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Continental Casualty Company v. St. Paul Surplus Lines Insurance Company; and


March 21, 2011


The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge


This case arises from a wrongful death action in which two different insurers, Continental Casualty Company ("Continental") and St. Paul Surplus Lines Insurance Company ("St. Paul") both provided certain insurance coverage. St. Paul issued a general liability issue policy with limits of $5,000,000 to Crown Equipment Corporation ("Crown"), the company that manufactured a forklift the decedent was operating at the time he was killed. The accident itself occurred at the premises utilized by Tasq Technology, Inc. ("Tasq").

Tasq was an additional named insured under a $1,000,000 general liability insurance policy issued by St. Paul. Continental also insured Crown as an additional insured under its policy. Finally, Continental provided a $25,000,000 umbrella policy to cover additional liability exceeding the limits of its primary policy.

Through the present action for declaratory relief, Continental seeks judicial determination that the St. Paul policy, as a primary policy, has been exhausted with respect to any liability accruing to Crown before Crown has any additional obligation to provide coverage under its umbrella policy to Crown. In settling the underlying wrongful death lawsuit, Continental paid the entire $1,000,000 limit of its primary policy along with $2,500,000 of its umbrella policy to settle all claims against both Crown and Tasq. St. Paul refused to contribute to that settlement despite its $5,000,000 in general liability coverage inuring to Crown's benefit as enumerated above.

Now before the Court are cross motions for summary judgment, filed on behalf of both Continental and St. Paul with respect to the applicable priority of coverage. The parties have agreed that the question of priority should be decided before any apportionment of negligence is addressed for purposes of assigning any particular monetary liability to either Crown or Tasq, respectively.

As set forth below, this Court determines that the St. Paul policy is primary and must be exhausted as to Crown's liability before coverage under Continental's excess policy is triggered.

The Court is unpersuaded by St. Paul's various arguments as to why coverage under its policy should not apply. Continental's corresponding motion for partial summary judgment will accordingly be granted. St. Paul's cross motion for summary judgment, or alternatively for partial summary judgment, will be denied.*fn1


Daniel Coupe, an employee of West Coast Conveyer and Equipment, was killed on June 19, 2001 while operating a forklift manufactured by Crown at a Tasq warehouse located in Roseville, California. The forklift implicated in Mr. Coupe's death was leased by Tasq from Crown Credit Company. Mr. Coupe's employer had contracted with Tasq to install shelving at Tasq's warehouse. Mr. Coupe died after the Crown stand-up forklift he was using allegedly malfunctioned and pinned Coupe between the forklift and the shelving racks in Tasq's warehouse.

Daniel Coupe's survivors filed a wrongful death lawsuit on June 25, 2002 alleging both negligence and products liability claims against Crown and claims sounding in negligence against Tasq. The master lease agreement pertaining to the forklift at issue, which was entered into between Tasq and Crown Credit Corporation, provided that Crown would not be liable to Tasq for any defect in the forklift for any liability arising out of Tasq's possession, use or operation of the forklift.

See Lease, Ex. I to Stip. of Facts on Cross-Motions, ¶¶ 4.02-4.03. The lease also obligated Tasq to maintain comprehensive general liability coverage with a combined $2,000,000 single limit against any bodily injury or property damage arising out of, or in any related to, Tasq's possession, use or operation of the forklift. Id. at 6.03. The lease further required that insurance to name Crown as an additional insured. Id.

Consistent with the terms of the lease, Tasq's insurance coverage with Continental exceeded the $2,000,000 (at $3,500,000 between the primary and umbrella policies) and further named Crown as an additional insured. As stated above, Crown also had its own general liability policy through St. Paul. That policy had a self-insured retention limit of $250,000 which had to be paid on Crown's behalf before any additional coverage under the St. Paul policy accrued. The St. Paul policy covered liability only and did not provide a defense.

In providing primary coverage, the Continental policy provided a per occurrence limit of $1,000,000 with an insuring clause that stated in pertinent part as follows:

"We will pay those sums that the insured becomes legally obligated to pay, as damages because of 'bodily injury' or 'property damage to which this insurance applies. We will have the right and duty to defend the insured against any 'suit' seeking those damages." Continental General Liability Policy, Ex. B to Stipulation of Facts, p. 82. The Continental umbrella policy, in turn, agreed to pay on behalf of an insured all sums up to its $25,000,000 policy limit that are in excess of either scheduled or unscheduled underlying, or primary, coverage. The Continental umbrella policy states:



3. We shall only be liable for the "ultimate net loss" in excess of:

a. The applicable limits of "scheduled underlying insurance" in item 5 of the Declarations for "incidents" covered by "scheduled underlying insurance", plus the limits of any "unscheduled underlying insurance" which also provides coverage for such "incidents".

Continental Umbrella Policy, Ex. C. to Stipulation of Facts, p. 21 (emphasis added). The policy goes on to define "ultimate net loss" as not including litigation-related costs or expenses. "Scheduled underlying insurance" is the Continental primary policy on which the umbrella coverage rests, and "unscheduled underlying coverage would, on its face, appear to include the St. Paul general liability policy issued to Crown, since the term is defined as meaning "insurance policies available to an insured" (here Crown) whether primary, excess, or otherwise. Id.

The St. Paul general liability policy, for its part, also agrees to pay "amounts any protected person is legally required to pay as damages for covered bodily injury or property damage that... happens while this agreement is in effect..." St. Paul General Liability Policy, Ex. D to Stipulation of Facts, p. SP 0014-15. With respect to other primary insurance, the St. Paul provides: /// /// /// ///

"When there is other primary insurance, we'll share with that insurance the amounts you're legally required to pay as damages.....

However, we'll apply this agreement as excess insurance over the part or parts of any other insurance which provide: ... protection to you as an additional insured or additional protected person if you agree that we may apply this agreement as excess insurance."

Id. at SP 0035. Based on the above provision, and given its representation that pursuant to said terms, Crown has agreed that St. Paul's policy is excess to the Continental policies, St. Paul maintains that its policy is indeed excess in the calculus of determining the priority of coverage for the subject loss. Additionally, in part due to the purported status of the St. Paul policy as excess, St. Paul also argues that the lease's indemnity agreement also prevents its coverage from accruing until after both the Continental policies.

Once the underlying wrongful death lawsuit was instituted, Continental assumed the defense of its named insured, Tasq. Crown did not seek a defense from its own primary insurer, St. Paul, because the St. Paul policy did not include any defense obligation, but did tender its defense to Continental. Although Continental initially denied Crown's defense tender, it ultimately defended both Tasq and Crown in the underlying action under a reservation of rights. It appointed counsel to defend Tasq and funded the separate cost of Crown's separate defense counsel (Tasq and Crown having cross complained against each other, each arguing that the other was legally responsible for Mr. Coupe's death). ///

After more than four years of litigation, and as trial of the underlying wrongful death case approached, Continental decided to attempt a mediated settlement of the claim. On September 21, 2006, some three weeks before the scheduled October 10, 2006 mediation, Continental wrote to St. Paul and invited St. Paul to attend the mediation. Continental further advised St. Paul that it would look to St. Paul for contribution of any expenditures it made to settle the claim against St. Paul's insured, Crown. St. Paul did not respond either to Continental's September 21, 2006 letter, or to follow-up correspondence to the same effect sent the day before the October 10, 2006 mediation. Nor did St. Paul participate in the mediation. While, as stated above, a settlement on behalf of both Crown and Tasq was ultimately reached for the amount of $3,500,000,*fn2 and although Continental accordingly obtained a full dismissal, with prejudice, on behalf of both entities, St. Paul never contributed anything towards the settlement. To date, no determination of the relative fault for Daniel Coupe's death as between Tasq and Crown has occurred. /// /// /// ///


The Federal Rules of Civil Procedure provide for summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Rule 56(c). One of the principal purposes of Rule 56 is to dispose of factually unsupported claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Under summary judgment practice, the moving party "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact."

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Rule 56(c)).

Rule 56 also allows a court to grant summary adjudication on part of a claim or defense. See Rule 56(a) ("A party seeking to recover upon a claim...may...move...for a summary judgment in the party's favor upon all or any part thereof."); see also Allstate Ins. Co. v. Madan, 889 F. Supp. 374, 378-79 (C.D. Cal. 1995); France Stone Co., Inc. v. Charter Township of Monroe, 790 F. Supp. 707, 710 (E.D. Mich. 1992).

The standard that applies to a motion for summary adjudication is the same as that which applies to a motion for summary judgment. See Rule 56(a), 56(c); Mora v. ChemTronics, 16 F. Supp. 2d 1192, 1200 (S.D. Cal. 1998).

If the moving party meets its initial responsibility, the burden then shifts to the opposing party to establish that a genuine issue as to any material fact actually does exist. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-587 (1986); First Nat'l Bank v. Cities Ser. Co., 391 U.S. 253, 288-289 (1968).

In attempting to establish the existence of this factual dispute, the opposing party must tender evidence of specific facts in the form of affidavits, and/or admissible discovery material, in support of its contention that the dispute exists. Rule 56(e). The opposing party must demonstrate that the fact in contention is material, i.e., a fact that might affect the outcome of the suit under the governing law, and that the dispute is genuine, i.e., the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 251-52 (1986); Owens v. Local No. 169, Assoc. of Western Pulp and Paper Workers, 971 F.2d 347, 355 (9th Cir. 1987). Stated another way, "before the evidence is left to the jury, there is a preliminary question for the judge, not whether there is literally no evidence, but whether there is any upon which a jury could properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed." Anderson, 477 U.S. at 251 (quoting Improvement Co. v. Munson, 14 Wall. 442, 448 (1872)). /// /// /// ///

As the Supreme Court explained, "[w]hen the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts ... Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" Matsushita, 475 U.S. at 586-87. In judging evidence at the summary judgment stage, the court does not make credibility determinations or weigh conflicting evidence. Anderson, 477 U.S. at 255, see also Matsushita, 475 U.S. 587.


A. Any Duty On Continental's Part To Indemnify Crown From St. Paul's Primary Policy Insuring Crown Applies Before Its Umbrella Policy Is Triggered Under principles of equitable contribution, an insurer has a separate claim against other insurers who share the same risk for payment of a loss involving their mutual insured. Fireman's Fund Ins. Co., v. Maryland Cas. Co., 65 Cal. App. 4th 1279, 1293 (1988). Equitable contribution is intended to equalize the common burden shared by coinsurers and to prevent one insurer from profiting at the expense of others. Id.

Here, the language of the St. Paul policy itself would appear to indicate on its face that the policy was intended to be primary. A prima facie showing in that regard is made simply by the policy's reference to "other primary insurance". See St. Paul Policy, Ex. D to Stipulation of Facts, pp. SP 0035 and SP 0046. (emphasis added).

St. Paul would not have used the term "other primary insurance" if it did not view its own policy as primary. Insurance contracts, like any other contract, must be construed in accordance with their plain meaning pursuant to ordinary rules of contractual interpretation. See AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 822 (1990). "If contractual language is clear and explicit, it governs." Reliance Nat'l Indem. Co. v. General Star Indem. Co., 72 Cal. App. 4th 1063, 1074 (1999).

St. Paul tries to avoid the import of its own characterization of the policy as primary by pointing to a provision that the policy can nonetheless be deemed excess provided its own insured agrees "that we may apply this agreement as excess insurance". St. Paul Policy, Exh. D to Stipulation of Facts, p. SP 0035. That attempt fails. St. Paul's language as cited above amounts to an impermissible "escape clause" that cannot be enforced when broadly used to escape defense and indemnity obligations whenever other insurance exists. See Century Surety v. United Pacific Ins. Co., 109 Cal. App. 4th 1246, 1260 (2003). Although such clauses may be acceptable when drafted narrowly, if an insurer's coverage grant in fact evaporates in the presence of other insurance, it amounts to the prohibited escape clause. Because the terms of the St. Paul policy gives St. Paul the power to essentially collude with its own insured in deeming its policy excess, the Court believes the language to be akin to a prohibited escape clause and consequently finds it unenforceable. /// ///

Such a potentially unbridled ability to change the policy's very purpose could not have been the intent of the case law in approving narrow exceptions to a policy's characterization as primary.

Nor does the St. Paul policy's use of a self-insured retention alter the primary nature of the policy. To the extent that Crown is responsible for a self-insured retention before the St. Paul policy is triggered, that retention cannot be considered insurance. See Montgomery Ward & Co., Inc. v. Imperial Cas & Indem. Co., 81 Cal. App. 4th 356, 370 (2000). Since the St. Paul policy allows any party (including, in this instance, Continental) to satisfy that responsibility, once the retention amount is satisfied a policy like St. Paul's becomes primary. See California Pacific Homes, Inc. v. Scottsdale Ins. Co., 70 Cal. App. 4th 1187, 1193-94 (1999).

Turning back to contractual interpretation, another seminal guidepost in that regard is to "give effect to the mutual intentions of the parties.." Bank of the West v. Superior Court, 2 Cal. 4th 1254, 1264 (1992); see also Cal. Civ. Code § 1636. This brings us to the question of what the parties to the insurance agreements at issue herein sought to do when the policies were obtained. As recognized by the court in Reliance Nat'l Indem. Co. v. General Star Indem. Co., 72 Cal. App. 4th 1063, 1080-81 (1999), primary and excess insurer "do not share the same level of coverage." In JPI Westcoast Constr., L.P. v. RJS & Assoc., Inc., 156 Cal. App. 4th 1448 (2007) ("JPI"), the court articulated the basic differences between the two kinds of coverage, stating as follows:

"California insurance law recognizes a fundamental distinction between primary and excess coverage: 'Primary coverage is insurance coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to liability... 'Excess' or secondary coverage is coverage whereby, under the terms of the policy, liability attaches only after a predetermined amount of primary coverage has been exhausted.... The 'excess' insurance referred to in this definition is that secondary insurance which provides coverage after other identified insurance is no longer on the risk..... In short, excess insurance is insurance that is expressly understood by both the insurer and insured to be secondary to specific underlying coverage which will not begin until after that underlying coverage is exhausted and which does not broaden that underlying coverage."

Id. at 1460 (internal citations omitted). The JPI opinion goes on to note the difference between how premiums are calculated on the two kinds of coverage. As the court states, the risks bargained for and purchased are intrinsically distinct:

"[Primary insurers] calculate[] and accept[] premiums with knowledge that they might be called upon to satisfy a full judgment..... By contrast, an excess insurer does not accept premiums with the full knowledge that it will be called upon to satisfy a full judgment. The California Supreme Court has noted: 'The policyholder pays for two kinds of liability coverage, each at a different rate. The premium charged by the primary insurer supports more localized claims adjustment facilities than those of the excess carrier.'"

Id. at 1462-63 (internal citations omitted). Consequently, a primary carrier must pay its limits before an umbrella carrier becomes obligated to contribute. Reliance National, 72 Cal. App. 4th at 1083. Under the so-called rule of "horizontal exclusion", all applicable primary policies must accordingly exhaust "before any excess will have coverage exposure." Community Redevelopment Agency v. Aetna Cas. & Surety Co., 50 Cal. App. 4th 329, 340 (1996).

In sum, then, because the Court finds the St. Paul policy to offer primary coverage to its insured, Crown, any excess coverage available to Crown under the Continental umbrella is not triggered unless and until St. Paul's primary policy is fully depleted for purposes of covering Crown's liability, if any, for Daniel Coupe's death.

B. Equipment Lease Does Not Alter The Priority Of Coverage The Indemnification Agreement Contained In The Subject

St. Paul also argues that irrespective of the applicable policy provisions, the indemnity provisions of the lease between Crown and Tasq make Tasq, and not Crown, responsible for satisfying any liability for the underlying claim. St. Paul's argument, however, in the end hinges on its claim, already rejected below, that the St. Paul policy is excess. The case St. Paul cites in support of its proposition that the indemnity agreement is in fact controlling, Rossmoor Sanitation, Inc. v. Pylon, Inc., 13 Cal. 3d 622 (1975), is distinguishable because it involved a dispute between two primary carriers. Here, on the other hand, the dispute is between two different layers of coverage: St. Paul's primary policy and the umbrella policy issued by Continental. The effect of an indemnity agreement in that context was squarely addressed in the JPI decision, which addressed that precise scenario. In JPI, like this case, the governing contract between the two parties contained an indemnity provision. JPI, 156 Cal. App. 4th at 1451-52. /// ///

In moving for summary judgment, JPI (the beneficiary of the indemnity agreement) relied on Rossmoor in arguing that the indemnity clause controlled the priority of coverage between the two involved carriers. Id. at 1455. The trial court rejected JPI's reliance on Rossmoor, finding that the primary carrier had to pay (despite the indemnity provision) before the excess carrier was obliged to contribute. On appeal, California's First District agreed that Rossmoor did not control, finding "[t]he key distinction between Rossmoor and the case at bar" to be the fact that "Rossmoor involved a dispute between two primary carriers", as opposed to the circumstances before the JPI court which involved a subrogation claim by a secondary or excess carrier against a primary insurer. Id. at 1460. The JPI cited with approval the reasoning employed by the earlier Reliance National decision, which it deemed factually analogous:

"If we were to accept the arguments of Reliance [the other primary carrier], the basic rules construing primary and excess policies would be altered. A primary insurer would be allowed to charge a higher premium for insuring a greater risk; however, then the primary insurer would be allowed to shift the loss to an excess carrier which charged a lower premium. This is not a case between two primary carriers which have each received premiums for bearing the loss which ultimately occurred; rather, this is an action between an excess and a primary carrier. While the loss at issue must be borne by Reliance [the other primary carrier], it is nothing more than what is bargained for, particularly given the absence of any understanding that an indemnity agreement would exist [between the parties]. Under the circumstances, Rossmoor, a case involving a subrogation and indemnity dispute between two primary carriers and their insured is not controlling in the present case." /// /// ///

Reliance National, 72 Cal. App. 4th at 1082-83, as cited by JPI, 156 Cal. App. 4th at 1463. Consequently, the JPI case concluded that the umbrella carrier was entitled to full reimbursement from a primary insured for sums paid out on behalf of a mutual insured regardless of the terms of the underlying indemnity agreement between the insureds. That holding is conclusive with respect to the present matter. The terms of an indemnity agreement cannot trump general rules governing the application of primary, as opposed to excess, coverage.

C. The Court Cannot Determine That Continental's Payments Extent They Were Made On Crown's Behalf To Settle The Underlying Lawsuit Were Voluntary To The

In an additional attempt to avoid bearing any potential responsibility under its primary policy for the underlying claim, St. Paul also claims that because Continental had no obligation to pay anything on Crown's behalf to settle the underlying lawsuit, it cannot recover any gratuitous payments it made in that regard from St. Paul. St. Paul correctly points out that in order to recover from St. Paul, it must first establish that it had an obligation to pay on behalf of Crown and was not acting as a mere "volunteer". Fireman's Fund Ins. Co. v. Maryland Cas. Co., 65 Cal. App. 4th at 1291-93. To the extent an insurer indemnified a party not because of any obligation to do so, but instead as a volunteer, it cannot recover from another carrier on a theory of equitable subrogation. /// ///

Id. at 1292 (to recover on equitable subrogation grounds, the insurer must show it "has paid the claim of its insured to protect its own interest and not as a volunteer").

St. Paul points to provisions in the Continental policies which limit the coverage afforded to an additional insured under a written contract or agreement to liability arising out of premises that Tasq, as the named insured, owned, rented, leased or occupied. See St. Paul's Opp'n to Continental's Mot., pp. 4-5 (delineating the applicable provisions of Continental's primary and umbrella policies in this regard). According to St. Paul, because Continental cannot show that any potential liability of Crown's arose out of the use of the Tasq premises as opposed to the operation, use and/or maintenance of the forklift manufactured by Crown, Crown in fact cannot qualify as an additional insured under the Continental policies.

The problem with this contention is that it requires the weighing of factual issues in the context of liability, as opposed to the subject matter of the present motions which bear simply on the priority of coverage. Consequently said arguments do not preclude summary adjudication in Continental's favor with respect to St. Paul's status as a primary insurer. Nor can St. Paul establish as a matter of law that under the circumstances of the subject accident the condition of Tasq's premises are implicated. That is a liability determination predicated on factual findings not amenable to disposition on summary judgment. /// ///

D. St. Paul's "No Action" Clause Does Not Bar Continental's Claims

The St. Paul policy contains a so-called "no action" clause which by its terms precludes any action against an insurer on a liability claim unless and until the insured's liability to claimants (here, Mr. Coupe's heirs) has been determined either by final judgment or pursuant to a settlement approved by the insurer. St. Paul's policy provides as follows:

"No one can sue us on a liability claim until the amount of the protected person's liability has been finally decided either by a trial or by a written agreement signed by the protected person, by us and by the party making this claim. Once liability has been determined by judgment or by written agreement, the party making the claim may be able to recover under this policy, up to the limits of coverage that apply. But that party can't sue us directly or join us in a suit against the protected person until liability has been so determined."

St. Paul Policy, Ex. D to Stipulated Facts, p. SP 009.

As St. Paul also points out, however, the purpose of a "no action" clause it to prevent abuse, collusion and/or fraud against the insurer in the settlement of claims against an insured. See Rose v. Royal Ins. Co., 2 Cal. App. 4th 709, 715 (1991). A "no action" clause operates to preclude an insurer from being bound by the terms of a stipulated judgment or a settlement agreement to which it has not consented. See, e.g., Safeco Ins. Co. v. Superior Court, 71 Cal. App. 4th 782, 787 (1999). According to St. Paul, because all of Continental's claims are derivative of Crown's purported, but unproven, liability to the wrongful death claimants in the underlying lawsuit, the "no action" clause completely bars all of Continental's claims in this action.

The present matter does not, however, involve any collusive attempt to enforce a stipulated judgment reached behind St. Paul's back against St. Paul. Nor does it attempt to bind St. Paul to the terms of a settlement agreement to which it did not consent. To the contrary, the terms of the settlement agreement contained no apportionment of liability vis-a-vis Crown and Tasq.*fn3 In addition, St. Paul was invited, twice, to participate in the mediation that resulted in the settlement but chose not to do so. Finally, it must be noted that the magistrate judge assigned to this case, in ruling upon a motion to compel seeking sanctions against St. Paul for concealing the existence of communications between St. Paul and Crown and/or George Stephan (Crown's counsel in the underlying case) ordered, among other things, that "in all future motions and proceedings involving this litigation, an adverse inference will be drawn in Continental's favor on any factual dispute, claim, or defense that depends on proving or disproving (1) what St. Paul knew and when; and (2) that Crown and St. Paul acted in concert to defeat Continental, including Crown's insistence that the settlement agreement exclude apportionment of liability between Crown and Tasq." See Continental's Statement of Undisputed Fact No. 34. /// /// ///

That inference in and of itself prevents St. Paul from establishing, as a matter of law on summary judgment, that it was unaware of the settlement reached such that the "no action" clause applies to bar Continental's claims herein. There is no indication of any fraud or collusion of the type that the "no action" clause was intended to prevent. To the contrary, it would be illogical to argue that Continental should not have participated in settlement negotiations in the face of St. Paul's refusal to also participate, when failing to do so, and avoiding settling the wrongful death claim on Crown's behalf, would have left Crown exposed to a potential adverse judgment.

E. Instant Lawsuit.

The Doctrine Of "Unclean Hands" Does Not Bar The

The doctrine of unclean hands requires that a party "who comes into equity must come with clean hands.... [the doctrine] closes the door of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been the behavior of the defendant." Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 814 (1945). As St. Paul points out, under California law unclean hands can operate to completely bar recovery by a culpable party in an equitable proceeding like this one involving issues of relative contribution:

"[W]henever a party who, as actor, seeks to set judicial machinery in motion and obtain some remedy, has violated conscience, good faith or other equitable principle in his prior conduct, then the doors of the court will be shut against him in limine; the court will refuse to interfere on his behalf to acknowledge his right, or to afford him any remedy."

Lynn v. Duckel, 46 Cal.2d 845, 850 (1956).

Here, St. Paul argues that Continental's "highly questionable" handling of Crown's defense in the underlying action constitutes unclean hands and prevents Continental from invoking equity in maintaining this lawsuit. St. Paul cites two examples. First, it points to the fact that Crown failed to accept a California Code of Civil Procedure § 998 Offer to Compromise in the amount of $975,000 served by plaintiffs in the underlying action on October 3, 2003. St. Paul argues that Continental's refusal to settle the case against Crown within the $1,000,0000 limit of its general liability policy potentially exposed Crown to the risk of a judgment against it in excess of that policy limit. Second, St. Paul argues that a Continental adjuster, Mitchell Roberts, executed a sworn declaration used in opposition to Crown's motion for summary judgment in the underlying action as to the lease indemnity provisions between Tasq and Crown. /// /// /// /// /// /// ///

The Court is unconvinced by either of St. Paul's contentions.*fn4 First, since the same $975,000 § 998 Offer to Compromise was directed to both Tasq and to Crown, Continental could not have paid both demands within its primary $1,000,000 policy limit. Additionally, to the extent that coverage was also available under Continental's umbrella policy, Continental did proactively seek to mediate the case later and was successful in settling the case, even acceding to Crown's request that settlement be made without any apportionment of liability. Those actions on Continental's part do not smack of bad faith. Indeed, if anything, St. Paul's refusal to even participate in settlement discussions, along with the magistrate judge's finding which suggests that St. Paul and Crown worked in concert to defeat Continental's interest, appears far more questionable in that regard.

As to St. Paul's second argument, the Declaration of Mitchell Roberts merely explained his role as claims adjuster for Crown and his duties in adjusting bill incurred by Crown for independent counsel and submitted to Continental for payment.*fn5

That adjustment groundwork was more foundational than substantive and also does not trigger application of the unclean hands doctrine in this matter.

F. St. Paul's Arguments To The Contrary Continental's Claims Are Ripe For Adjudication Despite

Finally, St. Paul argues that the equitable claims made by Continental through this lawsuit, which include equitable contribution and declaratory relief, are not ripe because Continental has not established that it in fact paid any monies in settlement of claims attributable to Crown's negligence, as opposed to Tasq's. St. Paul points out that Continental's settlement did not include any apportionment of liability (even though that omission was at Crown's request. St. Paul accordingly contends that there is no concrete case in controversy, and that pinning any damages on the fault of Crown is no more than speculation.

Article III of the United States Constitution does limit the jurisdiction of federal courts to actual cases and controversies, and mere advisory opinions are not permitted. Rhoades v. Avon Products, Inc., 504 F.3d 1151, 1157 (9th Cir. 2007). "If a claim is unripe, federal courts lack subject matter jurisdiction and the complaint must be dismissed." Southern Pac. Transp. Co. v. City of Los Angeles, 922 F.2d 498, 502 (9th Cir. 1990).

An insurer that has settled a claim, however, need not secure a judgment that the insured was in fact liable before seeking contribution from another insurer covering the same loss.

"An insurer's good faith settlement prior to a judicial determination of coverage does not automatically bar equitable apportionment of a loss. United Pacific Ins. Co. v. Hanover Ins. Co., 217 Cal. App. 3d 925, 935 (1990). Significantly, too, the right of one insurer to seek equitable contribution against another insurer does not necessarily depend on the comparative negligence of the two carriers' respective insureds. See Fire Ins. Exch. v. American States Ins. Co., 39 Cal. App. 4th 653, 663 (1995). To find otherwise would inappropriately encourage insurance companies to affirmatively establish the guilt of its insureds rather than focusing on the settlement of claims and the elimination of any potential for excess liability on the part of said insureds. Id.

St. Paul's contention that this matter is unripe therefore fails to pass muster, particularly since it appears the parties themselves agreed to decide the priority of coverage issues that are the subject of this motion first, before moving on to any determination of liability. Given the $3,500,00 paid by Continental to settle the underlying wrongful death claims, the fact that St. Paul has a primary policy covering the same loss, and the fact that St. Paul argues that Continental should have settled any claims against Crown for the $975,000 amount of the Offer to Compromise, it defies logic to contend as St. Paul does that there is no actionable controversy. Despite St. Paul's protestations to the controversy, arguing that Continental seeks nothing more than an advisory opinion under these circumstances appears completely without merit. ///


Based on the foregoing, Continental's Motion for Partial Summary Judgment (ECF No. 101) as to priority of coverage is GRANTED. St. Paul's policy is primary, and to the extent that Crown is found to be liable for payments made by Continental to settle the underlying wrongful death lawsuit, St. Paul's general liability policy insuring Crown will apply before any excess coverage under Continental's umbrella policy is triggered. St. Paul's Motion for Summary Judgment, or in the alterative for partial summary judgment, is DENIED.*fn6


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