Hartford Cas. Ins. v. Mt. Hawley Ins.

• Decision Date: 21 October 2004
• Docket Number: No. B172449.,B172449.
• Citation: 20 Cal.Rptr.3d 128,123 Cal.App.4th 278
• Court: California Court of Appeals Court of Appeals
• Parties: HARTFORD CASUALTY INSURANCE COMPANY, Plaintiff and Respondent, v. MT. HAWLEY INSURANCE COMPANY, Defendant and Appellant.

20 Cal.Rptr.3d 128

123 Cal.App.4th 278

HARTFORD CASUALTY INSURANCE COMPANY, Plaintiff and Respondent, v. MT. HAWLEY INSURANCE COMPANY, Defendant and Appellant.

No. B172449.

Court of Appeal, Second District, Division 1.

October 21, 2004.

Review Denied January 12, 2005.

Greco, Traficante & Edwards and Jon S. Brick, San Diego, for Defendant and Appellant.

Callahan, McCune & Willis and Janet C. Pesak for Plaintiff and Respondent.

MALLANO, J.

Pursuant to a construction contract, a subcontractor agreed to indemnify the general contractor for claims and liabilities arising out of the subcontractor's performance and to obtain a commercial general liability (CGL) policy listing the subcontractor as the named insured and the general contractor as an additional insured. The general contractor also had its own separate CGL policy, designating it as the named insured.

While the construction was in progress, an employee of the subcontractor was injured and filed suit against the general contractor. The subcontractor's insurer provided a defense and settled the case, using its own funds.

The subcontractor's insurer then filed this action against the general contractor's own insurer, seeking payment of one-half of the defense and settlement expenses. The general contractor's own insurer asserted it was not liable for contribution because, under the indemnity provision in the construction contract, the general contractor was not liable to the subcontractor in any amount. On cross-motions for summary judgment, the trial court agreed with the subcontractor's insurer and entered judgment against the general contractor's own insurer.

We conclude that, just as the general contractor is not liable to the subcontractor under the indemnity provision, so the general contractor's own insurer is not liable to the subcontractor's insurer. To hold otherwise would negate the indemnity provision in the construction contract. We therefore reverse.

I BACKGROUND

Because this case comes to us on appeal from a grant of summary judgment, we treat as true all of the factual assertions and reasonable inferences supported by plaintiff's evidence. (See Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 179, 70 Cal.Rptr.2d 96.)

PCS/Cal-Mor (PCS) was the general contractor on a construction project commonly known as the Willis Project, located in Sherman Oaks, California. PCS was insured under a CGL policy obtained on its own, issued by Mt. Hawley Insurance Company (Mt. Hawley), effective May 27, 1999, to May 27, 2000.

On January 18, 2000, PCS entered into a subcontract with Kowalski Sheet Metal Inc., doing business as Valley Metal Supply (Valley Metal). The subcontract required Valley Metal to obtain a CGL policy for itself and to include coverage for PCS as an additional insured. Valley Metal fulfilled that obligation by purchasing a CGL policy from Hartford Casualty Insurance Company (Hartford), effective through April 27, 2000.

The subcontract also contained an indemnification provision, stating: "The Insurance maintained by [Valley Metal] ... shall insure the performance of [Valley Metal's] indemnification obligations as set forth herein, but nothing in ... the insurance ... shall in any way limit the indemnification provided for hereunder. To the fullest extent permitted by law, [Valley Metal] shall defend, indemnify and hold [PCS] ... harmless from and against any and all costs, liabilities, losses, expenses, liens, claims, demands and causes of action of every kind and character []including those of [Valley Metal], its agents and employees for death, bodily injury, [and] personal injury ... including costs, attorneys' fees and settlements arising out of or in any way connected with the performance of Work under this Subcontract, by act or omission, whether performed by [Valley Metal] or any other Subcontractor or any independent contractor or any agent, employee, invitee or licensee of [Valley Metal], whether resulting from or contributed to by ... negligence in any form, whether active or passive, except the sole negligence or willful misconduct of [PCS]...."

On March 3, 2000, an employee of Valley Metal, Jack Cortez, was injured at the jobsite while attempting to carry materials to the roof of a partially constructed building. Cortez was at the site for the first time. He was following his supervisor, also employed by Valley Metal, to a stairway. They came to an unlit area where Cortez fell four to six feet to the bottom of an open elevator shaft. He injured his left wrist severely, requiring surgery and extensive therapy.

Cortez received workers' compensation benefits from Valley Metal's carrier, Fremont Compensation Insurance Company. Fremont in turn filed suit against PCS to recover $17,000 in benefits already paid and estimated future benefits of about $23,000 (Fremont Compensation Insurance Co. v. PCS/Cal-Nor (Super.Ct.L.A.County, 2001, No. LC054731)). Cortez filed a complaint in intervention against PCS, seeking damages for personal injuries.¹

PCS contacted its general liability insurer, Mt. Hawley. Pursuant to the insurance and indemnity provisions of the subcontract, Mt. Hawley tendered defense of the suit to Valley Metal's general liability insurer, Hartford. On February 9, 2001, Hartford accepted the defense of the action and assigned the case to the law firm of Cline & Associates. Cline filed separate answers to Fremont's and Cortez's complaints. Cline also filed a cross-complaint against Cal-State Electric, the subcontractor allegedly responsible for lighting at the jobsite, contending that Cal-State failed to provide adequate lighting in the area where Cortez fell, thus causing the accident.

Subsequent correspondence between Hartford and Mt. Hawley addressed, but failed to resolve, the issue of whether Hartford would provide PCS with indemnity. Eventually, by letter to PCS dated January 31, 2002, Mary Johnson, a claim consultant with Hartford, stated: "The Hartford hereby agrees to indemnify [you] in [the pending action]. Per the indemnity provision in the contract, full indemnification will be provided except for [your] sole negligence or willful misconduct...."

On January 30, 2002, Hartford tendered the defense of the case to Cal-State Electric's insurer, Reliance Insurance Company, based on an indemnity provision in the subcontract between PCS and Cal-State Electric. Reliance was in liquidation, and the California Insurance Guarantee Association, which was defending Cal-State Electric, denied the tender.

On April 15, 2002, Johnson spoke with defense counsel at Cline and evaluated the case for purposes of settlement. In her typed "roundtable" notes of the same date, Johnson stated, "Per the contract, Hartford policy is primary and indemnification is owed for all except sole negligence or willful misconduct of [PCS]."² Johnson also allocated fault among those involved in the accident, estimating that PCS was 40 to 50 percent negligent, Cal-State Electric was 20 percent negligent, Valley Metal was 30 to 35 percent negligent, and Cortez was 10 percent negligent, if at all.

The next day, Johnson prepared a "Reserve Memo" for Hartford's home office, essentially repeating the information from her roundtable notes, estimating PCS's negligence at 40 to 50 percent and stating that "[i]ndemnification is owed to [PCS] except for claims arising from sole negligence or willful misconduct of [PCS]."

The superior court ordered the case to mediation. Johnson sent a memo to Hugh Downes, an independent adjuster, asking him to attend the mediation on Hartford's behalf. The memo noted that "Hartford is defending general contractor, [PCS], per their status as an additional insured. Per the contract, Hartford policy is primary and indemnification is owed for all except sole negligence or willful misconduct of [PCS]." The memo also discussed how PCS, Cal-State Electric, and Valley Metal were each negligent in causing the accident.

By letter dated April 17, 2002, coverage counsel for Hartford encouraged Mt. Hawley to participate in the mediation, stating that "a jury could easily feel sorry for Mr. Cortez and solely blame [PCS] for the inadequate lighting and for their failure to barricade an open ditch.... [I]t is our position that Mt. Hawley Insurance Company is facing a large potential exposure, and they should participate and contribute toward a resolution of this claim."

The mediation was held on April 25, 2002. Hartford settled Cortez's complaint in intervention for $240,000. On April 26, 2002, Johnson received an e-mail from Cline, asking that she process the settlement check. Hartford funded the entire settlement.

After the settlement with Cortez, Hartford pursued settlement of Fremont's workers' compensation lien. The matter was submitted to mediation. Johnson was still of the opinion that Cortez's employer, Valley Metal, was partly at fault for the accident. On May 6, 2002, Cline sent Johnson an e-mail, stating that Fremont had accepted a settlement offer of $15,000. Hartford paid the entire amount.

On November 18, 2002, Hartford filed this action against Mt. Hawley, seeking declaratory relief, contribution, and indemnity based on the amounts Hartford had paid to defend and settle the lawsuit by Cortez and Fremont. Neither of the insureds, PCS and Valley Metal, was sued. The complaint alleged that Cortez's injuries were caused by the sole negligence of PCS. It was further alleged that the respective insurance policies contained identical "other insurance" provisions, stating when coverage would be primary or excess and describing how multiple insurers would contribute toward defense costs and indemnity.³

Both insurers filed cross-motions for summary judgment. Hartford argued that Mt. Hawley was liable for one-half of the defense and settlement expenses under a theory of equitable contribution. Mt. Hawley asserted that, because PCS was not solely negligent in causing Cortez's injuries, the indemnity...