American Home Ins. Co. v. Travelers Indemnity Co.

• Decision Date: 28 July 1981
• Citation: 175 Cal.Rptr. 826,122 Cal.App.3d 100
• Court: California Court of Appeals Court of Appeals
• Parties: Previously published at 122 Cal.App.3d 100 122 Cal.App.3d 100, 122 Cal.App.3d 951 AMERICAN HOME INSURANCE COMPANY, Plaintiff and Appellant, v. The TRAVELERS INDEMNITY COMPANY, Defendant and Respondent. Civ. 58161.

Page 826

175 Cal.Rptr. 826

Previously published at 122 Cal.App.3d 100

122 Cal.App.3d 100, 122 Cal.App.3d 951

AMERICAN HOME INSURANCE COMPANY, Plaintiff and Appellant, v. The TRAVELERS INDEMNITY COMPANY, Defendant and Respondent.

Civ. 58161.

Court of Appeal, Second District, Division 5, California.

July 28, 1981.

As Modified on Denial of Rehearing Aug. 21, 1981.

Hiestand & Brandt, Los Angeles, Frank W. Woodhead, South Pasadena, and Arthur E. Schwimmer, Los Angeles, for plaintiff and appellant.

Martin & Stamp, A Professional Corp., and Ivan K. Stevenson, Long Beach, for defendant and respondent.

STEPHENS, Acting Presiding Justice.

Plaintiff and appellant, American Home Insurance Company ("American"), appeals from a judgment dismissing its first amended complaint for reformation and declaratory relief. The order of dismissal was entered after the trial court sustained the demurrer of defendant and respondent, Travelers Indemnity Company ("Travelers"), without leave to amend. American contends that one of its assured was omitted from an insurance policy issued by Travelers to Mort Davis Company ("Davis") through the mistake of the contracting parties. Appellant argues that the parties' actual intention will be expressed only if the allegedly omitted entity is named an additional insured to the Travelers-Davis policy. The issue before this court is whether American has standing to seek the reformation of an insurance contract between Travelers and Davis.

American and Travelers are liability insurers authorized to transact business in California. Appellant in this case issued a policy covering Toyota Motor Company, Ltd., Toyota Motor Sales USA, Inc. ("Sales"), and Toyota Motor Distributors, Inc. ("Distributors"). Both Sales and Distributors are California corporations and subsidiaries of Toyota Motor Company. The term of the insurance contract covering the three Toyota entities was from October 1, 1974 to October 1, 1975.

The policy provisions indicate that American agreed to pay all sums for which the Toyota insureds became liable by reason of the destruction or injury to property owned by others, and arising from the operations of the Toyota entities. Appellant also contracted to provide a defense to any suit against the Toyota parent corporation, or either of its California subsidiaries, resulting from such property destruction or injury.

The functions of the Toyota companies distinguish their insurable interests. Toyota Motor Company manufactures automobiles in Japan. Title to these vehicles passes to Sales after sailing from Nagoya, Japan. Sales is the subsidiary corporation responsible for the automobiles during their transport to Long Beach, California. When the shipping vessels are docked at the marine terminal in Long Beach, title to the vehicles then passes from Sales to Distributors. This Toyota subsidiary prepares the automobiles for distribution to various dealer outlets. All of the stock in Distributors was owned by Sales. Furthermore, the two Toyota subsidiaries had the same directors and executive officers.

Travelers insures Davis, a California corporation which maintained and prepared Toyota automobiles for distribution from Long Beach to the dealers. The insurance contract between respondent Travelers and Davis covered the period from October 1, 1974 to October 1, 1975. Under the terms of this policy, Travelers agreed to pay all sums for which Davis became liable by reason of the destruction or injury to property owned by others, and arising from its operations. Respondent Travelers also contracted to defend any suit against Davis resulting from such claims.

Davis entered into a "processing contract" with Distributors on February 4, 1972. The terms of the contract are of special significance to this appeal. Davis agreed to maintain "comprehensive general liability insurance" for Distributors, and contracted to name Distributors as an "additional insured" to its policy with Travelers. ¹

In addition to the insurance provision, the processing contract contained an indemnity clause. Under this term, Davis agreed that Distributors would be "held harmless" and indemnified for any claims, litigation costs, and expenses relating to any injuries or property damage arising from the "maintenance, repair, use, or processing" of all Toyota vehicles while they were in the custody of the processor. The contract expressly covers property damage incurred by Distributors, but no reference is made to any coverage afforded to Sales.

Pursuant to the terms of the processing contract, Travelers named Distributors as an "additional insured" to its "Garage Liability Policy" covering Davis. The insurance contract between Travelers and Davis designated only Distributors as the added Toyota entity.

The insurance contract appears to restate the intentions of the parties to the processing agreement. Distributors is clearly identified as the additional insured. The location of the processing activities performed by Davis for Distributors is correctly described. However, the problem in this case emerges from a designation in the "additional insured endorsement provision."

The designated premises in the insurance contract are defined as the "part leased to named insured." Davis is the named insured under the Travelers policy, but the automobile processor would more accurately be described as "a sublessee or licensee" of the premises. The Toyota entity leasing the property designated in the Travelers policy was Sales. ² Toyota Motor Sales entered a written lease with the City of Long Beach for the aforementioned location. The leasing arrangement called for a term of 10 years (from January 1, 1970 to January 1, 1980). Sales also made a "Preferential Assignment Agreement" with Long Beach on February 21, 1974. Under this agreement, the city permitted Sales to use certain buildings and improvements on the leased premises for the operation of a marine terminal during the next 10 years.

On July 30, 1975, a fire occurred at the premises leased by Sales from the City of Long Beach. The blaze burned a repair building, machinery and equipment within the building, and four Toyota automobiles. As a result of this fire, the City of Long Beach filed a complaint for property damage on July 14, 1977. Toyota Motor Sales, Toyota Motor Distributors and Mort Davis Company are among defendants in this action. The city sought recovery for the damages to its leased premises and structures identified in the "Preferential Assignment Agreement" with Sales. ³

On July 28, 1977, Davis brought an action against Sales, seeking to recover for the damages it suffered from the fire. ⁴ Copies of the summons and complaint in each tort action were served on Sales on September 20, 1977. The corporation forwarded these documents to American, requesting that appellant provide a defense in both actions. As the lessee, Sales was charged with responsibility for the burned premises in each suit.

American discovered the alleged "mistakes" in the processing contract and Travelers policy upon receipt of process from Sales. Appellant contends that Davis and Travelers actually intended to insure the Toyota entity responsible for the property designated in the "additional insured endorsement provision." American alleges that through the mistake of the parties to the processing contract and insurance agreement, the policy refers only to Distributors as an additional insured.

Although not specifically alleged in its first amended complaint, American contends on appeal that "no separate agreement" existed between Davis and any of the Toyota entities regarding occupation of the leased premises. Appellant asserts that the absence of a separate agreement further evidences the parties' purported mistake in failing to insure the actual lessee, Toyota Motor Sales.

The American and Travelers insurance policies were both in effect at the time of the fire. The aggregate limits of each policy for property damage adequately covered the combined claims in the Long Beach and Mort Davis actions. ⁵ In spite of its stated coverage, American demanded that Travelers defend both Toyota Motor Distributors and Toyota Motor Sales in the Long Beach action. Appellant also insisted that Travelers defend Sales in the Mort Davis litigation, and indemnify either Toyota corporation should liability be adversely determined in either action. Travelers refused appellant's demand, and American commenced this suit for reformation and declaratory relief.

In its first amended complaint, American seeks the reformation of the insurance contract between Travelers and Davis. Appellant argues that naming Sales as an additional insured to the Travelers policy will correct the alleged mistake of the contracting parties and express their "true intent."

American also requests a declaration that Travelers has the primary duty to defend Distributors and Sales in the pending tort actions, and indemnify either in the event of loss. In the alternative, appellant seeks a determination that any losses and expenses incurred in the aforementioned actions are to be allocated between the insurers in accordance with the ratio each policy limit bears to the total insurance coverage. ⁶ The issue to be resolved is appellant's standing to assert these equities against respondent.

The trial court sustained Travelers' demurrer to American's first amended complaint on three grounds. This court will assess only appellant's failure to "state facts sufficient to constitute a cause of action," because American's standing to seek the requested relief is dispositive to the underlying dismissal. ⁷ "The applicable pleading rules are familiar. A judgment based on an order sustaining a general demurrer must be affirmed if any one of the several grounds of demurrer is well taken. (Citations.) On the other hand, any particular count which is well pleaded will not be affected by defects is a seperate cause of action, so long...