Travelers Indem. Co. of Conn. v. Navigators Specialty Ins. Co.

Decision Date22 September 2021
Docket NumberD078852
Parties The TRAVELERS INDEMNITY COMPANY OF CONNECTICUT, Plaintiff and Appellant, v. NAVIGATORS SPECIALTY INSURANCE COMPANY et al., Defendants and Respondents.
CourtCalifornia Court of Appeals Court of Appeals

The Aguilera Law Group, A. Eric Aguilera, Raymond E. Brown and Lindsee B. Falcone, Costa Mesa, for Plaintiff and Appellant.

Morison & Prough, Prough Law, Michael D. Prough, Walnut Creek, and Dean C. Burnick, San Ramon, for Defendant and Respondent Mt. Hawley Insurance Company.

Gordon Rees Scully Mansukhani, Matthew G. Kleiner, San Diego, George P. Soares, Los Angeles, and Tiffany Chiu, San Diego, for Defendant and Respondent Navigators Specialty Insurance Company.

IRION, J.

The Travelers Indemnity Company of Connecticut (Travelers) appeals from an order sustaining the demurrers filed by Navigators Specialty Insurance Company (Navigators) and Mt. Hawley Insurance Company (Mt. Hawley) to the third amended complaint. Travelers contends that the trial court incorrectly concluded that the causes of action for equitable contribution and equitable indemnity fail to state a claim. Travelers also argues that, in the event we contend that the trial court properly sustained the demurrers, we should order that Travelers be given leave to amend its complaint to plead a claim for equitable subrogation.

We conclude that the trial court erred in sustaining the demurrers to both the equitable contribution and equitable indemnity causes of action. Accordingly, we reverse the judgment and remand for further proceedings.

I.FACTUAL AND PROCEDURAL BACKGROUND

In the instant action, Travelers seeks to recover from other insurance carriers some or all of the amounts it paid to defend TF McGuckin, Inc., (TFM) in an underlying construction defect litigation.

A. The Underlying Construction Defect Action and Travelers' Agreement to Provide a Defense to TFM Subject to a Reservation of Rights

As alleged by Travelers,1 the underlying construction defect litigation was filed on December 15, 2010, in a complaint entitled Corvin Business Center Owners' Association, et al. v. Corvin Commercial Condominiums, LLC, et al. , Santa Clara County Superior Court, Case No. 110CV189732 (the construction defect action). TFM was allegedly the "general contractor/developer" of a condominium construction project that contained construction defects.

Travelers alleges that, as part of the condominium construction project, TFM entered into agreements with subcontractors. Among those subcontractors were F&F Steel and Stairway, Inc. (F&F) and Calvac Inc. dba Calvac Paving (Calvac). According to Travelers, each of TFM's agreements with its subcontractors contained a provision which required the subcontractor to defend and indemnify TFM with respect to any claim or liability arising out of that subcontractor's work on the construction project. Further, as Travelers alleged, the agreements between TFM and its subcontractors required each subcontractor to maintain general liability insurance and to name TFM as an additional insured on the subcontractors' insurance policies. Navigators allegedly issued general liability insurance policies to F&F that met this requirement. Travelers allegedly issued such insurance policies to Calvac.

After the construction defect action was filed, Travelers conducted an investigation and decided to provide TFM with a defense subject to a reservation of rights.2 Travelers' agreement to provide a defense was based on its conclusion that "the damage alleged to the Project actually or potentially falls within the scope of the indemnity and defense obligations of the subcontractors, and each of them, as set forth in their subcontract agreements with [TFM]." Therefore, "[s]ubject to a reservation of rights and based on a good faith and reasonable belief that it had a duty to do so, [Travelers] agreed to provide [TFM] with a defense to the Construction Defect Action pursuant to policies issued to [Calvac]."

B. Travelers Files the Instant Action Against Navigators and Mt. Hawley

In January 2015, Travelers filed the instant action to recover from various third parties some or all of the defense costs that it paid to defend TFM in the construction defect action. Travelers' first amended complaint added Navigators and Mt. Hawley as defendants. Mt. Hawley was named as a defendant because it allegedly issued insurance policies to TFM.3 Navigators was added as a defendant because it allegedly issued insurance policies to F&F.

Travelers' first amended complaint (and subsequently, identically, its second amended complaint) alleged three causes of action against Navigators and Mt. Hawley: declaratory relief, equitable contribution, and equitable indemnity. Specifically, Travelers alleged that both Mt. Hawley and Navigators had a duty to defend TFM in the construction defect litigation based on their applicable insurance policies but failed to comply or fully comply with that obligation. Therefore, Travelers sought a declaration that TFM's defense costs should be equitably apportioned between it, Mt. Hawley, and Navigators. Travelers also sought an order requiring that Mt. Hawley and Navigators be required to reimburse an equitable share of the defense costs already paid by Travelers, either under the principle of equitable contribution, or in the alternative, the principle of equitable indemnity. In the equitable contribution cause of action, Travelers alleged, "To the extent that [Travelers] pays or is required to pay more than its equitable share of any sums attributable to [TFM's] defense against the Construction Defect Action, [Travelers] is entitled to recover from Insurer Defendants, and each of them, who paid less than their equitable share." In the cause of action for equitable indemnity, Travelers alleged that "Insurer Defendants ... are primarily and/or exclusively liable for the defense costs of [TFM], and thus in equity are required to reimburse [Travelers] for their equitable share of said defense costs."

C. Travelers Files a Third Amended Complaint

In March 2018, Travelers filed a motion for leave to file a third amended complaint. Travelers explained that recently-obtained evidence called into question whether the insurance policies it issued to Calvac gave rise to a duty to defend TFM in the construction defect action, and that Travelers had been "deceived into providing a defense for [TFM]." Specifically, Travelers obtained evidence showing that TFM and Calvac had signed a new subcontractor agreement only after the construction defect action was filed, but that the agreement was fraudulently backdated to make it appear that it was entered into at the time of the construction project. Travelers explained that the subcontractor agreement between Calvac and TFM in existence prior to the filing of the construction defect action did not require Calvac to obtain additional insured coverage for TFM. According to Travelers, the backdating of the agreement was significant because Travelers' insurance policies state that coverage for TFM as an additional insured "is not triggered ... unless there is a prior written agreement requiring Calvac to obtain such coverage." (Bolding omitted.) Travelers believed that because there was not a "prior written agreement," it never had any duty to provide a defense to TFM in the construction defect action. Travelers sought to amend its complaint to reflect the theory that because it never had any duty to defend TFM, it was "entitled to full reimbursement of what it paid to defend the [construction defect] action." (Italics added.)

The trial court granted leave to amend. In the third amended complaint, the equitable contribution and equitable indemnity causes of action remained the same as in the previous versions of the complaint. Specifically, Travelers sought an order, through those causes of action, that Navigators and Mt. Hawley be required to reimburse an equitable share of TFM's defense costs that were paid by Travelers. However, to reflect its new theory that it never owed any duty to defend TFM, the third amended complaint contained an amended declaratory relief cause of action.

The first subpart of the declaratory relief cause of action in the third amended complaint identified the following issues in dispute for which a declaration was sought:

"a. Insurer Defendants had and have a duty to defend [TFM] against the claims, demands, actions and causes of action asserted against [TFM] in the Construction Defect Action;
"b. Insurer Defendants had and have an equitable duty and responsibility to pay the entire costs of defense incurred on behalf of [TFM]; [¶] and
"c. The fees and costs associated with the defense of [TFM] should be equitably apportioned between and among the Insurer Defendants , under applicable law and equitable principles." (Italics added.)

The second subpart of the declaratory relief cause of action identified the following issues in dispute:

"a. [Travelers] did not have a duty to defend [TFM] against the claims, demands, actions and causes of action asserted against [TFM] in the Construction Defect Action;
"b. [Travelers] did not have an equitable duty and responsibility to pay any portion of the costs of defense incurred on behalf of [TFM]; and
"c. The fees and costs of defending [TFM] have been and are being borne disproportionately by [Travelers]." (Italics added.)

The third amended complaint also added a sentence to its general allegations to reflect Travelers' newly developed belief that it did not owe any duty to defend. Specifically, Travelers stated that although it had agreed, subject to a reservation of rights, to provide TFM with a defense, "[s]ubsequent facts revealed, however, that [Travelers'] belief that it owed a duty to defend [TFM] was erroneous and in actuality [Travelers] owed no such duty."

D. Navigators' and Mt. Hawley's Demurrers to the Third Amended Complaint

Navigators and Mt. Hawley both filed demurrers...

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