Century Surety Company v. Weir Brothers Construction Corp.
Filing
26
ORDER: Plaintiff's Motion for Summary Judgment (Doc. 16 ) is granted in part and denied in part. Plaintiff's motion for summary judgment on Defendant's prayer for punitive damages is granted. Plaintiff's motion for summary judgment is denied in all other respects. Signed by Judge William Q. Hayes on 4/9/2015. (mdc)
1
2
3
4
5
6
7
8
UNITED STATES DISTRICT COURT
9
SOUTHERN DISTRICT OF CALIFORNIA
10
CENTURY SURETY COMPANY,
11
12
13
14
15
16
17
vs.
WEIR BROTHERS
CONSTRUCTION CORP.,
Plaintiff,
CASE NO. 14CV0687-WQH-NLS
ORDER
Defendant.
WEIR BROTHERS
CONSTRUCTION CORP.,
Counterclaimant,
vs.
CENTURY SURETY COMPANY,
Counter-Defendant.
18 HAYES, Judge:
19
The matter before the Court is the Motion for Summary Judgment (ECF No. 16)
20 filed by Plaintiff and Counter-Defendant Century Surety Company.
21 I. Background
22
On March 26, 2014, Plaintiff and Counter-Defendant Century Surety Company
23 (“Plaintiff” or “Century Surety”) commenced this action by filing the Complaint for
24 Reformation in this Court. (ECF No. 1). Plaintiff alleges that it and Defendant and
25 Counterclaimant Weir Brothers Construction Corp. (“Defendant” or “Weir Brothers”)
26 intended to enter into a “claims made” liability insurance policy, but endorsement CBL
27 1902 (07/08) was mistakenly included in the policy, converting it into an “occurrence”
28
-1-
14CV0687-WQH-NLS
1 policy.1 Plaintiff requests reformation of the policy and deletion of endorsement CBL
2 1902 (07/08). On May 19, 2014, Defendant filed an Answer and Counterclaims. (ECF
3 No. 6). On June 6, 2014, Defendant filed an Amended Answer and Counterclaims,
4 which is Defendant’s operative pleading in this case. (ECF No. 8). The Amended
5 Answer and Counterclaims alleges that Defendant was unaware of the intricacies of
6 insurance policies and believed that Plaintiff had issued it an appropriate insurance
7 policy. The Amended Answer and Counterclaims asserts two counterclaims: (1)
8 declaratory judgment; and (2) breach of the covenant of good faith. Defendant seeks
9 a judicial determination that the policy issued by Plaintiff is valid and enforceable as
10 written and that Defendant is entitled to a defense and recovery of fees in an underlying
11 lawsuit against Defendant for a construction defect (“Moody Creek Farms litigation”).
12 Defendant also seeks compensatory and punitive damages on the grounds that Plaintiff
13 is attempting to reform the policy without legal grounds and engaged in “dilatory claims
14 handling” in response to Defendant’s tender of defense for the Moody Creek Farms
15 litigation. Id. at 16.
16
On December 3, 2014, Plaintiff filed the Motion for Summary Judgment. (ECF
17 No. 16). On February 12, 2015, Defendant filed an opposition. (ECF No. 20). On
18 February 20, 2015, Plaintiff filed a reply, accompanied by objections to Defendant’s
19 evidence, and three declarations. (ECF No. 22).
20 II. Facts
21
“In or about July 6, 2005, Weir Brothers entered into a construction contract with
22 Moody Creek Farms, LLC (‘MCF’) to construct a home at a cost of $3.8 million.”
23 (Defendant’s Response to Plaintiff’s Separate Statement of Purportedly Undisputed
24 Material Facts (“Def.’s RSSUF”) ¶ 1, ECF No. 20-4 at 2). “The scope of the
25 construction contract expanded over time and the project extended over a period of
26
1
“A claims-made policy usually provides coverage for prior [injuries] so long
27 as the claim is made during the policy period. Occurrence policies generally cover the
insured for claims arising out of an occurrence that took place during the policy period,
28 even if the claim is made after the policy expires.” Merrill & Seeley, Inc. v. Admiral
Ins. Co., 225 Cal. App. 3d 624, 628 (1990).
-2-
14CV0687-WQH-NLS
1 several years.” Id. ¶ 2.
2
On May 27, 2008, Jennifer Fulcher of American E & S2 sent an email to
3 quotes@centurysurety.com stating:
4
Attn: Monique M.,
5
Please see the attached submission for an account that is new to our office.
The insured is a home builder of high end custom homes, currently insured
with Golden Bear for $ 113,550 for 10 million in receipts. Attached is the
accord application, supplemental and 5 years currently valued loss runs.
Thank you.
6
7
8 (Pl.’s Ex. 1, ECF No. 16-7 at 7). Attached to the email is an application for an
9 insurance policy prepared on behalf of Defendant.3 On the first page of the application,
10 boxes titled “Proposed Eff Date” and “Proposed Exp Date” are filled in with “08/15/08”
11 and “08/15/09.” Id. at 8. In a section of the application titled “Commercial General
12 Liability Section,” under a subsection titled “Coverages,” boxes for “Commercial
13 General Liability” and “Claims Made” are checked.
Id. at 10.
The box for
14 “Occurrence” is not checked. Id. In a section of the application titled “Prior Carrier
15 Information,” “[t]he application state[s] Weir Brothers had been insured under a ‘claims
16 made’ policy for the prior five years.” (Id. at 9; Def.’s RSSUF ¶ 6, ECF No. 20-4 at 3).
17
On August 14, 2008, Chris Houska of CRC Insurance Services (“CRC”), Century
18 Surety’s insurance broker, sent an email to Robert Butterworth of Century Surety,
19 stating:
20
21
22
23
24
25
26
27
I realize you do not want to handle last minute BOR’s but I have been
asked to approach you. As stated my retailer was given one market (FFIC)
whom we went to and obtained an occurrence quote of 64k off 8mm sale
for 1/2/2 5k deductible.
Upon presenting to the insured we discovered they are with Golden Bear
on a claims made policy with a 8/15/99 retro date. To say the least the
rating and form is not what it should be and the insured therefore cannot
switch to occurrence at this time.
It appears the incumbent only presented Golden Bear and Navigators after
being given the entire market. The insured therefore feels he was not
presented all options.
2
Neither party identifies Jennifer Fulcher or American E & S.
3
Neither party has submitted evidence indicating who prepared the application.
28
-3-
14CV0687-WQH-NLS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
We have an order at an 8.50 rate for limits of 1/2/2 on a claims made form
with the 8/15/99 retro date. Based off the 8mm sales the premium would
be 68k and we could bind first thing tomorrow upon receiving our quote.
I know you may need to get a release but due to the circumstances I hope
you can offer us and the insured every consideration possible.
Thanks in advance for your attention to this.
(Pl.’s Ex. 2, ECF No. 16-7 at 20). Attached to the August 14, 2008 email is a letter
signed by Robert Weir, and with Weir Bros. Construction Corp. letterhead, that states:
“Please be advised that effective August 14, 2008 we are appointing Robert Kempa of
Westland Insurance Brokers and CRC Sterling West Insurance Servises [sic] as our
exclusive broker of record with respects to our insurance coverage.” Id. at 21.
In response to Chris Houska’s email, Century Surety provided a “quote.” (Def.’s
RSSUF ¶ 10, ECF No. 20-4 at 5).4 The “quote” is a form with a “Century Surety
Company-Construction Division” heading. (Pl.’s Ex. 3, ECF No. 16-7 at 23). In the
quote, a line next to “Claims Made” is filled in with “XXX.” Id. A line next to
“Occurrence” is left blank. Id. The form lists a “retro date” of “8/15/99.” Id. The form
lists multiple “Mandatory Forms,” one titled “CG 0002 (12/07) ... CGL Coverage FormClaims Made Form” and another titled “CBL 1902 (07/08) ... Continuous or
Progressive Limitation.” Id.
On August 15, 2008, Robert Kempa of Westland Insurance Brokers sent an email
to Chris Houska and Daniel Bonenfant of CRC, with a copy to Jill Conti of Westland
Insurance Brokers, stating: “Chris and Dan, Per the insured request effective 8/15/2008
bind General liability coverage with Century Surety ... $2,000,000/$2,000,000 ...
$10,000 SIR ... Rate $8.50 per 1000 receipts based on $8,000,000 Claims Made
Coverage- Retro Date 8/15/1999.... Please contact Jill Conti with policy #’s and any
further binding instructions.” (Pl.’s Ex. 4, ECF No. 16-7 at 28). “CRC sent an email
to Century on August 15, 2008 and requested that coverage be bound pursuant to
Century’s quote.” (Def.’s RSSUF ¶ 12, ECF No. 20-4 at 5). “Century bound coverage
4
Defendant does not dispute that a quote was provided, but disputes that the
“quote” was for a claims made policy. See id.
-4-
14CV0687-WQH-NLS
1 pursuant to a binder effective August 15, 2008 and issued ... general liability insurance
2 policy No. CCP564869 to Weir Brothers in effect from August 15, 2008 to August 15,
3 2009 (‘the Century Surety policy’) subject to a $10,000 self-insured retention (‘SIR’).”
4 Id. ¶ 13.
5
The “binder” is a form with a “Century Surety Company-Construction Division”
6 heading. (Pl.’s Ex. 6, ECF No. 16-7 at 32). In the binder, a line next to “Claims Made”
7 is filled out with “XXX.” Id. The form lists a “retro date” of “8/15/99.” Id. The form
8 lists multiple “Mandatory Forms,” one titled “CG 0002 (12/07) ... CGL Coverage Form9 Claims Made Form” and another titled “CBL 1902 (07/08) ... Continuous or
10 Progressive Limitation.” Id.
11
Plaintiff’s Exhibit 7 is an August 18, 2008 email from Daniel Bonenfant of CRC
12 to Jill Conti of Westland Insurance Brokers, stating:
13
Policy #:
CCP 564869
14
Form:
Claims Made
15
Effective 8/15/08
16
Retero [sic] Date 8/15/99
17
Binder and invoice tomorrow when Julie gets back..
18 (Pl.’s Ex. 7, ECF No. 16-7 at 37).
19
“Century sent the Century Surety policy to CRC on September 9, 2008 and CRC
20 sent the Century Surety policy to Weir Brothers’ retail broker on September 23, 2008.”
21 (Def.’s RSSUF ¶ 16, ECF No. 20-4 at 6). The third page of the Century Surety policy
22 is titled “Schedule of Forms and Endorsements.” (Pl.’s Ex. 10, ECF No. 16-7 at 46).
23 “CG 00 02 12 07 ... Comm General Liability Cov Form” is listed on that schedule. Id.
24 “CG 00 02 12 07” is titled “Commercial General Liability Coverage Form.” Id. at 71.
25 “CG 00 02 12 07” states, in relevant part:
26
27
28
b. This insurance applies to “bodily injury” and “property damage” only
if:
(1) The “bodily injury” or “property damage” is caused by an
“occurrence” that takes place in the “coverage territory”;
-5-
14CV0687-WQH-NLS
1
(2) The “bodily injury” or “property damage” did not occur
before the Retroactive Date, if any, shown in the
Declarations or after the end of the policy period; and
2
3
(3) A claim for damages because of the “bodily injury” or
“property damage” is first made against any insured, in
accordance with Paragraph c. below, during the policy period
or any Extended Reporting Period we provide under Section
V- Extended Reporting Periods.
4
5
6 Id. at 71.
7
The fourth page of the policy is titled “Policy Changes.” Id. at 47. The following
8 text appears on this page: “This endorsement changes the policy. Please read it
9 carefully.... The following forms are included with the policy: ... CBL 1902 07/08 ...
10 Continuous or Progressive Limitation.” Id. Endorsement CBL 1902 (07/08), in turn,
11 states: “THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT
12 CAREFULLY.” Id. at 108. Endorsement CBL 1902 (07/08) further states: “This
13 endorsement modifies insurance provided under the following: COMMERCIAL
14 GENERAL LIABILITY COVERAGE PART. In consideration of the premium charged
15 the following changes are made to this policy: ...
16
Paragraph b. is deleted and entirely replaced by the following:
17
b. This insurance applies to “bodily injury” and “property damage” only
18
if:
19
20
(1) The “bodily injury” or “property damage” is caused by an
“occurrence” that takes place in the “coverage territory”;
21
(2) The “bodily injury” or “property damage” occurs during
the policy period; and
22
(3) The “bodily injury” or “property damage”:
23
24
25
26
27
28
(a) did not first exist, or first occur, in whole or
in part, prior to the inception date of this policy;
or
(b) was not, nor is alleged to have been, in the
process of taking place prior to the inception
date of this policy, even if the actual or alleged
“bodily injury” or “property damage” continues
during this policy period; or
(c) was not caused by any construction defect or
condition which resulted in “bodily injury” or
-6-
14CV0687-WQH-NLS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
“property damage” which first existed, prior to
the effective date of this policy....
Id.
On October 2, 2008, Jill Conti of Westland Insurance Brokers, the Weir Brothers’
“retail broker,” sent an email to Julie Chakirian of CRC, stating: “This is a claims made
policy and the GL retro date is 8/15/1999. Refer to quote and binder.” (Def.’s RSSUF
¶ 23, ECF No. 20-4 at 9; Pl.’s Ex. 11, ECF No. 16-7 at 125).
“By letter dated December 18, 2008, Century received a tender of defense from
Weir Brothers with respect to a lawsuit entitled Jim Henry Construction, Inc. v. Michael
Lewis Lloyd, et al., San Diego County Superior Court case No. 37-2007-00050255-CUCL-NC” (“Jim Henry litigation”). Id. ¶ 36.
On December 31, 2008, Daniel Mayer of Century Surety sent an email to Weir
Brother’s then-counsel Adam Flury, stating, in relevant part:
As we discussed, the most obvious reason behind our denial of coverage
is that the claim falls outside our policy period. The policy period is
August 15, 2008 to August 15, 2009. It is a claims made policy, so in
order for any claim to be covered, two key conditions, among many
others, must be met. First, the alleged injury or damage must be caused
by an occurrence that took place after the policy’s retroactive date, if any.
Second, the claim must first be made against the insured during the policy
period and not before the policy’s inception.
18 (Pl.’s Ex. 28, ECF No. 16-7 at 253). Plaintiff’s Exhibit 29 is a letter dated January 26,
19 2009, from Daniel Mayer to Adam Flury that states, in relevant part:
20
21
22
23
Both Insuring Agreements indicate that coverage applies only to claims
first made against any insured during the policy period or any applicable
Extended Reporting Periods. The policy incepted on August 15, 2008, so
no coverage is available for any claims first made against an insured prior
to that date. The claims against Weir described above were first made in
May and August 2007. Because these claims were not first made during
the policy period, there is no coverage.
24 (Pl.’s Ex. 29, ECF No. 16-7 at 264).
25
Plaintiff’s Exhibit 13 is a June 11, 2009 letter from Daniel Bonenfant of CRC to
26 Robb Butterworth of Century Surety and an attached “Commercial Insurance
27
28
-7-
14CV0687-WQH-NLS
1 Application” made on behalf of Defendant.5 (Pl.’s Ex. 13, ECF No. 16-7 at 134-35).
2 The “Commercial Insurance Application” lists a “Proposed Eff Date” of “8/15/2009”
3 and a “Proposed Exp Date” of “8/15/2010.” Id. at 135. Under the subheading
4 “Coverages,” the “Commercial Insurance Application” contains an “x” next to
5 “Commercial General Liability” and “Claims Made” but leaves blank the box next to
6 “Occurrence.” Id. at 138. “Rather than renew, Weir Brothers requested that Century
7 extend the policy. Century agreed. The policy was initially extended until December
8 15, 2009.” (Def.’s RSSUF ¶ 25, ECF No. 20-4 at 10). Plaintiff’s Exhibit 16 contains
9 an email and another attached “Commercial Insurance Application” made on behalf of
10 Defendant.6
(Pl.’s Ex. 16, ECF No. 16-7 at 152-53).
Under the subheading
11 “Coverages,” the “Commercial Insurance Application” contains an “x” next to
12 “Commercial General Liability” and “Claims Made,” respectively, but leaves the box
13 next to “Occurrence” blank. Id. at 156. “Rather than renew, Weir Brothers again
14 requested that Century extend the policy. Century agreed. The policy was extended
15 until February 15, 2010.” (Def.’s RSSUF ¶ 27, ECF No. 20-4 at 11).
16
Plaintiff’s Exhibit 17 is an email conversation between Dave Seaholm of Century
17 Surety and Daniel Bonenfant of CRC regarding a renewal quote on the policy, that took
18 place from November 18, 2009, until December 4, 2009. On December 4, 2009, Dave
19 Seaholm stated: “The problem is this is a claims made policy and I don’t have a quote
20 letter set up to quote it. I can offer an occ quote but it will be limited in that we will
21 have to exclude past projects and the pricing might go up.” (Pl.’s Ex. 17, ECF No. 16-7
22 at 166). Daniel Bonenfont replied: “Thanks.... I’m sure they just want to continue with
23 the Claims Made but I can offer that as an option....will you be sending a Claims Made
24 quote soon?” Id. Dave Seaholm replied: “Due to the nature of Claims Made, I can’t
25 quote less than the expiring premium so I will agree to quote on a Claims Made basis
26
27
5
Neither party has submitted evidence indicating who prepared the application.
28
6
Neither party has submitted evidence indicating who prepared the application.
-8-
14CV0687-WQH-NLS
1 the same as expiring policy - $68,000 plus TRIA.” Id. Following discussion of the
2 proposed terms, Daniel Bonenfant stated: “Appreciate that offer can let me know what
3 the annual policy would be.” Id. at 165. Dave Seaholm responded: “Claims made or
4 occurrence?” Id. Daniel Bonenfant responded: “Claims made.” Id. Dave Seaholm
5 replied: “Its going to be the same price and terms as expiration - the reason we can’t go
6 lower is due to the pricing of the Extended Reporting Period. The pricing for the ERP
7 is based on the premium for the last policy term and if the last premium is greatly
8 reduced from other years we don’t get an accurate premium for the tail exposure.” Id.
9
Jason Foreman states that Plaintiff’s Exhibit 19 is a “quote for an ‘occurrence’
10 based general liability policy.” (Declaration of Jason Foreman (“Foreman Decl.”) ¶ 23,
11 ECF No. 16-3 at 8). The “quote” is dated December 4, 2009. Under the subheading
12 “Description of Risk,” the “quote” states: “Renewal quote coming off a claims made
13 policy. Risk is a custom home builder in the San Diego area.” (Pl.’s Ex. 19, ECF No.
14 16-7 at 173).
15
“[Moody Creek Farms, LLC] ultimately terminated the construction contract with
16 Weir Brothers in or around January 7, 2011, prior to completion of the project.” (Def.’s
17 RSSUF ¶ 3, ECF No. 20-4 at 2). “In or about September 2013, Century received its
18 first notice of a potential claim by [Moody Creek Farms, LLC] against Weir Brothers.
19 Century acknowledged receipt of the claim by letter dated September 30, 2013.”
20 (Def.’s RSSUF ¶ 4, ECF No. 20-4 at 4). The first notice that Century Surety received
21 is a letter dated August 28, 2013, from Michael L. Kirby, counsel for Weir Brothers, to
22 Robert Kempa of Michael Ehrenfeld Company. (Pl.’s Ex. 20, ECF No. 16-7 at 184;
23 Def.’s Ex. 32, ECF No. 20-5 at 5). Michael Kirby states that Century Surety added an
24 insert to the August 28, 2013 letter after Century Surety had received it. The insert
25 states: “Only policy (occurrence) Matt Ridge 09/04/2013.” (Declaration of Michael
26 Kirby (“Kirby Decl.”) ¶ 3, ECF No. 20-1 at 1; Def.’s Amended Ex. 32, ECF No. 24)
27 (emphasis in original).
28
-9-
14CV0687-WQH-NLS
1
Charles Norris of Century Surety states that “Century Surety’s initial coverage
2 analysis revealed that Century Surety policy No. CCP564869 issued to Weir Brothers
3 was a claims made policy, but mistakenly included an endorsement form (CBL 1902
4 (07/08)) which deleted the claims made provisions.” (Declaration of Charles Norris
5 (“Norris Decl.”) ¶ 6, ECF No. 16-5 at 3). Charles Norris further states that “[a]s soon
6 as Century Surety learned that the policy mistakenly included the CBL 1902 (07/08)
7 endorsement [in September 2013], Century Surety requested that the Weir Brothers
8 agree to reform the policy. Weir Brothers refused to agree to reform the policy.” Id.
9 ¶ 7.
10
Defendant’s Exhibit 37 is a September 6, 2013 email from John Aye of Century
11 Surety to Charles Norris of Century Surety, stating:
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Chuck, I have a new claim for Weir Brothers. We issued Weir Brothers
under policy CCP564869 for the period 8/15/08 to 8/15/09 extended to
2/15/10. Coverage was written on form CG0002 12/09. The insuring
agreement was modified by form CBL 0902 07/08. CBL1902 modifies
part b of the insuring agreement which is the claims made section. Our
intent was to issue a claims made policy. I would like some advice about
what to do as the claim is being made after the policy period and after the
extended reporting period.
(Def.’s Ex. 37, ECF No. 20-5 at 16).
“On or about October 24, 2013, [Moody Creek Farms] filed a lawsuit against
Weir Brothers in San Diego County Superior Court, case No. 37-2013-00072663-CUCD-CTL.... The [Moody Creek Farms claim] seeks to recover damages in excess of $5
million for the alleged defective construction of a multi-million dollar home in
Bonsall.” (Def.’s RSSUF ¶ 5, ECF No. 20-4 at 2).
Michael Kirby, counsel for Weir Brothers, states that “[i]n the last quarter of
2013, I received a telephone call from an individual who identified himself as an inhouse lawyer for Century.” (Kirby Decl. ¶ 2, ECF No. 20-1 at 5-6). Michael Kirby
further states that the Century representative “said he was calling to ask me to stipulate
to reform the Century policy issued to Weir Bros in 2008.... I asked him if there was
coverage for Weir Bros in the MCL (Moody) construction defect case under the policy
- 10 -
14CV0687-WQH-NLS
1 as written and issued by Century, and he said there was. He said Century could not
2 deny a defense to Weir Bros based on the language and coverages in the policy, and
3 could only do so if the policy was reformed.” Id. ¶ 17. Michael Kirby further states
4 that he told the Century Surety representative he “would never stipulate to eliminate
5 coverage for my client solely to benefit the insurer, particularly so many years after the
6 policy was issued and where no prior claim of ‘mistake’ had ever been raised by the
7 insurer.” Id. ¶ 18.
8
It is undisputed that on January 8, 2014, “Century ... agreed to defend Weir Bros.
9 in the [Moody Creek Farms litigation] subject to a $10,000 SIR and with a reservation
10 of rights.” (Def.’s RSSUF ¶ 35, ECF No. 20-4 at 16).7 Charles Norris states:
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
In January 2014, Century Surety also contacted the law firm of
Fredrickson, Mazeika & Grant LLP to determine whether that firm could
assume Weir Brothers’ defense once Weir Brothers exhausted the
applicable SIR. The law firm had no conflicts. In early March 2014,
Century Surety was advised by counsel for Weir Brothers that the SIR had
been exhausted. Century Surety formerly [sic] retained Fredrickson,
Mazeika & Grant LLP in early March 2014 to defend Weir Brothers in the
[Moody Creek Farms litigation].
(Norris Decl. ¶ 10, ECF No. 16-5 at 3). Plaintiff commenced this action on March 26,
2014. (ECF No. 1).
III. Summary Judgment Standard
“A party may move for summary judgment, identifying each claim or
defense—or the part of each claim or defense—on which summary judgment is sought.
The court shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a). A material fact is one that is relevant to an element of a
claim or defense, determined by the substantive law governing the claim or defense.
See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
The moving party has the initial burden of demonstrating that summary judgment
7
Defendant contends that this notice was belated, but does not dispute that it
28 was sent on this date. See id.
- 11 -
14CV0687-WQH-NLS
1 is proper. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 153 (1970). Where the party
2 moving for summary judgment does not bear the burden of proof at trial, “the burden
3 on the moving party may be discharged by ‘showing’—that is, pointing out to the
4 district court—that there is an absence of evidence to support the nonmoving party’s
5 case.”
Celotex Corp. v. Cartrett, 477 U.S. 317, 325 (1986); see also United
6 Steelworkers v. Phelps Dodge Corp., 865 F.2d 1539, 1542-43 (9th Cir. 1989) (“[O]n
7 an issue where the plaintiff has the burden of proof, the defendant may move for
8 summary judgment by pointing to the absence of facts to support the plaintiff’s claim.
9 The defendant is not required to produce evidence showing the absence of a genuine
10 issue of material fact with respect to an issue where the plaintiff has the burden of
11 proof. Nor does Rule 56(c) require that the moving party support its motion with
12 affidavits or other similar materials negating the nonmoving party’s claim.”) (quotation
13 omitted).
14
If the moving party meets the initial burden, the nonmoving party cannot defeat
15 summary judgment merely by demonstrating “that there is some metaphysical doubt as
16 to the material facts.” Matsushita, 475 U.S. at 586; see also Anderson v. Liberty Lobby,
17 Inc., 477 U.S. 242, 252 (1986) (“The mere existence of a scintilla of evidence in support
18 of the [nonmoving party’s] position will be insufficient.”). The nonmoving party must
19 “go beyond the pleadings and by her own affidavits, or by the depositions, answers to
20 interrogatories, and admissions on file, designate specific facts showing that there is a
21 genuine issue for trial.” Celotex, 477 U.S. at 324 (quotations omitted). The nonmoving
22 party’s evidence is to be believed, and all justifiable inferences are to be drawn in its
23 favor. See Anderson, 477 U.S. at 256.
24
“When the party moving for summary judgment would bear the burden of proof
25 at trial, ‘it must come forward with evidence which would entitle it to a directed verdict
26 if the evidence went uncontroverted at trial.’” C.A.R. Transp. Brokerage Co., Inc. v.
27 Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (citing Houghton v. South, 965
28
- 12 -
14CV0687-WQH-NLS
1 F.2d 1532, 1536 (9th Cir.1992)). “In such a case, the moving party has the initial
2 burden of establishing the absence of a genuine issue of fact on each issue material to
3 its case.” Id. “Once the moving party comes forward with sufficient evidence, ‘the
4 burden then moves to the opposing party, who must present significant probative
5 evidence tending to support its claim or defense.’” Id. (quoting Intel Corp. v. Hartford
6 Accident & Indem. Co., 952 F.2d 1551, 1558 (9th Cir.1991)).
7 IV. Discussion
8
Plaintiff requests summary judgment on the Complaint for Reformation.
9 Alternatively, Plaintiff requests summary judgment on both of Defendant’s
10 counterclaims and “a declaration that Weir Brothers Construction Corp.’s fifth prayer
11 for relief requesting punitive damages has no merit.” (ECF No. 16 at 2).
12
A. Reformation of the Policy
13
Plaintiff contends that the Century Surety policy is a claims made policy, rather
14 than an occurrence policy. Plaintiff contends that claims made policies insure claims
15 asserted against the insured during covered periods, while occurrence policies cover
16 injuries or damages occurring during covered periods. Plaintiff contends that the
17 inclusion of endorsement CBL 1902 (07/08) was a mutual mistake because Plaintiff
18 only includes endorsement CBL 1902 (07/08) in its occurrence policies as a limitation
19 of coverage. Plaintiff contends that reformation is warranted because there was a
20 mistake in the “drawing of the contract”; the parties inadvertently included endorsement
21 CBL 1902 (07/08). (ECF No. 16-1 at 21). Plaintiff contends that both parties intended
22 to enter into a claims made policy because both parties referred to the policy as a
23 “claims made” policy and sought inclusion of a “retroactive date,” which is a “feature
24 unique to ‘claims made’ coverage....” Id. at 21-22. Plaintiff contends that the conduct
25 of the parties after issuance of the policy demonstrates that they both believed the policy
26 was a claims made policy. Plaintiff contends that Defendant’s asserted subjective intent
27 in entering into the policy is not relevant, and only Defendant’s objective intent is
28 relevant.
- 13 -
14CV0687-WQH-NLS
1
Defendant contends that Plaintiff has failed to introduce any admissible evidence
2 to show that Plaintiff intended to issue the policy without endorsement CBL 1902
3 (07/08). Defendant contends that the underwriter for the policy, Robert Butterworth,
4 was not even contacted in the course of discovery, and the persons who are testifying
5 as to Plaintiff’s intent have no personal knowledge of the underwriting of the policy.
6 Defendant contends that there is circumstantial evidence that there was no mistake in
7 including endorsement CBL 1902 (07/08). Specifically, Defendant contends that
8 endorsement CBL 1902 (07/08) was included in Plaintiff’s quote, Plaintiff’s binder, and
9 the policy form. Defendant further contends that a Century underwriting assistant
10 reviewed the policy and approved it, Century Surety sent the policy to Westland
11 Insurance Brokers for their review, “stating that it was important to review the Policy
12 for any mistakes,” and Plaintiff reviewed the policy on two additional occasions when
13 it approved the policy’s renewal. (ECF No. 20 at 20). Defendant contends that
14 Plaintiff’s failure to uncover the mistake until 2013 was negligent, and Plaintiff’s
15 negligence bars the remedy of reformation. Defendant contends that Plaintiff is
16 estopped from seeking reformation because of its “negligent handling and denial of the
17 Weir Bros. claim.” Id. at 24.
18
California Civil Code section 3399 provides:
19
WHEN A CONTRACT MAY BE REVISED. When, through fraud or a
mutual mistake of the parties, or a mistake of one party, which the other
at the time knew or suspected, a written contract does not truly express the
intention of the parties, it may be revised on the application of a party
aggrieved, so as to express that intention, so far as it can be done without
prejudice to rights acquired by third persons, in good faith and for value.
20
21
22
23
24
25
26
27
28
Cal. Civ. Code § 3399.
Reformation may be had for a mutual mistake or for the mistake of
one party which the other knew or suspected, but in either situation the
purpose of the remedy is to make the written contract truly express the
intention of the parties. Where the failure of the written contract to
express the intention of the parties is due to the inadvertence of both of
them, the mistake is mutual and the contract may be revised on the
application of the party aggrieved. When only one party to the contract is
mistaken as to its provisions and his mistake is known or suspected by the
other, the contract may be reformed to express a single intention
entertained by both parties. Although a court of equity may revise a
- 14 -
14CV0687-WQH-NLS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
written instrument to make it conform to the real agreement, it has no
power to make a new contract for the parties, whether the mistake be
mutual or unilateral.
In order to reform a written instrument, the party seeking relief must
prove the true intent by clear and convincing evidence.
Shupe v. Nelson, 254 Cal. App. 2d 693, 700 (1967) (citations omitted); see also In re
Beverly Hills Bancorp, 649 F.2d 1329, 1334 (9th Cir. 1981) (“Under California law, a
written instrument is presumed to express the true intent of the parties. Reformation or
revision on the ground of mutual mistake ... requires clear and convincing evidence of
the alleged mistake.”) (citing Sec. First Nat. Trust & Sav. Bank v. Loftus, 129 Cal. App.
650 (1933)).
“It is settled that, even in the absence of any misrepresentation, the negligent
failure of a party to know or discover the facts as to which both parties are under a
mistake does not preclude rescission or reformation because of the mistake.” Van
Meter v. Bent Const. Co., 46 Cal. 2d 588, 594 (1956). However, gross negligence can
constitute “neglect of a legal duty,” which forfeits the right of the “party aggrieved to
relief from the mistake.” L.A. & R.R. Co. v. New Liverpool Salt Co., 150 Cal. 21, 28
(1906); see also Cal. Civ. Code § 1577 (defining “mistake of fact” as “a mistake, not
caused by the neglect of a legal duty on the part of the person making the mistake, and
consisting in ... [a]n unconscious ignorance or forgetfulness of a fact past or present,
material to the contract; or ... [b]elief in the present existence of a thing material to the
contract, which does not exist, or in the past existence of such a thing, which has not
existed”). “There is no flat or unequivocal rule in this state that all negligence on the
part of the petitioning party will bar reformation. The rule is sufficiently flexible to
excuse that negligence which a person of ordinary prudence might have been guilty of.”
Voge, Inc. v. Rose, 205 Cal. App. 2d 534, 539 (1962). “The correct rule is ... whether
the failure to read a document is such negligence as to bar relief is ordinarily a question
for the trier of fact.” Kantlehner v. Bisceglia, 102 Cal. App. 2d 1, 3 (1951); Tieso v.
Tieso, 67 Cal. App. 2d 872, 877 (1945); see also Laing v. Occidental Life Ins. Co. of
- 15 -
14CV0687-WQH-NLS
1 Cal., 244 Cal. App. 2d 811, 819 (1966) (holding that the insured’s failure to read an
2 insurance policy was “not such a neglect of duty as to create an absolute bar”).
3
In California, there is a general duty to read a contract one signs. See Jefferson
4 v. Cal. Dept. of Youth Auth., 28 Cal. 4th 299, 303 (2002) (“The general rule is that when
5 a person with the capacity of reading and understanding an instrument signs it, he is,
6 in the absence of fraud and imposition, bound by its contents, and is estopped from
7 saying that its provisions are contrary to his intentions or understanding.”) (citations
8 and internal quotations omitted); see also Fields v. Blue Shield of Cal., 163 Cal. App.
9 3d 570, 578 (1985) (“It is a general rule a party is bound by contract provisions and
10 cannot complain of unfamiliarity of the language of a contract.”) (citing Madden v.
11 Kaiser Found. Hosps., 17 Cal. 3d 699, 710 (1976)).
12
The duty to read applies to insurance contracts. See id. at 710 (“[A]n insured has
13 a duty to read his policy.”); Taff v. Atlas Assur. Co., 58 Cal. App. 2d 696, 702 (1943)
14 (“While the mere failure to read a policy does not in itself necessarily prohibit a
15 revision of the contract, yet such failure on the part of the policy holder is a
16 circumstance to be considered by the court on the question of his negligence. So, also
17 are the experience and intelligence of plaintiff factors to prove his neglect. Unless the
18 policy holder making such excuse gives a satisfactory explanation of his failure to read
19 it, the trial court may be justified in rejecting his excuse and in denying the
20 reformation.”) (citations omitted).
21
In this case, Plaintiff has failed to meet its initial summary judgment burden of
22 demonstrating, under the clear and convincing evidence standard, that the mutual intent
23 of the parties was to exclude endorsement CBL 1902 (07/08), such that Plaintiff would
24 be entitled to a “directed verdict if the evidence went uncontroverted at trial.” C.A.R.
25 Transp. Brokerage Co., 213 F.3d at 480. Plaintiff has submitted the following evidence
26 in order to demonstrate that it intended to issue a claims made policy prior to issuing
27 the policy: (1) an email from Chris Houska of CRC stating that Defendant could not
28
- 16 -
14CV0687-WQH-NLS
1 switch to an occurrence policy; (2) a quote with “Claims Made” checked; (3) a binder
2 with “Claims Made” checked; and (4) an email from Daniel Bonenfant of CRC to Jill
3 Conti of Westland Insurance Brokers, referring to the policy as “Claims Made.” See
4 Pl.’s Exs. 1, 3, 6, 7. Plaintiff has submitted the policy itself as evidence that it intended
5 to issue a claims made policy. The policy includes “CG 00 02 12 07 ... Comm General
6 Liability Cov Form[,]” which defines coverage as claims made during the policy period
7 or “Extended Reporting Period.” See Pl.’s Ex. 10. Plaintiff has submitted the following
8 evidence after issuing the policy to demonstrate that its intent was always to issue a
9 claims made policy: (1) Daniel Mayer denying coverage for the Jim Henry litigation by
10 email and letter on the grounds that the claim was not made during the policy period;
11 (2) Dave Seaholm of Century Surety and Daniel Bonenfant of CRC referring to the
12 policy as a “claims made” policy; and (3) a December 2009 occurrence-based quote
13 prepared by Century Surety, referring to the existing policy as “claims made.” See Pl.’s
14 Exs. 17, 19, 28-29. Plaintiff’s evidence, if uncontroverted at trial, would not entitle
15 Plaintiff to a directed verdict under the clear and convincing evidence standard. A
16 contrary inference can be drawn from this evidence: endorsement CBL 1902 (07/08)
17 was included in the quote, again in the binder, and again in the policy because Plaintiff
18 intended to include it. This inference can be further drawn from evidence that the
19 policy, as written, was extended twice. Finally, any inferences that may be drawn in
20 Plaintiff’s favor may be weakened by the fact that Plaintiff has presented no first-hand
21 evidence of the intent of its underwriters.8
22
Plaintiff has submitted the following evidence in order to demonstrate that
23 Defendant also intended to enter into a claims made policy prior to issuance of the
24 policy: (1) an application submitted on behalf of Defendant with the “Claims Made”
25 box checked; (2) Robert Kempa of Westland Insurance Brokers referring to the policy
26
8
The Court expresses no opinion of whether Plaintiff’s evidence is sufficient
27 to meet the clear and convincing evidence standard if presented before the finder of fact
at trial.
28
- 17 -
14CV0687-WQH-NLS
1 as “claims made” and requesting that Plaintiff bind the policy; and (3) Jill Conti of
2 Westland Insurance Brokers referring to the policy as “claims made.” See Pl.’s Exs. 1,
3 4, 11. Plaintiff has submitted the policy itself as evidence that Defendant intended to
4 receive a claims made policy. The policy includes “CG 00 02 12 07 ... Comm General
5 Liability Cov Form[,]” which defines coverage by claims made during the policy period
6 or “Extended Reporting Period.” See Pl.’s Ex. 10. Plaintiff has submitted evidence that
7 Defendant believed it had received a claims made policy after receiving the policy
8 because two applications were submitted on behalf of Defendant with the “claims
9 made” box checked. See Pl.’s Exs. 13, 16. Plaintiff’s evidence, if uncontroverted at
10 trial, would not entitle Plaintiff to a directed verdict on Defendant’s intent under the
11 clear and convincing evidence standard. A contrary inference can be drawn from this
12 evidence: endorsement CBL 1902 (07/08) was included in the quote, again in the
13 binder, and again in the policy because Defendant intended for it to be included. This
14 inference can be further drawn from evidence that Defendant requested and received
15 an extension on the policy, as written, on two occasions. This contrary inference may
16 also be drawn from Weir Brothers tendering defense in the Jim Henry litigation.
17 Finally, Plaintiff submits no evidence demonstrating who prepared the application for
18 the policy or application for the 2009 renewal of the policy.9
19
Even assuming that Plaintiff has met its initial summary judgment burden,
20 Defendant has submitted evidence raising a triable issue of fact as to Defendant’s intent.
21 Defendant has submitted the Declaration of Robert Weir, “the sole owner of” Weir
22 Brothers, who states that “there may have been some discussion about ‘claims made’
23 versus ‘occurrence’ policies, but I did not, and still do not, really understand, the
24 difference between them. I agreed to buy an insurance policy on Weir Bros. behalf with
25 Century because it seemed to offer the most coverage for the best price.” (Declaration
26
9
The Court expresses no opinion of whether Plaintiff’s evidence is sufficient to
27 meet the clear and convincing evidence standard if presented before the finder of fact
at trial.
28
- 18 -
14CV0687-WQH-NLS
1 of Robert Weir (“Weir Decl.”) ¶¶ 2, 5, ECF No. 20-2 at 2). Defendant has also
2 submitted evidence that an employee of Century Surety referred to the policy as an
3 “occurrence” policy when he added an insert to a letter from Defendant’s counsel in
4 September 2013 that gave Plaintiff notice of a potential claim by Moody Creek Farms.
5 (Def.’s Amended Ex. 32, ECF No. 24). The Court concludes that triable issues of fact
6 exist as to the mutual intent of the parties.
7
Finally, triable issues of fact exist as to whether Plaintiff was grossly negligent
8 in failing to discover the inclusion of endorsement CBL 1902 (07/08) in the policy and
9 whether Plaintiff neglected a legal duty by failing to read the policy it issued until five
10 years after issuance of the policy. Kantlehner, 102 Cal. App. 2d at 3; Tieso, 67 Cal.
11 App. 2d at 877; see also Cal. Civ. Code § 1577 (excluding “neglect of legal duty” from
12 the definition of “mistake of fact”); L.A. & R.R. Co., 150 Cal. at 28 (stating that gross
13 negligence can constitute “neglect of a legal duty”); Jefferson, 28 Cal. 4th at 303
14 (describing a party’s duty to read contracts he signs). There is evidence in the record
15 that Plaintiff drafted the policy. There is evidence in the record that endorsement CBL
16 1902 (07/08) was included in the quote, the binder, and the policy itself. There is
17 evidence in the record that Plaintiff renewed the policy on two occasions with the
18 inclusion of endorsement CBL 1902 (07/08). Finally, there is evidence in the record
19 that Plaintiff did not discover the inclusion of endorsement CBL 1902 (07/08) until
20 September 2013, five years after the policy was issued.
21
Plaintiff’s motion for summary judgment on its claim for reformation is denied.
22
B. Defendant’s First Counterclaim for Declaratory Relief
23
Defendant’s first counterclaim for declaratory relief seeks a judicial declaration
24 that the policy is a valid and binding occurrence policy and provides coverage for the
25 Moody Creek Farms litigation.
26
Plaintiff moves for summary judgment on Defendant’s first counterclaim for
27 declaratory relief on the ground that it has no duty to defend Defendant in the Moody
28
- 19 -
14CV0687-WQH-NLS
1 Creek Farms litigation under the reformed policy. Plaintiff contends that “[i]t is
2 undisputed that no claim was first made against Weir Brothers during the policy period
3 as required by the reformed policy.” (ECF No. 16-1 at 24) (emphasis in original).
4 Plaintiff contends: “As reformed, Century’s policy never applied to the [Moody Creek
5 Farms litigation] as a matter of law.” Id. at 25.
6
Because Plaintiff’s motion for summary judgment on Defendant’s first
7 counterclaim for declaratory relief is dependent on reformation of the policy, Plaintiff’s
8 motion for summary judgment on Defendant’s declaratory relief counterclaim is denied.
9
10
C. Defendant’s Second Counterclaim for Breach of the Covenant of
11
Good Faith and Prayer for Punitive Damages
12
Defendant’s second counterclaim for breach of the covenant of good faith seeks
13 compensatory and punitive damages because Plaintiff is “attempting to reform the
14 policy without valid legal grounds” and engaged in “dilatory claims handling” with
15 respect to the Moody Creek Farms litigation. (ECF No. 8 at 16).
16
Plaintiff moves for summary judgment on Defendant’s second counterclaim for
17 breach of the covenant of good faith on the ground that Plaintiff had no duty to defend
18 Defendant under the policy because there “was no potential for coverage under the
19 policy.” (ECF No. 16-1 at 27). Plaintiff also seeks “a declaration that Weir Brothers
20 Construction Corp.’s fifth prayer for relief requesting punitive damages has no merit.”
21 (ECF No. 16 at 2). Plaintiff contends that “there was no potential for coverage under
22 the policy and no duty to defend Weir Brothers. Thus, Weir Brothers cannot prevail on
23 its causes of action for breach of the covenant of good faith nor its request for punitive
24 damages. Weir Brothers cannot prove that Century withheld policy benefits ‘without
25 proper cause.’” (ECF No. 16-1 at 27). Plaintiff contends that “the undisputed material
26 facts establish that no contract benefits are owed because the reformed policy provides
27 no coverage to Weir Brothers for the [Moody Creek Farms litigation].” Id. Plaintiff
28
- 20 -
14CV0687-WQH-NLS
1 contends that it did not engage in dilatory tactics because it immediately asked
2 Defendant to agree to reform the policy once it learned of the alleged mistake, and it
3 agreed to defend Defendant in the Moody Creek Farms litigation, subject to a
4 reservation of rights.
5
Defendant contends that “the trier of fact could reasonably find that Century
6 breached the covenant of good faith and fair dealing because it acted unreasonably
7 when it sought reformation without valid grounds, and used improper and dilatory
8 tactics to avoid paying on a covered claim.” (ECF No. 20 at 25). Defendant contends
9 that Plaintiff breached the covenant of good faith when it “denied the 2008 Jim Henry
10 Claim without ever telling its own insured the Policy provided occurrence coverage, not
11 claims made coverage.” Id. Defendant contends that Plaintiff is “unreasonable” for
12 seeking reformation in court to avoid paying for the defense in the Moody Creek Farms
13 litigation, given Plaintiff’s negligence. Id. Defendant contends that Plaintiff engaged
14 in “dilatory tactics” by failing to inform Defendant that “there may be an issue
15 regarding Weir Bros’ coverage” for four months after discovering the “‘mistake.’” Id.
16 at 26. Defendant contends that this evidence is sufficient to support a finding of malice,
17 oppression, or fraud.
18
In reply, Plaintiff contends that there is no evidence in the record of bad faith or
19 malice, oppression, or fraud. Plaintiff contends that the evidence demonstrates that both
20 parties believed the policy was a claims made policy when Plaintiff denied coverage for
21 the Jim Henry litigation. Plaintiff contends that the evidence demonstrates that both
22 parties were mistaken until Plaintiff noticed the inclusion of endorsement CBL 1902 in
23 September 2013. Plaintiff contends that it contacted Defendant immediately after
24 learning of the alleged mistake.
25
26
i. Breach of the Covenant of Good Faith
The Amended Answer and Counterclaims alleges that Plaintiff breached the
27 covenant of good faith based on the following conduct: (1) attempting to reform the
28
- 21 -
14CV0687-WQH-NLS
1 policy without valid legal grounds; (2) dilatory claims handling; (3) failing to pay
2 $6,906 over and above the $10,000 self-insured retention (“SIR”); and (4) failing to
3 provide Defendant with Cumis counsel in the Moody Creek Farms Litigation. In
4 opposition to the pending motion for summary judgment, Defendant contends that there
5 are triable issues of fact with respect to whether Plaintiff breached the covenant of good
6 faith, based on the following conduct: (1) denial of the 2008 Jim Henry claim; (2)
7 attempting to reform the policy without valid legal grounds; and (3) dilatory claims
8 handling.
9
“Bad faith cases are analyzed in a three-step process: First, was there a breach at
10 all so as to warrant contract damages? Second, was the breach unreasonable so as to
11 warrant tort damages? Third, was the breach so egregious that there is evidence of
12 ‘oppression, fraud or malice’ under Civil Code section 3294, subdivision (a) so as to
13 warrant punitive damages?” Griffin Dewatering Corp. v. N. Ins. Co. of N.Y., 176 Cal.
14 App. 4th 172, 194-95 (2009).
15
“An insurer must defend its insured against claims that create a potential for
16 indemnity under the policy.” Scottsdale Ins. Co. v. MV Transp., 36 Cal. 4th 643, 654
17 (2005) (emphasis in original). “Determination of the duty to defend, depends, in the
18 first instance, on a comparison between the allegations of the complaint and the terms
19 of the policy. But the duty also exists where extrinsic facts known to the insurer
20 suggest that the claim may be covered.” Id. (citations omitted). “The defense duty
21 arises upon tender of a potentially covered claim and lasts until the underlying lawsuit
22 is concluded, or until it has been shown that there is no potential for coverage.” Id. at
23 655 (citation omitted). “To defend meaningfully, the insurer must defend immediately.
24 To defend immediately, it must defend entirely.” Buss v. Superior Court, 16 Cal. 4th
25 35, 49 (1997). “When the duty, having arisen, is extinguished by a showing that no
26 claim can in fact be covered, ‘it is extinguished only prospectively and not
27 retroactively.’” MV Transp., 36 Cal. 4th at 655 (quoting Buss, 16 Cal. 4th at 46).
28
- 22 -
14CV0687-WQH-NLS
1
“[A]n insurer’s denial of or delay in paying benefits gives rise to tort damages
2 only if the insured shows the denial or delay was unreasonable.” Wilson v. 21st Century
3 Ins. Co., 42 Cal. 4th 713, 723 (2007). “[A]n insurer denying or delaying the payment
4 of policy benefits due to the existence of a genuine dispute with its insured as to the
5 existence of coverage liability or the amount of the insured’s coverage claim is not
6 liable in bad faith even though it might be liable for breach of contract.” Chateau
7 Chamberay Homeowners Ass’n v. Associated Int’l Ins. Co., 90 Cal. App. 4th 335, 347
8 (2001). “The genuine dispute rule does not relieve an insurer from its obligation to
9 thoroughly and fairly investigate, process and evaluate the insured’s claim.
A
10 genuine dispute exists only where the insurer’s position is maintained in good faith and
11 on reasonable grounds.” Wilson, 42 Cal. 4th at 723 (emphasis in original). “[A]n
12 insurer is entitled to summary judgment based on a genuine dispute over coverage or
13 the value of the insured’s claim only where the summary judgment record demonstrates
14 the absence of triable issues ... as to whether the disputed position upon which the
15 insurer denied the claim was reached reasonably and in good faith.” Id. at 724. “While
16 the reasonableness of an insurer’s claims-handling conduct is ordinarily a question of
17 fact, it becomes a question of law where the evidence is undisputed and only one
18 reasonable inference can be drawn from the evidence.” Chateau Chamberay, 90 Cal.
19 App. 4th at 346; see also Dalrymple v. United Servs. Auto. Ass’n, 40 Cal. App. 4th 497,
20 511 (1995) (to same effect).
21
In this case, Plaintiff received its first notice of a potential claim from Weir
22 Brothers around September 2013. Michael Kirby, counsel for Weir Brothers, states that
23 “[i]n the last quarter of 2013, I received a telephone call from an individual who
24 identified himself as an in-house lawyer for Century.” (Kirby Decl. ¶ 2, ECF No. 20-1
25 at 5-6). Michael Kirby further states that the Century Surety representative “said he
26 was calling to ask me to stipulate to reform the Century policy issued to Weir Bros in
27 2008.... I asked him if there was coverage for Weir Bros in the MCL (Moody)
28
- 23 -
14CV0687-WQH-NLS
1 construction defect case under the policy as written and issued by Century, and he said
2 there was. He said Century could not deny a defense to Weir Bros based on the
3 language and coverages in the policy, and could only do so if the policy was reformed.”
4 Id. ¶ 17. Michael Kirby further states that he told the Century Surety representative he
5 “would never stipulate to eliminate coverage for my client solely to benefit the insurer,
6 particularly so many years after the policy was issued and where no prior claim of
7 ‘mistake’ had ever been raised by the insurer.” Id. ¶ 18. It is undisputed that Plaintiff
8 sent Defendant a letter on January 8, 2014, agreeing to defend Defendant subject to a
9 reservation of rights to reform the policy and recoup expenses. (Def.’s RSSUF ¶ 35,
10 ECF No. 20-4 at 16-17). Plaintiff commenced this action on March 26, 2014. (ECF
11 No. 1).
12
The Court finds that Defendant has come forward with evidence raising triable
13 issues of material fact with respect to whether Plaintiff unreasonably delayed informing
14 Defendant of its legal position or in agreeing to defend Defendant, subject to a
15 reservation of rights. Plaintiff’s motion for summary judgment on Defendant’s second
16 counterclaim for breach of the covenant of good faith is denied.
17
18
ii. Punitive Damages
California law permits the recovery of punitive damages “where it is proven by
19 clear and convincing evidence that the defendant has been guilty of oppression, fraud,
20 or malice....” Cal. Civ. Code § 3294(a). “Malice” is defined as “conduct which is
21 intended by the defendant to cause injury to the plaintiff or despicable conduct which
22 is carried on by the defendant with a willful and conscious disregard of the rights or
23 safety of others.” Id. § 3294(c)(1). “Oppression” is defined as “despicable conduct that
24 subjects a person to cruel and unjust hardship in conscious disregard of that person’s
25 rights.” Id. § 3294(c)(2). “Fraud” is defined as “an intentional misrepresentation,
26 deceit, or concealment of a material fact known to the defendant with the intention on
27 the part of the defendant of thereby depriving a person of property or legal rights or
28
- 24 -
14CV0687-WQH-NLS
1 otherwise causing injury.” Id. § 3294(c)(3).
2
In this case, Michael Kirby, counsel for Weir Brothers, received a phone call in
3 the last quarter of 2013, requesting that Weir Brothers agree to reform the policy.
4 Century Surety sent Weir Brothers a letter on January 8, 2014, agreeing to defend Weir
5 Brothers in the Moody Creek Farms litigation, subject to a reservation of rights to
6 reform the policy.
Plaintiff has met its initial summary judgment burden of
7 demonstrating an “absence of evidence to support the nonmoving party’s case” that
8 Plaintiff acted with “oppression, fraud, or malice.” Celotex, 477 U.S. at 325; Cal. Civ.
9 Code § 3294(a).
10
Defendant contends that a jury could infer Plaintiff’s malice and oppression from
11 Plaintiff’s failure to inform Defendant in 2009 that it had occurrence based coverage.
12 Defendant further contends that Plaintiff acted with malice and oppression by seeking
13 reformation of the policy.
14
Defendant has failed to come forward with evidence which would permit the
15 inference that Plaintiff intentionally concealed from Defendant in 2009 that the policy
16 may be occurrence based. There is no evidence in the record to support the inference
17 that Plaintiff or any of its agents were aware of the inclusion of endorsement CBL 1902
18 (07/08) in the policy in 2009. In addition, Defendant has failed to come forward with
19 evidence to support the allegation that Plaintiff brought this action with malice or
20 oppression. Plaintiff’s pursuit of an equitable remedy to protect its own interests does
21 not amount to “despicable conduct” or conduct “intended by the [plaintiff] to cause
22 injury to the [defendant].” Cal. Civ. Code § 3294(c)(1)-(2). Finally , Defendant has
23 failed to come forward with evidence which would permit the jury to infer oppression,
24 fraud, or malice from any delay by Defendant with respect to the Moody Creek Farms
25 litigation. The Court concludes that Defendant has failed to come forward with
26 evidence raising a triable issue of fact as to Plaintiff’s “oppression, fraud, or malice.”
27 Id. § 3294(a). Plaintiff’s motion for summary judgment on Defendant’s prayer for
28
- 25 -
14CV0687-WQH-NLS
1 punitive damages is granted.
2
D. Plaintiff’s Objections to Evidence
3
Plaintiff objects to portions of the Declarations of Michael Quade, Michael
4 Kirby, and Robert Weir as inadmissible opinion or argument. See ECF No. 22-2. The
5 Court did not consider the arguments or opinions of these individuals in ruling on
6 Plaintiff’s motion for summary judgment.
7 V. Conclusion
8
Plaintiff’s Motion for Summary Judgment (ECF No. 16) is GRANTED in part
9 and DENIED in part. Plaintiff’s motion for summary judgment on Defendant’s prayer
10 for punitive damages is GRANTED. Plaintiff’s motion for summary judgment is
11 denied in all other respects.
12 DATED: April 9, 2015
13
14
WILLIAM Q. HAYES
United States District Judge
15
16
17
18
19
20
21
22
23
24
25
26
27
28
- 26 -
14CV0687-WQH-NLS
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?