Fort Bragg Unified Sch. Dist. v. Solano Cnty. Roofing, Inc.

• Decision Date: 25 May 2011
• Docket Number: Nos. A127186,A127189,A127244.,s. A127186
• Citation: 266 Ed. Law Rep. 852,11 Cal. Daily Op. Serv. 4964,194 Cal.App.4th 891,124 Cal.Rptr.3d 144
• Parties: FORT BRAGG UNIFIED SCHOOL DISTRICT, Plaintiff and Respondent, v. SOLANO COUNTY ROOFING, INC., Defendant, Cross-complainant and Appellant; Sterling Environmental Corporation, Defendant, Cross-defendant and Appellant; Colonial American Casualty and Surety Company, Defendant, Cross-complainant and Appellant.
• Court: California Court of Appeals Court of Appeals

194 Cal.App.4th 891
124 Cal.Rptr.3d 144
266 Ed. Law Rep. 852
11 Cal. Daily Op. Serv. 4964

FORT BRAGG UNIFIED SCHOOL DISTRICT, Plaintiff and Respondent,
v.
SOLANO COUNTY ROOFING, INC., Defendant, Cross-complainant and Appellant;
Sterling Environmental Corporation, Defendant, Cross-defendant and Appellant;
Colonial American Casualty and Surety Company, Defendant, Cross-complainant and Appellant.

Nos. A127186, A127189, A127244.

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

April 27, 2011.
Rehearing Denied May 25, 2011.

[124 Cal.Rptr.3d 147]Sedgwick, Detert, Moran & Arnold, Marilyn Klinger, Los Angeles, James P. Diwik and Joel M. Long, San Francisco, for Defendant, Cross-complainant and Appellant Colonial American Casualty and Surety Company.

124 Cal.Rptr.3d 148]The Law Offices of Adrienne D. Cohen, Adrienne D. Cohen, Santa Ana, Kimberly J. Sarni, Elizabeth T. Evans for Defendant, Cross-complainant and Appellant Solano County Roofing, Inc.
Bishop, Barry, Drath, Emeryville, Jonathan Goss, Colin Adkins and Sheila T. Addiego for Defendant, Cross-defendant and Appellant Sterling Environmental Corporation.

Stubbs & Leone, Gregory E. Stubbs, Walnut Creek, for Plaintiff and Respondent Fort Bragg Unified School District.

MARGULIES, J.

[194 Cal.App.4th 897

This action was brought by the Fort Bragg Unified School District (District) on behalf of two public agency self-insured risk pools that funded repairs to a District elementary school damaged by rain. The suit sought reimbursement of the repair costs from two contractors and a performance bond surety arising from the contractors' failure to properly secure the school while replacing portions of its roof. One of the contractor defendants, Solano County Roofing, Inc. (Solano), cross-complained against the second contractor, Sterling Environmental Corporation (Sterling).

Solano and its surety, Colonial American Casualty and Surety Company (Colonial), appeal on multiple grounds from a judgment on the complaint in favor of the District. Sterling appeals from an adverse judgment on Solano's cross-complaint. We reverse the District's judgment and award of prejudgment interest against Solano, affirm its judgment and interest award against Colonial, and vacate as moot the judgment on Solano's cross-complaint against Sterling.

I. BACKGROUND A. The Redwood Elementary School Modernization Project

The District began a two-stage modernization project at Redwood Elementary School in 1998. In the first phase, contractors completely renovated the school's interior, including painting, carpeting, and installation of new telephone and computer systems. All planned interior renovations and remodeling were completed by the fall of 2000 at a cost in excess of $2.4 million. In the second phase of the modernization, the District contracted with Solano to re-roof the school. This required removal of the existing built-up roof membrane from the wooden roof deck structure and then attaching a new underlayment followed by a new metal roof. During phase I, the District contracted with Sterling to perform asbestos abatement work for the whole modernization project, including the removal in phase II of part of the roof membrane that contained asbestos. Solano's responsibilities in phase II included removing portions of the old roof membrane that did not contain asbestos, and re-roofing the entire building.

[194 Cal.App.4th 898]

B. Breaches of Contractual Covenants and Damages

The District's contract with Sterling required Sterling to continuously maintain adequate protection of all of its work, protect the District's property from injury or loss arising from the contract, and hold the District harmless from any such damage, injury, or loss. Sterling was specifically required to make sure the roofing asbestos area was “not left uncovered at any time due to the possibility of rain or moisture entering the building.”

Solano's contract contained numerous provisions requiring it to protect its work and the District's property from rain or moisture damage. Under the contract, Solano was required, among other things, to bear all costs for “replacement of damage to existing or new construction from [124 Cal.Rptr.3d 149]weather effects,” “[r]estore any improvements damaged by this work to their original condition,” and repair or replace all existing finished work “damaged by operations under this contract ... at no extra cost to the Owner.” Solano also bore overall responsibility to coordinate its work with Sterling's, keep track of all of Sterling's activities, and ensure the entire structure was adequately covered at all times, both in the areas it was working on and those Sterling worked on. The contract also required Solano to obtain a bond in an amount at least equal to the base price of the contract “to guarantee the faithful performance of the Contract.”

The phase II roof work began on Monday, June 18, 2001. Water penetration into the interior of the school—caused by three days of rain beginning on Monday, June 25, 2001—resulted in $389,968 of damage to the interior of the school. The trial court found the damage was proximately caused by Sterling's and Solano's breaches of their contractual covenants with the District to maintain the integrity of the school's roof covering against rain and moisture, and prevent damage to its interior, during the performance of their work.

C. Coverage of the Loss

The costs of repairing the rain damage to Redwood Elementary School were ultimately paid by three entities: the Northern California Schools Insurance Group (NCSIG) ($96,131.16), Northern California Regional Liability Excess Fund Joint Powers Authority (NCR) ($150,000), and Insurance Company of the West (ICW) ($150,493.45).¹ NCSIG is a joint powers authority formed pursuant to Government Code sections 990.4 and 990.8, for the purpose of pooling the “self-insured claims and losses” of a group of

[194 Cal.App.4th 899]

member school districts in Northern California. NCSIG is a member of NCR, which is also a joint powers authority formed to pool self-insured claims and losses of member “[p]ublic educational agencies” pursuant to sections 990.4 and 990.8.² The District paid NCSIG an annual contribution payment, and was afforded primary coverage for property damage up to the first $100,000 of loss after a $1,000 deductible. NCR provided secondary coverage up to $150,000 for any given loss. ICW, a private insurer, provided $10 million of reinsurance to NCR for payments by NCR in excess of its $150,000 limit.

The annual pool contribution for each public entity participating in NCSIG and NCR (collectively, the JPA's) is calculated pursuant to NCR's by laws. The bylaws provide that each member must pay an annual base contribution rate based upon, among other information, the member's prior year average daily attendance, loss history, unusual exposures, and total insured values. The base rate could be modified based on a member's claims experience according to methodology calculated by an actuary or consultant approved by the NCR's underwriting committee. The bylaws further provided: “Any Subrogation recoveries received by [NCR], or its Members, shall be credited to the amounts paid by the Authority for the Member, with the remainder, if any, remitted to the Member....” Although considered the [124 Cal.Rptr.3d 150]“property” of NCR, subrogation monies received are credited to the member's account for purposes of computing the member's annual contribution to the costs of the pool.

The application of the District's primary and excess coverage were also governed by a memorandum spelling out the scope of claims and losses covered and the rights and duties of the members and NCR with respect to claims. That memorandum states: “The Memorandum of Coverage is not an insurance policy. [NCR] is not a commercial insurer, nor is it subject to regulation under the California Insurance Code. (Gov.Code § 990.8(c); City of South El Monte v. Southern California Joint Powers Insurance Authority (1995) 38 Cal.App.4th 1629 [45 Cal.Rptr.2d 729].)” The memorandum further provided: “In the event of any payment under this Memorandum, [NCR] shall be subrogated to all the rights of recovery against any person or organization....”

D. Surety and Insurance Parties

Colonial issued a performance bond on Solano's behalf in the amount of $713,999 in connection with its phase II work on Redwood Elementary School. Solano maintained a $1 million liability insurance policy with

[194 Cal.App.4th 900]

Villanova Insurance Company (Villanova) for the policy period of January 1, 2001 to January 29, 2002. On July 25, 2003, Villanova was declared insolvent and ordered into liquidation. As a result of the liquidation, the California Insurance Guarantee Association (CIGA) assumed the administration of claims made in California against Villanova's insureds pursuant to Insurance Code section 1063 et seq. (the Guarantee Act).³

Sterling maintained a $2 million liability insurance policy with Zurich American Insurance Company (Zurich) during the relevant policy period.

E. The District's Subrogation Action

The District filed this action in April 2004, asserting causes of action for breach of contract and negligence against Solano, Sterling, and Colonial. Solano and Colonial cross-complained against Sterling for indemnity, contribution, and declaratory relief.

Solano moved for summary judgment in November 2005, asserting all of the District's claims against it were barred under Insurance Code section 1063.1, subdivision (c)(5) (hereafter subdivision (c)(5)), since (1) Villanova was insolvent; (2) CIGA was handling the District's claims against Solano; and (3) the District's insurers—NCSIG, NCR, and ICW—were bringing the complaint as a subrogation action for reimbursement on the amounts they had paid to the District.⁴ In opposition to the [124 Cal.Rptr.3d 151]motion, the District did not dispute Solano's characterization of its claims as subrogation claims brought on...