Century Surety Co. v. United Pacific Ins.

• Citation: 135 Cal.Rptr.2d 879,109 Cal.App.4th 1246
• Decision Date: 19 June 2003
• Docket Number: No. B150373.,B150373.
• Court: California Court of Appeals
• Parties: CENTURY SURETY COMPANY, Plaintiff and Appellant, v. UNITED PACIFIC INSURANCE COMPANY, et al. Defendants and Respondents.

135 Cal.Rptr.2d 879

109 Cal.App.4th 1246

CENTURY SURETY COMPANY, Plaintiff and Appellant, v. UNITED PACIFIC INSURANCE COMPANY, et al. Defendants and Respondents.

No. B150373.

Court of Appeal, Second District, Division 3.

June 19, 2003.

As Modified June 25, 2003.

Review Denied September 17, 2003.

Hara, Nardi & Barnes, LLP, Callie C. O'Hara, Denise Nardi, David T. Hayek and Randel L. Ledesma for Plaintiff and Appellant.

Tressler, Soderstrom, Maloney & Priess, Mary E. McPherson, David Simantob and Rina Carmel, Los Angeles, for Defendant

and Respondent Lumbermens Mutual Casualty Company.

No appearance for Defendants and Respondents United Pacific Insurance Company and Reliance National Insurance Company.

CROSKEY, Acting P.J.

In this case, we are asked to determine the enforceability of an "other insurance" clause in a liability policy issued by the appellant Century Surety Company (Century). That clause provided Century's coverage for its insured would be "excess" to the coverage of other "valid and collectable insurance." Century was one of four successive insurers that had provided coverage to a common insured over a five year period. One of those other insurers was the respondent herein, Lumbermens Mutual Casualty Company (LMC).¹

After the common insured tendered defense of a suit for damages that had been filed against it, LMC, along with United and Reliance, accepted the tender and agreed to provide, and did provide a defense under a reservation of rights; ultimately, those insurers settled the case. Century, however, rejected the tender and refused to provide a defense, claiming that its coverage was "excess" to that of the other insurers. Century claimed that it had no duty to participate as the underlying claim never threatened to exhaust the primary coverage of the other three insurers. When those insurers made demand upon Century for contribution, it filed this action seeking a declaratory judgment validating its coverage position. The trial court granted the motion for summary judgment filed by LMC and the other two insurers.

Our review of the relevant cases dealing with this issue persuades us that the proper resolution of this dispute is to ignore Century's excess clause and compel an equitable proration among all four of the insurers. We will therefore affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND²

This dispute between insurers arises out of an underlying action in which their common insured, County Line Framing, Inc. (County Line), was sued. The complaint in that action was filed by Ronald Arterberry and several other homeowners in certain residential developments located in Imperial County that had been constructed by Lewis Homes of California (Lewis Homes), a general contractor. After it was served with the complaint, Lewis Homes filed cross-complaints against several of its subcontractors, one of which was County Line.

County Line was covered during the relevant period by a series of successive commercial general liability policies issued by four different insurers over a five year period beginning on January 15, 1993, through February 1, 1998. United (policy number NSA 1330803) provided coverage from January 15, 1993, through January 15, 1994; Reliance (policy number NSA 1631850) was on the risk from January 15, 1994, through February 1, 1996; and LMC issued a policy (number 3MF 729413-00) for the period from February 1, 1996, through February 1, 1997. Century issued a policy (policy number CCP 141899) for the period from February 1, 1997, through February 1, 1998.

County Line tendered defense and indemnity of the underlying Arterberry action to United and Reliance in October 1997. Subsequently, it also tendered defense and indemnity of that action to LMC and Century in April 1998.

Each of the four policies included ISO Form CG 1 11 88 and, therefore, contained a number of identical policy provisions. All of the policies, for example, provided that the insurer was obligated to "pay those sums the insured becomes legally obligated to pay as damages because of ... `property damage' to which this insurance applies" and had the duty to defend any "suit" seeking such damages. Each of the policies also provided that the insurance applied to "property damage" only if the damage was caused by an "occurrence" during the policy period. They each also contained identical definitions of "occurrence" and "property damage."

The problem before us, however, arises from the principal difference between Century's policy and the other three. The policies issued by United, Reliance and LMC all included the same "other insurance " provision from ISO Form CG 111 88:

"4. Other Insurance.

"If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows:

"a. Primary Insurance

"This insurance is primary except when b. below applies [subparagraph b does not apply in this matter]. If this insurance is primary, our obligations are not affected unless any of the other insurance is primary. Then, we will share with that other insurance by the method described in c. below.... [¶]....

"c. Method of Sharing.

"If all of the other insurance permits contribution by equal shares, we will follow this method also. Under this approach, each insurer contributes equal amounts until it has paid its applicable limit of insurance or none of the loss remains, whichever comes first.

If any of the other insurance does not permit contribution by equal shares, we will contribute by limits. Under this method, each insurer's share is based on the ratio of its applicable limit of insurance to the total applicable limits of insurance of all insurers."

The Century policy, however, included a "Contractors Amendatory Endorsement" that, inter alia, expressly replaced the "other insurance" provision of ISO Form CG 1 11 88 as follows:

"6. OTHER INSURANCE

"It is agreed that condition 4. Other Insurance of Section IV—Commercial General Liability Conditions is deleted and replaced by the following:

"4. Other Insurance:

"If other valid and collectible insurance is available to any insured for a loss we cover under Coverage A or B of this Coverage Part, then this insurance is excess of such insurance and we will have no duty to defend any claim or 'suit' that any other insurer has a duty to defend."

On January 14, 1998, after receiving tender of the Arterberry action, Reliance and United agreed to provide a defense to County Line, subject to a reservation of rights. As already noted, County Line subsequently tendered defense of the action to LMC in April of 1998 and LMC agreed to defend County Line, also subject to a reservation of rights.

As a result of the acknowledgment of a duty to defend by United, Reliance and LMC, Century advised County Line that the "other insurance" clause in its policy provided that its coverage was "excess [to] any other valid and collectible primary insurance" and that, therefore, "[Century] would only respond for defense or indemnity in the event the applicable underlying horizontal layer of primary coverage exhausts ...."

United, Reliance and LMC went forward and provided a defense to County Line in the Arterberry action until the case settled in May, 2000. Century did not participate. United, Reliance and LMC paid defense fees and costs totaling $83,553,52 and contributed $5,000 to County Line's settlement of the action. Relying on the language of its "other insurance" clause, Century denied that it had any obligation to provide either a defense or indemnity to County Line until coverage under the United, Reliance and LMC policies had been exhausted. Put another way, Century took the position that under the clear terms of its policy, its coverage was excess to the coverage of the other three insurers. The indemnity coverage afforded by the United, Reliance and LMC policies was never exhausted at any relevant time. Thus, Century argues, its obligation to provide a defense or indemnity never arose.

Anticipating the dispute with the other insurers, Century filed this action for declaratory relief on July 7, 1999. Century sought a determination that it had no duty to defend or indemnify County Line in the underlying Arterberry action. United, Reliance and LMC all filed answers, but LMC also filed a cross-complaint seeking a declaration that Century did have a duty to defend County Line in the underlying action and that it was liable to contribute a proportional reimbursement of the amount expended by LMC in defending that action.

The parties all stipulated to the facts recited above and then filed cross-motions for summary judgment. The trial court held that Century was a primary insurer and as such had a duty, along with the other three primary insurers, to defend and indemnify the common insured. Therefore, it was required to share a contributive burden for the defense and indemnity of County Line in the underlying Arterberry action. For that reason, the trial court denied Century's motion and granted the motions filed by United Reliance and LMC. Judgment was thereafter entered against Century on August 23, 2001³ and it has filed a timely appeal.⁴

CONTENTIONS OF THE PARTIES

Century contends that the trial court erred in granting summary judgment to the other three insurers. The terms of its policy, Century argues, clearly provide that its coverage will be "excess" to any other valid and collectible insurance and therefore it is not liable to provide coverage where such other insurance was present. It claims that it is entitled to the benefit of the contractual bargain that it made with its insured.

As we explain below, there are sound jurisprudential and public policy reasons, reflected in a growing number of recent appellate decisions, that support the rejection of Century's position.

DISCUSSION

1. Standard of Review

This case comes to us on stipulated facts. The parties...