Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-00594/USCOURTS-caed-2_06-cv-00594-6/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

GLOBAL AEROSPACE, INC.,

NO. CIV. S-06-594 LKK/KJM

Plaintiff,

v. O R D E R

ARTHUR J. GALLAGHER & CO.

INSURANCE BROKERS OF

CALIFORNIA, INC.,

Defendant.

 /

This action involves an insurance coverage dispute

regarding a plane crash. Plaintiff Global Aerospace, an

insurer, has brought suit against defendant Arthur J. Gallagher

& Co. Insurance Brokers. Pending before the court are crossmotions for summary judgment. The court resolves the matters

upon the parties’ papers and after oral argument. For the

reasons set forth below, the court denies summary judgment,

except with respect to the counter-claim for reformation.

Case 2:06-cv-00594-LKK -KJM Document 103 Filed 06/08/07 Page 1 of 18
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26 The facts are undisputed unless otherwise noted. 1

2

I. Facts1

A. Background

Regent Air (“Regent”) is an aircraft charter company located

in Truckee, California. Def.’s Statement of Undisputed Fact

(“DSUF”) ¶ 6. On March 13, 2002, while attempting to land at Reno,

Nevada in snow and freezing fog, one of Regent’s aircraft crashed

into a commercial building. DSUF ¶ 7. The aircraft and building

sustained substantial damage and the pilot and five passengers were

injured. Id. Jesse Gallagher was operating the aircraft as the

sole pilot at the time of the crash. Id.

Following the crash, plaintiff, an insurance company, paid

several million dollars in claims arising from the crash. DSUF ¶

8. Plaintiff contends that there was no coverage under its policy

for the crash and now seeks to recover costs incurred by virtue of

the crash from Regent’s insurance broker, defendant Gallagher

Aviation. DSUF ¶ 9. In short, plaintiff argues that the policy

limited coverage for pilots in command to (1) Regent’s owner,

Gerald Canavan, and (2) others pilots who were properly certified,

had completed certain training, and had lodged a specified amount

of flight time. There is no dispute that Jesse Gallagher fell into

neither of these categories. Defendant, however, argues that it

impliedly requested an expansion of coverage to encompass Jesse

Gallagher, and that plaintiff’s alleged failure to respond to this

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 As will be discussed in this opinion, the question of 2

plaintiff’s liability is distinct from the issue of whether

defendant is obligated to plaintiff.

 In the complaint, plaintiff also listed a cause of action 3

for money had and received but has not moved on this claim in its

motion.

3

request obligated them to furnish the requested coverage.2

Following the crash, the parties entered into a Dispute

Resolution Agreement in which they agreed to attempt to resolve the

dispute either informally (which was unsuccessful) or through

litigation. DSUF ¶ 50. Plaintiff’s claims in the present

litigation include breach of contract, negligence, equitable

indemnity, and equitable subrogation. Defendant also filed a 3

counterclaim for reformation, alleging that the written policy does

not conform to the intent of the contracting parties.

B. Regent’s First Policy (2001-2002)

In early 2001, Regent procured aviation insurance from

plaintiff through its broker, defendant. DSUF ¶ 11. Prior to

issuance of coverage, one of plaintiff’s underwriters, Daniel

Haldeman, visited Regent facilities and flew in an aircraft piloted

by both Gerald Canavan and Jesse Gallagher. Depo. of Daniel

Haldeman 88:7-9, Ex. 3, Decl. of Christina Nugent. During this

trip, the underwriter discussed pilot records and training with

Canavan. Id. Contrary to defendant’s assertion, however, there

is no evidence cited in the record to indicate that they

specifically discussed the extent of Gallagher’s flying experience.

Following the visit by the underwriter, plaintiff issued a

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policy of insurance with effective dates of March 3, 2001 to March

3, 2002. DSUF ¶ 16. The 2001-2002 policy contained a “pilot

warranty” that essentially limited coverage to Canavan and other

pilots meeting certain experience requirements. DSUF ¶ 17. There

is no dispute that Gallagher did not have the requisite experience

to qualify him as a pilot in command based on the written policy.

DSUF ¶ 18. Accordingly, under the express terms of the 2001-2002

policy, Gallagher could fly as a co-pilot but not as a pilot in

command. DSUF ¶ 19.

Geoff Logan was the insurance broker for defendant at all

relevant times to the lawsuit. Pl.’s Statement of Undisputed Fact

(“PSUF”) ¶¶ 1, 3. He admitted that he was unaware of the actual

terms of the pilot warranty and instead believed (until some time

after the crash) that the coverage extended to pilots “as approved

by” Canavan. PSUF ¶¶ 11-14. On at least two separate occasions

prior to the crash, Logan incorrectly informed his client, Regent,

that it had “as approved by” coverage.” PSUF ¶ 17.

C. Regent’s Second Policy (2002-2003)

In December 2001, nine months into the 2001-2002 policy,

defendant sent a completed insurance application to plaintiff.

DSUF ¶ 20. Although plaintiff maintains that this application was

not used for negotiating the terms of a renewal policy, the box for

“Renewal Policy” (as opposed to “A Quotation” and “Insurance

Policy”) was checked off. Ex. 4, Decl. of Geoff Logan. 

The application form expressly distinguished between

“Captains” and “Co-pilots,” listing each in a separate column.

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 The 2002-2003 policy was not issued until April 2002, after 4

the aircraft accident. DSUF ¶ 38.

 A “binder” is a “memorandum of the most important terms of 5

the preliminary contract of insurance, intended to give temporary

protection pending the investigation of the risk by the insurer or

until the issuance of a formal policy. Thus, a binder is an

independent contract, separate and distinct from the permanent

insurance policy.” Ahern v. Dillenback, 1 Cal. App. 4th 36, 47

(1991). 

5

DSUF ¶ 23. The completed form listed both Gerald Canavan and Jesse

Gallagher as “Captains” and a third person as a “Co-pilot.” DSUF

¶ 24. Defendant transmitted this application to plaintiff along

with completed pilot questionnaires detailing the experience of

each of Regent’s pilots, including Jesse Gallagher. DSUF ¶ 25.

Plaintiff received the application and pilot questionnaires

in December 2001. DSUF ¶ 27. Plaintiff’s underwriter, Haldeman,

admitted that he did not read the section of the application that

stated that Jesse Gallagher was operating Regent’s airplanes as a

captain. DSUF ¶ 28. Haldeman admitted that if he had read the

entire application, he would have checked Gallagher’s pilot

questionnaire to determine the extent of his experience, but that

he would not have listed Gallagher as an approved pilot. DSUF ¶

31. Furthermore, Haldeman admitted that he would have contacted

the broker, Logan, to inform him that Gallagher did not possess the

requisite qualifications. DSUF ¶ 32. 

Although there was no written policy in effect at the time of

the crash, PSUF ¶ 19, an informal binder was in place. Upon 4 5

receipt of the insurance application, plaintiff provided options

for renewal coverage on February 25, 2002 for the March 3, 2002 to

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 Defendant, responding to Daniel Haldeman, wrote: “Hi, Dan. 6

Please bind the renewal of the above captioned [Regent Air]. Liab

[sic] limit at $5 mm for both ships. Hull value on the A90 to be

at $450K. Deducts (all) at $5,000. All else per your quote.”

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March 3, 2003 policy period. PSUF ¶ 21. The relevant option that

defendant ultimately selected provided that the renewal policy

would, in relevant part, remain the same as the initial policy.

Id. (“With the exception of War, Hi-Jacking and Other Perils

Coverage, all other Coverages, Terms and Conditions shall remain

as per the expiring policy.”). Defendant then requested that

coverage be bound pursuant to this option. Id. There is no 6

evidence that defendant ever requested “as approved by” coverage.

PSUF ¶¶ 22-24.

D. Dispute Resolution Agreement

Pursuant to a separate contract, the Dispute Resolution

Agreement, plaintiff agreed to pay for claims arising out of the

crash. PSUF ¶ 26. To date, plaintiff has paid several million

dollars in connection with the accident. DSUF ¶ 8. The Dispute

Resolution Agreement states in relevant part: “Broker agrees that,

should it later be determined by a court of law . . . that the

Policy does not apply to the claims . . . or that the Policy would

not so apply but for the representation, or other actions or

inactions of Broker . . . Broker shall reimburse Insurer for all

such claims paid by Insurer.” Agreement at 2. Thus, defendant’s

liability may exist either because the policy did not apply or

application was the result of defendant’s representations, actions,

or inactions. 

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II. Standard

Summary judgment is appropriate when it is demonstrated that

there exists no genuine issue as to any material fact, and that the

moving party is entitled to judgment as a matter of law. Fed. R.

Civ. P. 56(c); see also Adickes v. S.H. Kress & Co., 398 U.S. 144,

157 (1970); Secor Ltd. v. Cetus Corp., 51 F.3d 848, 853 (9th Cir.

1995).

Under summary judgment practice, the moving party

[A]lways bears the initial responsibility of informing

the district court of the basis for its motion, and

identifying those portions of "the pleadings,

depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any," which it

believes demonstrate the absence of a genuine issue of

material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). "[W]here the

nonmoving party will bear the burden of proof at trial on a

dispositive issue, a summary judgment motion may properly be made

in reliance solely on the 'pleadings, depositions, answers to

interrogatories, and admissions on file.'" Id. Indeed, summary

judgment should be entered, after adequate time for discovery and

upon motion, against a party who fails to make a showing sufficient

to establish the existence of an element essential to that party's

case, and on which that party will bear the burden of proof at

trial. See id. at 322. "[A] complete failure of proof concerning

an essential element of the nonmoving party's case necessarily

renders all other facts immaterial." Id. In such a circumstance,

summary judgment should be granted, "so long as whatever is before

the district court demonstrates that the standard for entry of

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summary judgment, as set forth in Rule 56©, is satisfied." Id. at

323.

If the moving party meets its initial responsibility, the

burden then shifts to the opposing party to establish that a

genuine issue as to any material fact actually does exist.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

586 (1986); see also First Nat'l Bank of Ariz. v. Cities Serv. Co.,

391 U.S. 253, 288-89 (1968); Secor Ltd., 51 F.3d at 853. 

In attempting to establish the existence of this factual

dispute, the opposing party may not rely upon the denials of its

pleadings, but is required to tender evidence of specific facts in

the form of affidavits, and/or admissible discovery material, in

support of its contention that the dispute exists. Fed. R. Civ.

P. 56(e); Matsushita, 475 U.S. at 586 n.11; see also First Nat'l

Bank, 391 U.S. at 289; Rand v. Rowland, 154 F.3d 952, 954 (9th Cir.

1998). The opposing party must demonstrate that the fact in

contention is material, i.e., a fact that might affect the outcome

of the suit under the governing law, Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 248 (1986); Owens v. Local No. 169, Ass’n of

Western Pulp and Paper Workers, 971 F.2d 347, 355 (9th Cir. 1992)

(quoting T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n,

809 F.2d 626, 630 (9th Cir. 1987)), and that the dispute is

genuine, i.e., the evidence is such that a reasonable jury could

return a verdict for the nonmoving party, Anderson, 477 U.S. 248-

49; see also Cline v. Indus. Maint. Eng’g & Contracting Co., 200

F.3d 1223, 1228 (9th Cir. 1999).

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9

In the endeavor to establish the existence of a factual

dispute, the opposing party need not establish a material issue of

fact conclusively in its favor. It is sufficient that "the claimed

factual dispute be shown to require a jury or judge to resolve the

parties' differing versions of the truth at trial." First Nat'l

Bank, 391 U.S. at 290; see also T.W. Elec. Serv., 809 F.2d at 631.

Thus, the "purpose of summary judgment is to 'pierce the pleadings

and to assess the proof in order to see whether there is a genuine

need for trial.'" Matsushita, 475 U.S. at 587 (quoting Fed. R.

Civ. P. 56(e) advisory committee's note on 1963 amendments); see

also Int’l Union of Bricklayers & Allied Craftsman Local Union No.

20 v. Martin Jaska, Inc., 752 F.2d 1401, 1405 (9th Cir. 1985).

In resolving the summary judgment motion, the court examines

the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any. Rule

56©; see also In re Citric Acid Litigation, 191 F.3d 1090, 1093

(9th Cir. 1999). The evidence of the opposing party is to be

believed, see Anderson, 477 U.S. at 255, and all reasonable

inferences that may be drawn from the facts placed before the court

must be drawn in favor of the opposing party, see Matsushita, 475

U.S. at 587 (citing United States v. Diebold, Inc., 369 U.S. 654,

655 (1962) (per curiam)); See also Headwaters Forest Def. v. County

of Humboldt, 211 F.3d 1121, 1132 (9th Cir. 2000). Nevertheless,

inferences are not drawn out of the air, and it is the opposing

party's obligation to produce a factual predicate from which the

inference may be drawn. See Richards v. Nielsen Freight Lines, 602

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F. Supp. 1224, 1244-45 (E.D. Cal. 1985), aff'd, 810 F.2d 898, 902

(9th Cir. 1987).

Finally, to demonstrate a genuine issue, the opposing party

"must do more than simply show that there is some metaphysical

doubt as to the material facts. . . . Where the record taken as a

whole could not lead a rational trier of fact to find for the

nonmoving party, there is no 'genuine issue for trial.'"

Matsushita, 475 U.S. at 587 (citation omitted).

III. Analysis

Pending before the court are cross-motions for summary

judgment. Plaintiff argues that the terms of the binder control

coverage, and that those terms indicate that only Gerald Canavan

or pilots meeting the qualifications set forth in the written

policy were covered. Defendant, however, responds that when it

submitted the renewal application, it disclosed that Jesse

Gallagher would be acting as a pilot in command and that he did not

meet the requisite qualifications. Because plaintiff did not

specifically deny coverage for Jesse Gallagher, defendant maintains

that there is an ambiguity in coverage that must be construed in

its favor. The court agrees. Nevertheless, as explained below,

there are issues of fact that preclude summary judgment. 

A. Coverage

1. Source of Coverage

The threshold issue presented by plaintiff’s claims is the

source of coverage, if any, on March 13, 2002, the date of the

crash. There is no dispute that the crash fell outside plaintiff’s

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first policy, which expired on March 3, 2002. Likewise, there is

no dispute that the crash also fell outside plaintiff’s second

policy -- at least insofar as that policy was governed by a formal

written contract -- because the 2002-2003 policy was not issued

until after the accident. Accordingly, any coverage for the crash,

if it is to exist at all, would need to arise from either an

insurance binder or an alleged duty to respond to a request for

insurance.

Because the parties had apparently agreed to the essential

terms of coverage for the second policy period even though the

formal policy had not been issued, a binder was in effect at the

time of the crash. A binder is a temporary, preliminary contract

of insurance. Parlier Fruit Co. v. Fireman’s Fund Ins. Co., 151

Cal. App. 2d 6, 19-20 (1957). Binders exist because “if the

applicant could not be made secure until all the formal documents

were executed and delivered, the beneficial effect of the insurance

system would be greatly impaired.” Id. at 20. Whether the

undisputed facts establish the existence of a binder is a question

of law. Adams v. Explorer Ins. Co., 107 Cal. App. 4th 438, 451

(2003).

Here, plaintiff quoted an option for renewal coverage on

February 25, 2002, which defendant accepted on March 1, 2002. The

pertinent option stated that “With the exception of War, Hi-Jacking

and Other Perils Coverage, all other Coverages, Terms and

Conditions shall remain as per the expiring policy.” PSUF ¶ 21.

Defendant accepted Haldeman’s quote: “Hi, Dan. Please bind the

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renewal of the above captioned [Regent Air] . . . per your quote.”

Id. There is no doubt that this exchange evinced the parties’

intent to enter into a binder of insurance.

2. Terms of Coverage

Nevertheless, a question remains as to the precise terms of

coverage contained in the binder. Defendant argues that the

renewal application is part of the binder. Furthermore, it alleges

that the application requested an expansion of coverage from the

previous term, that plaintiff failed to respond, and that because

of this failure, plaintiff should be required to furnish the

insurance as requested. See Barrera v. State Farm Mutual

Automobile Ins. Co., 71 Cal. 2d 659, 673 (1969) (“Since insurance

companies are held to a broader legal responsibility than are

parties to purely private contracts, having solicited and obtained

an application for insurance, and having received payment of a

premium, they are bound either to furnish indemnity or decline to

do so within a reasonable time.”).

Defendant’s argument that it requested “expanded” coverage

does not fully tell the story since in fact it incorrectly informed

Regent that it possessed “as approved by” coverage on at least two

occasions. PSUF ¶ 17. Nevertheless, whether or not the coverage

requested was an “expansion” is immaterial, because the real issue

is that defendant wanted coverage for Jesse Gallagher in 2002-2003

(whether or not it had such coverage in 2001-2002) and that

plaintiff failed to act upon this request.

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 This is true even though, as plaintiff points out, there is 7

no general duty to investigate a pilot’s qualifications. See,

e.g., Fireman’s Fund Ins. Co. v. Superior Ct., 75 Cal. App. 3d 627,

631-37 (1977). Furthermore, here, there was no need for plaintiff

to conduct any additional investigation because the renewal

application, on its face, disclosed that Jesse Gallagher did not

13

Plaintiff argues that it did, in fact, respond to the request,

albeit unintentionally. Because the renewal option stated that

“all other Coverages, Terms and Conditions shall remain as per the

expiring policy,” plaintiff contends that a response that sets

forth the complete terms of coverage for the renewal necessarily

responds to any requested change in coverage. While plaintiff’s

argument has formal appeal, the response was opaque: it would not

alert a reasonable person that the particular request for coverage

had been denied.

Furthermore, when faced with an ambiguity, the court has a

duty to construe policies to “protect the objectively reasonable

expectations of the insured.” Boghos v. Certain Underwiters at

Lloyds, 36 Cal. 4th 495, 501 (2005). More precisely, the rule is

that ambiguities are resolved against the party who caused the

uncertainty to exist -- in other words, the drafter. See County

of San Diego v. Ace Prop. & Cas. Ins. Co., 37 Cal. 4th 406, 415

(2005). 

In the typical case, the drafter of the policy is the insurer.

Here, however, no formal policy was in effect, and the binder is

comprised of statements by both the insurer and insured.

Nevertheless, because insurers are under a general duty to respond

to requests for insurance, Barrera, 71 Cal. 2d at 673, and the 7

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meet the relevant pilot qualifications.

14

“all other Coverages” language incorporated the previous policy --

which was drafted by the insurer -- any ambiguity here must be

resolved in favor of defendant. Accordingly, the court finds that

plaintiff was obligated under the terms of the binder to pay for

claims arising from the crash.

B. Claims

1. Negligence

With this in mind, the court turns to plaintiff’s claims.

First, plaintiff moves for summary judgment on its claim for

negligence. The basic elements of a negligence action are that (1)

defendant had a legal duty to plaintiff, (2) defendant breached

this duty, (3) defendant was the proximate and legal cause of

plaintiff’s injury, and (4) plaintiff suffered damage. See Cal.

Civ. Code § 1714; Ladd v. County of San Mateo, 12 Cal. 4th 913, 917

(1996).

Here, the court previously determined in its December 5, 2006

order that defendant owed plaintiff a limited duty to convey

accurate information to Regent Air. Furthermore, defendant

breached this duty by misinforming Regent Air of the terms of its

coverage during the first policy period, which then created the

ambiguity surrounding the second policy period. Additionally,

there is no dispute that plaintiff suffered damage by virtue of

paying for the claims associated with the crash.

There is, however, a genuine dispute as to the issue of

causation, or alternately formulated, comparative negligence.

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Although defendant had a duty to convey accurate information to its

principal because of the foreseeable consequences to plaintiff of

breaching that duty, a reasonable fact-finder could conclude that

plaintiff similarly had a duty to read the renewal application and

respond to the request for Jesse Gallagher’s coverage. Had

plaintiff responded to Gallagher’s request, the ambiguity in the

binder would likely have been avoided. In any event, the

apportionment of liability between plaintiff and defendant is a

question for the jury. Accordingly, the court denies both parties’

motion for summary judgment with respect to the issue of

negligence.

2. Breach of Contract

Plaintiff has also brought a claim for breach of contract,

alleging that defendant has violated the Dispute Resolution

Agreement. That agreement expresses the parties’ intention to

shift the costs arising out of the accident from plaintiff to

defendant in the event a court determines that coverage would not

have existed but for defendant’s conduct, or that there was no

coverage at all. As discussed above, however, whether coverage

would have existed but for defendant’s negligence turns on a

question of fact -- i.e., whether plaintiff was contributorily

negligent -- which precludes summary judgment. Accordingly, both

parties’ motions are denied with respect to the breach of contract

claim.

3. Equitable Subrogation

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Equitable subrogation is appropriate where the insurer has

compensated the insured for a loss, and the insured would have had

an assignable cause of action against the actual wrongdoer for the

loss if it had not already been compensated for it by the insurer.

See Transcontintal Ins. Co. v. Ins. Co. of State of Pennsylvania,

148 Cal. App. 4th 1296, 1305 (2007). A claim for equitable

subrogation permits the court to shift the costs of a loss from the

insurer to the actual wrongdoer where the latter was primarily

liable for the loss. See Maryland Cas. Co. v. Nationwide Mut. Ins.

Co., 81 Cal. App. 4th 1082, 1088-89 (2000).

Here, plaintiff maintains that it should be allowed to stand

in the shoes of Regent, the insured, because Regent’s agent,

defendant, was the actual wrongdoer. Nevertheless, it is not clear

that defendant was the actual wrongdoer. It has been held that

equitable subrogation “will never be enforced when the equities are

equal or the rights not clear.” Fireman's Fund Ins. Co. v. Morse

Signal Devices, 151 Cal. App. 3d 681, 686 (1984) (internal

quotations omitted). Because there is a genuine issue as to

plaintiff’s own negligence, the court denies both parties’ motions

with respect to the equitable subrogation claim.

4. Equitable Indemnity

Plaintiff’s final claim is for equitable indemnity, which

relates to the allocation of loss among multiple tortfeasors. “The

right depends on the principle that everyone is responsible for the

consequences of his or her own wrong, and if others have been

compelled to pay damages which ought to have been paid by the

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 In any event, in light of the court’s findings with respect 8

to the scope of coverage created by the binder, the counter-claim

is likely moot.

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wrongdoer, they may recover from him or her.” Fireman’s Ins. Fund

Co. v. Haslam, 29 Cal. App. 4th 1347, 1353-54 (1994). Here,

however, the same issues of fact that bar summary judgment for the

other claims also bar summary judgment on the equitable indemnity

claim. Despite their name, equitable indemnity claims often turn

on issues of fact. See Martin v. County of Los Angeles, 51 Cal.

App. 4th 688, 698 (1996) (“[A] cause of action for equitable

indemnity is a legal action seeking legal relief. As such, the

[party] was entitled to a jury trial.”). Accordingly, the court

denies both parties’ motions with respect to the equitable

indemnity claim.

5. Counter-Claim for Reformation

Defendant has also brought a counter-claim for reformation,

alleging that after it received the written quotation for the

second policy period, Haldeman orally informed Logan that the new

policy would provide “as approved by” coverage. Discovery has,

apparently, failed to produce any evidence to support this

allegation, as even Logan does not remember having any such

conversation. PSUF ¶ 22. Accordingly, the court grants 8

plaintiff’s motion for summary judgment with respect to the

counter-claim for reformation and denies defendant’s motion with

respect to the same.

IV. Conclusion

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For the reasons set forth above, the court DENIES plaintiff’s

motion for summary judgment with respect to the claims for

negligence, breach of contract, equitable subrogation, and

equitable indemnity. The court GRANTS plaintiff’s motion with

respect to defendant’s counter-claim for reformation. The court

DENIES defendant’s motion for summary judgment in full. 

IT IS SO ORDERED.

DATED: June 7, 2007.

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