National American Ins. Co. of California v. Certain Underwriters at Lloyd's London

• Citation: 93 F.3d 529
• Decision Date: 03 May 1995
• Docket Number: No. 94-55047,94-55047
• Parties: 96 Cal. Daily Op. Serv. 6085, 96 Daily Journal D.A.R. 9956 NATIONAL AMERICAN INSURANCE COMPANY OF CALIFORNIA, Plaintiff-Appellee, v. CERTAIN UNDERWRITERS AT LLOYD'S LONDON, subscribing to the reinsurance agreements represented by certificates number LC 58392 and LC 103204, Defendant, and Smith and Companies, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 529

93 F.3d 529

96 Cal. Daily Op. Serv. 6085, 96 Daily Journal

D.A.R. 9956

NATIONAL AMERICAN INSURANCE COMPANY OF CALIFORNIA, Plaintiff-Appellee, v. CERTAIN UNDERWRITERS AT LLOYD'S LONDON, subscribing to the reinsurance agreements represented by certificates number LC 58392 and LC 103204, Defendant and Smith and Companies, Defendant-Appellant.

No. 94-55047.

United States Court of Appeals, Ninth Circuit.

Submitted May 3, 1995. ^*

Decided June 30, 1995.

Amended Aug. 24, 1995.

Argued and Submitted May 14, 1996.

Opinion Withdrawn Aug. 15, 1996.

Decided Aug. 15, 1996.

George J. Koelzer, Lane Powell Spears Lubersky, Los Angeles, California, for defendant-appellant.

Linda M. Lasley, Reinsurance Counsel, A Law Corporation, Pasadena, California, for plaintiff-appellee.

Appeal from the United States District Court for the Central District of California Before BEEZER and TROTT, Circuit Judges, and SHUBB, ^** District Judge.

Mariana R. Pfaelzer, District Judge, Presiding. D.C. No. CV 91-4021 MRP(Sx).

ORDER

The opinion filed June 30, 1995 and amended August 24, 1995 is withdrawn.

OPINION

SHUBB, District Judge:

In July 1991, National American Insurance Company of California ("National") brought this diversity action in the district court to collect on two reinsurance policies issued in the early 1960's by various underwriters at Lloyd's, London (collectively the "Underwriters"). The Underwriters appeal from a summary judgment awarding National approximately $2,930,325, plus pre-judgment interest. ¹ We affirm in part, and reverse in part.

I.

National is the successor in interest of the Stuyvesant Insurance Company ("Stuyvesant"). In the early 1960's, Stuyvesant sold liability insurance to the Hughes Aircraft Company ("Hughes"), which from 1951 until the mid 1970's operated a manufacturing plant near the Tucson International Airport. This insurance was brokered by Haidinger-Hayes, Inc. ("Haidinger"), which also sold and serviced insurance and reinsurance for the Underwriters.

This insurance covered the years 1962, 1963 and 1964. In all three years, Hughes purchased $1 million in liability coverage from Haidinger. As originally structured, the first $500,000 of each year's coverage was under a primary policy from Stuyvesant. ² The additional $500,000 in coverage was provided by an excess insurance policy issued by Haidinger on behalf of the Underwriters. ³

The structure of these polices was altered commencing with the second year of coverage. Effective January 1, 1963, Stuyvesant's primary coverage of Hughes increased to the full $1 million, and in response Haidinger converted the Underwriters' $500,000 excess policy covering Hughes into a $500,000 reinsurance policy covering Stuyvesant. ⁴ As with the excess insurance policy, the Underwriters' liability to Stuyvesant was not triggered until Stuyvesant's liability to Hughes under the primary policy exceeded $500,000. In addition to the converted excess insurance policy, ⁵ Stuyvesant also purchased another $150,000 of reinsurance coverage from the Underwriters for 1964. This coverage would activate as soon as any claim by Hughes under the primary policy exceeded $350,000 for that year. ⁶

Hughes eventually made a full claim against the Stuyvesant primary policy for all three years of coverage. While operating its manufacturing plant, Hughes had apparently disposed of considerable amounts of toxic waste. In 1985, residents living near the Tucson airport brought suit against Hughes (the "Valenzuela litigation"). In 1986, Hughes tendered the defense of the Valenzuela litigation to its primary insurers, among them, National and the Underwriters. ⁷ Ultimately, Hughes settled with the class for about $84 million. Hughes' insurers agreed to pay approximately $72 million of this. National's share was $2.5 million. The Underwriters' share was more than $26 million.

At the time the Valenzuela litigation commenced, National was unaware of the reinsurance policies. However, National suspected that the policies might exist and began searching for them. In the end this search led to Stewart Smith West, Inc., Haidinger's successor in interest. ⁸ On May 22, 1989, several years after National had undertaken its role in Hughes' defense, but several years before any settlement was reached, Stewart Smith West sent National copies of the certificates representing the two reinsurance policies. Nine days later, National sent a letter to Stewart Smith West giving them preliminary notice of a possible claim against the policies. By then, National had already incurred legal and investigation costs of approximately $1.8 million. This was also communicated to Stewart Smith West in the letter.

Neither Stewart Smith West nor the Underwriters responded to the May letter or to subsequent letters. On January 9, 1991, National informed Stewart Smith West of the terms of the settlement agreement. Again, there was no response. On January 10, 1991, National paid the full $2.5 million to Hughes. On January 25, 1991, National submitted its claim to Stewart Smith West under the reinsurance policies. National sought $1.15 million in liability coverage under the 1963 and 1964 policies, and an additional amount as the Underwriters' share of the associated costs. Stewart Smith West and the Underwriters maintained their silence until July, 1991, when National brought this action in the district court.

II.

We review the granting of summary judgment de novo, applying the same standard as the district court. Jacobson v. AEG Capital Corp., 50 F.3d 1493, 1496 (9th Cir.1995). Summary judgment is appropriate if the record, read in the light most favorable to the non-moving party, demonstrates no genuine issue of material fact. Celotex Corp., v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Material facts are those necessary to the proof or defense of a claim, and are determined by reference to the substantive law. See Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The district court concluded California substantive law applies and the parties do not dispute this conclusion.

In this appeal, the Underwriters contend that material disputes of fact exist on the following issues: (1) whether valid reinsurance policies were ever in effect; (2) assuming there were, whether the Underwriters are liable under the policies; (3) whether National's alleged failure to give timely notice precludes it from recovering under the policies; (4) whether National's failure to obtain the Underwriter's written consent precludes it from recovering a pro rata share of the costs incurred in investigating and settling Hughes' claim; and (5) whether the court below erred in ordering the Underwriters to produce certain documents. ⁹ We address each argument in turn.

III.

The district court correctly determined that there was no question of material fact going to the existence or terms of the two reinsurance policies. Under California law, the insured has the burden of proving both the existence of the insurance contract, and its material terms. Searle v. Allstate Life Ins. Co., 38 Cal.3d 425, 438, 212 Cal.Rptr. 466, 696 P.2d 1308 (1985). National presented ample evidence to meet this burden.

A. LC 58392

As to the first policy, LC 58392, National presented evidence demonstrating that it was originally issued to Hughes as excess insurance, and that Haidinger subsequently endorsed it on behalf of the Underwriters, thereby converting it into a $500,000 reinsurance policy covering Stuyvesant for the years 1963 and 1964. ¹⁰ Among the evidence produced by National were both the original excess insurance policy and the subsequent endorsement. These two documents, when read together, contain all the terms essential to a valid contract of insurance under California law-(1) the parties, (2) the "property insured," (3) the risks insured against, (4) the period of coverage, and (5) the means of determining the amount of the premiums. See Cal. Ins. Code § 381. ¹¹ Since the Underwriters produced no contradictory evidence, the district court correctly determined that they failed to raise a genuine issue of material fact as to the existence or the terms of LC 58392.

B. LC 103204

The primary dispute regarding this second reinsurance policy is whether it was canceled in late 1964. The Underwriters contend that Haidinger canceled LC 103204 on November 11, 1964, and replaced it with another policy. However, the only evidence which supports this version of events is a cryptic series of telexes sent between Haidinger and London. ¹²

Standing alone, and read in the light most favorable to the Underwriters, the most these telexes show is that discussions were held about canceling LC 103204. This, by itself, is insufficient as a matter of law to raise a triable issue of fact as to whether the policy was ever actually canceled. Moreover, these telexes do not stand alone. According to the deposition testimony of Gibbs, ¹³ who sent the initial telex from Los Angeles, the concern underlying the 1964 telexes went solely to the aviation portion of the Stuyvesant policy. ¹⁴ No discussion was ever held about canceling the general liability coverage of LC 103204. Since it is undisputed that Hughes made its claim under its general liability coverage, the fact that the Underwriters may have considered canceling the aviation portion of LC 103204 is immaterial. The district court correctly determined that there was no genuine dispute over whether LC 103204 was in effect in 1964.

IV.

The Underwriters next argue that National must prove the existence of coverage on the Hughes primary policy to prevail on its claim that there was coverage on any policies of reinsurance. Essentially, the Underwriters claim the right to litigate the question of whether National was liable to Hughes under the primary policy.

The district court granted summary judgment against the Underwriters on this issue, finding...