Farrar v. Am. Nat'l Prop. & Cas. Co.

• Decision Date: 04 June 2019
• Docket Number: No. 1:15-CV-01177-TLN-SKO,1:15-CV-01177-TLN-SKO
• Parties: GARY R. FARRAR, as Chapter 7 Trustee of the bankruptcy estate in In re: Cavanaugh, United States Bankruptcy Court, Eastern District of California, Case No. 13-92200, Plaintiff, v. AMERICAN NATIONAL PROPERTY AND CASUALTY COMPANY, AEROSPACE INSURANCE MANAGERS, INC., AEROSPACE INSURANCE SERVICES, Defendants.
• Court: U.S. District Court — Eastern District of California

GARY R. FARRAR, as Chapter 7 Trustee of the bankruptcy estate in In re:Cavanaugh, United States Bankruptcy Court, Eastern District of California,Case No. 13-92200, Plaintiff, v. AMERICAN NATIONAL PROPERTY AND CASUALTY COMPANY,AEROSPACE INSURANCE MANAGERS, INC.,AEROSPACEINSURANCE SERVICES, Defendants.

No. 1:15-CV-01177-TLN-SKO

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA

June 4, 2019

MEMORANDUM AND ORDER GRANTING DEFENDANTS' MOTION FOR JUDGMENT ON THE PLEADINGS AND GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

This matter is before the Court pursuant to Defendants Aerospace Insurance Managers, Inc. ("AIM"), and Aerospace Insurance Services' ("AIS") (collectively, "Aerospace Defendants") Motion for Judgment on the Pleadings (ECF No. 53) and American National Property and Casualty Company ("ANPAC") and Aerospace Defendants' (collectively "Defendants") Motion for Summary Judgment (ECF No. 54). Plaintiff Gary R. Farrar, as Chapter 7 Trustee of the bankruptcy estate in In re: Cavanaugh United States Bankruptcy Court, Eastern District of California, Case No. 13-92200 ("Plaintiff") opposes the Motion for Judgment on the Pleadings (ECF No. 59) and the Motion for Summary Judgment (ECF No. 61). Defendants have filed replies (ECF Nos. 62, 63). For the reasons set forth below, the Court hereby GRANTS the Aerospace Defendants' Motion for Judgment on the Pleadings and GRANTS Defendants' Motion for Summary Judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND

The instant action involves a helicopter crash that followed William Coulter's ("Coulter") faulty maintenance on William Cavanaugh's ("Cavanaugh") helicopter. (ECF No. 1 ¶ 5; ECF No. 61 at 6.) During the maintenance, Coulter allegedly damaged the helicopter's pneumatic control fuel tube while installing the tube. (ECF No. 54-2 ¶ 76; ECF No. 61 at 6.) The pilot, Cavanaugh, sued Coulter for injuries he sustained in the resulting crash. (ECF No. 1 ¶ 5.) Coulter tendered the claim to his insurance company, ANPAC¹, which rejected the claim. (ECF No. 1 ¶ 5.) Coulter and Cavanaugh submitted the matter to binding arbitration, and the arbitrator found Coulter was negligent and awarded Cavanaugh $1,458,085. (ECF No. 1 ¶ 7-8; ECF No. 54-2 ¶¶ 82, 83.) Coulter subsequently assigned his rights under his insurance policy to Cavanaugh to collect on any judgment. (ECF No. 1 ¶ 7.) Cavanaugh then filed for Chapter 7 bankruptcy. As a result, Plaintiff owns and is pursuing the instant action to recover the judgment from ANPAC under breach of contract and breach of the implied covenant of good faith and fair dealing causes of action. (ECF No. 1 at 3-6.)

A. ANPAC Insurance Policies

In 2008, Coulter purchased an annual airport liability insurance policy (the "Policy") from ANPAC. (ECF No. 54-4 at 1.) For the next two years, Coulter purchased this same policy from ANPAC. (ECF No. 54-4 at 20, 39.) In 2010, ANPAC informed Coulter that ANPAC would not offer a renewal policy, but substantially similar coverage would be available through its sister company, Hallmark American Insurance Company ("Hallmark"). (ECF No. 54-1 at 12.) From 2010 until 2012, Coulter purchased three identical insurance policies from Hallmark annually. (ECF No. 54-4 at 59, 87, 170.)

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i. 2009-2010 ANPAC Insurance Policy

The 2009-2010 ANPAC Policy is the relevant policy at issue. (ECF No. 54-4 at 39.) The CID within the Policy contains pertinent information such as the insurer's name, the insured's name and contact information, the purchased coverage, the total policy coverage limit, and the premium the insured pays. (ECF No. 54-4 at 39.) The Policy uses the terms "we" and "our" when referring to the insuring entity. (ECF No. 54-4 at 66-67 ("We agree to pay on your behalf all sums which you or someone we protect becomes legally obligated . . . ").) The Policy defines "we" and "our" as "the insurance company named in the Coverage Identification Page" ("CID"). (ECF No. 54-4 at 66.) ANPAC is listed at the top of the 2009-2010 CID. (ECF No. 54-4 at 39.) The Policy identifies the "Named Insurer" as Bill Coulter dba Castle Aviation & Repair. (ECF No. 54-4 at 39.) The signature block provides the signature of the Aviation Managers and the countersignature of an authorized representative. (ECF No. 54-4 at 39.) The Policy defines "Aviation Managers" as "Aerospace Insurance Services which manages our aviation insurance business for us." (ECF No. 54-4 at 18.) A representative of AIS signed the CID as "Aviation Managers" and "Authorized Representative" for ANPAC. (ECF No. 54-4 at 39.)

The Policy includes five options for coverage under the "Bodily Injury and Property Damage Liability" heading. (ECF No. 54-4 at 39.) These categories are labeled: (1) Hazard Division 1: Airport Operations; (2) Hazard Division 2: Products and Completed Operations; (3) Hazard Division 3: Independent Contractors; (4) Hazard Division 4: Contractual Liability; and (5) Hazard Division 5: Fire Legal Liability. (ECF No. 54-4 at 39.) Coulter only selected to purchase coverage under Hazard Division 1: Airport Operations. (ECF No. 54-4 at 39.) The CID shows Coulter's Policy provided coverage under this category with a $1 million limit. (ECF No. 54-4 at 39.) The Policy defines Airport Operations as "[t]he ownership, maintenance, operation or use at the airport and all operations necessary thereto, excluding liability arising out of Hazard Divisions 1 through 4." (ECF No. 54-4 at 46.)

Coulter declined to purchase the other potential coverage options. (ECF No. 54-4 at 39.) The unpurchased category, Hazard Division 2: Products and Completed Operations ("Products and Completed Operations"), provides coverage for:

1. Goods or products manufactured, sold, handled or distributed by you in connection with the ownership, maintenance, operation or use of the airport if the occurrence happens after possession of the goods or products has been relinquished by you to others; and

2. Service operations performed by you in connection with the ownership, maintenance, operation or use of the airport if the occurrence happens after the services have been completed or abandoned. Service operations will not be deemed incomplete because they are improperly or defectively performed or because further operations may be required pursuant to a service or maintenance agreement.

We only provide coverage under Hazard Division 2 for liability arising out of goods or products or service operations that are identified as covered classes in a "Hazard Description Schedule" attached to your policy, excluding liability arising out of Hazard Division 4, Contractual Liability.

(ECF No. 54-4 at 46.)

On October 1, 2009, Coulter signed an Airport Liability Coverage Declination ("Declination"). (ECF No. 54-4 at 144.) The document acknowledged that Coulter "elected not to purchase liability insurance covering [Coulter's] liability for bodily injury or property damages arising out of [Coulter's] Products and Completed Operations." (ECF No. 54-4 at 144.) It further provided that Coulter "underst[ood] that the airport liability policy that [he] [purchased] D[ID] NOT INCLUDE coverage for product liability or liability arising out [his] completed operations." (ECF No. 54-4 at 144.) Finally, it stated that Coulter understood that ANPAC "is under no obligation to provide [Coulter] or any other person . . . with a defense with respect to any claims for property damage or bodily injury as the result of any accident claimed to arise from [Coulter's] products or completed operations." (ECF No. 54-4 at 144.) Coulter signed a similar disclaimer for Hangkeeper's Liability Coverage, another coverage option ANPAC offers. (ECF No. 54-4 at 144.)

ii. Scrivener's Error²

On April 28, 2017, ANPAC filed a First Amended Third-Party Complaint ("Third-Party Complaint") seeking to reform the Policy. (ECF No. 49.) ANPAC asserts reformation is properbecause a scrivener's error incorrectly refers to Hazard Divisions 1 through 4 instead of Hazard Divisions 2 through 4. (ECF No. 49 ¶ 22-23.) This scrivener's error appeared in ANPAC's Policy for each year Coulter purchased coverage. (See ECF No. 54-4 at 7, 46.) The Policy, as written, provides that coverage under Hazard Division 1: Airport Operations includes "[t]he ownership, maintenance, operation or use of the airport and all operations necessary thereto, excluding liability arising out of Hazard Divisions 1 through 4." (ECF No. 54-4 at 7, 46 (emphasis added).) The third-party complaint seeks to reform the contract to exclude coverage from "liability arising out of Hazard Divisions 2 through 4," instead of "1 through 4" as it is currently written. (ECF No. 49 ¶ 23.) ANPAC argues the Policy at issue erroneously excludes Hazard Division 1: Airport Operations coverage, which is the insurance coverage that Coulter purchased each year. (ECF No. 49 ¶ 22.)

B. Underlying Incident

On February 10, 2010, Cavanaugh crashed his helicopter near Escalon, California when his helicopter experienced an unexpected and sudden loss of power.³ (ECF No. 54-1 at 14.) Coulter, who owned Castle Aviation and Repair, serviced the helicopter prior to the crash. (ECF No. 61 at 6.) On January 10, 2011, Cavanaugh filed a liability action (the "Underlying Action") against Coulter alleging a single cause of action for negligence. (ECF No. 54-2 ¶ 75.) The complaint alleged that Coulter improperly installed a PC tube, which caused the helicopter's loss of power. (ECF No. 54-2 ¶ 76.) Coulter did not tender the Underlying Action to ANPAC. (ECF No. 54-2 at 77.)

On May 6, 2014, Cavanaugh's attorney, Erick M. Abramson ("Abramson"), sent a letter to Hallmark setting forth a demand under the $1 million policy limit. (ECF No. 54-4 at 153-56.) In his letter, Abramson detailed the investigation completed by the National Transportation Safety Board and engine manufacturer Rolls-Royce Corporation ("Rolls-Royce"). (ECF No. 54-4 at 153-54.) Rolls-Royce concluded the PC tube had been improperly installed because it was bent,...