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St. Paul Fire and Marine Insurance Co. v. Insurance Co. of State of Pennsylvania

United States District Court, N.D. California, San Jose Division

March 7, 2017

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff,
v.
INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA., et al., Defendants. INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, Counterclaimant,
v.
ST. PAUL FIRE AND MARINE INSURANCE COMPANY, et al., Counterdefendants.

          ORDER RE: MOTIONS FOR SUMMARY JUDGMENT RE: DKT. NOS. 131, 132, 135, 140-3

          LUCY H. KOH United States District Judge.

         After a construction defect lawsuit involving Counterdefendant Brady Company/Central California, Inc. (“Brady”) settled, Brady's insurers agreed to pay certain amounts in the settlement. Before the Court are four motions for summary judgment on claims and counterclaims brought by the insurance companies who covered Brady under commercial general liability policies in the relevant time period. Specifically, this Order addresses the following four motions for summary judgment: Defendant-Counterclaimant Insurance Company of the State of Pennsylvania's (“Penn's”) Motion for Summary Judgment, ECF No. 140-3 (“Penn Mot.”); St. Paul Fire and Marine Insurance Company's (“St. Paul's”) Motion for Summary Judgment, ECF No. 132 (“St. Paul Mot.”); Travelers Property Casualty Company's (“Travelers'”) Motion for Summary Judgment, ECF No. 131 (“Travelers Mot.”); and Zurich American Insurance Company's (“Zurich's”) Motion for Summary Judgment, ECF No. 135 (“Zurich Mot.”).

         Having considered the parties' briefing, the relevant law, and the record in this case, the Court GRANTS in part and DENIES in part Penn's Motion, GRANTS in part and DENIES in part Travelers' Motion, GRANTS in part and DENIES in part Zurich's Motion, and GRANTS St. Paul's Motion.

         I. BACKGROUND

         A. Factual Background

         This case is a dispute regarding the amount of money each of Brady's insurers must pay towards a settlement that Brady reached to resolve claims involving Brady's negligent construction work as a subcontractor. The Court first discusses that construction project, then the Court discusses the underlying lawsuit and its settlement. Finally, the Court turns to the allegations in this case.

         1. Brady's Work as Subcontractor

         In 2002, the Regents of the University of California (the “Regents”) hired Devcon Construction, Inc. (“Devcon”) to build 17 student housing dormitories on the University of California Santa Cruz campus (the “Housing Project”). ECF No. 131-1 at 7, Travelers Mot. Ex. A (“Regents-Devcon Contract”). To complete the Housing Project, Devcon hired a number of subcontractors, including Brady. For about $4 million Devcon hired Brady to “[f]urnish all labor, equipment and materials for Metal Lath, Plaster, Gyp Board, and Fireproofing work in accordance with the Contract Document.” ECF No. 131-1 at 81-82, Travelers Mot. Ex. B (“Brady-Devcon Subcontract”).

         Specifically, the Brady-Devcon Subcontract provided that, on the interior of the buildings, Brady would furnish and install “Gyp Board, ” otherwise known as drywall, to form the interior walls. ECF No. 131-4, Ex. DD, Expert Report of Amy Collins Cassidy (“Cassidy Rep.”) at 3. As part of the interior wall installation, Brady was to “[f]urnish and install green board at all tub and shower areas and public restrooms.” Brady-Devcon Subcontract at 97. “[T]he main purpose of the green board was to provide a solid, moisture and mold-resistant material as backing for the acrylic panels that covered the shower and tub walls.” Cassidy Rep. at 42.

         On the exterior of the buildings, the Brady-Devcon Subcontract provided that Brady would use “Metal Lath” (a metal mesh) and cement “Plaster”, to create a stucco exterior for the buildings in the Housing Project. Brady-Devcon Subcontract at 96. Exterior stucco “protect[s] the building from the weather, as well as provide[s] resistance against water intrusion.” Cassidy Rep. at 42.

         In their respective contracts, Devcon agreed to indemnify Regents for all losses related to Devcon's failure to perform. Regents-Devcon Contract at 26. Similarly, Brady agreed to indemnify Devcon for failure to perform and for attorney's fees and costs in litigation arising out of the Housing Project. Brady-Devcon Contract at 84. The Housing Project was completed on October 1, 2004. ECF No. 131-2, Travelers Mot. Ex. I, at 154.

         2. Damage to the Housing Project and the Underlying Lawsuit

         Starting in late 2004 or early 2005, defects in the installation of the showers and tubs began to cause water damage. ECF No. 140-5 at 128, Penn Mot. Ex. 6, Declaration of Thomas Butt (“Butt Decl.”) ¶ 10 (noting that defects began to manifest within 6 months of October 2004). The Regents hired contractors to investigate these defects in 2011, and the investigation revealed multiple internal defects in the showers and tubs. ECF No. 140-10 at 28, Penn Mot. Ex. 7 (“Initial Defect Report”).

         On March 14, 2012, the Regents sent Devcon a “Notice of Latent Defects” in the Housing Project, which requested that Devcon remedy the problems in the showers and tubs. ECF No.140-10 at 35, Penn Mot. Ex. 8 (“Regent Notice”). On March 26, 2012, Devcon informed Brady of these interior defects, and on March 30, 2012, Brady tendered its defense to Travelers and St. Paul. ECF No. 140-10 at 26, Penn Mot. Ex. 7 (“Brady Tender”).

         On June 27, 2012, the Regents sued Devcon “for the repair and replacement of the defectively constructed and installed shower enclosures and shower pans.” See ECF No. 131-1, Travelers Mot. Ex. C, Complaint of the Regents against Devcon (“Regent Compl.”) at 138. The Regents' complaint included claims for breach of contract, breach of express warranty, negligence, and express indemnity, and also requested attorney's fees. Id. at 139-43.

         On July 27, 2012, one month later, Devcon filed a cross-complaint against Brady and other subcontractors for breach of contract, negligence, strict products liability, and both equitable and contractual indemnification. ECF No. 140-5 at 188, Penn Mot. Ex. 19, Devcon Cross Complaint against Brady (“Devcon Cross-Compl.”).

         Before the lawsuits were filed, the Regents informed Devcon that “we are continuing [our] investigation . . . in regards to other potential defective work including but not limited to: windows, entry doors, deck transitions, [and] cement plaster assemblies . . . .” ECF No. 140-10 at 48, Penn Mot. Ex. 12 (“Regents March 23, 2012 Letter”). In mid-September, Brady's expert, who was doing a site visit to inspect the interior bathrooms in relation to the interior defects, noticed that testing was being performed on the exterior stucco, and also noticed that the stucco was cracking. ECF No. 140-10 at 50-51, Penn Mot. Ex. 13. Testing that took place between December 17 and December 20, 2012 indicated that water intrusion and water damage had occurred. ECF No. 140-10, Penn Mot. Ex. 3.

         On March 19, 2013, the Regents amended their complaint against Devcon to include damages related to the exterior of the Housing Project buildings. ECF No. 140-5 at 168, Penn Mot. Ex. 18 (“Regents Amen. Compl.”) ¶ 10 (“In or about December 2012, the University discovered numerous defective construction conditions . . . [including] “exterior cladding, windows, doors, and related areas.”).

         3.Brady's Insurers

         Brady had several different liability insurers in the time between the completion of the Housing Project, October 1, 2014, and the July 1, 2015 settlement agreement. Those insurers include Penn, St. Paul, Travelers, Zurich, Counterdefendant American Guarantee and Liability Insurance Company (“American Guarantee”), and Everest National Insurance Company (“Everest”). The parties agree that the coverage amount and relationship and amount for each relevant year is as follows:

Coverage Period

Primary Liability Insurer

Excess Liability Insurer

6/1/2004-6/1/2005

St. Paul

$1M per occurrence/

$2M aggregate

Penn

$10M per occurrence/

$10M aggregate

6/1/2005-6/1/2006

Travelers

$1M per occurrence/

$2M aggregate

Penn

$10M per occurrence/

$10M aggregate

6/1/2006-6/1/2007

Zurich

$1M per occurrence/

$2M aggregate

Everest

$10M per occurrence/

$10M aggregate

6/1/2007-6/1/2008

Zurich

$1M per occurrence/

$2M aggregate

Everest

$10M per occurrence/

$10M aggregate

6/1/2008-6/1/2009

Zurich

$1M per occurrence/

$2M aggregate

American Guarantee

$10M per occurrence/

$10M aggregate

6/1/2009-6/1/2010

Zurich

$1M per occurrence/

$2M aggregate

American Guarantee

$25M per occurrence/

$25M aggregate

6/1/2010-6/1/2011

Zurich

$1M per occurrence/

$2M aggregate

American Guarantee

$25M per occurrence/

$25M aggregate

6/1/2011-6/1/2012

Zurich

$1M per occurrence/

$2M aggregate

American Guarantee

$25M per occurrence/

$25M aggregate

6/1/2012-6/1/2013

Zurich

$2M per occurrence/

$4M aggregate

American Guarantee

$25M per occurrence/

$25M aggregate

6/1/2013-6/1/2014

Zurich

$2M per occurrence/

$4M aggregate

American Guarantee

$1M per occurrence/

$2M aggregate

See ECF No. 131-3 at 145-46, Travelers Mot. Ex. X.[1]

         From June 2004 until June 2012, all of Brady's primary liability policies had policy limits of $1 million per occurrence and $2 million in the aggregate for multiple occurrences. However, the 2012-2013 Zurich policy and the 2013-2014 Zurich policy had policy limits of $2 million per occurrence and $4 million in the aggregate for multiple occurrences.

         Similarly, from June 2004 to June 2009, Brady's excess liability policies had policy limits of $10 million per occurrence and $10 million in aggregate. Brady's American Guarantee policies from June 2009 onward had policy limits of $25 million per occurrence and $25 million in aggregate.

         Each of these policies potentially had to pay for Brady's negligent actions under California's “continuing injury” doctrine. “Where . . . successive [commercial general liability] policy periods are implicated, bodily injury and property damage which is continuous or progressively deteriorating through several policy periods is potentially covered by all policies in effect during those periods.” Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal.4th 645, 689 (1995) (as modified) (“Montrose II).

         4. Settlement of the Underlying Suit

         On May 11, 2015, the Regents settled with Devcon for $32 million. Four million dollars of that amount was allocated to Brady's fault, and $3.8 million was allocated to attorney's fees. ECF No. 131-3 at 99, Travelers Mot. Ex. T (“Regents Settlement”). On July 1, 2015, Devcon and Brady agreed to settle Devcon's counterclaims against Brady for $4 million. ECF No. 131-3 at 107, Travelers Mot. Ex. U (“Brady Settlement”).

         Travelers, Zurich, Penn, and Everest each allegedly agreed to pay $1 million towards the settlement. ECF No. 131-3 at 163, Travelers Mot. Ex. Z. As noted above, Travelers' and Zurich's policies were “primary” policies, while Penn's and Everest's policies were “excess” policies. Generally, primary policies make payment first and exhaust their policy limits before excess policies are required to pay. AMHS Ins. Co. v. Mut. Ins. Co. of Ariz., 258 F.3d 1090, 1095 (9th Cir. 2001) (“[Excess] policies should not be asked to contribute until all primary policies have been exhausted.”).

         Travelers made payment under its 2005-2006 policy, and Zurich made payment under its 2006-2007 policy. Both insurers asserted that they could not pay more than $1 million because their policies each had $1 million per occurrence policy limits. Although Zurich's 2012-2013 Zurich policy had a $2 million limit, Zurich asserted that this case implicated only its earlier policies, which had a $1 million policy limit. Furthermore, although Zurich and Travelers each had $2 million aggregate limits on their policies, they each asserted that their payments were limited to $1 million because only one occurrence was at issue. Also, although the Zurich and Travelers policies contained a “supplementary payment” provision, which requires payment of attorney's fees, Zurich and Travelers asserted that they did not need to make such payments because the settlement did not allocate attorney's fees.

         Penn made its $1 million payment subject to a reservation of the right to seek reimbursement from Brady's other insurers. Indeed, on May 15, 2015, Penn demanded that Travelers, Zurich, or St. Paul pay $302, 178.75 under “supplementary payment” provisions in their insurance policies to cover the attorney's fees Penn contends were part of the $4 million settlement. ECF No. 131-3 at 93-94, Travelers Mot. Ex. R.

         B. Procedural History

         1. Initial Pleadings

         On June 18, 2015, St. Paul filed the instant suit against Penn and ten unnamed defendants. ECF No. 1 (“Compl.”). St. Paul seeks a declaratory judgment stating that St. Paul does not owe any money for the settlement over the $1 million it agreed to pay. Id. ¶ 23. Penn answered the complaint on August 12, 2015. ECF No.7.

         On October 2, 2015, Penn filed counterclaims against St. Paul, Travelers, and Zurich. ECF No. 22 (“Counter-Compl.”). Specifically, Penn's counterclaims include six causes of action. In the first cause of action in its counterclaims, Penn seeks a declaration that St. Paul, Travelers, and Zurich are obligated to contribute additional sums to Brady's portion of the global settlement because the underlying construction defect litigation was the result of multiple covered events. In the second cause of action in Penn's counterclaims, Penn additionally seeks a declaration that St. Paul, Travelers, and Zurich must make the additional “Supplementary Payments” at issue in the St. Paul complaint. The third and fourth causes of action in Penn's counterclaims are equitable subrogation claims seeking reimbursement from St. Paul, Travelers, and Zurich for the same payments at issue in the first and second causes of action, respectively. Id. The fifth and sixth causes of action are claims seeking the same reimbursement from St. Paul, Travelers, and Zurich as the third and fourth causes of action under a theory of unjust enrichment. Id.

         St. Paul and Travelers filed an answer to Penn's counterclaims on October 23, 2015. ECF No. 30. St. Paul and Travelers filed a First Amended Complaint (“FAC”) on November 4, 2015. ECF No. 35 (FAC); ECF No. 38 (Errata to FAC). Penn filed an answer to the FAC on November 24, 2015. ECF No. 40.

         Zurich filed a motion to dismiss claims five and six of Penn's counterclaims on December 7, 2015 asserting that an excess insurer cannot bring a claim for unjust enrichment against a primary insurer under California law. ECF No. 41. Penn filed a response on December 21, 2015, ECF No. 53, and Zurich filed a reply on December 28, 2015, ECF No. 56.

         St. Paul and Travelers filed a motion to dismiss Penn's counterclaims on December 7, 2015 asserting that Brady was a necessary party to the instant suit. ECF No. 44. Penn filed a response on December 21, 2015, ECF No. 54, and St. Paul and Travelers filed a reply on December 28, 2015, ECF No. 57.

         On March 28, 2016, this Court denied Zurich's motion to dismiss and held that an excess insurer can bring a claim for unjust enrichment against a primary insurer under California law. ECF No. 68. In the same Order, the Court granted St. Paul's and Traveler's motion to dismiss requiring Penn to add Brady as a counterdefendant. Id.

         2. Operative Pleadings

         On May 12, 2016, Penn filed First Amended Counterclaims (“FA Counterclaims”) against St. Paul, Travelers, Zurich, American Guarantee, and Brady. ECF No. 73 (FA Counterclaims). In the first cause of action as in the original counterclaims, Penn seeks a declaration that St. Paul, Travelers, and Zurich are obligated to contribute additional sums to Brady's settlement because the underlying construction defect litigation was the result of multiple covered events. Additionally, Penn seeks a declaration that Zurich needs to pay additional amounts because the damage at issue continued through the 2012-2013 Zurich policy, which had a higher $2 million limit. Finally, Penn seeks a declaration that American Guarantee, the policy excess to Zurich, needs to contribute to the settlement. In the second cause of action, as with the original counterclaims, Penn seeks a declaration that St. Paul, Travelers, and Zurich must make the additional “Supplementary Payments” at issue in the St. Paul complaint.

         The third and fourth causes of action in Penn's counterclaims are equitable subrogation claims seeking reimbursement from St. Paul, Travelers, Zurich, and American Guarantee for the same payments at issue in the first and second causes of action, respectively. Id. The fifth and sixth causes of action are claims seeking the same reimbursement from St. Paul, Travelers, Zurich, and American Guarantee as the third and fourth causes of action under a theory of unjust enrichment. Id.

         On June 3, 2016, St. Paul and Travelers answered Penn's amended counterclaims and brought cross-claims against Zurich. ECF No. 87. St. Paul's and Travelers' first cross-claim seeks a declaration of St. Paul's, Travelers', and Zurich's responsibilities for contribution if Penn is successful in its amended counterclaims against Travelers. St. Paul's and Travelers' second cross-claim seeks equitable contribution from Zurich if Travelers' or St. Paul is found liable on Penn's amended counterclaims. Id. On June 27, 2016, Zurich answered St. Paul's and Traveler's cross-claims. ECF No. 99.

         On June 10, 2016, Zurich answered Penn's amended counterclaims. ECF No. 89. On the same day, June 10, 2016, American Guarantee answered Penn's amended counterclaims. ECF No. 90. On June 20, 2016, Brady answered Penn's amended counterclaims. ECF No. 96.

         On June 10, 2016, Zurich filed counterclaims against Penn and cross-claims against St. Paul, Travelers, and Brady. ECF No. 91. Zurich asserted the following five causes of action as the basis for its counterclaims and cross-claims: (1) declaratory relief that the 2012-2013 and 2013-2014 $2 million limit policies are not applicable under an exclusion that excludes coverage if an insured knows about the damage before the policy period, (2) declaratory relief that the 2012- 2013 and 2013-2014 policies do not cover Brady because he has not paid the required $100, 000 self insured retention, (3) declaratory relief that, although Zurich issued multiple policies in the time period relevant to Brady's liability, Brady can only recover from one of the policies, (4) declaratory relief that the underlying action involved a single occurrence, thus only implicating single occurrence limits in the Zurich policy, and (5) declaratory relief that, even if Brady's failure to pay the self insured retention does not preclude coverage under the 2012-2013 and 2013-2014 Zurich policies, Brady must pay the relevant self insured retention. Id. Against Brady only, Zurich brings a sixth cause of action asserting that, if Zurich's 2012-2013 or 2013-2014 policies apply, Brady must pay the self insured retention for those policies. Id.

         On June 23, 2016, Penn answered Zurich's counterclaims. ECF No. 98. On July 21, 2016, St. Paul and Travelers answered Zurich's cross-claims. ECF No. 105. On August 19, 2016, Brady answered Zurich's cross-claims. ECF No. 108.

         On August 19, 2016, Brady filed counterclaims against Penn and cross-claims against St. Paul, Travelers, American Guarantee, and 15 John Does. ECF No. 109. In the first cause of action of Brady's counterclaims and cross-claims, Brady seeks a declaration that the insurers in this case owe Brady a duty to defend in this action and that Brady does not owe any additional amounts to any insurers. Id. In the second cause of action of Brady's counterclaims and cross-claims, Brady seeks reimbursement for defense costs in this action or for any other payments Brady is found to owe. Id.

         On September 8, 2016, Penn filed an answer to Brady's counterclaims. ECF No. 111. On September 30, 2016, Zurich answered Brady's cross-claims. ECF No. 113. On September 30, 2016, American Guarantee answered Brady's cross-claims. ECF No. 114. On November 14, 2016, St. Paul and Travelers answered Brady's cross-claims. ECF No. 127.

         3. The Instant Motions

         On January 4, 2017, Penn filed one of the instant motions for summary judgment. ECF No. 140-3 (“Penn Mot.”). On January 18, 2017, Brady filed an opposition, ECF No. 152 (“Brady's Penn Opp'n”); St. Paul and Travelers filed a joint opposition, ECF No. 156 (“Travelers' Penn. Opp'n”); Zurich filed an opposition, ECF No. 158 (“Zurich's Penn Opp'n”); and American Guarantee filed an opposition, ECF No. 148 (“American Guarantee's Penn Opp'n”), to Penn's Motion. On January 25, 2017, Penn filed a reply to Brady's opposition, ECF No. 177-5 (“Penn's Brady Reply”), a reply to St. Paul's and Travelers' opposition, ECF No. 178 (“Penn's Travelers Opp'n”), a reply to Zurich's opposition, ECF No. 177-6 (“Penn's Zurich Opp'n”), and a reply to American Guarantee's opposition, ECF No. 179 (“Penn's American Guarantee Opp'n”).

         On January 4, 2017, Travelers and Zurich filed motions for summary judgment against Penn. ECF No. 131 (“Travelers Mot”); ECF No. 135 (“Zurich Mot.”). On January 18, 2017, Brady filed notices of non-opposition to both motions. ECF Nos. 153, 154. Also on January 18, 2017, Penn filed a combined opposition to Travelers' and Zurich's motions. ECF No. 154 (“Penn's Travelers/Zurich Opp'n”). On January 25, 2017, Travelers and Zurich each filed a reply. ECF No. 176 (“Travelers Reply”); ECF No. 181 (“Zurich Reply”).

         On January 4, 2017, St. Paul filed a Motion for Summary Judgment. ECF No. 132 (“St. Paul Mot.”). On January 18, 2017, Brady filed a notice of non-opposition to St. Paul's Motion, ECF No. 153, and Penn filed an opposition to St. Paul's Motion, ECF No. 163-5 (“Penn's St. Paul Opp'n”). On January 25, 2017, St. Paul filed a reply. ECF No. 175 (“St. Paul Reply”).

         II. LEGAL STANDARD

         A. Summary Judgment

         Summary judgment is proper where the pleadings, discovery and affidavits demonstrate that there is “no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). Material facts are those which may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Id.

         The party moving for summary judgment bears the initial burden of identifying those portions of the pleadings, discovery and affidavits which demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Cattrett, 477 U.S. 317, 323 (1986). Where the moving party will have the burden of proof on an issue at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. However, on an issue for which the opposing party will have the burden of proof at trial, as is the case here, the moving party need only point out “that there is an absence of evidence to support the nonmoving party's case.” Id. at 325.

         Once the moving party meets its initial burden, the nonmoving party must go beyond the pleadings, and by its own affidavits or discovery, “set forth specific facts showing that there is a genuine issue for trial.” Fed.R.Civ.P. 56(e). The court is only concerned with disputes over material facts, and “factual disputes that are irrelevant or unnecessary will not be counted.” Anderson, 477 U.S. at 248. It is not the task of the court to scour the record in search of a genuine issue of triable fact. Keenan v. Allen, 91 F.3d 1275, 1279 (9th Cir. 1996). The nonmoving party has the burden of identifying, with reasonable particularity, the evidence that precludes summary judgment. Id. If the nonmoving party fails to make this showing, “the moving party is entitled to judgment as a matter of law.” Celotex Corp., 477 U.S. at 323.

         At the summary judgment stage, the court must view the evidence in the light most favorable to the nonmoving party: if evidence produced by the moving party conflicts with evidence produced by the nonmoving party, the judge must assume the truth of the evidence set forth by the nonmoving party with respect to that fact. See Leslie v. Grupo ICA, 198 F.3d 1152, 1158 (9th Cir. 1999).

         B. State Law in Diversity Cases

         “In determining the law of the state for purposes of diversity, a federal court is bound by the decisions of the highest state court.” Albano v. Shea Homes Ltd. P 'ship, 634 F.3d 524, 530 (9th Cir. 2011). If the state's highest court has not decided an issue, it is the responsibility of the federal courts sitting in diversity to predict “how the state high court would resolve it.” Id; AirSea Forwarders, Inc. v. Air Asia Co., Ltd., 880 F.2d 176, 186 (9th Cir. 1989) (internal quotation marks omitted). In the absence of clear authority, the Court looks for guidance from decisions of the state appellate courts and other persuasive authorities, such as decisions from courts in other jurisdictions and treatises. Strother v. S. Cal. Permanente Med. Grp., 79 F.3d 859, 865 (9th Cir. 1996). “In assessing how a state's highest court would resolve a state law question[, ] . . . federal courts look to existing state law without predicting potential changes in that law.” Ticknor v. Choice Hotels Int l, Inc., 265 F.3d 931, 939 (9th Cir. 2001).

         III. DISCUSSION

         Although the procedural history in the instant case is complex, the basic dispute is whether Penn should be reimbursed for the $1 million it paid for Brady's settlement. Penn may only be reimbursed if at least one of the other party insurance companies-Zurich, Travelers, St. Paul, or American Guarantee-owe more than they paid. Zurich and Travelers each paid $1 million and St. Paul and American Guarantee each paid nothing.

         As noted above, there are four cross-motions for summary judgment in this case. Penn moves for summary judgment against Zurich, American Guarantee, and Brady. Penn Mot. at 4. Travelers, Zurich, and St. Paul each move for summary judgment against Penn. The Court addresses each motion in turn.

         A. Penn's Motion

         Penn's Motion addresses three relevant pleadings: Penn's counterclaims, Zurich's cross-claims, and Brady's cross-claims. Penn's first counterclaim for declaratory judgment, third counterclaim for equitable subrogation, and fifth counterclaim for unjust enrichment (collectively, the “Reimbursement Counterclaims”) allege that Zurich, Travelers, St. Paul, and American Guarantee must reimburse Penn for the amount Penn paid into the Devcon settlement because Brady's insurance policies with Zurich, Travelers, St. Paul, and American Guarantee required them to pay more for the damages caused by Brady. Zurich brings five cross-claims against Penn that assert various legal theories why Zurich is not liable for additional payments. Brady also brings two cross-claims against Penn and the other insurance company parties that assert that Brady is owed a defense and reimbursement for any money Brady might be forced to pay as a result of the instant suit.

         Penn's Motion seeks summary judgment against Zurich on Penn's Reimbursement Counterclaims and Zurich's cross-claims, seeks summary judgment against American Guarantee on Penn's Reimbursement Counterclaims, and seeks summary judgment against Brady on Brady's counterclaims. The Court addresses each of these aspects of the motion in turn.

         1. Penn's Arguments as to Zurich

         In Penn's Motion, Penn argues that Zurich should reimburse Penn $1 million because Zurich wrongly paid into the settlement under the 2006-2007 Zurich policy, which has a $1 million policy limit, rather than the 2012-2013 Zurich policy, which has a $2 million policy limit.

         In response, Zurich argues that the 2012-2013 Zurich policy, and its higher policy limits, do not apply because the 2012-2013 Zurich policy contains a “known loss provision.” Known loss provisions exclude coverage where the insured was aware of property damage before the insurance policy went into effect. Zurich also argues that the 2012-2013 Zurich policy cannot apply because (1) Brady never paid a self insured retention on the 2012-2013 Zurich policy, which Zurich argues is a condition precedent for coverage under that policy; (2) that Brady cannot change policies from the policy he originally selected to provide coverage in the underlying action; and (3) Penn would have needed to pay the same amount regardless because it is not excess to the 2012-2013 Zurich policy.

         Below, the Court finds a triable dispute of material fact as to whether the “known loss” provision excludes coverage under the 2012-2013 Zurich policy, and thus the Court need not reach Zurich's other arguments. However, the same arguments Zurich raises in its opposition to Penn's Motion are brought affirmatively as part of Zurich's Motion. Thus, the Court defers addressing those arguments in Penn's Motion until the discussion below of Zurich's Motion.

         To address the question of whether the 2012-2013 Zurich policy applies, the Court first discusses why, absent the known loss provision, the 2012-2013 Zurich policy would increase Zurich's payment, and then turns to Penn's and Zurich's dispute concerning the known loss provision.

         a. Why the 2012-2013 Zurich Policy Would Increase Zurich's Payments Into the Settlement

         Under California's continuing injury doctrine, “property damage which is continuous or progressively deteriorating through several policy periods is potentially covered by all policies in effect during those periods.” Montrose II, 10 Cal.4th at 689. As a result, where an insurer has issued multiple policies over a time period in which a covered continuing injury has occurred, the policies “stack, ” that is, the insurer is liable up to the aggregate of the policy limits of each of the policies in effect during the continuing injury. Id; see also State v. Cont'l Ins. Co., 55 Cal.4th 186, 200 (2012) (as modified) (a continuous injury “effectively stacks the insurance coverage from different policy periods to form one giant ‘uber-policy' with a coverage limit equal to the sum of all purchased insurance policies”). However, “an insurer may avoid stacking by specifically including an ‘antistacking' provision in its policy.” Continental Insurance, 55 Cal.4th at 202. Such a provision limits liability to the policy limits of one of the policies in place during the continuing injury. Id.

         Here, Zurich issued annual policies to Brady from 2006 to 2014, and the parties do not dispute that Brady's actions caused “continuous or progressively deteriorating” property damage during the entirety of the 2006-2014 time frame. Penn Mot. at 14-15. However, no “uber-policy” is created from the aggregate policy limits here because the Zurich policies contain an antistacking provision. The antistacking provision states that when multiple Zurich policies apply to the same occurrence, “the maximum Limit of Insurance under all the Coverage Forms or policies shall not exceed the highest applicable Limit of Insurance under any one Coverage Form or policy and only that limit shall apply to that occurrence.” ECF No. 140-6 at 545, 2012-2013 Zurich Policy.

         The Zurich policies with the highest policy limits in this case are the 2012-2013 and 2013-2014 Zurich policies, which have $2 million policy limits. Each of the policies in place from 2006 to mid-2012 had lower, $1 million policy limits. Thus, if no other policy language further limited the applicable policies, the 2012-2013 Zurich policy or the 2013-2014 Zurich policy would increase the aggregate limit for all of the policies from 2006 to 2014 to $2 million.

         b. The Known Loss Provision

         Although the 2012-2013 and the 2013-2014 Zurich policies and their higher $2 million policy limits would normally increase the aggregate policy limit, the 2012-2013 and 2013-2014 Zurich policies also contain a “known loss” provision. The known loss provision in the 2012-2013 Zurich policy is as follows:

b. This insurance applies to “bodily injury” and “property damage” only if: . . . .
(3) Prior to the policy period, no insured listed under Paragraph 1. of Section II-Who Is An Insured and no “employee” authorized by you to give or receive notice of an “occurrence” or claim, knew that the “bodily injury” or “property damage” had occurred, in whole or in part. If such a listed insured or authorized “employee” knew, prior to the policy period, that the “bodily injury” or “property damage” occurred, then any continuation, change or resumption of such “bodily injury” or “property damage” during or after the policy period will be deemed to have been known prior to the policy period. . . . .
d. “Bodily injury” or “property damage” will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1. of Section II - Who Is An Insured or any “employee” authorized by you to ...

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