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Warwick California Corp. v. Applied Underwriters, Inc.

California Court of Appeals, First District, Fourth Division

January 7, 2020

WARWICK CALIFORNIA CORP. et al., Plaintiffs and Respondents,
v.
APPLIED UNDERWRITERS, INC., et al., Defendants and Appellants.

          San Francisco City and County of Superior Court No. CGC-16-551614 Trial Judge: Hon. Richard B. Ulmer, Jr.

          Counsel for Appellants: Hinshaw & Culbertson LLP; Spencer Y. Kook, Travis Wall, Kent R. Keller

          Counsel for Respondents: Larry J. Lichtenegger, and Roxborough, Pomerance, Nye & Adreani; Nicholas P. Roxborough, Joseph Christopher Gjonola

          TUCHER, J.

         This case arises out of a dispute over payment for workers' compensation insurance. Plaintiffs are six companies affiliated with the Warwick Hotel chain (collectively, Warwick). Defendants include several companies affiliated with Applied Underwriters, Inc. (collectively, Applied). The trial court stayed the action based on inconvenient forum as to all plaintiffs with the exception of two Warwick companies that are incorporated in California (the California plaintiffs). In 2018, a court trial was held to hear the California plaintiffs' claims and Applied's cross-claim for breach of contract. The court found that neither side proved the damages elements of their claims. Applied filed a notice of appeal from the court's statement of decision (SOD), which is not a judgment or an appealable order. Accordingly, we will dismiss this appeal.

         BACKGROUND

         Warwick's operative first amended complaint was filed in May 2016. In addition to the Applied defendants, Warwick sued Willis of New York, Inc., which is an insurance brokerage firm, and 50 Doe defendants. Warwick alleged nine causes of action against various combinations of defendants, seeking damages and equitable relief based on theories of breach of contract, fraud and unfair business practices. As support for these claims, Warwick alleged the following facts: Warwick used Willis as their broker to procure workers' compensation insurance. In June 2013, Willis presented Warwick with a quote for purchasing insurance from the Applied defendants. Defendants made representations to Warwick about the nature of the insurance program that was being offered to Warwick. Based on those representations, Warwick entered into a contract to purchase workers' compensation insurance for a three-year period, from June 14, 2013, through June 14, 2016. One policy, issued by defendant California Insurance Company, covered Warwick employees in California and Texas. Another policy, issued by a different Applied defendant, covered employees in New York and Colorado.

         According to the complaint, on June 19, 2013, five days after Warrick's insurance coverage went into effect, Applied presented Warwick with a “Reinsurance Participation Agreement” (RPA), which constituted an adhesion contract and which Warwick had no choice but to accept. Thereafter, Applied used new criteria disclosed for the first time in the RPA to adjust claims made against the Warwick policies in a way that significantly increased costs to Warwick. Furthermore, Applied refused to correct the inflated invoices and attempted to coerce Warwick to admit that the incorrect invoices were accurate by threatening to deprive Warwick of insurance coverage it was required by law to provide to its employees and by charging “enormous and unconscionable cancellation fees under the RPA.”

         In June 2016, Applied filed a motion to stay this action on the ground of inconvenient forum under Code of Civil Procedure, section 418.10 (section 418.10).[1] The motion was based on a forum selection clause in the RPA, which required that claims relating to the RPA be filed in Nebraska, where defendant Applied Underwriters, Inc. was incorporated. Applied argued that Warwick's workers' compensation insurance program was a “significant, multifaceted commercial transaction, ” involving employees in New York, Colorado, Texas and California, and that “[t]he California portion [of the program] was... by far the smallest component, representing only 5 percent of the total payroll at issue.” Therefore, Applied requested the following order: “The Court should stay this action in its entirety and direct Warwick to file its lawsuit in Nebraska. Depending upon developments in that case, the Court may later dismiss claims in this action or lift the stay.”

         In October 2016, the superior court granted Applied's motion for a stay based on inconvenient forum as to all plaintiffs except for the two California plaintiffs, with respect to which the motion was denied. The order states: “As to all plaintiffs except [the California plaintiffs], there is an adequate forum for the claims of those plaintiffs (either in the states [where] their workers are located or in Nebraska), the laws of those other states apply, California has no interest in the issues raised by those plaintiffs and the other states have a strong interest in those issues. As to [the California plaintiffs], California law applies and application of California law renders both the entire RPA and the forum selection clause therein unenforceable due to [defendant Applied Underwriters Captive Risk Assurance Company's] non-compliance with Insurance Code 11658.”

         Applied filed a petition for writ of mandate in this court challenging the denial of its motion to stay proceedings as to the California plaintiffs. However, their petition was denied in January 2017.[2]

         In 2018, the California plaintiffs' case was assigned for a bench trial in San Francisco County. The trial court granted a motion in limine to exclude evidence pertaining to “Warwick's non-California entities” because that part of this case had been stayed and, as the court observed, Applied had subsequently filed suit against Warwick in Nebraska. Acknowledging the broad sweep of its in limine ruling, the court stated: “It may be that damages can be allocated or appointed between California and non-California Warwick entities; the trial evidence will determine that.”

         On August 17, 2018, the court signed a relatively brief SOD, which was filed that same day. The court began by finding that the California plaintiffs had abandoned all non-contract claims by failing to address them at trial, that Applied's cross-complaint was solely for breach of contract, and, therefore, that “this was a breach of contract trial.” Then the court found that “neither side proved damages with reasonable certainty at trial and thus failed to prove their breach of contract claims.” According to the SOD, this finding was supported by undisputed evidence establishing three key facts. First, the workers' compensation insurance Applied sold to Warwick “was not sold or priced on a per-entity basis, ” but instead, all Warwick entities were in “one national Warwick risk pool.” Second, the California plaintiffs did not “contract to pay a percentage of the RPA monies due to [Applied] from Warwick, ” but instead, all Warwick entities made payments “together.” Finally, the California plaintiffs were not “due back a percentage of any RPA overages” because “all Warwick entities were treated together.”

         The SOD concluded: “In sum, this trial was limited to Warwick's California entities only, and the trial determined that damages cannot be ‘allocated or apportioned between California and non-California Warwick entities.' Because both sides failed to prove the essential element of damages, their arguments on other elements of contract breach need not be reached.” Moreover, the court found, ...


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