PCCP, LLC v. Endurance American Specialty Insurance Co,

Filing 69

ORDER by Judge Yvonne Gonzalez Rogers granting 52 Defendant's Motion for Summary Judgment; denying 54 Plaintiffs' Motion for Summary Judgment. Defendant shall file a proposed form of Judgment. All trial-related dates are hereby VACATED. (fs, COURT STAFF) (Filed on 8/13/2013)

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1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 NORTHERN DISTRICT OF CALIFORNIA 8 9 10 United States District Court Northern District of California 11 12 PCCP LLC, REDWOOD CAPITAL FINANCE COMPANY, 13 14 15 16 17 18 Plaintiffs, Case No.: 12-CV-0447 YGR ORDER RE: CROSS-MOTIONS FOR SUMMARY JUDGMENT v. ENDURANCE AMERICAN SPECIALTY INSURANCE COMPANY, Defendant. This is an insurance coverage action. Plaintiffs PCCP, LLC (“PCCP”) and Redwood 19 Capital Finance Company (“Redwood”) (collectively, “Plaintiffs”) are in the real estate business: 20 PCCP as an investor, Redwood as a lender. Defendant Endurance American Specialty Insurance 21 Company (“Defendant” or “Endurance”) provided Plaintiffs with professional and executive 22 liability insurance under three consecutive one-year policies beginning in 2007. This lawsuit 23 centers on the terms of the most recent policy which covered the period from March 18, 2009 to 24 March 18, 2010. The following facts are undisputed: One, the policy is a “claims-made-and- 25 reported” policy, as opposed to an “occurrence” or general “claims-made” policy. Two, the policy 26 expired without renewal on March 18, 2010. Three, the policy provided a sixty-day “Automatic 27 Extended Reporting Period” (“AERP”) in the event of non-renewal, and the AERP went into effect 28 when the policy expired on March 18, 2010. Four, on November 19, 2009—that is, during the 1 policy period—PCCP and Redwood were named as third-party counterclaim defendants in a 2 lawsuit in Hawaii state court arising out of a failed real estate development in that state. And five, 3 though Plaintiffs were named in the Hawaii lawsuit in November 2009, and their policy with 4 Endurance ended March 18, 2010, they did not submit their claim for the Hawaii lawsuit to 5 Endurance until April 21, 2010. On June 7, 2010, Endurance denied coverage, stating, inter alia, that the claim was untimely 6 7 filed. This lawsuit followed. The dispositive legal question in the case is whether the coverage 8 afforded by the AERP encompasses the subject claim, which was “made” within the policy period 9 but only “reported” during the AERP. Having carefully reviewed the parties’ papers and the record before it, and having had the 10 United States District Court Northern District of California 11 benefit of oral argument, the Court holds that the subject claim was not timely submitted, and 12 therefore, not covered under the policy. Accordingly, the Court GRANTS Endurance’s motion for 13 summary judgment and DENIES Plaintiffs’ motion, as set forth herein. 14 I. BACKGROUND 15 The following facts are undisputed unless otherwise noted. 16 A. 17 Endurance issued the subject Policy, a Professional and Executive Liability Insurance THE POLICY 18 Policy bearing Policy No. PCL10100490700, to PCCP for the policy period of March 18, 2009 to 19 March 18, 2010. PCCP was the named insured on the policy and Redwood was an additional 20 insured. 21 The policy had a $5,000,000 aggregate liability limit, subject to a $150,000 self-insured 22 retention. Joint Ex. A (Dkt. No. 52-2 [“Policy”]) at END_000457. The “Insuring Agreements” of 23 the Policy’s Management Liability Coverage Part provided, in pertinent part: 24 25 26 27 28 The Company [i.e., Endurance] shall pay on behalf of the Insured Organization [i.e., PCCP] all Loss resulting from any Claim . . . first made against [PCCP] and reported to [Endurance] in writing during the policy period or any applicable Extended Reporting Period for any Wrongful Act. Policy at END_000482. Here, in pertinent part, is the claims reporting process set forth in the Policy: 2 1 As a condition precedent to coverage under this Policy, [PCCP] shall provide [Endurance] written notice of any Claim and any Compliance Request made against any Insured as soon as practicable after the President, Chief Executive Officer, Chief Financial Officer, General Counsel, Risk Manager or Director of Human Resources of the Named Insured [i.e. PCCP] becomes aware of such Claim or Compliance Request, but in no event later than: (1) the expiration date of this Policy; (2) the expiration date of the Automatic Extended Reporting Period; or (3) the expiration date of the Optional Extended Reporting Period, if purchased. 2 3 4 5 6 7 Policy § IX.A, at END_000476. It is undisputed that PCCP did not purchase the Optional 8 Extended Reporting Period. 9 10 The policy provision entitled “Automatic Extended Reporting Period,” set forth in section X.A, provided: United States District Court Northern District of California 11 If the Company or the Named Insured shall cancel or refuse to renew this Policy, then the Company shall provide the Named Insured an automatic and noncancellable extension of this Policy, subject otherwise to its terms, Limits of Liability, exclusions and conditions, to apply to Claims first made against the Insured during the sixty (60) days immediately following the effective date of such nonrenewal or cancellation, for any Wrongful Act committed before the effective date of such nonrenewal or cancellation and after the Retroactive Date (if any) and otherwise covered by this insurance. This Automatic Extended Reporting Period shall terminate after sixty (60) days from the effective date of such nonrenewal or cancellation. 12 13 14 15 16 17 Policy § X.A, at END_000477. 18 B. CLAIMS “MADE” IN THE UNDERLYING HAWAII ACTION 19 The claim at issue arises from an action involving Stanford S. Carr, a real estate developer 20 in Hawaii. Carr controlled the right to develop a real estate project in Kona, Hawaii, above the 21 Kaloko Heights Industrial Park. Carr and his company formed SCD Kaloko, LLC to act as the 22 developer, sponsor, and administrative member of a new entity, Kaloko Heights Associates, LLC 23 (“KHA”). PCCP and other investors formed a separate entity, PCCP/Strand LLC, which became 24 the managing member of KHA. 25 In 2005, KHA borrowed money from Redwood to develop the Kaloko Heights project. Carr 26 individually guaranteed the Redwood loan. The loan ultimately went into default and Redwood 27 commenced a foreclosure proceeding captioned Redwood Capital Finance Co., LLC v. Kaloko 28 Heights Assocs., LLC, et al., Civil Case No. 9-1-333K in Circuit Court in the Third Circuit of 3 1 Hawaii (“the Hawaii Action”). The Hawaii Action included a claim by Redwood against Carr 2 based upon his personal guarantee of the loan. On November 19, 2009, Carr filed counterclaims 3 against Redwood and PCCP in the Hawaii Action. Those counterclaims constitute “the claim” at 4 issue in this action. 5 C. CLAIM “REPORTED” AFTER NON-RENEWAL OF THE POLICY 6 On March 11, 2010, PCCP’s then-insurance broker, a representative of Arthur J. Gallagher & Co. (“Gallagher”) contacted PCCP by email. Declaration of Enrique Marinez (Dkt. No. 52-8 8 [“Marinez Decl.”]), Ex. K., at PCCP-Redwood000245-246.1 The email identified Gallagher as the 9 servicing broker on the Policy until the end of the policy period, March 18, 2010, at which point 10 PCCP’s new broker, Aon Financial Services Group (“Aon”), would succeed. See id. at PCCP- 11 United States District Court Northern District of California 7 Redwood000245. The email stated that its purpose was to make PCCP “aware of certain 12 conditions in the expiring policy.” Id. It further stated: “This is a Claims Made and Reported 13 Policy.2 Coverage is for Loss resulting from Claim [sic] first made against the insured and reported 14 to the Company in writing during the policy period or any applicable Extended Reporting Period. 15 Additional terms per policy.” Id. The email also stated that the policy had an AERP “which allows 16 for the reporting of Claims first made against the insured during the sixty (60) days immediately 17 following the effective date of nonrenewal for any Wrongful Act committed before the effective 18 date of such nonrenewal and after the Retroactive Date (if any).” Id. These statements closely 19 track the language of Sections IX.A and X.A of the policy itself, as set forth above. 20 1 23 Plaintiffs object to the Marinez Declaration, its supporting exhibits, and Defendant’s separate statement of putatively “undisputed” facts on admissibility and relevance grounds. Pls. MSJ (Dkt. No. 54) at 20-22. As set forth in detail in Section III.B.1, infra, the Court does not consider the facts offered therein to interpret the language of the policy. The Court provides the facts here for background only. 24 2 21 22 25 26 27 28 “California law distinguishes between: (1) occurrence policies, in which coverage is triggered by events that occur within the policy period, even if they lead to claims years after the policy period; and (2) claims-made policies, in which coverage is determined by claims made within the policy period, regardless of when the events that caused the claim to materialize first occurred.” Pension Trust Fund for Operating Engineers v. Fed. Ins. Co., 307 F.3d 944, 955 (9th Cir. 2002) (emphasis supplied). “Claims-made policies can be further classified as either claims-made-and-reported policies, which require that claims be reported within the policy period, or general claims-made policies, which contain no such reporting requirement.” Id. (emphasis supplied). 4 Also on March 11, 2010, Steve Towle (“Towle”), a PCCP executive, asked Aon to “advise” 1 2 as to the email from Gallagher. Id. 3 On March 15, 2010, Aon emailed Towle and another PCCP executive to request their 4 “assistance in reaching out to the partners to do a final query that there are no additional Claims . . . 5 that should be noticed to Endurance.” Marinez Decl., Ex. L. Aon’s email also advised PCCP that 6 if PCCP wanted to purchase a renewal policy with a higher insurance limit of $15 million, 7 Endurance would “require a warranty . . . regarding knowledge of any circumstance that could give 8 rise to a Claim.” Id. On March 17, 2010, Aon, on behalf of PCCP, sent notice to Endurance of eight separate 9 claims. Marinez Decl., Exs. N, O. No claim based on the Hawaii action was among them. See id. 11 United States District Court Northern District of California 10 On March 18, 2010, the policy period ended and the policy expired without renewal, which 12 caused the sixty-day AERP to go into effect. Thirty-four days later, on April 21, 2010, Aon, on behalf of PCCP, reported to Endurance 13 14 the subject claim based on Carr’s counterclaim in the Hawaii Action. On June 7, 2010, Endurance 15 denied coverage. The parties in the Hawaii Action, including PCCP, Redwood, and Carr, 16 ultimately reached a settlement resolving all their claims and counterclaims. 17 II. 18 LEGAL STANDARD A party may move for summary judgment on a “claim or defense” or “part of . . . a claim or 19 defense.” Fed. R. Civ. P. 56(a). Summary judgment is appropriate when there is no genuine 20 dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Id. 21 A party seeking summary judgment bears the initial burden of informing the court of the 22 basis for its motion, and of identifying those portions of the pleadings and discovery responses that 23 demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 24 323 (1986). Material facts are those that might affect the outcome of the case. Anderson v. Liberty 25 Lobby. Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is “genuine” if there is 26 sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Id. Disputes 27 over irrelevant or unnecessary facts will not preclude a grant of summary judgment. T.W. Elec. 28 Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987). 5 1 2 III. DISCUSSION In this diversity action, California law governs the question of whether the subject policy 3 provides coverage. See Travelers Prop. Cas. Co. of Am. v. ConocoPhillips Co., 546 F.3d 1142, 4 1145 (9th Cir. 2008). 5 A. CALIFORNIA LAW GOVERNING INTERPRETATION OF INSURANCE CONTRACTS 6 In insurance cases, California courts “generally resolve ambiguities in favor of coverage.” 7 AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 822 (Cal. 1990). Moreover, California courts 8 generally interpret the coverage clauses of insurance policies broadly, to protect “the objectively 9 reasonable expectations of the insured.” Id. “The California Supreme Court has established a threestep process for analyzing insurance contracts with the primary aim of giving effect to the mutual 11 United States District Court Northern District of California 10 intent of the parties.” In re K F Dairies, Inc. & Affiliates, 224 F.3d 922, 925 (9th Cir. 2000) (citing 12 AIU, 51 Cal. 3d at 821-23). The Ninth Circuit summarizes California’s three-step analysis thus: 13 The first step is to examine the “clear and explicit meanings” of the terms as used in their “ordinary and popular sense.” In assessing the terms’ meanings, we may not take individual terms out of context: Language in a contract must be construed in the context of that instrument as a whole . . . and cannot be found to be ambiguous in the abstract. Thus, if the meaning a layperson would ascribe to contract language is not ambiguous, we apply that meaning. If (and only if) a term is found to be ambiguous after undertaking the first step of the analysis, the court then proceeds to the second step and resolves the ambiguity by looking to the expectations of a reasonable insured. Under California law, an insurance policy provision is ambiguous when it is capable of two or more constructions both of which are reasonable. Finally, if the ambiguity still remains, it is construed against the party who caused the ambiguity to exist. In the insurance context, this is almost always the insurer, as the California Supreme Court has held that ambiguities are generally resolved in favor of coverage, and that the courts are to generally interpret the coverage clauses of insurance policies broadly, protecting the objectively reasonable expectations of the insured. 14 15 16 17 18 19 20 21 22 23 24 Id. at 925-26 (citations and internal quotation marks omitted). 25 B. THE LANGUAGE OF THE POLICY IS NOT AMBIGUOUS 26 The Court turns to the first step of California’s three-step analysis, an examination of the 27 policy’s language in the context of an instrument as a whole and given the meaning a layperson 28 would ascribe. The gravamen of the Court’s inquiry here is whether the policy language would be 6 1 ambiguous to a layperson who has actually read the policy.3 “A policy provision will be considered 2 ambiguous when it is capable of two or more constructions, both of which are reasonable.” World 3 Health & Educ. Found. v. Carolina Cas. Ins. Co., 612 F. Supp. 2d 1089, 1095 (N.D. Cal. 2009) 4 (quoting Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 18 (1995)). The Court holds that the policy 5 is not ambiguous and, consequently, that it establishes the untimeliness of the subject claim. The 6 Court rejects Plaintiffs’ interpretations of the conditions set forth in sections IX.A, the notice 7 provision, and X.A, the AERP provision, because those interpretations would require the Court to 8 disregard important language in the AERP. 1. 9 Extrinsic Evidence As an initial matter, the Court addresses the substantial quantities of extrinsic evidence 10 United States District Court Northern District of California 11 offered by the parties and the objections thereto. “In determining if a provision is ambiguous, we 12 consider not only the face of the contract but also any extrinsic evidence that supports a reasonable 13 interpretation. . . . Even apparently clear language may be found to be ambiguous when read in the 14 context of the policy and the circumstances of the case.” Employers Reinsurance Co. v. Superior 15 Court, 161 Cal. App. 4th 906, 919 (2008). However, “[c]ourts will not strain to create an 16 ambiguity where none exists.” World Health, 612 F. Supp. 2d at 1095 (quoting Waller, 11 Cal. 4th 17 at 18-19). In this case, the Court agrees with Plaintiffs that “neither party’s extrinsic evidence is 18 19 relevant to the objective interpretation of the Policy.” Pls. Reply (Dkt. No. 61) at 10. First, the 20 evidence does not directly explain the parties’ understanding of the terms of the contract at the time 21 they executed it. The emails between PCCP and its insurance brokers speaks to Plaintiffs’ 22 understanding at the end of the policy period, not at its outset. Second, the proffered evidence is 23 unilateral and therefore does not establish a course of conduct between the parties that might shed 24 light on the parties’ understanding of the contract’s performance requirements. See Towle Decl. 25 26 27 28 3 To be clear, California does not strictly presume that insureds are familiar with the terms of their policies; indeed, it affirmatively requires insurers to identify and explain “unusual or unfair language.” See Haynes v. Farmers Ins. Exch., 32 Cal. 4th 1198, 1210-11 (Cal. 2004). Additionally, coverage limitations must be “conspicuous, plain, and clear.” Id. at 1204. Plaintiffs here do not assert unfamiliarity with the policy language, that the AERP is “unusual or unfair,” or that it is inconspicuous, so the Court charges Plaintiffs with knowledge of the policy’s contents. 7 1 (Dkt. No. 56) ¶ 3; see also Employers Reinsurance, 161 Cal. App. 4th at 920-21 (course of 2 performance exists only where a party has “repeated occasions for performance” and “the other 3 party, with knowledge of the nature of the performance and opportunity for objection to it, accepts 4 the performance or acquiesces in it without objection” (citing Cal. Com. Code § 1303(a))). 5 Because none of the extrinsic evidence clarifies the terms of the policy, the Court declines 6 to consider it in interpreting the policy. The Court instead confines its inquiry to the policy’s four 7 corners. 2. 8 9 The Policy Language Most compelling in this case is the policy language itself. As set forth above, the policy’s Insuring Agreements cover claims “first made . . . and reported . . . during the policy period or any 11 United States District Court Northern District of California 10 applicable Extended Reporting Period.” Policy at END_000482. More specifically, Section IX.A 12 requires insureds, “[a]s a condition precedent to coverage,” to provide Endurance with written 13 notice of “any Claim made against any Insured as soon as practicable” after the insured “becomes 14 aware” of the claim, “but in no event later than: (1) the expiration date of this Policy [or] (2) the 15 expiration date of the [AERP].” Policy, § IX.A, at END_000476. Here, Plaintiffs did not report 16 the claim prior to the expiration date of the policy and therefore are not entitled to coverage under 17 that provision. 18 Plaintiffs must argue therefore that they are afforded coverage under the second option, i.e., 19 that they reported the claim before the expiration of the AERP. Plaintiffs posit that, because 20 Section IX.A is disjunctive, a layperson reasonably could conclude that it permitted an insured to 21 provide notice of “any Claim made against” an insured at any point up to the end of the AERP, 22 provided it was done “as soon as practicable.” Id. (emphasis supplied). The AERP provision itself 23 forecloses that reading. The specific terms of the AERP only “apply to Claims first made against 24 the Insured during the sixty (60) days immediately following the effective date of [the Policy’s] 25 nonrenewal or cancellation, for any Wrongful Act committed before the effective date of such 26 nonrenewal or cancellation . . . and otherwise covered by this insurance.” Policy, § X.A, at 27 END_000477 (emphasis supplied). The effect of Section X.A’s plain language, then, is to provide 28 coverage when a wrongful act occurs during the policy period but the claim based on that wrongful 8 1 act only materializes in the sixty days after the policy period, provided that the claim is reported 2 within those sixty days. Plaintiffs’ construction is unavailing. They interpret Section IX.A as a complete description 3 4 of the policy’s claims-reporting conditions, and Section X.A as an extension of not only the 5 policy’s coverage period, but also the time in which reporting may occur for the initial, one-year 6 coverage period. See Pls. MSJ at 9; Pls. Reply at 2. They argue that this interpretation is 7 “reasonable” and that therefore “the Policy is at a minimum ambiguous” and must be construed in 8 favor of coverage. Pls. Reply at 2. Plaintiffs focus on the title of the provision and urge the Court 9 to reject Endurance’s competing reading because it would interpret “the ‘Automatic Extended Reporting Provision’ to provide additional coverage, but no extended reporting.” Pls. MSJ at 11 11 United States District Court Northern District of California 10 (emphasis in original); see also id. at 10 (offering AERP’s caption as confirmation of Plaintiffs’ 12 reading of AERP’s substance). Plaintiffs’ interpretation is not without some appeal: the labeling of Section X.A as an 13 14 “Automatic Extended Reporting Period” gives the impression that the AERP’s function is nothing 15 more than to extend the reporting period for claims. Further, that impression aligns with what 16 appears to be the legal community’s general understanding of what extended reporting periods do. 17 See, e.g., Root v. American Equity Specialty Insurance Co., 130 Cal. App. 4th 926, 933 (Cal. Ct. 18 App. 2005) (assuming function of extended reporting period is to give insured “a set amount of 19 extra time to report claims” made within policy period); CAL. PRAC. GUIDE INS. LIT. §§ 7:103- 20 7:104.1 (explaining that claims-made-and-reported policies do not countenance extensions for last- 21 minute claims, but that such policies are valid as a matter of public policy because they allow 22 insurers to offer low premiums; also noting that “insureds may protect themselves [against last- 23 minute claims] by purchasing so-called ‘tail coverage’ or extended reporting coverage”).4 24 The Court agrees with Plaintiffs that the caption of Section X.A, when viewed in isolation, 25 tends to support an interpretation that the AERP allowed reporting of a claim—any claim—within 26 4 27 28 The record before the Court contains no evidence of common industry terms, but even if it did, the Court would still be required to read “the relevant policy terms as a layperson would read them, not as they might be analyzed by an attorney or insurance expert.” Indus. Indem. Co. v. Apple Computer, Inc., 79 Cal. App. 4th 817, 831 (Cal. Ct. App. 1999). 9 1 its duration. However, it is hornbook law that “how parties label their contract is not determinative 2 of its nature. For instance, calling an agreement a lease does not make it such. Reference must be 3 had to the instrument itself, to a reading and consideration of all its terms, conditions, and 4 covenants, to determine its true character.” 14A CAL. JUR. 3d Contracts § 201. In the insurance 5 context specifically, “[t]he caption of an insurance policy or rider may be considered in determining 6 the interpretation to be given to the instrument, although, where the main body of the policy or rider 7 is explicit and clear, its language will be given effect as against that of the caption.” 39 CAL. JUR. 8 3d Insurance Contracts § 42 (footnotes omitted, emphasis supplied) (citing Zimmerman v. Cont’l 9 Life Ins. Co., 99 Cal. App. 723, 726 (Cal. Ct. App. 1929); Coit v. Jefferson Standard Life Ins. Co., 10 United States District Court Northern District of California 11 28 Cal. 2d 1, 11 (1946)). Plaintiffs’ interpretation of Section X.A is consistent with its caption but not consistent with 12 its body. The substantive language of the provision explicitly extends coverage only to claims 13 “first made” during the AERP. Policy, § X.A, at END_000477. Plaintiffs’ proposed interpretation 14 would read this “first made” requirement out of the Policy. It also overlooks the requirement that 15 the claim be first made during the sixty-day period “immediately following” termination of the 16 policy. The Court cannot read Section IX.A in isolation. Cal. Civ. Code § 1641 (“The whole of a 17 contract is to be taken together, so as to give effect to every part, if reasonably practicable, each 18 clause helping to interpret the other.”); Employers Reinsurance, 161 Cal. App. 4th at 919 (“We 19 consider the contract as a whole and interpret the language in context, rather than interpret a 20 provision in isolation.”); see also AIU, 51 Cal. 3d at 827 (declining to adopt party’s interpretation 21 of insurance policy that would strip one of the policy’s phrases of independent meaning). The 22 Court must give effect to all the language of the policy where doing so results in no ambiguity. 23 Doing so here, the Court holds that the “first made” language of section X.A means what it says: 24 the AERP covers only those claims “first made” in the sixty-day period immediately following 25 nonrenewal or termination of the policy, and accordingly does not cover claims first made within 26 the policy period. 27 World Health supports Defendant’s view that the policy language is unambiguous. In that 28 case, as in this one, an insured had a policy with a sixty-day automatic extended reporting period, 10 1 though in World Health the insured renewed its policy so the extending reporting period was not 2 triggered. 612 F. Supp. 2d at 1095-96. The policy required the insured to provide notice of a 3 lawsuit against it within fifteen days after the claim was first made. Id. at 1094. The insured was 4 sued within the policy period but did not report the claim until 24 days after the end of the policy 5 period. Id. The insured argued that a lay person reading the extended reporting provision “would 6 not understand that for a claim to be covered under [that] provision, a claim must have been made 7 after the policy expired.” Id. The court rejected that argument after parsing the black letter of the 8 policy, which closely tracks the policy language here, and finding “no ambiguity.” Id. 9 Plaintiffs seek to distinguish World Health on the ground that the policy in that case had a fifteen-day reporting requirement for claims arising from lawsuits. Pls. MSJ at 12-13. While true, 11 United States District Court Northern District of California 10 that does not make World Health distinguishable. The case speaks to the lack of ambiguity in the 12 notice provisions within the extended reporting provision, which is unaffected by the fifteen-day 13 reporting requirement. 14 Because the Court determines that the policy is unambiguous, its analysis proceeds no 15 further. Accordingly, the Court does not consider what Plaintiffs’ reasonable expectations were or 16 whether the contra-insurer rule should resolve any ambiguities—which are not present here— 17 against Endurance. The subject policy is unambiguous. The AERP does not apply to the subject 18 claim because it was not “first made” within the AERP. The subject policy does not cover 19 Plaintiffs’ claim because that claim was “first made” within the policy period but not reported 20 within that period. Accordingly, the claim is untimely and not covered. THE NOTICE-PREJUDICE RULE DOES NOT APPLY 21 C. 22 Plaintiffs contend that, if the Court finds their claim was untimely reported, the Court 23 should apply California’s notice-prejudice rule and require Endurance to demonstrate actual 24 prejudice stemming from the delay in reporting. Specifically, Plaintiffs posit that a California court 25 “would almost certainly” apply the notice-prejudice rule here because the subject claim falls 26 “squarely within” the risk PCCP underwrote. Pls. MSJ at 15. The Court rejects that argument. It 27 is undisputed that the policy at issue here is a claims-made-and-reported policy. The leading 28 California case, Root, expressly rejects application of the notice-prejudice rule to claims-made-and- 11 1 reported policies, and it is only one in a line of California cases to do so. See Root, 131 Cal. App. 2 4th at 947 (approving cases rejecting notice-prejudice rule for claims-made-and-reported policies). 3 Root also raises the possibility of courts giving insureds equitable relief from strict compliance with 4 reporting requirements in “rare” cases, but Plaintiff expressly disavows seeking equitable relief 5 here. Pls. Reply at 7 n.5. 6 The purpose of claims-made-and-reported policies is to allow insurers to “close their books” 7 on a policy by a date certain, and thus be able to price policies more accurately. See generally Pac. 8 Employers Ins. Co. v. Superior Court, 221 Cal. App. 3d 1348, 1356-59 (Cal. Ct. App. 1990); Root, 9 131 Cal. App. 4th at 944-47. Plaintiffs argue that, in this case, extending coverage under the AERP does nothing to prevent Endurance from closing its books on the subject policy by a date certain; 11 United States District Court Northern District of California 10 the date is simply moved sixty days out past the end of the policy period. Thus, according to 12 Plaintiffs, a California court would apply the notice-prejudice rule in this case, notwithstanding the 13 subject policy being of the claims-made-and-reported type. That position cannot be reconciled with Root. Under Plaintiffs’ view of the law, every 14 15 claims-made-and-reported policy would be subject to the notice-prejudice rule, because in every 16 instance the insurer of a claims-made-and-reported policy could close its books at the end of the 17 policy period or, if provided, any extension periods. In every claims-made-and-reported policy, 18 then, the policy’s reporting condition would be mere surplusage, and the claims-made-and-reported 19 policy would be “convert[ed] . . . into a pure claims made policy,” thereby “giv[ing] the insured a 20 better policy than he paid for.” Root, 130 Cal. App. 4th at 947. Root’s rationale is dispositive 21 here.5 The notice-prejudice rule is inapplicable in this case because the subject policy is 22 undisputedly a claims-made-and-reported policy. 23 IV. The claim at issue was made against Plaintiffs during the policy period but only reported 24 25 CONCLUSION after the policy period expired. Because the Court holds that the subject policy unambiguously 26 5 27 28 In light of this direct California authority, the Court declines to follow two nonbinding authorities applying Texas law cited by Plaintiffs. Pls. MSJ at 16 (citing Julio & Sons Co. v. Travelers Cas. & Sur. Co. of Am., 684 F. Supp. 2d 330, 342 (S.D.N.Y. 2010) (applying Texas law); Prodigy Commc'ns Corp. v. Agric. Excess & Surplus Ins. Co., 288 S.W.3d 374, 382 (Tex. 2009) (same)). 12 1 covers claims made during the policy period only if they are also reported within the policy period, 2 the undisputed facts entitle Defendant to judgment as a matter of law. The Court GRANTS the 3 motion for summary judgment of Defendant Endurance American Specialty Insurance Company 4 and DENIES the motion for summary judgment of Plaintiffs PCCP, LLC and Redwood Capital 5 Finance Company, LLC. 6 7 Not more than seven (7) business days from the signature date of this Order, Defendant shall file a proposed form of Judgment after having sought Plaintiffs’ agreement as to form. 8 All trial-related dates are hereby VACATED. 9 This Order terminates Docket Nos. 52 and 54. 10 IT IS SO ORDERED. United States District Court Northern District of California 11 12 13 Dated: August 13, 2013 _______________________________________ YVONNE GONZALEZ ROGERS UNITED STATES DISTRICT COURT JUDGE 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13

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