The opinion of the court was delivered by: ANTHONY J. BATTAGLIA
Counsel for the parties have consented to the jurisdiction of Magistrate Judge Battaglia under 28 U.S.C. § 636(c) to decide the following issue: "Whether the policy issued by National Union at issue in this case is a policy of excess insurance excess over that policy issued by LMIC at issue in this case." The parties have submitted opening and reply briefs along with exhibits thereto and a hearing was held on May 3, 1995. Plaintiffs counsel was represented by John Boyce, Jr. of the Law Offices of James R. Rogers. Defendant's counsel was represented by Mary Beth Sipos of Musick, Peeler and Garrett. The matter having been heard and submitted, the Court finds that the National Union Fire Insurance Policy in issue is excess over the primary policy issued by Lawyers' Mutual.
This insurance coverage dispute stems from a settlement in an underlying legal malpractice action against Seltzer, Caplan, Wilkins & McMahan. Both Lawyers' Mutual and National Union contributed to the settlement of the underlying case against Seltzer, Caplan under their respective policies of insurance. National Union now seeks reimbursement from Lawyers' Mutual under a theory of equitable subrogation for monies paid by it toward settlement of the case.
(1) The policy of insurance originally issued to Seltzer, Caplan by Lawyers' Mutual on March 13, 1989 provided limits of liability of $ 2,000,000 per claim and $ 4,000,000 in the aggregate. These liability limits were subject to a $ 10,000 deductible.
(2) The National Union policy of insurance, issued to Seltzer, Caplan on March 24, 1989, contains limits of liability of $ 7,000,000. According to the Declarations page of the policy, this liability limit was subject to a $ 250,000 deductible. Endorsement No. 1 of the National Union policy provided that the term "deductible" should be read to mean "self-insured retention." Therefore, the National Union policy provided for a self-insured retention of $ 250,000.
The underlying case was eventually settled for $ 200,000. Because this settlement in the end exhausted the Lawyers' Mutual policy limits, National Union contributed $ 88,009.37 toward the settlement amount. The complaint alleges three causes of action: (1) for declaratory relief of relative rights and obligations under the relative policies; (2) for indemnity and contribution; and (3) for equitable subrogation.
The crux of National Union's complaint is that Lawyers' Mutual unnecessarily and unreasonably expanded the scope of the litigation running up attorneys' fees, such that the $ 250,000 limits were exhausted. In addition, there are allegations that Seltzer, Caplan requested that Lawyers Mutual settle the case within its policy limits, an amount of settlement which was apparently at one time demanded by plaintiff in the underlying case, which Lawyers Mutual refused to do.
National Union claims in this case that the $ 250,000 self-insured retention makes its policy of insurance excess to the Lawyers' Mutual policy, as that policy has limits of $ 250,000. Counsel for Lawyer's Mutual argues, in contrast, that the National Union policy is not excess but rather is a co-primary policy with a $ 250,000 deductible. As such, Lawyers' Mutual argues that National Union was obligated to participate in an contribute to the defense of the underlying case and that they have no right now to come back and criticize how Lawyers' Mutual handled the defense.
A. Is the National Union Policy of Insurance an Excess Policy?
1. California Rules of Contract Construction
The construction of the National Union policy is governed by California law. Insurance policies, like other contracts, are to be construed so as to give effect to the mutual intention of the contracting parties. Bank of the West v. Superior Court, 2 Cal. 4th 1254, 10 Cal. Rptr. 2d 538, 544-45, 833 P.2d 545 (Cal. App. 1992); Cal. Civ. Code § 1636. The first consideration in determining the proper construction of policy language is to the language of the policy itself. If that language is clear and explicit, it governs. Cal. Civ. Code § 1638. The language of the contract is to be construed as a whole, such that all portions are given meaning where possible. Cal. Civ. Code § 1649. The question for the court is whether the suggested construction of the policy language is consistent with the objectively reasonable expectations of the insured. Bank of the West, 10 Cal. Rptr. 2d at 545.
In ascertaining the mutual intention of parties to a contract, extrinsic evidence of a parties' intention in formation of the policy of insurance is admissible to aid the court in its construction of ambiguous terms. The test of admissibility of extrinsic evidence is not whether the contract provisions appear unambiguous on their face. Rather, "the test of admissibility of extrinsic evidence to explain the meaning of a written instrument is...whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible." Gribaldo, Jacobs, Jones & Associates v. Agrippina Versicherunges A.G., 3 Cal. 3d 434, 91 Cal. Rptr. 6, 11, 476 P.2d 406 (Cal. 1970) (citations omitted); see also Garcia v. Truck Ins. Exchange, 36 Cal. 3d 426, 204 Cal. Rptr. 435, 682 P.2d 1100 (Cal. ...