Energy Ins. Mut. Ltd. v. Ace Am. Ins. Co.

• Decision Date: 11 July 2017
• Docket Number: A140656
• Citation: 221 Cal.Rptr.3d 711,14 Cal.App.5th 281
• Court: California Court of Appeals Court of Appeals
• Parties: ENERGY INSURANCE MUTUAL LIMITED, Plaintiff and Appellant, v. ACE AMERICAN INSURANCE COMPANY, Defendant and Respondent.

14 Cal.App.5th 281

221 Cal.Rptr.3d 711

ENERGY INSURANCE MUTUAL LIMITED, Plaintiff and Appellant,

v.ACE AMERICAN INSURANCE COMPANY, Defendant and Respondent.

A140656

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

Filed July 11, 2017

Counsel for Appellant: Baker & McKenzie LLP, Ronald L. Ohren, Michael A. Pollard, Teresa Lauren Michaud

Counsel for Respondents: Clyde & Co. US LLP, William J. Hapiuk, San Francisco, Paul R. Koepff, Erica J. Kerstein, O'Melveny & Myers LLP, Jonathan D. Hacker

REARDON, ACTING P.J.

This insurance coverage dispute arises from a massive explosion that occurred when an unmarked petroleum pipeline was struck by an excavator. Numerous lawsuits were filed against a range of defendants, including the pipeline owner and the staffing agency providing personnel to the pipeline. After settling the lawsuits against the pipeline owner, an excess insurer for the pipeline sought to recover defense costs and settlement payments from the staffing agency's insurer. The staffing agency's excess insurance policy excluded damages arising from professional services. We affirm summary judgment in favor of the staffing agency's insurer, finding the policy excluded the claims in the underlying lawsuits.

I. BACKGROUND

A. The Parties and the Underlying Actions

Kinder Morgan, Inc., together with its affiliated companies (Kinder Morgan), owns and operates thousands of miles of oil and gas pipelines. Kinder Morgan was insured under an "Excess Liability Insurance Policy" by Associated Electric & Gas Insurance Services Limited (AEGIS) with a liability limit of $35 million per occurrence, subject to a self-insured retention (SIR)¹ of $1 million per occurrence for "General Liability." In addition, Energy Insurance Mutual Limited (EIM) insured Kinder Morgan under a "Following Form Excess General Liability Indemnity Policy,"² with a liability limit of $100 million per occurrence, excess to the AEGIS policy limit of $35 million.

Comforce Corporation (Comforce) is a staffing company that supplies businesses with temporary employees in a variety of contexts. Comforce has been providing employees to Kinder Morgan entities since the late 1980s. ACE American Insurance Company (ACE) insured Comforce under a primary commercial general liability (CGL) policy with a limit of $1 million per occurrence. ACE also issued Comforce a stand-alone "Commercial Umbrella Liability Policy"³ (the umbrella policy) with a $25 million limit per occurrence. The umbrella policy contained a professional services exclusion regarding claims arising out of the provision or failure to provide "services of a professional nature." Comforce was also insured under a "Specified Professions Professional Liability Insurance" policy by Steadfast Insurance Company, with coverage of up to $5 million per claim.

In keeping with their long-standing business relationship, Kinder Morgan hired two temporary employees through Comforce to work as construction inspectors on a large water supply line project being constructed for the East Bay Municipal Utility District (EBMUD) in Walnut Creek. Comforce did not train or supervise the employees. Kinder Morgan selected and trained the inspectors. According to the job description, construction inspectors were required to ensure compliance with engineering specifications, safety standards, and industry codes. Kinder Morgan also required inspectors to have knowledge of the practices, principles, procedures, regulations, and techniques as they related to terminal pipeline construction. Inspectors were also required to have the ability to understand and interpret construction drawings, maps, and blueprints. Though not required, an ideal inspector would have had a minimum of 10 years of experience in petrochemicals and/or a bachelor's degree in mechanical, civil, or electrical engineering.

Kinder Morgan also had one of its own employees at the Walnut Creek project, who acted as a line rider. The line rider's primary function was to perform daily surveillance of the designated pipeline area, in order to protect and ensure the integrity of the pipeline system by avoiding third party damage. Part of the line rider's responsibilities involved pipeline identification, including locating and marking lines, as well as replacing damaged or missing markers. The job requirements included passing and maintaining "all applicable Operator Qualification requirements." A line rider needed to "quickly become knowledgeable of all applicable federal and state relations, most notably Part 196 of the Code of Federal Regulations."⁴ Desired experience also included basic knowledge of cathodic protection, as well as knowledge of piping, valves, pressures, and pipeline operations.

On November 9, 2004, an excavator operated by Mountain Cascade, Inc. (MCI), EDMUD's contractor at the Walnut Creek project, punctured a high-pressured petroleum line owned by Kinder Morgan. Gasoline was released into the pipe trench and was ignited by the welding activities of Matamoros Pipelines, Inc., a subcontractor working for MCI. The resulting explosion and fire killed five employees and seriously injured four other employees. Extensive property damage also occurred.

Following the explosion, Cal/OSHA conducted an investigation and concluded that the primary cause of the accident was the failure to properly mark the petroleum pipeline. Cal/OSHA determined that "[s]everal employers failed to take required action and committed errors that contributed to the failure to determine and mark the location of the utility line." Cal/OSHA issued two "Serious Willful" citations to Kinder Morgan due to the failure of its employees to mark the location of the petroleum pipeline prior to the excavation activities to install the water line. Cal/OSHA also determined that Kinder Morgan "employees were aware that an unsafe condition existed and failed to assure that the utility was clearly marked which would have resulted in its relocation or other appropriate measures to safeguard employees."

Numerous wrongful death and personal injury lawsuits were filed against several defendants, including Kinder Morgan and Comforce. The underlying lawsuits largely alleged that the pipeline rupture was caused by the negligence of the parties, including Kinder Morgan and Comforce, in failing to identify and mark the location of the Kinder Morgan pipeline, and by failing to properly supervise contractors who were working near the pipeline. Additional theories of liability were asserted against Kinder Morgan, including premises liability, nuisance, trespass, and strict liability for ultrahazardous activities.

Kinder Morgan sought coverage for the lawsuits under its AEGIS and EIM excess commercial CGL policies, and also under Comforce's primary and umbrella CGL policies with ACE. AEGIS and EIM participated in Kinder Morgan's defense of the actions. ACE agreed to participate in Kinder Morgan's defense under Comforce's primary CGL policy, but under a reservation of rights. ACE declined coverage under Comforce's umbrella policy, in part, on the grounds that the claims were excluded from coverage.

Each of the underlying lawsuits against Kinder Morgan was settled prior to trial. When the AEGIS policy limit was exhausted through payments of defense costs and settlements, EIM agreed to pay more than $30 million to reimburse Kinder Morgan for the settlements resolving the underlying lawsuits.

B. The Instant Coverage Dispute

EIM commenced this action against ACE on March 16, 2011, seeking full reimbursement of the payments it made to Kinder Morgan under its excess policy, up to the full $25 million limit of Comforce's umbrella policy with ACE. In its amended complaint, EIM alleged that Kinder Morgan was covered as an additional insured under Comforce's umbrella policy. EIM further alleged that the defense costs and settlement payments disbursed in connection with the underlying lawsuits should have been paid by ACE because the ACE umbrella policy was a "first-level excess policy" and the EIM policy was a "second-level excess policy." EIM asserted claims for equitable subrogation, equitable contribution, and equitable indemnity against ACE.

EIM moved for summary adjudication of its equitable subrogation claim. ACE filed its own motions for summary judgment, arguing that: 1) the professional services exclusion categorically precluded coverage under the Comforce umbrella policy; 2) EIM could not state a claim for equitable subrogation against ACE; 3) EIM's equitable contribution and equitable indemnity claims were barred by the statutes of limitations; and 4) Kinder Morgan was not an additional insured under Comforce's policies with ACE.

On August 13, 2013, the trial court issued its tentative rulings on the parties' motions. The court granted ACE's motion on the grounds that the claims in the underlying litigation fell within the ambit of the professional services exclusion, which the court found was set forth in "clear" policy language. In light of that ruling, the trial court held ACE's other motions regarding equitable subrogation and statute of limitations to be moot. The court, however, also denied ACE's motion based on the additional insured provision, determining there was a triable issue of fact as to whether there was an agreement between Comforce and Kinder Morgan that made Kinder Morgan an additional insured under Comforce's policies. The instant appeal followed. The court denied EIM's motion on the ground that professional service exclusion precluded coverage for the claims against Kinder Morgan.

II. DISCUSSION

At issue is whether the trial court properly determined that the tort claims asserted against Kinder Morgan arose from performance or non-performance of services of a professional nature. The gist of EIM's position is that application of the professional liability exclusion to the underlying claims defeated Kinder Morgan's reasonable expectation of coverage as an additional insured under the ACE policies...