State Farm Fire & Casualty Co. v. Keenan

Decision Date23 July 1985
CourtCalifornia Court of Appeals Court of Appeals
PartiesState Farm Fire Casualty Co., Plaintiff and Respondent, v. P. Dennis KEENAN et al, Defendants, Cross-complainants and Appellants; Puritan Insurance Company, Defendant, Cross-complainant and Appellant; El Monte Flight Service et al, Defendants, Cross-defendants and Respondents; Southern Marine & Aviation, Inc., et al., Cross-defendants and Respondents. Civ. 69854, B008269 and B008131.
Billips & Desimone, Salvatore Desimone, Santa Monica, and John F. Maloney, Los Angeles, for appellants P. Dennis Keenan and Arlene Y. Keenan

Owen, Melbye & Rohlff and William H. Owen, Redwood City, for respondent El Monte Flight Service.

Michaelis, Montanari & Johnson, Garry L. Montanari and James I. Michaelis, Los Angeles, for Puritan Ins. Co. and

Southern Marine & Aviation, Inc.

McCLOSKY, Associate Justice.

On July 24, 1977, a Piper Lance aircraft (accident aircraft) piloted by Thomas Tobin crashed shortly after take-off from South Lake Tahoe Airport in El Dorado County. Also on board the accident aircraft were P. Dennis Keenan and three other passengers. Keenan, who had been thrown from the accident aircraft after it hit a tree, received severe injuries when the accident aircraft landed on top of him. As a result of these injuries, both of Keenan's legs had to be amputated above the knee. Tobin and one passenger were killed. The remaining passengers sustained personal injuries.

The accident aircraft was owned by Norman and Dixie Hueckel (hereafter Hueckels). The Hueckels had purchased the accident aircraft new from El Monte Flight Service (hereafter El Monte), a fixed-base operator, and then leased it back to El Monte who in turn rented the aircraft to others.

On July 21, 1977, Tobin rented the accident aircraft from El Monte for the purpose of traveling to and from the South Lake Tahoe area during the period of July 21, 1977 to July 24, 1977. Tobin had received flight instruction and certification from El Monte and had approximately 240 hours of flying time before the accident.

As a result of the crash, lawsuits were filed by all surviving passengers and by representatives of the deceased pilot and passenger. These lawsuits were eventually coordinated by the Judicial Council in the Los Angeles Superior Court and were designated as Judicial Council Coordination Proceeding No. 799 and specially entitled "South Lake Tahoe Aircrash Cases."

On July 12, 1978, P. Dennis Keenan and his wife Arlene Y. Keenan (hereafter Keenans) filed identical actions for personal injuries and loss of consortium in both El Dorado (No. 31609) and Los Angeles (No. C247282) Counties. Among those named as defendants in these actions were El Monte and the Hueckels. Against El Monte, the Keenans stated, among others, causes of action for products liability, negligent instruction of and negligent entrustment of the accident aircraft to Tobin, and negligent maintenance of the accident aircraft. The Keenans sued the Hueckels for negligent entrustment of the accident aircraft to Tobin.

On March 21, 1980, the Keenans served upon counsel for El Monte and the Hueckels a set of interrogatories. Interrogatories No. 4 and No. 5 read as follows:

"4. At the time of the occurrence herein, were you covered by a policy or policies of insurance?

"5. If your answer to the preceding interrogatory is in the affirmative, please state for each such policy:

"(a) The insurer;

"(b) The inclusive dates of coverage;

"(c) The limits of liability."

On March 27, 1981, El Monte served its answers to the interrogatories propounded by the Keenans. El Monte answered interrogatories No. 4 and No. 5 thusly:

"4. Yes.

"5. (a) Puritan Insurance.

"(b) 6/29/77 to 12/1/78.

"(c) $1,000,000 subject to $100,000 per seat limitation."

The policy referred to was policy H-2-2606, an aircraft hull and liability policy issued by Puritan Insurance Company (hereafter Puritan) with a liability limit of $1,000,000 per occurrence, subject to a $100,000 per passenger seat limitation. Its declarations page disclosed that insurance coverage was afforded as to Coverage D--"Single Limit-Including Passengers."

With regard to Coverage D, the insuring agreement of that policy provided that Puritan agreed with El Monte "[t]o pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages, including damages for Endorsement No. 1 of policy H-2-2602 contained a list of all aircraft insured thereunder. The aircraft rented by the pilot Tobin on July 21, 1977 was listed thereon as number 21. The model of the accident aircraft was PA-32R (300), and its FAA number was N1263H.

care and loss of services, because of bodily injury, sickness or disease and, if arising out of the foregoing, mental anguish, [171 Cal.App.3d 8] including death resulting therefrom, sustained by any person excluding passengers, unless the Declarations describe Coverage D as 'including passengers' and as damages because of injury to or destruction of tangible property, including loss of use thereof, caused by an occurrence and arising out of the ownership, maintenance or use of the aircraft."

Upon receipt of this information, the Keenans commenced settlement negotiations. Believing that the liability of the Hueckels and El Monte had become reasonably clear, the Keenans, by their letter dated April 2, 1981, addressed to attorneys for Puritan, demanded the full policy limit of $100,000.

On April 23, 1980, in El Dorado case No. 34089 which had been commenced by State Farm Fire & Casualty Insurance Company against P. Dennis Keenan, Puritan and others, Puritan filed a cross-complaint for declaratory relief against the Keenans and others. Therein, Puritan sought a declaration of its rights under policy H-2-2606.

In May 1981, Puritan accepted the Keenans' settlement offer. The Keenans executed a release of all claims against El Monte and the Hueckels, and Puritan forwarded a draft in the amount of $100,000 to the Keenans. On May 26, 1981, a dismissal with prejudice relating to El Monte and the Hueckels was executed.

In August 1981, El Monte and the Hueckels amended their answers to the interrogatories originally propounded by the Keenans. The amended answers disclosed the existence of an additional policy, No. P2-1399, which El Monte and the Hueckels represented did not appear to cover the loss but was responsive to the interrogatories previously answered. El Monte was named as the insured in that policy; the Hueckels were not. The policy had a liability limit of $1,000,000.

After learning of the existence of policy P2-1399, Mr. Keenan executed a declaration in which he stated in essence that he and his wife would not have settled for $100,000 or signed a release agreement permitting the dismissal of El Monte if they had been aware of the additional policy which afforded El Monte $1,000,000 coverage. Mr. Keenan further declared that he had authorized his attorney to submit a settlement demand for $100,000 only because he believed that policy H-2-2606 provided the only insurance coverage available to El Monte.

On June 25, 1981, the Keenans filed a cross-complaint for declaratory relief and damages against Puritan and others in El Dorado Case No. 34089. It contained three causes of action. In their second cause of action, the Keenans alleged fraud and misrepresentation against Puritan based upon its alleged concealment of policy P2-1399.

On January 6, 1982, in El Dorado case No. 34089, Puritan filed a first amended cross-complaint for declaratory relief against the Keenans and others. Therein, Puritan sought, among other things, a declaration of its rights and duties under policy H-2-2606 and policy P2-1399.

On March 1, 1982, El Monte and the Hueckels filed a motion for an order declaring the settlement to be in good faith.

On April 6, 1982, the Keenans filed a motion to set aside the settlement with El Monte under Code of Civil Procedure section 877.

On April 22, 1982, El Dorado case No. 34089 which included the Keenans' cross-complaint and Puritan's first amended cross-complaint, was added to Judicial Council Coordination Proceeding No. 799. Trial on the coverage issues raised in Puritan's amended cross-complaint was scheduled for June 18, 1982. The trial court continued the hearing on the Keenans' motion to set aside pending a resolution of the On June 1, 1982, Puritan filed a motion for summary adjudication of issues. Therein, it moved the trial court for an order adjudicating the following issue to be "without substantial controversy and as deemed established" against the Keenans: "That PURITAN airport liability insurance policy, number P2-1399, issued to EL MONTE FLIGHT SERVICE (hereinafter 'EL MONTE'), does not provide coverage or indemnification for the negligent entrustment of an aircraft to a rentor pilot or for the negligent training of a rentor pilot."

coverage issues. The motion of El Monte and the Hueckels for a determination that the settlement was made in good faith was also continued to June 18, 1982.

Puritan noted that the above issue served as the sole basis for the Keenans' allegations (1) that Puritan committed fraud and misrepresentation by failing to state that policy P2-1399 provided coverage for the negligent training of and the negligent entrustment of the aircraft to the pilot and (2) that the settlement made on behalf of El Monte and the Hueckels was made in bad faith. Puritan also moved for a corresponding order "striking the fraud and misrepresentation cause of action from the cross-complaint of the KEENANs" and for an order affirming that the settlement on behalf of EL MONTE and the HUECKELS was made in good faith. It was Puritan's position that if the trial court found that policy P2-1399 did not provide coverage for negligent entrustment and training, then the Keenans' allegations of fraud and misrepresentation and bad faith...

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