Mayer Hoffman McCann, PC v. CAMICO Mutual Insurance Company

Filing 47

ORDER ORDER DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT 24 25 (Illston, Susan) (Filed on 2/17/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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MAYER HOFFMAN MCCANN, P.C.,

Case No. 15-cv-01207-SI

Plaintiff,
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v.

United States District Court
Northern District of California

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CAMICO MUTUAL INSURANCE
COMPANY,
Defendant.

ORDER DENYING PLAINTIFF'S
MOTION FOR PARTIAL SUMMARY
JUDGMENT AND GRANTING
DEFENDANT'S MOTION FOR
SUMMARY JUDGMENT
Re: Dkt. Nos. 24, 25

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On December 4, 2015, the Court held a hearing on the parties' cross-motions for summary

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judgment. For the reasons set forth below, the Court DENIES MHM's motion for partial summary

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judgment and GRANTS CAMICO's motion for summary judgment.

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BACKGROUND

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On March 13, 2015, plaintiff Mayer Hoffman McCann PC ("MHM") filed this lawsuit

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against defendant CAMICO Mutual Insurance Company, alleging claims for breach of contract,

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breach of the covenant of good faith and fair dealing, declaratory relief, and reformation.

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Plaintiff's claims arise out of a dispute regarding the terms of a Reinstatement Endorsement

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contained in an Accountants Professional Liability Insurance Policy issued by CAMICO to MHM

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for the 2007-2008 policy year.

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CAMICO was required to cover two large claims against MHM, after MHM exhausted its policy

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limits in its primary policy with CAMICO with respect to those two claims. CAMICO contends

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that the plain language of the Reinstatement Endorsement provides that limits are not reinstated on

MHM contends that under the Reinstatement Endorsement,

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claims for which CAMICO has already paid MHM defense and/or indemnity expenses under the

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primary policy.
Now before the Court are the parties’ cross-motions for summary judgment. MHM seeks

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summary judgment on its claims for breach of contract and declaratory relief. Under both claims,

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MHM contends that pursuant MHM's expectation of coverage, CAMICO's internal and external

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documents, and under the terms of the CAMICO policy, CAMICO is required to provide

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reinstated coverage for the two claims that exhausted the primary limits of the policy. In the

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alternative, MHM seeks summary judgment on its claim for reformation, on the theory that

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reformation of an insurance policy is available when there has been a mutual mistake and/or

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scrivener's error regarding the terms of the agreed contract. CAMICO seeks summary judgment

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United States District Court
Northern District of California

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on MHM’s claims for breach of contract, declaratory relief, reformation, and breach of the

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covenant of good faith and fair dealing, as well as on CAMICO's counter-claims for declaratory

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relief and reimbursement. CAMICO contends that the policy language is clear and unambiguous

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that reinstatement of coverage is not available on any claims for which claim expenses or damages

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have been paid in whole or in part by the policy’s original limit of liability. CAMICO further

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contends that there is no basis for reformation of the policy because there was no mutual mistake

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of fact or scrivener’s error, and the Reinstatement Endorsement was approved by MHM’s

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insurance broker. CAMICO seeks reimbursement in the amount of $1,450,707.84, plus interest,

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which is the amount that CAMICO contributed in excess of the original $5 million aggregate

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policy limit towards settlement of one of the claims.

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I.

Parties and policy language
MHM is a public accounting firm organized as a corporation under the laws of the State of

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Missouri and headquartered in Leawood, Kansas.

Compl. ¶ 6.

Defendant CAMICO is an

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insurance company incorporated in California and headquartered in San Mateo, California. Id.

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¶ 6.

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KSL103721-03, to MHM for the period December 31, 2007 to December 31, 2008 (the

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"CAMICO 2007-2008 Policy"). The CAMICO 2007-2008 Policy had a $5 million per claim limit

CAMICO issued an Accountants Professional Liability Insurance Policy, Policy No.

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and an original policy aggregate limit of $5 million.1 The CAMICO 2007-2008 Policy was the

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primary policy in an "insurance tower" providing a total of $25 million in insurance to MHM

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during that policy period. First Interstate Fire and Casualty Company provided $5 million in the

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first layer of excess insurance above the CAMICO Policy. Theus Decl. ¶ 14. Lexington Insurance

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Company provided an additional $10 million in excess insurance. Id. Catlin Insurance Company

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provided the final $5 million in excess insurance in the $25 million "insurance tower." Id.

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Pursuant to a special endorsement, the CAMICO 2007-2008 Policy provided for

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"reinstatement" of CAMICO’s primary policy limits after the $25 million "insurance tower" had

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been exhausted. The Reinstatement Endorsement states, in relevant part,

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Upon payment by the Named Insured, or on its behalf by an excess liability
insurer(s), of $20,000,000 in Claims Expenses and/or Damages with respect to
Claims that would otherwise have been covered by this Policy but for the
exhaustion of the Policy’s $5,000,000 Limit of Liability-Policy Aggregate, the
Company agrees thereafter to reinstate the Named Insured’s $5,000,000 Limit of
Liability-Policy Aggregate under this Policy, EXCEPT THAT, the reinstated Limit
of Liability–Policy Aggregate shall not apply to any Claim for which Claim
Expenses and/or Damages have been or are paid in whole or in part by the Policy’s
original Limit of Liability-Policy Aggregate.

United States District Court
Northern District of California

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CAMICO Ex. 3 at 72.

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II.

Negotiation of the Reinstatement Endorsement

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The 2007-2008 CAMICO Policy is a renewal of Policy No. KSL103721-02, issued by

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CAMICO to MHM for the period of December 31, 2006 to December 31, 2007. CAMICO Ex. 1.

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The 2006-2007 Policy was the first policy to include the Reinstatement Endorsement, and the

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language of the endorsement was identical in both the 2006-2007 Policy and the 2007-2008

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Policy. Id.; Theus Decl. ¶¶ 3-4; Hecht Decl. ¶ 12; compare CAMICO Ex. 1 at 34 (2006-2007

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Policy) with CAMICO Ex. 3 at 72 (2007-2008 Policy).

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MHM was represented by Lemme Insurance Group in negotiating the terms of the

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reinstatement endorsement. Theus Decl. ¶¶ 4, 11; Hecht Decl. ¶¶ 2-3, 7 , 9, 12. John T. Hecht is

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an insurance broker formerly employed by Lemme as an executive Vice-President, and Mr. Hecht

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The policy is found in CAMICO's Compendium of Exhibits in support of CAMICO's
motion for summary judgment, at Exhibit 3.
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supervised the placement of professional liability insurance for MHM. Mr. Hecht supervised Brad

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Barkin, another Lemme broker who was involved in negotiating the terms and conditions of the

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2006-2007 Policy.

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CAMICO 2006-2007 Policy, and she worked with several other CAMICO employees, including

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Richard Rosario and Ron Klein, in underwriting the 2006-2007 Policy. Theus Decl. ¶¶ 2-3;

Hecht Decl. ¶¶ 1, 3. Gwen Theus was the primary underwriter on the

MHM has submitted evidence showing that on October 3, 2006, the then-President of

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MHM, William Hancock, and MHM’s National Director of Operations, Angela Snider, met with

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Richard Rosario of CAMICO to discuss MHM’s contemplated purchase of a reinstatement of

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limits under the 2006-2007 Policy. Hancock Decl. ¶ 4; Snider Decl. ¶ 2. John Hecht participated

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in the meeting via telephone. Hecht Decl. ¶ 2. On October 16, 2006, Mr. Hecht instructed Mr.

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United States District Court
Northern District of California

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Barkin to obtain a quote from CAMICO for a primary policy with a $5 million primary limit plus

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a $5 million reinstatement layer. Id. ¶ 3. On December 5, 2006, Messrs. Hecht and Barkin

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provided CAMICO with quotes from excess insurers for the "first tower" in order for CAMICO to

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provide pricing for the "second tower" of reinstated coverage. Id. ¶ 5.

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In an email dated December 6, 2006, Mr. Hecht provided CAMICO with draft wording for
the reinstatement coverage. MHM Ex. 7. That email states,

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Gwen,

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Per our conversation, the following is language that could be used to describe the
"second tower" coverage:

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"It is understood and agreed that this policy is to provide $5,000,000 x
$20,000,000, subject to a per claim limit of $20,000,000."

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or

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"In the event of reduction or exhaustion of the "First Loss Program" by reason of
Claims paid thereunder, the is [sic?] policy shall:

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In the event of reduction, pay the excess of the reduced First Loss Program;
In the event of exhaustion, continue in force as primary insurance.
It is further agreed that the following definition of "First Loss Program" shall be
added to the policy:
First Lost Program means the underlying coverage of $20,000,000 each claim as
follows:
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Primary $5,000,000 - Camico
$5,000,000 xs. $5,00,000 Fireman's Fund
(List …..)
All other terms and conditions remain unchanged"

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Please let me know if you have any questions or want to run through some more
examples.

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Thanks!

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Regards,

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John

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MHM Ex. 7.

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In response, on December 7, 2006 CAMICO sent MHM its own proposal for the
Hecht. Decl. ¶ 7; Theus Decl. ¶ 72; MHM Ex. 8 (CAMICO's

United States District Court
Northern District of California

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reinstatement endorsement.

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proposal). CAMICO’s proposal stated that the "[l]imits below are only available in conjunction

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with the renewal of CAMICO Policy Number KSL103721-01 and applicable to a second loss

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during the applicable policy year and are excess of any limits remaining in first loss tower."

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MHM Ex. 8 at Bates Stamped 0060. The proposal also set forth the limiting language found in the

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Reinstatement Endorsements to the 2006-2007 Policy and the 2007-2008 Policy. Compare MHM

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Ex. 8 (Dkt. 25-6) and CAMICO Ex. 3 at 72.

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proposed reinstatement endorsement language stated:

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Specifically, CAMICO’s December 7, 2006

Upon payment by the Named Insured, or on its behalf by an excess liability
insurer(s), of $20,000,000 in Claims Expenses and/or Damages with respect to
Claims that would otherwise have been covered by this Policy but for the
exhaustion of the Policy's $5,000,000 Limit of Liability−Policy Aggregate, the
Company agrees thereafter to reinstate the Named Insured's $5,000,000 Limit of
Liability−Policy Aggregate under this Policy, EXCEPT THAT, the reinstated Limit
of Liability-Policy Aggregate shall not apply to any Claim for which Claim
Expenses and/or Damages have been or are paid in whole or in part by the Policy’s
original Limit of Liability – Policy Aggregate.
MHM Ex. 8. With regard to that proposal, Mr. Hecht now states,

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MHM objects to a sentence in paragraph 7 of Ms. Theus's declaration regarding
CAMICO's intent in offering reinstatement coverage. The Court does not rely on this statement in
reaching its conclusions because the Court finds that the plain language of the policy controls.
MHM also objects to CAMICO's citation to articles about reinstatement coverage. The Court does
not rely on these articles in reaching its conclusions.
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On December 7, 2006, CAMICO prepared and issued its proposal for the
reinstatement coverage layer, which was then provided to MHM (the "Proposal").
Exhibit "8". The proposal matched MHM’s expectations of coverage, and
Lemme’s communications with CAMICO, in that the proposal noted that the
reinstated limit would apply to a “second loss during the applicable policy year”
which would be in excess of the initial policy limit.

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Hecht Decl. ¶ 7.3 Mr. Hecht also now states "[t]here was nothing in the Proposal that suggested

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any limitation on coverage rights under the reinstatement coverage layer if there was a partial

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payment of one or more claims under the initial primary policy." Id. ¶ 8.

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December 27, 2006, Mr. Barkin informed Ms. Theus (with a cc to Mr. Hecht), "I wanted to advise

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you that Mayer Hoffman McCann has given us the instructions to bind the terms you quoted for

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the primary $5,000,000 in coverage with a $500,000 per claim and . . . Mayer Hoffman would also

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like to bind the second loss coverage layer of $5,000,000 . . . ." MHM Ex. 9; Hecht Decl. ¶ 9.

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The 2006-2007 Policy came into effect on December 31, 2006. Hecht Decl. ¶ 9; Theus Decl. ¶ 8.

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United States District Court
Northern District of California

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In an email dated

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Ms. Theus states that "the basic core coverages and endorsements to be renewed were

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agreed upon by CAMICO and MHM by the time of the renewal on December 31, 2006.

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However, as is typically the case with respect to large corporate accounts like this one, after

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December 31, 2006, CAMICO and MHM’s broker, LEMME, were still negotiating the exact

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terms of several special endorsements to the renewal policy, including the terms of the

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Reinstatement Endorsement to be added to the policy." Theus Decl. ¶ 8. On April 11, 2007, Ms.

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Theus forwarded by email to Mr. Barkin, with a cc to Mr. Hecht, a copy of the CAMICO

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manuscript Reinstatement Endorsement that CAMICO proposed to be offered as part of the

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renewal coverage under the CAMICO 2006-2007 Policy. CAMICO Ex. 2. The wording of the

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Reinstatement Endorsement was the same as proposed by CAMICO in its December 7, 2006

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proposal. See Hecht. Decl. ¶ 7; Theus Decl. ¶ 7; MHM Ex. 8 (CAMICO's December 7, 2006

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proposal); CAMICO Ex. 2 (April 11, 2007 Reinstatement Endorsement). The next day, Mr. Hecht

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In MHM's reply to its motion for partial summary judgment, and in its opposition to
CAMICO's motion for summary judgment, MHM asserts − in contradiction to its own exhibit −
that the December 7, 2006 proposal from CAMICO did not contain the Reinstatement
Endorsement language that was ultimately adopted. However, MHM's Exhibit 8, which MHM
identifies as CAMICO's December 7, 2006 proposal for the reinstatement coverage layer, includes
this language. See MHM Ex. 8 (Indeed, the Court notes that the chambers copy provided by
MHM has this language highlighted.)
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responded by email, stating, inter alia, "I agree with how the reinstatement wording reads," and

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“we went through the policy in detail with MHM yesterday . . . .” CAMICO Ex. 2; MHM Ex. 14

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On September 3, 2008, Mr. Barkin emailed Ms. Theus asking that CAMICO revise the

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Reinstatement Endorsement to show that the total excess limits were $20 million, not $15 million,

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and that Lexington Insurance Company’s limits were $10 million, not $5 million, excess of the

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$10 million layer. Theus Decl. ¶ 16; CAMICO Ex. 4. Ms. Theus states that "Mr. Barkin did not

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ask for the Reinstatement Endorsement to be amended or revised in any other way either before or

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after the issuance of the CAMICO 2007-2008 Policy." Theus Decl. ¶ 16.
MHM renewed its coverage with CAMICO for the period December 31, 2008 to

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December 31, 2009, and that policy contained the same Reinstatement Endorsement as the

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United States District Court
Northern District of California

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previous two policies. Theus Decl. ¶¶ 17-18; CAMICO Ex. 5.

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III.

Signature Financial Group and In re: Mortgages Claims

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In 2008, MHM provided notice of two claims that were assigned to MHM's 2007-2008

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Policy year. On or about June 4, 2008, MHM provided notice to CAMICO of a subpoena MHM

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had received from the Securities and Exchange Commission requesting copies of MHM’s work

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papers prepared on behalf of Medical Capital Holdings, Inc. ("MedCap"). CAMICO appointed

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defense counsel to assist MHM in responding to the SEC’s subpoena. On or about April 5, 2011,

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MHM was named as a defendant in Signature Financial Group, Inc. v. Mayer, Hoffman, McCann,

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P.C. et al., Case No. 00463492 (Orange County Superior Court) (the "Signature Financial

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Lawsuit"), as a result of professional services rendered by MHM for MedCap and its subsidiaries.

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CAMICO agreed to provide a defense to MHM for the Signature Financial Lawsuit under the

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CAMICO 2007-2008 Policy. The Signature Financial Lawsuit was deemed reported to CAMICO

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when CAMICO first received notice in June 2008 of the SEC subpoena relating to the MedCap

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work papers.4

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According to MHM’s motion for summary judgment, Signature Financial Group, Inc.
was a California-based company that was alleged to have fraudulently withheld or misrepresented
information to investors in MedCap and its related companies. The broker-dealer plaintiffs
alleged that MHM had failed to recognize or disclose financial irregularities in MedCap's
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On or about June 25, 2008, MHM provided notice to CAMICO of a subpoena served on

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MHM for testimony in a bankruptcy action entitled In re Mortgages, Ltd., Case No. 2:08-bk-

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07465-RJH (United States Bankruptcy Court, Ariz.). CAMICO appointed defense counsel to

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assist MHM in responding to the In re Mortgages, Ltd. subpoena. In or about 2009, MHM was

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named as a defendant in several lawsuits filed in the Superior Court for the State of Arizona and in

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the United States District Court for the District of Arizona as a result of professional services

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rendered by MHM for Mortgages, Ltd. (collectively "the Mortgages, Ltd. Lawsuits"). CAMICO

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provided a defense to MHM in the Mortgages, Ltd. Lawsuits under the CAMICO 2007-2008

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Policy. The Mortgages, Ltd. Lawsuits were deemed reported to CAMICO in June 2008 when

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CAMICO first received notice of the In re Mortgages, Ltd. subpoena.

United States District Court
Northern District of California

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CAMICO paid out its full aggregate limit of $5 million in policy limits under the

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CAMICO 2007-2008 Policy in the payment of claims expenses and/or damages in the Mortgages,

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Ltd. Lawsuits and the Signature Financial Lawsuit. CAMICO states that it paid a total of

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$3,549,292.16 in claim expenses for the Mortgages Ltd. Lawsuits and a total of $1,450,707.84 in

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claim expenses for the Signature Financial Lawsuit. Dkt. 28 at 10. MHM's Chairman William

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Hancock states in his declaration that reasonable and necessary defense fees and costs, and

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reasonable settlement costs, for the Mortgages litigation have exceeded $23,913,231 to date, and

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reasonable and necessary defense fees and costs, and reasonable settlement costs, for the Signature

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Financial litigation have exceeded $9,150,295. Hancock Decl. ¶ 9. In April 2013, CAMICO

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ceded the defense of those claims to Interstate Fire & Casualty Company, the first excess insurer

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in the $25 million "insurance tower." CAMICO, Interstate, Lexington and Catlin exhausted their

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limits of liability in payment of defense expenses and settlements. Hancock Decl. ¶ 9.

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In or about April 2014, MHM advised CAMICO that one of the Mortgages, Ltd. lawsuits

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was in the process of mediation and it was expected the settlement would exhaust the

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approximately $6 million in remaining limits of the $25 million "insurance tower." Aubrey Decl.

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¶ 13. Pursuant to the Reinstatement Endorsement, MHM requested that CAMICO contribute

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operations that would have avoided financial investments in a Ponzi scheme which resulted in
significant financial losses. Dkt. 26 at 3.
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funds to settle that lawsuit. Id. ¶ 13; CAMICO Ex. 9. CAMICO declined to pay anything further

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in settlement of the Mortgages, Ltd. Lawsuits based on its view that the 2007-2008 Policy did not

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provide reinstatement for the Mortgages, Ltd. Lawsuits because CAMICO had already exhausted

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the original policy aggregate limit of $5 million in payment of claims expenses for those lawsuits.

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Aubrey Decl. ¶ 14.
On July 7, 2014, CAMICO filed a declaratory relief lawsuit in the United States District

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Court of the Central District of California, seeking a declaration that there is no reinstatement of

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the limits of the CAMICO 2007-2008 Policy for the Mortgages, Ltd. Lawsuits or the Signature

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Financial Lawsuit. Id. ¶ 15. In August 2014, while the declaratory relief action was pending,

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MHM and CAMICO entered into a Contribution and Reservation of Rights Agreement, under

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United States District Court
Northern District of California

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which CAMICO agreed to pay $1,450,707.84 towards settlement of one the Mortgages, Ltd.

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lawsuits, subject to a full reservation of rights and without prejudice to the claims pending in the

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declaratory relief action. Id. ¶ 16. On September 10, 2014, CAMICO paid the $1,450,707.84

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toward the settlement of one of the Mortgages, Ltd. lawsuits. Id. ¶ 17.

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On September 18, 2014, the declaratory relief action was dismissed without prejudice

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pursuant to the parties' stipulation. Id. ¶ 18. The parties engaged in mediation, which was

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unsuccessful, and on March 13, 2015, MHM filed this lawsuit. Id.

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LEGAL STANDARD

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Summary judgment is proper if "the movant shows that there is no genuine dispute as to

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any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).

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The moving party bears the initial burden of demonstrating the absence of a genuine issue of

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material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party, however,

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has no burden to disprove matters on which the non-moving party will have the burden of proof at

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trial. The moving party need only demonstrate to the Court that there is an absence of evidence to

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support the non-moving party’s case. Id. at 325.

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Once the moving party has met its burden, the burden shifts to the non-moving party to

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"set out 'specific facts showing a genuine issue for trial.'" Id. at 324 (quoting then-Fed. R. Civ. P.
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56(e)). To carry this burden, the non-moving party must "do more than simply show that there is

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some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith

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Radio Corp., 475 U.S. 574, 586 (1986). "The mere existence of a scintilla of evidence . . . will be

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insufficient; there must be evidence on which the jury could reasonably find for the [non-moving

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party]." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).
In deciding a summary judgment motion, the court must view the evidence in the light

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most favorable to the non-moving party and draw all justifiable inferences in its favor. Id. at 255.

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"Credibility determinations, the weighing of the evidence, and the drawing of legitimate

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inferences from the facts are jury functions, not those of a judge . . . ruling on a motion for

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summary judgment." Id. However, conclusory, speculative testimony in affidavits and moving

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United States District Court
Northern District of California

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papers is insufficient to raise genuine issues of fact and defeat summary judgment. Thornhill

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Publ'g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979). The evidence the parties present

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must be admissible. Fed. R. Civ. P. 56(c).

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DISCUSSION

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MHM does not seriously dispute that the plain language of the Reinstatement Endorsement

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excludes reinstated coverage for the Mortgages and Signature Financial Claims because

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CAMICO paid expenses and/or damages on both claims under the original limit of liability on the

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2007-2008 Policy.

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Reinstatement Endorsement was contrary to the parties' express intent and understanding and was

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not conspicuous, and therefore that CAMICO cannot rely upon the language of the Reinstatement

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Endorsement to limit coverage. CAMICO contends that the plain language of the Reinstatement

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Endorsement is unambiguous and must be enforced, and that the Reinstatement Endorsement is

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not inconspicuous.

Instead, MHN contends that the limitation of coverage contained in the

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I.

Interpretation of policy/parol evidence

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MHM contends that the limiting language of the Reinstatement Endorsement is contrary to

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the expectations of the parties (or at least contrary to MHM's expectations). MHM's motion for
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partial summary judgment asserts, "there can be no dispute that MHM requested, CAMICO

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quoted, and the parties understood during the entirety of the underwriting process that MHM was

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seeking coverage that would respond to one large loss (one full coverage tower, up to $25 million,

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which in this case might be considered the Mortgages Claim, for which the initial $5 million

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CAMICO Policy would exhaust given the nearly $24 million in defense and settlement costs to

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date), with a second and smaller coverage tower available for a second loss ($10 million in

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reinstated coverage, which in this case might be considered the Signatures Claim, for which the $5

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million reinstated Policy limit would exhaust given the more than $9 million in defense and

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settlement costs)." Dkt. 26 at 13:18-25.
In support of its interpretation of the policy as providing for reinstated policy limits for

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United States District Court
Northern District of California

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claims for which Claim Expenses were partially paid under the original policy limits, MHM relies

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on the declarations of William Hancock, John Hecht, and Angela Snider, as well as documents

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prepared by MHM and CAMICO regarding the Reinstatement Endorsement.5 For example, Mr.

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Hancock states in his declaration that during the October 3, 2006 meeting between himself, Ms.

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Snider, Mr. Hecht, and Mr. Rosario, "I expressly advised Mr. Rosario that we wanted to be

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protected against a single, significant claim that might exhaust an entire coverage limit

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(anticipated to be $20 or $25 million), and that we would then want and need additional coverage

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that would be available for one or more other claims." Hancock Decl. ¶ 2. Similarly, regarding

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that same meeting, Mr. Hecht states, "Mr. Hancock made it expressly clear to Mr. Rosario that

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MHM has also submitted a letter from Interstate Insurance Co., dated September 30,
2011, in which Interstate provides its interpretation of the CAMICO policy as providing reinstated
coverage for the Mortgages Ltd. and Signature Financial Claims. MHM Ex. 31. In that letter,
Interstate states, inter alia, “it has always been the intent of Interstate that Interstate’s second
tower position of $5,000,000 excess of $5,000,000 was meant to apply as a $5,000,000 limit of
liability that could apply to any matter reported in the first tower, provided that in no event would
Interstate pay more than $5,00,000 on any one matter regardless of whether the matter was
initially reported in the first or second tower. Interstate’s second tower (reinstated) limit of
liability will not apply to any matter until the first $25,000,000 tower of insurance is exhausted
and further will not apply until Camico’s $5,000,000 underlying layer is exhausted.”
The Court agrees with CAMICO that this letter is irrelevant as Interstate is not a party to
the contract, and the letter was prepared years after the contract was negotiated and issued. MHM
asserts that this letter is relevant because Interstate’s reinstatement coverage is worded identically
to the CAMICO Reinstatement Endorsement. However, as CAMICO’s counsel noted at the
hearing, the Interstate policy is not in evidence.
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MHM was seeking protection against a single substantial claim, with the potential to exhaust

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MHM's entire coverage tower (anticipated to $20 million or $25 million), while also protecting

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against other additional serious, yet less substantial, claims." Hecht Decl. ¶ 2; see also Snider

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Decl. ¶ 2 ("Discussion was held regarding a second tower of that would be available in the event a

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large claim exhausted the first tower.”).

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presentations prepared by Mr. Hancock regarding MHM's needs for coverage, as well as copies of

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notes written by Mr. Hancock and Ms. Snider during their meetings with CAMICO

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representatives about insurance needs, including MHM's need for reinstatement coverage, also

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referred to by the parties as "round the clock" coverage. See MHM Ex. 1-2, 16.

MHM has also submitted copies of PowerPoint

CAMICO responds that MHM is improperly relying on parol evidence to support an

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United States District Court
Northern District of California

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interpretation of the Reinstatement Endorsement that is directly at odds with the plain language of

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the endorsement. CAMICO notes that that the 2007-2008 Policy is an integrated agreement. See

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CAMICO Ex. 3 at 56 (Section titled "Entire Contract," which states: "By accepting this policy,

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each Insured agrees that the statements in the Declarations and in each application for renewal or

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supplementary application are his/her agreements and representations, that this policy is issued in

16

reliance upon the truth of such representations, and that this policy embodies all agreements

17

existing between each Insured and the Company or any of its agents relating to this insurance.").

18

CAMICO argues that parol evidence may only be used to prove a meaning to which the language

19

of an integrated contract is reasonably susceptible. See Pacific Gas & Elec. Co. v. G. W. Thomas

20

Drayage & Rigging Co., 69 Cal.2d 33, 37 (1968).

21

The interpretation of an insurance policy is a question of law. Waller v. Truck Ins. Exch.,

22

Inc., 11 Cal.4th 1, 18 (1995). "The rules governing policy interpretation require us to look first to

23

the language of the contract in order to ascertain its plain meaning or the meaning a layperson

24

would ordinarily attach to it." Id. "'While insurance contracts have special features, they are still

25

contracts to which the ordinary rules of contractual interpretation apply.'" Haynes v. Farmers Ins.

26

Exch., 32 Cal.4th 1198, 1204 (2004) (quoting Palmer v. Truck Ins. Exchange, 21 Cal.4th 1109,

27

1115 (1999)). Accordingly, insurance policies "must be interpreted to give effect to the mutual

28

intent of the parties at the time of contracting, and such intent is ascertained, if possible, from the
12

clear and explicit language of the contract." St. Paul Mercury Ins. Co. v. Frontier Pacific Ins. Co.,

2

111 Cal.App.4th 1234, 1243 (2003) (internal citation and quotations omitted). "If contractual

3

language is clear and explicit, it governs. On the other hand, when policy language is ambiguous,

4

rules applicable to resolving ambiguity control." Id. (citing Bank of the West v. Superior Court, 2

5

Cal.4th 1254, 1264-1265 (1992)). "The test of admissibility of extrinsic evidence to explain the

6

meaning of a written instrument is not whether it appears to the court to be plain and unambiguous

7

on its face, but whether the offered evidence is relevant to prove a meaning to which the language

8

of the instrument is reasonably susceptible." Pacific Gas & E. Co., 69 Cal.2d at 37. "And

9

although parol evidence may be admissible to determine whether the terms of a contract are

10

ambiguous, it is not admissible if it contradicts a clear and explicit policy provision." George v.

11
United States District Court
Northern District of California

1

Automobile Club of S. Cal., 201 Cal.App.4th 1112, 1121 (2011) (internal citations and quotation

12

marks omitted).

13

The Court finds that the Reinstatement Endorsement is not reasonably susceptible to

14

MHM’s proffered interpretation because MHM’s interpretation is directly contrary to the terms of

15

the Reinstatement Endorsement. The Reinstatement Endorsement states that the limits do not

16

reinstate for "any Claim for which Claim Expenses and/or Damages have been paid or are being

17

paid in whole or in part by the Policy’s original Limit of Liability-Policy Aggregate." CAMICO

18

Ex. 3 at 72. This language is clear and unambiguous -- the policy does not reinstate limits towards

19

any Claim for which any part of the original CAMICO policy limits were paid, whether for

20

defense or indemnity.

21

The Court also concludes that MHM's parol evidence is inadmissible to contradict the clear

22

and explicit policy terms. See George, 201 Cal.App.4th at 1121; see also ACL Technologies, Inc.

23

v. Northbrook Prop. & Cas. Ins. Co., 17 Cal.App.4th 1773, 1791 (1993) (extrinsic evidence may

24

not be admitted to demonstrate that the words of an insurance policy mean the exact opposite of

25

their plain and ordinary meaning); Cal. Code Civ. Proc. § 1856 (the parol evidence rule). Thus,

26

the Court will not consider the statement in Mr. Hecht's declaration that "[t]here was nothing in

27

[CAMICO's December 7, 2006] Proposal that suggested any limitation on coverage rights under

28

the reinstatement coverage layer if there was a partial payment of one or more claims under the
13

initial primary policy." Hecht Decl. ¶ 8. In fact, CAMICO's December 7, 2006 proposal, which

2

contained the Reinstatement Endorsement language at issue, unambiguously stated that coverage

3

would not reinstate for such claims. For the same reason, the Court finds inadmissible statements

4

by Mr. Hecht, Mr. Hancock and Ms. Snider that CAMICO never suggested any limitation on

5

reinstated coverage based on the partial payment of one or more claims under the initial primary

6

policy, as those statements are directly contrary to the language of the Reinstatement

7

Endorsement. See Hecht Decl. ¶ 10; Hancock Decl. ¶¶ 5-8; Snider Decl. ¶ 3.6 See also American

8

Star Ins. Co. v. Ins. Co. of the West, 232 Cal.App.3d 1320, 1331 (1991) ("[E]vidence of a

9

policyholder's 'intent' is also unavailing against the plain language of the policy. A policyholder's

10

'reasonable expectation' of coverage is only relevant when the policy is ambiguous."); Wolf

11
United States District Court
Northern District of California

1

Machinery Co. v. Ins. Co. of North America, 133 Cal.App.3d 324, 329 (1982) (holding that where

12

policy language was unambiguous, declaration of insured’s president in opposition to summary

13

judgment that he expected insurance policy to provide coverage did not create material fact

14

requiring denial of summary judgment).7

15

MHM contends that coverage under the Reinstatement Endorsement is illusory if it is

16

enforced as written. MHM argues that "under this 'claims made and reported policy,' there is only

17

a small window of time for both a claim to be made, and the claim to be reported, during the one-

18

year Policy period. Once reported, the Claim then requires the appointment of defense counsel,

19
20
21
22
23
24
25
26
27
28

6

MHM argues that CAMICO had a duty to disclose that the Reinstatement Endorsement
did not provide the coverage that MHM requested. The Court discusses this argument in Section
II.
7
The Court also notes that some of the parol evidence submitted by MHM does not
actually contradict the language of the Reinstatement Endorsement. For example, Mr. Hancock
and Ms. Snider both state that during the October 3, 2006, meeting with Ric Rosario of CAMICO,
Mr. Hancock discussed MHM’s need for a second insurance tower “to be protected against a
single, significant claim that might exhaust an entire coverage limit. . . , and that we would then
want and need additional coverage that would be available for one or more other claims.”
Hancock Decl. ¶ 2; see also Snider Decl. ¶ 2. The Reinstatement Endorsement would provide
coverage for one or more other claims as long as CAMICO did not pay any amounts on those
claims under the original limit of liability. Similarly, there is nothing in Mr. Hancock's
PowerPoint presentations regarding MHM's insurance needs, or in the notes taken by Mr. Hancock
or Ms. Snider, that contradict the terms of the Reinstatement Endorsement.
14

1

and costs are incurred. With a $5 million policy limit, the original limit will remain in play

2

potentially for years, meaning every Claim under the Policy would have been noticed, and every

3

claim would be subject to defense costs, negating a right to reinstated coverage." Dkt. 29 at

4

18:19-24.
"In order for a contract to be valid, the parties must exchange promises that represent legal

6

obligations." Scottsdale Ins. Co. v. Essex Ins. Co., 98 Cal.App.4th 86, 94-95 (2002). "An

7

agreement is illusory and there is no valid contract when one of the parties assumes no obligation."

8

Id. at 95. CAMICO asserts that the Reinstatement Endorsement is not illusory, and has submitted

9

the second Declaration of Mark Aubrey as support. Dkt. 28-1. Mr. Aubrey states that MHM

10

reported a total of 16 matters during the 2007-2008 Policy period, and that CAMICO paid Claim

11
United States District Court
Northern District of California

5

Expenses only on the two matters at issue in this action. Aubrey Decl. ¶¶ 3-4, Ex. 1. Mr. Aubrey

12

states that there are 14 other claims or potential claims that could trigger coverage under the

13

Reinstatement Endorsement assuming all other requirements for coverage were met. Id. ¶ 5.

14

Based upon this record, the Court finds that the policy is not illusory because there are conditions

15

under which reinstated coverage would exist. See Scottsdale Ins. Co. v. Essex Ins. Co., 98

16

Cal.App.4th 86, 94-95 (2002); see also Fagundes v. American Int'l Adjustment Co., 2 Cal.App.4th

17

1310, 1317-18 (1992).

18
19

II.

Conspicuousness

20

To be enforceable, "any provision that takes away or limits coverage reasonably expected

21

by an insured must be 'conspicuous, plain and clear.'" Haynes., 32 Cal. 4th at 1204 (quoting

22

Steven v. Fidelity & Casualty Co., 58 Cal.2d 862, 878 (1962)). "Thus, any such limitation must be

23

placed and printed so that it will attract the reader's attention. Such a provision also must be stated

24

precisely and understandably, in words that are part of the working vocabulary of the average

25

layperson." Haynes, 32 Cal. 4th at 1204. "The burden of making coverage exceptions and

26

limitations conspicuous, plain and clear rests with the insurer." Id.

27

MHN contends that the purported limitation of coverage in the reinstatement endorsement

28

is inconspicuous because (1) the limitation was not included on the first page of the endorsement,
15

1

which otherwise described the policy's limits of liability and maximum payment obligations; (2)

2

the limitation was not individually identified by any numbered heading, or by a descriptive

3

heading that would indicate an important coverage limitation; and (3) the limitation was included

4

in the bottom of a paragraph regarding the underlying coverage program requirements.

5

The Court finds that the reinstatement endorsement is conspicuous, plain and clear. In a

6

"Notice" located at the front of the 2006- 2007 and 2007-2008 Policies, MHM is advised, in bold

7

font:

8
9

This policy contains additional restrictions on coverage. Please review this
policy carefully, including the Declarations and all endorsements.
CAMICO Ex. 1 at 7; Ex. 3 at 44 (bold in original). The Reinstatement Endorsement is two pages

10
long. CAMICO Ex. 1 at 33-34; Ex 3 at 71-72. The Reinstatement Endorsement states at the top of
11
United States District Court
Northern District of California

the first page, in bold and capital letters: "THIS ENDORSEMENT MODIFIES INSURANCE
12
PROVIDED UNDER THE CAMICO PROFESSIONAL LIABILITY POLICY. PLEASE
13
READ CAREFULLY." CAMICO Ex. 1 at 33; Ex 3 at 71 (emphasis in original). The initial
14

paragraph of the Reinstatement Endorsement states that the policy limits will reinstate “under

15
certain circumstances, as follows: . . . ." Id. The third numbered paragraph contains the language
16
at issue in this case:
17
18
19
20
21
22

Upon payment by the Named Insured, or on its behalf by an excess liability
insurer(s), of $20,000,000 in Claims Expenses and/or Damages with respect to
Claims that would otherwise have been covered by this Policy but for the
exhaustion of the Policy’s $5,000,000 Limit of Liability-Policy Aggregate, the
Company agrees thereafter to reinstate the Named Insured's $5,000,000 Limit of
Liability-Policy Aggregate under this Policy, EXCEPT THAT, the reinstated Limit
of Liability-Policy Aggregate shall not apply to any Claim for which Claim
Expenses and/or Damages have been or are paid in whole or in part by the Policy’s
original Limit of Liability- Policy Aggregate.
CAMICO Ex. 3 at 72. This language is in the same font size as the rest of the endorsement. The

23
limitation of coverage begins with "EXCEPT THAT. . . ." Thus, the Reinstatement Endorsement
24
conspicuously advised MHM that the language following "EXCEPT THAT" would be a limitation
25
on reinstatement of policy limits. See Palub v. Hartford Underwriters Ins. Co., 92 Cal. App. 4th
26
645, 652 (2001) (holding exclusion in endorsement was conspicuous, plain and clear because
27
endorsement was one page long, set forth in bold print in all capital letters and in type of
28
16

1

reasonable size, and the cover sheet of the policy warned policyholders to "read your policy

2

carefully" and stated that the attached endorsements may limit coverage), disapproved on other

3

grounds in Julian v. Hartford Underwriters Inc. Co., 35 Cal. 4th 747 (2005); Cf. Haynes, 32 Cal.

4

4th at 1206-07 (holding permissive user limitation on automobile coverage found in endorsement

5

was not conspicuous because, inter alia, limitation was located on the back of the policy,

6

limitation was identified on "declarations" page only by alphanumeric designation ("S9064")

7

along with 10 other endorsements, declarations page did not alert reader to fact that endorsement

8

limited coverage, and language of limitation was "not bolded, italicized, enlarged, underlined, in

9

different font, capitalized, boxed, set apart, or in any other way distinguished from the rest of the

10

fine print.").

United States District Court
Northern District of California

11

The Court also finds it significant that the Reinstatement Endorsement was specifically

12

negotiated by MHM, a sophisticated insured, through its broker Lemme, and that MHM through

13

Lemme approved the language at issue. The evidence before the Court shows that Mr. Hecht

14

drafted language that CAMICO rejected, and that CAMICO responded with proposed language

15

prior to MHM’s renewal of the 2007-2008 Policy, and that was reviewed and explicitly approved

16

by MHM's broker. See MHM Ex. 7-9; Hecht Decl. ¶¶ 7, 9; CAMICO Ex. 2. Thus, not only is the

17

Reinstatement Endorsement language conspicuous, but it was the specific focus of the parties'

18

negotiations. This fact also undercuts MHM's assertion that CAMICO failed to disclose that the

19

Reinstatement Endorsement did not provide the type of coverage that MHM was seeking.

20

The Court finds that the cases cited by MHM addressing an insurer's breach of its duty to

21

disclose are inapposite. Those cases hold that "once an insurer or its agent elects to respond to an

22

insured's questions about coverage, a special duty arises which requires them to use reasonable

23

care to provide accurate information." Paper Savers, Inc. v. Nacsa, 51 Cal. App. 4th 1090, 1098

24

(1996) (insurance company's agent could be liable for negligently misrepresenting that a

25

"replacement cost coverage" provision was sufficient to replace all lost or damaged property

26

regardless of policy limits when policy did not provide such coverage); see also id. at 1097-1100

27

(discussing cases); Westrick v. State Farm Ins., 137 Cal. App. 3d 685 (1982) (holding insurance

28

company's agent may be liable for his negligent failure to accurately apprise an insured of his
17

1

policy terms upon request; insured alleged that agent was negligent in failing to inform him that a

2

commercial truck would not be covered under his existing passenger car policy when the insured

3

sought assurances that it would be). Unlike the insureds in Paper Savers and Westrick who were

4

provided inaccurate information by the insurance companies’ agents, here MHM was represented

5

by its own broker in negotiating the Reinstatement Endorsement, and MHM's broker explicitly

6

approved the language at issue.

7
8

III.

Resolution of claims and counterclaims
Based on the foregoing, the Court concludes that CAMICO is entitled to summary

10

judgment on MHM's claims for breach of contract, declaratory relief, breach of the covenant of

11
United States District Court
Northern District of California

9

good faith and fair dealing, and reformation. The original aggregate policy limit under the 2007-

12

2008 Policy was exhausted by CAMICO’s payments on the Signature Financial and In re:

13

Mortgages claims, and coverage for those two claims did not reinstate under the Reinstatement

14

Endorsement. Accordingly, CAMICO did not breach the insurance policy or otherwise breach the

15

covenant of good faith and fair dealing, and MHM is not entitled to declaratory relief.

16

The Court also concludes that MHM has not shown any basis for reformation of the

17

insurance policy. "As a general rule, a written contract, having been deliberately executed, is

18

presumed to correctly express the parties’ intentions."

19

Douglas Corp., 214 Cal.App.3d 1, 19 (1989).

20

reformation of a contract when, through mistake, it fails to express the true agreement of the

21

parties." Id. "[The] mistake may be the mutual error of both parties to the contract, or the

22

oversight of one party which the other knew or suspected at the time of entering the agreement."

23

American Home Ins. Co. v. Travelers Indemnity Co., 122 Cal. App. 3d 951, 961 (1981).

24

has not introduced any evidence showing that there was a mutual mistake with regard to adopting

25

the language of the Reinstatement Endorsement. Nor has MHM introduced any evidence showing

26

an oversight by MHM which CAMICO knew or suspected at the time of entering the agreement.

27
28
18

Appalachian Ins. Co. v. McDonnell

"California Civil Code section 3399 allows

MHM

1

Accordingly, the Court GRANTS summary judgment in favor of CAMICO on MHM's claims.8

2

The Court also GRANTS summary judgment in favor of CAMICO on CAMICO's

3

counterclaims for declaratory relief and holds that the limits of the 2007-2008 Policy are not

4

reinstated for the Mortgages, Ltd. Lawsuits or the Signature Financial Lawsuit. The Court also

5

holds that CAMICO is entitled to reimbursement from MHM in the amount of $1,450,707.84, plus

6

interest at the legal rate, for the amount CAMICO contributed in excess of the original $5 million

7

aggregate policy limit towards settlement of one of the Mortgages, Ltd. lawsuits.

8
CONCLUSION

9
10

United States District Court
Northern District of California

11

For the foregoing reasons, the Court DENIES MHM's motion for partial summary
judgment and GRANTS CAMICO's motion for summary judgment.

12
13

IT IS SO ORDERED.

14
15

Dated: February 17, 2016
______________________________________
SUSAN ILLSTON
United States District Judge

16
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24
25
26
8

27
28

MHM argues that CAMICO's motion for summary judgment should be denied on
procedural grounds because CAMICO submitted a separate statement of facts that did not comply
with the Civil Local Rules. The Court finds that this procedural deficiency is not a basis for
denying CAMICO's motion.
19