Hanover Ins. Co. v. Walt Disney Co.

• Decision Date: 08 December 1998
• Docket Number: 97-55368,No. 97-55330,No. CV-94-04873-RSWL,97-55330,CV-94-04873-RSWL
• Parties: HANOVER INSURANCE COMPANY; Federal Insurance Company, Plaintiffs-Appellees, v. THE WALT DISNEY COMPANY, Defendant/Cross-Claimant/Appellant, and GENERAL ELECTRIC CAPITAL AUTO LEASE, INC.; Aetna Casualty & Surety Co.; Young Eun Kang, Defendants, and Jane GOOTNICK; Jim Henson Productions, Inc., D efendants/Cross-Defendants. HANOVER INSURANCE COMPANY; Federal Insurance Company, Plaintiffs/Appellees, v. WALT DISNEY COMPANY, The Walt Disney company, Defendant/Cross-Claimant, and GENERAL ELECTRIC CAPITAL AUTO LEASE, INC.; Young Eun Kang, Defendants, and AETNA CASUALTY & SURETY CO., Defendant/Appellant, and Jane GOOTNICK; Jim Henson Productions, Inc., D efendants/Cross-Defendants. DC
• Court: U.S. Court of Appeals — Ninth Circuit

Page 343

166 F.3d 343

HANOVER INSURANCE COMPANY; Federal Insurance Company, Plaintiffs-Appellees, v. THE WALT DISNEY COMPANY, Defendant/Cross-Claimant/Appellant, and GENERAL ELECTRIC CAPITAL AUTO LEASE, INC.; Aetna Casualty &

Surety Co.; Young Eun Kang, Defendants,

and

Jane GOOTNICK; Jim Henson Productions, Inc., D

efendants/Cross-Defendants.

HANOVER INSURANCE COMPANY; Federal Insurance Company, Plaintiffs/Appellees, v. WALT DISNEY COMPANY, The Walt Disney company, Defendant/Cross-Claimant, and GENERAL ELECTRIC CAPITAL AUTO LEASE, INC.; Young Eun Kang, Defendants,

and

AETNA CASUALTY & SURETY CO., Defendant/Appellant,

and

Jane GOOTNICK; Jim Henson Productions, Inc., D

efendants/Cross-Defendants.

No. 97-55330, 97-55368.

DC No. CV-94-04873-RSWL.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 4, 1998.

Decided Dec. 8, 1998.

Appeal from the United States District Court for the Central District of California Ronald S.W. Lew, District Judge, Presiding.

Before CANBY and KLEINFELD, Circuit Judges, and SCHWARZER, ¹ District Judge.

MEMORANDUM ^*

I

The facts of this dispute are known to the parties and will not be set forth here. The district court held that Disney and its excess insurance carrier Aetna were liable for all damages and expenses arising from the accident under the provisions of Cal. Ins.Code § 11580.9(d) (West 1988). That section provides in pertinent part:

[W]here two or more policies affording valid and collectible insurance apply to the same motor vehicle in an occurrence out of which a liability loss shall arise, it shall be conclusively presumed that the insurance afforded by that policy in which the motor vehicle is described or rated as an owned automobile shall be primary and the insurance afforded by any other policy or policies shall be excess.

(Emphasis added). The district court held that Disney had, in effect, one policy providing $4 million in coverage, of which Disney provided the first $2 million in coverage and Aetna the next $2 million. The policy, in the district court's view, adequately described the vehicle involved in the accident, and was therefore primary.

The district court mischaracterized Disney's arrangement with Aetna, which led to a misapplication of § 11580.9(d). Aetna's policy was an excess indemnity policy, and was so denominated. Disney was responsible for the first $2 million of liability, under the retained limit, before Aetna's coverage was triggered. Aetna's policy included no duty to defend. Disney did not insure anyone; it simply went without insurance for the first $2 million of liability.

Section 11580.9(d) by its terms can have no application to Disney. It applies where two or more policies of insurance apply to the same vehicle causing a liability. Disney is not an insurer and has no policy of insurance with regard to the first $2 million of its liability. The legislative purpose of § 11580.9 was to establish "the total public policy of this state respecting the order in which two or more of such liability insurance policies covering the same loss shall apply. " Cal. Veh.Code § 11580.8 (emphasis added). Disney accordingly is not within the scope of § 11580.9(d). See Metro U.S. Services, Inc. v. City of Los Angeles, 96 Cal.App.3d 678, 158 Cal.Rptr. 207, 208-09 (Cal.Ct.App.1979) (city that self-insures its vehicles is not issuer of a "policy" and is therefore not subject to § 11580.9(b)). Because Disney has issued no policy, it obviously has issued no policy rating or describing a vehicle within the meaning of § 11580.9(d). See Enterprise Rent-A-Car Co. v. Workmen's Auto Ins. Co., 58 Cal.App.4th 1543, 68 Cal.Rptr.2d 725 (Cal.Ct.App.1997) (self-insuring rental car company that makes required cash deposit that does not describe or rate vehicles is not governed by § 11580.9)).

Between Hanover/Federal and Disney, then, § 11580.9(d) has no application. In that event, "the driver's policy is primary under Vehicle Code sections 17152 and 17153." ² Enterprise Rent-A-Car, 68 Cal.Rptr.2d at 729. As primary insurer, Hanover and not Disney had the duty to defend the Kang claim. See Ticor Title Ins. Co. v. Employers Ins. of Wausau, 40 Cal.App.4th 1699, 48 Cal.Rptr.2d 368, 373 (Cal.Ct.App.1995) (primary insurer has duty to defend).

II

Aetna also was not subject to § 11580.9(d), because its policy was not triggered until the insured loss exceeded $2 million. The total settlement paid to Kang by Hanover and Federal was $1,925,000. Defense costs pushed the amount over $2 million, but Aetna had no duty to defend Henson and Gootnick, and Hanover did. Defense costs are not covered by Aetna's policy unless they were incurred by Aetna. Aetna's policy, which rendered it liable to indemnify for "Ultimate Net Loss" above $2 million, provided in § 4.13:

"Ultimate Net Loss" means the sum actually paid or payable in cash in the settlement or satisfaction of any claim or suit for which the insured is liable either by adjudication or settlement with the written consent of the company, inclusive of all loss expenses and legal expenses including attorneys' fees, court costs and interest on any judgement or award Aetna Casualty incurred, after making proper deduction for all recoveries and salvages collectible.

(Emphasis added). Hanover and Federal contend that the italicized words ought not to be read to refer to attorneys' fees, but a natural reading would make them applicable to the entire clause beginning "including." The italicized words are part of an endorsement that revised the section by adding only the italicized words, leaving all else unchanged. The only likely purpose for the amendment was to render the "Ultimate Net Loss" clause consistent with the absence of a duty to defend, and with § 6.9 of the policy, which provides:

Aetna Casualty will pay, with respect to any claim or suit Aetna Casualty chose to defend arising out of bodily injury or property damage covered by this insurance, reasonable and necessary legal fees and other expenses which are incurred by or on behalf of the insured in any investigation, adjustment, settlement or litigation of any such suit (excluding all salaries of your employees, officers and directors and all your office expenses).

(First emphasis added; others original). In light of all of the provisions of the policy, Disney would have understood that defense costs were not covered unless Aetna elected to defend. Indeed, a Disney executive stated without contradiction that he did not understand Aetna's policy to cover defense costs.

Aetna's policy, therefore, simply could not cover the settlement paid Kang by Hanover and Federal, which fell below its $2 million floor. Section 11580.9(d) provides that, where "two or more policies affording valid and collectible liability insurance " apply to the same vehicle causing liability, the one that rates or describes the vehicle shall be primary. Because the liability involved does not trigger Aetna's coverage, it is not "collectible" insurance. See Hellman v. Great American Ins. Co., 66 Cal.App.3d 298, 136 Cal.Rptr. 24, 28 (Cal.Ct.App.1977) ("[I]nsurance under the excess coverage policy is not regarded as other collectible insurance, as it is not available to the insured until the primary policy has been exhausted."). Similarly, Aetna's policy would not have been available to Disney even if Disney had been liable for the settlement Hanover and Federal made with Kang. Nor is Aetna's policy one of two which "cover the same loss," within the meaning of the public policy statement of § 11580.8. The district court accordingly erred in subjecting Aetna to liability under § 11580.9(d). ³

III

Disney was liable as owner/lessee of the vehicle under Cal. Veh.Code § 17150, but that liability was limited to $15,000 personal injury and $5,000 property damage in the absence of an employment relationship. Disney settled its entire liability to Kang for $50,000, and that settlement was declared to be in good faith by the California state court. That good-faith settlement precludes any equitable or implied obligation of indemnity on the part of Disney for Hanover and Federal's settlement of their liability to Kang. See Cal. Civ. P.Code § 877.6(c); Bay Dev., Ltd. v. Superior Court, 50 Cal.3d 1012, 269 Cal.Rptr. 720, 791 P.2d 290, 293 (Cal.1990); Far West Fin. Corp. v. D & S Co., 760 P.2d 399, 412 (Cal.1988).

IV

In the original letter agreement between Disney and Henson Associates, Inc., Henson agreed "to indemnify and save harmless Producer [Disney] ... from and against any liabilities... arising in connection with ... any acts or omission by Company [Henson], Artist, or any of Company's officers or employees that result in or contribute to ... any injuries to or death of Artist or any other person...." In the Construction Agreement, both Disney and Henson agreed to hold each other harmless from liability for the negligent acts of their employees. Hanover and Federal and Henson contend that there may have been other arrangements under which Gootnick worked, but they have offered nothing that would vary the terms of these express agreements. Because we hold below that Gootnick was not an...