United States District Court, E.D. California
order resolves the motion for summary judgment, or in the
alternative, for partial summary judgment (the Motion),
brought by plaintiff Gemini Insurance Company (Gemini)
against defendant Western Marine Insurance Services
Corporation (Western Marine) and Scottsdale Indemnity Company
(Scottsdale), the subrogee of Western Marine. See
generally Mot., ECF No. 95-1. Western Marine and
Scottsdale each opposed the Motion. Opp’ns, ECF Nos.
111, 112. Gemini replied to each separately. Replies, ECF
Nos. 115, 117. On January 15, 2016, court held a hearing on
the motion. Howard Wollitz appeared for Gemini, Stephen
Fleischer-Ihn appeared for Western Marine, and Gary Kull
appeared for Scottsdale.
explained below, the court GRANTS Gemini’s Motion with
respect to notice and DENIES the balance of Gemini’s
November 23, 2010, Gemini filed the original complaint in
this action, alleging breach of contract and common law
negligence against Western Marine. In response to the
complaint, Western Marine filed an answer and a third-party
complaint against third-party defendants Alliant Insurance
Services, Inc. (Alliant) and David Cranmer, Wesco’s
insurance broker. ECF Nos. 9, 10. After the court granted its
motion to intervene, ECF No. 53, Scottsdale filed an
intervenor complaint, as Western Marine’s subrogee,
against Gemini, Alliant, and MCS, the third-party
administrator that adjusted claims for policies issued by
Western Marine on behalf of Gemini under a Program
Administrator Agreement (PAA). ECF No. 56. Western Marine
then moved to amend its answer, ECF No. 52, which motion the
court denied, Order, ECF No. 65.
Gemini filed this motion. At hearing, the court directed the
parties to meet and confer on whether the record should be
corrected, and whether or not the parties should be given the
opportunity to file supplemental briefing. ECF No. 123. The
parties stipulated to allow both, ECF No. 125, and Gemini
then filed Exhibit 40 to replace Exhibit 13, ECF No. 127.
Western Marine and Scottsdale each filed a supplemental
memorandum in response to Exhibit 40. ECF Nos. 129, 130.
Gemini replied to each brief separately. ECF Nos. 134, 135.
facts in this section are undisputed unless specified
Program Administrator Agreement (PAA)
is an insurer not licensed by the state of California, of a
type known as a non-admitted or surplus lines insurance
company. Eskue Dep. 21:1-5, 32:8-14, ECF No. 96; ECF No. 97,
Gemini Ex. 7 at 44. As a surplus lines insurer Gemini cannot
directly contact prospective insureds to sell policies in
California. Eskue Dep. 21:10-13. Western Marine is a licensed
surplus lines broker, specializing in marine insurance; it
solicited, underwrote, bound, and issued commercial insurance
policies for Gemini to insureds in California under the PAA
as an independent contractor. Western Marine’s Resp. to
Gemini’s Stmt. of Genuine Issues (WMRS) Nos. 1, 4, ECF
No. 111-2; Scottsdale’s Resp. to Gemini’s Stmt.
of Undisputed Fact (SUMF) Nos. 1, 4, ECF No. 112-1; PAA at 3,
6, ECF No. 96, Gemini Ex. 1. As provided by the PAA, Western
Marine underwrote and issued policies for Gemini, and had
binding authority to do so. Eskue Dep. 22:20-23:4. The PAA
established Western Marine’s duties and liabilities
related to underwriting and issuance of Gemini’s
PAA, or the “Agreement, ” provides that
“Company is contracted as the Manager of the insurance
companies designated in Exhibit A, ” which included
Gemini, “and therefore has express and implied
authority to enter into this contract and perform such duties
as required by this contract.” PAA at 2. Berkley
Underwriting Partners, LLC (Berkley) was designated as the
“Company” for the purpose of the PAA.
Id. Berkley, as an agent of Gemini, entered into the
PAA with Western Marine, designated as the
“Administrator” for the purpose of the PAA,
effective July 1, 2004. Order at 6-8.
“Appointment/Authority, ” section 1.2 of the PAA
Subject to the limitations contained in this Agreement,
Administrator shall perform all acts necessary to the proper
solicitation, placement, acceptance, and servicing of the
a. to solicit, underwrite, quote, bind, rate, code, and store
b. to collect, receive, and account for premiums on policies;
c. to number, issue, countersign, and deliver policies
executed by authorized officers of [Berkley]; and
d. to make endorsements, changes, and modifications to
policies as authorized by Company; and
e. to effect cancellation and non-renewal of policies . . .
g. to perform faithfully the duties set forth herein and to
provide any other related activities or services incidental
or necessary to the complete servicing of policies issued
2-3. With respect to the word “underwrite” used
in 1.2.a., Sheila Eskue, vice president and underwriting
manager of Western Marine, defines underwriting as
“assessing a loss, determining the profitability of the
risk, to mitigate loss and to be profitable for the
company.” Eskue Dep. 36:10-12.
“General Obligations of Administrator, ” section
4.3 of the PAA provides that Western Marine shall be
full compliance with all applicable laws, regulations, rules,
and requirements relating to the performance of its
obligations hereunder; and the general standards, rules, and
regulations of the insurance industry; and all written
instructions provided to Administrator from time to time by
10.13 under “General Provisions” further
provides, in relevant part, “Administrator shall comply
with the requirements of all applicable federal, state and
local laws, rules and regulations of all insurance regulatory
authorities . . . .” PAA at 17.
“INSURANCE AND INDEMNITY, ” section 8.2 of the
PAA provides, in relevant part:
At all times hereafter, Administrator agrees to defend,
indemnify, and hold Company harmless from and against all
claims, actions, causes of action, liability, or loss which
result from any real or alleged negligent or willful acts,
errors, or omissions of Administrator, or the servants,
employees, representatives, producers, or brokers of
Administrator in the performance or breach of duties under
this Agreement, including but not limited to soliciting,
quoting, underwriting, and/or binding policies prohibited
under Section 3.1. [Western Marine] further agrees that in
the event [Berkley] is in violation of any state code,
statute, regulation, or bulletin due to the negligent or
willful acts, errors, or omissions of [Western Marine], or
the servants, employees, representatives or producers of
Administrator, then Administrator shall assume the
responsibility and liability for such act and shall indemnify
and hold Company harmless for such liability and loss. Loss
shall include but not be limited to, all damages, costs,
expenses, reasonable attorneys’ fees and other legal
fees, penalties, fines, direct or consequential damages,
assessments, verdicts (including punitive damages to the
extent permissible by law), and any other expense or
expenditure incurred by Company.
This [s]ection . . . shall survive termination of this
In all third party liability claims asserted against Company,
wherein Administrator shall defend and indemnify Company,
Administrator shall notify Company within 24 hours of receipt
of such claim. Company shall have the right to retain counsel
of its own selection, at Administrator expense, to provide a
defense to Company. Company’s written consent must be
obtained prior to any settlement, which consent will not be
unreasonably withheld. If Administrator, within a reasonable
time after receiving notice of a claim from Company, fails to
defend, Company shall have the right, but not the obligation,
to undertake the defense, compromise, or settlement of such
claim on behalf of, for the account of and at the risk of
noted, Section 3.1 of the PAA, provides, in relevant part:
With respect to the policies which Administrator is now or
may in the future be authorized to solicit, transact, quote,
underwrite, rate, or bind under this Agreement, Administrator
will not solicit, transact, quote, underwrite, rate, or bind
policies on the following:
a. risks which are unacceptable in accordance with this
Agreement, or the underwriting guidelines, procedures,
instructions, or memoranda provided to Administrator by
Company from time to time, or in excess of the authority
limits, or in violation of any other limitations set out in
Exhibit A; or
b. risks which are not in compliance with the applicable
forms, rules, rates, or filings of Company according to their
exact terms and to the laws and regulations in effect in the
4. “Territory” is defined in Exhibit A to include
California. Gemini Ex. 1 at 19.
10.5 of the PAA identifies the “Applicable Law, ”
and states the PAA “shall be [interpreted], governed
and enforced by and construed in accordance with the laws of
the State of Illinois, without regard to its rules regarding
conflict of law.” PAA at 16.
2004 and 2007, Western Marine, issued three Gemini policies
to Wesco Sales Corporation (Wesco) for five recreational boat
marinas in southern California (Marinas). Gemini Ex. 7 at 45;
ECF No. 98, Gemini Ex. 10 at 34; ECF No. 99, Gemini Ex. 13 at
3. The policies were issued through Wesco’s retail
insurance broker Alliant, specifically David Cranmer, who had
experience obtaining insurance for marine operators, and
writing policies since 1985. Cranmer Dep. 15:12-18, ECF No.
96, Gemini Ex. 5; Gemini’s Resp. to Scottsdale’s
Counter-Stmt. of Undisputed Facts (SCSF) No. 5.
application for a 2004-2005 policy (2004 Application)
requested blanket coverage for all five Marinas. ECF No. 96,
Gemini Ex. 4 at 138, 140. Western Marine contends that
“blanket coverage” is not defined in the policy.
WMRS No. 13. Under Illinois law, undefined contractual terms
are typically afforded their plain and ordinary meanings
“[u]nless the agreement unequivocally specifies”
nuanced connotations, Frederick v. Prof’l Truck
Driver Training Sch., Inc., 328 Ill.App.3d 472 (2002),
and words of art or technical terms are assigned their
industrial meanings within the commercial context of the
agreement, Archer-Daniels Midland Co. v. Ill. Commerce
Comm’n, 184 Ill.2d 391 (1998) (noting that
Illinois follows the approach described in Restatement
(Second) of Contracts § 202(3)(b)). See also
Prestwick Capital Management, Ltd. v. Peregrine Financial
Group, Inc., 727 F.3d 646, 656 (7th Cir. 2013).
According to Cranmer, blanket insurance or blanket coverage
adds the stated values or replacement values for all
locations covered under the policy and allows it to be
applied to one location. Cranmer Dep. 20:4-14. Together, the
blanket coverage and replacement values provisions of the
2004-2005 Policy issued based on the Application create
coverage for the repair or replacement of the piers, wharves,
docks, and floats at any of the five marina locations. SCSF
section of the 2004 Application contained the following
ENTER ALL CLAIMS OR LOSSES (REGARDLESS OF FAULT AND WHETHER
OR NOT INSURED) OR OCCURRENCES THAT MAY GIVE RISE TO CLAIMS
FOR THE PRIOR 5 YEARS . . . .
Ex. 4 at 137. Next to that instruction was a box labeled
“CHK HERE IF NONE.” Id. Both portions of
the Application were left blank. See Id. Towards the
end of the Application, Wesco was asked: “DO YOU FEEL
THAT THE OPERATIONS, HOUSEKEEPING OR OTHER PHYSICAL
CONDITIONS PRESENT AN UNUSUAL EXPOSURE? IF YES,
EXPLAIN.” Id. at 155. In Cranmer’s
application on behalf of Wesco, he checked the box for
“YES” but did not provide an explanation.
Marine ordinarily followed up if information was missing from
an Application. Eskue Dep. 74:9-24; Petersen Dep. 68:17-21,
ECF No. 97, Gemini Ex. 6. However, it issued the 2004-2005
Policy without following up. WMRS No. 11; SUMF No. 11; Gemini
Ex. 7 at 45.
2004-2005 Policy included blanket coverage for all five
Marinas with the term “BLKT” printed on the
declarations page of the policy. Eskue Dep. 84:3-7, 86:14-20,
87:22-23; Cranmer Dep. 22:2-10, ECF No. 96, Gemini Ex. 5;
Gemini Ex. 7 at 46; Cangemi Dep. 83:7-12, ECF No. 98, Gemini
Ex. 11. The notation on the declarations page was the only
indication to clarify whether the policy was issued on a
blanket limit basis. SCSF No. 4; see also Eskue Dep.
2005, Western Marine ceased offering blanket coverage for
multiple locations in all of its policies. Dawson Dep.
133:5-17, ECF No. 97, Gemini Ex. 8. Also in 2005, Western
Marine hired Research Specialists Inc. (RSI) to inspect the
docks at 3821 Victoria Avenue, one of the five Marinas at
issue in this case. ECF No. 101, Gemini Ex. 34 at 2.
RSI’s inspection report states: “[t]he docks are
in good condition with no trip/fall hazards noted, ”
and “[t]he overall condition of the . . . docks . . .
is good.” Id. “Good” condition
meant the docks were acceptable for underwriting. Eskue Dep.
at 128:11-20, 129:8-11, 130:15-21, 131:3-16. The report by
RSI contrasts with a 2002 report by Index Research Services
Inc. (Index Research) sent to Western Marine on the 3821
Victoria Avenue dock and a neighboring dock at 3615 Victoria
Avenue (together the “Oxnard Marinas”), which
[T]he docks areas [were] in poor condition. Some of the
boards were very worn and . . . [there were] raised wood and
also the plywood was warped in several patched area the
boards were up and could present a trip-and-fall hazard . . .
Ex. 33 at 58.
application for the 2005-2006 Policy (2005 Application)
renewed its request for blanket coverage. Eskue Dep. at
94:15-23; Cranmer Dep. 62:12-17, 67:9-68:23; ECF No. 98,
Gemini Ex. 9 at 7. The 2005 Application also evidences the
same omissions as did the 2004 Application with respect to
claims or losses for the past five years and any unusual
exposures. Gemini Ex. 9 at 3, 4, 7, 20, 29. Western Marine
never made further inquiries with respect to the omitted
information before renewing the policy for 2005 to 2006. WMRS
Nos. 15-16; SUMF No. 15-16; see also Cranmer Dep.
55:10-13. The 2005-2006 Policy did not include blanket
coverage for ...