Fireman's Fund Ins. Co. v. Maryland Casualty Co.

• Citation: 26 Cal.Rptr.2d 762,21 Cal.App.4th 1586
• Decision Date: 21 January 1994
• Docket Number: D017510,Nos. D017339,s. D017339
• Court: California Court of Appeals
• Parties: FIREMAN'S FUND INSURANCE COMPANY, Plaintiff and Appellant, v. MARYLAND CASUALTY COMPANY, Defendant and Respondent.

Page 762

26 Cal.Rptr.2d 762

21 Cal.App.4th 1586

FIREMAN'S FUND INSURANCE COMPANY, Plaintiff and Appellant, v. MARYLAND CASUALTY COMPANY, Defendant and Respondent.

Nos. D017339, D017510.

Court of Appeal, Fourth District, Division 1, California.

Jan. 21, 1994.

Review Denied May 25, 1994.

Bacalski & Byrne, A. Daniel Bacalski, Jr. and Thomas A. Leary, San Diego, for plaintiff and appellant.

Bronson, Bronson & McKinnon and Ralph S. LaMontagne, Jr., Los Angeles, for defendant and respondent.

FROEHLICH, Associate Justice.

Fireman's Fund Insurance Company (Fireman's) appeals from an order dismissing its complaint after summary judgment was entered in favor of respondent Maryland Casualty Company (Maryland). ¹ Fireman's suit against Maryland sought reimbursement for some or all of the funds Fireman's had advanced to settle a lawsuit by a third party. Fireman's contended Maryland improperly settled a construction defect case by misallocating its "primary" policy proceeds, and as a result Fireman's was required to pay, under its "excess" policy, $2,453,000 to a third party.

The trial court granted summary judgment in Maryland's favor on numerous grounds. We must synopsize this sprawling litigation before examining Fireman's contentions.

I BACKGROUND

A. The Parties

Fireman's and Maryland were the liability insurers for certain parties (collectively referred to as "Kelly") who developed a condominium complex. Maryland issued the "primary" policies to Kelly for six successive years, from 1979-1980 to 1984-1985. During this period various insurers provided "excess" coverage to Kelly. One of these "excess insurers" was Fireman's, whose policy was in effect for one year: 1984-1985.

B. The Original Lawsuits

1. The Litigation

The original litigation began as a homeowners association lawsuit against Kelly and numerous subcontractors for defective construction. Kelly later cross-complained against Maryland, as primary insurer for the relevant years 1979 to 1985), claiming Maryland wrongfully failed to defend and indemnify for the liabilities. Maryland later filed a separate declaratory relief action against Kelly and other insurers for Kelly, including Fireman's, seeking a declaration of its obligations regarding Kelly's liabilities and seeking reimbursement from the other potentially liable insurers. The homeowners association cross-complained in Maryland's action, alleging nonpayment of insurance proceeds, and named Fireman's among its cross-defendants. All of these actions, along with others, were consolidated into a single action.

2. The Settlement

After years of litigation, which included entry of a judgment in favor of the homeowners association and against Kelly, most of the parties reached a settlement agreement (hereafter called the "Maryland settlement"). However, Fireman's was not among the settling parties. The settling parties moved to confirm the good faith nature of the Maryland settlement under CODE OF CIVIL PROCEDURE SECTION 877.6². Fireman's opposed the motion. The court granted the motion and entered its order confirming the settlement to be a "good faith" settlement within the meaning of section 877.6. ³

Certain terms of the Maryland settlement are significant. First, the settling parties purported to "allocate" Maryland's contribution (amounting to $3,550,000) to the four policies in effect from March 1981 through March 1985. No contributions were made from Maryland's earlier policies--those in effect in 1979-1980 and 1980-1981.

Second, under the Maryland settlement the homeowners association released Maryland, and further covenanted it would not seek any additional recovery on its judgment from Kelly, but would seek any additional recovery on its judgment only from Fireman's. Kelly in turn released all claims it had against Maryland, including those for bad faith.

C. The Current Lawsuit

1. Fireman's Claims

Shortly after the Maryland settlement was confirmed, Fireman's also settled with and paid the homeowners association. Thereafter, Fireman's sued Maryland in this action, seeking reimbursement for Fireman's payments. Fireman's alleged that the damages suffered by the homeowners association were manifest during all six years that Maryland's primary policies were in effect; that Maryland was therefore obliged to pay its policy limits for all six years; that Maryland wrongfully failed to exhaust all of the primary policies in settling the claim, Maryland having paid no moneys attributable to the 1979-80 or 1980-81 policies; and that as a result of Maryland's wrongful refusal to pay, Fireman's was obligated to pay the homeowners association. Fireman's sought to recover

its payments under theories of equitable subrogation and breach of the implied covenant of good faith and fair dealing, and asserted a claim for declaratory relief.

2. The Summary Judgment

Maryland's first summary adjudication motion was directed solely at Fireman's equitable subrogation claim. Maryland argued Fireman's could not recover because it could not demonstrate two essential elements of an equitable subrogation action by an excess insurer. First, Maryland argued an excess insurer's payment to the third party must be to discharge a liability of the insured, pointing out that the insured here had already been released by the third party. Second, Maryland argued the claim asserted by the excess insurer must be one which the insured could have asserted, noting that the insured here had already released Maryland from any claims. The trial court agreed and granted summary adjudication based on both arguments. ⁴

Maryland subsequently moved for summary judgment, seeking to extinguish the remaining claims for declaratory relief and "breach of the implied covenant of good faith." It argued the declaratory relief action should be dismissed because Fireman's had already paid the money, and hence its claim (if any) had "crystallized" into a cause of action for money damages. ⁵ Maryland argued the "breach of the implied covenant" claim should be dismissed because there was no triable issue of fact that the insured had released Maryland from such claim, extinguishing any right by Fireman's to pursue such claim. Maryland also argued the order on the good faith settlement motion collaterally estopped Fireman's from relitigating the issue of whether the settlement agreement was in bad faith. ⁶ The trial court agreed with all three contentions and granted summary judgment in Maryland's favor.

D. The Current Appeal

Fireman's first argues on appeal that the Maryland settlement was collusive and unfair to Fireman's because (1) it improperly allocated damages to policy periods during which Fireman's provided coverage, when in fact damages had manifested in earlier policy periods; and (2) it improperly obtained Kelly's release of its claims against Maryland for bad faith, thereby cutting off Fireman's equitable subrogation rights. Second, it argues this collusive settlement violated an independent duty owed by Maryland to Fireman's, the breach of which is actionable.

We conclude summary judgment on Fireman's claim for equitable subrogation was properly granted because several elements of such a claim are absent here. We also conclude a primary insurer's obligation of good faith is ordinarily owed to its insured, not to an excess insurer, and that Kelly's

release of Maryland is therefore fatal to Fireman's claim. ⁷

II ANALYSIS

A. Standard of Review

The purpose of summary judgment is to resolve litigation when there are no triable issues of material fact. (Tollefson v. Roman Catholic Bishop (1990) 219 Cal.App.3d 843, 852, 268 Cal.Rptr. 550.) Where there are no triable issues of fact, and only issues of law are disputed, summary judgment is proper. (Seaber v. Hotel Del Coronado (1991) 1 Cal.App.4th 481, 487, 2 Cal.Rptr.2d 405.)

On appeal, this court must conduct de novo review to determine whether there are any triable factual issues. (Pearl v. General Motors Acceptance Corp. (1993) 13 Cal.App.4th 1023, 1027, 16 Cal.Rptr.2d 805.) The appellate court should affirm the judgment of the trial court if it is correct on any theory of law applicable to the case, including but not limited to the theory adopted by the trial court, providing the facts are undisputed. (Lucas v. Pollock (1992) 7 Cal.App.4th 668, 673, 8 Cal.Rptr.2d 918; Koch v. Rodlin Enterprises, Inc. (1990) 223 Cal.App.3d 1591, 1593, 273 Cal.Rptr. 438.) Thus we must affirm so long as any of the grounds urged by Maryland, either here or in the trial court, entitle it to summary judgment. ( Maryland Casualty Co. v. Reeder (1990) 221 Cal.App.3d 961, 966-967, 270 Cal.Rptr. 719.)

B. Summary Judgment Was Proper on Fireman's Equitable Subrogation Claim

We first examine whether Fireman's equitable subrogation claim was viable. ⁸ The specific question is: Was Fireman's entitled to pursue Maryland, to obtain repayment of the amounts Fireman's paid the homeowners association, under a claim for equitable subrogation?

Equitable subrogation permits a party who has been required to satisfy a loss created by a third party's wrongful act to "step into the shoes" of the loser and pursue recovery from the responsible wrongdoer. (Self-Insurers' Security Fund v. ESIS, Inc. (1988) 204 Cal.App.3d 1148, 1155, 251 Cal.Rptr. 693.) In the insurance context, the doctrine permits the paying insurer to be placed in the shoes of the insured and to pursue recovery from third parties responsible to the insured for the loss for which the insurer was liable and paid. (Liberty Mut. Fire Ins. Co. v. Auto Spring Supply Co. (1976) 59 Cal.App.3d 860, 864, 131 Cal.Rptr. 211.)

In Troost v. Estate of DeBoer (1984) 155 Cal.App.3d 289, 202 Cal.Rptr. 47 the court identified six elements essential to an insurer's cause of action based on equitable subrogation:

"The elements ... [are] (1) the insured has suffered a loss for which the party to be charged is liable, either because the latter is a wrongdoer whose act...