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OneBeacon America Insurance Co. v. Fireman's Fund Insurance Co.

June 24, 2009

ONEBEACON AMERICA INSURANCE COMPANY, PLAINTIFF AND APPELLANT,
v.
FIREMAN'S FUND INSURANCE COMPANY ET AL., DEFENDANTS AND RESPONDENTS.



APPEAL from a judgment of the Superior Court of Los Angeles County. Ralph W. Dau, Judge. Appeal dismissed as to National Surety Corporation; judgment affirmed in part and reversed in part with directions. (Los Angeles County Super. Ct. No. BC340802).

The opinion of the court was delivered by: Mallano, P. J.

CERTIFIED FOR PUBLICATION

This case presents the issue of the notice required to trigger a claim for equitable contribution for defense costs brought by an insurer against other insurers of common insureds. OneBeacon America Insurance Company (OneBeacon), Fireman's Fund Insurance Company (FFIC), and Insurance Company of the West (ICW) are primary coinsurers under liability insurance policies of common insureds who were sued in 1998 for damages and other relief arising out of the insureds' alleged contamination of real property. OneBeacon undertook the defense of the insureds and began paying defense costs in 1999, but FFIC and ICW agreed to share the defense costs incurred only after certain dates in 2002.

OneBeacon sued FFIC and ICW for declaratory relief under an equitable contribution theory, alleging that FFIC and ICW received adequate notice or were tendered the defense of the underlying action in 1999 and were thus obligated to share in the defense costs incurred from 1999 to 2002. Finding defects as to notice and tender, the trial court concluded that OneBeacon was not entitled to equitable contribution from FFIC and ICW before various dates in 2002.

As explained below, based on California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1 (California Shoppers) and our decision in Truck Ins. Exchange v. Unigard Ins. Co. (2000) 79 Cal.App.4th 966 (Unigard), we hold that an insurer's obligation of equitable contribution for defense costs arises where, after notice of litigation, a diligent inquiry by the insurer would reveal the potential exposure to a claim for equitable contribution, thus providing the insurer with the opportunity for investigation and participation in the defense in the underlying litigation. Here, had ICW and FFIC ―diligently pursued the requisite inquiry‖ (California Shoppers, at p. 37), they would have discovered their potential exposure to OneBeacon's claims for equitable contribution in 1999, thus providing them with the opportunity for investigation and participation in the defense in the underlying action. Accordingly, OneBeacon is entitled to equitable contribution from FFIC and ICW starting in 1999.

BACKGROUND

From 1955 to 1998, Mouren-Laurens Oil Company (MLOC) operated an oil refining and recycling business on real property in Compton. In 1998, REV 973 LLC purchased the Compton property at a nonjudicial foreclosure sale and brought suit, later removed to federal court, alleging that the property was contaminated with petroleum products. (REV 973 LLC v. Mouren-Laurens Oil Company (U.S. Dist. Ct., C.D.Cal., No. 98-CV-10690-AHM (Ex)) (REV 973 action).)*fn1 REV 973 LLC sought cleanup costs, injunctive relief, and damages. The defendants named in the REV 973 action included MLOC; John Mouren-Laurens (John) and his wife, Mireille Mouren-Laurens (Mireille); John Mouren-Laurens as administrator of the estate of Joseph Mouren-Laurens, Sr. (Estate); and Emma Mouren-Laurens (Emma), the surviving spouse of Joseph MourenLaurens, Sr. (Joseph Sr.). In the REV 973 action, the second amended complaint, filed in December 1998, the third amended complaint, filed in March 1999, and the fourth amended complaint, filed in April 2000, each alleged that the defendants were ―the partners, joint venturers, agents, employees, fiduciaries, servants and successors‖ of each of the other defendants. The fifth amended complaint in the REV 973 action, filed in June 2002, alleged that John, Mireille, Joseph Sr., and Emma were legal or equitable owners of MLOC, and directors, officers, or agents of MLOC.

OneBeacon insured MLOC, Estate, Emma, John, and Mireille (sometimes referred to as the Mouren-Laurens insureds) under general liability insurance policies. In February 1999, OneBeacon began defending them in the REV 973 action under a reservation of rights. FFIC and ICW insured some of the Mouren-Laurens insureds under various policies, discussed in more detail below. In 2002 or 2003, FFIC and ICW agreed, with reservation of rights, to share the defense costs those Mouren-Lauren insureds incurred after various dates in 2002 but not any defense costs incurred from 1999 through various dates in 2002.*fn2

The basis for ICW's agreement to share the defense costs of Emma and Estate is a primary liability policy, No. ADD271630 (ADD Policy), which was in effect beginning December 6, 1977. ICW agreed, for purposes of this action, that it has a duty to defend Emma and Estate under the ADD Policy.

The basis for FFIC's agreement to share the defense costs of MLOC, Emma, and Estate is FFIC's commercial liability and automobile policy, No. LA0232-37-30 issued to MLOC (MLOC Policy), which afforded coverage from September 29, 1975, to September 29, 1978.

In October 2005, OneBeacon filed the instant action for equitable contribution against FFIC and ICW. OneBeacon alleged that between February and April 1999, the defense of the REV 973 action was tendered to ICW by one or more of the MourenLaurens insureds, and in June 1999, the defense of the REV 973 action was tendered to FFIC by one or more of the Mouren-Laurens insureds. Based on an application of a ―time-on-the-risk‖ allocation formula for defense costs agreed to by the parties, OneBeacon alleged that FFIC owed it approximately $800,000 and ICW owed it approximately $140,000 for defense costs for the period from 1999 to September 30, 2002.

The parties asked the trial court to determine when OneBeacon was entitled to contribution for defense costs incurred in the REV 973 action from ICW (with respect to Estate and Emma) and from FFIC (with respect to MLOC, Emma, and Estate). The matter was tried to the court on the following documents and stipulations of facts.

A. ICW

1. Evidence of ADD Policy

The following ICW documents reveal the existence of the ADD Policy:

a. A declarations page from an ICW commercial umbrella liability policy, No. UC-361178, for the period December 6, 1977, to December 6, 1978, listing the named insured as Joseph Sr. and the ADD Policy as an underlying liability policy.

b. A declarations page from an ICW commercial umbrella policy, No. UC-361806, for the period December 6, 1978, to December 6, 1979, listing the named insured as Joseph Sr. and the ADD Policy as an underlying liability policy. A handwritten note on the declarations page stated that MLOC was added to the policy effective December 6, 1979.

c. A declarations page from the ADD Policy itself which lists the limits of liability for various coverages and the addresses of the Compton properties.

d. Six pages of undated computer printouts from ICW's computer listing the ADD Policy for the policy periods beginning on December 6, 1977, and ending on December 6, 1980. The insured is listed as Joseph Sr.

e. An undated printout of ICW policies ―per PMS/Goodsay‖ listing various policies issued to MLOC and Joseph Sr. between 1976 and 1980. The ADD Policy is listed under Joseph Sr.'s name with effective dates of December 6, 1977, to December 6, 1980.

2. Evidence of Emma as an Additional Insured

A declarations page shows that ICW issued an umbrella policy, No. UC-363192, for the period May 1, 1979, to May 1, 1980. MLOC is listed as the insured with an underlying OneBeacon comprehensive general liability policy. Another ICW document, an endorsement, shows that in 1979, ―Joseph Mouren-Laurens Sr. & Emma MourenLaurens‖ were added as additional insureds on policy No. UC-363192.

3. Insureds' Discovery of Existence of ADD Policy

By letter of February 26, 1999, James Artiano, the attorney for Estate, wrote to ICW in pertinent part that Joseph Sr. ―was an insured under [three ICW umbrella policies] as well as [a policy issued by the predecessor to OneBeacon]. [¶] I have enclosed a copy of the Second Amended Complaint which has been served on the Estate regarding claims that have been made against [Joseph Sr.] It is requested that your company provide indemnification and defense to [Estate] in this matter. Currently, [OneBeacon] has agreed to participate in the defense of the Estate under a reservation of rights.‖ The letter included the policy numbers of three ICW umbrella policies, UC-363192 (as to which Emma was an additional insured), UC-365599, and UC-363749. The letter stated that enclosures accompanied the letter.

On March 25, 1999, Artiano sent another letter to ICW, which repeated the information conveyed in February 1999 and also indicated that the second amended complaint in the REV 973 action was enclosed with the letter. On April 6, 1999, ICW, by its senior claims analyst Charles Coune, sent a letter to Artiano acknowledging receipt of the March 25, 1999 letter, stating that REV 973 LLC's second amended complaint was not enclosed, and requesting a copy of the complaint. ICW's letter listed the insured as MLOC. ICW also wrote that ―[d]ue to the age of the policies, it may take some time to retrieve them. If you have the declarations page, or any portions of these policies, we would likewise appreciate receiving a copy.‖

Artiano replied to ICW on April 12, 1999, stating that enclosed was a copy of the recently filed third amended complaint in the REV 973 action and ―copies of documents in our possession that make reference to your policies. These are not declaration pages, but are part of the declaration pages of [OneBeacon].‖

On April 16, 1999, Trutanich * Michel, LLP (Trutanich), the attorney for MLOC, John, and Mireille, sent a letter tendering the defense of the REV 973 action to ICW. The letter identified the REV 973 action by title, court, and case number and also referred to one of ICW's umbrella policies, No. UC-363192. The insureds asked that ICW ―locate and provide us with a copy of the subject policy and any related policies you locate.‖ On June 4, 1999, Trutanich sent a follow-up letter to ICW, stating that ICW had not yet responded to the tender of defense by MLOC, John, and Mireille.

On June 9, 1999, Artiano wrote a letter to Coune at ICW, inquiring about ICW's position on the ―commencement of defense and indemnification by [ICW] for [Estate] and [MLOC].‖

Coune, on behalf of ICW, replied to Artiano on June 18, 1999, that as an umbrella carrier, ICW ―has no obligation to participate in the defense, particularly when one is being provided, whether under reservation of rights or not, by [OneBeacon].‖ Coune also wrote that he had reviewed the pleadings in the REV 973 action and that such review led him to conclude that REV 973 LLC's claims were subject to unspecified policy exclusions. Notwithstanding ICW's denial of any obligation to participate in the defense, ICW stated that it continued to monitor the REV 973 action. On June 18, 1999, Coune also replied to Trutanich that ICW was not going to participate in the defense of MLOC at that time.

On July 21, 1999, Trutanich wrote to Coune that Trutanich had discovered documents ―which prove that the Insureds [MLOC, John, and Mireille] maintained the referenced additional insurance policies [Nos. 0365599 and UC-363749 ] during 1981 - 1983. . . . We have reason to believe that the coverages under these policies apply to the above-referenced lawsuit, thereby triggering on the part of [ICW] a duty to defend and indemnify the Insureds in connection with said action. Accordingly, on behalf of the Insureds we hereby tender the claims asserted against the Insureds in the referenced action under the stated policies.‖ The letter also asked ICW to ―locate and provide us with a copy of the subject policies and any related policies.‖

On February 7, 2000, Coune wrote to Estate's attorney, Lynette Klawon, that ICW was ―passively monitoring the [REV 973 action] in its capacity as an umbrella carrier . . . .‖ ICW also asked for information on the status of the REV 973 action. On March 3, 2000, ICW sent a letter to Trutanich, setting out the policy limits of several of its umbrella policies and a list of the named insureds, which included MLOC, Emma, John, and Joseph Sr. ICW also informed Trutanich that ICW was ―not providing a defense to your client [MLOC] until such time as all primary policy limits have been exhausted.‖ In August 2001, ICW wrote to Trutanich, again declining to participate in the defense of MLOC and noting that each of three umbrella policies issued to MLOC contained a pollution exclusion.

On January 16, 2002, Trutanich wrote to ICW, reminding it that in prior correspondence MLOC, John, and Mireille had written to ICW asking it to disclose all policies of insurance in ICW's possession. According to Trutanich, ICW ―chose to deny the existence of other policies and denied coverage. In addition you refused to afford your insureds a defense. [¶] . . . Recently, after relentless investigation, we were able to obtain copies of a number of ICW policies that you failed to disclose. We obtained these copies from your agent William Robinson under threat of proceedings. I have, of course, enclosed them for your perusal though I am confident that you have ...


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