Palp, Inc. v. Williamsburg Nat'l Ins. Co.

• Decision Date: 27 October 2011
• Docket Number: No. G043956.,G043956.
• Citation: 11 Cal. Daily Op. Serv. 13326,200 Cal.App.4th 282,132 Cal.Rptr.3d 592
• Court: California Court of Appeals Court of Appeals
• Parties: PALP, INC., et al., Plaintiffs and Appellants, v. WILLIAMSBURG NATIONAL INSURANCE COMPANY, Defendant and Respondent.

200 Cal.App.4th 282

132 Cal.Rptr.3d 592

11 Cal. Daily Op. Serv. 13,326

PALP, INC., et al., Plaintiffs and Appellants,

v.WILLIAMSBURG NATIONAL INSURANCE COMPANY, Defendant and Respondent.

No. G043956.

Court of Appeal, Fourth District, Division 3, California.

Oct. 27, 2011.

Certified for Partial Publication.^*

See 2 Witkin, Summary of Cal. Law (10th ed. 2005) Insurance, §§ 159, 160; Cal. Jur. 3d, Insurance Contracts, § 313.

Christensen Ehret, Mark E. Christensen, and Scott J. Sterling, Los Angeles, for Plaintiffs and Appellants.

Berman, Berman & Berman and Spencer A. Schneider, Los Angeles, for Defendant and Respondent.

OPINION

O'LEARY, Acting P.J.

Palp, Inc., dba Excel Paving (Excel Paving) and its commercial general liability (CGL) insurer Virginia Surety Company, Inc. (Virginia Surety) appeal from a judgment after the trial court granted Williamsburg National Insurance Company's (Williamsburg) summary judgment motion in this insurance coverage case. Williamsburg provided commercial lines automobile/trucker's insurance on a dump truck owned by its insured, REH Trucking, Inc. (REH), which was providing hauling services on Excel Paving's parking lot demolition jobsite. Excel Paving was a named additional insured on the Williamsburg policy. An Excel Paving employee struck the cab of the REH dump truck with the bucket of an excavator being used to load broken asphalt into a different vehicle, not the dump truck, injuring the dump truck driver and damaging the truck.

The dump truck driver sued Excel Paving and its employee for negligence. The physical-damage insurer of the dump truck sued Excel Paving and its employee in subrogation. Virginia Surety agreed to defend and indemnify Excel Paving (and its employee) in both lawsuits under the CGL policy, but it and Excel Paving also tendered defense to Williamsburg under the dump truck's automobile insurance policy. Williamsburg declined the tender. Virginia Surety and Excel Paving filed the instant action against Williamsburg for declaratory relief, equitable contribution, equitable indemnity, breach of the contractual duty to defend and indemnify, and bad faith.

The trial court granted Williamsburg's summary judgment motion, agreeing with Williamsburg there was no possibility of coverage because the automobile policy excluded coverage for claims of bodily injury or property damage resulting from “the movement of property by a mechanical device (other than a hand truck) unless the device is attached to the covered auto.” Although the excavator was not involved in loading or unloading the damaged dump truck, the trial court agreed the exclusion did not require a relationship between the property being moved and the covered vehicle, only that the injury result from an unattached mechanical device that was moving property. We conclude the exclusion did not apply under the circumstances. We reverse the judgment and, for reasons explained in the unpublished part of our opinion, remand to the trial court with directions to grant Williamsburg's alternative motion for summary adjudication of Virginia Surety's equitable indemnification cause of action and Excel Paving's bad faith cause of action.

I

A. The Accident

On July 23, 2007, REH was performing services for Excel Paving, hauling away loads of excavated asphalt from a parking lot Excel Paving was demolishing. Christian Suarez, an REH employee, was driving an REH-owned dump truck that was being loaded.

Excel Paving employee, Robert Schroeder, was using a hydraulic excavator to demolish the parking lot surface, scoop up broken pieces of asphalt, and load them into some of the trucks. Excel Paving employee, Pat LaPaglia, was using a front-end loader to similarly load asphalt into other waiting trucks. LaPaglia had finished loading Suarez's truck with asphalt, and Suarez was waiting to leave the job site. As Suarez was preparing to drive away, the boom arm of the excavator being operated by Schroeder swung around, and the bucket at the end of the boom arm struck the cab of Suarez's dump truck. The excavator bucket was empty when it struck Suarez's dump truck. Suarez was injured, and the dump truck was damaged.

B. The Insurance Policies

When the accident occurred Excel Paving was insured for liability arising out of its operations under a CGL policy issued by Virginia Surety. The Virginia Surety policy provided $1 million in coverage for bodily injury or property damage for which Excel Paving was liable arising out of its paving operations including from its use of “mobile equipment” defined as, among other things, “[v]ehicles designed for use principally off public roads; [¶] [v]ehicles that travel on crawler treads; [¶] [and v]ehicles, whether self-propelled or not, maintained primarily to provide mobility to permanently mounted: [¶] ... [¶] ... [r]oad construction or resurfacing equipment such as graders, scrapers or rollers....”

REH was insured for liability (also $1 million in coverage) arising out of its trucking operations under a commercial lines policy for truckers issued by Williamsburg. Excel Paving was named an additional insured under the Williamsburg policy on an additional insured endorsement “with respect to liability arising out of operations performed for [Excel Paving] by or on behalf of [REH]” subject to the “terms, conditions, agreements, [and] limitations of th[e] policy.” The Williamsburg policy provided liability coverage for damages an insured must pay because of bodily injury or property damage to which its insurance applies, “caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto.’ ” The dump truck Suarez was driving was a covered auto under the policy.

The Williamsburg policy also contained a “mechanical device” exclusion. It excluded coverage for bodily injury or property damage “resulting from the movement of property by a mechanical device (other than a hand truck) unless the device is attached to the covered ‘auto’.”

C. The Lawsuits, Tenders and Settlements

Suarez sued Excel Paving and Schroeder for bodily injuries he sustained in the accident. His complaint alleged Schroeder negligently operated the excavator and Excel Paving failed to maintain appropriate safety procedures. In their answer, Excel Paving and Schroeder raised Suarez's comparative negligence as an affirmative defense.¹

Lloyd's of London (Lloyd's), REH's property damage insurer, filed a subrogation action against Excel Paving and Schroeder. Lloyd's alleged Excel Paving's and Schroeder's negligence caused damage to the truck, and it sought to recover the $48,372 it paid out to REH. The Suarez and Lloyd's actions were eventually consolidated (hereafter collectively referred to as the underlying action).

Virginia Surety accepted the tender of Excel Paving and Schroeder's defense in both actions, without a reservation of rights, but it and Excel Paving also tendered Excel Paving's defense in both actions to Williamsburg. Williamsburg declined the tender based on the mechanical-device exclusion in the Williamsburg policy. Virginia Surety paid all defense costs and eventually settled Suarez's bodily injury claim for $319,000.

D. Current Action/Summary Judgment Motions

Virginia Surety and Excel Paving filed this action against Williamsburg. The operative complaint, the second amended complaint, contained causes of action for declaratory relief on behalf of both Virginia Surety and Excel Paving, breach of contract and breach of the covenant of good faith and fair dealing on behalf of Excel Paving, and equitable indemnity and equitable contribution on behalf of Virginia Surety.

On the parties' cross motions for summary judgment, or in the alternative summary adjudication, the trial court granted Williamsburg's summary judgment motion and denied Virginia Surety and Excel Paving's motion as moot. The trial court concluded, based on the undisputed facts, the mechanical device exclusion eliminated any potential for coverage under the Williamsburg policy and therefore Williamsburg had no duty to defend or indemnify Excel Paving in the underlying actions.

II

A. General Legal Principles

“[A]n insurer has a duty to defend an insured if it becomes aware of, or if the third party lawsuit pleads, facts giving rise to the potential for coverage under the insuring agreement. [Citations.]” ( Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 19, 44 Cal.Rptr.2d 370, 900 P.2d 619( Waller ).) The insurer must defend any claim that would be covered if it were true, even if it is “ groundless, false or fraudulent.” ( Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 273, 54 Cal.Rptr. 104, 419 P.2d 168( Gray ).) “Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded. [Citations.]” ( Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792.) “Thus, when a suit against an insured alleges a claim that potentially could subject the insured to liability for covered damages, an insurer must defend unless and until the insurer can demonstrate, by reference to undisputed facts, that the claim cannot be covered. In order to establish a duty to defend, an insured need only establish the existence of a potential for coverage; while to avoid the duty, the insurer must establish the absence of any such potential. [Citation.]” ( Ringler Associates Inc. v. Maryland Casualty Co. (2000) 80 Cal.App.4th 1165, 1186, 96 Cal.Rptr.2d 136, fn. omitted.) Doubts concerning the potential for coverage and the existence of duty to defendare resolved in favor of the insured. ( Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 299–300, 24 Cal.Rptr.2d 467, 861 P.2d 1153( Montrose ).)

“[W]hether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the...