United States District Court, S.D. California
WILLIAM Q. HAYES, District Judge.
The matter before the Court is the Motion for Summary Judgment (ECF No. 16) filed by Plaintiff and Counter-Defendant Century Surety Company.
On March 26, 2014, Plaintiff and Counter-Defendant Century Surety Company ("Plaintiff" or "Century Surety") commenced this action by filing the Complaint for Reformation in this Court. (ECF No. 1). Plaintiff alleges that it and Defendant and Counterclaimant Weir Brothers Construction Corp. ("Defendant" or "Weir Brothers") intended to enter into a "claims made" liability insurance policy, but endorsement CBL 1902 (07/08) was mistakenly included in the policy, converting it into an "occurrence" policy. Plaintiff requests reformation of the policy and deletion of endorsement CBL 1902 (07/08). On May 19, 2014, Defendant filed an Answer and Counterclaims. (ECF No. 6). On June 6, 2014, Defendant filed an Amended Answer and Counterclaims, which is Defendant's operative pleading in this case. (ECF No. 8). The Amended Answer and Counterclaims alleges that Defendant was unaware of the intricacies of insurance policies and believed that Plaintiff had issued it an appropriate insurance policy. The Amended Answer and Counterclaims asserts two counterclaims: (1) declaratory judgment; and (2) breach of the covenant of good faith. Defendant seeks a judicial determination that the policy issued by Plaintiff is valid and enforceable as written and that Defendant is entitled to a defense and recovery of fees in an underlying lawsuit against Defendant for a construction defect ("Moody Creek Farms litigation"). Defendant also seeks compensatory and punitive damages on the grounds that Plaintiff is attempting to reform the policy without legal grounds and engaged in "dilatory claims handling" in response to Defendant's tender of defense for the Moody Creek Farms litigation. Id. at 16.
On December 3, 2014, Plaintiff filed the Motion for Summary Judgment. (ECF No. 16). On February 12, 2015, Defendant filed an opposition. (ECF No. 20). On February 20, 2015, Plaintiff filed a reply, accompanied by objections to Defendant's evidence, and three declarations. (ECF No. 22).
"In or about July 6, 2005, Weir Brothers entered into a construction contract with Moody Creek Farms, LLC (MCF') to construct a home at a cost of $3.8 million." (Defendant's Response to Plaintiff's Separate Statement of Purportedly Undisputed Material Facts ("Def.'s RSSUF") ¶ 1, ECF No. 20-4 at 2). "The scope of the construction contract expanded over time and the project extended over a period of several years." Id. ¶ 2.
On May 27, 2008, Jennifer Fulcher of American E & S sent an email to email@example.com stating:
Attn: Monique M.,
Please see the attached submission for an account that is new to our office. The insured is a home builder of high end custom homes, currently insured with Golden Bear for $113, 550 for 10 million in receipts. Attached is the accord application, supplemental and 5 years currently valued loss runs. Thank you.
(Pl.'s Ex. 1, ECF No. 16-7 at 7). Attached to the email is an application for an insurance policy prepared on behalf of Defendant. On the first page of the application, boxes titled "Proposed Eff Date" and "Proposed Exp Date" are filled in with "08/15/08" and "08/15/09." Id. at 8. In a section of the application titled "Commercial General Liability Section, " under a subsection titled "Coverages, " boxes for "Commercial General Liability" and "Claims Made" are checked. Id. at 10. The box for "Occurrence" is not checked. Id. In a section of the application titled "Prior Carrier Information, " "[t]he application state[s] Weir Brothers had been insured under a claims made' policy for the prior five years." (Id. at 9; Def.'s RSSUF ¶ 6, ECF No. 20-4 at 3).
On August 14, 2008, Chris Houska of CRC Insurance Services ("CRC"), Century Surety's insurance broker, sent an email to Robert Butterworth of Century Surety, stating:
I realize you do not want to handle last minute BOR's but I have been asked to approach you. As stated my retailer was given one market (FFIC) whom we went to and obtained an occurrence quote of 64k off 8mm sale for 1/2/2 5k deductible.
Upon presenting to the insured we discovered they are with Golden Bear on a claims made policy with a 8/15/99 retro date. To say the least the rating and form is not what it should be and the insured therefore cannot switch to occurrence at this time.
It appears the incumbent only presented Golden Bear and Navigators after being given the entire market. The insured therefore feels he was not presented all options. We have an order at an 8.50 rate for limits of 1/2/2 on a claims made form with the 8/15/99 retro date. Based off the 8mm sales the premium would be 68k and we could bind first thing tomorrow upon receiving our quote. I know you may need to get a release but due to the circumstances I hope you can offer us and the insured every consideration possible.
Thanks in advance for your attention to this.
(Pl.'s Ex. 2, ECF No. 16-7 at 20). Attached to the August 14, 2008 email is a letter signed by Robert Weir, and with Weir Bros. Construction Corp. letterhead, that states: "Please be advised that effective August 14, 2008 we are appointing Robert Kempa of Westland Insurance Brokers and CRC Sterling West Insurance Servises [sic] as our exclusive broker of record with respects to our insurance coverage." Id. at 21.
In response to Chris Houska's email, Century Surety provided a "quote." (Def.'s RSSUF ¶ 10, ECF No. 20-4 at 5). The "quote" is a form with a "Century Surety Company-Construction Division" heading. (Pl.'s Ex. 3, ECF No. 16-7 at 23). In the quote, a line next to "Claims Made" is filled in with "XXX." Id. A line next to "Occurrence" is left blank. Id. The form lists a "retro date" of "8/15/99." Id. The form lists multiple "Mandatory Forms, " one titled "CG 0002 (12/07)... CGL Coverage Form-Claims Made Form" and another titled "CBL 1902 (07/08)... Continuous or Progressive Limitation." Id.
On August 15, 2008, Robert Kempa of Westland Insurance Brokers sent an email to Chris Houska and Daniel Bonenfant of CRC, with a copy to Jill Conti of Westland Insurance Brokers, stating: "Chris and Dan, Per the insured request effective 8/15/2008 bind General liability coverage with Century Surety... $2, 000, 000/$2, 000, 000... $10, 000 SIR... Rate $8.50 per 1000 receipts based on $8, 000, 000 Claims Made Coverage-Retro Date 8/15/1999.... Please contact Jill Conti with policy #'s and any further binding instructions." (Pl.'s Ex. 4, ECF No. 16-7 at 28). "CRC sent an email to Century on August 15, 2008 and requested that coverage be bound pursuant to Century's quote." (Def.'s RSSUF ¶ 12, ECF No. 20-4 at 5). "Century bound coverage pursuant to a binder effective August 15, 2008 and issued... general liability insurance policy No. CCP564869 to Weir Brothers in effect from August 15, 2008 to August 15, 2009 (the Century Surety policy') subject to a $10, 000 self-insured retention (SIR')." Id. ¶ 13.
The "binder" is a form with a "Century Surety Company-Construction Division" heading. (Pl.'s Ex. 6, ECF No. 16-7 at 32). In the binder, a line next to "Claims Made" is filled out with "XXX." Id. The form lists a "retro date" of "8/15/99." Id. The form lists multiple "Mandatory Forms, " one titled "CG 0002 (12/07)... CGL Coverage Form-Claims Made Form" and another titled "CBL 1902 (07/08)... Continuous or Progressive Limitation." Id.
Plaintiff's Exhibit 7 is an August 18, 2008 email from Daniel Bonenfant of CRC to Jill Conti of Westland Insurance Brokers, stating:
Policy #: CCP 564869
Form: Claims Made
Retero [sic] Date 8/15/99
Binder and invoice tomorrow when Julie gets back.
(Pl.'s Ex. 7, ECF No. 16-7 at 37).
"Century sent the Century Surety policy to CRC on September 9, 2008 and CRC sent the Century Surety policy to Weir Brothers' retail broker on September 23, 2008." (Def.'s RSSUF ¶ 16, ECF No. 20-4 at 6). The third page of the Century Surety policy is titled "Schedule of Forms and Endorsements." (Pl.'s Ex. 10, ECF No. 16-7 at 46). "CG 00 02 12 07... Comm General Liability Cov Form" is listed on that schedule. Id. "CG 00 02 12 07" is titled "Commercial General Liability Coverage Form." Id. at 71. "CG 00 02 12 07" states, in relevant part:
b. This insurance applies to "bodily injury" and "property damage" only if:
(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory";
(2) The "bodily injury" or "property damage" did not occur before the Retroactive Date, if any, shown in the Declarations or after the end of the policy period; and
(3) A claim for damages because of the "bodily injury" or "property damage" is first made against any insured, in accordance with Paragraph c. below, during the policy period or any Extended Reporting Period we ...