Zenith Ins. v. Liberty Mutual Fire Ins. CA2/2 ( 2020 )


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  • Filed 10/7/20 Zenith Ins. v. Liberty Mutual Fire Ins. CA2/2
    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
    California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
    not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
    has not been certified for publication or ordered published for purposes of rule 8.1115.
    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    SECOND APPELLATE DISTRICT
    DIVISION TWO
    ZENITH INSURANCE COMPANY,                                       B301659
    Plaintiff and Appellant,                              (Los Angeles County
    Super. Ct. No. BC505477)
    v.
    LIBERTY MUTUAL FIRE
    INSURANCE COMPANY,
    Defendant and Respondent.
    APPEAL from a judgment of the Superior Court of
    Los Angeles County. Gregory Keosian, Judge. Affirmed.
    Valle Makoff, Jeffrey B. Valle, Susan L. Klein, and Steven
    M. Ragona for Plaintiff and Appellant.
    Lindahl Beck and Kelley K. Beck for Defendant and
    Respondent.
    This is the second appeal from an insurance coverage
    action involving a workers’ compensation insurance policy issued
    by Liberty Mutual Fire Insurance Company (Liberty). In the
    previous appeal, we reversed the judgment entered against
    Liberty and in favor of Zenith Insurance Company (Zenith)
    because the trial court erroneously submitted to the jury the legal
    determination of coverage under the Liberty policy. (Zenith
    Insurance Company v. Liberty Mutual Fire Insurance Company
    (Aug. 29, 2018, B284295) [nonpub. opn.] (Zenith I).) We
    remanded the matter for the trial court to determine Liberty’s
    obligations under the policy.
    On remand, the trial court ruled that the Liberty policy did
    not provide coverage for a workers’ compensation claim Zenith
    paid, under a reservation of rights, to FFC, Inc. (FFC). Zenith
    appeals from the judgment entered upon that ruling.
    We affirm the judgment.
    BACKGROUND
    Factual background1
    Shea Homes SHPIP
    Liberty has issued workers’ compensation and general
    liability insurance policies to Shea Homes (Shea) since 2010.
    Shea, a residential real estate developer, maintains an owner-
    controlled insurance program called the Shea Homes Partnership
    Insurance Program (SHPIP). Under the SHPIP, Shea purchases
    workers’ compensation insurance coverage for contractors
    enrolled in the program. Enrollment in the SHPIP is mandatory
    for all contractors working at Shea projects.
    ____________________________________________________________
    1      Much of the factual background concerning this dispute is
    set forth in our opinion in the previous appeal, Zenith I. We
    reiterate the pertinent facts as necessary.
    2
    Shea’s third party SHPIP administrator, Orion Risk
    Management (Orion), processes contractor enrollments, provides
    enrollment information to Liberty, and obtains contractor payroll
    reports that are the basis for SHPIP premium payments. After
    Orion provides enrollment information to Liberty, Liberty
    processes the enrollment and issues to the enrolled contractor a
    Liberty policy providing SHPIP coverage. Once enrolled, a
    contractor is placed on an Excel spreadsheet of approved Shea
    trade partners. An enrolled contractor has its Liberty policy
    automatically renewed for each policy year thereafter in which it
    remains on the approved trade partner spreadsheet and in which
    it has a current construction contract with Shea.
    Falcon Framing and FFC
    Falcon Framing Company, Inc. (Falcon) was an approved
    Shea trade partner and had been continuously enrolled in the
    SHPIP since at least 2009. On March 1, 2012, Falcon and Shea
    entered into a construction contract for the Shea Seaside project
    in Encinitas, California.
    On April 5, 2012, Falcon’s sole officers and shareholders,
    Lester Phipps and Terry Morgan, formed a new corporate entity
    named FFC, Inc. (FFC). FFC’s sole shareholders and officers
    were Phipps and Morgan, and it conducted the same business, at
    the same office, with the same customers, suppliers, and
    equipment as Falcon. FFC acquired Falcon’s assets for no
    consideration and Falcon was dissolved on August 13, 2012.
    Morgan and Phipps did not notify Shea, Orion, or Liberty
    that they had dissolved Falcon and were continuing their
    business operations through FFC until August 20, 2012, when an
    FFC employee suffered catastrophic injuries while working at the
    Shea Seaside project.
    3
    Liberty policy
    Liberty issued a workers’ compensation and employers
    liability insurance policy, with a policy period from 8/1/2012 to
    8/1/2013 to Falcon as the named insured (the Liberty policy). The
    Liberty policy was a renewal of a previous policy Liberty had
    issued to Falcon for the period 8/1/2011 to 8/1/2012.
    The Liberty policy includes an Unintentional Errors and
    Omissions Endorsement that states in part:
    “It is agreed that in the event of your unintentional
    failure to disclose all hazards, prior occurrences or
    factual information on applications, supplements or
    other documents existing as of the inception date of
    this policy, will not prejudice the coverage provided
    under this policy.”
    The accident
    On August 20, 2012, an FFC employee named Marc Corbett
    (Corbett) was injured while working at the Shea Seaside project.
    At the time of the accident, Falcon had been paid in full for the
    Seaside project and had paid all of the premiums for the Liberty
    policy issued to Falcon. Although Falcon had been paid in full for
    the Seaside project, some finishing work remained to be
    completed, and FFC sent Corbett and other employees to the
    jobsite to complete that work. Corbett’s first day of work for FFC
    was August 13, 2012, the date Falcon was dissolved. Corbett had
    never been employed by Falcon.
    FFC tendered the worker’s compensation claim for
    Corbett’s injuries to Liberty and to Zenith, who had issued a
    worker’s compensation policy to Falcon for work on projects other
    than Shea jobsites. Liberty denied coverage for the claim. Zenith
    4
    paid $3,239,003.86, subject to a reservation of rights, to resolve
    the claim.
    Procedural history
    Zenith commenced this action against Liberty for
    declaratory relief and equitable indemnity. The matter
    proceeded to a jury trial in which the jury returned a general
    verdict in favor of Zenith and against Liberty and that Zenith
    was entitled to reimbursement from Liberty in the amount of
    $3,230.003.86. Judgment was subsequently entered in Zenith’s
    favor.
    In the prior appeal, we reversed the judgment, concluding
    the trial court had erred by submitting to the jury the legal
    determination of whether Liberty owed coverage to FFC for
    Corbett’s worker’s compensation claim. We remanded the matter
    for a determination of Liberty’s obligations under its policy.
    On remand, the trial court ruled that the Liberty policy did
    not provide coverage to FFC for Corbett’s injuries and that
    Liberty had no obligation to indemnify or reimburse Zenith for
    sums paid on FFC’s worker’s compensation claim. Judgment was
    entered in Liberty’s favor, and this appeal followed.
    DISCUSSION
    I. Applicable law and standard of review
    This appeal concerns the interpretation of an insurance
    policy and certain other contract documents to undisputed facts.
    “‘The interpretation of an insurance policy as applied to
    undisputed facts . . . is a question of law for the [appellate] court,
    which is not bound by the trial court’s construction.’ [Citation.]”
    (Bjork v. State Farm Fire & Casualty Co. (2007) 
    157 Cal.App.4th 1
    , 6, quoting Quan v. Truck Ins. Exchange (1998) 
    67 Cal.App.4th 583
    , 590.)
    5
    Interpretation of an insurance contract is governed by the
    general rules of contract interpretation. (Waller v. Truck Ins.
    Exchange, Inc. (1995) 
    11 Cal.4th 1
    , 18.) Under these rules, the
    mutual intention of the parties at the time the insurance contract
    is formed governs interpretation, and such intent is to be
    inferred, if possible, solely from the written provisions of the
    policy. (Civ. Code, § 1636; TRB Investments, Inc. v. Fireman’s
    Fund Ins. Co. (2006) 
    40 Cal.4th 19
    , 27.) The “clear and explicit”
    meaning of the policy provisions in their “ordinary and popular
    sense” controls their interpretation, unless “used by the parties in
    a technical sense, or unless a special meaning is given to them by
    usage.” (Civ. Code, § 1644; TRB, at p. 27.) The policy language
    must be read in the context of the instrument as a whole and a
    provision will be considered ambiguous when it is capable of two
    or more reasonable constructions. If a policy provision is
    ambiguous, the ambiguity must be resolved in the insured's
    favor, consistent with the insured’s reasonable expectations. (Id.
    at pp. 27-28.)
    II. The Liberty policy does not provide coverage to FFC
    FFC is not an insured under the Liberty policy. The
    Liberty policy identifies “Who is Insured” under the policy as
    follows: “You are insured if you are an employer named in Item 1
    of the Information Page. If that employer is a partnership, and if
    you are one of its partners, you are insured, but only in your
    capacity as an employer of the partnership’s employees.” The
    only entity listed in item 1 of the Liberty policy Information Page
    is “Falcon Framing Company, Inc.” FFC is not named as an
    insured under the policy.
    The Liberty policy’s coverage provision states that “[w]e
    will pay promptly when due the benefits required of you [the
    6
    insured employer, Falcon] by the workers’ compensation law.”
    The plain language of the policy extends coverage only to Falcon,
    and not to FFC.
    Zenith provides no legal support for its contention that the
    successor corporation of a named insured employer in a worker’s
    compensation policy acquires the named insured’s rights under
    the policy.
    The Unintentional Errors and Omissions Endorsement to
    the Liberty policy does not extend coverage to FFC. That
    endorsement states:
    “It is agreed that in the event of your unintentional
    failure to disclose all hazards, prior occurrences or
    factual information on applications, supplements or
    other documents existing as of the inception date of
    this policy will not prejudice the coverage provided
    under this policy.”
    The language of the endorsement is clear and
    unambiguous. It states that Falcon, the insured, will not have its
    coverage under the policy prejudiced by its inadvertent failure to
    disclose hazards or factual information in applications or other
    documents existing as of the date of the policy’s inception, August
    1, 2012. Falcon’s failure to notify Liberty of its dissolution and
    the formation of FFC after the date of the policy’s inception did
    not extend coverage to FFC. The plain language of the Liberty
    policy does not provide coverage to FFC.
    III. The Shea contract documents do not make FFC an
    insured
    Section 13.5 of the Shea Master Agreement does not
    support Zenith’s argument that FFC, as Falcon’s successor,
    assumed all of Falcon’s rights and obligations under the Shea
    7
    contract documents, including the right to coverage under the
    SHPIP. Section 13.5 of the Master Agreement states:
    “13.5 No Assignment by Contractor. Contractor may
    not assign, by operation of law or otherwise, any of its
    rights and obligations under the Contract Documents
    without Builder’s prior written consent, which may
    be granted or withheld in Builder’s sole discretion.
    The making of any assignment by Contractor, or any
    consent to it by Builder, will in no event relieve
    Contractor, or its surety, of any of its obligations
    under the Contract Documents. This Section 13.5
    does not apply to the subcontracting by Contractor of
    a portion of the Work, under the Contract
    Documents. Subject to the above, the Contract
    Documents are binding upon and will inure to the
    benefit of the successors and permitted assigns of the
    parties.”
    It is undisputed that Falcon did not obtain Shea’s approval
    to assign its rights and obligations under the Shea contract
    documents to FFC. Even if FFC is considered Falcon’s successor,
    rather than its assignee under the Master Agreement, FFC did
    not thereby become an insured under the Liberty policy. Liberty
    is not a party to the Master Agreement.
    Section 13.5 clearly and unambiguously states that FFC is
    entitled to assume only Falcon’s rights and obligations under the
    “Contract Documents,” defined in section 2 of the Master
    Agreement as the construction contract between Falcon and
    Shea, specifications and reports set forth in the construction
    contract, applicable regulations, Shea safety and quality
    8
    requirements, and the Master Agreement itself.2 Neither the
    Shea SHPIP Manual nor the Liberty policy is included in the
    definition of “Contract Documents.” FFC, even if considered
    Falcon’s successor under section 13.5 of the Master Agreement,
    did not thereby become an insured under the Liberty policy.
    The insurance provisions of the Master Agreement did not
    obligate Liberty to provide insurance coverage to FFC. As
    discussed, Liberty is not a party to the Master Agreement and is
    not bound by its provisions. (EEOC v. Waffle House, Inc. (2002)
    
    534 U.S. 279
    , 294 [“[i]t goes without saying that a contract cannot
    bind a nonparty”]; Jones v. Aetna Casualty & Surety Co. (1994)
    
    26 Cal.App.4th 1717
    , 1724 [nonparty to insurance contract
    cannot state cause of action for breach of insurer’s contractually
    based duty].)
    Notwithstanding Zenith’s argument to the contrary, the
    Master Agreement did not give FFC an automatic right to SHPIP
    participation. Rather, the Master Agreement expressly states
    that “SHPIP . . . will not cover suppliers and subcontractors that
    have not been provided a certificate of insurance. Contractors,
    subcontractors, and suppliers who do not have a certificate of
    ____________________________________________________________
    2      The term “Contract Documents” is defined in the Master
    Agreement as follows: “‘Contract Documents’ means the Master
    Agreement, the Contract Plans, Specifications, and other reports
    set forth in the Contract, Title 24 requirements, Title 7
    Documents, Shea Standard Quality Requirements, Shea
    Standard Safety Requirements and other documents specified in
    Schedule B attached to the Contract, and all subsequent Change
    Orders, CORs and LMAs.” “Contract” is defined in section 1.1 of
    the Master Agreement as “any specific Construction Contract . . .
    entered into between [Shea] and Contractor.”
    9
    insurance must secure and maintain, at their own cost, the
    insurance coverage specified in the Contract.” The Master
    Agreement further states that “[i]n the event Contractor’s Work
    is not enrolled in SHPIP, or any other wrap-up insurance
    program, Contractor must secure and maintain, at its own cost,”
    specified limits of worker’s compensation and employer’s liability
    insurance. Nothing in the Master Agreement provides automatic
    SHPIP enrollment for persons or entities who acquire the assets
    of a previously enrolled contractor.
    IV. Zenith’s cited cases do not support coverage
    University of Judaism v. Transamerica Ins. Co. (1976) 
    61 Cal.App.3d 937
     (University of Judaism) and California
    Compensation & Fire Co. v. Industrial Acci. Com. (1965) 
    62 Cal.2d 532
     (California Compensation), on which Zenith relies, are
    inapposite and do not support its coverage arguments.
    University of Judaism involved the insureds’ express
    assignment of a fire insurance policy to the plaintiff, along with
    the transfer of the insured property. The insureds did not obtain
    the insurer’s consent to assign the policy. Soon after the transfer,
    the property was destroyed by fire. Both before and after the
    property transfer, and until its destruction by fire, the property
    was leased to the same tenant, who conducted the same business
    operations on the property. The insurer denied coverage based
    on a policy provision that stated: “‘Assignment of this policy shall
    not be valid except with the written consent of [the insurer].’”
    (University of Judaism, supra, 61 Cal.App.3d at pp. 939-940.)
    The appellate court reversed the judgment entered in the
    insurer’s favor, interpreting the assignment provision of the
    policy, noting that “Forfeitures on technical grounds which bear
    10
    no substantial relationship to the insurer’s risk are disfavored.”
    (Id. at p. 941.)
    The plaintiff in University of Judaism had an express
    assignment of the policy before the fire occurred, and the
    appellate court ruled that the insurer could not invoke the
    assignment clause to deny coverage. Here, the Liberty policy’s
    assignment provision is not at issue. There was no assignment of
    the Liberty policy and no forfeiture based on technical grounds.
    California Compensation is equally inapposite. That case
    involved interpretation of an ambiguous exclusion in a workers’
    compensation policy issued to “‘Richard Jones, Edward Mello and
    Wesley Johnson, joint and not severally d.b.a. South Bay
    Insulation Company.’” Under a special endorsement the benefits
    of the policy were made applicable to Jones, Mello, and Johnson.
    After the policy was issued, Joseph Ambriz, without the
    knowledge of the insurer, became a member of the insured
    partnership. A dispute among the partners arose, and Johnson
    shot and killed Jones and Mello in the partnership office. The
    insurer sought to deny coverage based on an exclusion that stated
    in relevant part: “‘It is Agreed that, anything in this Policy to the
    contrary notwithstanding, this Policy Does Not Insure: Any
    liability which the named Employer may have arising out of
    operations conducted jointly by said named Employer with any
    other person, firm or corporation. . . .’” (California Compensation,
    supra, 62 Cal.2d at pp. 533-534.) The insurer argued that this
    exclusion barred coverage because the liability arose out of
    operations conducted by the partnership jointly with Ambriz.
    The court in California Compensation rejected the insurer’s
    argument and found the exclusion to be ambiguous but
    11
    inapplicable to situations involving the addition of a partner. (Id.
    at pp. 534-535.)
    This case does not involve the addition of a partner or the
    application of an ambiguous policy exclusion. The principles set
    forth in California Compensation do not apply.
    V. Public policy does not compel coverage
    We are unpersuaded by Zenith’s arguments that public
    policy supports a finding that the Liberty policy covered FFC’s
    claim for Corbett’s injuries. The cases cited by Zenith do not
    support such a finding.
    Graham v. Workers’ Comp. Appeals Bd. (1989) 
    210 Cal.App.3d 499
     involved issues of statutory construction,
    specifically, whether Civil Code section 3333.1, which abrogated
    the collateral source rule in medical malpractice actions,
    prevented an employer from obtaining credit against future
    benefits it owed to the injured employee under certain credit
    provisions of the Labor Code. (Graham, at pp. 504-505.) That
    case did not involve any public policy considerations concerning
    the interpretation of a workers’ compensation policy.
    Catholic Healthcare West v. California Ins. Guarantee Assn.
    (2009) 
    178 Cal.App.4th 15
     also involved an issue of statutory
    construction, not the interpretation of an insurance policy. (Id. at
    p. 31.) No such issue is presented here.
    The trial court did not err by concluding the Liberty policy
    did not provide coverage to FFC.
    12
    DISPOSITION
    The judgment is affirmed. Liberty shall recover its costs on
    appeal.
    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
    ____________________________, J.
    CHAVEZ
    We concur:
    __________________________, Acting P. J.
    ASHMANN-GERST
    __________________________, J.
    HOFFSTADT
    13
    

Document Info

Docket Number: B301659

Filed Date: 10/7/2020

Precedential Status: Non-Precedential

Modified Date: 10/7/2020