American Guarantee & Liability Insurance v. Lexington Insurance

FILED
NOT FOR PUBLICATION MAY 06 2013
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
AMERICAN GUARANTEE AND No. 11-17130
LIABILITY INSURANCE COMPANY,
D.C. No. 3:10-cv-03009-RS
Plaintiff - Appellant,
v. MEMORANDUM *
LEXINGTON INSURANCE COMPANY,
Defendant - Appellee.
Appeal from the United States District Court
for the Northern District of California
Richard Seeborg, District Judge, Presiding
Argued and Submitted April 19, 2013
San Francisco, California
Before: SCHROEDER, SILVERMAN, and BEA, Circuit Judges.
Plaintiff American Guarantee and Liability Insurance Company appeals
from the district court’s holding on cross-motions for summary judgment that
Defendant Lexington Insurance Company did not have a duty to defend BBI
Construction in a lawsuit brought by an employee of RCM Fire Protection, David
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Trahan. We have jurisdiction under 28 U.S.C. § 1291 and now reverse and
remand.
The insurance policy that Lexington Insurance issued to RCM extended
coverage to additional insureds where required by written contract. The Letter of
Intent between BBI and RCM satisfied this requirement. There is no genuine issue
of material fact as to whether the letter was a binding contract to furnish documents
evidencing general liability coverage naming BBI as an additional insured. See
Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989) (“There is also no genuine
issue of fact if, on the record taken as a whole, a rational trier of fact could not find
in favor of the party opposing the motion.”).
Moreover, BBI qualified as an additional insured under the insurance policy
because Trahan’s injuries arose out of RCM’s ongoing operations performed for
BBI. RCM was subcontracted by BBI to furnish and install fire sprinklers inside
the Veterans Memorial Building. David Trahan was on the job site walking
towards an official exit gate when a piece of lumber fell from the roof and hit him
on the head. This is sufficient to establish the requisite minimal connection
between RCM’s ongoing operations performed for BBI and Trahan’s injury. See
Acceptance Ins. Co. v. Syufy Enters., 69 Cal. App. 4th 321 (Cal. Ct. App. 1999)
(“California courts have consistently given a broad interpretation to the terms
‘arising out of’ or ‘arising from’ in various kinds of insurance provisions. It is
settled that this language does not import any particular standard of causation or
theory of liability into an insurance policy. Rather, it broadly links a factual
situation with the event creating liability, and connotes only a minimal causal
connection or incidental relationship.”).
REVERSED and REMANDED.
FILED
American Guarantee v. Lexington Insurance Co., 11-17130
MAY 06 2013
BEA, Circuit Judge, concurring in the judgment:
MOLLY C. DWYER, CLERK
U .S. C O U R T OF APPE ALS
Although I concur in the judgment, I disagree with the majority’s reasoning.
The Additional Insured Endorsement on RCM’s insurance policy extended
insurance coverage to any entities to whom RCM promised such coverage in a
“written contract.” The Letter of Intent is not supported by consideration, so it
cannot be the written contract required for additional insured coverage of BBI.
However, the Subcontract agreement between BBI and RCM triggers coverage of
BBI as an additional insured on the Lexington policy: it is a valid written contract,
and it requires RCM to provide additional insured coverage to BBI. That the
Subcontract was executed after Trahan’s accident is immaterial under the terms of
the Lexington policy.
1. In the Ninth Circuit, when parties refer to a document as a “letter of
intent,” they generally intend the document “to be a nonbinding expression in
contemplation of a future contract.” Rennick v. O.P.T.I.O.N. Care, 77 F.3d 309,
315 (9th Cir. 1996). However, “this is not to say that a letter of intent cannot be a
contract. Regardless of the title, if the content shows that the parties intended to be
bound, and the other requisites of a contract have been satisfied, it may be a
contract. We have to study the words and context to decide.” Id.1
It is a basic principle of California contract law that an agreement cannot be
an enforceable contract unless it is supported by consideration. See, e.g., Forgeron
Inc. v. Hansen, 149 Cal. App. 2d 352, 360-61 (1957). Consideration may be either
a benefit conferred or agreed to be conferred upon the promisor or some other
person, or a detriment suffered or agreed to be suffered by the promisee or some
other person. Cal. Civ. Code § 1605. The Letter of Intent is bereft of
consideration to promisor RCM. In the Letter of Intent, BBI requested that RCM
submit documents “as soon as possible” in which RCM named BBI as an
additional insured on RCM’s insurance policy, but BBI made no return promise to
RCM in exchange for RCM’s acceptance of its obligation to provide these
documents. BBI did not promise to contract with RCM if RCM submitted the
requested documents.1 BBI did not promise to negotiate exclusively with RCM if
RCM complied with these requests. RCM got nothing in return for its
“acceptance” of its obligation to name BBI as an additional insured. For instance,
nothing in the Letter of Intent prevented BBI from “shopping” the RCM bid to
other subcontractors in a search for a lower price. Because the Letter of Intent is
1
There is no rule in the Ninth Circuit that the defendant must enter into a
contract if the plaintiff performs all acts set forth in a Letter of Intent.
Furthermore, there is no obligation to deal fairly or in good faith absent an existing
contract. See Hess v. Transamerica Occidental Life Ins. Co., 190 Cal. App. 3d
941, 945 (1987).
2
not supported by consideration, it is not a “written contract” and therefore cannot
trigger coverage of BBI as an additional insured.
2. The Subcontract between RCM and BBI, however, is a “written contract”
that required RCM to provide insurance to BBI by naming BBI as an additional
insured on the Lexington policy. Lexington argues that the Subcontract cannot
trigger additional insured coverage because “the policy language expressly requires
the written contract to have been executed before coverage under the Additional
Insured Endorsement is extended.” According to Lexington, the Subcontract
cannot be the basis for additional insured coverage because it was executed after
the date of Trahan’s injury.
This argument is premised on a misreading of the relevant documents. First,
there is a “Contractual Liability” exclusion to RCM’s Commercial General
Liability coverage. This exclusion applies to injuries and property damage “for
which the insured is obligated to pay damages by reason of the assumption of
liability in a contract or agreement.” (emphasis added). This contractual liability
exclusion contains an exception for liability assumed in a contract that is an
“insured contract,” “provided the bodily injury or property damage occurs
subsequent to the execution of the contact or agreement.” The contractual
assumption of liability between BBI and RCM, as outlined in the indemnity clause
3
in the Subcontract, is simply not applicable to this case: BBI’s claim against RCM
for contractual indemnity has been dismissed with prejudice and is not before this
panel. The present case arises from American’s contention that BBI is covered by
the Lexington policy as an additional insured. The contractual liability exclusion
is not relevant as to whether Lexington has a duty to defend and indemnify BBI as
an additional insured.
Separate from the contractual liability exclusion, the Lexington policy has an
Additional Insured Endorsement that modifies the Commercial General Liability
Coverage section of the policy. The Additional Insured Endorsement includes as
an “insured” “the person or organization shown in the Schedule, but only with
respect to liability arising out of your ongoing operations performed for that
insured.” The Additional Insured Endorsement schedule names no particular entity
and instead extends blanket coverage “[w]here required by written contract.”
The Subcontract between RCM and BBI included an insurance requirement,
which states: “Subcontractor [RCM] shall name Contractor [BBI] . . . as additional
insured[] under the General Liability policy.” This provision clearly satisfies the
“written contract” requirement of the Lexington Additional Insured Endorsement.
The more difficult question is whether the timing of the Subcontract precludes it
from triggering additional insured coverage in this case. The Subcontract had a
4
“Subcontract Date” of November 2, 2006. Printed immediately below the
subcontract date is the first sentence of the Subcontract: “This Agreement is made
this day between BBI . . . and RCM” (emphasis added). The Subcontract was
actually signed by RCM on November 30, 2006 and by BBI on March 6, 2007.
RCM’s employee was injured on the job site on November 8, 2006, which falls
after the “Subcontract Date” of November 2, 2006, but before the Subcontract was
executed by the signatures of both parties.2
That the Subcontract was executed after the employee’s accident does not
preclude it from extending additional insured coverage to BBI. Lexington drafted
both the insurance policy and the Additional Insured Endorsement. In the
contractual liability exclusion, Lexington included an exception to the exclusion
for liability assumed in an “insured contract,” “provided the bodily injury or
property damage occurs subsequent to the execution of the contact or agreement.”
Lexington thus knew how to require the execution of a contract before the event to
be insured for a provision to take effect; it wrote those words into the contractual
liability exclusion. Lexington’s Additional Insured Endorsement provides that an
entity becomes an insured if such insurance is “required by written contract.” In
light of the difference between the language used in the contractual liability
2
See Nielsen Construction Co. v. Int’l Iron Prods., 18 Cal. App. 4th 863,
869 (1993) (a contract is “executed” when all parties have signed it).
5
exclusion and the Additional Insured Endorsement, there is no basis on which to
extend the requirement in the exclusion to the contractual liability exception that an
insured contract must be executed prior to the liability-producing event to the
Additional Insured Endorsement, which requires only a “written contract.”3
While not “executed” until March 6, 2007 (the date of the last of the two
signatures), the Subcontract is dated November 2, 2006 and by its terms reflects an
agreement reached that day. Parties to a contract “may retroactively adopt prior
acts or fix retroactive dates of execution for a contract.” Du Frene v. Kaiser Steel
Corp., 231 Cal. App. 2d 452, 458 (1964). See also Grubb & Ellis Co. v. Bradley
Real Estate Trust, 909 F.2d 1050, 1054 (7th Cir. 1990) (“contractual terms may be
effective for a period before a contract is executed so long as such coverage is clear
from the face of the contract”). Had Lexington wanted to protect itself from the
contingency wherein a written contract to extend additional insured coverage was
executed after an accident, it easily could have used the same language from the
exception to the contractual liability exclusion in the additional insured
endorsement. Furthermore, this is not a case of retroactive insurance coverage,
3
If more were needed, I could cite the principle of documentary
interpretation expressio unius, applied by us in Silvers v. Sony Pictures
Entertainment, 402 F.3d 881, 885 (9th Cir. 2005) (en banc), as to the 1976
Copyright Act, but also applied generally to documents which are not statutes.
See, e.g., Hardware Mut. Ins. Co. v. Dunwoody.,194 F.2d 666, 668 (9th Cir. 1952)
(applying expressio unius to contract interpretation).
6
since it is undisputed that RCM was covered by its insurance policy with Lexington
at the time of Trahan’s accident and that, by the terms of the Additional Insured
Endorsement, BBI, as an additional insured, merely steps into the same position as
an “insured” under RCM’s general commercial liability policy. RCM paid
whatever premiums Lexington charged for its policy (including the Additional
Insured Endorsement that extended coverage “where required by written contract”
and that did not incorporate the restriction used elsewhere in the policy that the
contract must be executed prior to the liability-producing event), and we must give
effect to the language of these documents.
I would therefore reverse and remand on the basis that the Subcontract was a
written contract that gave rise to BBI’s coverage as an additional insured.
7