Doe v. Fid. & Cas. Co. of N.Y.

• Decision Date: 01 February 2016
• Docket Number: G050689
• Court: California Court of Appeals Court of Appeals
• Parties: THE DOE RUN RESOURCES CORPORATION, Plaintiff and Appellant, v. THE FIDELITY & CASUALTY COMPANY OF NEW YORK, Defendant and Respondent.

THE DOE RUN RESOURCES CORPORATION, Plaintiff and Appellant, v. THE FIDELITY & CASUALTY COMPANY OF NEW YORK, Defendant and Respondent.

G050689

COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE

February 1, 2016

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Super. Ct. No. 30-2008-00180034)

OPINION

Appeal from a judgment of the Superior Court of Orange County, Robert J. Moss, Judge. Affirmed.

Abelson Herron Halpern, Marc D. Halpern and Heather L. Mayer for Plaintiff and Appellant.

Troutman Sanders, Thomas H. Prouty; Troutman Sanders, John R. Gerstein and Patrick F. Hofer for Defendant and Respondent.

I. INTRODUCTION

In the early 1980's, California's Irvine-based Fluor Corporation (Fluor) acquired Missouri-based St. Joe Minerals Company (St. Joe). As a result of that acquisition, insurance coverage disputes arising out of St. Joe's mining operations in Missouri have, like comets, visited this court once a decade since the 1990's.¹ This third arrival, concerns a dispute over whether St. Joe - now known as the Doe Run Resources Corporation² - was obligated to obtain the consent of one of its 1970's excess insurers, Fidelity & Casualty of New York,³ before settling a Missouri environmental pollution class action suit for $55 million. As with the last time St. Joe was in this court, we find ourselves in the position of having to make our best guess as to how the Missouri Supreme Court would decide the matter before us. (See St. Joe II, supra, at fn. 3.) This time, however, we have the advantage of direct guidance on the question from the Missouri Supreme Court itself, by way of Johnston v. Sweany (Mo. 2002) 68 S.W.3d 398.

As we explain below, Johnston v. Sweany is dispositive of this case. In fine, the Missouri Supreme Court said the holder of a liability policy cannot present to a liability insurer a fait accompli in the form of a done-deal settlement of a case incontravention of an insurance policy's consent clause. Doing so forecloses the liability insurer from the "opportunity" of disputing the amount of damages. That is, under Missouri law, sufficient prejudice by itself. (Id. at p. 402.) Accordingly, we affirm the trial court's judgment dismissing Doe Run's action for declaratory relief against F&C.

II. FACTS

In 2001, residents of Herculaneum, Missouri filed a suit against Fluor and Doe Run alleging environmental damages from St. Joe's lead and cadmium smelting in the late 1970's. This suit is known in the record as the "Doyle action." The Doyle action appears to have been quiescent for a good portion of the 2000's, but by 2010 had been certified as a class action with trial scheduled to begin on October 11, 2011. Zurich Insurance Company had been St. Joe's primary liability insurer from the early 1950's through the mid-1980's. By the fall of 2011, it was providing a defense of the action, albeit under a reservation of rights. Thus it was unclear, from Doe Run's vantage point, whether or how much coverage Zurich might provide to fund any settlement of the action, and thus whether any excess insurance would be triggered. For its part, Doe Run had notified F&C of the Doyle action back in 2001, but as excess insurer, F&C was not participating in its defense.

On September 1, 2011, coverage counsel for Doe Run wrote coverage counsel for F&C to update F&C on the status of the Doyle action. Preparatory to trial, a mediation had been scheduled for Tuesday, September 6 - five days from the date of letter.⁴ The letter was decidedly equivocal about whether the mediation might result in a settlement, or, if it did, whether any settlement of the Doyle action would involve invading F&C's excess coverage. The letter did say that if a settlement involved excess coverage, Doe Run would "look to" F&C's policies for it. But that was it as far as any warning to F&C was concerned. So the communication could be regarded as equivocal.We reproduce all seven paragraphs of it in the margin.⁵ We may also note that the letter set out no figures, probabilities, or theories that might have allowed F&C to gauge anything about (1) Doe Run's probable exposure to the Doyle plaintiffs or (2) F&C's exposure to a claim for coverage in excess of what Zurich might provide. Rather theletter attempted to require the primary insurer Zurich to tell F&C if excess coverage would be needed.

The mediation of September 6 was a long one, and was still going the next day. Twenty minutes after midnight on September 7, Doe Run agreed to settle with the Doyle plaintiffs for an aggregate total of $55 million. The settlement was handwritten on a piece of paper, which contained a three-day rescission option for both plaintiffs and defendant: The settlement was "subject to" the approval of both Doe Run's CEO and the class action representatives. Those two sets of parties - but no others - would have until Friday, September 7, to approve the settlement. The settlement contained no provision for input of any kind from either the primary insurer Zurich or excess insurer F&C.

The record indicates that Doe Run did not tell F&C about the settlement until October 5, 2011, and only then in response to a status inquiry from F&C. On September 28, 2011, a Midwestern administrator for CNA pollution claims wrote Doe Run's coverage counsel about the Doyle case on F&C's behalf. It is clear from that letter the administrator had no idea the case had already settled. The point of the letter was: (our paraphrase) "please tell us what's going on," or, as the letter put it, "As noted previously, Continental has received very little information from Doe Run about Doyle." The administrator was apparently under the impression that Doe Run would not be seeking any indemnity from F&C. The administrator also included, at the end, a long list of (boilerplate) reasons why F&C might deny all coverage arising out of the Doyle litigation.⁶

F&C's letter drew an email response from Doe Run's coverage counsel sent at 7:08 p.m. on October 5 to the administrator. The short missive promised a furtherresponse, and, almost as an afterthought, mentioned the little detail that the case had settled.⁷

Despite promising a further response and saying F&C would be hearing from Doe Run's coverage counsel soon, Doe Run did not contact F&C at all for more than four months. Indeed, the next contact wasn't really a contact at all - it was this lawsuit. Doe Run had filed an action against its primary insurer, Zurich, regarding the Doyle action; contacting F&C was a matter of adding F&C to the existing complaint.

A summary judgment motion was brought by F&C and heard in June 2014 based on the undisputed fact Doe Run had never asked for F&C's consent concerning the September 7, 2011 settlement of the Doyle action. Doe Run admitted it never asked F&C for consent. The trial judge granted the motion, resulting in the judgment that is the subject of this appeal.

III. DISCUSSION

A. The Consent Clause

Back in the late 1970's, F&C wrote a policy of excess liability insurance (policy LX 1 21 86 08) to cover the period from February 1976 to February 1979. The insuring clause says "Policy Coverage [¶] to indemnify the insured for ultimate net loss which the insured shall become legally obligated to pay as damages, in excess of the applicable underlying or retained limit, because of: [¶] (a) Personal Injury [¶] (b) Property Damage [¶] (c) Advertising [¶] arising out of an occurrence." The phrase ultimate net loss as used in the insuring clause is, on the same page, defined as "the sum actually paid or payable in cash in the settlement or satisfaction of losses for which the Insured is liable either by adjudication or compromise with the written consent of thecompany, after making proper deduction for all recoveries and salvages collectible, but excludes all loss expenses and legal expenses including attorney's fees, court costs and interest on any judgment or award and all salaries of employees and office expenses of the insured, the company or any underlying insurer so incurred. This policy shall not apply to defense, investigation, settlement or legal expenses covered by underlying insurance."

Structurally, the requirement of the insurer's consent is part of the definition of terms within the policy's insuring clause, as distinct from constituting an exclusion from coverage otherwise afforded. That point makes a difference in litigation. It is the insured who has the initial burden of showing whether a claim is within the insuring clause. Then it is the insurer who must bear the burden of showing that an exclusion applies to remove the coverage that would otherwise exist. That is the rule not only in California (Aydin Corp. v. First State Ins. Co. (1998) 18 Cal.4th 1183, 1185-1186 [insured bears burden of showing claim is within insuring clause, insurer bears burden of showing pollution exception to that coverage otherwise applies]) but also in Missouri (Clarinet, LLC v. Essex Ins. Co. (E.D. Mo. 2012) 2012 U.S.Dist. LEXIS 7300 (Clarinet)).

B. Missouri Law and Consent Clauses

The determinative case here, Johnston v. Sweany, supra, 68 S.W.3d 398 involved a case where the policyholder of a liability policy settled without asking for his insurer's consent, and, as a result, there was no coverage. The facts were these: The policyholder, a contractor, did some repair work on a home. Three days later, a fire occurred at the home. The homeowners sued the policyholder. The policyholder did not tell his liability insurer about the litigation, and "eventually" signed a confession of judgment without telling the insurance company. A final judgment based on the confession was then entered in favor of the homeowners. (Id. at p....