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Zenith Insurance Co. v. Old Republic Insurance Co.

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

July 17, 2019





         Plaintiff Zenith Insurance Company (“Zenith”) and Defendant Old Republic Insurance Company (“ORIC”) each contributed $1.5 million to settle a personal injury lawsuit arising out of an automobile accident. The payments were made subject to a reservation of rights by the insurers to seek reimbursement and re-allocation of the settlement payments and the costs of defending against the personal injury lawsuit. Zenith initiated this action to seek reimbursement of the entire $1.5 million it paid towards the settlement plus all defense fees and costs incurred in defending the personal injury lawsuit. The parties' competing motions for summary judgment ask the court to resolve a dispute over the priority of insurance policies pursuant to California Insurance Code section 11580.9(d). Based upon all pleadings filed to date, the undisputed evidence[1], and the comments of counsel at the hearing, the court will grant Zenith's motion and deny ORIC's motion.


         A. The Personal Injury Lawsuit

         In June of 2013, Rafael Resendiz, an employee of Ramirez Harvest Company, Inc. (“Ramirez Harvest”), was driving a 2008 Chevrolet Silverado pickup truck owned by Taylor Farms Retail, Inc. (“Taylor Farms”) when he rear-ended another vehicle occupied by John K. Grant. ORIC's Mem. of P. & A. in Supp. of Mot. for Summ. J. at 2 (Dkt. No. 47). Mr. Grant sustained injuries in the accident and filed suit against Taylor Farms, Ramirez Harvest and Rafael Resendiz. Id. At the time of the accident, the pickup truck (hereinafter “accident vehicle”) was owned by Taylor Farms and insured under an ORIC policy. Id. at 3. Ramirez Harvest was insured on policies issued by Zenith. Id. Mr. Grant's lawsuit settled for $3 million with equal contributions from ORIC and Zenith. Id. A third insurer paid nothing. Id.

         B. The ORIC Policy- MWTB 22027

         The accident vehicle was insured under ORIC policy MWTB 22027 (“ORIC Policy”), which was issued to Taylor Fresh Foods, Inc. (“TFFI”) with a policy period of May 1, 2013 through May 1, 2014. Id. This ORIC Policy was fronted by ORIC through Terra Group, a member-owned “agri-business captive insurance company which provides specified lines of insurance coverage to members of the captive, including automobile liability coverage.” Wachtler Decl. ¶ 3 (Dkt. No. 51).[2] TFFI joined the Terra Group in 2011 and remained a member until May of 2015. Id. ¶¶ 5, 6. TFFI participated in the general liability and auto liability coverages provided through the Terra Group captive. Id. ¶ 6. The ORIC Policy was one of a series of renewal policies TFFI had with ORIC. Id.

         The Terra Group's captive insurance was administered by a separate entity, Associated Risk Underwriting (“ARU”). Id. ¶ 4. The Terra Group captive was “generally underwritten as a whole, and premiums [were] developed between ARU and ORIC for the captive, generally, as a whole.” Id. ¶ 6. ARU developed the premium for the ORIC Policy using a multiplicity of factors, none of which had anything to do with the unique features or value of any particular TFFI vehicle. Moore Decl. ¶¶ 14, 15 (Dkt. No. 52).

         After ARU and ORIC developed a premium for the Terra Group captive, ARU assigned premium and expense components among the captive members. Wachtler Decl. ¶ 7. Members of the Terra Group captive paid premiums to ARU and ARU paid ORIC. Id.

         All auto policies in the Terra Group captive, including the ORIC Policy issued to TFFI, were written as a “Symbol 1” policy that provided coverage for “any auto” used by TFFI, irrespective of whether or not TFFI owned the vehicle. Id. ¶ 8; see also Moore Decl. ¶ 6. The premium charged at the inception of the ORIC Policy was a “composite rate charged against the initial number of vehicles reported” by the insured. Moore Decl. Ex. 2. The composite rate was based upon a number of factors including, but not limited to, each Terra Group member's loss history, number of vehicles to be insured, amount of deductible, type of vehicle, and garage location. Uno Decl. Ex. C; Wachtler Decl. ¶¶ 15-16. The ORIC Policy included “all new vehicles throughout the year with no need to report or endorsements being issued.” Id. The Composite Rate Endorsement of the ORIC Policy provided that “[a]t the conclusion of the policy year, a final vehicle total will be reported. The final premium will be determined by totaling the beginning and ending counts, dividing this by two (averaging) and multiplying this by the composite rate.” Id. The Terra Group captive renewed annually on an aggregate basis for all insureds and their policies on May 1st of every year. Id. ¶ 5.

         There was a “Business Auto Declarations” form for the ORIC Policy. Moore Decl. Ex. 1 at 20. Item Three of the 2013 Business Auto Declarations form, entitled “Schedule of Covered Autos You Own, ” was formatted as a table with columns to fill in the year, model, trade name, body type, serial number and vehicle ID number for each covered auto. Id. The columns were not filled in. Id. at 3. Instead, across all of the columns there was a typed notation that read “ON FILE WITH THE COMPANY.” Id. The accident vehicle was not initially on the list of vehicles on file with ORIC as of June of 2013. Moore Decl. ¶ 22, Ex. 5. Eventually, however, ORIC's underwriting files included a spreadsheet dated January 8, 2014 (“January 8, 2014 vehicle list”) that listed the accident vehicle as a “Light Truck” and identified the accident vehicle by year, make, model, vehicle ID number and other information. Uno Decl. Ex. B at ORIC 01719.

         ORIC hired a third party company, Pyramid Audit Solutions (“Pyramid”), to conduct an audit to determine the “ending count” for the ORIC Policy as of May 1, 2014. Id. Among the information Pyramid reviewed for the audit was a list of vehicles provided by TFFI. Uno Decl. Ex. E. Pyramid sent ORIC an Audit Report specifying an “ending count” of 344 vehicles and a Vehicle Schedule identifying all of the vehicles. Id. Ex. D. The accident vehicle was among the vehicles listed in the Vehicle Schedule and was identified by VIN number, year, make, model and other information, just as it had been in the January 8, 2014 vehicle list. Id. In accordance with Composite Rate Endorsement, ORIC calculated TFFI's additional premium by taking the average of the initial vehicle count and the ending vehicle count and multiplying that number by the composite rate per vehicle. Id. Exs. B, C. ORIC charged TFFI an additional premium after the audit was completed.

         III. ...

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