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American States Insurnce Co. v. Insurance Co. of State of Pennsylvania

United States District Court, E.D. California

March 29, 2018




         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] Having established ICSOP's primary duty to defend, American States moved for summary judgment on its remaining equitable contribution claim, arguing 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] By Memorandum and Order filed May 23, 2017 (ECF No. 177), this Court denied American's motion on grounds that the policy limits approach advocated by American was not the most equitable way to apportion defense costs between American and ICSOP. The Court further noted that apportioning contribution based on the alleged relative fault of American and ICSOP's respective insureds was not proper, either. Nonetheless, the Court invited the parties to file an additional summary judgment motion based on “another recognized equitable apportionment method” for allocating the fees and costs borne by American States in defending Sierra. Now before the Court are additional motions in that regard filed on behalf of both American and ICSOP, which have been fully briefed by the parties. For the reasons that follow, American's Motion for Summary Judgment (ECF No. 182) is GRANTED to the extent that the court awards $6, 613, 957.28 in equitable contribution in American's favor, but DENIED with respect to American's request for prejudgment interest. ICSOP's corresponding Motion for Summary Judgment (ECF No. 184) is DENIED.


         The underlying facts of this matter 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 (“CGL”) policy it had issued to Howell's Forest Harvesting.

         By way of background, after Sierra obtained rights to harvest timber on a Plumas County parcel of land, Sierra hired Howell to perform certain operations on that land under the terms of a logging agreement. The logging agreement required Howell to obtain CGL insurance and to name Sierra as an additional insured under the resulting policy.

         By July 2007, American States had issued CGL insurance to Howell with a $1 million coverage limit. Plaintiff American's Statement of Undisputed Facts (“PUF”), No. 22. 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.” Id. at 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 addition to its primary CGL policy, American also issued a $1 million commercial umbrella policy, with its primary policy being the scheduled underlying insurance for the umbrella coverage. Id. at Nos. 27-28.

         In October 2006, ICSOP issued a commercial umbrella insurance policy to Sierra 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:

[ICSOP] 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].

Id. at No. 20

         Consequently, under clause (a), ICSOP's umbrella policy provided excess insurance when Sierra was vicariously liable with Howell and Plaintiff's policy limits were exhausted by payment of claims. Additionally, ICSOP's umbrella policy provided primary coverage 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. American 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, American 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 PUF No. 52. 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. Id. at No. 56.

         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, the only claim remaining is for equitable contribution in determining the extent of ICSOP's indebtedness for Sierra's defense. American's initial motion for summary judgment, which argued for an allocation based on policy limits that would attribute some 90 percent of its fees and costs to ICSOP, was denied. In addition, ICSOP's argument in opposition, that allocation be based on the relative fault of the parties, was also rejected as both unworkable and contrary to sound public policy. The proper method for effectuating equitable contribution continues to be the subject of the motions now before the Court, which it authorized after having denied American's previous motion.


         The Federal Rules of Civil Procedure provide for summary judgment when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

         In a summary judgment motion, the moving party always bears the initial responsibility of informing the court of the basis for the motion and identifying the portions in the record “which it believes demonstrate the absence of a genuine issue of material fact.” Celotex, 477 U.S. at 323. If the moving party meets its initial responsibility, the burden then shifts to the opposing party to establish that a genuine issue as to any material fact actually does exist. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 288-89 (1968).

         In attempting to establish the existence or non-existence of a genuine factual dispute, the party must support its assertion by “citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits[, ] or declarations . . . or other materials; or showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Fed.R.Civ.P. 56(c)(1). The opposing party must demonstrate that the fact in contention is material, i.e., a fact that might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 251-52 (1986); Owens v. Local No. 169, Assoc. of W. Pulp and Paper Workers, 971 F.2d 347, 355 (9th Cir. 1987). The opposing party must also demonstrate that the dispute about a material fact “is ‘genuine, ' that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248.

         In resolving a summary judgment motion, the evidence of the opposing party is to be believed, and all reasonable inferences that may be drawn from the facts placed before the court must be drawn in favor of the opposing party. Anderson, 477 U.S. at 255. Nevertheless, inferences are not drawn out of the air, and it is the opposing party's obligation to produce a factual predicate from which the inference may be drawn. Richards v. Nielsen Freight Lines, 602 F.Supp. 1224, 1244-45 (E.D. Cal. 1985), aff'd, 810 F.2d 898 (9th Cir. 1987).


         A. Principles Underlying ...

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