Arrowood Indem. Co. v. Travelers Indem. Co. of Conn.

• Decision Date: 06 October 2010
• Docket Number: No. B219491.,B219491.
• Citation: 10 Cal. Daily Op. Serv. 12, 960,2010 Daily Journal D.A.R. 15, 603,116 Cal.Rptr.3d 559
• Court: California Court of Appeals
• Parties: ARROWOOD INDEMNITY COMPANY, Plaintiff and Appellant, v. TRAVELERS INDEMNITY COMPANY OF CONNECTICUT, Defendant and Respondent.

116 Cal.Rptr.3d 559

10 Cal. Daily Op. Serv. 12,960

2010 Daily Journal D.A.R. 15,603

ARROWOOD INDEMNITY COMPANY, Plaintiff and Appellant,

v.TRAVELERS INDEMNITY COMPANY OF CONNECTICUT, Defendant and Respondent.

No. B219491.

Court of Appeal, Second District, Division 4, California.

Oct. 6, 2010.

Background: General contractor's later comprehensive general liability (CGL) insurer brought action against general contractor's earlier CGL insurer for equitable contribution.The Superior Court, Los Angeles County, No. BC384266, Michael C. Solner, J., entered judgment for earlier insurer after court trial.Later insurer appealed.

Holdings:The Court of Appeal, Suzukawa, J., held that:

(1) earlier insurer had duty to defend;

(2) later insurer made prima facie showing of entitlement to equitable contribution; and

(3) earlier insurer failed to rebut prima facie showing of entitlement to equitable contribution.

Reversed and remanded.

*561 Musick, Peeler & Garrett, David A. Tartaglio, and Teresa Cho, Los Angeles, for Plaintiff and Appellant.

Gordon & Rees, Michelle R. Bernard, San Diego, Christopher R. Wagner, Los Angeles, and George P. Soares, San Diego, for Defendant and Respondent.

SUZUKAWA, J.

INTRODUCTION

Two insurers issued comprehensive general liability (CGL) policies to the same insured in different years.Several years later, the insured, a general contractor, was sued for negligence allegedly committed during the second policy period, and it tendered its defense to the second insurer.The second insurer learned during discovery that the insured also had done work for the plaintiff during the first policy period, and it asked the first insurer to participate in the defense.The first insurer did so.However, after the jury returned a verdict against the insured, the first insurer refused to indemnify the insured, asserting that the jury had found negligence only during the second policy period.The second insurer indemnified the insured and then sued the first insurer for equitable contribution.It lost after a bench trial, and this appeal followed.

[1]We conclude that the jury's verdict against the insured did not clearly indicate *562 whether the jury found negligence during the first policy period, the second policy period, or both.We thus address the following issue of first impression: Which insurer bears the burden of proving the existence (or nonexistence) of coverage in a case like the present one, where one insurer has participated in the defense and/or indemnity of an insured and the other has not?We hold that in an action for equitable contribution brought by an insurer who has defended and indemnified an insured against a coinsurer who has not defended or has not indemnified the insured, the participating insurer has met its burden of proof when it makes a prima facie showing of coverage under the nonparticipating insurer's policy—the same showing necessary to trigger the recalcitrant insurer's duty to defend.The burden of proof then shifts to the nonparticipating insurer to prove the absence of actual coverage.Here, because the first insurer failed to meet its burden of proving the absence of coverage, we reverse and remand to allow the trial court to allocate equitably defense and indemnity costs.

FACTUAL AND PROCEDURAL HISTORY

I.The Insurance Policies

Travelers issued a commercial general liability insurance (CGL) policy to Krata, Inc., doing business as Five Star Services, effective July 1, 2000, to July 1, 2001(the Travelers policy).Arrowood (as successor in interest to Royal Surplus Lines Insurance Company) issued a CGL policy to Five Star, effective July 1, 2002, to July 1, 2003(the Arrowood policy).¹Each policy had a liability limit of $1 million per occurrence and $2 million in the aggregate.

The Arrowood and Travelers policies contained identical policy language.As relevant here, the policies provided that the insurers "will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies."Further, "[w]e will have the right and duty to defend the insured against any 'suit' seeking those damages.However, we will have no duty to defend the insured against any 'suit' seeking damages for 'bodily injury' or 'property damage' to which this insurance does not apply."

The policies applied to "bodily injury" and "property damage" if "(1) The 'bodily injury' or 'property damage' is caused by an 'occurrence' that takes place in the 'coverage territory'; and [¶](2) The 'bodily injury' or 'property damage' occurs during the policy period."An "occurrence""means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.""Property damage" means: "(a) Physical injury to tangible property, including all resulting loss of use of that property.All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or [¶](b) Loss of use of tangible property that is not physically injured.All such loss of use shall be deemed to occur at the time of the 'occurrence' that caused it."

Both policies had identical supplementary payment provisions, providing coverage for "[a]ll costs taxed against the insured" in any suit "we[the insurer] defend," and for prejudgment and postjudgment interest.

*563 II.The Underlying Action

On January 7, 2005, Ron and Maureen Ashley(the Ashleys) filed a complaint against Ruth and George Dunmore(the Dunmores) in an action entitled Ashley v. Dunmore, Sacramento County Superior Court, case No. 05AS00066(the underlying action).The complaint alleged that in November 2002, the Ashleys agreed to purchase the Sunflorin Village Apartment Complex(Sunflorin or the property) from the Dunmores.Immediately prior to the sale, the Dunmores or their property manager, FPI Management, Inc.(FPI), hired Five Star to remediate dry rot in the property's exterior wood siding, trim, and decks.While doing the repair work, [the Dunmores and FPI] discovered "substantial and pervasive dry rot damage to the Property's exterior building envelope, wood siding, trim, decks and balconies."The dry rot "in many instances compromised the structural integrity of the balconies and guard rails, posing serious safety risks to the tenants and visitors to the Property."Nonetheless, because [the Dunmores] had decided to sell the property, "they elected to not correct the safety hazards and/or replace the dry rotted wood, but instead to conceal the dry rot damage by, among other things, fastening new trim to defective wood, or covering the dry rot damage with new paint."The Dunmores did not disclose the existence of the dry rot damage to the Ashleys, and the Ashleys did not discover it until after the close of escrow.

On March 16, 2005, the Dunmores cross-claimed against FPI and Five Star.They alleged that "[i]n or about November of 2002, FPI and Five Star entered into an agreement evidenced by one or more writings ('the Remediation Agreement') in which Five Star agreed to perform dry rot remediation at the Property.The Dunmores are informed and believe and thereon allege that, in the Remediation Agreement, Five Star agreed, among other things, to locate and replace wooden structures on the Property which were affected by dry rot."However, "FPI and/or Five Star intentionally or negligently failed to locate and replace or otherwise remediate wooden structures on the Property which were affected by dry rot, and performed their work in such a manner as to cover some dry rot conditions on the Property with new wooden structures so that the dry rot conditions were no longer visible."Accordingly, "[a]n actual controversy has arisen and now exists between the Dunmores and [FPI and Five Star] in that the Dunmores contend, and [FPI and Five Star] deny, that, as between the Dunmores and [FPI and Five Star], responsibility, if any, for the damages claimed by [the Ashleys] herein rests entirely or partially on [FPI and Five Star], and that, as a result, [FPI and Five Star] are obligated to partially or fully indemnify the Dunmores for any sums, including attorneys' fees, expenses, and costs of suit, that the Dunmores may incur in defense of [the Ashleys'] Complaint, as well as for any damages, judgment, attorneys' fees, expenses, costs of suit, or other awards recovered by [the Ashleys] against the Dunmores."

III.Tender of the Underlying Action

Five Star tendered the defense of the underlying action to Arrowood in June 2005.On July 5, 2005, Arrowood agreed to defend Five Star under a reservation of rights.

On May 10, 2006, Arrowood tendered Five Star's defense to Travelers.Arrowood advised Travelers that its initial investigation indicated that Five Star had done dry rot repair at Sunflorin during Arrowood's policy period (July 1, 2002, to July 1, 2003), but "[f]urther investigation *564 with the named insured and the property manager determined there were proposals/ contracts for dry rot repair that dated back to your [Travelers'] policy period."

By letter of September 11, 2006, Travelers agreed to defend Five Star.It stated that it had completed its review of the "facts, pleadings, and the policy provisions of the Travelers Property Casualty Insurance Company('Travelers') policy issued to [Five Star]," and having done so, agreed to "participate in the defense of Five Star under a reservation of rights."

IV.Trial of the Underlying Action

The underlying action went to trial before a jury.On October 20, 2006, the jury returned a special verdict, finding that Five Star was liable for negligence and the Ashleys were contributorily negligent.It also found that the Ashleys' total damages for dry rot repairs were $717,358 and Five Star and the Ashleys were each 50 percent responsible for the damages.

Five Star brought motions for new trial and for judgment notwithstanding the verdict.The trial court denied both motions.

As against Five Star, the...