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McMillin Companies, LLC v. American Safety Indemnity Co.

California Court of Appeals, Fourth District, First Division

January 22, 2015

McMILLIN COMPANIES, LLC, Plaintiffs and Appellants,
v.
AMERICAN SAFETY INDEMNITY COMPANY, Defendant and Appellant.

[CERTIFIED FOR PARTIAL PUBLICATION[*]]

APPEAL from a judgment of the Superior Court of San Diego County, Super. Ct. No. 37-2009-00083837-CU-IC-CTL Judith F. Hayes and Lorna A. Alksne, Judges.

Page 519

[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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COUNSEL

Wilson, Elser, Moskowitz, Edelman & Dicker, Gregory D. Hagen and John R. Clifford for Defendant and Appellant.

Law Offices of Greg J. Ryan and Greg J. Ryan for Plaintiffs and Appellants.

Morris Sullivan & Lemkul, Shawn D. Morris and Matthew J. Yarling for Brookfield Del Mar Builders, Inc., as Amicus Curiae on behalf of Plaintiffs and Appellants.

Wilson, Elser, Moskowitz, Edelman & Dicker, Gregory D. Hagen and John R. Clifford for Defendant and Appellant.

OPINION

IRION, J.

The parties cross-appeal from a final judgment of the superior court in an insurance coverage dispute between a general contractor (and, according to the general contractor, its related entities) and the commercial general liability insurer of one of its subcontractors. We will dismiss the appeal as to all parties other than the general contractor (McMillin Construction Services, L.P., doing business as McMillin Homes, a Corky McMillin Company (McMillin)) and the insurer (American Safety Indemnity Company (ASIC)) and will reverse the judgment and remand for further proceedings.

I. MOTIONS IN THE CROSS-APPEALS [*]

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II. ISSUES IN THE CROSS-APPEALS

A. The Entities

McMillin was the general contractor and B&B Framing, Inc. (B&B) was the framing subcontractor in a series of construction contracts related to various residential real estate development projects in Temecula, Riverside County, California.

ASIC is a non-admitted insurance company that issued two policies of commercial general liability insurance to B&B: policy No. XGI 02 2922 001, covering the time period January 18, 2002, to January 18, 2003; and policy No. XGI 03 2922 002, covering the time period January 18, 2003, to January 18, 2004. Although both policies are alleged in the original and first three amended complaints in this action, the parties agree that only the first policy, No. XGI 2 2922 001 (Policy) is at issue.

B. The Construction Defect Litigation

In October 2007, 117 homeowners in the Brookhaven, Castle Pines and Cypress Point projects (projects) filed an amended complaint in Riverside County Superior Court against McMillin and others, alleging construction defect claims related to the homeowners' residences in the projects (Baker litigation).

In December 2007, McMillin (and a number of its related entities named as defendants in the Baker litigation) tendered the defense of the Baker litigation to ASIC under the terms of both of the policies, contending it was an additional insured under the policies. Approximately six months later, ASIC denied the tender.

C. The Present Insurance Coverage Litigation

1. The Complaint and Amended Complaints

In February 2009, eight McMillin-related entities (but not McMillin) filed the underlying complaint against ASIC and 11 other insurance companies. The plaintiffs alleged that each of the defendants was an insurer to one or more of the subcontractors on the projects, that each of the plaintiffs was an additional insured under each of the respective policies, that each of the defendant insurers owed each of the plaintiffs a duty to defend the Baker litigation, and that by denying the tender of the defense of the Baker litigation

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each of the defendants breached a contract of insurance and its implied covenant of good faith and fair dealing.

In a first amended complaint filed in July 2010, McMillin and nine related entities named the same defendants as in the original complaint and alleged essentially the same facts and causes of action.

Two months later, in a second amended complaint (SAC), McMillin and two related entities (SAC plaintiffs) named the same defendants as in the first two complaints and alleged essentially the same facts and causes of action.

In November 2011 McMillin, as the sole plaintiff, filed a third amended complaint (TAC) against ASIC, as the sole defendant, alleging essentially the same facts and causes of action as in the prior three complaints.[4] This was after the denial of ASIC's motion for summary judgment, the settlements with all defendants except ASIC, and the filing of the parties' pretrial motions in limine, but before the rulings on the in limine motions—all discussed post.

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2. ASIC's Motion for Summary Judgment

In January 2011, ASIC filed a motion for summary judgment directed to the then-operative SAC. ASIC argued that all three causes of action—declaratory relief, breach of contract and breach of the implied covenant of good faith and fair dealing—failed as a matter of law on the following independent grounds: (1) none of the SAC plaintiffs qualified as an "additional insured" under the terms of the Policy; (2) the Policy only covered B&B's "ongoing operations, " which ASIC contended had ceased prior to the occurrences alleged in the Baker litigation; (3) the Policy only covered liability arising out of B&B's negligence; (4) the Policy's exclusion j. (5) precluded coverage; and (5) the Policy's exclusion j. (6) precluded coverage.[5] We will discuss the substance of the specific arguments, as necessary, in the Discussion, post.

The SAC plaintiffs opposed the motion, ASIC replied to the opposition, and the court issued a tentative ruling and entertained lengthy oral argument.

By minute order filed July 29, 2011, the court denied ASIC's motion, ruling in relevant part: (1) ASIC met its initial burden of establishing that there is not an "additional insured endorsement" on the Policy expressly identifying any of the SAC plaintiffs; (2) the SAC plaintiffs then did not meet their burden of raising a triable issue of material fact as to the absence of an effective "additional insured endorsement" identifying any of the SAC plaintiffs; but (3) the applicable " 'blanket' additional insured endorsement" contained in the Policy provided benefits in circumstances that ASIC did not disprove as a matter of law.

3. The Settlements

During the time period May 2010 through October 2011, the SAC plaintiffs settled their claims in the coverage action with all the defendants except ASIC (Settlement). Of the total $690, 154 in Settlement proceeds, the Settlement documentation affirmatively allocated $274, 154 to defense expenses from the Baker litigation, and $416, 000 was unallocated.[6]

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4. The Motions in Limine

In October 2011, in anticipation of trial, the parties filed motions in limine. One dealt with ASIC's alleged duty to defend, and two dealt with the effect of the Settlement ...


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