Underwriters of Interest Subscribing to Policy No. A15274001 v. ProBuilders Specialty Insurance

Filed 10/23/15
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
UNDERWRITERS OF INTEREST D066615
SUBSCRIBING TO POLICY NUMBER
A15274001,
Plaintiff and Appellant, (Super. Ct. No.
37-2012-00058368-CU-IC-NC)
v.
PROBUILDERS SPECIALTY INSURANCE
COMPANY,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of San Diego County, Timothy
M. Casserly, Judge. Reversed.
Wolkin Curran, Brandt L. Wolkin, Amy K. Thomas and Dawn A. Silberstein for
Plaintiff and Appellant.
Berger Kahn, David B. Ezra and Erin R. Mindoro for Defendant and Respondent.
Pacific Trades Construction & Development, Inc. (Pacific Trades) was a defendant
in a lawsuit that alleged, in part, that Pacific Trades was liable for damages for
construction defects caused by Pacific Trades's negligent acts or omissions. Underwriters
of Interest Subscribing to Policy Number A15274001 (Underwriters) undertook Pacific
Trades's defense in that action under its Commercial General Liability (CGL) policy
insuring Pacific Trades. ProBuilders Specialty Insurance Company (ProBuilders), which
also insured Pacific Trades, declined to participate in funding Pacific Trades's defense,
claiming (among other things) that a clause in its policy relieved ProBuilders of any duty
to defend Pacific Trades when another insurer was doing so.
In this current action, Underwriters sought equitable contribution from
ProBuilders for a portion of the defense costs. The parties filed cross-motions seeking
summary adjudication of ProBuilders's liability for a portion of the defense costs. The
trial court agreed with ProBuilders that a clause in its policy relieved it of any duty to
defend Pacific Trades when (as here) another insurer was defending Pacific Trades, and
entered summary judgment in favor of ProBuilders. Underwriters appeals that
determination.
We conclude the trial court erred in enforcing the clause in ProBuilders's policy
and, because the other arguments raised by ProBuilders in support of its summary
judgment motion on Underwriters's claim for equitable contribution do not support the
judgment, we reverse the judgment.
I
FACTS
A. The Policies
Underwriters issued a Commercial General Liability (CGL) policy insuring
Pacific Trades, among others, in effect between October 23, 2001, and October 23, 2003
(Underwriters's policy). ProBuilders also issued policies insuring Pacific Trades, in
2
effect between December 9, 2002, and December 9, 2004 (ProBuilders's policies),
providing for indemnification against liability for many of the same risks encompassed
by Underwriters's policy.
ProBuilders's policies contained an "other insurance" clause that stated
ProBuilders had "the right and duty to defend [Pacific Trades] against any suit seeking
. . . damages [to which the insurance applied] provided that no other insurance affording a
defense against such a suit is available to you." Underwriters's policy also included other
insurance provisions that provided, under certain conditions, Underwriters would also be
excused from any duty to defend Pacific Trades.1
B. The Lawsuit
Pacific Trades was named as a defendant in a lawsuit (the Aceves lawsuit) that
alleged, in part, that Pacific Trades was liable for damages to multiple separate single
family homes caused by construction defects allegedly due to its negligent acts or
omissions.2 In April 2007 ProBuilders was notified of the Aceves action, which it
1 Underwriters's policy provided its policy would be "excess" over any other
"primary insurance available to you [Pacific Trades] . . . for which you have been added
as an additional insured by attachment of an endorsement. When this insurance is excess,
we will have no duty . . . to defend [Pacific Trades] against any 'suit' if any other insurer
has a duty to defend the insured against that 'suit.' " Underwriters produced some
evidence below that ProBuilders had issued primary policies to various subcontractors
that named Pacific Trades (and other defendants in the Aceves lawsuit for whom
Underwriters had provided a defense) as an "additional insured," which could have
provided Underwriters with a competing basis for asserting it was excused from any duty
to defend Pacific Trades in the Aceves lawsuit because of the presence of other
insurance.
2 Other named defendants in Aceves lawsuit included Paseo Del Sol Imperial, LLC,
Paseo Del Sol Norte, LLC, and Paseo Del Sol Dos, LLC, which were allegedly the
3
subsequently acknowledged in November 2007 included claims giving rise to a "potential
for indemnity exposure of a covered form of loss." However, in that same November
2007 communication, ProBuilders informed Pacific Trades that, although there was a
potential for indemnity coverage under its policies, ProBuilders would not participate in
providing a defense to Pacific Trades because Pacific Trades was "currently being
defended by another carrier."
The carrier that provided that defense, Underwriters, had hired counsel to defend
Pacific Trades (along with other named defendants) in the underlying action by July
2007. As early as 2009, Underwriters demanded that ProBuilders participate in funding
the defense of the Aceves action. ProBuilders never contributed to funding the defense.
In 2010, the parties to the Aceves action negotiated a settlement amounting to
approximately $1 million to be paid to the plaintiffs, and ProBuilders ultimately
contributed $270,000 to that settlement. The settlement was confirmed as a good faith
settlement in October 2010. However, the insurers' payments to fund that settlement,
along with execution of the necessary settlement agreements by the numerous parties to
the Aceves action and final dismissal of the suit, lingered into 2011. Underwriters
continued to pay Pacific Trades's defense counsel for services connected to the Aceves
lawsuit until at least March 2011.
C. The Present Action
After the underlying Aceves action was finally settled and dismissed as to Pacific
Trades, Underwriters filed this action in November 2012 against ProBuilders seeking
developers and/or general contractors for the properties and projects containing the
allegedly defective construction.
4
equitable contribution from it for some of the defense costs paid by Underwriters in
connection with defense of the underlying action. ProBuilders and Underwriters filed
cross-motions for summary judgment and summary adjudication, respectively, seeking a
determination of whether ProBuilders had any obligations to contribute to the defense of
their mutual insured.
ProBuilders's motion for summary judgment asserted it had no obligation to pay
any portion of the defense costs based, in part, on its argument that the terms of its
policies excused it from any obligation to defend Pacific Trades once Underwriters
undertook that defense. ProBuilders also asserted it had no obligation to pay any portion
of the defense costs because (1) Underwriters's action for equitable contribution was
time-barred, (2) Pacific Trades had not satisfied a condition precedent (contained in the
"Contractors Special Conditions" endorsement to the ProBuilders's policies) to
ProBuilders's obligation to indemnify Pacific Trades, and (3) Underwriters refused to
supply ProBuilders with the billings from the attorneys that formed the basis of the
monetary amounts it sought from ProBuilders. Underwriters opposed ProBuilders's
motion, arguing the terms of the policies purporting to excuse ProBuilders's defense
obligation constituted an "escape" clause, which is routinely disregarded by California
courts. Underwriters also asserted the other grounds raised by ProBuilders in support of
its summary judgment motion were inadequate to grant the motion, because (1)
Underwriters's action was timely because it was filed less than two years after it made its
final payment towards the attorney fees that formed the basis for its equitable
contribution action, (2) the Contractors Special Conditions (CSC) argument did not
5
support summary judgment,3 and (3) ProBuilders's argument that Underwriters's alleged
refusal to turn over billing statements justified summary judgment was legally
unsupported and factually erroneous.
Underwriters's motion sought summary adjudication that ProBuilders had the duty
to defend Pacific Trades in the underlying Aceves lawsuit, arguing that lawsuit gave rise
to a potential covered claim and therefore triggered ProBuilders's duty to defend Pacific
Trades in the Aceves lawsuit, and reasserting the "other insurance" clause contained in
ProBuilders's policies did not excuse that obligation because it is an unenforceable escape
clause. Underwriters also asserted the CSC endorsement did not excuse ProBuilders
from providing Pacific Trades with a defense, and no other provisions barred
Underwriters's right to seek equitable contribution for the defense costs it paid.
ProBuilders opposed Underwriters's motion on the same grounds it raised in support of
its motion for summary judgment.
The trial court ruled in favor of ProBuilders, concluding the "other insurance"
clause in its policies obligated ProBuilders to defend Pacific Trades only if no other
insurance affording a defense was available to Pacific Trades, and because Underwriters
provided other insurance affording a defense to Pacific Trades against the Aceves
lawsuit, the express terms of the "other insurance" clause in ProBuilders's policies
3 Underwriters argued the Contractors Special Conditions clause was too uncertain
to be enforceable, and it contained internal limitations that rendered it inapplicable to
ProBuilders's duty to defend the action against Pacific Trades. Underwriters also argued
that, even assuming it was applicable to limit ProBuilders's duty to defend, there were
triable issues of fact as to whether Pacific Trades had satisfied the Contractors Special
Conditions clause.
6
excused ProBuilders from paying for any part of the defense costs in the Aceves lawsuit.
This appeal followed.
II
APPLICABLE LEGAL PRINCIPLES
A. Summary Judgment Standards
The summary judgment procedure is directed at revealing whether there is
evidence that requires the fact-weighing procedures of a trial. " '[T]he trial court in ruling
on a motion for summary judgment is merely to determine whether such issues of fact
exist, and not to decide the merits of the issues themselves.' [Citation.] The trial judge
determines whether triable issues of fact exist by reviewing the affidavits and evidence
before him or her and the reasonable inferences which may be drawn from those facts."
(Morgan v. Fuji Country USA, Inc. (1995) 34 Cal.App.4th 127, 131.) To prevail on a
motion for summary judgment, a defendant must show that one or more elements of the
plaintiff's cause of action cannot be established or that there is a complete defense to that
cause of action. (Code Civ. Proc., § 437c, subd. (o).) The evidence of the moving party
is strictly construed and that of the opponent liberally construed, and any doubts as to the
propriety of granting the motion are to be resolved in favor of the party opposing the
motion. (Branco v. Kearny Moto Park, Inc. (1995) 37 Cal.App.4th 184, 189.)
Summary judgment should be granted only when a moving party is entitled to a
judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) Because a motion for
summary judgment raises only questions of law, we independently review the parties'
supporting and opposing papers and apply the same standard as the trial court to
7
determine whether there exists a triable issue of material fact. (City of San Diego v. U.S.
Gypsum Co. (1994) 30 Cal.App.4th 575, 582; Southern Cal. Rapid Transit Dist. v.
Superior Court (1994) 30 Cal.App.4th 713, 723.) Additionally, because the
interpretation of the insuring agreement is a question of law, we apply de novo review to
any determinations as to that issue (Standard Fire Ins. Co. v. Spectrum Community Assn.
(2006) 141 Cal.App.4th 1117, 1124), including the determination of whether the terms of
an "other insurance" clause in a defendant coinsurer's policy permits it to avoid
contributing to the defense and indemnification costs the plaintiff co-insurer incurred on
behalf of their mutual insured. (Travelers Casualty & Surety Co. v. Century Surety Co.
(2004) 118 Cal.App.4th 1156, 1159 (Travelers).)
B. Equitable Contribution Standards
Underwriters's action pleaded a claim for equitable contribution from a co-insurer
of a mutual insured. "Equitable contribution is the right to recover from a co-obligor who
shares a liability with the party seeking contribution." (North American Capacity Ins.
Co. v. Claremont Liability Ins. Co. (2009) 177 Cal.App.4th 272, 295.) As explained by
one court, "the right to contribution arises when several insurers are obligated to
indemnify or defend the same loss or claim, and one insurer has paid more than its share
of the loss or defended the action . . . . Equitable contribution permits reimbursement to
the insurer that paid on the loss for the excess it paid over its proportionate share of the
obligation, on the theory that the debt it paid was equally and concurrently owed by the
other insurers and should be shared by them pro rata in proportion to their respective
coverage of the risk. The purpose of this rule of equity is to accomplish substantial
8
justice by equalizing the common burden shared by coinsurers, and to prevent one insurer
from profiting at the expense of others." (Fireman's Fund Ins. Co. v. Maryland Casualty
Co. (1998) 65 Cal.App.4th 1279, 1293 (Fireman's Fund).) The right to seek equitable
contribution "is predicated on the commonsense principle that where multiple insurers or
indemnitors share equal contractual liability for the primary indemnification of a loss or
the discharge of an obligation, the selection of which indemnitor is to bear the loss should
not be left to the often arbitrary choice of the loss claimant, and no indemnitor should
have any incentive to avoid paying a just claim in the hope the claimant will obtain full
payment from another coindemnitor. [Citations.] Equitable contribution thus assumes
the existence of two or more valid contracts of insurance covering the particular risk of
loss and the particular casualty in question." (Id. at p. 1295.)
III
ANALYSIS
A. The Trial Court Erred by Enforcing ProBuilders's Escape Clause
ProBuilders on appeal does not suggest that its policies did not provide at least
overlapping "primary" coverage with Underwriters's policy for the types of claims
asserted against Pacific Trades in the Aceves lawsuit.4 Instead, ProBuilders argues on
4 Underwriters notes the evidence below raised at least a triable issue of fact on two
other significant issues related to the Aceves lawsuit: whether ProBuilders's policies
provided the only primary coverage available to Pacific Trades for certain periods of time
related to the claims raised in the Aceves lawsuit when Underwriters's policy had
provided no coverage due to the expiration of its policy period, and whether
ProBuilders's policies provided the only primary coverage for Pacific Trades for projects
involved in the Aceves lawsuit for which Underwriters's policy had provided no coverage
due to the geographic limitations contained within that policy.
9
appeal, as it did below, that even though the claims were otherwise covered by its
policies and would have required it to provide a defense absent the fortuity that
Underwriters provided concurrent coverage, its "other insurance" clause plainly and
conspicuously stated ProBuilders was relieved of that duty to defend its insured for such
claims because of the presence of another insurance policy providing a defense against
those claims, and therefore its "other insurance" provision excused ProBuilders of any
duty to contribute to the defense of Pacific Trades and barred Underwriters from pursuing
equitable contribution.
Ordinarily, an insurer is free to limit the risks it will assume and will be liable only
for a loss within the terms of the policy (Fresno Economy Import Used Cars, Inc. v.
United States Fid. & Guar. Co. (1977) 76 Cal.App.3d 272, 280), and a court will not
rewrite the terms of a policy based solely on public policy reasons. (Rosen v. State Farm
General Ins. Co. (2003) 30 Cal.4th 1070, 1078.) It is the ordinary rule that "[a]n
insurance company has the right to limit the coverage of a policy issued by it and when it
has done so, the plain language of the limitation must be respected." (Continental Cas.
Co. v. Phoenix Constr. Co. (1956) 46 Cal.2d 423, 432.) Citing these general rules,
ProBuilders argues its express "other insurance" clause, by providing that its duty to
defend was subject to the condition that "no other insurance affording a defense against
such a suit is available to you," exempted ProBuilders from any obligation to defend
Pacific Trades in the Aceves lawsuit because Underwriters's policy was "available" to
afford a defense to Pacific Trades. Accordingly, ProBuilders argues summary judgment
on Underwriters's claim for equitable contribution for defense costs was proper because
10
Underwriters could not show an essential element of that claim, i.e., that ProBuilders was
obligated to defend the same claim (the Aceves lawsuit) Underwriters was obligated to
defend.
The clause ProBuilders seeks to enforce has been characterized by the courts as an
escape clause5: it provides that ProBuilders will be liable to pay for defense costs for any
suit seeking damages to which its insurance applied, but then purports to extinguish that
obligation when there is "other insurance affording a defense against such suit . . .
available to you."6 As our Supreme Court explained in Dart Industries, Inc. v.
Commercial Union Ins. Co. (2002) 28 Cal.4th 1059, 1079-1080:
" '[O]ther insurance' clauses that attempt to shift the burden away
from one primary insurer wholly or largely to other insurers have
been the objects of judicial distrust. '[P]ublic policy disfavors
"escape" clauses, whereby coverage purports to evaporate in the
5 As the court in Olympic Ins. Co. v Employers Surplus Lines Ins. Co. (1981) 126
Cal.App.3d 593, 598, explained: "A problem arises when two or more policies apply at
the same level of coverage. Most insurance contracts include some provision attempting
to limit the insurer's liability in the event that another insurance policy covers the same
loss. [¶] There are several typical forms of 'other insurance' clauses: [¶] 1. Pro rata. This
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. [¶] 2. Excess. This clause
provides that if there is other valid and collectible insurance, then the insurer shall not be
liable except to the extent that the loss exceeds such other valid and collectible insurance
(i.e., this policy shall be excess to other valid and collectible insurance). [¶] 3. Escape.
This clause provides that the insurer is not liable for any loss that is covered by other
insurance (i.e., the existence of other insurance extinguishes insurer's liability to the
extent of such other insurance)." (Italics added.)
6 ProBuilders appears to argue its "other insurance" clause is not an escape clause
because it ultimately contributed $270,000 to the fund used to settle the Aceves lawsuit.
Even if this fact was relevant to whether the clause did not operate as an escape clause as
to its indemnification obligations, ProBuilders does not explain how that fact is relevant
to whether the clause operated as an escape clause as to its separate obligation to defend
claims against Pacific Trades.
11
presence of other insurance. [Citations.] . . .' (CSE Ins. Group v.
Northbrook Property & Casualty Co. (1994) 23 Cal.App.4th 1839,
1845 . . . .; [citation].) Partly for this reason, the modern trend is to
require equitable contributions on a pro rata basis from all primary
insurers regardless of the type of 'other insurance' clause in their
policies."
The courts have repeatedly addressed—and rejected—arguments by insurers that
an "other insurance" clause in their insuring agreement permitted them to evade their
obligations by shifting the entire burden associated with defending and indemnifying a
mutual insured onto a coinsurer. As the court explained in Edmondson Property
Management v. Kwock (2007) 156 Cal.App.4th 197, 203-204, when "the 'other insurance'
clause in [the] policy is written into an otherwise primary policy, the courts have
considered this type of 'other insurance' clause as an 'escape' clause, a clause which
attempts to have coverage, paid for with the insured's premiums, evaporate in the
presence of other insurance. [Citations.] Escape clauses are discouraged and generally
not given effect in actions where the insurance company who paid the liability is seeking
equitable contribution from the carrier who is seeking to avoid the risk it was paid to
cover." Numerous courts have therefore rejected "other insurance" clauses as a basis for
avoiding contribution. (See, e.g., Commerce & Industry Ins. Co. v. Chubb Custom Ins.
Co. (1999) 75 Cal.App.4th 739, 744 [insurer with "escape" clause required to contribute
to loss]; Travelers, supra, 118 Cal.App.4th 1156 [insurer with purported "excess" clause
required to contribute to defense and settlement costs]; Century Surety Co. v. United
Pacific Ins. Co. (2003) 109 Cal.App.4th 1246 [same] (Century Surety Co.); Fireman's
Fund, supra, 65 Cal.App.4th 1279 [same] ; CSE Ins. Group v. Northbrook Property &
Casualty Co., supra, 23 Cal.App.4th 1839 [same]; Peerless Cas. Co. v. Continental Cas.
12
Co. (1956) 144 Cal.App.2d 617 [insurer with hybrid escape/excess clause required to
contribute].)
We adhere to the "modern trend [of requiring] equitable contributions on a pro rata
basis from all primary insurers regardless of the type of 'other insurance' clause in their
policies" (Dart Industries, Inc. v. Commercial Union Ins. Co., supra, 28 Cal.4th at
p. 1080) and believe the rationale of Travelers, supra, 118 Cal.App.4th 1156, decided on
closely parallel facts, is persuasive here. In Travelers, the insurer seeking equitable
contribution (Travelers) issued CGL policies over a five-year period covering a framing
contractor (Standard), that contained a provision declaring that, if any other insurance
was also primary, Travelers " 'will share with all that other insurance,' either in 'equal
shares' where 'all of the other insurance permits,' or otherwise 'based on the ratio of [each
insurer's] applicable limit of insurance to the total applicable limits of insurance of all
insurers.' " (Travelers, at p. 1158.) The noncontributing insurer (Century) issued a
primary commercial general liability policy to the same contractor, covering a later
period, that contained an endorsement providing that if there was other valid and
collectible insurance available to any insured for a loss covered by the Century policy,
the Century policy would be " 'excess of such insurance and we will have no duty to
defend any claim or "suit" that any other insurer has a duty to defend.' " (Ibid.) When
Standard was sued by purchasers in a development alleging continuing damage to their
properties caused by defective construction work, Travelers defended the action but
Century ultimately declined to defend, asserting the clause excused it from any duty to
defend or indemnify. (Ibid.) The court held Travelers was entitled to obtain equitable
13
contribution from Century for the defense and indemnification costs incurred on
Standard's behalf even though Century's policy declared it would be excess to other valid
and collectible insurance, specifically noting that:
"Standard did not have any other liability insurance during the time
[Century's] policy was in effect. Both plaintiff's and defendant's
policies covered the same type of loss, but they contained conflicting
other insurance clauses. Giving effect to defendant's other insurance
provision, which is in the nature of an escape clause, would result in
imposing on plaintiff the burden of shouldering that portion of a
continuous loss attributable to the time when defendant was the only
liability insurer covering Standard." (Id. at pp. 1161-1162.)
Here, as in Travelers, Underwriters's CGL policy provided primary coverage for
the common insured for a specified period of time (as well as for a limited geographic
area) and ProBuilders's policies provided primary coverage for the common insured for a
different period of time (as well as for an apparently unlimited geographic area), and the
allegations of the third-party action asserted the common insured cause damage to the
homes by allegedly defective construction work, including some claims for which
ProBuilders potentially provided the only primary policy available to Pacific Trades.7
Here, as in Travelers, Underwriters's policy contained a provision declaring that, if there
was any other primary insurance available for a loss, Underwriters would share in equal
shares where "all of the other insurance permits contribution by equal shares," or if any
7 Underwriters's policy coverage expired in October 2003, but many of the plaintiffs
in the Aceves lawsuit purchased homes completed after that date but during the period
ProBuilders's policies afforded coverage to Pacific Trades (e.g. through December 9,
2004), which arguably meant Underwriters's policy provided no coverage for those
claimants. (See, e.g., Baroco West, Inc. v. Scottsdale Ins. Co. (2003) 110 Cal.App.4th 96,
103-104.) Accordingly, there is at least a triable issue of fact on whether there was not
"other insurance affording a defense against such a suit . . . available to [Pacific Trades]"
as to many of the claimants in the Aceves lawsuit.
14
other insurance did not permit contribution by equal shares, it would contribute by
"limits" with each insurer's share "based on the ratio of [each insurer's] applicable limit of
insurance to the total applicable limits of insurance of all insurers." Here, as in Travelers,
ProBuilders's policy was also a primary commercial general liability policy, but it
purports to provide that if there was other valid insurance available to provide a defense
to Pacific Trades against claims otherwise covered by its policy, ProBuilders would be
excused from its duty to defend that claim. Because giving effect to its "other insurance"
provision, in the nature of an escape clause, would result in imposing on Underwriters the
burden of shouldering that portion of the defense costs attributable to claims arising from
a time when ProBuilders was the only liability insurer covering Pacific Trades, Travelers
persuades us that the escape clause must be disregarded and Underwriters should be
entitled to seek equitable contribution from ProBuilders for defense costs incurred on
behalf of their mutual insured. Other courts, addressing analogous circumstances in
which there were successive primary insurers and the claim by the third party involved a
continuing-loss liability coverage over the span covered by multiple insurers, have
declined to allow one of those insurers to employ an "other insurance" escape clause to
avoid claims for equitable contribution by the contributing insurer. (See Century Surety
Co., supra, 109 Cal.App.4th 1246.)
ProBuilders largely disregards the numerous cases, cited above, which have
upheld the defending insurer's right to seek equitable contribution from a noncontributing
primary insurer notwithstanding an escape clause in the noncontributing primary insurer's
policy, but instead merely cites language from three cases that state, in general, that
15
escape clauses will be enforced as long as the insured is not left without coverage.
Although the first case quoted by ProBuilders, Travelers Casualty & Surety Co. v.
American Equity Ins. Co. (2001) 93 Cal.App.4th 1142, did state that the courts will
" 'generally honor the language of excess "other insurance" clauses when no prejudice to
the interests of the insured will ensue' " (id. at p. 1149), ProBuilders overlooks that the
court (after cautioning "there are many exceptions" to that rule) (ibid.) went on to uphold
the claim of the defending insurer for equitable contribution against the noncontributing
insurer, rendering its language about " 'generally honor[ing] the language of excess "other
insurance" clauses" to be dicta. The next case relied on by ProBuilders, Nabisco, Inc. v.
Transport Indemnity Co. (1983) 143 Cal.App.3d 831, is even less apposite because the
plaintiff there had expressly contracted with the insurer to provide an umbrella policy,
that would have been triggered only after the plaintiff satisfied its self-insured retention,
and the court merely enforced the terms of the policy for which the plaintiff had
knowingly contracted. (See Nabisco, at pp. 836-837, fn. omitted ["Nabisco cannot
seriously claim it had a reasonable expectation of general coverage under the Transport
policy. It made a risk management decision not to buy coverage for the first $50,000. To
rewrite the Transport policy to require it to defend under these circumstances would only
create a serendipitous windfall for Nabisco."].) The final case quoted by ProBuilders,
Hartford Casualty Ins. Co. v. Travelers Indemnity Co. (2003) 110 Cal.App.4th 710,
appears to have involved such peculiar facts and specialized endorsements that it
provides little guidance here, particularly because the Hartford court specifically noted its
agreement with the result in Century Surety Co., supra, 109 Cal.App.4th 1246 (see
16
Hartford, at p. 726, fn. 13), which involved facts more closely aligned with those of this
case.
The foregoing convinces us the trial court erred in concluding ProBuilders's
escape clause may be enforced to preclude Underwriters from seeking equitable
contribution from ProBuilders for a share of the defense costs incurred to defend their
mutual insured from the claims raised in the Aceves lawsuit, and we therefore reverse the
judgment.
B. The Alternative Grounds Raised Below Do Not Permit Affirmance of the
Judgment
ProBuilders raised alternative grounds in support of its motion for summary
judgment that the trial court did not address because of its conclusion the escape clause
excused its duty to defend. ProBuilders asserts on appeal that, even if the trial court did
err in granting summary judgment on the escape clause, these alternative grounds
demonstrate the judgment in its favor was correct and argues we should affirm the
judgment on one or more of these alternative grounds.
The CSC Argument
ProBuilders asserted below, and reargues on appeal, that an essential condition
precedent to any coverage under its policies was not met and therefore it had no duty to
defend or indemnify Pacific Trades for the claims asserted in the Aceves lawsuit. It
argues Pacific Trades's failure to satisfy the CSC was fatal to Underwriters's action and
permits us to affirm the summary judgment on the alternative ground that ProBuilders
conclusively established it owed no defense obligation under the policies.
17
ProBuilders's policies contained the CSC endorsement that provided, as a
"condition precedent to this policy applying to any claim in whole or in part based upon
work performed by independent contractors," Pacific Trades must have (1) obtained valid
written indemnity agreements from the subcontractors it hired to build the homes, and (2)
obtained Certificates of Insurance from the subcontractors it hired showing Pacific
Trades was an additional insured under the subcontractors' insurance policies, and (3)
maintained records evidencing compliance with those obligations. ProBuilders produced
some evidence below that only 13 of Pacific Trades's subcontractors had written
contracts with Pacific Trades, and Underwriters was unable to collect any defense
reimbursements from any subcontractor. Based on this evidentiary showing, ProBuilders
asserts it conclusively demonstrated there was no coverage for the claims asserted in the
Aceves lawsuit, which was fatal to Underwriters's claim for equitable contribution, and
therefore we may affirm the entry of summary judgment in favor of ProBuilders on the
alternative ground that it conclusively established it owed no defense obligation under the
policies.
We are not persuaded by ProBuilders's argument, for several reasons. First, the
CSC provision on its face applies only to claims against Pacific Trades "in whole or in
part based on work performed by independent contractors," but does not purport to apply
to claims against Pacific Trades for its own negligence or other misfeasance.
ProBuilders's showing below did not conclusively establish that all of the claims against
Pacific Trades in the Aceves lawsuit were limited to claims based on work performed by
independent contractors; to the contrary, the attorney hired to defend it in the underlying
18
action averred Pacific Trades was included as a defendant based on allegations of Pacific
Trades's own negligence. Because ProBuilders's showing was inadequate to definitively
eliminate the potential for coverage under the CSC provision for some part of the claims
against Pacific Trades, its showing was inadequate to enter summary judgment against
Underwriters's claim for equitable contribution. (See Evanston Ins. Co. v. American
Safety Indemnity Co. (N.D. Cal. 2011) 768 F.Supp.2d 1004.) Second, even assuming
some of the claims against Pacific Trades in the Aceves lawsuit were "based on work
performed by independent contractors" within the ambit of the CSC provision, there was
some evidence below raising a triable issue of fact as to whether Pacific Trades had
complied with its terms, because the record below contained at least one written
subcontract between Pacific Trades and a subcontractor, and the record also contained
numerous Certificates of Insurance showing Pacific Trades was an additional insured
under many subcontractors' insurance policies. We conclude ProBuilders's argument that
summary judgment was proper based on Pacific Trades's alleged noncompliance with the
CSC provision is without merit.
The Statute of Limitations Argument
ProBuilders asserted below, and reargues on appeal, that Underwriters's action for
equitable contribution was time-barred, and we should therefore affirm the order granting
summary judgment on that alternative ground.
The parties do not dispute that the two-year statute of limitations applies to an
action by an insurer seeking equitable contribution from another insurer. (Century
Indemnity Co. v. Superior Court (1996) 50 Cal.App.4th 1115, 1124.) Moreover, the facts
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are not in dispute. Underwriters's action was filed more than two years after
ProBuilders's initial refusal to contribute defense costs, and more than two years after the
court in the underlying Aceves lawsuit confirmed the settlement between Pacific Trades
and the Aceves plaintiffs as a good faith settlement. However, Underwriters's action was
filed less than two years after the insurers contributed their payments to fund that
settlement, and less than two years after the necessary settlement agreements by the
numerous parties to the Aceves action were signed and the Aceves suit was finally
dismissed as to Pacific Trades, and less than two years after Underwriters's final payment
to the defense counsel hired to represent Pacific Trades.
Neither party has identified any California case authority directly on point.
However, we are persuaded by analogous authority that, although an action for equitable
contribution can accrue when the noncontributing insurer first refuses to participate in the
defense of a common insured, the statute of limitations should be equitably tolled until
the plaintiff insurer makes the last payment in the underlying suit for which the plaintiff
insurer is seeking contribution. In Lambert v. Commonwealth Land Title Ins. Co. (1991)
53 Cal.3d 1072, the court evaluated whether an insured's action against its insurer,
seeking to recover the costs of defense the insured incurred when the insurer breached its
obligation to provide a defense to the underlying action, would be time-barred if the
insured waited until the underlying action was terminated—and beyond two years after
the insurer initial refusal to defend—before commencing its suit against the insurer. The
Lambert court noted that the "duty to defend . . . under general liability policies . . .
[citations] . . . commences upon tender of the defense, and continues until the underlying
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lawsuit is concluded. [Citation.] Because the underlying litigation may take over two
years (as in this case), the [contrary] rule [citation] would allow expiration of the statute
of limitations on a lawsuit to vindicate the duty to defend even before the duty itself
expires. This grim result is untenable." (Id. at p. 1077.) Accordingly, the Lambert court
held that "the limitation period for an action . . . for failure to defend accrues when the
insurer refuses the insured's tender of defense, but is tolled until the underlying action is
terminated by final judgment." (Id. at p. 1080; accord, Eaton Hydraulics Inc. v.
Continental Casualty Co. (2005) 132 Cal.App.4th 966, 973 ["it is settled that the duty to
defend is continuing, and that the limitations period is equitably tolled from the time the
cause of action accrues—upon CNA's refusal to defend—until the underlying lawsuit is
terminated by a final judgment"].)
ProBuilders has suggested no reason why a different rule should apply here, and
other courts have implicitly applied that approach when an insurer sought equitable
contribution from a nonparticipating insurer alleging the insurer wrongfully refused to
participate in the defense or indemnification of their mutual insured. (See, e.g.,
OneBeacon America Ins. Co. v. Fireman's Fund Ins. Co. (2009) 175 Cal.App.4th 183,
189-209 [Court of Appeal specifically awarded defense fees and costs incurred by
OneBeacon in 1999 in its equitable contribution action filed by OneBeacon in 2005, not
merely costs incurred within two years of filing date].) Moreover, were we to adopt the
approach advocated by ProBuilders, myriad problems would be present. For example, it
would force the plaintiff insurer to file suit prematurely, before all of the damages are
ascertained, and then presumably amend its complaint from time to time after each new
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payment of defense costs was made by the plaintiff insurer. Alternatively, ProBuilders's
approach could require the plaintiff insurer to file multiple actions, especially if the
contribution action proceeded to trial before the conclusion of the underlying lawsuit.
Neither scenario would promote judicial economy or the orderly resolution of claims.
We conclude Lambert is sufficiently analogous to require that we import the same
approach into contribution actions among co-insurers. We hold the limitation period for
a contribution action accrues when the noncontributing insurer first refuses the demand to
contribute, but that the two-year statute of limitations is tolled until all of the defense
obligations in the underlying action are terminated by final judgment in the underlying
action.
C. The "Discovery" Argument
ProBuilders finally argues that, because Underwriters's action sought damages
based on the legal bills it paid to defend Pacific Trades but Underwriters refused to
produce those bills in response to ProBuilders's discovery requests, Underwriters's action
was properly dismissed. Even assuming ProBuilders's factual predicate to be correct,8 it
cited no authority below, nor has it cited any authority on appeal, that a party may seek to
terminate a lawsuit by a summary judgment motion based on alleged defalcations in
8 Underwriters's showing in opposition to the summary judgment motion included
evidence it did produce documents evidencing the amount it paid to defend Pacific
Trades, including "a comprehensive payment log, contemporaneous check requests, and
cancelled checks." Moreover, Underwriters's showing in opposition to the summary
judgment motion included evidence that it did not "refuse" to produce invoices from
defense counsel, but was instead willing to produce those documents as long as
appropriate protective measures were agreed upon to preserve the attorney-client
privilege belonging to Pacific Trades, but ProBuilders never agreed to the proposed
conditions.
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discovery responses rather than pursuing so-called "terminating" sanctions for discovery
violations as set forth in the Code of Civil Procedure. We conclude ProBuilders's
remedy, if any, for Underwriters's alleged "refusal" to produce certain documents is to
pursue the "discovery statutes['] . . . incremental approach to discovery sanctions"
(Doppes v. Bentley Motors, Inc. (2009) 174 Cal.App.4th 967, 992), and the trial court's
entry of summary judgment against Underwriters cannot be upheld based on the
alleged—and disputed—refusal of Underwriters to produce certain documents.
DISPOSITION
The judgment is reversed. Underwriters shall recover its costs on appeal.
McDONALD, J.
WE CONCUR:
McCONNELL, P. J.
O'ROURKE, J.
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