Westport Ins. Corp. v. Cal. Cas. Mgmt. Co.

• Decision Date: 20 February 2019
• Docket Number: No. 17-15924,17-15924
• Citation: 916 F.3d 769
• Parties: WESTPORT INSURANCE CORPORATION, Plaintiff-Appellee, v. CALIFORNIA CASUALTY MANAGEMENT COMPANY, dba California Casualty, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

916 F.3d 769

WESTPORT INSURANCE CORPORATION, Plaintiff-Appellee,

v.CALIFORNIA CASUALTY MANAGEMENT COMPANY, dba California Casualty, Defendant-Appellant.

No. 17-15924

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 15, 2018 San Francisco, California

Filed February 20, 2019

Mark G. Bonino (argued), Charles E. Tillage, and Elizabeth J. Moul, Hayes Scott Bonino Ellingson Guslani Simonson & Clause LLP, San Carlos, California, for Defendant-Appellant.

Adam H. Fleischer (argued), Michael H. Passman, and Mark G. Sheridan, Bates Carey LLP, Chicago, Illinois; Michael K. Johnson, Lewis Brisbois Bisgaard & Smith LLP, San Francisco, California; for Plaintiff-Appellee.

Before: RAYMOND C. FISHER, and MILAN D. SMITH, JR., Circuit Judges, and LAWRENCE L. PIERSOL^* District Judge.

M. SMITH, Circuit Judge:

This appeal involves a dispute between two insurance companies that arose after the settlement of certain claims brought against their insureds. After Westport Insurance Corporation (Westport) defended and settled claims for $ 15.8 million brought by three former students against Moraga School District (the District) and three of its school administrators, it sought repayment from the administrators' insurer, California Casualty Management Company (California Casualty). The two insurers cross-moved for summary judgment, and the district court held that California Casualty owed Westport $ 2.6 million plus $ 755,637.20 in prejudgment interest. We affirm.

BACKGROUND

Westport, through a predecessor company, issued primary general liability insurance policies (Westport's Primary policy) to the District from 1991 through 1997. From October 1, 1994 to October 1, 1997, Westport also issued a series of annual excess policies that covered the District and its employees (Westport's Excess policy).

California Casualty issued successive annual liability policies to the Association of California School Administrators from at least July 1, 1986 to July 1, 2000. California Casualty provided excess liability to the District's school administrators under this policy's Coverage A plan, titled Administrators Excess Liability (California Casualty's policy).

To provide a framework for our analysis, we first outline the claims included in the underlying lawsuits. On January 29, 2013, Doe 1 and Doe 2, two former students of the Moraga School District, filed suit in the Superior Court for Contra Costa County, California against the District and three of its school Administrators—William Walters, John Cooley, and Paul Simonin. Earlier that same month, another former student, Doe 3, also sued the three Administrators and the District. In these lawsuits, the several Does alleged that the District's employee, Daniel Witters, sexually molested them in the mid-1990s while he was their middle school teacher. The Does alleged that the Administrators received warnings about the molestations, but the Administrators failed to act to stop Witters. When the students came forward in 1996, Witters killed himself. In their lawsuits, Doe 1 alleged that Witters molested her during policy periods 1993–94, 1994–95, and 1995–96; Doe 2 alleged that she was molested in the 1995–96 and 1996–97 periods; and Doe 3 alleged that she was molested in the 1996–97 period.

In January 2013, both Westport and California Casualty attended an unsuccessful mediation of the Does' lawsuits. The Doe 3 lawsuit eventually settled separately for $ 1.8 million in August 2013, but Westport appears to have paid the settlement on July 29, 2013, prior to the signing of the settlement agreement. In June 2014, California Casualty and Westport also attended a mediation for the lawsuit brought by Does 1 and 2. At the mediation, Does 1 and 2 settled their lawsuit for $ 7 million each. On June 26, 2014, Westport paid Does 1 and 2. California Casualty subsequently refused to contribute to any of the Does' settlements (the Settlements), and Westport funded the entirety of these Settlements in the aggregate sum of $ 15.8 million.

On July 11, 2014, Westport demanded that California Casualty pay its share of the Settlements, but received no response. Westport wrote to California Casualty three additional times, and received no response. After Westport's October 30, 2014 demand, California Casualty finally replied and refused to reimburse Westport.

Westport then filed suit against California Casualty on April 13, 2015 in federal court. After the parties brought cross-motions for summary judgment, the district court entered summary judgment in favor of Westport for $ 2.6 million plus interest. A month later, the district court added $ 755,637.20 of prejudgment interest to the judgment. California Casualty timely appealed.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. We review the district court's grant or denial of summary judgment de novo. Evanston Ins. Co. v. OEA, Inc. , 566 F.3d 915, 918 (9th Cir. 2009). We also review its interpretation of state law and the insurance policies de novo. Id. at 920 ; Stanford Ranch, Inc. v. Maryland Cas . Co. , 89 F.3d 618, 624 (9th Cir. 1996). The district court's award of prejudgment interest is reviewed for abuse of discretion. Mutuelles Unies v. Kroll & Linstrom , 957 F.2d 707, 714 (9th Cir. 1992).

ANALYSIS

I. Indemnification pursuant to California Government Code § 825.4

As a threshold matter, California Casualty asserts that California Government Code § 825.4 ( § 825.4 ), which prohibits public entities from seeking indemnification from its employees, bars Westport's lawsuit. California Casualty contends that because the Administrators were public employees, the District must defend and pay the entire settlement fee without its contribution. The California Supreme Court has not spoken directly on this issue, so "we must determine what result the court would reach based on state appellate court opinions, statutes and treatises." Evanston , 566 F.3d at 921 (quoting Paulson v. City of San Diego , 294 F.3d 1124, 1128 (9th Cir. 2002) (en banc)).

Section 825.4 provides:

Except as provided in Section 825.6, if a public entity pays any claim or judgment against itself or against an employee or former employee of the public entity, or any portion thereof, for an injury arising out of an act or omission of the employee or former employee of the public entity, he is not liable to indemnify the public entity.

Cal. Gov't Code § 825.4.¹

Only a few California Court of Appeal cases analyze § 825.4. Westport primarily relies on a line of cases beginning with Oxnard Union High School District v. Teachers Insurance Co. , 20 Cal.App.3d 842, 99 Cal.Rptr. 478 (1971), whereas California Casualty cites to Pacific Indemnity v. American Mutual Insurance Co. , 28 Cal.App.3d 983, 105 Cal.Rptr. 295 (1972).

Unfortunately, neither set of cases definitively addresses the factual pattern present in this case. Nevertheless, we affirm the district court's conclusion that § 825.4 does not preclude Westport's claim because § 825.4 does not contain a blanket ban on an employee's insurer contributing to the employee's defense and settlement costs. Here, the obligation to defend and indemnify still rests with the public entity and its insurer despite contribution from the employee's insurance. We find support for our holding in the principles animating the several § 825.4 cases.

In Oxnard , the California Court of Appeal held that although the teacher-employee's school district was "obligated to pay in full" the settlement of an automobile crash negligence action against the teacher, the school district had discharged its liability by using the teacher's insurance as primary coverage and its own insurance as excess coverage. 99 Cal.Rptr. at 480. Oxnard 's progeny similarly involved automobile accidents committed by employees during the scope of their employment.²

In the first case, the teacher-employee's automobile insurer, GEICO, defended a negligence suit against the teacher, paid the settlement, and then sought to recoup the amount paid from the school district's insurer. Gov't Emps. Ins. Co. v. Gibraltar Cas. Co. , 184 Cal.App.3d 163, 229 Cal.Rptr. 57, 60 (1986). After considering the relevant portions of the automobile policy and the insurance code, the court concluded that the school district "was itself an insured under the GEICO policy," due to the language in GEICO's policy that defined persons insured as "any other person or organization for his or its liability because of the acts or omissions of any insured." Id. at 64 (emphasis added). Thus, the school district satisfied its statutory obligation by availing itself of the employee's automotive insurance policy as long as the employee remained fully covered. Id. at 65.

Similarly, in Younker v. County of San Diego , a firefighter-employee and his automobile insurer sued the county-employer to recover expenses for defending and settling a claim against the firefighter arising from an automobile crash. 233 Cal.App.3d 1324, 285 Cal.Rptr. 319, 321 (1991). The court first determined that the county was an insured pursuant to the terms of the employee's automobile policy because it was "clearly a person or organization liable because of [the employee's] acts or omissions" as defined under the policy. Id. at 323. The court then held that the county properly looked to the employee's insurer to fulfill its own statutory obligation, thereby rejecting the employee's argument that using the proceeds of his policy for the settlement contravened § 825.4. Id. at 323–24.

In contrast, the court in Pacific Indemnity barred an insurer's attempt for settlement cost recovery from the employee's insurance. There, a patient sued a physician employed by the University of California (UC) for injuries caused by the physician-employee's medical services. 105 Cal.Rptr. at 296. After the settlement, the UC's insurer brought an action for contribution against the physician's insurer. Id. The California Court of...