Sacramento-Yolo Port Dist. v. Cargill of California, Inc., SACRAMENTO-YOLO

• Decision Date: 02 March 1970
• Docket Number: SACRAMENTO-YOLO
• Citation: 84 Cal.Rptr. 822,4 Cal.App.3d 1004
• Court: California Court of Appeals Court of Appeals
• Parties: PORT DISTRICT, Plaintiff and Respondent, v. CARGILL OF CALIFORNIA, INC., Defendant and Appellant. Civ. 12168.

Page 822

84 Cal.Rptr. 822

4 Cal.App.3d 1004

SACRAMENTO-YOLO PORT DISTRICT, Plaintiff and Respondent, v. CARGILL OF CALIFORNIA, INC., Defendant and Appellant.

Civ. 12168.

Court of Appeal, Third District, California.

March 2, 1970.

Fitzwilliam, Memering, Stimbos & DeMers by Robert Memering, Sacramento, for plaintiff-respondent.

Chickering & Gregory, John Philip Coghlan, and Harry A. Jackson, Jr., by Leslie P. Jay, San Francisco, for defendant-appellant.

PIERCE, Presiding Justice.

Plaintiff Sacramento-Yolo Port District ('Port') recovered a summary judgment against defendant Cargill of California, Inc. ('Cargill'), its lessee, for fire damage to the leased premises caused by Cargill's negligence. Judgment was for $72,500. Cargill appeals. It correctly contends that before the fire Port had undertaken to insure the premises for such loss with provision in its policies for waiver of subrogation. Such clause allows release of the insured's lessee from liability to the insurer for the latter's outlay in paying the fire loss. (Here there was full coverage and full payment.) An additional premium was charged, and paid, for the inclusion of the 'waiver of subrogation' endorsement on the several insurance policies involved. ¹

In the proceedings for summary judgment there was an agreed statement of facts. The leased building was a grain elevator. It had been leased to Cargill's predecessor under a lease made in 1949, subsequently assigned to Cargill. Certain provisions of this lease will be adverted to in the discussion below. The correspondence which supports Cargill's claimed defense to liability was exchanged between the parties in June and July 1958. The fire occurred in January 1964. As stated, Cargill agrees it was caused by its negligence. This action was commenced on May 18, 1965. Negotiations for settlement took place during pendency thereof. On April 12, 1967, an oral settlement occurred under which (this court is informed) Cargill would have paid the $72,500. Five days later the correspondence upon which it relies--and which had been mislaid by this apparently sizable corporation throughout the previous settlement negotiations--came to light. Cargill notified Port. It is not contended by Port or its insurers, an was not contended during the hearing on the proceedings for summary judgment, that Cargill is bound by the oral, unexecuted, settlement agreement.

THE 1949 LEASE

The original (1949) lease contains no provision definitive of the risk of loss of, or damage to, the leased premises because of fire; nor does it cover whose obligation it is to keep the premises insured from that casualty. It does, in paragraph 7, include a standard termination provision in the event of a fire loss amounting to more than 50 percent of the value of the leased premises. If a less than 50 percent fire loss, or loss 'from some unforeseen or extraordinary cause not the fault or negligence of Lessee' occurs, lessor agrees to repair. It will be noted that the words 'fault or negligence of Lessee' modify 'some unforeseen or extraordinary' loss and damage by fire.

Paragraph 10 is also the standard clause waiving sections 1941 and 1942 of the Civil Code (obliging the lessor to make repairs). But, as a part of that clause requiring the lessee to make repairs at its own expense, 'damage by fire or other casualty (is) excepted.' In a third standard clause (paragraph 11) lessee '(s)ubject to the exceptions specified in Pargraph 10 immediately preceding' promises not to commit waste and to surrender the premises in good repair.

None of these provisions expressly cover with certainty the issues for or against the respective parties. They just skirt the fringes. Port relies upon Morris v. Warner (1929) 207 Cal. 498, 279 P. 152. That, however, was a case resting upon nothing but the 'fringes.' The lease there involved contained standard clauses similar to those we have outlined. Plaintiff lessee had sued defendant lessor to restore a leased building totally destroyed by fire. (Instead of a 50 percent value restoration clause, lessor was obligated to repair if restoration could be accomplished within 60 days.) Defendant lessor cross-complained, contending the fire loss was caused by the lessee's negligence. He sought damages caused thereby. The trial court found such negligence and awarded damages on the cross-complaint. Our Supreme Court affirmed. The existence or nonexistence of an obligation to maintain insurance was not involved in the case, nor was there any issue arising from the failure of lessor (or for that matter, either party) to keep the premises insured against loss by fire--whether the fire was negligently or nonnegligently caused. The court (on p. 506, 279 P. on p. 155) expressly declined to consider in its opinion the question of insurance, saying: '(T)he pleadings and evidence are absolutely silent on the insurance feature.' And it added that lessee, having failed to bring the matter to the trial court's attention, was precluded from doing so on appeal.

The lease provisions which we have discussed furnish nothing but a framework within which to discuss the 1958 correspondence. It is upon the basis of the latter, as supplementing or interpreting the provisions of the lease, that the issue before this court must be decided.

THE JUNE-JULY 1958 CORRESPONDENCE

We quote the relevant part of the 1958 correspondence between Port and Cargill:

(Cargill to Port)

'June 5, 1958

'It is our understanding that under the provisions of the lease dated September 10, 1949 between the Port District and Kerr-Gifford & Co. Inc. of California, which lease was assigned to Cargill of California, Inc., you have undertaken to insure the premises against risks of fire, wind storm, flood, etc. Would you be so good as to advise us whether this understanding is correct? If so, does the insurance policy contain a 'Waiver of Subrogation' clause releasing the lessee from any liability to the insuror? ' (Italics ours.) (Port to Cargill)

'June 24, 1958

'Reference is made to your inquiry of June 5, 1958 with respect to insurance covering our Port District grain elevator against risks of fire, wind, storm, flood, etc.

'We do have such a policy, but there is, however, no insurance against flood.

'Upon checking with our insurance underwriters and reviewing our policies, I find they do not have a 'Waiver of Subrogation' clause releasing the lessee from any liability to the insurer. We can, however, have our underwriters attach a Subrogation Waiver clause if you find it desirable.

'Awaiting your reply as to your desire in the matter, I remain, * * *.' (Italics ours.)

(Cargill to Port)

'June 27, 1958

'We would very much appreciate your requesting your underwriters to include a 'Waiver of Subrogation' clause in policies written on premises leased to ourselves.'

(Port to Cargill)

'July 2, 1958

'In response to your letter of June 27, 1958, we have asked our insurance underwriters to attach to our policies covering premises under lease to Cargill of California, Inc., a 'Waiver of Subrogation' clause.'

(Port to Cargill)

'July 25, 1958

'It is the policy of our Port District Commission to spread our fire insurance on port properties among thirteen Sacramento insurance brokers or agencies. We have, therefore, had each of these brokers supply us with the subrogation clause, a printed copy of which is enclosed. ¹ These are now being attached to each of the thirteen policies.

'I trust that this will serve your purpose. The effective date of these subrogation endorsements is July 3, 1958.'

This court finds no possible doubt of the intent of the parties as reflected by the correspondence recited above. Cargill's letter to Port dated June 5, 1958, expresses an understanding' that Port has undertaken to carry fire insurance on the leased premises, and the stated understanding included the belief that the insurance was for the benefit of both Port and Cargill because Cargill mentions a 'Waiver of Subrogation' clause, the effect of which would protect Cargill as lessee as well as Port. Port's reply of June 24 says it does have fire insurance but no waiver of subrogation clauses are included therein. Therefore, its policies did not include all the protection to Cargill the latter thought it had. But Port tells Cargill: 'We can, however, have our underwriters attach a Subrogation Waiver clause if you find it desirable.' Port awaits Cargill's expression of its desire. Cargill obviously did desire that protection and expressed it in its reply of June 27 in which it expressly informs Port of its wish to be protected and requests a waiver clause. On July 2 Port not merely states it will meet this wish; it affirms it had already taken care of it. It makes the affirmance doubly clear by enclosing the form of endorsement it had obtained.

The instrument received was called a 'Subrogation Waiver Clause.' Its caption is imprecise. A 'subrogation' as applied to an insurer is its right to be put in the position of its insured against third parties legally responsible to the insured for the loss or damage (i.e., the casualty) which the insurer has insured and to the extent of the amount paid. By the terms of the 'subrogation waiver' clauses here the insurers did not surrender that right. In it they stated: 'the named Insured's (i.e., Port's) right of recovery against third parties responsible for the loss' may be released by the insured, and they add: 'such agreement may run in favor of any third party.' That, rather than constituting a waiver of subrogation, is more accurately expressed as consent to a surrender of the value of the right of subrogation as against a specified class of third parties of which Cargill, the lessee, was one. ² In fact Cargill as lessee was the very party at whose request, and for whose benefit, the endorsement was obtained by Port.

It is not reasonable to say that Cargill must be named. The clause is more extensive than a clause merely...