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

Filing 114

ORDER by Judge Samuel Conti granting 69 Motion for Summary Judgment. (sclc1, COURT STAFF) (Filed on 7/9/2015)

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

NAVIGATORS SPECIALTY INSURANCE
COMPANY,

)
)
)
Plaintiff,
)
)
v.
)
)
ST. PAUL SURPLUS LINES INSURANCE )
COMPANY; LIBERTY SURPLUS
)
INSURANCE CORPORATION; et al., )
)
Defendants.
)
)
)

Case No. 13-cv-03499-SC
ORDER GRANTING DEFENDANT ST.
PAUL'S MOTION FOR SUMMARY
JUDGMENT

16
Now before the Court is Defendant St. Paul Surplus Lines

17
18

Insurance Company's ("St. Paul") motion for summary judgment.1

19

No. 69 ("Mot.").

20

it suitable for disposition without oral argument pursuant to Civil

21

Local Rule 7-1(b).

22

underwriter and agent -- Crouse and Associates ("Crouse") -- did

ECF

The motion is fully briefed,2 and the Court finds

The undisputed facts establish that St. Paul's

23
1

24
25
26
27
28

The original motion for summary judgment was filed jointly by
Defendants St. Paul and Travelers Property Casualty Company of
America ("Travelers"). By virtue of Navigators' dismissal of
Travelers (ECF No. 89), the portion of the motion pertaining to
Travelers is no longer before the Court.
2
There have been multiple rounds of briefing on this motion. ECF
Nos. 69 ("Mot."); 79 ("Opp'n"); 80 ("Reply"); 102 ("Pl. First
Suppl. Br."); 105 ("Def. First Suppl. Br."); 112 ("Pl. Second
Suppl. Br."); 113 ("Def. Second Suppl. Br.").

broker California Financial Insurance Services ("California

3

Financial").

4

insured -- McDevitt & McDevitt ("McDevitt") -- was not an

5

additional insured with respect to the St. Paul insurance policy

6

held by Sunrise Windows ("Sunrise").

7

have a duty to defend or indemnify McDevitt, and Navigators is not

8

United States District Court

not have the authority to delegate its agency powers to insurance

2

For the Northern District of California

1

entitled to declaratory relief, equitable contribution, or

9

equitable subrogation as a matter of law.

10

As a result, the Court finds that Navigator's named

St. Paul therefore did not

Accordingly, St. Paul's

motion for summary judgment is GRANTED.

11
12
13

I. BACKGROUND AND LITIGATION HISTORY
The details of this case have been set out in multiple orders,

14

are well known to the parties, and therefore will not be repeated

15

in their entirety here.

16

pertinent to the instant motion are as follows:

17

ECF Nos. 36, 86, 95, 100, 108.

The facts

This is an insurance dispute arising from two underlying

18

construction defect lawsuits (known as the "3820 Cypress Action"

19

and the "PRBO Action").

20

Petaluma, California contains construction defects, and both

21

lawsuits have been consolidated in state court (collectively "the

22

Underlying Actions").

23

building, was insured by Navigators.

24

policy issued by its underwriter and agent, Crouse -- insured

25

Sunrise, a subcontractor responsible for windows.

26

relates to the policies St. Paul issued to Sunrise (the "Sunrise

27

Policies").

28

Both lawsuits allege that a building in

McDevitt, the general contractor for the
St. Paul -- pursuant to a

This case

Navigators alleges that it is entitled to declaratory relief,

2

St. Paul's alleged breach of its duty to defend and indemnify

3

Navigators' named insured, McDevitt, against the Underlying

4

Actions.

5

McDevitt because McDevitt is allegedly listed as an additional

6

insured on an additional insured endorsement to the Sunrise

7

Policies.

8

United States District Court

equitable contribution, and equitable subrogation arising out of

2

For the Northern District of California

1

broker, is the one that allegedly issued the additional insured

9

endorsement.

Navigators claims that St. Paul had a duty to defend

Importantly, California Financial, Sunrise's insurance

See Opp'n at 6 ("Navigators argues that the broker,

10

California Financial, issued the endorsement with either actual or

11

ostensible authority . . . .").

12

most favorably to Navigators, St. Paul's motion for summary

13

judgment turns on whether, under the law of agency in California,

14

California Financial had the authority to issue the additional

15

insured endorsement on St. Paul's behalf.

16

additional discovery and two rounds of supplemental briefing on

17

this issue.

18

Viewing the evidence in the light

The Court ordered

The parties' first set of supplemental briefs focused on

19

whether California Financial was authorized by St. Paul's agent,

20

Crouse, to issue the additional insured endorsement -- in other

21

words, whether California Financial was St. Paul's authorized sub-

22

agent.

23

exclusively on a conversation between representatives of Crouse and

24

California Financial during which Crouse allegedly gave California

25

Financial permission to issue additional insured endorsements on

26

St. Paul's behalf.

27

whether Crouse had the authority to delegate its agency powers to

28

California Financial in the first place, a second round of

Navigators' first supplemental brief focuses almost

However, because Navigators failed to address

3

1

supplemental briefing was ordered on that particular issue.

2

No. 109.

3

ECF

finds St. Paul's motion suitable for disposition.

The parties' briefs have been reviewed, and the Court now

4
5

II. LEGAL STANDARD

there is no genuine dispute as to any material fact and the movant

8

United States District Court

Entry of summary judgment is proper "if the movant shows that

7

For the Northern District of California

6

is entitled to judgment as a matter of law."

9

56(a).

Fed. R. Civ. P.

"In order to carry its burden of production, the moving

10

party must either produce evidence negating an essential element of

11

the nonmoving party's claim or defense or show that the nonmoving

12

party does not have enough evidence of an essential element to

13

carry its ultimate burden of persuasion at trial."

14

Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th

15

Cir. 2000).

16

all justifiable inferences are to be drawn in his favor."

17

v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

18

should be entered against a party that fails to make a showing

19

sufficient to establish the existence of an element essential to

20

its case.

Nissan Fire &

"The evidence of the nonmovant is to be believed, and
Anderson

Summary judgment

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

21
22
23

III. DISCUSSION
The central issue in this case -- whether St. Paul is bound by

24

an alleged additional insured endorsement naming McDevitt as an

25

additional insured -- is a matter of California agency law.

26

principal in this case is St. Paul.

27

Agency § 1 (1958) ("The one for whom action is to be taken is the

28

principal.").

See Restatement (Second) of

There is no dispute that Crouse is St. Paul's

4

The

insured endorsements on St. Paul's behalf.

3

Navigators claims that Crouse delegated its authority to issue

4

additional insured endorsements to California Financial.

5

First Suppl. Br. at 1-5.

6

that California Financial was St. Paul's authorized sub-agent.

7

id. § 5 ("A subagent is a person appointed by an agent empowered to

8

United States District Court

authorized agent and that it was empowered to issue additional

2

For the Northern District of California

1

do so, to perform functions undertaken by the agent for the

9

principal . . . .").

10
11
12

See Mot. at 9.

See Pl.

In other words, Navigators is arguing
See

Section 2349 of the California Civil Code governs an agent's
ability to delegate its powers to a sub-agent:

13

An agent, unless specially forbidden by his principal to
do so, can delegate his powers to another person in any
of the following cases, and in no others:

14

1. When the act to be done is purely mechanical;

15

2. When it is such as the agent cannot himself, and the
sub-agent can lawfully perform;

16
17
18

3. When it is the usage of the place to delegate such
powers; or,
4. When such delegation is specially authorized by the
principal.

19
20

Cal. Civ. Code § 2349 (emphasis added).

21

this case falls under the third category -- that it was "the usage

22

of the place to delegate" the power to issue additional insured

23

endorsements to a sub-agent.

24

Navigators argues that

Id.

The phrase "usage of the place to delegate such powers" in

25

Section 2349 refers to situations where "[t]he authority to appoint

26

a subagent may be inferred from the employment of the agent in a

27

position of general authority."

28

App. 2d 720, 726-27 (1968).

Trane Co. v. Gilbert, 267 Cal.

Specifically, it refers to situations

5

agency authority to an agent] ordinarily includes authority to

3

appoint other agents."

4

Thus, in order to meet the requirements of Section 2349, Navigators

5

would need to provide evidence that it is the custom and usage of

6

the insurance industry for insurance companies (such as St. Paul)

7

to grant authority to insurance underwriters (such as Crouse) to

8

United States District Court

where, "in view of business custom and usage . . . [the granting of

2

For the Northern District of California

1

appoint insurance brokers (such as California Financial) as sub-

9

agents.

Id. (citations omitted) (emphasis added).

Navigators does not attempt to make that argument.

Even

10

if it had, it is clearly not the custom and usage.

11

Code §§ 33, 1623 (defining an "insurance broker" as a "person who,

12

for compensation and on behalf of another person, transacts

13

insurance other than life with, but not on behalf of, an insurer.")

14

(emphasis added); Marsh & McLennan of Calif., Inc. v. City of Los

15

Angeles, 62 Cal. App. 3d 108, 118 (1976) (holding that insurance

16

brokers are not agents of insurance companies); Carlton v. St. Paul

17

Mercury Ins. Co., 30 Cal. App. 4th 1450, 1457 (1994) (holding that

18

a broker acts only on behalf of the client or insured and not the

19

insurer); Rios v. Scottsdale Insurance Company, 119 Cal. App. 4th

20

1020, 1029 (2004) (holding that a broker has no authority to alter

21

the terms of coverage or to present a policy other than that

22

offered by the insurer); Schultz Steel Co. v. Hartford Ace. &

23

Indem. Co., 187 Cal. App. 3d 513, 522-23 (1986) (holding that a

24

broker's misrepresentation as to the scope of an insurance policy

25

cannot be imputed to the insurer).

26

See Cal. Ins.

Instead of arguing that it is the custom and usage in the

27

insurance industry to appoint insurance brokers as subagents,

28

Navigators claims that "it was the custom and practice by and

6

Second Suppl. Br. at 3 (emphasis added).

3

between California Financial and Crouse would be relevant if

4

Navigators was attempting to establish that California Financial

5

had the authority to act as Crouse's agent.

6

Restatement (Third) Of Agency § 2.01 (2006) (explaining how actual

7

authority can be impliedly conferred by a principal based on prior

8

United States District Court

between California Financial and Crouse to so delegate."3

2

For the Northern District of California

1

interactions between the principal and the agent).

9

practice between California Financial and Crouse, however, does

10

nothing to establish California Financial's authority to act on

11

behalf of St. Paul.4

12

the four categories set out in Section 2349.

Pl.

The custom and practice

See generally,

A custom and

Thus, this case does not fall within one of

Even if this case fell within one of the four categories of

13
14

cases set out in Section 2349, Crouse still would not have had the

15

authority to appoint California Financial as a sub-agent because

16

Crouse was "specially forbidden by [St. Paul] to do so."

17

Code § 2349.

18

and unambiguously forbids Crouse from delegating its agency powers.

Cal. Civ.

St. Paul's letter of authority to Crouse specifically

19
3

20
21
22
23
24
25
26
27
28

As evidence, Navigators points to the deposition of Linda
Friedlin, an officer at California Financial. Ms. Friedlin
testified that a Crouse employee told her that California Financial
could issue additional insured endorsements on St. Paul's behalf
because requests for additional insured endorsements were "backing
up." Id.
4
Navigators' analysis is crippled early in its supplemental brief
by its erroneous designation of Crouse as the principal and
California Financial as the agent. Pl. Second Suppl. Br. at 1.
This case has to do with whether St. Paul is bound by the
additional insured endorsement, not Crouse. Thus, St. Paul is the
principal, and the question is whether California Financial acted
as St. Paul's authorized sub-agent. At other points in its brief,
Navigators also seems to assume that the agent of one's agent is
necessarily one's sub-agent. Not so. In order to bind the
principal, the delegation of authority to a purported sub-agent
must comply with section 2349.

7

1

ECF No. 105-1, Ex. A at 2 ("Without the prior express written

2

approval of [St. Paul], [Crouse] shall not: . . . Delegate or

3

assign any of the rights or powers conferred under this Letter of

4

Authority to any other individual or entity.").

5

Navigators also argues that "[a]n ostensible agency exists

person -- McDevitt -- to believe the agent -- California Financial

8

United States District Court

when evidence shows a principal -- Crouse -- has allowed a third

7

For the Northern District of California

6

-- acted with its authority."

9

argument, Navigators is essentially claiming that Crouse, as the

Pl. Suppl. Br. at 1.

In making that

10

purported principal, is bound by the additional insured

11

endorsement.

12

suit, and Navigators' argument is immaterial as to whether St. Paul

13

was bound by the additional insured endorsement.

14

meant to argue that, as St. Paul's agent, Crouse had the ostensible

15

authority to appoint a sub-agent, Navigators would be wrong.

16

already discussed, the ability to delegate agency powers to sub-

17

agents is governed by Section 2349, and those requirements have not

18

been met.

19

Institute, Inc., 177 Cal. App. 4th 388, 403-04 (2009) (holding that

20

ostensible agency can only be established based on "the statements

21

or acts of the principal") (emphasis added); Chicago Title Ins. Co.

22

v. AMZ Ins. Services, Inc., 188 Cal. App. 4th 401, 426-27 (2010)

23

(holding that for ostensible agency to arise from the silence of

24

the principal, the principal must know that the ostensible agent is

25

holding himself out as having agency authority).

Even if that were true, Crouse is not a party to this

If Navigators'

As

Cal. Civ. Code § 2349; see also J.L. v. Children's

26
27
28

IV. CONCLUSION
Based on the forgoing, McDevitt is not an additional insured

8

1

under the Sunrise Policies; therefore, there is no potential for

2

coverage by St. Paul for the Underlying Actions against McDevitt.

3

Because there is no potential for coverage, St. Paul had no duty to

4

defend or indemnify McDevitt.

5

indemnify, as a matter of law, Navigators is not entitled to any

6

relief on its causes of action against St. Paul.

7

Paul's motion for summary judgment is GRANTED.

Without a duty to defend or

Accordingly, St.

United States District Court

For the Northern District of California

8
9

IT IS SO ORDERED.

10
11

Dated: July 9, 2015

12

UNITED STATES DISTRICT JUDGE

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

9