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National Union Fire Ins. Co. of Pittsburgh, PA. v. Tokio Marine and Nichido Fire Insurance Co.

California Court of Appeals, Second District, Fifth Division

February 4, 2015

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff and Appellant,
v.
TOKIO MARINE AND NICHIDO FIRE INSURANCE COMPANY et al., Defendants and Respondents.

Order Date March 5, 2015.

APPEAL from a judgment of the Superior Court of Los Angeles County, No. BC359837 Mary Thornton House and Richard E. Rico, Judges.

McCormick, Barstow, Sheppard, Wayte & Carruth LLP, James P. Wagoner, Timothy R. Sullivan, Geni K. Krogstad and Lejf E. Knutson for Plaintiff and Appellant.

Gordon & Rees LLP, Jeffrey A. Swedo and Stephanie Alexander, for Defendants and Respondents.

ORDER MODIFYING OPINION

THE COURT:

It is ordered that the opinion filed herein on February 4, 2015 be modified as follows:

1. On page 2, in the first sentence of the second paragraph, delete the words “the costs of defending the Daer action as well as” and delete footnote 2.

2. On page 4, delete the second paragraph in its entirety and replace it with the following sentence:

According to Yokohama, Costco terminated it as a vendor in 1996 and ceased all purchases from Yokohama in September 1997.

3. On page 5, in the first sentence of the last paragraph delete the words “to recover the costs of defense of, and.”

4. Starting on p. 12, delete the two full paragraphs under the heading “2. Interpretation of indemnity provision of Supplier Agreement” and insert in their place the following six paragraphs:

National Union contends on appeal that the “trial court improperly failed to rule on the effect of Yokohama’s refusal to defend;” Yokohama concedes that the trial court did not rule on the matter. National Union argues that this question is fundamental to its claim for contractual indemnity, as its resolution determines which party will bear the burden of proof at trial on the issue of indemnity.

National Union’s argument begins with the language of the indemnity provision at issue, which is contained in paragraph 10.2 of the Supplier Agreement. It states: “10.2 [Yokohama] shall indemnify, defend, and hold [Costco] harmless from all liability and expense, actual or alleged, death of or injury to any person, damage to any property, or any other damages or loss, by whomsoever suffered, (including without limitation, reasonable attorneys’ fees) which [Costco] may incur as a result of any claim, suit or action against [Costco] arising out of defective design, workmanship or materials in any Product manufactured by [Yokohama] hereunder, including the failure to provide adequate warnings, labeling instructions as required by all applicable law; provided that such indemnity is expressly limited by its terms and does not include indemnification of [Costco] for any liability arising out of the actions or negligence of [Costco].” (Emphasis added.)

National Union maintains that the plain meaning of this language is that, although Yokohama’s obligation to indemnify Costco was limited to Costco’s liability not founded upon its own negligence (e.g., products liability as the seller of a defective product), Yokohama was required to defend Costco against the Daer action whether or not it asserted a negligence cause of action against Costco. Thus, National Union argues that the exception to Yokohama’s obligations under paragraph 10.2 (italicized above) provides that Yokohama’s obligation to indemnify Costco does not extend to liability imposed on account of the latter’s negligence; there is no similar limitation which affects Yokohama’s duty to defend Costco in a lawsuit alleging a defective Yokohama tire. Costco tendered defense of the Daer action to Yokohama, but received no response. Costco thus asserts that Yokohama breached its duty to defend the Daer action.

Having concluded that Yokohama was in breach of its duty to defend, National Union next cites Washington law to the effect that “the failure of the indemnitor to defend the action when the subject matter of the suit is within the scope of the indemnity agreement is itself a breach of contract and entitles the indemnitee to recover from the indemnitor the amount of any reasonable settlement made in good faith.” (Northern Pac. Railway Co. v. National Cylinder Gas Div. of Chemetron Corp. (1970) 2 Wash.App. 338, 345 [467 P.2d 884, 889].) Moreover, under California evidentiary law, where the indemnitor refuses to defend, the settlement becomes ‘“presumptive evidence of liability of the indemnitee and of the amount but may be overcome by proof from the indemnitor that the settlement was unreasonable....”’ (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 130, quoting Peter Culley & Associates v. Superior Court (1992) 10 Cal.App.4th 1484, 1497.) From the foregoing, National Union concludes that in order to prevail on its indemnity claim, it has only to prove that: “(1) Costco’s defense was tendered to Yokohama and was not accepted; (2) its settlement was an ‘expense’ on account of ‘alleged’ ‘liability’; (3) the settlement was reasonable; and (4) the alleged liability represented by the settlement was within the indemnity provision” of the Supplier Agreement. National Union thus contends that the trial court erred in ruling that it was National Union’s burden to prove that the tire was defective.

Yokohama challenges the assertion that it breached a duty to defend Costco against the Daer action. It argues that, unlike California law, in Washington, a contractual indemnitor’s obligation to defend claims brought against its indemnitee is not determined by the allegations of the complaint, but instead “by the facts known at the time of the tender of defense.” (George Sollitt Corp. v. Howard Chapman Plumbing & Heating, Inc. (1992) 67 Wash.App. 468, 472 [836 P.2d 851, 853].) Thus, for example, in the cited case, the appellate court referenced the defendant’s answers to the plaintiff’s interrogatories in determining that “this is not a case of sole negligence, ” thereby concluding that the defendant had a contractual duty to defend. (Ibid.)

We express no opinion on the proper resolution of this issue. We agree with National Union, however, that the trial court erred in failing to rule on whether the Supplier Agreement obligated Yokohama to assume Costco’s defense of the Daer action at the time of tender. Because we remand this matter for a new trial, the parties will have the opportunity to argue the issue to the trial court and obtain a ruling which, in turn, will determine their respective burdens in prosecuting and defending this lawsuit.

There is no change in the judgment. Petitions for rehearing are denied.

GOODMAN, J.[*]

Plaintiff and appellant National Union Fire Insurance Company of Pittsburgh, Pa. (National Union), as excess insurer of Costco Wholesale Corporation (Costco), filed this lawsuit against Yokohama Tire Corporation (Yokohama) and its primary and excess insurers Tokio Marine & Nichido Fire Insurance Co., Ltd. (U.S. Branch) and Tokio Marine & Nichido Fire Insurance Co., Ltd., respectively (together, Tokio Marine) to recover sums it expended in settlement of a personal injury claim allegedly resulting from, among other things, material and design defects present in a tire manufactured by Yokohama and sold by Costco to Jack Daer, the plaintiff in the underlying case. Costco and Yokohama individually settled with Daer on the first day of trial, Costco for $5.5 million and Yokohama for $1.1 million.[1]

In this lawsuit, National Union sought to recover the costs of defending the Daer action as well as the $4, 312, 681.96[2] it paid on behalf of Costco to settle that lawsuit. National Union, as subrogee of Costco, sought recovery against Yokohama based on an express indemnity provision in the supplier agreement between the two companies, as well as an alleged breach of Yokohama’s contractual insurance obligations. In addition, it sued Tokio Marine for indemnity (on its own behalf and as subrogee of Costco) and contribution (on its own behalf). Finally, National Union sued Tokio Marine on a ...


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