Great Am. Assurance Co. v. Zurich Am. Ins. Co.

• Decision Date: 21 February 2023
• Docket Number: 21-cv-01135-RS
• Parties: GREAT AMERICAN ASSURANCE COMPANY, Plaintiff, v. ZURICH AMERICAN INSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — Northern District of California

GREAT AMERICAN ASSURANCE COMPANY, Plaintiff, v. ZURICH AMERICAN INSURANCE COMPANY, et al., Defendants.

No. 21-cv-01135-RS

United States District Court, N.D. California

February 21, 2023

ORDER DENYING IN PART AND GRANTING IN PART CROSSMOTIONS FOR SUMMARY JUDGMENT AND MOTION FOR JUDGMENT ON THE PLEADINGS

RICHARD SEEBORG, CHIEF UNITED STATES DISTRICT JUDGE,

I. INTRODUCTION

This dispute among three insurance carriers, all of whom issued policies to the same insured, arises from the notorious sinking and tilting of the Millennium Tower, a residential hi-rise in San Francisco, during and after its construction. The litigation arising from the Millennium Tower construction involved hundreds of parties, multiple cross and countersuits, and a myriad of insurance programs and policies. Over 40 actions were eventually coordinated under a case in San Francisco Superior Court entitled, Laura S Lehman v. Transbay Joint Powers Authority, et al., Case Number CGC-16-553758. They were then settled globally, under a “double blind” settlement, where parties do not know how much each defendant paid, or how much plaintiffs received in total.

Plaintiff in this case is Great American Assurance Company, which issued a $25 million excess liability policy to Webcor Builders, the general contractor on the Millennium Tower project. During the settlement proceedings, Webcor made a so-called “Armstrong election,” and demanded that all of it insurance carriers that had issued policies for the period of June 30, 2008, to June 30, 2009 (the “08-09 Insurance Tower” or “08-09 policy period”) contribute their remaining available policy limits to resolve all the claims against Webcor in the coordinated lawsuits.^[1] Great American agreed, and paid its $25 million limits.

The Great American policy sat at the “top” of the 08-09 Insurance Tower. Defendant Zurich American Insurance Company issued a primary $1 million policy sitting at the “bottom” of the tower. Defendant Westchester Fire Insurance provided the first level excess coverage over the Zurich policy, with a $25 million limit of liability.

By the time of the settlement, Zurich and Westchester's policy limits had been eroded by defense costs, but they both agreed to pay the remaining policy limits. Two other Webcor insurers, not involved in this litigation, also contributed their remaining policy limits, for a total payment by insurers on Webcor's behalf that approached $100 million.^[2] In this action, Great American seeks to recover the $25 million it paid (plus prejudgment interest) under the doctrines of equitable subrogation and/or equitable indemnity. Great American originally asserted a claim for equitable contribution as well, but has since agreed to dismiss it as inapplicable on these facts.

Great American, Westchester, and Zurich now each move for summary judgment. An earlier-filed motion brought by Westchester for judgment on the pleadings was heard with the summary judgment motions and is also before the court, although it is effectively subsumed by Westchester's summary judgment motion. For reasons explained below, the motions by Great American and Westchester will both be denied, and Zurich's motion will be granted.

II. BACKGROUND

The Millennium Tower

As noted, Webcor was the general contractor for the Millennium Tower construction project. The Millennium Tower comprises three primary structures: a 58-story tower, an adjacent 12-story building on a reinforced concrete podium that includes residences and common areas, and a five-level subterranean garage. The facility includes 419 separate residential condominiums and two commercial units.

The east end of the Transbay Transit Center, a $6 billion public work project, abuts the property to the south. The later-built 350 Mission Street building is across the street, to the north. Webcor was also the general contractor for the 350 Mission Street project. Construction of that building allegedly contributed to the property damage at the Millennium Tower.

Construction of the Millennium Tower started in August of 2005, and the Certificate of Final Completion and Occupancy was issued in August of 2009. The principal thrust of the underlying litigation was that the tower was allegedly erected on an improperly designed and constructed foundation system. The building's foundation was purportedly besieged by other negligent construction practices as well.

By the time construction was completed in mid-2009, the Millennium Tower had already sunk more than 8.3 inches. The tower has since dropped more than another 9 inches, bringing it to a total depth of more than 17 inches. In addition to sinking, allegedly separate and distinct causes have resulted in the building tilting. The floors are now unlevel, and at the top, the Millennium Tower leans more than 14 inches to the west and 6 inches to the north.

The underlying litigation alleged additional categories of damage-causing defects including: (a) misalignment, hardware failure, and air and water transmission relating to the building's “curtain wall”; (b) subterranean water intrusion in the garage and basement; (c) coating failure and corrosion of aluminum on the building's exterior; and, (d) intra-unit air transmission posing fire and smoke risks. These defects and damages allegedly are unrelated to the sinkage and tilt of the Tower.

The settlement

The Underlying Litigation was resolved in 2020. To fund Webcor's share of the confidential global settlement, Webcor demanded that all its insurers providing coverage in the 08/09 Policy Period pay their full remaining limits. In response, Zurich paid its remaining limit of $445,806, and Westchester paid $23,000,000 from its 08/09 policy. The Westchester 07/08 policy did not contribute.

Great American agreed to Webcor's demand and paid its $25 million limit under its 08/09 policy pursuant to a reservation of rights. Great American expressly reserved the right to seek reimbursement from insurers that had issued lower-level policies in other policy periods in a “Side Agreement Between and Among Insurers and Risk Financing Entities Relating to the Millennium Tower Litigation Global Settlement” (“the Side Agreement”).

The Side Agreement stated: “Released Matters in Section 1.30 of the Global Agreement do not include, among other things, the following: ... (9) Any claims for reimbursement solely regarding payments toward the Global Settlement Proceeds made by insurers or risk financing entities of a named insured for equitable indemnity, equitable contribution, or equitable subrogation against other insurers of the same insured.” The Side Agreement was signed by representatives of Great American, Zurich and Westchester.

III. SUMMARY JUDGMENT STANDARDS

Summary judgment is proper “if the pleadings and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). The purpose of summary judgment “is to isolate and dispose of factually unsupported claims or defenses.” Celotex v. Catrett, 477 U.S. 317, 323-24 (1986). The moving party “always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Id. at 323 (citations and internal quotation marks omitted). If it meets this burden, the moving party is then entitled to judgment as a matter of law when the non-moving party fails to make a sufficient showing on an essential element of the case with respect to which he bears the burden of proof at trial. Id. at 322-23. The non-moving party “must set forth specific facts showing that there is a genuine issue for trial.” Fed.R.Civ.P. 56(e). The non-moving party cannot defeat the moving party's properly supported motion for summary judgment simply by alleging some factual dispute between the parties. To preclude the entry of summary judgment, the non-moving party must bring forth material facts, i.e., “facts that might affect the outcome of the suit under the governing law ....Factual disputes that are irrelevant or unnecessary will not be counted.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The opposing party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 588 (1986).

IV. DISCUSSION

A. Great America's motion for summary judgment

Great America contends Webcor faced liability for property damage caused by at least four separate occurrences: (1) the “subsidence” occurrence; (2) damage to the Tower's “curtain wall”; (3) garage waterproofing-related damages; and (4) additional sink/tilt damages caused by Webcor's “dewatering” of the adjacent construction project at 350 Mission. Great American insists these four occurrences involved separate damage arising from separate causes, but that the “subsidence” occurrence represented the most significant-with repair costs estimated at more than $100 million. Great American expressly bases it motion solely on the “subsidence” occurrence.^[3]

Applicability of Montrose III

Great American's basic theory is this: Although Webcor made an Armstrong election to demand coverage under the 08-09 Insurance Tower, the first damage from Webcor's alleged negligence was manifest no later than during the 07-08 policy term, which was prior to the time Great American had issued any policy to Webcor. Westchester and Zurich, in contrast, had issued policies in 07-08 and in earlier years. Thus, in Great American's view, it was...