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Clarendon America Insurance Co. v. Steadfast Insurance Co.

December 12, 2008

CLARENDON AMERICA INSURANCE COMPANY, A NEW JERSEY CORPORATION, PLAINTIFF,
v.
STEADFAST INSURANCE COMPANY, DELAWARE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Hayes, Judge

ORDER

The matter before the Court is the Motion to Dismiss, for Joinder of Necessary Parties, and for More Definite Statement (Doc. # 5) filed by Defendant Steadfast Insurance Company.

Background

On August 6, 2008, Plaintiff Clarendon America Insurance Company ("Clarendon") initiated this action by filing the Complaint (Doc. # 1) against Defendant Steadfast Insurance Company ("Steadfast").

The Complaint alleges that both Clarendon and Steadfast issued commercial general liability policies to certain named insureds (the "Mutual Insureds").*fn1 The Complaint alleges that each of the Clarendon policies contains "an 'other insurance clause' which calls for an equal or pro-rata share of the sums expended on behalf of an insured with other insurers." Complaint, ¶¶ 6, 8, 10, 12, 14, 16, 18, 20, 22, 24, 26, 28. The Complaint alleges that each of the Steadfast policies also contains an "'other insurance' clause,' which calls for an equal or pro-rata share of the sums expended on behalf of an insured with other insurers." Id., ¶ 32. The Complaint alleges that each of the Steadfast policies "contain[s] a self insured retention endorsement," whereby "Steadfast's duty to defend and/or indemnify the insured for a potentially covered claim is triggered when the self insured retention amount has been satisfied by payment of defense costs or settlement." Id., ¶ 30. The Complaint alleges that "[t]he terms of the endorsement do not limit the source of the self insured retention in any way and do not require that the self insured retention be paid only from the insured's own pocket." Id. The Complaint alleges that "because the Steadfast self insured retention endorsement does not have specific wording requiring that the [self insured retention] payment must be personally satisfied by the insured, that retention can be and has been satisfied by payments made by another insurer on behalf of the insured." Id., ¶ 31.

The Complaint alleges that each of the Mutual Insureds has been named as a defendant or cross-defendant in multiple construction defect actions which allege, "among other things, the potential for an occurrence of property damage during the Steadfast policy periods." Id., ¶¶ 33, 34. The Complaint alleges that Clarendon has indemnified the Mutual Insureds and "in so doing, has depleted the aggregate limits for the insureds." Id., ¶ 35. The Complaint alleges that in each instance, "Clarendon's payment of defense costs and/or settlement has satisfied the amount of the self-insured retention endorsement under the respective Steadfast policies." Id. The Complaint alleges that "[a]s soon as Clarendon's payment on behalf of the insured equaled the self-insured retention amount, a right of contribution against Steadfast vested in Clarendon." Id., ¶ 36. The Complaint alleges that Steadfast "has failed and refused to honor its obligations under Steadfast's policies, and has refused to pay any sums on behalf of its insureds or share the sums expended by other insurers in defense and indemnity of the mutual insureds." Id., ¶ 37. The Complaint alleges that Steadfast has refused to pay such sums on grounds that its self insured retention endorsement "relieves it from any responsibility to participate on behalf of insured or contribute toward defense or settlement until it is satisfied, and that the self-insured retention can only be satisfied by payments of defense costs or settlement by the insured and not by payments made by other insurers such as Clarendon on behalf of the insured." Id., ¶ 38.

The Complaint alleges the following causes of action: (1) declaratory relief, (2) equitable indemnity, (3) equitable contribution, and (4) equitable subrogation. The first cause of action requests a judicial declaration that the self insured retention endorsement in the Steadfast policies does not limit the source of the self insured retention payment, and that the Steadfast policies provide coverage for the defense and/or indemnity incurred on behalf of Clarendon's and Steadfast's Mutual Insureds in excess of the Steadfast self insured retention. The second cause of action for equitable indemnity alleges that Clarendon is equitably entitled to recover sums expended by Clarendon which Steadfast is obligated to pay on behalf of the parties' Mutual Insureds. The third cause of action for equitable contribution alleges that Clarendon is equitably entitled to recover from Steadfast that portion of the defense and indemnity amounts expended by Clarendon on behalf of the [Mutual Insureds] and/or the defense and indemnity amounts potentially to be expended by Clarendon on behalf of the [Mutual Insureds] in relation to Steadfast's specific obligations under the policies issued to the insureds.

Id., ¶ 53. The fourth cause of action for equitable subrogation alleges that justice requires that the loss be equitably shifted from Clarendon to Steadfast, whose equitable position is inferior to that of Clarendon on the basis that Steadfast has been unwilling to pay the defense and indemnity amounts expended by Clarendon, and/or the defense and indemnity amounts potentially to be expended by Clarendon on behalf of the [Mutual Insureds] in the actions.

Id., ¶ 59. The Complaint alleges that as a result of Steadfast's unlawful conduct, "Clarendon has been damaged in the form of increased defense costs and settlements in excess of six million dollars that were paid on behalf of the insureds which should have been paid by Steadfast." Id., ¶ 40. The Complaint requests declaratory relief; judgment in the amounts expended and/or to be expended by Clarendon; attorney's fees; interest; and costs.

Standard of Review

I. Motion to Dismiss the Complaint's Third and Fourth Causes of Action for Failure to State a Claim

A. Standard of Review - Rule 12(b)(6)

A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the pleadings. See De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978). A complaint may be dismissed for failure to state a claim under Rule 12(b)(6) where the factual allegations do not raise the right to relief above the speculative level. See Bell Atlantic v. Twombly, 127 S.Ct. 1955, 1965 (2007). Conversely, a complaint may not be dismissed for failure to state a claim where the allegations plausibly show that the pleader is entitled to relief. See id. (citing Fed R. Civ. P. 8(a)(2)). In ruling on a motion pursuant to Rule 12(b)(6), a court must construe the pleadings in the light most favorable to the plaintiff, and must accept as true all material allegations in the complaint, as well as any reasonable inferences to be drawn therefrom. See Broam v. Bogan, 320 F.3d 1023, 1028 (9th Cir. ...


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