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American States Ins. Co. v. Insurance Company of State of Pennsylvania

United States District Court, E.D. California

May 22, 2017

AMERICAN STATES INSURANCE COMPANY, Plaintiff,
v.
INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, Defendant.

          MEMORANDUM AND ORDER

          MORRISON C. ENGLAND JR. UNITED STATES DISTRICT JUDGE

         On March 23, 2016, this Court issued its Memorandum and Order (ECF No. 156) granting the Motion for Summary Judgment (ECF No. 85) filed by Plaintiff American States Insurance Company (“American States” or “American”) on grounds that Defendant Insurance Company of the State of Pennsylvania (“ICSOP”) had a primary duty to defend its insured, Sierra Pacific Industries (“Sierra), in various lawsuits arising from the so-called “Moonlight Fire”.[1] The Court concurrently denied ICSOP's correspondingly heard Motion for Summary Judgment (ECF No. 99).[2] Now that ICSOP's primary duty to amend has been established, American States moves for summary judgment on its remaining equitable contribution claim. According to American, the Court should find as a matter of law that ICSOP should pay the fees and costs it incurred in defending Sierra based on the respective policy limits of the ICSOP and American policies.[3] For the reasons that follow, American's Motion for Summary Judgment (ECF No. 157) is DENIED.

         BACKGROUND

         The facts which underlie this lawsuit have already been outlined in the Court's previous Orders. Sierra was a named defendant in various lawsuits arising from a September 2007 wildfire in Plumas County, California commonly referred to as the “Moonlight Fire.” American States agreed to defend Sierra in those lawsuits, beginning in September of 2009, pursuant to a Commercial General Liability policy it issued to Howell's Forest Harvesting. After Sierra obtained rights to harvest timber on a parcel of land located in Plumas County, California in September of 2007, Sierra hired Howell to perform certain operations on that land under the terms of a logging agreement. The logging agreement required Howell to obtain Commercial General Liability (“CGL”) insurance and to name Sierra as an additional insured under its CGL policy.

         By July 2007, American States had issued CGL insurance to Howell with a $1 million coverage limit. In accordance with the logging agreement, Sierra was included as an additional insured under a “Liability Plus Endorsement” page stating that an insured under the CGL policy includes “[a]ny person or organization . . . for whom you are required by written contract, agreement[, ] or permit to provide insurance.” ICSOP's Response to Statement of Undisputed Facts, ECF No. 166 (“SUF”) No. 30. The insurance coverage for Sierra as an additional insured, however, applied “only to the extent [Howell] [is] held liable due to: . . . [Howell's] ongoing operations for [Sierra].” Id.

         Thus, while there is no dispute that Plaintiff's coverage for Sierra was primary in nature, it was limited to Sierra's vicarious liability as to Howell, and Sierra's independent liability was not covered under Plaintiff's CGL Policy with Howell.

         In October 2006, ICSOP issued Sierra a commercial umbrella insurance policy that provided both primary and excess coverage in the amount of $10 million. ICSOP's policy for Sierra delineated its duty to defend as follows:

[Defendant] shall have the right and duty to defend any claim or suit . . . when . . .
a) The applicable limits of insurance of . . . any . . . underlying insurance . . . [have] been exhausted by payment of claims or suits to which this Policy applies; or
b) Damages are sought for . . . property damage . . . covered by this Policy but not covered by . . . any other underlying insurance providing coverage to [Sierra].

SUF No. 20

         Consequently, under clause (a), ICSOP's policy provided excess insurance when Sierra is vicariously liable with Howell and Plaintiff's policy limits are exhausted by payment of claims. Additionally, ICSOP's policy provided umbrella, or primary, insurance under clause (b) for property damage arising from Sierra's non-vicarious liability.

         In September 2007, “Howell employees were allegedly operating bulldozers . . . pursuant to the [l]ogging [a]greement [with Sierra], ” when a fire ignited nearby that “eventually burn[ed] approximately 65, 000 acres in the area.” Pl.'s Third Am. Compl., ¶ 8. Sparks caused by Howell's bulldozers allegedly caused the conflagration and the resulting Moonlight Fire. Multiple lawsuits were filed against both Sierra and Howell as a result of the fire, all of which Sierra tendered to both American States and ICSOP. Plaintiff accepted Sierra's defense in all of the fire-related lawsuits “without a reservation of rights to deny coverage for any damages awarded against Sierra, subject to available policy limits and California law. . . .” Id. at ¶ 26. Thus, Plaintiff agreed to defend and indemnify Sierra for not only suits where Sierra was vicariously liable with Howell-which was covered under Plaintiff's CGL policy-but also where Sierra was independently liable.

         Because American State's CGL policy only covered Sierra for vicarious liability with Howell, however, Sierra took the position that American States had a conflict of interest in defending Sierra despite its agreement to provide a defense without reservation. As a result of this conflict, Sierra argued it was entitled to independent counsel pursuant to California Civil Code § 2860. Sierra maintained this stance throughout the lifetime of the fire-related lawsuits-despite the fact that Plaintiff accepted defense of the lawsuits without reservation-and Sierra obtained outside counsel, the law firm of Downey Brand, for its defense. While American States agreed to pay Downey Brand at the rates it was prepared to pay counsel it had selected to defend Sierra, American declined to pay anything in addition to those prevailing rates. At no time did ICSOP defend or attempt to defend Sierra in any of the fire-related lawsuits.

         On or about July 17, 2012, the fire-related suits against Sierra settled, exhausting both American States' and ICSOP's respective policy limits. ICSOP also ultimately settled Sierra's claim that it wrongfully refused to provide Sierra with a defense by contributing some $3, 444, 260.84 towards the cost of Sierra's independent counsel, over and above the sums that American States already paid Downey Brand for Sierra's defense. See SUF No. 114. American States and Sierra also settled any remaining claims against each other, with Sierra acknowledging that American had paid some $5, 380, 365.75 in legal fees and expert costs of $7, 847, 548.81 for total fees paid of $13, 227, 914.56. See SUF No. 66.

         As indicated above, American States made its own claim against ICSOP for equitable contribution towards the defense costs American States had assumed and filed the present lawsuit on June 1, 2012. Once this Court determined that ICSOP had a primary duty to defend Sierra by Memorandum and Order filed March 23, 2016, American States filed the present motion asking the Court to adjudicate the only remaining claim, for equitable contribution in determining the extent of ICSOP's indebtedness for Sierra's defense. American States urges the Court to allocate the $13, 227, 914.56 based on a “policy limits” methodology whereby those costs are split in proportion to the carriers' respective coverage limits. Under that analysis, according to American States, because ICSOP had $10 million in available coverage as opposed to American States' $1 million, defense costs should be attributed 10/11th to ICSOP (or 90.91 percent), for a total amount owed by ICSOP to American States of $12, 025, 376.87. American States also requests prejudgment interest on that amount at the rate of 7 percent, arguing that the sum owed by ICSOP is capable of ready calculation.

         ICSOP, for its part, while continuing to dispute that it owes anything to American States, opines that if the Court is inclined to award American States anything it should do so based on a “relative fault” method that further takes into account the $3, 444, 260.84 ...


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