Rokeby-Johnson v. Aquatronics International, Inc.

• Decision Date: 10 September 1984
• Docket Number: ROKEBY-JOHNSON
• Citation: 206 Cal.Rptr. 232,159 Cal.App.3d 1076
• Court: California Court of Appeals Court of Appeals
• Parties: R.H.R., on behalf of himself and certain Underwriters at Lloyd's, Plaintiff and Appellant, v. AQUATRONICS INTERNATIONAL, INC., Defendant and Respondent. Civ. 69157.

Page 232

206 Cal.Rptr. 232

159 Cal.App.3d 1076

R.H.R. ROKEBY-JOHNSON, on behalf of himself and certain Underwriters at Lloyd's, Plaintiff and Appellant, v. AQUATRONICS INTERNATIONAL, INC., Defendant and Respondent.

Civ. 69157.

Court of Appeal, Second District, Division 5, California.

Sept. 10, 1984.

Sedgwick, Detert, Moran & Arnold and William H. King, San Francisco, for plaintiff and appellant.

Leff & Mason, Beverly Hills, and Jon A. Longerbone, Los Angeles, for defendant and respondent Aquatronics Intern., Inc.

HASTINGS, Associate Justice.

The underlying action to this appeal was a suit by R.H.R. Rokeby-Johnson and other underwriters at Lloyd's, London (hereinafter Underwriters) which sought to recover the sum of $82,523 paid by Underwriters to their assured, Navigation Services Inc. (hereinafter NSI), for loss of equipment caused by a fire on board the vessel AQUASITION at sea on June 6, 1976. For reasons hereinafter stated the trial court ruled against Underwriters and this appeal followed.

On June 6, 1976, a fire broke out in the forward engine room of the research vessel AQUASITION. The ship burned to the waterline and sank. The ship at the time was being operated pursuant to a charter between Aquatronics and the vessel's owner Oskco Edwards. Aquatronics was obtaining a seismographic profile of the ocean floor off the Southern California coast. In connection with this work on or about June 1, 1976, Aquatronics entered into an agreement with NSI whereby the latter would provide services and furnish equipment for horizontal positioning control in the ocean waters. Approximately three weeks earlier NSI's insurance brokers through Underwriters had bound coverage of the equipment which was lost as a consequence of the fire and the sinking. Although the policy covering the equipment was not issued until July 9, 1976, it was effective as of May 6, 1976, just one month before the sinking.

In its agreement with Aquatronics NSI undertook to provide insurance protection for Aquatronics. Paragraph VI titled INSURANCE in pertinent part provides:

"A. NSI agrees, at its expense, to obtain the following insurance coverages:

"...

4. Personal Property Insurance covering all equipment required to perform the services per this agreement."

"VII. GENERAL LIABILITY INDEMNITY

"Except as negated by the provisions of Paragraphs I and IV A, NSI agrees to protect, indemnify, and save AQUATRONICS harmless from and against all claims, demands, and causes of action of every kind and character arising in favor of employees of AQUATRONICS, or third parties on account of personal injuries, death, or damages to property in any way resulting from the willful or negligent acts or omissions of NSI, its agents, employees, and representatives."

Underwriters paid the sum of $82,523 to NSI for the loss of equipment, and then brought the present subrogation action against Aquatronics for negligence and for failure to provide a seaworthy vessel. At the mandatory settlement conference, before trial, Aquatronics advised Underwriters that it would assert as a defense that it was an implied in law co-insured of NSI. This defense if true would deprive Underwriters of subrogation rights. Approximately three weeks after the settlement conference, Underwriters filed a notice of motion in limine to exclude testimony at trial on this defense by Aquatronics contending that it was new matter and should have been pleaded as an affirmative defense. The hearing on this motion was heard by the trial judge assigned the trial. He denied the motion and although he was not persuaded that it was a defense that required affirmative pleading, he permitted Aquatronics to amend its answer. He then continued the trial so that Underwriters could prepare factually and/or legally to meet the affirmative defense. The trial commenced approximately two months later.

The parties stipulated that the June 1, 1976, agreement between Aquatronics and NSI could be entered into evidence. The trial judge then bifurcated the issues and stated he would first rule on whether the wording of the agreement established that Aquatronics qualified as an implied in law co-insured of NSI. Such a finding would preclude a trial on the other issues raised by Underwriters in its action against Aquatronics. The judge then read the agreement and the written briefs of the parties addressing the issue and ruled Aquatronics was an implied in law co-insured.

CONTENTIONS OF UNDERWRITERS ON APPEAL

1. The trial court erred in finding Aquatronics to be an implied in law co-insured of NSI, thus preventing their action in subrogation because the court's assumption of the parties' intention was unsupported by evidence of any kind.

2. The trial court erred in failing to grant Underwriters' motion in limine.

3. The trial court erred in failing to apply applicable provisions of maritime law.

DISCUSSION

1. The trial court's decision that Aquatronics was an implied in law co-insured of NSI was based almost exclusively on the law as stated in Liberty Mut. Fire Ins. Co. v. Auto Spring Supply Co., 59 Cal.App.3d 860, 131 Cal.Rptr. 211. Liberty Mutual had issued an outstanding fire insurance policy covering a commercial building in which Title Insurance and Trust Company (T.I.T.) was the named insured. Auto Spring Supply Co. (Auto) was a sublessee of T.I.T. and was operating a manufacturing plant in the building. Auto did not take out and maintain any fire insurance of its own on the building. It looked to T.I.T.'s policy with Liberty for this purpose and a portion of the rent that Auto paid to T.I.T. was applied toward the premium on Liberty Mutual's policy.

A fire damaged the building and Liberty Mutual paid T.I.T. $47,488.00 which was the cost for repairing the fire damage. Liberty Mutual initiated a subrogation action against Auto to recover the $47,488.00 paid to T.I.T. The trial court found that Auto intended and understood that neither it nor its employees would have any liability for fire loss to the building and would look solely to the proceeds of Liberty Mutual's policy to pay for any such loss. The trial court found that Liberty Mutual had no right of subrogation against Auto. The Court of Appeal affirmed. The opinion first notes that both T.I.T. and Auto intended Liberty Mutual's fire insurance policy as the sole coverage in case of fire to the property. With this in mind the opinion states:

"This was the commercial expectation of these parties. Stated otherwise, under the facts of this case, we regard the subtenant, Auto, as an implied in law co-insured of T.I.T., absent an express agreement between them to the contrary. They both had insurable interests in the fire damaged building. [Citation.]

"If subrogation were permitted here, Auto, rather than the proceeds of Liberty's policy, would become the source of the funds used to repair the fire damage. This would be contrary to the just-expressed intent and expectation of T.I.T., Liberty's named insured. Under both the lease and the sublease T.I.T. did not look to Auto for payment of fire damage to the building, but instead looked only to the proceeds of Liberty's policy and not beyond. The right of subrogation is governed by equitable principles [citation] and it would be most inequitable to hold Auto responsible for a fire loss which it thought it had completely avoided through its indirect payment over some nine years of the premiums due on Liberty's policy and had also acted in reliance upon this belief by failing to take out corresponding fire insurance of its own. It would also be a windfall for Liberty to have collected these premiums over the years for its assumption of this risk and then when the risk actually occurred, by means of this litigation, to transfer the risk wholly to Auto--the entity which paid Liberty's premiums for years to avoid this very risk....

"It is the overall intention and expectation of T.I.T. as to where it would look for compensation for fire loss that is crucial, and it is clear from what we have already said that its intention and expectation in this respect was to look only to the proceeds of Liberty's policy and neither to Auto nor to its employees. This being so, no liability to T.I.T. for this loss by fire existed on the part of Auto and therefore there was no liability on the part of Auto in favor of T.I.T. to which Liberty could be subrogated."

Based upon the above legal reasoning the trial judge in our present case explained his decision as follows:

"The issue that is raised in this case is whether that subrogation right has been lost because of the contractual provision in the contract between Navigation Services and Aquatronics with reference to covering this equipment by insurance.

"Now, the language of the contract is completely clear, no ambiguity, it specifically provides that Navigation Services will at its own expense obtain insurance coverage and then lists a number of coverages and includes a personal property insurance coverage which would apply to the equipment that we are concerned with here now.

"I have concluded that the plaintiff has no right of subrogation under the circumstances as against defendant Aquatronics.

"I have so concluded because I believe that the reasoning of the Liberty Mutual ¹ case applies and that pursuant to that reasoning the defendant, Aquatronics, was an implied in law co-insured along with Navigational Services.

"...

"Now, the court has to assume that under the usual rules of construction that the language regarding the providing of insurance was put into the agreement for some kind of a purpose and the only reasonable purpose that I can see here and that I think is reasonable under the circumstances bearing in mind what we know about the transaction was that it was to assure defendant Aquatronics that the equipment would be insured, otherwise there would really be no reason to include that language in the contract.

"...

"I have to assume...