Clarendon America Ins. Co. v. Mt. Hawley Ins. Co., Case No. CV 07-7351 GAF (JWJx).

• Citation: 588 F.Supp.2d 1101
• Decision Date: 14 October 2008
• Docket Number: Case No. CV 07-7351 GAF (JWJx).
• Court: U.S. District Court — Central District of California
• Parties: CLARENDON AMERICA INSURANCE COMPANY, Plaintiff, v. MT. HAWLEY INSURANCE COMPANY, et al., Defendants.

Page 1101

588 F.Supp.2d 1101

CLARENDON AMERICA INSURANCE COMPANY, Plaintiff, v. MT. HAWLEY INSURANCE COMPANY, et al., Defendants.

Case No. CV 07-7351 GAF (JWJx).

United States District Court, C.D. California.

October 14, 2008.

David S. Blau, David M. Morrow, David S. Blau Law Offices, Los Angeles, CA, for Plaintiff.

Adam C. Hackett, Mary E. McPherson, Tressler Soderstrom Maloney and Priess LLP, Costa Mesa, CA, for Defendants.

ORDER RE: MOTIONS FOR SUMMARY JUDGMENT

GARY ALLEN FEESS, District Court.

I. INTRODUCTION AND BACKGROUND

This case involves a dispute between two insurance companies, Plaintiff Clarendon America Insurance Co. ("Clarendon") and Defendant Mt. Hawley Insurance Co. ("Mt. Hawley"), who paid a settlement of $280,000 on behalf of D.B. Construction Co. ("DB"), for alleged defects in a construction project. The settlement amount was determined in a mediation in which the two carriers participated, although the degree of participation of each is disputed. In the end, Clarendon paid $180,000 of the $280,000 total; Mt. Hawley paid the other $100,000.

In the present suit, Clarendon seeks to recover all of the $180,000 it paid on the ground that its policy was not in effect during the construction period. In the alternative, it contends that it is entitled, at the very least, to contribution of $40,000 from Mt. Hawley because Mt. Hawley was obligated to fund half of the settlement amount determined through mediation. Mt. Hawley contends that the defects in issue arose in connection with change orders that were performed after the Clarendon policy took effect and that the claim was covered by Clarendon's policy. But, according to Mt. Hawley, even if the Court concludes that there was no coverage under Clarendon's policy, Clarendon acted as a volunteer and has no right to recover the $180,000 it paid or to seek equitable contribution in any sum.

These claims are the subject of crossmotions for summary judgment that the Court now has under consideration. Because the Court concludes that Clarendon's insured completed its work before the Clarendon policy took effect, and because the Court further concludes that Clarendon did not waive its right to assert a claim for indemnification or contribution against Mt. Hawley, Clarendon's motion is GRANTED and Mt. Hawley's is DENIED.

II. FACTS

A. THE CONSTRUCTION PROJECT

In or about April 1999, George C. Hopkins Construction, Co., Inc. ("Hopkins"), a general contractor hired to build a church for the Roman Catholic Archdiocese, hired DB as a subcontractor to install interior and exterior drywall and steel framing studs. (Clarendon MSJ SGI 9; Morrow Decl., Ex. B [Hopkins DB Subcontract Agreement]; Clarendon MSJ SGI ¶ 9.) During the course of construction, Hopkins maintained a record, identified as a daily job report, that recorded on a daily basis the name of each subcontractor working at the construction site and a general description of the work being performed by that subcontractor. (Algorri Decl. ¶¶ 2-4 & Ex. A.) These reports reflect that DB commenced work on its subcontract on November 22, 1999 (id., Ex. A, at HOP 291) and finished on May 8, 2000 (id., at HOP 424). All work on the project was completed on July 13, 2000. (Id., at 471.)¹ The parties agree that a certificate of occupancy was issued by the City of Hawaiian Gardens on or about August 8, 2000 (e.g., Clarendon Statement of Undisputed Fact ("SUF"), No. 11), and very shortly thereafter the archdiocese took possession of and occupied the building.

B. CONSTRUCTION DEFECTS ARE DISCOVERED

Some time after the archdiocese commenced occupancy, an issue arose over alleged defects in DB's work. The Archdiocese sought to arbitrate claims for, among other things, "exterior wall assembly, [where] the stucco base wall sheathing was left open and exposed to the elements." (Kavcioglu Decl., Ex. A [Archdiocese Amended Claim Statement at 3].) (Emphasis added.) In addition, DB was accused of using the wrong sheathing, "Pabco paper-faced gypsum core product" instead of "DensGlas Gold." (Kavcioglu Decl., Ex. A [Archdiocese Amended Claim Statement at 3].) According to the archdiocese's claim, "This [ ] resulted in mold growth on the inside face of the exterior wall sheathing and on the interior face of the gypsum drywall." (Kavcioglu Decl., Ex. A [Archdiocese Amended Claim Statement at 4].) The archdiocese commenced action on its construction defect claims in arbitration proceedings filed in 2004; in or about January 2006, Hopkins filed a cross-demand against DB and others alleging a contractual defense and asserting a right to equitable indemnification for damages caused by DB. (SUF, No. 14; see Kavcioglu Decl., Ex. E.)

C. THE INSURANCE CARRIERS BECOME INVOLVED

Once Hopkins identified DB as the potentially responsible subcontractor, DB tendered defense of its case to Mt. Hawley, which had issued a comprehensive general liability ("CGL") policy for damages that occur in "the coverage territory" during the policy period. (SUF, No. 6.) Mt. Hawley issued such policies to DB for the period June 10, 2001 to June 10, 2002 and for each of the following four years. (SUF, No. 4.) Mt. Hawley received notice of the arbitration in or about December 2005 when Hopkins made a demand that Mt. Hawley defend and indemnify it against the archdiocese's claims. (Kavcioglu Decl., Ex. B.) Mt. Hawley accepted the tender, but six months later tendered to Clarendon, which had issued DB an "occurrence" based CGL which provided coverage for damages resulting from specified events that occurred during the policy period. (SUF, No. 3.) In a letter to Clarendon, Mt. Hawley's counsel wrote:

We understand that Clarendon ... issued a general liability policy to our client, DB Construction Company for the time period of June 10, 2000 to 2001.... Please accept this correspondence as our client's tender of the defence and demand for indemnity of this above-referenced litigation under any and all applicable policies issued to our client by Clarendon.

About two months later, having discovered some change orders that appeared to describe work performed during its policy period, Clarendon responded:

In sum, according to the available information it appears that DB Construction Company ("DB") was still performing work in connection with the church building as of inception of the policy on June 10, 2000. For instance, the subcontract documents include several change orders and other notations that suggest DB may have been on site through October 2000.

D. SETTLEMENT OF THE CONSTRUCTION DEFECT CLAIMS

On January 26, 2006, Mt. Hawley agreed to provide coverage and defend DB under a reservation of rights. (First McPherson Decl., Ex. 19 [Jan. 26, 2006 coverage letter].) On August 16, 2006 Clarendon likewise agreed to defend DB subject to a reservation of rights:

including but not limited to the right to deny coverage and/or withdraw from the defense, to seek reimbursement of any sums incurred in the defense or indemnity of non-covered claims, and to assert any policy provision or coverage term, limitation, condition or exclusion that may now be or later prove relevant and applicable.

(First McPherson Decl., Ex. 11 [Aug. 16, 2006 letter from David Blau, Clarendon coverage counsel].)

On April 23, 2007 DB and the Archdiocese attended a mediation wherein DB would contribute $280,000. (Blau Decl. ¶ 10.) Mt. Hawley's counsel did not object to the settlement. (Blau Decl. ¶ 10; Morrow Decl. ¶ 18; Clarendon MSJ SGI 41.) However, at the mediation, after the agreement was reached and approved by counsel to both insurers, Mt. Hawley's counsel conveyed to Clarendon's counsel, without explanation, that Mt. Hawley would contribute only $100,000 to the settlement. (Blau Decl. ¶ 10; Morrow Decl. ¶ 18.) Mt. Hawley's counsel who participated in the mediation states: "Prior to the claims ... being settled for $280,000 on April 23, 2007, I told [Clarendon's counsel] that Mt. Hawley would only contribute $100,000 toward the settlement...." (Devling Decl. ¶ 7.)

On May 2, 2007, ten days after the mediation where DB settled the underlying dispute, Clarendon's coverage counsel wrote to Mt. Hawley's counsel:

As the settlement needs to be funded in the very near future, Clarendon hereby again demands that Mt. Hawley agree to pay one-half of the settlement reached on DB's behalf ($140,000), or Clarendon will file an action for equitable contribution against Mt. Hawley seeking reimbursement of 100% of the $280,000 settlement. Please recall that according to current information it appears that DB's work was completed prior to the inception of the Clarendon policy period. To be clear, if Mt. Hawley agrees to fund one-half of the settlement, Clarendon will waive its contribution rights vis-avis Mt. Hawley.

(First McPherson Decl., Ex. 13 [May 2, 2007 letter from Clarendon coverage counsel].) Mt. Hawley declined to increase its contribution, explaining that "Mt. Hawley ... agreed to fund 50 percent of a settlement up to $200,000 based on its valuation of the case." (Second McPherson Decl., Ex. F [Aug. 5, 2007 letter from Mt. Hawley's counsel].)

On September 5, 2007, Mt. Hawley provided payment of $100,000. (Blau Decl., Ex. J [Sept. 5, 2007 correspondence attaching check].) On October 9, 2007, Clarendon provided payment of $180,000. (Morrow Decl., Ex. O [Oct. 9, 2007 correspondence attaching check].) This lawsuit followed.

III. DISCUSSION

A. LEGAL STANDARD

The Court reviews the competing motions to determine whether the relevant facts are undisputed or without substantial controversy and whether those facts allow the Court to enter judgment as a matter of law. Rule 56, Fed.R.Civ.P. If the record reveals the existence of factual issues genuinely in dispute because "they may reasonably be resolved in favor of either party" and that those issues might affect the outcome of a trial, the Court cannot grant summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50, 106...