively reasonable expectations." 5 6 7 (c) If the previous rule fails to resolve the ambiguity, the terms are construed against the insurer . . . (d) Even if unambiguous, exclusions from coverage must be "conspicuous, plain, and clear" to be enforceable. united States District Court For the Northern District of California 8 9 2 Witkin, Summary of Cal. Law 10th (2005), Insurance, § 48 10 (internal citations omitted); see also Legacy Vulcan Corp., 185 11 C.A. 4th at 688 (describing the rules of policy interpretation). 12 13 C. Actions to Obtain Contribution from a Coinsurer In an action by an insurer to obtain contribution from a 14 coinsurer, the burden is on the insurer who paid the loss to show 15 that a potential coverage obligation arose or existed under the 16 coinsurer's policy. 17 CA 4th 874, 879 (2006). 18 when it makes a prima facie showing of a potential for coverage 19 under the coinsurer's liability insurance policy. 20 burden then shifts to the defendant to prove the absence of 21 coverage. See Safeco Ins. Co. of Am. v. Super. Ct., 140 The plaintiff meets its burden of proof Id. at 881. The Id. 22 23 IV. DISCUSSION 24 In order for Navigators to make a prima facie showing of a 25 potential for coverage under NAC's Policy, it must first show that 26 McDevitt qualifies as an additional insured. 27 AI Endorsement in the NAC Policy sets out three requirements. 28 The schedule of the First, the additional insured must be a "person or organization 7 1 to which [F&M is] obligated by virtue of a written contract to 2 provide insurance." 3 not dispute that F&M's subcontract with McDevitt required F&M to 4 name McDevitt as an additional insured. 5 AI Endorsement at NAC000050. The parties do Second, the AI Endorsement specifies that a party is covered taking place after such written contract has been executed." 8 united States District Court as an additional insured "only with respect to . . . occurrences 7 For the Northern District of California 6 The parties do not dispute that the occurrences at issue in the 9 Underlying Actions took place after the Subcontract with McDevitt 10 11 Id. was executed. Third, the AI Endorsement states that a party qualifies as an 12 additional insured only with respect to "occurrences resulting from 13 work performed by [F&M] during the policy period, or occurrences 14 resulting from the conduct of [F&M's] business during the policy 15 period." 16 the Underlying Actions consisted of damage to the Project's common 17 areas and units three, nine, ten, and eleven. 18 undisputed that F&M completed its work on the common areas and 19 units three, nine, ten, and eleven by June 2005, several months 20 prior to the start of the NAC Policy's coverage period. 21 the only work that was completed on the Project by F&M during the 22 policy period was the installation of a sink bracket in unit four 23 in November 2005. 24 cause the property damage in the Underlying Actions. 25 Navigators argues that because some of F&M's work under the 26 Subcontract (the installation of the sink bracket in unit four) was 27 completed during the policy period, all of F&M's work under the 28 Subcontract (including its work on the common areas and units Id. It is undisputed that the liabilities at issue in It is also In fact, F&M's work on the sink bracket, however, did not 8 Nevertheless, 1 three, nine, ten, and eleven) should be considered within the 2 policy period. 3 NAC's duty to defend therefore turn on the Court's construction of 4 the phrase "work [and business conduct] performed by [F&M] during 5 the policy period," and whether that construction encompasses F&M's 6 work on the sink bracket in unit four. 7 The parties' cross motions for summary judgment on In interpreting the AI Endorsement, the Court's first task is united States District Court For the Northern District of California 8 to determine if the language in question is ambiguous. Navigators 9 argues that the language is "patently ambiguous" because it 10 allegedly differs from standard additional insured endorsements 11 which are "commonly understood to provide coverage to the 12 additional insured for property damage . . . arising out of the 13 named insured’s completed operations." 14 If the language of the AI Endorsement is clear and explicit, 15 however, the fact that it differs from "standard" additional 16 insured endorsements is immaterial. 17 Ct., 2 Cal. 4th 1254, 1264 (1992) ("If contractual language is 18 clear and explicit, it governs."); see also Waller v. Truck Ins. 19 Exchange, Cal. 4th 1, 18 (1995) (holding that courts should "not 20 strain to create ambiguity where none exists"). 21 below, the Court finds the phrase "occurrences resulting from work 22 performed by you during the policy period, or occurrences resulting 23 from the conduct of your business during the policy period" to be 24 clear and explicit. 25 Navigators’ Mot. at 17-18. See Bank of the W. v. Super. For the reasons "Occurrence" is specifically defined in the NAC Policy as "an 26 accident, including continuous or repeated exposure to 27 substantially the same general harmful conditions." 28 NAC000063. JSF, Ex. 11 at Here, occurrence refers to the property damage 9 1 allegedly caused by construction defects to the common areas and 2 units three, nine, ten, and eleven of the Project. 3 The Court finds that the phrases "resulting from work" and "occurrence" must have been caused by F&M's "work" or "conduct." 6 "Work" is not specifically defined by the NAC Policy. 7 plain meaning of the word in the context of the AI Endorsement 8 united States District Court "resulting from the conduct of your business" mean that the 5 For the Northern District of California 4 Schedule, a layman would understand "work" to refer to F&M's 9 provision of services and materials under the Subcontract. Using the The 10 dictionary definition of "work" reinforces this interpretation, 11 defining "work" as the "[p]hysical and mental exertion to attain an 12 end, esp. as controlled by and for the benefit of an employer." 13 Black's Law Dictionary 1635 (8th ed. 2004). 14 of the AI Endorsement, "work" means F&M's "physical and mental 15 exertion" on the Project pursuant to the Subcontract with McDevitt 16 that resulted in the "occurrence." 17 of your business" is broader than "work" and encompasses all other 18 business activities in addition to the specific "physical and 19 mental exertion" that F&M performed under the Subcontract. 20 Thus, in the context The Court finds that "conduct "During the policy period" modifies "work" and "conduct of 21 your business." Specifically, the "physical and mental exertion" 22 under the Subcontract or other business "conduct" that caused the 23 "occurrence" must have been performed during the policy period -- 24 specifically, between October 1, 2005 and October 1, 2006. 25 the "physical and mental exertion" that caused the property damage 26 to the common areas and units three, nine, ten, and eleven of the 27 Project was F&M's provision of the structural steel package, which 28 10 Here, Court were to adopt the broadest possible definition of "conduct of 3 your business," Navigators does not point to any conduct during the 4 policy period that could have contributed to the property damage in 5 the Underlying Actions. 6 F&M's work or business conduct during the policy period caused the 7 occurrence that gave rise to the liabilities in the Underlying 8 united States District Court was completed months before the policy period began.3 2 For the Northern District of California 1 Actions, McDevitt is not an additional insured under the NAC 9 Policy. Even if the Thus, because there is no evidence that Because McDevitt does not qualify as an additional 10 insured, Navigators cannot show a potential for coverage under the 11 NAC Policy. Navigators asks the Court to interpret the word "work" to 12 13 include "the entirety of the work F&M performed under the 14 subcontract with McDevitt."4 15 words, it urges the Court to read the AI Endorsement schedule as if 16 it said, "occurrences resulting from work, any part of which was 17 completed during the policy period."5 18 interpretation, however, is contrary to the plain meaning of the 19 clear and explicit language of the AI Endorsement schedule as it 20 was actually written.6 21 3 22 23 24 25 26 27 28 Navigators' Mot. at 12. In other Navigators' proposed See Cal. Dairies Inc. v. RSUI Indem. Co., Navigators does not claim that the "EXTRA" work performed in November 2005 on the sink bracket in unit four contributed to the property damage in the Underlying Actions. Even if it did, there is no evidence to support such a claim. 4 In support of its proposed interpretation, Navigators cites without explanation Roger H. Prouix v. Crest-Liners, Inc., 98 Cal. App. 4th 182, 196-97 (2002). Prouix, however, does not provide any support for Navigators' proposed interpretation. 5 At the very least, Navigators' proposed interpretation would require the Court to arbitrarily replace the phrase "during the policy period" with the phrase "any time under the contract." 6 Further, even if the Court were to adopt Navigators' proposed interpretation, McDevitt would not necessarily qualify as an additional insured. The work that was performed in November 2005 11 1 617 F. Supp. 2d 1023, 1030 n.3 (E.D. Cal. 2009) (holding that 2 undefined insurance policy terms should be interpreted as laymen 3 would read them);7 AIU Ins. Co. v. Super. Ct., 51 Cal. 3d 807, 822 4 (1990) (holding that "if the meaning a layperson would ascribe to 5 contract language is not ambiguous," then the court applies that 6 meaning). 7 Navigators also argues that because the disputed language united States District Court For the Northern District of California 8 allegedly limits the scope of coverage, it should be interpreted 9 narrowly against the insurer. While it is true that exclusionary 10 clauses should be interpreted narrowly against the insurer, 11 Navigators' argument presupposes that McDevitt is an additional 12 insured and that the disputed language merely changes the scope of 13 the coverage afforded. 14 change the scope of coverage; rather, it limits the status of 15 additional insureds to certain liabilities. 16 rejected arguments claiming that similar language provided coverage 17 while merely changing the scope of the coverage. 18 was "EXTRA" and separate from the scope of work under the Subcontract. "Extra work" in construction law, is "work not required under the contract; something done or furnished in addition to the contract's requirements; work entirely outside and independent of the contract and not contemplated by it." Black's Law Dictionary 1635 (8th ed. 2004). Thus, it is questionable whether F&M performed any work at all under the Subcontract during the policy period. 7 "Work" was not a specifically defined term in the NAC Policy. Although the NAC Policy defines the term “your work”, that specifically defined term is not used in the AI Endorsement. Moreover, the AI Endorsement does not place quotation marks around the word "work" to indicate that it was specifically defined. See JSF, Ex. 11 at NAC 000052 (“[W]ords and phrases that appear in quotation marks have special meaning.”). Accordingly, the Court declines to apply the definition of “your work” to the word “work” and applies its plain meaning instead. Scott v. Cont'l Ins. Co., 44 Cal. App. 4th 24, 28-29 (1996) ("Words in an insurance policy, unless given special meanings by the policy itself, must be understood in their ordinary sense."). 19 20 21 22 23 24 25 26 27 28 The disputed language, however, does not 12 California courts have See Gemini Ins. Union Fire Ins. Co. of Pittsburgh, Pa. v. Nationwide Ins. Co., 69 3 Cal. App. 4th 709, 720 (1990). 4 narrowly, the terms of the AI Endorsement clearly require the 5 property damage at issue in the Underlying Actions to have been 6 caused by work performed during the policy period. 7 proposed alternative interpretations are not a "narrow" reading of 8 united States District Court Co. v. Delos Ins. Co., 211 Cal. App. 4th 719, 722-23 (2012); Nat'l 2 For the Northern District of California 1 the language in the AI Endorsement; they are an unreasonable 9 reading of language that is otherwise clear and explicit. 10 Regardless, even interpreted Navigators' Next, Navigators argues that because NAC defended its named 11 insured, F&M, in the Underlying Actions, it follows that NAC had a 12 duty to defend its additional insured, McDevitt. 13 it is true that an insurer's duty to defend an additional insured 14 is as broad as its duty to defend its named insured (see Presley 15 Homes, Inc. v. Am. States Ins. Co., 90 Cal. App. 4th 571, 574 16 (2001)), for the reasons provided above, McDevitt is not an 17 additional insured with respect to the Underlying Actions. 18 Regardless, NAC's decision to defend F&M is irrelevant as to 19 whether NAC has a duty to defend McDevitt. 20 Not so. Although Finally, Navigators argues that because NAC allegedly never 21 responded to its tender of the PRBO Action, NAC waived its right to 22 disclaim coverage. 23 Action on August 27, 2012 by forwarding a copy of NAC's prior 24 denial of the 2830 Cypress Action. 25 response to the PRBO Action was the same as its response to the 26 2830 Cypress Action, however, does not mean that NAC intentionally 27 relinquished its right to deny coverage in the PBRO Action. 28 contrary, even if NAC could have made its position more explicit, NAC responded to Navigators' tender of the PBRO 13 JSF ¶ 32. Just because NAC's On the 1 NAC's August 27 response communicated its intention to deny 2 coverage in the PRBO Action on the same grounds that it denied 3 coverage in the 2830 Cypress Action. 4 5 6 V. CONCLUSION The undisputed facts show that McDevitt was not an additional united States District Court insured under the terms of the AI Endorsement because McDevitt's 8 For the Northern District of California 7 liability to the plaintiff in the Underlying Actions was not the 9 result of an "occurrence" caused by F&M's work performed during the 10 period of coverage provided by the NAC Policy. 11 Navigators cannot show that a potential coverage obligation arose 12 or existed under the NAC Policy. 13 duty to defend McDevitt, and Navigators has no right to 14 reimbursement. 15 As a result, Accordingly, NAC did not have a For the reasons given herein, Plaintiff's Motion for Summary 16 Judgment is DENIED, and Defendant's Motion for Summary Judgment is 17 GRANTED. 18 19 IT IS SO ORDERED. 20 21 Dated: June 17, 2015 22 UNITED STATES DISTRICT JUDGE 23 24 25 26 27 28 14

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