Mcmillin Cos. v. Am. Safety Indem. Co., D063586

• Decision Date: 22 January 2015
• Docket Number: D063586
• Citation: 183 Cal.Rptr.3d 26,233 Cal.App.4th 518
• Court: California Court of Appeals Court of Appeals
• Parties: MCMILLIN COMPANIES, LLC, Plaintiffs and Appellants, v. AMERICAN SAFETY INDEMNITY COMPANY, Defendant and Appellant.

233 Cal.App.4th 518

183 Cal.Rptr.3d 26

MCMILLIN COMPANIES, LLC, Plaintiffs and Appellants,

v.AMERICAN SAFETY INDEMNITY COMPANY, Defendant and Appellant.

D063586

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

Filed January 22, 2015

Certified for Partial Publication.^*

Wilson, Elser, Moskowitz, Edelman & Dicker, San Diego, Gregory D. Hagen and John R. Clifford for Defendant and Appellant.

Law Offices of Greg J. Ryan and Greg J. Ryan, San Diego, for Plaintiffs and Appellants.

Morris Sullivan & Lemkul, Shawn D. Morris and Matthew J. Yarling, San Diego, as Amicus Curiae on behalf of Plaintiffs and Appellants.

IRION, J.

The parties cross-appeal from a final judgment of the superior court in an insurance coverage dispute between a general contractor (and, according to the general contractor, its related entities) and the commercial general liability insurer of one of its subcontractors. We will dismiss the appeal as to all parties other than the general-contractor, (McMillin Construction Services, L.P., doing business as McMillin Homes, a Corky McMillin Company (McMillin), and the insurer, (American Safety Indemnity Company (ASIC), and will reverse the judgment and remand for further proceedings.

I.^**

II.ISSUES IN THE CROSS–APPEALS

A. The Entities

McMillin was the general contractor and B&B Framing, Inc. (B&B), was the framing subcontractor in a series of construction contracts related to various residential real estate development projects in Temecula, Riverside County, California.

ASIC is a nonadmitted insurance company that issued two policies of commercial general liability insurance to B&B: policy No. XGI 02-2922-001, covering the time period January 18, 2002, to January 18, 2003, and policy No. XGI 03-2922-002, covering the time period January 18, 2003, to January 18, 2004. Although both policies are alleged in the original and first three amended complaints in this action, the parties agree that only the first policy, No. XGI 2-2922-001 (Policy), is at issue.

B. The Construction Defect Litigation

In October 2007, 117 homeowners in the Brookhaven, Castle Pines and Cypress Point projects (projects) filed an amended complaint in Riverside County Superior Court against McMillin and others, alleging construction defect claims related to the homeowners' residences in the projects (Baker litigation).

In December 2007, McMillin (and a number of its related entities named as defendants in the Baker litigation) tendered the defense of the Baker litigation to ASIC under the terms of both of the policies, contending it was an additional insured under the policies. Approximately six months later, ASIC denied the tender.

C. The Present Insurance Coverage Litigation

1. The Complaint and Amended Complaints

In February 2009, eight McMillin-related entities (but not McMillin) filed the underlying complaint against ASIC and 11 other insurance companies. The plaintiffs alleged that each of the defendants was an insurer to one or more of the subcontractors on the projects, that each of the plaintiffs was an additional insured under each of the respective policies, that each of the defendant insurers owed each of the plaintiffs a duty to defend the Baker litigation, and that by denying the tender of the defense of the Baker litigation each of the defendants breached a contract of insurance and its implied covenant of good faith and fair dealing.

In a first amended complaint filed in July 2010, McMillin and nine related entities named the same defendants as in the original complaint and alleged essentially the same facts and causes of action.

Two months later, in a second amended complaint (SAC), McMillin and two related entities (SAC plaintiffs) named the same defendants as in the first two complaints and alleged essentially the same facts and causes of action.

In November 2011 McMillin, as the sole plaintiff, filed a third amended complaint (TAC) against ASIC, as the sole defendant, alleging essentially the same facts and causes of action as in the prior three complaints.⁴ This was after the denial of ASIC's motion for summary judgment, the settlements with all defendants except ASIC, and the filing of the parties' pretrial motions in limine, but before the rulings on the in limine motions–all discussed post.

2. ASIC's Motion for Summary Judgment

In January 2011, ASIC filed a motion for summary judgment directed to the then operative SAC. ASIC argued that all three causes of action–declaratory relief, breach of contract and breach of the implied covenant of good faith and fair dealing–failed as a matter of law on the following independent grounds: (1) none of the SAC plaintiffs qualified as an "additional insured" under the terms of the Policy; (2) the Policy only covered B&B's "ongoing operations," which ASIC contended had ceased prior to the occurrences alleged in the Baker litigation; (3) the Policy only covered liability arising out of B&B's negligence; (4) the Policy's exclusion j.(5) precluded coverage; and (5) the Policy's exclusion j.(6) precluded coverage.⁵ We will discuss the substance of the specific arguments, as necessary, in the Discussion, post.

The SAC plaintiffs opposed the motion, ASIC replied to the opposition, and the court issued a tentative ruling and entertained lengthy oral argument.

By minute order filed July 29, 2011, the court denied ASIC's motion, ruling in relevant part: (1) ASIC met its initial burden of establishing that there is not an "additional insured endorsement" on the Policy expressly identifying any of the SAC plaintiffs; (2) the SAC plaintiffs then did not meet their burden of raising a triable issue of material fact as to the absence of an effective "additional insured endorsement" identifying any of the SAC plaintiffs; but (3) the applicable " ‘blanket’ additional insured endorsement" contained in the Policy provided benefits in circumstances that ASIC did not disprove as a matter of law.

3. The Settlements

During the time period May 2010 through October 2011, the SAC plaintiffs settled their claims in the coverage action with all the defendants except ASIC (Settlement). Of the total $690,154 in Settlement proceeds, the Settlement documentation affirmatively allocated $274,154 to defense expenses from the Baker litigation, and $416,000 was unallocated.⁶

4. The Motions in Limine

In October 2011, in anticipation of trial, the parties filed motions in limine. One dealt with ASIC's alleged duty to defend, and two dealt with the effect of the Settlement proceeds on the SAC plaintiffs' alleged damages.

With regard to the duty to defend, the SAC plaintiffs filed a motion to exclude testimony and argument disputing that ASIC had a duty to defend the Baker litigation. With regard to the Settlement proceeds, the SAC plaintiffs filed a motion to exclude evidence or argument about the Settlement (or any of its details), and ASIC filed a motion to preclude McMillin from arguing either (a) that the Settlement proceeds are not offsets to McMillin's alleged damages for breach of the duty to defend (breach of contract claim) or (b) that the Settlement proceeds are allocated to McMillin's alleged damages for breach of the implied covenant of good faith and fair dealing (tort claim). By the time the motions were fully briefed and decided, the operative complaint was the TAC filed by McMillin. Since McMillin was the only plaintiff at the time the court ruled on the motions, we will refer only to McMillin unless context requires otherwise.

a. Duty to Defend

Relying on Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1078 [17 Cal.Rptr.2d 210, 846 P.2d 792] ( Horace Mann ), and Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 301 [24 Cal.Rptr.2d 467, 861 P.2d 1153] ( Montrose ), McMillin argued that the denial of ASIC's motion for summary judgment established as a matter of law that ASIC had a duty to defend them in the Baker litigation. Opposing the motion, ASIC disputed the legal effect of the denial of its summary judgment motion, contending that because the court did not deny the motion by expressly finding a disputed factual issue, the effect of the ruling did not establish the duty to defend as a matter of law.

In denying summary judgment, the court (Judge Nevitt) had ruled that, with regard to four allegedly undisputed issues, "ASIC has not met its initial burden of proof." During the in limine proceedings, ASIC argued that the court (Judge Alksne) could not consider the denial of the summary judgment, relying in part on Judge Nevitt's following comments at the conclusion of the hearing in which he denied ASIC's motion:

"However, I remind counsel that this ruling is of no evidentiary value later. I don't know what other evidence may be presented to the Court when these issues are next presented. Whether foundations may have been laid for things, not laid here, and so forth. And so should this issue come before the Court again under different circumstances and with potentially different evidence, you should not necessarily count on the same result."

Considering both Judge Nevitt's comment and the written order, Judge Alksne explained at the in limine hearing that ASIC's failure to meet its initial burden in its summary judgment motion was a decision that there was a disputed issue of material fact as to coverage, and that such a disputed issue established the duty to defend. The court's minute order granted the motion to exclude testimony and argument disputing that ASIC had a duty to defend the Baker litigation.

b. Offset⁷

Both motions sought pretrial rulings as to whether the court would allow evidence of the Settlement and, more specifically, whether the parties could present evidence or argument as to the application of the Settlement proceeds as an offset to the alleged damages.⁸ McMillin's alleged damages were limited to contract damages for breach of ASIC's duty to defend (consisting of McMillin's unreimbursed defense expenses from the Baker litigation (Baker fees))⁹ and tort...