United States District Court, Northern District of California
January 24, 2003
REPUBLIC WESTERN INSURANCE COMPANY, PLAINTIFF,
FIREMAN'S FUND INSURANCE COMPANY, ET AL., DEFENDANTS.
The opinion of the court was delivered by: James Larson, United States Magistrate Judge
SUMMARY JUDGMENT ORDER
Docket Numbers 97-1, 97-2
The parties' cross-motions for summary judgment pursuant to Rule 56,
Federal Rules of Civil Procedure, came on for hearing on September 4,
2002. Appearing for Plaintiff Republic Western Insurance Co. was James
J. Braze, GORDON & REES. Appearing for Defendant and counter claimant
Donald Karr was Brian Soriano and Lee S. Harris, GOLDSTEIN, GELLMAN,
MELBOSTAD, GIBSON & HARRIS LLP. Appearing for Defendant and counter
claimant Fireman's Fund was Asim Desai and Donald Peterson, CARLSON,
CALLADINE & PETERSON LLP. The court heard oral argument and took the
matter under submission. Having fully considered the briefing and
arguments of counsel, the court grants summary judgment for Plaintiff as
to all issues.
FACTUAL AND PROCEDURAL BACKGROUND
This court has jurisdiction under 28 U.S.C. § 2201 and
28 U.S.C. § 636(c).*fn1
This is a declaratory relief action by
Plaintiff Republic Western Insurance Co. ("Republic Western"), which
issued a personal umbrella policy*fn2 to Defendant and Counterclaimant
Donald Karr ("Karr"). Defendant and Counter claimant Fireman's Fund
Insurance Co. ("Fireman's Fund") issued a primary liability policy to
Karr. The Fireman's Fund policy provided coverage for bodily injury,
property damage and personal injury caused by an occurrence arising from
personal activities. (Karr Decl. in Support of Opposition at 1:24-2:2) The
Republic Western policy was a commercial umbrella liability policy with a
personal umbrella liability endorsement. (Karr Decl. in Support of
Opposition at 2:7-11)
Karr in his counterclaim seeks $2,000,000 in extra-contractual damages
for bad faith on the part of his insurers. Fireman's Fund has already
paid to Karr the $200,000 he claims to have expended on his legal defense
against the Mora lawsuit. The district court (Hon. Claudia Wilken) has
previously ruled that California law applies to this case.
The underlying lawsuit arose when Karr began building a house in a
subdivision in Palm Beach, Florida.*fn3 At first his new neighbor,
Abraham Mora, agreed to allow him to exceed the limits in the covenants
and restrictions governing the subdivision, for example, to build a
three-car garage. However, Mr. Mora changed his mind. The reason, he
claimed, was that trucks belonging to Karr's contractor parked on his
seawall and damaged parts of it, that a wall Karr built re-directed
drainage into the same seawall and potentially undermined it, that Karr's
contractors deliberately cut tree roots and limbs on Mora's property and
that of another neighbor, that the vibration from the trucks broke the
water main into his house and that Mora's two year old daughter suffered
rashes and respiratory problems from the construction dust.
On May 1, 1996 Mora filed a Complaint for Declaratory Judgment against
Karr in the Circuit Court of Palm Beach, Florida, that certain deed
restrictions on Karr's property were valid. The complaint did not seek
damages. Karr claims that his letter to his insurers described Mora's
claims for property damage and personal injury and that both insurers
declined to defend him in the Mora matter. (Karr Decl in Support of
Opposition at 3:4-9). The case was tried to a jury in November 1998 and
resulted in a verdict against Karr in the amount of $7,000. Trial of
equitable defenses raised by Karr was set for June 1999. The action was
settled for mutual releases in late 1998 or early 1999. (Complaint at
11:18-22) Karr then sued his insurers for his defense costs, which were
between $165,000 and $200,000.
In June 1996 either Karr cancelled or Republic Western did not renew
the umbrella coverage. (Ex. 1 to Soriano Decl.)
A letter from Republic Western to Karr dated November 10, 1997, denies
coverage because of a "Designated Premises Limitation" that coverage for
only to his business in San Francisco,*fn4 not to his
new house in Florida. (Ex. 1 to Soriano Decl. in Support of Opposition,
letter to Karr from Martha W. Hart).The Republic Western policy also had
a business limitation clause, under which coverage counsel for Republic
Western found coverage under the policy to be excluded for the injuries
alleged by Mr. Mora. (Ex. 1 to Soriano Decl. in Support of Opposition).
However, coverage counsel also found that this exclusion was cancelled by
the personal umbrella coverage provided by the policy. Counsel was of the
opinion that neither insurer would have a duty to defend under Florida law
but that Fireman's Fund would have a duty under California law.
Fireman's Fund, relying on the original complaint in the Mora-Karr
lawsuit, believed it to be for breach of contract, which was not covered
under the policy. Mora's Fifth Amended Complaint, however, included
claims for loss of enjoyment and damage to the health of Mr. Mora's young
child. Both types of claims were covered under the policy. Fireman's Fund
acknowledged its coverage at the settlement conference before this court
at a time when the case was still assigned to Judge Wilken for trial.
Fireman's Fund paid Mr. Karr $198,000 to cover his attorney's fees for
the defense against Mr. Mora's lawsuit. Now Fireman's Fund seeks to be
reimbursed by Republic Western. Republic Western filed this declaratory
relief action that it owed nothing to either Karr or Fireman's Fund.
The complaint seeks relief as follows:
Count 1) For a declaration as to whether California or
Florida law applies. Republic Western contends that
Judge Wilken's ruling that California law applies in
effect grants it summary judgment on this count.
Fireman's Fund contends that her ruling means only
that California law applies to this dispute, and does
not mean that Republic Western has no duties as set
forth in the first and second causes of action.
Count 2) If Florida law applies, for a declaration
that the Republic Western policy is not applicable. If
Florida law applied, then the allegations of Mr.
Mora, whose suit against Karr set this whole dispute
in motion, would not have triggered a duty to defend
by Fireman's Fund. Under Florida law, only the
allegations of the complaint determine a duty to
defend. Mr. Mora's complaint was a declaratory relief
action that Karr's home construction violated the
covenants and restrictions of their subdivision. He
also raised issues of property damage and personal
injury, claiming damage to his home from Karr's
construction project and injury to his two year old
daughter's health caused by construction dust. Under
California law, these allegations trigger a duty to
defend, even though they were outside the complaint.
Count 3) If California law applies, for a declaration
that the Republic Western policy is not applicable.
This is the core issue. Republic Western claims that
its duty to defend is only triggered when primary
coverage is denied or exhausted, and that neither
occurred in this case. Fireman's Fund claims that Karr
withdrew his claim on its policy.
Federal Rule of Civil Procedure 56 states that a moving party is
entitled to summary judgment as a matter of law where there is no genuine
issue of material fact. A court should consider a material fact, one
which may affect the outcome of a case, to be in dispute where there is
evidence for a reasonable jury to return a verdict for the
party opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986). The Court also noted that "there is no issue for trial unless
there is sufficient evidence favoring the nonmoving party for a jury to
return a verdict for that party." Id. at 249. The nonmoving party has the
burden of producing operative facts, and the "mere existence of a
scintilla of evidence in support of the plaintiff's position will be
insufficient; there must be evidence on which a jury could reasonably
find for the plaintiff." Id. at 252. If operative facts are not
presented, summary judgment is appropriate.
The moving party has the initial burden to demonstrate the absence of a
genuine issue of material fact. Celotex Corp. v. Catrett Corp.,
477 U.S. 317, 323 (1986). Once the moving party has met its burden under
Rule 56(c), the nonmoving party "must do more than simply show that there
is some metaphysical doubt as to the material facts." Matsushita Elec.
Industrial Co., Ltd. V. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
However, any inferences from the underlying facts must be viewed in the
light most favorable to the party opposing the motion. Id. at 587.
Rule 56(c) requires that summary judgment "shall be rendered forthwith"
if there is "no genuine issue as to any material fact" and the moving
party is entitled to judgment as a matter of law. The Celotex Court also
stated that "[o]ne of the principal purposes of the summary judgment rule
is to isolate and dispose of factually unsupported claims or defenses,"
Id. at 323-24, and that the summary judgment procedure should not be
regarded as a "disfavored procedural shortcut" but should be viewed as
"an integral part of the Federal Rules as a whole, which are designed `to
secure the just, speedy and inexpensive determination of every action.' "
Id. at 327.
[Judges are not] required to submit a question to a
jury merely because some evidence has been introduced
by the party having the burden of proof, unless the
evidence be of such a character that it would warrant
the jury in finding a verdict in favor of that party.
Anderson, 477 U.S. at 251, quoting Improvement Co. v. Munson, 14 Wall.
432, 448 (1872).
Karr contends that there is ambiguity in the language of the Republic
Western policy which would make its coverage primary if the insured did
nothing to violate the primary policy and the insurer denied coverage.
This is an overenthusiastic interpretation of the Republic Western policy
language. Karr contends that the language is ambiguous and should be
construed against Republic Western, as the drafter of the policy, in the
light of Cal. Civ. Code § 1654.
The paragraph on which Karr relies reads:
"primary insurance or primary policies" means the
policies listed in the Primary Insurance Schedule
(including renewal or replacement policies). We will
consider the policy limits of liability as listed in
the Primary Insurance Schedule to be available
regardless of any defense which the insurer who
provides the policy may assert because of your failure
to comply with any condition of the policy, or the
inability of the insurer to pay by reason of
bankruptcy or insolvency. In no event shall the
insurance provided by this policy operate to reduce
the amount of or
contribute to any loss paid on behalf
of such insolvent insurer by any guarantee fund or
(Karr Decl. in Support of Opposition at Ex. A)
This paragraph is part of Section Four of the policy — "Defined
Words or Phrases." Republic Western counsels its insured that his primary
insurance carrier's coverage will be deemed to be in effect even if his
tender of defense is denied when he has fully complied with the
conditions of the policy or even if the primary carrier goes bankrupt.
These are not the sole conditions under which Republic Western will
consider the primary insurance policy limits to be available, but they
constitute examples of the extraordinary situations in which an insured
might believe his excess carrier would step down. Republic Western
admonishes its insured that even if primary carrier refuses to defend
when he has done everything right, or the carrier declares bankruptcy,
its policy limits will still be considered to be available, and the
excess coverage will not be triggered.
Both Mr. Karr and Fireman's Fund objected to the Declaration of Donald
Braze, counsel for Republic Western. Mr. Karr's motion to strike the
declaration was denied at the hearing on this motion. The only facts
contained in Braze's declaration upon which the court relied in reaching
its decision were these: (1) that the Fireman's Fund policy was the
primary policy, affording coverage to Mr. Karr for property damage and
personal injury. This is confirmed by Mr. Karr himself, and authenticated
by his personal knowledge (Karr Decl. in Support of Opposition at
1:24-2:2); (2) that the Republic Western policy afforded Mr. Karr
commercial umbrella liability and personal umbrella liability coverage,
also confirmed by Mr. Karr (Karr Decl. at 2:7-11); and that Fireman's
Fund paid to Mr. Karr and his attorney the amount of $198,000, also
confirmed by Mr. Karr's counsel (Decl of Brian Soriano in Support of
Opposition at 2:5-9). The court also considered the language of the
Republic Western policy, offered at Republic Westerns' Memorandum of
Points and Authorities in Support of its Motion at Ex. A. There was no
objection to this exhibit.
In an abundance of caution, the court reconsidered its order denying
the motion to strike the Braze Declaration and required Republic Western
to fully authenticate the documents appended to that declaration, as well
as exhibits attached to its Memorandum of Points & Authorities in
Support of its Motion for Summary Judgment.*fn5
Generally, as provided by Rule 56, Fed.R.Civ.P., only admissible
evidence may properly be considered by the trial court in granting
summary judgment. Hollingsworth Solderless Terminal Co. v. Turley,
622 F.2d 1324 (9th Cir. 1980). Properly authenticated documents,
including discovery materials, although such documents may not be
admissible in that form at trial, can be used in a motion for summary
judgment if appropriately authenticated by affidavit or declaration.
U.S. v. Berg, E.D.Cal. 1999, 190 F.R.D. 539.
Civil Local Rule 7-5(a) states:
Affidavit or Declaration Required. Factual contentions
made in support of or in opposition to any motion must
be supported by an affidavit or declaration and by
appropriate references to the record. Extracts from
depositions, interrogatory answers, requests for
admissions and other evidentiary matters must be
appropriately authenticated by an affidavit or
In addition, Federal Rule of Civil Procedure 56(e) requires that
affidavits supporting a Motion for Summary Judgment ". . . be made on
personal knowledge, shall set forth such facts as would be admissible in
evidence, and shall show affirmatively that the affiant is competent to
testify to the matters stated herein." This is reiterated in Civil Local
Rule 7-5(b), which states that "an affidavit or declaration may contain
only facts, must conform as much as possible to the requirements of
FRCivP 56(e) ". . . and that "[a]ny statement made upon information or
belief must specify the basis therefor. An affidavit or declaration not
in compliance with this rule may be stricken in whole or in part."
In the case at bar, this court finds that there are no material facts
in dispute with respect to coverage, including policy limits, provided by
Fireman's Fund and Republic Western and the nature of the claim by
Abraham Mora against Donald Karr. These are the only facts relevant to
whether Republic Western had a duty to defend Karr in the Mora lawsuit.
The relevant facts are confirmed by Mr. Karr himself, who cannot very
well object to his own sworn declaration. In addition, all the documents
objected to by Mr. Karr were properly authenticated by the Supplemental
Declaration of James J. Braze, filed November 22, 2002.
EXCESS CARRIER'S DUTY TO DEFEND
Under California law, once the underlying policies are exhausted, the
carrier which wrote the umbrella policies and excess policies has a duty
to defend or reimburse defense costs. Hartford Acc. & Indem. v.
Superior Court (1994) 23 Cal.App.4th 1774; Signal Cos. Inc. v. Harbor
Ins. Co. (1980) 27 Cal.3d 359, 370.
However, an excess insurer has no duty to defend where the primary
insurer refused the tender of defense. The duty to defend by the primary
carrier, in this case Fireman's Fund, arose when there was a claim for
damages for an occurrence under the policy and no defense coverage was
provided. So long as defense obligations were payable, regardless of
whether they were actually paid by the primary carrier, there was no duty
to defend under Republic Western's excess policy. Ticor Title Insurance
Co. et al. v. Employers Insurance of Wausau, 40 Cal.App.4th 1699 (1995).
In the case at bar, this means that, under California law, allegations
of property damage and personal injury triggered a duty to defend under
the liability provisions of the policy, even though the complaint only
alleged contractual violations. Another problem for Karr is the question
of whether he withdrew his tender to Fireman's Fund. Fireman's Fund
claimed that after he submitted his claim for the damages alleged by Mr.
Mora, he was very difficult to contact and that Fireman's Fund assumed he
had abandoned his claim.*fn6 Ultimately, this question of fact is not
material to the outcome of these motions.
Under California law, Fireman's Fund had a duty to defend Karr once
claims were made for property damage and personal injury, even outside
the allegations of the complaint. However, no event occurred which
triggered a duty to defend by Republic Western. Fireman's Fund's policy
limits were not exhausted. If
Republic Western had no duty to defend,
then a cause of action for bad faith cannot be brought against it.
The foundation for this court's ruling that Republic Western did not
have a duty to defend Karr and, therefore, there is no cause of action
against it either for breach of the insurance contract or for bad faith,
is the holding in the Ticor case. In that case the California Court of
Appeal reversed a decision for the insured in a declaratory action against
an insurance company. The Court of Appeal held that the excess carrier
had no duty to defend even when the primary carrier refused the tender of
defense. The duty to defend arose when there was a claim for damages
covered by the umbrella policy and "no defense coverage [was] provided by
underlying insurance." The court ruled that coverage means "inclusion
within the scope of an insurance policy," not "the act or fact of
covering." Thus "coverage" has nothing to do with how, in reality, the
insurer acts with respect to its insurance obligations. So long as
defense obligations were "payable" (not actually paid) by the primary
insurer, there was no duty to defend under the excess policy. Ticor v.
Wausau, 40 Cal.App.4th 1699 (1995).
What this means in the case at bar is that as long as Fireman's Fund
had a duty to defend Karr and provide coverage for his legal expenses in
defending against the Mora v. Karr lawsuit, then Republic Western's
policy did not step down and provide coverage, even where the claim
involved a type of damage covered by the umbrella policy.
Judge Wilken on October 16, 2001, ruled by minute order that the motion
of Donald Karr for partial summary judgment under FRCP 56(c), or in the
alternative for an order specifying certain issues to be deemed
established for purposes of trial, was granted. Karr's motion sought an
order "that the following issues are deemed established for the purposes
of the trial of this case:
1. That Florida law does not apply.
2. That California law applies."
Under the doctrine of stare decisis, Judge Wilken's ruling means that
California law applies to the interpretation of the coverage available
under each policy. Under California law, Fireman's Fund, as the primary
insurance carrier, had a duty to defend against claims even outside the
parameters of the original complaint. Atlantic Mutual Ins. Co. v. J.
Lamb, Inc. (2002) 123 Cal.Rptr.2d 256, citing Gray v. Zurich Insurance
Co. (1966) 65 Cal.2d 263. In his suit against Karr, Mora raised claims
for property damage and personal injury in his Fifth Amended Complaint.
Therefore, Fireman's Fund had a duty to defend Karr in the Mora v. Karr
lawsuit, because there were allegations of property damage and bodily
injury, both of which were covered by Karr's insurance policy with
Fireman's Fund. This is regardless of whether Karr withdrew his claim.
As long as the claims were covered by the Fireman's Fund policy and the
primary policy limits had not been exhausted, then as a matter of law,
Republic Western had no duty to defend Karr or by extension to pay his
attorney fees. Incidentally Karr was the one who moved for summary
judgment that California law applied to the policy, presumably since that
would broaden the coverage to include Mora's complaints for property
damage and bodily injury, even though they were only added in his Fifth
Amended Complaint in the Florida lawsuit. Although this ruling triggered
Fireman's Fund's duty to defend, it simultaneously relieved Republic
since its duty would only arise if there were no primary
coverage under the Fireman's Fund policy under the Ticor case.
The policy in the Ticor case provided, in pertinent part:
"With respect to any claim or suit seeking damages by
reason of an occurrence to which this policy applies
or would apply except for the amount of the retained
limit, and for which no defense coverage is provided
by underlying insurance . . ., the company will defend
any such suit against the insured alleging such
damages and seeking recovery on account thereof . . .
[¶] The company will pay, in addition to the
applicable limit of liability, the following defense
expenses . . ." (Italics in original, italics added)
Ticor v. Wausau, 40 Cal.App.4th 1699, 1707 (1995).
In the case at bar, the following provisions are included in Karr's
Republic Western umbrella policy:
Section Nine — General Conditions
Other Insurance and Non-Cumulation
If insurance, provided by a company other than us,
applies to claims covered by this policy, the
insurance under this policy is excess and we won't
make any payments until the other insurance has been
used up. This won't be true, however, if the other
insurance is specifically written to be excess over
(Republic Western policy, Ex. 7 to Supplemental Braze Decl. at page 6); See
also Complaint for Declaratory Relief at 5:14-20.
In Paragraphs 11, 12 and 13 of the Complaint, Republic Western
alleges, and Karr does not deny, that Karr had primary insurance coverage
from Fireman's Fund for comprehensive personal liability, in effect from
1994 through 1997. This provided liability coverage for claims of bodily
injury and property damage.
What the court's ruling in the Ticor case means as applied to the case
at bar is that the Republic Western policy becomes primary (steps down)
only if the primary insurance policy (Fireman's Fund) does not include
coverage for the costs of defending the Mora v. Karr lawsuit. However,
"providing coverage" does not mean being willing either to pay or to
defend. It means only that the primary insurer should have provided
coverage, regardless of what it chose to do.
If Florida law applied to the coverage question, and Fireman's Fund had
only been obliged to provide coverage for the events alleged on the face
of the Mora v. Karr complaint, then Republic Western could well have been
obliged to assume a duty to defend, if the claims had been for a type of
damage covered by the umbrella policy, which they were. However,
California law applied to the coverage question and Fireman's Fund had a
duty to defend, once Mora raised claims for property damage and personal
injury, both covered events under the Fireman's Fund policy. Republic
Western had no duty to defend, until the Fireman's Fund policy limits
were exhausted. The causes of action in the Mora complaint for breach of
the building code by Karr were not covered under either policy.
Republic Western's policy reads in Section C as follows: The following
exclusions are added to Subsection two of Section Three, "what is
excluded — claims we will not cover:"
Contractual Liability. "We" will not cover or defend
against claims for "injury or damage" if the
obligation for such "injury or damage" was assumed
under any contract or agreement." (Ex. 7 to
Supplemental Decl. of James J. Braze).
The Fireman's Fund policy states that "This policy does not apply: . . .
Coverage II (bodily injury) to liability assumed by the
insured under any contract or agreement." (Ex. B to Republic Western's
Memorandum of Points & Authorities in Support of Motion).
The public policy reasons for the Ticor ruling become apparent when the
court considers how the umbrella carrier is supposed to underwrite its
policy and calculate its risk. Under the ruling in Ticor, the umbrella
carrier need only look to the policy language of the primary insurance
company to know what its risks are. If its duty to defend were to arise
instead from any refusal by the primary carrier to provide coverage or to
defend an insured, whether or not that action was correct based on the
policy, then the umbrella carrier, in underwriting its own policy, would
also have to consider the track record of the primary carrier for good
faith assumption of its duty to defend.
The court's finding that Republic Western had no duty to defend as long
as there was coverage under the Fireman's Fund policy and the coverage
limits had not been exhausted is a matter of law and holds true
regardless of whether Karr withdrew his claim to Fireman's Fund.
Given Judge Wilken's prior ruling that California law applies to this
case, under the principle of stare decisis, Fireman's Fund, as the
primary carrier, had a duty to defend Karr in the Mora v. Karr lawsuit.
Fireman's Fund's coverage was not exhausted, so no duty on the part of
Republic Western was ever triggered. This is so, regardless of whether
Karr withdrew his claim with Fireman's Fund and regardless of whether
Fireman's Fund refused to defend Karr.
CONCLUSION AND ORDER
For all the above reasons, this court rules as follows:
1. As to whether Florida or California Law Applies. This question was
resolved by Judge Wilken, who ruled that California law applies to this
case. Summary judgment is granted as to this issue.
2. With respect to the Second Count of the Complaint, which seeks a
declaratory ruling, if Florida law applies, that the Republic Western
Policy is not applicable: this was also resolved by Judge Wilken's ruling
that California law applies to this case. This claim is denied as moot.
3. With respect to the Third Count of the Complaint that, if California
law applies, the Republic Western Policy is not applicable, this court
grants Republic Western's motion for summary judgment.
4. With respect to the counterclaim of Donald Karr against Republic
Western for breach of contract and bad faith, Republic Western requests
summary judgment as to the claim for breach of contract because it had no
contractual duty to defend. The court grants summary judgment for
Republic Western on the first cause of action under the counterclaim.
5. As to the second cause of action, for bad faith, if there is no
contractual duty, there can be no bad faith; therefore, this court grants
Republic Western's motion for summary judgement as to that cause of
action as well.
6. Republic Western contends that Karr's third cause of action under
the counterclaim, for declaratory relief, has been rendered moot because
Fireman's Fund has paid the contract benefits. This court finds no duty
of Republic Western to pay Karr's legal expenses; therefore, summary
judgment for Republic Western is granted on this cause of action.
In conclusion summary judgment must be granted for Republic Western as
to the entire cause. This resolves Docket Numbers 97-1 and 97-2.
Whether Karr has a cause of action against Fireman's Fund for bad faith
cannot be resolved on the pleadings presently before the court.
IT IS SO ORDERED.