American Casualty Co. v. General Star Indemnity Co.American Casualty Co. v. General Star Indemnity Co.
Opinion
In this case, arising from a dispute between liability insurers, we consider the scope and extent of coverage under an “additional insured” endorsement to a general liability policy that had been issued to Crowvision, Inc. (Crowvision), an independent motion picture company. The endorsement purported to provide limited liability
We conclude that while section 2782 may preclude enforcement of a promise of indemnity in a construction contract, it does not limit the enforcement of an “additional insured” endorsement provided to the indemnitee by the indemnitor’s liability insurer pursuant to the terms of the indemnity agreement. In addition, we hold that the provisions of the contract of indemnity will not preclude enforcement by the indemnitee of its claim of coverage under the additional insured endorsement. Finally where a claim has been resolved and satisfied by applicable primary coverage, an excess insurer may not be required to drop down and contribute to the cost of such resolution. As these conclusions are dispositive of the claim of appellants American Casualty Company of Reading, PA. (American) and Continental Casualty Company (Continental), we will affirm the judgment entered in favor of respondent General Star Indemnity Company (General Star) which was the excess liability insurer for Carolco. 2
FACTUAL AND PROCEDURAL BACKGROUND 3
Crowvision and Carolco entered into a written License Agreement on or about December 29, 1992. In essence, under the terms of that agreement, Carolco granted to Crowvision the right to use certain stages, back lot, offices and other facilities at Carolco’s studio located in Wilmington, North Carolina. The purpose of such use, which was granted through April 4, 1993, was to allow Crowvision to produce and film a motion picture entitled The Crow. The relevant provisions of the agreement required that Crowvision indemnify and hold Carolco harmless from all liability by reason of any injury or loss to persons (including employees of Crowvision) or property, resulting from “. . . any cause whatsoever, or arising out of the condition of the licensed premises or any portion thereof. ...” This hold-harmless obligation, however, did not extend to any injury or loss resulting from the negligent acts or intentional misconduct of Carolco or its officers, agents or employees. 4
‘In addition, the agreement required that Crowvision procure and maintain liability
Crowvision procured liability insurance in connection with the production and filming of The Crow from American and Continental. American issued a primary policy with $1 million/$2 million policy limits. 5 Continental issued a commercial umbrella policy with a $5 million policy limit. Each of these insurers issued a timely Certificate of Insurance confirming Carolco’s status as an additional insured under their respective policies.
Carolco also carried its own liability insurance. TIG Insurance Company (TIG) issued to Carolco a primary general liability policy with a $1 million policy limit. Genеral Star issued to Carolco a commercial umbrella liability policy. The policy issued by General Star provided that it was “excess over any other insurance, whether primary, excess, contingent or on any other basis, except such insurance as is specifically purchased to apply in excess of this policy’s Limit of Insurance .... We will have no duty ... to defend any claim or suit that any other insurer had a duty to defend.” 6
On February 1, 1993, during the term of the License Agreement, and while the above described insurance policies were in effect, an employee of Crowvision, James L. Martishius, was seriously injured while operating a lift
used in the construction of a set for The Crow.
7
In 1994, Martishius
On or about August 19, 2002, after this judgment became final, it was fully discharged by payments made by American and TIG. 10 American noted in its brief that it did not dispute coverage under its policy since the accident “occurred during the construction of a set for the film ‘The Crow’ and thus was a part of Crowvision’s ‘operations’ during which Martishius was not only anticipated but intended to be present at the location of the injury.” 11
On January 24, 2001, American had filed this action seeking to compel General Star (Carolco’s excess insurer) to contribute to or pay the amount of the judgment (which was then not yet final). Its complaint sought declaratory relief and “equitable indemnification/contribution, allocation and reimbursement.”
After the filing of further pleadings, including a cross-complaint by General Star, American filed a motion for summary judgment which was opposed. On February 25, 2002, the trial court denied the motion, rejecting
Ameriсan’s principal argument that the record established that (1) the injuries to Martishius were the result of the “sole negligence” of Carolco and (2) section 2782 therefore prohibited enforcement of American’s indemnity obligation.
12
The trial court concluded that
In December, 2002, American filed a second motion for summary judgment to which General Star responded with a cross-motion for the same relief. After some delay, these matters came on for hearing on July 14, 2003. The trial court, on September 29, 2003, issued its ruling denying American’s motion and granting General Star’s. It entered its judgment on November 17, 2003. 13 American has filed this timely appeal.
CONTENTIONS OF THE PARTIES
American, claiming that its liability is barred because of the “sole negligence” limitation of section 2782, argues that the trial court improperly made a factual determination that the injuries to Martishius were not necessarily the result of Carolco’s “sole negligence.” In American’s view, the trial court rejected its “sole negligence” argument on the “mere possibility” that there also had been negligence on the part of Crowvision or others, but without any admissible evidence supporting that conclusion. It is American’s position that since the record reflects negligence only by Carolco, Crowvision has no liability to indemnify Carolco under the terms of the License Agreement. Since Crowvision has no indemnity liability under its contract with Carolco, American contends that it likewise should have no liability under the additional insured endorsement to its policy.
General Star disagrees and asserts a number of contentiоns attacking, inter alia, American’s principal argument that the “sole negligence” limitation in section 2782 precludes any liability under American’s policy. It is General Star’s position that the trial court correctly analyzed the respective obligations of it and American and that General Star’s motion for summary judgment was properly granted.
DISCUSSION
1. Standard of Review
Summary judgment is properly granted when no triable issue exists as to any material fact and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c);
2. General Star Is an Excess Insurer and All Applicable Primary Coverage Had Not Been Exhausted
It is clear from the record that General Star had exposure only as an excess insurer. Thus, it would have no liability under its policy until exhaustion of all applicable primary policies.
(Community Redevelopment
Agency
v.
Aetna Casualty & Surety Co.
(1996)
As we have previously explained, “[t]here is a distinction between primary and excess insurance coverage ....
‘Primary
coverage is insurance coverage whereby,
under the terms of the policy,
liability attaches
immediately
upon the happening of the occurrence that gives rise to liability. [Citation.] Primary insurers generally have the primary duty of defense, [f] “Excess” or
secondary
coverage is coverage whereby,
under the terms of the policy,
liability attaches only after a predetermined amount of primary coverage has been exhausted.’
(Olympic Ins. Co. v. Employers Surplus Lines Ins. Co.
(1981)
These authorities establish that General Star could have no liability to
In order to defeat this conclusion, American essentially claims that it is entitled to be relieved of its entire burden on the ground that its insured, Crowvision, had no duty to indemnify Carolco under the indemnity provisions of the License Agreement. Therefore, American argues, it should have no obligation to pay any part of the defense and indemnity costs incurred to resolve the Martishius action. Put another way, American seeks to avoid its obligation to share that burden under the principles of equitable contribution and to shift the entire liability for the Martishius judgment to Carolco’s insurers. Essentially, American is asserting a claim for equitable subrogation based on the proposition that the scope and extent of Crowvision’s contractual liability to indemnify Carolco defines and controls American’s liability under the additional insured endorsement provided to Carolco.
3. Principles of Equitable Subrogation and Equitable Contribution
As we address American’s contentions, it is worthwhile to keep in mind the essential differences between equitable subrogation and equitable contribution. “The right of subrogation is purely dеrivative. An insurer entitled to subrogation is in the same position as an assignee of the insured’s claim, and succeeds only to the rights of the insured. The subrogated insurer is said to ‘ “stand in the shoes” ’ of its insured, because it has no greater rights than the insured and is subject to the same defenses assertable against the insured. Thus, an insurer cannot acquire by subrogation anything to which the insured has no rights, and may claim no rights which the insured does not have. [Citations.]”
(Fireman’s Fund Ins. Co. v. Maryland Casualty Co.
(1998)
Equitable contribution, on the other hand, is entirely different. “It is the right to recover, not from the party
primarily
liable for the loss, but from a
co-obligor
who
shares
such liability with the party seeking contribution. In the insurance context, the right to contribution arises when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others. Where multiple insurance carriers insure the same insured and cover the same risk, each insurer has independent standing to assert a cause of action against its coinsurers for equitable contribution when it has undertaken the defense or indemnification of the common insured. Equitable contribution permits reimbursement to the insurer that paid on the loss for the excess it paid over its proportionate share of the obligation, on the theory that the debt it paid was
equally
and
concurrently
owed by the other insurers and should be shared by them pro rata in proportion to their respective coverage of the risk. The purpose of this rule of equity is to accomplish substantial justice by equalizing the common burden shared by coinsurers, and to
“Unlike subrogation, the right to equitable contribution exists independently of the rights of the insured. . . . Equitable contribution . . . assumes the existence of two or more valid contracts of insurance covering the particular risk of loss and the particular cаsualty in question. . . . [Citations.] [f] This right of equitable contribution between coinsurers is not based on, and indeed has nothing to do with, the coinsurers’ subrogation to the rights of their insured against the party legally and primarily responsible for the loss. Whereas subrogation requires that the party to be charged be in an ‘equitable position . . . inferior to that of the insurer’ such that justice requires the entire loss be shifted from the insurer to the party to be charged [citation], contribution permits liability for the loss to be allocated among the various insurers without regard to questions of comparative fault or the relative equities between the insurers. [Citations.]”
(Fireman’s Fund Ins. Co.
v.
Maryland Casualty Co., supra,
As indicated, it appears that American is essentially asserting a claim for equitable subrogation and contends that since its insured, Crowvision, has no liability to Carolco under the indemnity provisions of the License Agreement, then it should have no liability under its insured endorsement. Putting it simply, American asserts that this conclusion must flow from the impact of section 2782 and its contention that the indemnity agreement negates its liability under the “additional insured” endorsement. 15
4. Section 2782 Limits Scope of Indemnity Available in Construction Contracts
By its express terms, section 2782 limits the scope of potential indemnity promises in
construction contracts
(see fn. 1,
ante).
It declares
unenforceable, as contrary to public policy, any provision purporting to indemnify a promisee (in this case, Carolco) for any injury or loss “arising from the
sole
negligence or willful misconduct” of the promisee. (§ 2782, italics added.) American relies heavily on this statutory language and argues that the record demonstrates that the injury to Martishius arose from the sole negligence of Carolco and therefore it should have no liability for any portion of the Martishius
What these arguments ignore is that we do not have before us a dispute about the enforcement of an indemnity provision in a construction contract. The dispute presented in this case involves the enforcement of the additional insured endorsement to a liability policy issued by American. That insurance policy is an entirely separate contract and its enforcement is expressly not limited by section 2782. Thus, we need not concern ourselves with the extensive substantive and procedural arguments asserted by the parties on such issues as to whether (1) the License Agreement constituted a “construction cоntract” so as to come within the scope of section 2782 17 or (2) the trial court improperly decided on summary judgment the disputed factual issue of Carolco’s alleged “sole negligence.” These issues are simply not relevant to the enforcement of American’s separate and independent promise of coverage to Carolco.
5. American Is Required to Provide Coverage to Carolco Under the Additional Insured Endorsement
Section 2782 expressly states that its “sole negligence” limitation “shall not affect the validity of any insurance contract.” As we read the clear import of that language, a provision in a liability policy providing coverage to an additional insured will not be deemed contrary to public policy or unenforceable merely because that additional insured party may have incurred claim liability due to its “sole negligence.” 18 Put another way, absent сontrary language in the policy or in the additional insured endorsement, 19 an indemnitee under a construction contract may enforce the commitment made by such endorsement to provide coverage for a claim arising from the indemnitee’s negligence even though (1) section 2782 would preclude enforcement of the contractual indemnity promise made by the indemnitor, or (2) under the facts of the case and the terms of the contract of indemnity, the indemnitor had no obligation to provide indemnity to the indemnitee.
In our view, there are three recent cases that are relevant to American’s contention. In
Acceptance Ins. Co. v. Syufy Enterprises
(1999)
In
Fireman’s Fund Ins. Cos. v. Atlantic Richfield Co.
(2001)
In
Vitton Construction Co., Inc. v. Pacific Ins. Co.
(2003)
While it is true that no issue regarding the existence or impact of a promise of contractual indemnity between the insured parties was raised in any of these three cases, we do not find them less persuasive because of that circumstance.
Syufy, Fireman’s Fund
and
Vitton
all clearly set forth the rules to be applied in the interpretation and enforcement of “additional
We thus believe that the principles articulated in
Syufy, Fireman’s Fund
and
Vitton
have a persuasive impact on the disposition of this case. American disagrees and places heavy reliance on our decision in
St. Paul Fire and Marine Ins. Co. v. American Dynasty Surplus Lines Ins. Co.
(2002)
Our conclusion in this matter is consistent with the recent decision in
Hartford Casualty Ins. Co. v. Mt. Hawley Ins. Co.
(2004)
Rossmoor
held that, under these circumstances, the owner’s insurer was entitled to be subrogated to the rights of the owner under the indemnity provisions of the construction contract. Since the owner had a contractual right to full indemnity, its insurer was entitled tо recover from the contractor the defense and indemnity costs it had incurred and such right of subrogation was not limited by the “other insurance” clauses of the two policies. Indeed, the existence of other insurance as of the date of the employees’ claim was a mere fortuitous circumstance.
(Rossmoor, supra,
In this case, unlike in Mt. Hawley, there is no basis on which we could conclude that Carolco is liable to indemnify Crowvision for the costs of defending and settling the Martishius action. The most that we can say is that Crowvision owed no duty to indemnify Carolco. Carolco is an indemnitee under the terms of the License Agreement, not an indemnitor. Therefore, American, as Crowvision’s insurer, is in no position to transfer liability for the defense and settlement of the Martishius action entirely to Carolco’s insurers. 24 Thus, we are solely concerned with the extent of American’s liability under the provisions of its additional insured endorsement. That liability should depend solely on the language of its policy, not on the language of a separate contract to which it is not a party. If American has any liability under its policy, then it is necessarily one of two primary insurers who have satisfied a claim against a common insured without exhausting total primary coverage. There is no basis for any claim by American for either contribution or subrogation against General Star, Carolco’s excess insurer.
CONCLUSION
While it appears, under the facts of this case, that Crowvision owed no indemnification obligation to Carolco, it does not follow that Carolco is precluded from enforcing the additional insured endorsement to American’s policy. The License Agreement imposed no obligation on Carolco to indemnify Crowvision. So American has no basis for asserting a claim for equitable subrogation to recover the amount it expended to discharge the Martishius judgment. Similarly, American was not excused from liability, as one of Carolco’s primary insurers, to share in the burden of defending and settling the Martishius action. As the threshold on General Star’s excess policy was never breached, no basis exists for imposing liability on it to share in or contribute to any part of the defense and indemnity obligations owed to Carolco. Neither the language of the License Agreement nor section 2782 requires a different result. Therefore, the trial court properly granted summary judgment in General Star’s favor. In light of that conclusion, we need not reach or discuss any
DISPOSITION
The judgment is affirmed. General Star shall recover its costs on appeal from American.
Kitching, J., and Aldrich, J., concurred.
A petition for a rehearing was denied February 10, 2005.
Notes
Civil Code section 2782, subdivision (a) (hereafter, section 2782), provides: “Except as provided in [sections not relevant to the issues before us], provisions, clauses, covenants, or agreements contained in, collateral to, or affecting any construction contract аnd which purport to indemnify the promisee against liability for damages for death or bodily injury to persons, injury to property, or any other loss, damage or expense arising from the sole negligence or willful misconduct of the promisee or the promisee’s agents, servants or independent contractors who are directly responsible to such promisee, or for defects in design furnished by such persons, are against public policy and are void and unenforceable; provided, however, that this provision shall not affect the validity of any insurance contract, workers’ compensation or agreement issued by an admitted insurer as defined by the Insurance Code.” (Italics added.)
Although Continental was one of the plaintiffs below, it was not, as an excess insurer, affected by the trial court’s judgment because the underlying third party claim was resolved and satisfied without exhausting applicable primary coverage. It was not, therefore, an aggrieved party. We will, therefore, in this opinion, limit our discussion to the dispute betweеn American and General Star.
The facts that we recite and upon which we rely are essentially undisputed. That is not to say that there are not factual disputes between the parties. Such disputes, however, relate to matters and issues that are not relevant to the decision that we reach herein.
It should be noted that this indemnity limitation differs from the terms of section 2782 (see fn. 1, ante) which preclude indemnification of an indemnitee only if the indemnitee is solely negligent or guilty of willful misconduct. Specifically, the indemnity provision in the License Agreement stated, in relevant part: “[Carolco] is to be free from all liability by reason of any injury or loss to person or property, . . . caused by .. . any cause whatsoever, or arising out of the condition of the licensed premises or any portion thereof, ... or arising out of the use or misuse of the licensed premises, . . . and [Crowvision] shall save, indemnify and hold [Carolco] harmless from any and all such claims, losses, damages, liability, demands, actions, suits, costs and expenses whatsoever, including reasonable attorneys’ fees[,] arising out of such use or misuse; provided however, that [Crowvision] shall neither indemnify nor hold [Carolco] armless from injuries or losses resulting from the negligent act(s) or intentional misconduct of [Carolco’s] agents, officers or employees.” (Italics added.)
Thus, on its face, the contractual limitation on the indemnity provisions of the License Agreement would appear to be broader than the limitation set out in section 2782. Crowvision undertook no obligation to indemnify Carolco for any loss arising from a negligent act of Carolco, apparently whether or not it was the only negligent act contributing to the loss. Nonetheless, American does not argue that the License Agreement should be read to preclude indemnity to Carolco where it was only one of two or more negligent parties. American limits its argument to the impact of section 2782. In view of the result we reach, however, it would make no difference if such an argument were advanced. Our conclusion regarding section 2782’s “sole negligence” requirement would have a fortiori application to any contention that indemnity was barred under the terms of the License Agreement where Carolco’s negligence was only a contributing rather than the sole cause of a claimant’s injuries.
American issued a “Special Insured Endorsement” which amended the definition of “Who is Insured” by defining as an additional insured “Lessors of premises rented or leased to [Crowvision] for occupancy for filming operation.” There is no dispute that such definition included Carolco for the period relevant to the issues raised in this case.
The parties have not cited any portion of the record reflecting the policy limit of General Star’s policy. In view of the result we reach, however, this omission is not relevant.
The record reflects that Martishius raised a part of his lift into some high tension electrical wires that had been strung over a portion of Carolco’s back lot. As a result, it cannot be disputed that his injury resulted or arose from a condition of the premises rented to Crowvision by Carolco.
It appears that the law of North Carolina on this issue is substantially the same as that of California.
This judgment was ultimately affirmed by the North Carolina Supreme Court on May 10, 2002, in
Martishius v. Carolco Studios, Inc.
(2002)
The trial court, in this action, had made an interim order, on February 25, 2002, that required American and TIG to share the defense and indemnity obligations equally. Specifically, the court’s order stated, in part: “[B]ased on (1) the undisputed evidence before the Court that American [] and TIG were both primary insurers of the loss giving rise to the [Martishius] Action, with $1 million policy limits, and Continental Casualty and General Star provided excess coverage only, and (2) the evidence of disputes between the parties conсerning their respective responsibilities regarding settlement and indemnification of the [Martishius] Judgment, the Court determines that it is nonetheless appropriate to enter an interim Order requiring American [] and TIG to share defense costs and indemnity obligations equally (i.e., 50/50) related to the [Martishius] Action until exhaustion of their policy benefits. . .
Specifically, American stated in its opening brief: “[American does] not dispute coverage, since the accident occurred during the construction of sets as part of Crowvision’s ‘operations,’ during which Martishius was not only anticipated but intended to be present at the location of the injury. The accident also arguably arose from rented ‘premises,’ to the extent the accident was associated with Crowvision’s use of the licensed premises.”
American also argued that, for the same reason, its insured, Crowvision, owed no duty under the License Agreement to indemnify Carolco for Cаrolco’s own negligence. As we explain, that issue is not relevant to this dispute which relates to the existence and extent of coverage under an additional insured endorsement added to a liability policy issued to a contractual indemnitor. We do not have before us any question of liability under the indemnity provisions of the License Agreement between Crowvision and Carolco. For example, neither Carolco nor General Star is seeking to enforce Crowvision’s promise of indemnity. In any event, given the finality of the North Carolina judgment against Carolco, and the language of the indemnity provisions (see fn. 4, ante), we do not see how any claim could be made that Crowvision had any obligation to indemnify Carolco. Put another way, we concede American’s point, but that is not our issue. We are deciding the extent of American’s and General Star’s liability inter se under their respective insurance policies.
Thе trial court’s judgment granted General Star’s request for favorable declaratory relief and stated, in part: “As to the payment of that judgment, the Court concludes that the American Casualty and TIG policies were and now are the primary policies liable to satisfy the final judgment obtained by James Martishius against Carolco in connection with that certain civil action filed in the State of North Carolina and that the primary policies are sufficient to satisfy the judgment. HI] General Star’s umbrella policy is excess to the policies of American Casualty and TIG for satisfaction of the Martishius judgment against Carolco. Because there were adequate primary limits, General Star has no obligation to pay any portion of the judgment and had no duty to defend. Plaintiffs are not entitled to contribution or reimbursement from General Star for the money paid to satisfy the Martishius judgment or for payment of defense costs.”
The trial сourt was applying these principles when it ordered American and TIG to share equally the cost of defending and indemnifying Carolco in the Martishius action.
We note that the License Agreement provides (at par. 12.01) that liability insurance which Crowvision was required to carry “shall include a waiver of subrogation against [Carolco].” It is, however, not at all clear that such a waiver was in fact included in American’s policy. Indeed, paragraph 8 of the General Liability Conditions appears to provide to the contrary. Further, given the factual circumstances of this case (particularly the judgment entered against Carolco in the Martishius action), it is arguable that American would not be barred from seeking equitable subrogation merely because Carolco was an additional insured under American’s policy. (See, e.g.,
Truck Ins. Exchange v. County of Los Angeles
(2002)
If American’s argument was correct, then General Star would be exposed to liability as an excess insurer since the policy limit of TIG (Carolco’s primary insurer) was not sufficient to satisfy the Martishius judgment.
General Star argues that the License Agreement was not a “construction contract,” but rather a simple license to use for a particular purpose and for a specified period of time certain real and personal property belonging to Carolco. As we have accepted, arguendo, American’s contention that the License Agreement was a “construction contract” within the meaning оf section 2782, we have no need to discuss the merits of General Star’s contrary argument.
We again note here that it is not at all clear that Carolco’s negligence was the sole cause of the injuries to Martishius. It has been established, however, that its negligence was at least, one of the causes. Such a conclusion would appear to be sufficient to negate any contractual indemnity obligation on the part of Crowvision, under the terms of the License Agreement (see fn. 4, ante).
See, for example, the language of the additional insured endorsement at issue in
Maryland Casualty Co.
v.
Nationwide Mutual Ins. Co.
(2000)
The Syufy court also disposed of questions of ambiguity in the language of endorsement and the scope of the phrase “arising out of’ that are not, for good reason, raised in this case. Syufy held that any ambiguity would, based on settled principles, be resolved in favor of coverage (Syufy, supra, 69 Cal.App.4th at pp. 326-328) and the terms “arising out of’ or “arising from” have consistently been given a broad interpretation when construing insurance policy language. “It is settled that this language does not import any particular standard of causation or theory of liability into an insurance policy. Rather, it broadly links a factual situation with the event creating liability, and connotes only a minimal causal connection or incidental relationship. [Citation.]” (Id at p. 328.)
The
Fireman’s Fund
court does not state that the employee’s injuries resulted from the
sole
negligence of the oil company, but does note that even if a dispute on the point existed, it would “not [be] material to our decision.”
(Fireman’s Fund, supra,
In Mt. Hawley, the subcontractor’s liability to indemnify the general contractor under the terms of the subcontract was effectively conceded by the subcontractor’s insurer.
In
Travelers Casualty & Surety Company v. American Equity Ins. Co.
(2001)
As we have already noted, Carolco’s primary insurer, TIG, has already paid one-half of those costs.