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Gemini Insurance Company, A Corporation v. Western Marine Insurance Services Corporation

July 17, 2012

GEMINI INSURANCE COMPANY, A CORPORATION, PLAINTIFF,
v.
WESTERN MARINE INSURANCE SERVICES CORPORATION, A CALIFORNIA CORPORATION, DEFENDANT. / WESTERN MARINE INSURANCE SERVICES CORPORATION, A CALIFORNIA CORPORATION, THIRD-PARTY PLAINTIFF,
v.
ALLIANT INSURANCE SERVICES, INC., A CORPORATION, DAVID CRANMER, AN INDIVIDUAL, AND RESEARCH SPECIALISTS, INC., A CORPORATION THIRD-PARTY DEFENDANTS.



ORDER

On June 22, 2011, the court heard argument on the pending motions brought by Research Specialists, Inc. ("RSI") and Alliant Insurance Services, Inc. ("Alliant") and David Cranmer ("Cranmer"). Anton C. Gershler, Esq., appeared for defendants Alliant and Cranmer; Mark Kincaid, Bonetati & Kincaid, Inc., appeared for third party defendant RSI; and Steven Kronenberg, Murphy, Pearson, Bradley & Feeney appeared for third party plaintiff Western Marine Insurance Services Corporation ("Westmar"). Valerie Moore, Haight, Brown and Bonesteel, LLP, was present on behalf of proposed intervenor Scottsdale Indemnity Company.

I. Proceedings In This Court

On November 23, 2010, Gemini Insurance Company ("Gemini") filed a complaint against Westmar, an insurance brokerage specializing in marine insurance, alleging causes of action for breach of contract and negligence. ECF No. 1. On February 17, 2011, Westmar answered Gemini's complaint and filed a Third Party Complaint against Alliant, Cranmer, and RSI, alleging causes of action for indemnity and breach of contract. ECF Nos. 9, 10.

Third party defendants Alliant and Cranmer have filed a motion to dismiss or to stay the third party action, while third party defendant RSI has filed a motion to dismiss the third party action; Westmar has opposed both motions. ECF Nos. 15, 18, 20, 21.

In addition, Scottsdale Indemnity Company ("Scottsdale") has filed a motion for leave to intervene as a fourth party plaintiff against Gemini, Alliant, Cranmer, RSI and Marine Claims Services, Inc ("MCS"). Gemini, Alliant, Cranmer and RSI have opposed this motion. The court ordered this motion submitted without argument.

After considering the parties' arguments, the court GRANTS third party defendant RSI's motion to dismiss; DENIES third party defendants Alliant's and Cranmer's motion to dismiss or stay; and DENIES proposed fourth party plaintiff Scottsdale's motion to intervene.

II. The Complaint, The Third Party Complaint, and the Proposed Fourth Party Complaint

A. Gemini's Original Complaint

Gemini, an insurer, alleges that it entered into a Program Administrator

Agreement ("PAA") with Westmar, an insurance broker specializing in marine insurance, giving Westmar authority to issue Gemini's AquaPac Plus insurance policies. Gemini Complaint, ECF No. 1 ¶¶ 5-7. As part of that contract, Westmar agreed to defend, indemnify and hold Gemini harmless for any of Westmar's negligent or willful acts, errors or omissions or those of Westmar's brokers, employees or representatives. ECF No. 1 ¶ 7.

Westmar issued Gemini insurance to Wesco Sales Corporation (Wesco), covering Wesco's commercial property, including piers, docks and slips and for loss of income stemming from damage to that property for 2004-2005, 2005-2006, and 2006-2007. ECF No. 1 ¶¶ 8-11. Westmar did not notify Wesco that the 2005-2006 and 2006-2007 policies did not include blanket coverage for all locations but rather provided coverage limits on a "per location" basis, a change from the 2004-2005 policy. ECF No. 1 ¶¶ 8-9, 11-12.

Wesco made a claim to Gemini under the 2006-2007 policy for damage to its docks and loss of business income. ECF No. 1 ¶ 13. MCS acted as third party administrator of claims to Westmar. ECF No. 1 ¶ 14. MCS advised Westmar that Wesco's claim should be paid based on coverage per location rather than on the basis of blanket coverage for all locations. ECF No. 1 ¶ 15.

Wesco filed suit against Gemini in Ventura County Superior Court, Wesco Sales Corporation v. Gemini Insurance Company, et al., Case No. 56-2009-003368-22-CU-IC-VTA ("Wesco Action"), alleging Gemini had breached its contract and the covenant of good faith and fair dealing by paying the claim based on per location coverage rather than blanket coverage for all locations. ECF No. 1 ¶ 16.

Westmar agreed to indemnify and defend Gemini in the Wesco action. ECF No. 1 ¶ 17. The Wesco action settled, with Gemini paying $950,000 toward settlement and $28,000 in attorneys' fees; Westmar had not indemnified Gemini for these amounts. ECF No. 1 ¶¶ 18-20.

Gemini alleges that Wesco breached the PAA by failing to indemnify it for the settlement costs and attorneys' fees and was negligent in failing to give specific notice to Wesco that the 2005-2006 and 2006-2007 policies did not include blanket coverage for all insured locations, by advising MCS that Wesco's claim should be paid on a per location basis, and by failing to follow up after Wesco's application for renewal of the 2005-2006 policy included an affirmative response to a question about its operation's unusual exposure. ECF No. 1 ¶¶ 21-28.

B. Westmar's Third Party Complaint

Westmar alleges that Wesco, a corporation that leases dock space at several marinas in Southern California, sought coverage from Gemini for property damage and loss of business income, working through Alliant, which provides retail insurance services, and Cranmer, who is vice-president of Alliant's marine department. ECF No. 10 ¶¶ 4-5, 9. Westmar had no direct contact with Wesco, but rather communicated with Cranmer and Alliant regarding the policy for Wesco. ECF No. 10 ¶ 9. Alliant and Cranmer failed to disclose that Wesco had suffered an earlier loss at the insured locations. ECF No. 10 ¶¶ 11, 14. The decision to renew Wesco's coverage as well as the decision as to the amount and terms of coverage was affected by Wesco, Alliant and Cranmer's failure to disclose Wesco's earlier loss. ECF No. 10 ¶ 16. Alliant and Cranmer also failed to explain to Wesco the change from blanket to per location coverage. ECF No. 10 ¶¶ 13, 15, 17.

In August 2005, Westmar hired RSI to inspect Wesco's insured locations. RSI's website assures potential clients that it uses accurate techniques to review commercial risks, that its reports have "pin-point accuracy" and that its staff has "a strong work ethic." These representations were "essential" to Westmar's decision to hire RSI. RSI's inspection was negligent and RSI failed to report to Westmar about the true condition of Wesco's docks. ECF No. 10 ¶ 12.

Two of Wesco's docks were damaged in December 2006. After the claim was paid on a per location basis, Wesco filed suit against Gemini, in Ventura County Superior Court, challenging Gemini's failure to disclose that the policies did not provide blanket coverage. ECF No. 10 ¶¶ 17-18. Westmar took on the defense of Gemini under the PAA, reserving the right to withdraw if it discovered, for example, that Gemini had failed to investigate and/or discover Wesco's prior loss, which could have triggered rescission. ECF No. 10 ¶ 18. Gemini settled with Wesco; Westmar's insurer paid half the settlement amount. ECF No. 10 ¶ 19.

Westmar alleges causes of action for indemnity against Alliant and Cranmer, stemming from their alleged failure to advise Wesco about the change from blanket coverage to per location coverage and their alleged failure to disclose Wesco's prior loss at an insured location and against RSI, stemming from its alleged breach of its duty to inspect Wesco's docks in conformance with its representations on its website. ECF No. 10 ¶¶ 22-24.

A second claim for breach of contract against Alliant and Cranmer alleges that Westmar's broker agreement with Alliant required them to notify Westmar of any notices of loss, yet they failed to reveal Wesco's prior loss at an insured location. ECF No. 10 ¶ 29.

C. Scottsdale's Proposed Fourth Party Complaint*fn1

Scottsdale, an indemnity company, issued a brokerage errors and omissions

policy to Westmar*fn2 and appears as a contractual and equitable subrogee to the rights of Westmar. ECF No. 28-1 ¶ 3. The proposed complaint recites the history of Wesco's dealing with Gemini, Westmar, Alliant and Cranmer, and describes the submission of Wesco's Notice of Loss to MCS in December 2006. ECF No. 28-1 ¶ 20. MSC retained Theodore Brown to investigate the loss; Brown determined that although the marinas had been damaged in 2001, they had not been repaired properly and the damage had not been reported. ECF No. 28-1 ¶ 21. Despite this report, Gemini paid Wesco for property damage and business interruption without a reservation of rights. ECF No. 28-1 ¶ 22. Wesco thereafter filed suit and Gemini tendered the Wesco action to Westmar for indemnification and defense. ECF No. 28-1 ¶ 24. Westmar in turn tendered the defense to Scottsdale, which agreed to pay for the defense subject to a full reservation of rights. ECF No. 28-1 ¶ 26. Gemini failed to raise and pursue several defenses and failed to join Alliant, Cranmer, RSI and MCS as defendants. ECF No. 28-1 ¶ 27. Scottsdale brokered a joint settlement agreement in order to mitigate further damages claimed by Wesco. It paid $950,000 to Wesco and Gemini paid the same sum, with neither side surrendering any claims against each other or any third parties for contribution. ECF No. 28-1 ¶ 28.

The proposed Fourth Party Complaint consists of common law indemnification claims against Gemini, Alliant, Cranmer, RSI and MCS and a ...


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