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Interstate Fire and Casualty Insurance Co. v. Cleveland Wrecking Co.

February 22, 2010


Trial court: San Francisco County Superior Court Trial judge: Hon. Patrick J. Mahoney (San Francisco County Super. Ct. No. 475134)

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


Interstate Fire and Casualty Insurance Company (Interstate) appeals from a judgment entered after the court sustained, without leave to amend, a demurrer to Interstate's amended complaint against Cleveland Wrecking Company (Cleveland). Interstate contends the court erred because: (1) its subrogation complaint, based on its insured's contractual indemnification claim against Cleveland, was not barred by Cleveland's good faith settlement in the underlying litigation; and (2) Cleveland's equities were not equal to or superior to those of Interstate as a matter of law. We agree with Interstate, and the judgment and the order sustaining the demurrer will be reversed.


We derive the relevant facts from the allegations of the operative pleading, Interstate's first amended complaint.

A. The Parties and the Underlying Frisby Litigation

Webcor Construction, Inc. (Webcor) was the general contractor for a construction project in San Francisco. Cleveland Wrecking Company (Cleveland) was a subcontractor responsible for certain demolition work. Delta Steel Erectors (Delta) was a subcontractor engaged in the installation of steel stairways.

Cleveland and Delta each entered into similar subcontracts with Webcor, by which they undertook to indemnify Webcor for liability arising out of their work and to procure general liability insurance with Webcor as an additional insured.

In particular, section 15.1.1 of the agreement between Webcor and Cleveland (the Agreement) obligated Cleveland to indemnify "Contractor" (Webcor), to the extent set forth therein, from "claims, demands, causes of action, damages, costs, expenses, actual attorney's fees, losses or liability, in law or in equity, of every kind and nature whatsoever (`Claims') arising out of or in connection with Subcontractor's operations to be performed under this Agreement for, but not limited to . . . Personal injury . . . caused or alleged to be caused in whole or in part by any negligent act or omission of Subcontractor [Cleveland]." Under section 15.1.2, Cleveland was required to, at its "own cost, expense and risk, defend all Claims as defined in Section 15.1.1" by third parties, pay any judgment, and reimburse Webcor and certain others for legal expenses they incurred.

Although both Cleveland and Delta had agreed to procure liability insurance with Webcor as an additional insured, only Delta complied with the obligation. Interstate issued to Delta a written commercial general liability policy in effect from July 1, 2003, to July 1, 2004. Webcor was an additional insured.

1. Frisby's Injury

On April 29, 2004, Cleveland's employees were moving debris to an area where it could be loaded onto trucks. They had been warned that Delta's employees were working in areas below them, and that Delta's employees were being showered by debris dislodged by Cleveland's operations. One of Delta's employees, ironworker Thelbert Allen Frisby (Frisby), was working in a stairwell below an opening in the floor on which Cleveland's employees were moving the debris.

To move the debris, Cleveland's Bobcat operator drove a loader bucket into the pile of debris, and then backed up with the load to move it. This repeated process moved the pile of debris closer to the opening and ultimately into a slab grabber, which became dislodged and fell into the opening where Frisby was working. The slab grabber struck Frisby and caused significant injury.

2. Frisby's Complaint

Frisby filed a workers' compensation claim against his employer Delta. In addition, he filed a lawsuit against Webcor and Cleveland in San Francisco Superior Court.

In Frisby v. Cleveland Wrecking Company et al., San Francisco Superior Court Case No. CGC-05440636, Frisby sought to recover for personal injuries he sustained in the accident, alleging a cause of action against Cleveland for negligence and causes of action against Webcor for negligence, premises liability, and negligent provision of unsafe equipment. Among other things, Frisby alleged that Cleveland breached its duty to perform work in a safe manner by failing to use reasonable care to prevent damage to Frisby, whom it knew or should have known was working in an area below.

3. Webcor's Tender

Webcor tendered its defense and indemnification to Cleveland pursuant to the terms of the Agreement. Cleveland rejected the tender. Webcor also tendered its defense and indemnification to Interstate pursuant to the terms of the Interstate-Delta Policy. Interstate accepted it.

4. Webcor's Cross-Complaint

Webcor filed a cross-complaint against Cleveland (and Delta) for express indemnification, equitable indemnification, and breach of contract. Webcor thereafter voluntarily dismissed its equitable indemnity and contribution claims with prejudice, but dismissed its cause of action for express indemnity and breach of contract without prejudice. The parties expressly reserved their rights with respect to an Interstate subrogation claim in a separate action.

5. Settlement of Frisby

In July 2007, Webcor and Frisby entered into a settlement by which Webcor would pay Frisby $575,000 and Frisby would dismiss his claims against Webcor. The court approved their agreement as a good faith settlement under Code of Civil Procedure section 877.6. Interstate funded the $575,000 settlement payment and additionally paid over $152,000 for the attorney fees and costs incurred in defending Webcor against Frisby's claims.

Cleveland also entered into a settlement with Frisby, which the court approved as a good faith settlement as well. (Code Civ. Proc., § 877.6.)

B. The Subrogation Litigation

In the matter before us, Interstate filed a complaint for subrogation against Cleveland, alleging that Cleveland had breached its contract with Webcor by failing to defend and indemnify Webcor in Frisby.

Cleveland filed a general demurrer, contending that Interstate was not entitled to subrogation as a matter of law, because it was not in a superior equitable position to Cleveland, and because Cleveland's alleged breach of contract had not caused any damage. The court sustained the demurrer with leave to amend, allowing Interstate to allege how Cleveland's tortious conduct gave rise to the loss.

In its first amended complaint, Interstate realleged Cleveland's breach of its agreement to defend and indemnify Webcor. Interstate further alleged that Cleveland's negligence was a proximate cause of Frisby's injuries, and that Cleveland had violated its subcontract by failing to obtain insurance covering Webcor. Interstate sought judgment for all amounts it spent to defend against and settle the claims against Webcor in Frisby, alleging it was subrogated to Webcor's claims against Cleveland for breach of its express contractual indemnity obligation. Attached to the first amended complaint were the Webcor-Cleveland subcontract and the Interstate-Delta Policy, provision 8 of which set forth a subrogation clause: "If the insured has rights to recover all or part of any payment we have made under this Coverage Part, those rights are transferred to us. The insured must do nothing after loss to impair them. At our request, the insured will bring `suit' or transfer those rights to us and help us enforce them."

Cleveland filed a general demurrer, again arguing that Interstate lacked the superior equities required for subrogation and that Webcor did not incur damages by Cleveland's alleged breach of the indemnification provision. Cleveland requested judicial notice of files and records including the good faith settlement order and dismissal in Frisby.

The court sustained Cleveland's demurrer without leave to amend. By written order, the court explained: "The good faith settlement in the Frisby case cut off Webcor's ability to sue Cleveland for indemnity or contribution for its alleged negligent conduct. At the same time, Webcor has no claim against Cleveland for Cleveland's breach of its duty to defend Webcor because Webcor has sustained no damages as a consequence of the breach. It is for this reason that Interstate's equitable position is not superior to Cleveland's equitable position. [Citations.]"

A judgment of dismissal was entered, and this appeal followed.


Interstate contends the trial court erred in sustaining the demurrer for two reasons: (1) the good faith settlement between Cleveland and Frisby did not bar Interstate from proceeding against Cleveland on a claim for breach of an express contractual indemnification provision; and (2) the court erred in concluding that Webcor suffered no damages from Cleveland's alleged breach of the Agreement and that Interstate's equitable position was therefore not superior to Cleveland's.

In reviewing an order sustaining a demurrer, we assume the truth of all well-pleaded material facts, as well as those facts that may be implied or inferred from the express allegations. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) We consider as well any matters that may be judicially noticed. (Ibid.) We then determine de novo whether the allegations stated any cause of action as a matter of law. (Ibid.) Where, as here, the demurrer is sustained without leave to amend, we determine if necessary whether the plaintiff established a ...

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