Westport Ins. Corp. v. California Casualty Mgt. ( 2019 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
WESTPORT INSURANCE No. 17-15924
CORPORATION,
Plaintiff-Appellee, D.C. No.
3:16-cv-01246-
v. WHO
CALIFORNIA CASUALTY
MANAGEMENT COMPANY, DBA OPINION
California Casualty,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of California
William Horsley Orrick, District Judge, Presiding
Argued and Submitted November 15, 2018
San Francisco, California
Filed February 20, 2019
Before: RAYMOND C. FISHER, and MILAN D. SMITH,
JR., Circuit Judges, and LAWRENCE L. PIERSOL*
District Judge.
Opinion by Judge Milan D. Smith, Jr.
*
The Honorable Lawrence L. Piersol, United States District Judge
for the District of South Dakota, sitting by designation.
2 WESTPORT INS. V. CALIF. CASUALTY MGMT.
SUMMARY **
California Insurance Law
The panel affirmed the district court’s summary
judgment entered in favor of Westport Insurance Company
in a diversity insurance coverage action concerning claims
for $15.8 million brought by three former students against
Moraga School District and three of its school
administrators.
Westport, the primary and excess insurer of the District,
defended and settled the claims for $15.8 million, and sought
repayment from the administrators’ insurer, California
Casualty Management Company. The district court found
California Casualty liable for $2.6 million of the $15.8
million paid to the underlying plaintiffs collectively.
California Casualty asserted that California Government
Code § 825.4, which prohibits public entities from seeking
indemnification from its employees, barred Westport’s
lawsuit because the administrators were public employees,
and therefore, the District must defend and pay the entire
settlement fee without California Casualty’s contribution.
The panel held that § 825.4 did not preclude Westport’s
claim because § 825.4 does not contain a blanket ban on an
employee’s insurer contributing to the employee’s defense
and settlement costs. The panel further held that, here, the
obligation to defend and indemnify still rested with the
public entity and its insurer despite contribution from the
employee’s insurance.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
WESTPORT INS. V. CALIF. CASUALTY MGMT. 3
California Casualty next asserted that that it was not
obligated to contribute to the settlements because its policy
covered excess payments only when all other policies had
been exhausted, and Westport’s primary and excess policies
were sufficient to cover the total amount of the settlements.
The panel held that this claim was contrary to the plain text
of California Casualty’s policy. The panel construed
California Casualty’s policy to apply upon the exhaustion of
the $1 million of underlying insurance, not after exhaustion
of all other insurance.
California Casualty challenged the apportionment of
liability with Westport on a number of grounds. The panel
held that California Casualty waived its argument that the
lack of contemporaneous allocation of liability in the
settlements precluded subsequent apportionment. Next, the
panel held that given the blended pleadings and wordings of
the settlement agreements, the district court did not abuse its
discretion in allocating the liability equally among the
District and the three administrators. The panel rejected
California Casualty’s challenge to the district court’s finding
that Westport only needed to pay $1 million per occurrence
instead of $1 million per occurrence per insured, totaling $3
million. The panel further held that California Casualty’s
policy coverage began upon exhaustion of Westport’s
primary policy when Westport paid $1 million per policy per
student. The panel rejected California Casualty’s contention
that its coverage should prorate with Westport’s coverage.
The panel held that the district court did not abuse its
discretion in awarding prejudgment interest at ten percent
from the dates Westport paid the settlements.
4 WESTPORT INS. V. CALIF. CASUALTY MGMT.
COUNSEL
Mark G. Bonino (argued), Charles E. Tillage, and Elizabeth
J. Moul, Hayes Scott Bonino Ellingson Guslani Simonson &
Clause LLP, San Carlos, California, for Defendant-
Appellant.
Adam H. Fleischer (argued), Michael H. Passman, and Mark
G. Sheridan, Bates Carey LLP, Chicago, Illinois; Michael K.
Johnson, Lewis Brisbois Bisgaard & Smith LLP, San
Francisco, California; for Plaintiff-Appellee.
OPINION
M. SMITH, Circuit Judge:
This appeal involves a dispute between two insurance
companies that arose after the settlement of certain claims
brought against their insureds. After Westport Insurance
Corporation (Westport) defended and settled claims for
$15.8 million brought by three former students against
Moraga School District (the District) and three of its school
administrators, it sought repayment from the administrators’
insurer, California Casualty Management Company
(California Casualty). The two insurers cross-moved for
summary judgment, and the district court held that
California Casualty owed Westport $2.6 million plus
$755,637.20 in prejudgment interest. We affirm.
BACKGROUND
Westport, through a predecessor company, issued
primary general liability insurance policies (Westport’s
Primary policy) to the District from 1991 through 1997.
From October 1, 1994 to October 1, 1997, Westport also
WESTPORT INS. V. CALIF. CASUALTY MGMT. 5
issued a series of annual excess policies that covered the
District and its employees (Westport’s Excess policy).
California Casualty issued successive annual liability
policies to the Association of California School
Administrators from at least July 1, 1986 to July 1, 2000.
California Casualty provided excess liability to the District’s
school administrators under this policy’s Coverage A plan,
titled Administrators Excess Liability (California Casualty’s
policy).
To provide a framework for our analysis, we first outline
the claims included in the underlying lawsuits. On January
29, 2013, Doe 1 and Doe 2, two former students of the
Moraga School District, filed suit in the Superior Court for
Contra Costa County, California against the District and
three of its school Administrators—William Walters, John
Cooley, and Paul Simonin. Earlier that same month, another
former student, Doe 3, also sued the three Administrators
and the District. In these lawsuits, the several Does alleged
that the District’s employee, Daniel Witters, sexually
molested them in the mid-1990s while he was their middle
school teacher. The Does alleged that the Administrators
received warnings about the molestations, but the
Administrators failed to act to stop Witters. When the
students came forward in 1996, Witters killed himself. In
their lawsuits, Doe 1 alleged that Witters molested her
during policy periods 1993–94, 1994–95, and 1995–96; Doe
2 alleged that she was molested in the 1995–96 and 1996–97
periods; and Doe 3 alleged that she was molested in the
1996–97 period.
6 WESTPORT INS. V. CALIF. CASUALTY MGMT.
In January 2013, both Westport and California Casualty
attended an unsuccessful mediation of the Does’ lawsuits.
The Doe 3 lawsuit eventually settled separately for
$1.8 million in August 2013, but Westport appears to have
paid the settlement on July 29, 2013, prior to the signing of
the settlement agreement. In June 2014, California Casualty
and Westport also attended a mediation for the lawsuit
brought by Does 1 and 2. At the mediation, Does 1 and 2
settled their lawsuit for $7 million each. On June 26, 2014,
Westport paid Does 1 and 2. California Casualty
subsequently refused to contribute to any of the Does’
settlements (the Settlements), and Westport funded the
entirety of these Settlements in the aggregate sum of
$15.8 million.
On July 11, 2014, Westport demanded that California
Casualty pay its share of the Settlements, but received no
response. Westport wrote to California Casualty three
additional times, and received no response. After Westport’s
October 30, 2014 demand, California Casualty finally
replied and refused to reimburse Westport.
Westport then filed suit against California Casualty on
April 13, 2015 in federal court. After the parties brought
cross-motions for summary judgment, the district court
entered summary judgment in favor of Westport for
$2.6 million plus interest. A month later, the district court
added $755,637.20 of prejudgment interest to the judgment.
California Casualty timely appealed.
JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction over this appeal pursuant to
28 U.S.C. § 1291. We review the district court’s grant or
denial of summary judgment de novo. Evanston Ins. Co. v.
OEA, Inc., 566 F.3d 915, 918 (9th Cir. 2009). We also
WESTPORT INS. V. CALIF. CASUALTY MGMT. 7
review its interpretation of state law and the insurance
policies de novo. Id. at 920; Stanford Ranch, Inc. v.
Maryland Cas. Co., 89 F.3d 618, 624 (9th Cir. 1996). The
district court’s award of prejudgment interest is reviewed for
abuse of discretion. Mutuelles Unies v. Kroll & Linstrom,
957 F.2d 707, 714 (9th Cir. 1992).
ANALYSIS
I. Indemnification pursuant to California Government
Code § 825.4
As a threshold matter, California Casualty asserts that
California Government Code § 825.4 (§ 825.4), which
prohibits public entities from seeking indemnification from
its employees, bars Westport’s lawsuit. California Casualty
contends that because the Administrators were public
employees, the District must defend and pay the entire
settlement fee without its contribution. The California
Supreme Court has not spoken directly on this issue, so “we
must determine what result the court would reach based on
state appellate court opinions, statutes and treatises.”
Evanston, 566 F.3d at 921 (quoting Paulson v. City of San
Diego, 294 F.3d 1124, 1128 (9th Cir. 2002) (en banc)).
Section 825.4 provides:
Except as provided in Section 825.6, if a
public entity pays any claim or judgment
against itself or against an employee or
former employee of the public entity, or any
portion thereof, for an injury arising out of an
act or omission of the employee or former
8 WESTPORT INS. V. CALIF. CASUALTY MGMT.
employee of the public entity, he is not liable
to indemnify the public entity.
Cal. Gov’t Code § 825.4. 1
Only a few California Court of Appeal cases analyze
§ 825.4. Westport primarily relies on a line of cases
beginning with Oxnard Union High School District v.
Teachers Insurance Co., 99 Cal. Rptr. 478 (Ct. App. 1971),
whereas California Casualty cites to Pacific Indemnity v.
American Mutual Insurance Co., 105 Cal. Rptr. 295 (Ct.
App. 1975).
Unfortunately, neither set of cases definitively addresses
the factual pattern present in this case. Nevertheless, we
affirm the district court’s conclusion that § 825.4 does not
preclude Westport’s claim because § 825.4 does not contain
a blanket ban on an employee’s insurer contributing to the
employee’s defense and settlement costs. Here, the
obligation to defend and indemnify still rests with the public
entity and its insurer despite contribution from the
employee’s insurance. We find support for our holding in
the principles animating the several § 825.4 cases.
In Oxnard, the California Court of Appeal held that
although the teacher-employee’s school district was
“obligated to pay in full” the settlement of an automobile
crash negligence action against the teacher, the school
district had discharged its liability by using the teacher’s
1
The exceptions set forth in § 825.6 contemplate whether the
employee or former employee “acted or failed to act because of actual
fraud, corruption, or actual malice, or willfully failed or refused to
conduct the defense of the claim or action in good faith.” Cal. Gov’t
Code § 825.6. Neither party claims that these exceptions are at issue in
this case.
WESTPORT INS. V. CALIF. CASUALTY MGMT. 9
insurance as primary coverage and its own insurance as
excess coverage. 99 Cal. Rptr. at 480. Oxnard’s progeny
similarly involved automobile accidents committed by
employees during the scope of their employment. 2
In the first case, the teacher-employee’s automobile
insurer, GEICO, defended a negligence suit against the
teacher, paid the settlement, and then sought to recoup the
amount paid from the school district’s insurer. Gov’t Emps.
Ins. Co. v. Gibraltar Cas. Co., 229 Cal. Rptr. 57, 60 (Ct.
App. 1986). After considering the relevant portions of the
automobile policy and the insurance code, the court
concluded that the school district “was itself an insured
under the GEICO policy,” due to the language in GEICO’s
policy that defined persons insured as “any other person or
organization for his or its liability because of the acts or
omissions of any insured.” Id. at 64 (emphasis added).
Thus, the school district satisfied its statutory obligation by
availing itself of the employee’s automotive insurance
policy as long as the employee remained fully covered. Id.
at 65.
Similarly, in Younker v. County of San Diego, a
firefighter-employee and his automobile insurer sued the
county-employer to recover expenses for defending and
settling a claim against the firefighter arising from an
automobile crash. 285 Cal. Rptr. 319, 321 (Ct. App. 1991).
The court first determined that the county was an insured
pursuant to the terms of the employee’s automobile policy
because it was “clearly a person or organization liable
because of [the employee’s] acts or omissions” as defined
2
Oxnard involved Section 825, which covers defense by a public
entity, not § 825.4 specifically. Nevertheless, Oxnard’s progeny
involved automobile accidents committed by employees and public
entity indemnification under § 825.4.
10 WESTPORT INS. V. CALIF. CASUALTY MGMT.
under the policy. Id. at 323. The court then held that the
county properly looked to the employee’s insurer to fulfill
its own statutory obligation, thereby rejecting the
employee’s argument that using the proceeds of his policy
for the settlement contravened § 825.4. Id. at 323–24.
In contrast, the court in Pacific Indemnity barred an
insurer’s attempt for settlement cost recovery from the
employee’s insurance. There, a patient sued a physician
employed by the University of California (UC) for injuries
caused by the physician-employee’s medical services.
105 Cal. Rptr. at 296. After the settlement, the UC’s insurer
brought an action for contribution against the physician’s
insurer. Id. The California Court of Appeal first noted that
under § 825.4, primary liability for the expenses of the
settlement lay with the UC, and thus the insurer “c[ould]
only secure contribution if there is other insurance covering
the obligation of the Regents.” Id. at 302. The court held
that the UC’s insurer could not look to the physician’s
insurer for contribution because to do so would not be
consistent with California’s policy rationale of public
entities indemnifying their employees. Id. at 303. 3 The
court distinguished Oxnard and observed it should not apply
where “there is neither concession nor contract provision
which renders the employee’s insurance available for the
satisfaction of the public entity’s obligation to the victim or
. . . its employee.” Id. at 305.
Several principles discernable from the Oxnard and
Pacific Indemnity line of cases guide our conclusion that
3
In Pacific Indemnity, the court was particularly concerned because
the employee’s personal policy did not just cover claims arising in the
course of employment but any acts or omissions that were not within the
scope of the employment. The court noted that this impermissibly placed
the burden of insurance on the employee personally.
WESTPORT INS. V. CALIF. CASUALTY MGMT. 11
§ 825.4 does not preclude Westport’s suit. First,
indemnification pursuant to § 825.4 is not wholly
inconsistent with contribution from an employee’s insurer.
In Oxnard and its progeny, the courts expressly permitted
the employees’ personal insurance, albeit automotive, to pay
the entirety or majority of the settlement, even though the
courts first found that the public entities were liable pursuant
to the provisions of Section 825. Even in Pacific Indemnity,
the court noted that another insurer could contribute to
settlement costs if the language of that insurance policy also
covered the public entity’s obligation. 105 Cal. Rptr. at 296.
Second, the employee and his employer do not occupy
equivalent positions for purposes of indemnification
analysis. In both Younker and Gibraltar, the courts
differentiated between the employee and his insurer when
considering whether Section 825’s prohibition on a public
entity seeking indemnity from its employee required the
entities’ insurers to reimburse the employees’ insurers. The
courts rejected the employees’ insurers’ position in part
because none of the employees had personally contributed
to the settlement costs. Younker, 285 Cal. Rptr. at 323
(noting the employee “did not foot the bill”); Gibraltar,
229 Cal. Rptr. at 61 (noting employee “paid nothing” of the
settlement).
Third, where the employee’s policy is available to the
public entity as an insured, contribution to the defense and
settlement costs may be permitted. Pacific Indemnity,
Younker, and Gibraltar all recognized this principle either
explicitly, as in Pacific Indemnity, or implicitly by first
finding that the entity-employer was an insured under the
employee’s policy, as in Younker and Gibraltar.
Here, policy concerns regarding the proper placement of
the burden of settlement costs are assuaged. The District
12 WESTPORT INS. V. CALIF. CASUALTY MGMT.
furnished primary and excess insurance to its Administrators
through Westport. There is no evidence in the record, and
neither party claims, that any of the Administrators
personally contributed to the settlement. That their insurer,
California Casualty, is now being called upon to provide its
excess coverage to cover the employees’ settlements does
not violate the intent behind § 825.4 indemnification. In
addition, California Casualty’s policy is limited to claims
arising in the course of employment.
Furthermore, Pacific Indemnity held that a “concession”
or “contract provision which renders the employee’s
insurance available for the satisfaction of the public entity’s
obligation” would satisfy § 825.4. 105 Cal. Rptr. at 304.
California Casualty’s policy contemplates this exact
situation when it states that the underlying primary insurance
must be provided under one of several sections of the
Education Code, Cal. Gov’t Code §§ 825 or 825.4 or
provided on behalf of the insured by any public educational
entity.
For these reasons, we hold that § 825.4 does not preclude
Westport’s claim against California Casualty for repayment
of a portion of the Settlements.
II. Interpretation of Westport’s and California
Casualty’s Policies
California Casualty next claims that it is not obligated to
contribute to the Settlements because its policy covers
excess payments only when all other policies have been
exhausted, and Westport’s Primary and Excess policies are
sufficient to cover the total amount of the Settlements.
Westport counters that this claim is contrary to the plain text
of California Casualty’s policy. We agree with Westport.
WESTPORT INS. V. CALIF. CASUALTY MGMT. 13
Under California law, interpretation of insurance
policies “follows the general rules of contract
interpretation.” TRB Invs., Inc. v. Fireman’s Fund Ins. Co.,
145 P.3d 472, 477 (Cal. 2006). Courts construe policy
provisions in their ordinary and popular senses, unless used
by the parties in a technical manner or with a special
meaning. Id. Insurance coverage is also construed broadly
“so as to afford the greatest possible protection to the
insured, whereas exclusionary clauses are to be interpreted
narrowly against the insurer.” Id.California Casualty’s policy covers “all damages in
excess of the required underlying primary collectible
insurance or self-insurance.” Administrator excess liability
is capped at $150,000 per occurrence per insured, over the
$1 million underlying primary layer, and the policy has a
$2 million aggregate limit per annual policy period. The
exclusions further explain, “There shall be no insurance
afforded under this policy until the required $1 million limit
of liability afforded the insured by such other insurance or
self-insurance is exhausted.”
These provisions clarify that California Casualty’s
insurance is not “excess over all other insurance” as it
claims. California Casualty’s policy is certainly an “excess”
policy, but it requires only that the “underlying primary
collectible insurance or self-insurance” be exhausted before
its coverage begins. The policy requires the exhaustion of
only “primary” or “self” insurance as opposed to “all other”
insurance or “primary and excess” insurance.
Comparatively, Westport’s Excess policy states, “If there is
any other collectible insurance available to the insured . . .
[this insurance] will apply in excess of other collectible
insurance.” (Emphasis added.) See Carmel Dev. Co. v. RLI
Ins. Co., 24 Cal. Rptr. 3d 588, 592, 598 (Ct. App. 2005)
14 WESTPORT INS. V. CALIF. CASUALTY MGMT.
(finding insurance policy that stated it would pay “sums in
excess of Primary Insurance” was triggered prior to a policy
that applied in excess of other “primary, excess or excess-
contingent insurance”). 4 Accordingly, we construe
California Casualty’s policy to apply upon the exhaustion of
the $1 million of underlying insurance, not after exhaustion
of all other insurance.
III. Apportionment of Liability
The district court allocated liability between Westport
and California Casualty in the following manner. First, the
court divided each Doe’s settlement equally across the
policy period(s) in which she alleged she was molested.
Next, the court reduced each policy period amount by
25 percent to reflect the District’s liability. Then, the court
deducted $1 million from each policy period in accordance
with Westport’s Primary policy limit. Finally, the court
assessed liability against California Casualty up to $150,000
for each Administrator in each policy period. 5 In total, the
district court found California Casualty liable for
4
California Casualty also notes that its low premium is indicative of
its position as extreme excess coverage. This argument deserves only
short shrift. California Casualty does not point to any authority that
premium size determines priority of coverage. Moreover, California
Casualty’s corporate designee testified that the amount of the premium
does not determine the policy’s order of payment.
5
To illustrate, Doe 1’s $7 million settlement was divided into three
amounts of $2,333,333 for each of the policy periods 1993–94, 1994–
95, and 1995–96. Next, in each of these periods, the court reduced the
amount by 25 percent to $1.75 million. Then, the court deducted
$1 million of Westport’s primary limit, leaving $750,000. The court
then assessed $150,000 per administrator for a total of $450,000 against
California Casualty.
WESTPORT INS. V. CALIF. CASUALTY MGMT. 15
$2.6 million of the $15.8 million paid to the Does
collectively.
California Casualty contends that it should not contribute
to the Settlements for the following reasons: (1) the
allocation of liability among the defendants was erroneous;
(2) Westport did not pay the mandatory $1 million per
administrator per student per policy period; (3) California
Casualty’s policy does not trigger until $1 million is paid per
administrator per student for each policy period; and
(4) even if California Casualty were obligated to contribute,
its apportioned contributions for the Administrators should
prorate along with Westport’s policies. We consider each
argument in turn.
A. Allocation of Liability Among the Administrators
and the District
California Casualty first argues that the district court was
unable to properly apportion any liability to it. Although
California Casualty’s duty to defend did not rise until
exhaustion of the primary layer of coverage, it denied excess
coverage in the face of settlement demands far exceeding the
primary layer. As the district court noted, in United Services
Automotive Association v. Alaska Insurance Co., 114 Cal.
Rptr. 2d 449, 453 (Ct. App. 2001), the court held that “when
an excess insurer denies excess coverage for a third party
claim, it waives the right to challenge the reasonableness of
the primary insurer’s settlement of the claim.” Therefore,
California Casualty has waived its argument that the lack of
contemporaneous allocation of liability in the Settlements
precludes subsequent apportionment.
Because California Casualty is only liable for the
Administrators’ liability, it next argues that the district court
erroneously allocated the Settlements equally among the
16 WESTPORT INS. V. CALIF. CASUALTY MGMT.
four underlying defendants. Under California law, trial
courts have “equitable discretion to fashion a method of
allocation suited to the particular facts of each case and the
interests of justice, subject to appellate review for abuse of
that discretion.” Golden Eagle Ins. Co. v. Ins. Co. of the
West, 121 Cal. Rptr. 2d 682, 693 (Ct. App. 2002). Moreover,
“there is no single method of allocating defense or indemnity
costs among co-insurers.” Id.The district court divided liability equally among the
four defendants, and cited Great American Insurance Co. v.
Sequoia Insurance Co., 2016 WL 844819 (C.D. Cal. Mar. 1,
2016), appeal dismissed, No. 16-56080 (9th Cir. Mar. 2,
2018), in support of its decision. In Great American, the
court determined that it had the discretion to allocate liability
equally between the co-defendants in a case where the
settlement agreement did not specifically allocate
responsibility for the amounts to the defendants and both
causes of action were alleged against both defendants. 2016
WL 844819, at *12. Similarly here, Does 1 and 2’s
complaint raised four causes of action against all four
defendants, and the fifth cause of action against only
unknown doe defendants. Doe 3’s complaint brought all
claims against all defendants. The three settlement
agreements released the District and the Administrators from
liability and did not differentiate among the defendants.
Given the blended pleadings and wording of the settlement
agreements, the district court did not abuse its discretion in
allocating the liability equally among the District and the
three Administrators. 6
6
California Casualty argues that it was not the primary insurer,
unlike the insurer in Great American, and therefore the four defendants
should not share liability evenly. However, the Great American court’s
WESTPORT INS. V. CALIF. CASUALTY MGMT. 17
B. Westport’s Contribution
California Casualty challenges the district court’s
finding that Westport only needed to pay $1 million per
occurrence instead of $1 million per occurrence per insured,
totaling $3 million. We find California Casualty’s
arguments to be without merit.
Although California Casualty’s policy and Westport’s
Primary policy define “occurrence” similarly, they differ on
how they cover liability per occurrence. Westport’s Primary
policy defines an occurrence as “an accident, including
continuous or repeated exposure to conditions, which . . .
results in injury, or damages to which this insurance
applies.” California Casualty’s policy defines an occurrence
as “an event, including injurious exposure to conditions,
which results in injuries and/or damage to one or more
persons or legal entities . . . . An occurrence can involve a
single sudden event or the continuous or repeated injurious
exposure to conditions.” The district court held that, because
under California Casualty’s policy each Administrator is an
insured, California Casualty was required to pay $150,000
per Administrator per occurrence per student for each policy
period. Conversely, Westport’s Primary policy contains a
clause that states the policy applies to each separate insured,
but “nothing herein shall operate to increase the Company’s
liability . . . beyond the amount or amounts for which the
Company would have been liable if only one person or
interest had been named as insured.” Thus, the district court
division of liability between co-defendants did not turn on the status of
the insurance companies, but rather on the pleadings and settlement
agreements. Great American, 2016 WL 844819, at *12. In fact, in terms
of actual monetary liability, the court ordered the co-primary insurer to
pay its $1 million limit, not half of the total $3 million settlement, despite
its insured being apportioned “equal” liability. Id. at *13.
18 WESTPORT INS. V. CALIF. CASUALTY MGMT.
held that under Westport’s Primary policy, Westport was
required to cover $1 million per occurrence per student for
each policy period, but not per administrator.
California Casualty does not now challenge the district
court’s decision that, under its policy, each “occurrence”
requires coverage per student per administrator for each
policy period. Instead, California Casualty now contends
that if each occurrence is so defined, then Westport should
have been required to pay $3 million per policy period
because there were three Administrators, in the same manner
the district court ordered California Casualty to pay up to
$450,000 per policy period. This argument is unavailing.
As noted, Westport’s Primary policy contains a
provision explaining that although its policy insures each
individual employee separately, if multiple insureds are
named, the policy operates to limit liability as “if only one
person . . . had been named as insured.” This provision
clearly limits Westport’s liability in the present situation
wherein multiple insureds—three Administrators and the
District—all allegedly failed to supervise the teacher.
California Casualty’s policy contains no such limitation
clause.
C. California Casualty’s Contribution
California Casualty next contends that its own obligation
does not arise until $1 million is paid per insured regardless
of the source—the Westport Primary policy, any other
policy, or through self-insurance. California Casualty’s
policy defines “the insured” as “a member of the Association
of California School Administrators who is employed by a
school board, board of trustees or similar governing body of
an educational unit.” According to California Casualty,
Westport only paid $333,333.333 per each insured;
WESTPORT INS. V. CALIF. CASUALTY MGMT. 19
therefore, California Casualty’s policy does not trigger under
its terms until some entity pays $1 million per insured.
Keeping in mind that under California law insurance
coverage is to be construed broadly, we find Westport’s
payment of $1 million per period did trigger California
Casualty’s policy.
First, California Casualty’s policy text does not support
its interpretation of when its policy is triggered. California
Casualty's policy states:
At the time of an occurrence there must be
underlying primary collectible insurance or
self-insurance available to the insured . . .
with a minimum per occurrence limit of
$1,000,000.00. There shall be no insurance
afforded under this policy until the required
$1 million limit of liability afforded the
insured by such other insurance or self-
insurance is exhausted. (Emphasis added).
The phrase “such other insurance” is an antecedent phrase
referring back to the previous sentence, which defines the
requisite primary insurance as insurance “with a minimum
per occurrence limit of $1,000,000.” Although California
Casualty’s policy denotes a per occurrence limit, it does not
require that the $1 million limit in the primary policy must
also apply per insured, as California Casualty now suggests
it should. See State Farm Mut. Auto Ins. Co. v. Partridge,
514 P.2d 123, (Cal. 1973) (holding “all ambiguities in an
insurance policy are construed against the insurer-
draftsman”).
Furthermore, the Administrators complied with the
written requirements of California Casualty’s policy in
obtaining their primary policy. The California Casualty
20 WESTPORT INS. V. CALIF. CASUALTY MGMT.
policy requires primary collectible insurance with a
“minimum per occurrence limit of $1 million” be available
to the insured pursuant to the Education Code or other
provisions governing insurance for public entities.
Westport’s Primary policy was issued pursuant to the
Education Code provisions explicitly mentioned in
California Casualty’s policy and provided a per occurrence
limit of $1 million. Therefore, each Administrator had the
requisite $1 million of primary insurance available to him.
Second, California Casualty’s policy only requires that
this underlying insurance of $1 million “afforded the insured
by such other insurance or self-insurance is exhausted.” This
language does not clearly require that $1 million be
exhausted per insured or even for the same occurrence, just
that it be exhausted. Westport’s Primary policy covering
$1 million was exhausted according to its terms. To
interpret California Casualty’s policy to require its insureds
to obtain additional insurance in the event their primary
insurance exhausts prior to reaching the $1 million
contribution would create yet another potential layer of
insurance coverage that is not required by the policy itself.
On its face, California Casualty’s policy requires only the
exhaustion of the underlying $1 million primary insurance
before California Casualty’s coverage begins. That occurred
here.
Imagine a hypothetical scenario wherein a prior
settlement or series of settlements exhausts Westport’s
primary insurance up to its annual aggregate limit of
$3 million rendering Westport’s primary policy unable to
contribute to the $1 million of underlying insurance required
by California Casualty’s policy. If California Casualty’s
interpretation of its policy were correct, California Casualty
would then provide zero coverage—because the $1 million
WESTPORT INS. V. CALIF. CASUALTY MGMT. 21
per insured was not reached—contrary to its policy language
that it pays all damages in excess of the required underlying
insurance. This hypothetical illustrates the untenable
position California Casualty advances.
Given that insurance exclusions must be “interpreted
narrowly against the insurer,” TRB Invs., 145 P.3d at 477,
we construe the ambiguity of California Casualty’s policy
against it and in favor of its insureds. In sum, we hold that
California Casualty’s policy coverage began upon
exhaustion of Westport’s Primary policy when Westport
paid $1 million per policy period per student.
D. Proration of the Policies
California Casualty also contends that its coverage
should prorate with Westport’s coverage. A pro rata clause
“provides that if there is other valid and collectible
insurance, then the insurer shall not be liable for more than
his pro rata share of the loss.” Olympic Ins. Co. v. Emp’rs
Surplus Lines Ins. Co., 178 Cal. Rptr. 908, 911 (Ct. App.
1981). California courts tend to prorate the loss among co-
insurers with conflicting excess clauses. Id. This situation
often occurs when both insurers on the same level have
excess clauses that deem the policy excess to other valid and
collectible insurance. See id. at 912 (prorating two primary
insurers’ policies where both purported to be excess to the
other).
The text of the insurance policies in this case belies
California Casualty’s claim that they prorate. California
Casualty’s policy plainly states that it “shall not be construed
to be pro rata, concurrent or contributing with any other
insurance or self-insurance which is available to the
Insured.” Further, California Casualty’s policy does not
occupy the same level of insurance coverage as either of
22 WESTPORT INS. V. CALIF. CASUALTY MGMT.
Westport’s policies. As discussed, the exhaustion of
Westport’s Primary policy triggers liability under California
Casualty’s policy. Only when California Casualty’s policy
is exhausted does Westport’s Excess policy become liable.
Westport’s Excess policy clearly states, “If there is any other
collectible insurance available to the insured that covers a
loss that is also covered by this policy, the insurance
provided by this policy will apply in excess of other
collectible insurance.” Accordingly, California Casualty’s
policy is sandwiched between Westport’s Primary and
Excess policies. There is no conflict between California
Casualty’s policy and either of Westport’s policies such that
they should prorate.
IV. Prejudgment Interest
California Casualty asserts that the district court should
have awarded prejudgment interest at seven percent, running
from July 11, 2014—the date of Westport’s first demand
letter for payment. The district court awarded prejudgment
interest at ten percent, running from the dates Westport paid
each of the Settlements. We find no abuse of discretion in
the district court’s determination to award prejudgment
interest at ten percent from the dates Westport paid the
Settlements.
State law governs prejudgment interest in a diversity
action. U.S. Fid. & Guar. Co. v. Lee Invs. LLC, 641 F.3d
1126, 1139 (9th Cir. 2011). The California Constitution
generally affixes the rate of prejudgment interest at seven
percent per annum for judgments rendered in state courts
unless specified otherwise by the legislature. Cal. Const.
Art. 15, § 1. However, the California Civil Code sets
prejudgment interest on contract actions at ten percent per
annum if the rate is not otherwise stipulated in the contract.
Cal. Civ. Code § 3289. California Casualty argues that
WESTPORT INS. V. CALIF. CASUALTY MGMT. 23
because Westport labeled its cause of action “equitable
contribution,” which is not a contract action, Westport
should only receive prejudgment interest at the rate of seven
percent. Westport counters that the district court correctly
determined that despite the characterization, its action was
one for equitable subrogation, which sounds in contract, and
that the district court properly awarded prejudgment interest
at ten percent.
The California Court of Appeal explained the difference
between equitable contribution and equitable subrogation in
Fireman’s Fund Insurance Co. v. Maryland Casualty Co.,
77 Cal. Rptr. 2d 296 (Ct. App. 1998). Equitable subrogation
puts the insurer in the position of the insured “to pursue
recovery from third parties legally responsible to the insured
for a loss which the insurer has both insured and paid.”
Fireman’s Fund, 77 Cal. Rptr. 2d at 302. In contrast,
equitable contribution is to “apportion a loss between two or
more insurers who cover the same risk, so that each pays its
fair share and one does not profit at the expense of the
others.” Id. at 306.
These definitions clarify that Westport incorrectly
labeled its cause of action as one for “equitable
contribution.” See K.C. Multimedia, Inc. v. Bank of Am.
Tech. & Operations, Inc., 90 Cal. Rptr. 3d 247, 261 (Ct. App.
2009) (holding the facts, not the labels, in a pleading
determine whether a plaintiff is entitled to relief). We do not
interpret California Casualty’s policy and Westport’s Excess
policy to “cover the same risk.” Instead, these two excess
policies create stratified levels of coverage within the excess
layer. Accordingly, the district court did not abuse its
discretion in holding that notwithstanding the erroneous title
for its claim, Westport’s action is one for equitable
subrogation and entitled to ten percent prejudgment interest.
24 WESTPORT INS. V. CALIF. CASUALTY MGMT.
We similarly find meritless California Casualty’s
argument regarding the date from which the prejudgment
interest should run. California Civil Code § 3287(a) states
in pertinent part:
Every person who is entitled to recover
damages certain, or capable of being made
certain by calculation, and the right to recover
which is vested in him upon a particular day,
is entitled also to recover interest thereon
from that day, except during such time as the
debtor is prevented by law, or by the act of
the creditor from paying the debt . . . .
Cal. Civ. Code § 3287(a). The test for recovery under this
provision is “whether [the] defendant actually knows the
amount owed or from reasonably available information
could the defendant have computed that amount.”
Children’s Hosp. & Med. Ctr. v. Bonta, 118 Cal. Rptr. 2d
629, 654 (Ct. App. 2002). When the allocation of liability
turns on factual issues, damages are uncertain; however,
when the allocation turns exclusively on legal issues,
damages are certain and interest is available. State v. Cont’l
Ins. Co., 223 Cal. Rptr. 3d 716, 735 (Ct. App. 2017). Where
the challenge concerns the interpretation of the relevant
policy language, the parties present a pure legal question. Id.
at 736.
California Casualty asserts that California’s mediation
privilege prevents disclosure of Westport’s letters it received
on May 30, 2014, June 10, 2014, and October 9, 2014, and
of the settlement agreements themselves, and, therefore, that
damages did not become certain until July 11, 2014, , as
opposed to July 29, 2013 and June 26, 2014.
WESTPORT INS. V. CALIF. CASUALTY MGMT. 25
California’s mediation privilege prohibits any writing
“prepared for the purpose of, in the course of, or pursuant to,
a mediation or mediation consultation” to be admissible in
any civil action in which testimony can be compelled to be
given.” Cal. Evid. Code § 1119(b). In addition, “all
communications . . . by and between participants in the
course of a mediation” shall remain confidential. Cal. Evid.
Code § 1119(c). While the district court erred in overruling
California Casualty’s objection to the disclosure of these
letters, 7 though not to the settlement agreements, 8 this error
does not affect resolution of this issue, because the damages
were certain on the Settlements’ payment dates regardless of
the admissibility of the demand letters.
In Continental Insurance, the court rejected the insurer’s
argument that damages were uncertain because the
companies disputed the number of covered occurrences.
223 Cal. Rptr. at 737. The court determined that this dispute
7
The district court overruled the objection pertaining to the letters,
finding that because they were between California Casualty’s corporate
representative and attorney and Westport’s attorney, they were not
between the “disputants in the mediation.” The district court defined the
disputants solely as the Does, the District, and the Administrators.
However, the mediation privilege “extends beyond discussions carried
out directly between the opposing parties to the dispute, or with the
mediator, or during the mediation proceedings themselves” to “all oral
or written communications . . . made for the purpose of or pursuant to a
mediation.” Cassel v. Super. Ct., 244 P.3d 1000, 1084 (Cal. 2011). The
letters concerned Westport’s possibility of settling beyond its primary
limits during the mediation. Accordingly, they fall within the mediation
privilege under California law.
8
See In re Marriage of Daly & Oyster, 175 Cal. Rptr. 3d 364, 368
(Ct. App. 2014) (explaining that, under Cal. Evid. Code § 1123, the
mediation privilege does not cover signed written settlement agreements
produced during mediation when the agreement contains terms
signifying the parties’ intent to be bound by it).
26 WESTPORT INS. V. CALIF. CASUALTY MGMT.
posed a question of liability that did not affect the certainty
of damages. Id. The appellate court then upheld the trial
court’s award of mandatory prejudgment interest from the
date of judgment. Id. at 720.
The present case also concerns the interpretation and
prioritization of the insurance policies at issue—all legal
questions. Accordingly, California Casualty is liable for
prejudgment interest from the “date of settlement because
that is the date that the loss is certain or capable of being
made certain by calculation.” Id. at 735. We hold that the
district court did not abuse its discretion in awarding
prejudgment interest from the dates on which Westport paid
the Settlements—July 29, 2013, and June 26, 2014. See
Highlands Ins. Co. v. Cont’l Cas. Co., 64 F.3d 514, 522 (9th
Cir. 1995) (finding no abuse of discretion for prejudgment
interest to begin running on the insurer’s date of payment
rather than the date of its complaint for reimbursement). On
these dates, Westport’s primary layer of coverage was
exhausted, and Westport overpaid on its Excess policy due
to California Casualty’s failure to provide its coverage.
CONCLUSION
We hold that California Government Code Section 825.4
does not preclude Westport’s lawsuit against California
Casualty, and we affirm the district court’s decision on all
the remaining issues raised on appeal.
AFFIRMED.