Valentine v. Aetna Ins. Co.

• Citation: 564 F.2d 292
• Decision Date: 07 November 1977
• Docket Number: 75-1734 and 75-2152,Nos. 75-1721,s. 75-1721
• Parties: Geoffrey Raymond Peter Norman VALENTINE, Plaintiff-Appellee, v. AETNA INSURANCE COMPANY, Defendant-Appellant. Geoffrey Raymond Peter Norman VALENTINE, Plaintiff-Appellee, v. CONTINENTAL CASUALTY COMPANY, Defendant-Appellant. Geoffrey Raymond Peter Norman VALENTINE, Plaintiff-Appellee, v. ROYAL GLOBE INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 292

564 F.2d 292

Geoffrey Raymond Peter Norman VALENTINE, Plaintiff-Appellee, v. AETNA INSURANCE COMPANY, Defendant-Appellant.

Geoffrey Raymond Peter Norman VALENTINE, Plaintiff-Appellee, v. CONTINENTAL CASUALTY COMPANY, Defendant-Appellant.

Geoffrey Raymond Peter Norman VALENTINE, Plaintiff-Appellee, v. ROYAL GLOBE INSURANCE COMPANY, Defendant-Appellant.

Nos. 75-1721, 75-1734 and 75-2152.

United States Court of Appeals, Ninth Circuit.

Nov. 7, 1977.

David Gordon (argued), of Bronson, Bronson & McKinnon, Peter W. Fisher (argued), of Maloney, Chase, Fisher & Hurst, San Francisco, Cal., Robert Lee (argued), of Rust & Armenis, Sacramento, Cal., for defendants-appellants.

Harlow P. Rothert (argued), of Hancock, Rothert & Bunshoft, San Francisco, Cal., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California.

Before BROWNING and TRASK, Circuit Judges, and PREGERSON, District Judge. ^*

PREGERSON, District Judge:

These consolidated appeals are from a judgment apportioning responsibility among four insurance companies for the payment of a personal injury judgment.

Bay Area Contractors, Inc. (Bay), a general contractor on an apartment project, entered into a subcontract with Atlas Heating and Ventilating Company (Atlas) for the installation of heating equipment. The subcontract contained broad language requiring Atlas to procure liability insurance coverage "of not less than $300,000/$500,000.00 per occurrence" to protect Bay "against liability for damages because of injuries . . . suffered by persons . . .." Atlas then had Bay named as an additional insured in an endorsement on Atlas' $100,000 policy with Aetna Insurance Company (Aetna). The Aetna endorsement made Bay an additional insured "only as respects their interest as they may appear in work being performed for them by" Atlas, and stated that Aetna's policy "shall be primary . . . and any insurance carried by . . . additional insureds shall be excess coverage and in no sense contributory." Atlas also had an umbrella excess coverage policy with Continental Casualty Company (Continental) providing "following" coverage, i. e., matching coverage under the Aetna policy, for amounts over $100,000 and up to $2,000,000.

Bay's own insurance consisted of a $200,000 policy with Royal Globe Insurance Company (Royal) and an excess coverage policy subscribed to by certain underwriters at Lloyds, London and certain British insurance companies (collectively referred to as Lloyds), represented by Geoffrey Raymond Peter Norman Valentine, plaintiff below, for amounts over $200,000 and up to $2,000,000.

Robert Cattuzzo, an employee of Atlas, fell off a temporary ramp installed by Bay and sustained severe injuries. Cattuzzo brought suit in state court against Bay. Aetna and Continental denied coverage, and so Royal undertook the defense.

Cattuzzo was awarded a $700,000 verdict, of which workmen's compensation paid $18,848.60. The remaining $681,151.40 was paid as follows $200,000 Royal

$ 50,000 Aetna

$431,151 Lloyds

Lloyds, which paid most of the judgment, brought suit in the District Court seeking reapportionment of the insurance companies' payment responsibilities and also damages from Royal for a bad faith refusal to settle the action for $500,000 before verdict.

Applying California case law, the District Court found that Aetna's policy provided primary coverage for the Cattuzzo accident, that the Royal policy provided the second layer of coverage, and that Lloyds and Continental provided the third layer of coverage requiring them to contribute to the judgment pro rata:

$190,575.70 Lloyds

$190,575.70 Continental

$200,000.00 Royal

$100,000.00 Aetna

On Lloyds' claim for damages against Royal, the District Court found that Royal had breached its duty to negotiate a settlement in good faith and that, had Royal not frustrated settlement efforts, the Cattuzzo case could have been reasonably settled for $500,000. The District Court then held Royal responsible to Lloyds and Continental for the difference between the $500,000 probable settlement figure and the $681,151.40 paid by the insurers. That made the final apportionment as follows:

$100,000.00 Aetna

$381,151.40 Royal

$100,000.00 Continental

$100,000.00 Lloyds

Royal, Aetna, and Continental appeal. The appeals raise the following contentions:

(1) That an overlooked indemnification provision in the subcontract between Bay and Atlas should be enforced so that the Aetna and Continental policies would be primary to the Royal and Lloyds policies;

(2) That the District Court erred in interpreting the subcontract and the Aetna policy endorsement to provide coverage under the Aetna policy for accidents relating to work done by Bay;

(3) That the trial court erred in fixing Continental's coverage above $200,000;

(4) That the doctrine of equitable subrogation does not apply between primary and excess insurers so that Lloyds and Continental are not entitled to damages from Royal;

(5) That there is insufficient evidence to support the finding that the Cattuzzo litigation could have been settled for $500,000.

(1) THE INDEMNIFICATION AGREEMENT

Royal argues that the subcontract between Bay and Atlas contains an indemnification agreement which would, if enforced, mean that Atlas' insurance should be exhausted before resort to Bay's. We agree with Aetna that the indemnity provisions are not properly before this court. The trial court declined to rule on the validity and applicability of the indemnification clause in the subcontract on the ground that the issue had not been framed in the pre-trial pleadings, i. e. the theory was not raised in Royal's answers to the complaint and cross-complaint nor in its pre-trial statement. The District Court acted within its discretion in refusing to consider the indemnification theory because it was not timely presented.

(2) COVERAGE UNDER THE AETNA POLICY

Aetna and Continental argue that the District Court erred in determining that the Aetna policy provided primary coverage for the Cattuzzo accident. Continental argues that the insurance procurement provisions of the subcontract either mean that Atlas agreed to buy insurance generally covering all of Bay's liability for negligence, which is nonsensical, or that Atlas only agreed to provide insurance to protect Bay from the consequences of Atlas' negligence. We agree with the District Court that while it would be unreasonable to assume that a subcontractor would agree to procure liability insurance for all of the general contractor's operations, it is reasonable to conclude that a general contractor might desire to contract for a subcontractor's services "free of any liability to (the subcontractor's) employees." Judge Conti's Memorandum Decision, Clerk's Transcript on appeal, Vol. III, at 533.

Aetna and Continental may be correct that the parties' intent may narrow an otherwise broader literal coverage, see Dart Transportation Service v. Mack Trucks, Inc., 9 Cal.App.3d 837, 88 Cal.Rptr. 670 (1970), but no extrinsic evidence of the parties' intent was introduced in the case at bar.

Aetna's reliance on International Business Machines Corp. v. Truck Ins. Exch., 2 Cal.3d 1026, 89 Cal.Rptr. 615, 474 P.2d 431 (1970), is similarly misplaced. In I.B.M. the court, dealing with a question of statutory interpretation rather than private contractual language, refused to extend the concept of a "user" of a truck to include a shipper whose negligence caused an accident while furniture was being moved on a dock preparatory to loading it on a truck. In the instant case, the District Court's interpretation of the pertinent contractual language is not "an exercise in 'mental gymnastics' . . . far removed from the ordinary meaning of the concept(s)" under consideration, I.B.M., supra, 2 Cal.3d at 1030, 89 Cal.Rptr. at 618, 474 P.2d at 434, but is, on the contrary, the most reasonable interpretation of the parties' intent as expressed in the insurance procurement provisions of the subcontract and the Aetna policy endorsement. While in a closer case the court might favor application of I.B.M.'s policy that, as a general rule, liability should follow negligence, in the instant case, we agree with the District Court that Bay and Atlas intended Atlas' insurers to cover Bay's liability for negligence in causing injuries to Atlas' employees performing work on the apartment project.

(3) CONTINENTAL'S COVERAGE LIMIT

Continental argues that even if the Aetna and Continental policies provide coverage for the Cattuzzo accident, that coverage should be limited to a total of $300,000 because Atlas agreed to procure "not less than" $300,000 coverage. The District Court properly found that the subcontract language does not support a restriction on the terms of Continental's policy because the subcontract only sets a floor, not a ceiling, for coverage.

(4) EQUITABLE SUBROGATION

Under California law an excess carrier is not obligated to contribute to a settlement until the limit of the primary carrier's coverage has been exhausted, see Hellman v. Great American Ins. Co., 66 Cal.App.3d 298, 136 Cal.Rptr. 24 (1977) and cases cited therein at 66 Cal.App.3d 305, 136 Cal.Rptr. 28. The District Court found that Royal, who undertook the defense of the Cattuzzo litigation, refused in bad faith to contribute its policy limits, thereby frustrating settlement. The court further...