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Gemini Insurance Co. v. Western Marine Insurance Services Corp.

United States District Court, E.D. California

June 21, 2016

GEMINI INSURANCE COMPANY, a corporation, Plaintiff,


         This 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.

         As explained below, the court GRANTS Gemini’s Motion with respect to notice and DENIES the balance of Gemini’s Motion.


         On 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.

         Subsequently, 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.


         The facts in this section are undisputed unless specified otherwise.

         A. Program Administrator Agreement (PAA)

         Gemini 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.[1] 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.[2] 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 policy.

         The 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.

         Under “Appointment/Authority, ” section 1.2 of the PAA provides:

Subject to the limitations contained in this Agreement, Administrator shall perform all acts necessary to the proper solicitation, placement, acceptance, and servicing of the policies including:
a. to solicit, underwrite, quote, bind, rate, code, and store policies; and
b. to collect, receive, and account for premiums on policies; and
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 . . . [and]
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 hereunder.

         PAA at 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.

         Under “General Obligations of Administrator, ” section 4.3 of the PAA provides that Western Marine shall be responsible for

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 Company.

         PAA at 5.

         Section 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.

         Under “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 Agreement.
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 Administrator.

         PAA at 11.

         As 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 Territory.

         PAA at 4. “Territory” is defined in Exhibit A to include California. Gemini Ex. 1 at 19.

         Section 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.

         B. Gemini Policies

         Between 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.

         1. 2004-2005 Policy

         Wesco’s 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 No. 6.

         One section of the 2004 Application contained the following instruction:


         Gemini 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.

         Western 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.

         The 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. 87:2-5.

         2. 2005-2006 Policy

         In 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 states,

[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 . . . .

         Gemini Ex. 33 at 58.

         Wesco’s 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 ...

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