the district court ed and three fundamental ways that i'd like to discuss with you today st the district court misapprehended the plain and literal meaning of the defense provision in the it's up umbrella policy by failing to consider that the words claim and property damage are defined to charms in the policy and by failing to consider whether there was a coverage gap for property damage that each morning might fire claimant alleged secondly the district court by intermingling or merging what should have been separating queries one being that strictly contractual in korea of way of rather umbrella coverage was triggered and secondly the very separate analysis that applies under common law rules for primary insurance when somebody coverage becomes primary and thirdly your honour's the district of any exclusions or limitations of its coverage and that was a contractual contractual waiver that superseded any limitations on its coverage but secondly the district court disregarded the broad coverage that was available indemnify on your weaver argument i had trouble with that because it seemed like california does think that insurer can agree to defend and maybe will waive a claim against the insured but not against other answers i inconsistent with denying coverage at a later time for example insurer may undertake the defense and fair that's reassuring reservation of rights i would consider that an implicit waiver she wouldn't even have that we had and expressed an explicit contractual waiver insurance they only had their imitation is that might otherwise apply under its endorsement and that scenario if american expression waived its limitations of coverage ice to indemnity and said we will pay have a practical inconsistency that matters for purposes of the contribution claim because the whole reason that american believes was the coverage gap in its coverage defenses and sierra for vicarious liability claims but not for non bank areas like billy claims because they were an added insurer to the policy and so how does that not create a gap and is that the gap you're talking about ok i think i think there's a lot of issues that interplay here but i think this becomes simpler if you break it down step by step under rules of contractual interpretation and what the presidents teach  triggered and so the insured has a judgement against him or her or there is a settlement agreement at that time then you know then shows legally required to pay to some and then he has to pay it but at the defense stage you don't know that yet so the courts came up with a scholarly world looking to potential for identity but that doesn't make sense as a as a plain contractual question for reading when an umbrella coverage is triggered as a contractual matter that's  like to walk through and maybe i can just tell you how i view it and then you can tell me why i might be wrong as i view it you tried to write this generally and there's no question that your policy is written as a secondary policy but instead also written would you agree as a potential primary policy in certain circumstances coverage that would be triggered contractually sure well but umbrella policy as i normally umbrella policy is a secondary is secondary coverage right yes sure i think that's what would you disagree that your policy in certain circumstances where the claims are not covered by other insurance steps in to it it falls down i guess is the term the court regardless there's no dimmy that they had vicarious liability claims and none vicarious liability claims so at some point and in an undefined amount you were you stepped down to a primary insurance position  alternate insurance that applies for whenever there's a defense by the primary and that's not the case the coverage is available on that or the troops of the language of the policy and the words matter honors yeah let's go to the us so what you're looking at if you look at the contractor americans policy and then if you look at part b we can eliminate the words that are not really in dispute right we can eliminate the words battery injury we can eliminate personal injury we can eliminate advertising injury and we can eliminate the phrase covered by this policy because you are mentioned no dispute that would otherwise be within the scope of the policy so the key language becomes damages are sought for property damage not covered by any underlying insurance other cases concerning insurance for met for example i submit that the case of north american capacity insurance has similar language in that case that was an umbrella policy that was held not to drop down even in the next claim right americans here claims that this is a mixed claim situation because there are some features of i believe that are covered and some that are not the same mystery north american capacity they i mean that's a go into the routes but there are some endorsement that removed coverage for some  coverage and then there was a exclusion for any injury that is subject to the subject of coverage of underlying insurance at let's hear the key word injury said which is the subject of coverage and that case it doesn't matter whether their work trees are great so how is that our property damage no we don't disagree as property damage but it was all individual property damage that was within the scope of the defined it defined property damage under the american power but couldn't i mean i guess your point is you can't separate the trees some of the trees from other trees but i don't know why you would need to i mean if the fire is ten percent because of direct liability and ninety percent because of the sub says the property damage not subject to coverage and at the point at this is meant to be triggered as it is before any there is an indemnity obligation and so at this point has not been held by how it has not been whole liable dealing with both vicarious and vicarious and we don't because it was settled out we have no idea but it seems clear that there were at least both claims in there i just don't see how your argument holds weight on that can i insurance i'll give you a chance to turn their st this is the other this is the other insurance provision so it seems like public policy says we've got to go up front to the specific language and put the specific language up front and then come back to the you know the general language and subsection just say well if you're covered by any other insurance then we don't have a duty to defend and i'd be interested in your favored and unenforceable and and but but my general gist was look if you've got spin do you know whether there were specific provisions upfront in the attain specially case where there are specific provisions of there's no public policy reason to disregard the contractual terms of the policy or as i do want to stress that the words matter a lot here on ars many public policy notions and insurance world  like different standard type forms and we haven't found a case that interpreted this particular language arts but i submit that the north american capacity insurance case interpreted very similar language because there as here your honor there was a mess claim situation where there was a percentage of damages that would not be covered by primary insurance and the rest of the courts the quite a piece of california held that that was not the trigger from brought covers the trigger prejudgment interest because there were factual issues at play here essentially but i think this was all decided on cross motions for summary judgment so i don't understand if you have cross motions for summary judgment how you can be saying that the strictly at that language because we believe there was no gap for property damage just as the north american capacity insurance there was no gap for the injury but if the language is not clear on house the parties are entitled to some extrinsic evidence of intent about the nature of them of umbrella coverage versus primary there are a lot of issues that american has has briefs that were not developed in the record despite being factual dispute it and one of them you can see consider whether american provided for an immediate defen think there should were fact disputes i mean both sides are saying that no fact is that's how you are presenting it to the court her decision at that point the decision on all issues right it wasn't like well to argue about prejudgment interest later was incomplete defense and the case law teaches that the contribution claim requires considering all the offense costs that were paid and that is that is supported by the scott starr decision of just crossed you that was cited by j policy that provided both excess and primary insurance coverage because it's up issued a policy over no scheduled underlying insurance and no self insured retention for its domestic operation it operated as the equivalent of a ten million dollars commercial general liability policy big you agreed that the only reason that the arguably fell down the primary was because of the gap that access policy or disclaimer that exists in other cases do you agree with that which your response to that i don't agree i'm glad you're jumping to that i was almost going to do that my myself just to kind of cut to it there's four reasons why that doesn't apply  the courts in both interstate fire and travelers casualty had made it clear that in order to negate a duty to defend you you have to expressly clearly and conspicuously do so that clause absolutely silent on the duty to defend so that one clause can't buy itself in those general terms take away a specific grant of coverage on that duty to defend and that's what the case is made quick about at this attained specialty i had looked at clause in americans umbrella policy so if you look to you are two to eight i'm not sure if you have that handy but in section each to what it states there is when this insurance is excess we will have no duty to defend the insured against any suit if any other insurer has a duty to defend the insured against that suit so that's an example of where another insurance clause can work with the courts require expressly clearly and conspicuously negate the duty to defend that's where arguably sometimes it works any alternative arguments but it sounds like both parties are arguing that the district court abused its discretion in order in equal shares if we assume that it and is just an assumption but if we assume the exxon has some liability  here why do you believe that the district court abused its discretion abused its discretion in order an equal share on the equal share and that's because the courts rationale for doing so  is is far is not awarding a policy limits approach is inconsistent with its later findings that seem to be your strongest argument because as i analyze that point i'm the cases that seem to you know for there's a little bit of disconnect in some of the cases but i mean st of all come from the supreme court has weighed in on this right on what the appropriate equitable formula is is that correct well there is that the courts the courts say there is no one set  are six recognized methodologies of the courts to say that the policy limits approach is the most widely used and that makes sense right i mean and that's that is the commonsense notion that if you've got more potentially at risk you're going to pay more for the for the defense otherwise if you don't if you say look you've got these insurers they all have this contractual and prophylactic duty to defend let's just do it evenly well i mean then you're completely eliminating one of the recognized methodologies that if you do that you're not you're just using i don't really understand this argument because it seems like california court said there is no one methodology it's kind of an equitable assessment and once you're in equitable assessment i think we're under an abuse of discretion kind of review and it's long is the district judge does something that seems somewhat reasonable it seems like usually we would affirm and and coverage i don't think has one single meaning so you're saying coverage is the dollar limits but it seems like another way to think about it is how often will it be triggered or and that's basically what the judge said is i think this umbrella policy is not to be triggered as often so they're not i'm sorry that's actually your argument isn't that just going backwards if you're trying to say that there that i'm sorry  now i'm a little confused myself but so the discord divided evenly right saying that now both of them have some dignity here i'm just going to divided evenly so i mean that's an equitable thing to do but not not totally crazy thing to do well it really but some of the case law out there which which talks about you know what is going to most equitably distribute the obligation among the insurers pro rata in proportion to their respective coverage of the risk but i think that's judge friedman's point how do you figure out upfront and policies like this what coverage of the risk is i mean it seems like an impossible task because you can't just take the ten million dollars versus the one million dollars well you could that would be one way to do it but the ten million dollars is triggered in a completely completely different way but there are differences and when that would apply so my take on this is i was reviewing it as well there would have to be some discount for that ten million dollars i don't know what it would be we could send you back and have experts come in and ways that this seems not helpful when you're dealing in an equitable your best argument i guess what i'm trying to say and i tend to agree with the point here is that in the normal world are six allocations for when you can do it he chose one right it's not wrong to say this is impossible to figure out you know equitable seems right equitable distribution we're just going to split it five thousand and fifty there's no other cases  that but there are some your argument and this is maybe what you can address because i think you're right about this that the district court the question is when he makes assumptions or factual findings or reasons for why there's discounts that would be appropriate to excite ups liability here or potential liability under the ten million versus one million or when those are wrong or they are contradicted by the district court itself does that make it an abuse of discretion i mean should we send it back and say listen you are inconsistent this ruling you said x this ruling you said why you go back and be consistent and maybe you can justify this better didn't matter the court also explained that look it's an umbrella over no scheduled underlying insurance and no for direct liability and so it's going to function have the functional equivalent of a ten million dollars c g policy and so in that instance at that point there's no real factual underpinning there's no real basis for the court's original ruling that rejected that policy limits and so i got myself a little twisted around all have some merit to them now maybe your point about contradicting yourself later is the judge didn't explain well enough but so do you think we really need to remain just so the judge can explain better no because i think that the court's later finding actually supports the policy limits approach that the the court later recognized those two key really sealion points and because of that because of that finding that's what supports the policy limits approach in this case but it seems like i mean you're saying  contradicted himself but but to reverse that we need to just think there is no explanation that could have been given for an equal division i'm not sure you're really making an argument that there's no way to justify an equal division i just haven't heard it your honor i just bet that's my issue is and to me it's to me i look at this way you've the fact that they provided ten times more in coverage it has to mean something that's ten times more in coverage but it's only triggered less often so i mean why can't you just because they actually factions because they actually paid it they actually paid ten million dollars to resolve these claims but the duty to defend is based on this is the issue because if you go down that route and you should be in here arguing you guys don't even have a duty to defend you did make this argument but your policy says it's you only have to pay for the right character vicarious liability actions there was no fighting carries liability here so my point is i would throw that i'm assuming you made a conscious decision not to make that argument because for the same reason that we can accept the argument you just made which is you've got to look at this up front and you can't you can't look at it in hindsight and say well they ended up having to pay ten million dollars you have to look at it upfront and say what what is the contractual obligation that they took on or the duty to defend i agree with you you look up front for equitable contrave you contribution once everything is the dust settled then you do take a look back that's the difference you do look back and you do  doesn't seem like what the california courts say though in their rule on the equitable contribution they seem to say who's what are the risks that are being bought bought into upfront by the parties i would disagree i think you know if you look at the court like for example in scottsdale and some of some of the other cases what they're trying to do is trying to achieve equity and they're doing it after the fact they're doing it after everyone's already paid and that's the reason why we you know we felt that we should be awarded prejudgment interest  e there were no issues everything was going to be that the reason why i disagree with that is because see for example this had been six million dollars in liability you paid one million dollars they paid five million dollars if you read the cases they talk about policy limits they don't talk about the paid out at least i haven't seen a case that's looked at the amount paid out they all talk about what's the what's the policy limits so in that scenario i just gave i don't think would be able to i mean they could argue and maybe just find it equitable and say well you only paid out on fifty percent of your total liabilities so we're only going to calculate that amount of contribution and that would be one of the factors to consider absolutely and that's the things that the court the court is looking at at the big picture is looking at it all different factors they're looking at well what are the limits they're looking at will did to the curious provide different coverage you know when did the loss was it a loss that you happened in one set point in time or was it lasting over multiple pulses there's a number of factors at the courts that the courts look into the point is they're looking at it after the fact is looking after everyone's already paid they're looking at it they're looking at the limits to looking at you know at the nature of the claims the they're doing this and they're doing it as a forensic look you know in trying to achieve that equity in their transit what's what is the most equitable result here here and so and are you looking at cases that are doing an equitable distribution for the liability division or for the duty to defend division like defense costs division because for defense costs division i don't really understand how it makes sense to do it after the fact as you're supposed to defend when you don't even know it's only potential liability true and so and i understand there's there's are looking at again they're looking at after the fact that i mean do you have a case that says that the defense costs should be looked at after the fact that really feels like they should be looked at not after the fact but how how did how does one do that because california court of appeals in this one scottsdale a trial court must determine which method of allocation will most equitably distribute the obligation among the insurers pro rata in proportion to their respective coverage of the risk the coverage of the risk has to be looking based on what they contracted at the beginning because it doesn't make sense i mean your duty to defend and is dependent upon what everybody's anticipating going and it can't be at the end because then i mean that doesn't take into account the full statistical analysis that went into issuing the insurance policy in the st place so this language the respective coverage of the risk explain to me how that would be backwards looking instead of forward looking well based on how your daughter is viewing it i can see your point i can see you're looking at this as you know just what one of the policies provide in here so if we do that if we look just what do the policies provide and we have one policy that provides ten million dollars in coverage and one that provides one limits is the most widely used and it appropriate because it actually takes into account what you're covering you're taking into account the extent of your potential exposure but that's one of the six ways and there's a hymn bunch of variations on that and i think rightfully so because as we've i don't want to repeat what we've already discussed but but there's clearly has to be a discount given here because it's just not exactly the same risks that are being taken on of that ten million assumed going into this that a certain percentage could have been ten percent could have been ninety percent they didn't know in any particular circumstance would be excess coverage and they wouldn't have a duty to defend so you've got to give it seems to me you've got to give a discount factor for that and ultimately with the district court did was said yeah there's a discount factor i don't know i mean what did you want to do did you one would call experts and i mean that's the only way i could look at this is that i mean yes it can always be done better but that's the whole point of equity is he's taken best stab at it and he actually i think i took you later the right reason i think you make a good point which is later on in find something different which is is odd and i'm not entirely sure what to do night can i go to this one hundred and fifty dollars contribution for the lawyers that they made for the defense costs so i know you're trying to say that the district court was right to ignore the one hundred and fifty dollar payment nine hundred and fifty dollars an hour payments that they made but as i understand it and maybe you can correct me if i have this wrong there was a dispute about whether one one hundred and fifty dollars an hour was enough for the law firm that was defending downey and and that dispute was settled between your client and sierra right that's on the record or are they they brought a claim because they sought argued that american was refusing to give up the defense when we took the position that because you know we except it without reservation that we have the right to control the defense point which is a contractual pre provision they argue that will no because you're only covering our vicarious liability there's a that we have this is a harder case or something and so what i'm trying to figure out is when i look at the record it seems like at ninety six this settlement agreement of that disputed included and acknowledgement that they had been paying one hundred and fifty dollars an hour extra and it seems to me and the settlement said that american didn't well anymore in these attorneys fees but in saying american didn't and now oh anymore it looks like that settlement was taking into account that they actually got three hundred dollars an hour is am i misunderstanding that so so there's two different issues there's there's getting paid pursuant to a settlement agreement and then there is paying defense costs pursuant to a policy the issue here is that didn't pay defense costs pursuant to their policy they refused the defense but they actually paid one hundred and fifty dollars an hour right through into a settlement agreement yes ok to say so but so it seems like when american settled w sierra about how much of this law firm should be paid it seems like part of what made america not owe any more money in that agreement was that they had actually gotten a three hundred dollars an hour because they paid some of it and if that's true it seems like american benefited from their one hundred and fifty dollars an hour which would seem like means american should take that credit into account you know you are this is where the district court you know dug into this issue and quickly found that that just because they're paying money pursuant to a settlement agreement that doesn't mean they're participating in the defense and that's critical that's the key issue in the case is make it clear you don't get a pick and choose what you pay for a defense we incurred seven million four hundred thousand dollars in expert fees and costs they paid zero how can they say they participated in a defense how can they say they had any role in the defense when they paid nothing towards the seven million four hundred thousand dollars in extra fees because you can and so you can ask for that back but as to the attorney's fees i don't understand how we don't we don't count the money that they did pay it's like it went down the drain it is the theory basically it went down the drain no it's not it what with the money went to settling their bad faith exposure for failing to defend that's where the money went again the cases make it clear that in order for you to say that you participate in the defense you actually you can't pick and choose you actually have to be part of the defense and you're paying for everything but there it is like it went down the drain it's like because they didn't do that we just ignore this this set of payments that they made as if they never happened no as i mentioned it's that was to settle their their bad faith and their duty to that's correct there are a great way to phrase i there is this maybe to put it another way would there be additional liability they would have in a duty in a bad faith duty to defend other than just going back and paying the cost would there be like treble damages or double damages well because they d defense and then that means they would be responsible for all the defense costs so when a carrier picks up a defense they can rely upon two thousand eight hundred and sixty dollars which sets a rate cap when you don't pick up the defense and so for example that's one hundred and fifty dollars for panel counsel downey brand was charging between six dollars and eight hundred dollars an hour so when you don't pick up the defense you're responsible for all of it if the court finds that that was a breach of the policy that you would have to defend now you're responsible for all that but the bottom line is i did get some in fees that are potentially at issue plus if there's a finding of bad faith anything else that's in quite consequential and again just under your position is because that payment went to this bad faith settlement and it didn't help american like it americans dispute about how much downey should be paid you don't think even though it's mentioned in the settlement agreement that they paid that money you think that actually was just like an irrelevant thing to include not not not a relevant because it's important when setting it forth what they were paying and why wasn't relevant but it  didn't it didn't affect us we we still have been reimbursed for any of the fees that we've paid we paid over six million dollars in fees and they haven't paid any of that we paid over seven million dollars that's because that's about whether you should pay more in the because they were settling their bad faith liability they did not pick up the defense they had a duty to defend and they failed to do it and so here threatened a lawsuit and they decided to settle it as part of the same settlement agreement that's it so you so maybe i misunderstood american i have to put the exact agreement on it i maybe just totally misunderstood that then but i thought it was between sierra and american so you're free to in the recitals which you might be referring to  company that we know so great so ok so then it is just what i thought so i think it's just a settlement between american and sierra but it talks about the payments that it is making right in if i can just try to get get to it and if i the issues there was there was a dispute over what what had been paid over what period of time and so that maybe a recitals in there of as far as what they were they were paying you know you know you know toward the defense cost on top of the one hundred and fifty dollars that we had paid but it's not a recognition that they were paying defense costs under their say weren't they will but if it is a settlement to try to sort out how much this law firm should get paid just as a practical matter it looks to me like they were talking about how much they've already been paid and how much that meant might be owed and they decide well we've got enough we're go just say no one owes us anything it seems like that's what this is i'm not sure if i mean it seems like they basically as i read it i thought what it basically was doing as a practical matter is saying we're going to give up the claim that we owe that american owes more attorneys fees in part because we already got three one hundred dollars an hour that's nowhere in the agreement i mean we we you know paid over thirteen million dollars in defense fees and expert fees and costs and we were resolving that in agreeing to pay our limits under the policy as part of that agreement with with here to contribute that towards their total indemnity exposure there's no recognition that that one hundred and fifty dollars that either party was using that as whether you are providing a defense or not and the cases that we cited in there and a briefing or several of them say you know you're going to defend you have to defend the whole thing you can't just pick and choose what you're paying so they can't recast that settlement payment as participating in the defense when they weren't you know and the key issue there is then that means they don't get a challenge the reason this of the fees and the costs that were actually incurred so i hope i've said you're going to have to think about it  more i think i understand you're going to yeah we just that you know in the brief i just asked maybe look a couple cases that we address i know that those cases exist i just can't tell if they apply here but anyway i think you can still give you i think i said i would take  everyone order over but why don't we give both sides three minutes or about  limitations on an additional insured indorsement don't apply to defense because they really meant to apply to him dead media coverage all right i think that's a very important point and then to your honor's might not agree with me in terms of the reading of the defense provision but i do want to you know really encourage you to look at the plane and literal meaning of the words because that's what the case is regarding umbrella coverage say i want to point out that a lot of the cases in which americans position realize if you look at  their argument that that was really settling a bad faith claim and wasn't actually about how much had already been paid counsel that was settled it should not matter because it was also accusing american of bad faith and and dispute between shiite america about the defense that america was providing to keep in mind that america was also obligated to the under the common law to provide for an immediate defense  a cap on amount and that is a defense or honors as you point out the cases that speak about whether an insurer provides a full defense and not defending when it doesn't provide that those speak that is a legal  arse just just briefly your honour's and that's my hope i can try to provide some clarity for minutes to kind cogitate on on this issue that i think you're struggling with a little bit and the way i understand it their argument is that they should get a credit for the three point four that they paid in different in defense costs and the reason why that doesn't work is because the cases say you only get a credit if you're actually providing a defense they were providing a defense their argument is that money was going to attorney's fees that's what makes this unusual is a sort of a hybrid where yes it was bad faith claims that were being settled but their settlement was to pay some unknown ongoing obligation towards attorney's fees so it defend you have to provide a complete defense that's what's critical here and they weren't doing that even even if they were to say that this you know i understand your argument about that but do you have any case where where even though they weren't defending it i understand your position that that means they just really can't say anything about this issue at all but do you have a case where there was something like this where as a practical matter both sides were paying some attorneys fees and still it didn't count i agree years far as we haven't seen a case where part settles their their breach of contract bad faith defend exposure and that requires them to have to pay on right and so so we don't have that but we do have are cases that talk about what does it mean to provide a defense what does it mean to to did do the best job they could and settling that they could have made clear i presume that the three million four hundred thousand dollars or whatever those amount would have been would go towards defense costs and that might be a different case possibly but i think they also have to recognize that still doesn't count you get a contract your way and yeah exactly what you know if you're not doing it but but also it also doesn't include any of the expert fees or cost remember for a defense only one dollar portion are the fees you know we've got over seven million dollars in expert fees and costs that they paid nothing to how can they say that they participated in the defense when they didn't even contribute to that so it's they're trying to recast this as a we participated we should get credit will know the