Victaulic Co. v. Am. Home Assurance Co.

• Decision Date: 28 June 2022
• Docket Number: A163396
• Parties: VICTAULIC COMPANY, Plaintiff and Respondent, v. AMERICAN HOME ASSURANCE COMPANY et al., Defendants and Appellants.
• Court: California Court of Appeals Court of Appeals

80 Cal.App.5th 485

295 Cal.Rptr.3d 738

VICTAULIC COMPANY, Plaintiff and Respondent,

v.AMERICAN HOME ASSURANCE COMPANY et al., Defendants and Appellants.

A163396

Court of Appeal, First District, Division 2, California.

Filed June 28, 2022

Attorney for Plaintiff, Cross-Defendant, and Respondent, Victaulic Company: Pillsbury Winthrop Shaw Pittman LLP, Daniel H. Bromberg, Colin T. Kemp, San Francisco.

Attorney for Defendants, Cross-Complainants and Appellants, American Home Assurance Company et al.: Riordan & Hogan, Dennis P. Riordan, San Francisco, Ted Sampsell-Jones; Keller/Anderle LLP, Jennifer L. Keller, Reuben Camper Cahn, Irvine.

Richman, Acting P.J.

For some 10 years Victaulic Company (Victaulic) and three of its insurers, members of the American Insurance Group (AIG), have been engaged in litigation. One case is this lawsuit filed by Victaulic in late 2012; in 2013, the law firm of Pillsbury, Winthrop, Shaw, Pittman, LLP (Pillsbury or the Pillsbury firm) substituted in as counsel for Victaulic, and has represented it since—a lawsuit that has been vigorously contested. That activity has included Victaulic's success on summary adjudication; success on a court trial for declaratory relief finding a duty to defend and a duty to indemnify; and success on a three-and-a-half-week jury trial for bad faith and punitive damages resulting in a judgment of some $56 million. In 2018, we reversed the judgment due to a combination of errors by the trial judge.

Following remand, Victaulic filed an amended complaint, and the vigorous litigation continued. In 2021 the insurers learned that two attorneys who had done work for a claims-handling arm of AIG had recently joined the Pillsbury firm, some six years after they left employment at the earlier firm. The insurers filed a motion to disqualify the lawyers and the Pillsbury firm, a motion that generated thousands of pages of pleadings, declarations, and exhibits, and two hearings. Following all that, the trial court entered a comprehensive 16-page single-spaced order that, analyzing in detail the evidence before it and citing and applying the law, denied the motion, concluding that the insurers failed to meet their burden in several particulars.

The insurers appeal, arguing that the trial court "committed a series of legal errors," that its ruling "rested entirely on numerous errors of law," and thus the two attorneys "must be disqualified" due to their representations in "substantially related matters," and "because the attorneys’ conflict must be imputed to their firm, [Pillsbury] must also be disqualified." We reject the arguments, and we affirm.

BACKGROUND

The Parties and the General Setting

This is the second appeal in this lawsuit, the first of which resulted in our opinion in Victaulic Co. v. American Home Assurance Co. (2018) 20 Cal.App.5th 948, 229 Cal.Rptr.3d 545 ( Victaulic ). Both briefs refer to the opinion for some of the background facts, as do we, taking judicial notice of it on our own motion.

And as to how the facts are to be set forth, they must be in favor of Victaulic, the prevailing party below. ( Farris v. Fireman's Fund Insurance Co. (2004) 119 Cal.App.4th 671, 675, fn. 1, 14 Cal.Rptr.3d 618 ( Farris ).) As the court put it in H.F. Ahmanson & Co. v. Salomon Bros., Inc. (1991) 229 Cal.App.3d 1445, 280 Cal.Rptr. 614 ( Ahmanson ): "In our review of disqualification motions, as elsewhere, the judgment of the lower court is presumed correct, and all intendments and presumptions are indulged to support it on matters as to which the record is silent. [Citation.] Conflicts in the declarations are resolved in favor of the prevailing party and the trial court's resolution of factual issues arising from competing declarations is conclusive on the reviewing court. [Citations.]" ( Id. at p. 1451, 280 Cal.Rptr. 614.)

Appellants are three insurance companies: American Home Assurance Company (American Home), Insurance Company of the State of Pennsylvania (ICSOP), and National Union Fire Insurance Company of Pittsburgh, Pennsylvania (National Union), which will usually be referred to collectively as defendants or the insurers. All three companies are members of the AIG. Another entity involved as a participant here, though not a party, is AIG Claims. Yet another is AIG Claims, Inc.

Respondent is Victaulic, a producer of mechanical pipe joining systems, headquartered in Pennsylvania, a global company with major facilities that manufacture over 60,000,000 units per year, and employs 3,600 employees worldwide. As one insurance underwriter described Victaulic, "it is ‘one of the world's leading developer[s] and producer[s] of unique mechanical pipe coupling systems. They manufacture pipe couplings, fittings, valves, custom ductile iron castings and plastic piping systems.... Victaulic products are now in use worldwide for a variety of industrial, commercial, and institutional uses including heating, air conditioning, fire protection including sprinkler heads, mining, maritime, oil field, municipal treatment and automotive.’ "

This case arose out of nine specific claims against Victaulic that resulted in lawsuits against it, which claims were tendered for defense to one or more of the insurers, claims that came to be handled by AIG Claims, with Nancy Finberg, a senior claims examiner handling most of them.

The first of the claims was a lawsuit in Oregon referred to as the "Elizabeth claim." The other eight claims included three other cases in Oregon (one called Edge), one case in California (called Essex), and cases in Washington, Colorado, West Virginia, and Massachusetts.

The Elizabeth claim alleged that rubber on a Victaulic plumbing component installed in a condominium complex was deteriorating, causing black specks to appear in the water. Responding to Victaulic's "request for coverage," on June 21, 2012, Keith Taylor, an assistant vice president at AIG Claims, wrote a letter with what he called AIG's "coverage position." The letter summarized the underlying complaint, set forth in four pages various bases for excluding or denying coverage, and concluded that AIG was reserving "all rights under the policies."

Oregon attorney Anne Cohen had been retained to defend Victaulic in the Elizabeth claim. And on June 21, Taylor telephoned Cohen to advise that "AIG had filed a lawsuit against Victaulic," a reference to a declaratory relief lawsuit AIG had filed in Pennsylvania.

The Lawsuits

In June 2012, the insurers filed a declaratory relief action in Pennsylvania, Victaulic's headquarters, and also the home state of National Union and ICSOP. The Pennsylvania action, which came to be referred to as PA1, sought a declaration as to whether three of the claims—Elizabeth, Edge, and Essex—involved "property damage" caused by an "occurrence," and whether any of the damages were excluded as business risks. The basis for PA1 was the opinion in Kvaerner Metals Inc. v. Commercial Union Ins. Co. (2006) 589 Pa. 317, 908 A.2d 888, holding that claims of faulty workmanship are not covered "occurrence[s]." PA1 was ultimately dismissed by court order on December 31, 2013, on the basis that the third-party claimants were indispensable parties under Pennsylvania law, and not amenable to jurisdiction there.

In August 2012, Victaulic filed this action in California, alleging that defendants had breached their duty to defend the Elizabeth, Edge, and Essex claims, forcing Victaulic to pay substantial sums to defend itself. The complaint alleged claims for breach of contract, bad faith, intentional misrepresentation, and declaratory relief. The insurers sought to dismiss or stay the California action on the basis of the Pennsylvania action, but were unsuccessful.

In July 2013, the Pillsbury firm substituted in as counsel for Victaulic, and has been its counsel to this day.

In December 2013, the insurers filed a cross-complaint seeking a declaration they did not owe payments for seven of the claims. Victaulic later obtained leave to add two other claims, so all nine claims were now involved in the action.

In May 2014, Victaulic filed a second amended complaint (SAC). In light of the fact that defenses were being provided, Victaulic alleged that the insurers should be liable for "failing to acknowledge their duty to defend Victaulic, meaningfully participate in the defense or settlement of claims, acknowledge coverage for and/or pay covered settlements in a timely manner, and otherwise pay amounts due," and that they "have unreasonably and without justification refused to provide and/or delayed they payment of policy benefits." The SAC also sought declaratory relief that the allegations in each of the underlying actions triggered defendants’ duties to defend and indemnify under the program.

To complete the lawsuits, in April 2014 the insurers filed a second action in Pennsylvania (PA2), seeking a declaration as to the two claims added by Victaulic. PA2 was later dismissed in light of the California action.

The Trial Court Grants Summary Adjudication for Victaulic on the Potential for Coverage

Both sides moved for summary adjudication. The insurers sought summary adjudication on the basis that Pennsylvania law applied, that under Kvaerner "faulty workmanship" is not an "occurrence" and thus none of the nine claims would be covered. Victaulic sought summary adjudication that the insurers had a duty to defend and indemnify in connection with three of the claims.

Following argument, in December 2014, the court entered its order denying the insurers’ motion and granting in part Victaulic's, holding that the insurers had a duty to defend the three claims because they all potentially involved "property damage" caused by an "occurrence." The order noted in part that "even if AIG were correct that Pennsylvania law applies, summary adjudication in Victaulic's favor is appropriate. In Indalex Inc. v. National Union Fire Insurance Co. of Pittsburgh, Pa. (Pa. Super. 2013) 83 A.3d 418, a Pennsylvania appellate court...