Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-01744/USCOURTS-caed-2_07-cv-01744-13/pdf.json

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

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

CONTINENTAL CASUALTY No. 2:07-cv-01744-MCE-EFB

COMPANY,

Plaintiff,

v. MEMORANDUM AND ORDER

ST. PAUL SURPLUS LINES

INSURANCE COMPANY; and DOES 1

through 10, inclusive,

Defendants.

----oo0oo----

This case arises from a wrongful death action in which two

different insurers, Continental Casualty Company (“Continental”)

and St. Paul Surplus Lines Insurance Company (“St. Paul”) both

provided certain insurance coverage. St. Paul issued a general

liability issue policy with limits of $5,000,000 to Crown

Equipment Corporation (“Crown”), the company that manufactured a

forklift the decedent was operating at the time he was killed. 

The accident itself occurred at the premises utilized by Tasq

Technology, Inc. (“Tasq”).

1

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 1 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Tasq was an additional named insured under a $1,000,000 general

liability insurance policy issued by St. Paul. Continental also

insured Crown as an additional insured under its policy. 

Finally, Continental provided a $25,000,000 umbrella policy to

cover additional liability exceeding the limits of its primary

policy.

 Through the present action for declaratory relief,

Continental seeks judicial determination that the St. Paul

policy, as a primary policy, has been exhausted with respect to

any liability accruing to Crown before Crown has any additional

obligation to provide coverage under its umbrella policy to

Crown. In settling the underlying wrongful death lawsuit,

Continental paid the entire $1,000,000 limit of its primary

policy along with $2,500,000 of its umbrella policy to settle all

claims against both Crown and Tasq. St. Paul refused to

contribute to that settlement despite its $5,000,000 in general

liability coverage inuring to Crown’s benefit as enumerated

above.

Now before the Court are cross motions for summary judgment,

filed on behalf of both Continental and St. Paul with respect to

the applicable priority of coverage. The parties have agreed

that the question of priority should be decided before any

apportionment of negligence is addressed for purposes of

assigning any particular monetary liability to either Crown or

Tasq, respectively.

As set forth below, this Court determines that the St. Paul

policy is primary and must be exhausted as to Crown’s liability

before coverage under Continental’s excess policy is triggered. 

2

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 2 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

The Court is unpersuaded by St. Paul’s various arguments as to why

coverage under its policy should not apply. Continental’s

corresponding motion for partial summary judgment will accordingly

be granted. St. Paul’s cross motion for summary judgment, or

alternatively for partial summary judgment, will be denied.1

BACKGROUND

Daniel Coupe, an employee of West Coast Conveyer and

Equipment, was killed on June 19, 2001 while operating a forklift

manufactured by Crown at a Tasq warehouse located in Roseville,

California. The forklift implicated in Mr. Coupe’s death was

leased by Tasq from Crown Credit Company. Mr. Coupe’s employer

had contracted with Tasq to install shelving at Tasq’s warehouse. 

Mr. Coupe died after the Crown stand-up forklift he was using

allegedly malfunctioned and pinned Coupe between the forklift and

the shelving racks in Tasq’s warehouse.

Daniel Coupe’s survivors filed a wrongful death lawsuit on

June 25, 2002 alleging both negligence and products liability

claims against Crown and claims sounding in negligence against

Tasq. The master lease agreement pertaining to the forklift at

issue, which was entered into between Tasq and Crown Credit

Corporation, provided that Crown would not be liable to Tasq for

any defect in the forklift for any liability arising out of

Tasq’s possession, use or operation of the forklift. 

 Because oral argument was not be of material assistance, 1

the Court ordered this matter submitted on the briefs. E.D. Cal.

Local Rule 230(g). 

3

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 3 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

See Lease, Ex. I to Stip. of Facts on Cross-Motions, ¶¶ 4.02-

4.03. The lease also obligated Tasq to maintain comprehensive

general liability coverage with a combined $2,000,000 single

limit against any bodily injury or property damage arising out

of, or in any related to, Tasq’s possession, use or operation of

the forklift. Id. at 6.03. The lease further required that

insurance to name Crown as an additional insured. Id.

Consistent with the terms of the lease, Tasq’s insurance

coverage with Continental exceeded the $2,000,000 (at $3,500,000

between the primary and umbrella policies) and further named

Crown as an additional insured. As stated above, Crown also had

its own general liability policy through St. Paul. That policy

had a self-insured retention limit of $250,000 which had to be

paid on Crown’s behalf before any additional coverage under the

St. Paul policy accrued. The St. Paul policy covered liability

only and did not provide a defense.

In providing primary coverage, the Continental policy

provided a per occurrence limit of $1,000,000 with an insuring

clause that stated in pertinent part as follows:

“We will pay those sums that the insured becomes

legally obligated to pay, as damages because of ‘bodily

injury’ or ‘property damage to which this insurance

applies. We will have the right and duty to defend the

insured against any ‘suit’ seeking those damages.”

Continental General Liability Policy, Ex. B to Stipulation of

Facts, p. 82. The Continental umbrella policy, in turn, agreed

to pay on behalf of an insured all sums up to its $25,000,000

policy limit that are in excess of either scheduled or

unscheduled underlying, or primary, coverage. The Continental

umbrella policy states:

4

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 4 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

SECTION III- LIMITS OF INSURANCE

...

3. We shall only be liable for the “ultimate net

loss” in excess of:

a. The applicable limits of “scheduled

underlying insurance” in item 5 of the

Declarations for “incidents” covered by

“scheduled underlying insurance”, plus the

limits of any “unscheduled underlying

insurance” which also provides coverage for

such “incidents”.

Continental Umbrella Policy, Ex. C. to Stipulation of Facts,

p. 21 (emphasis added). The policy goes on to define “ultimate

net loss” as not including litigation-related costs or expenses. 

“Scheduled underlying insurance” is the Continental primary

policy on which the umbrella coverage rests, and “unscheduled

underlying coverage would, on its face, appear to include the St.

Paul general liability policy issued to Crown, since the term is

defined as meaning “insurance policies available to an insured”

(here Crown) whether primary, excess, or otherwise. Id.

The St. Paul general liability policy, for its part, also

agrees to pay “amounts any protected person is legally required

to pay as damages for covered bodily injury or property damage

that... happens while this agreement is in effect...” St. Paul

General Liability Policy, Ex. D to Stipulation of Facts, p. SP

0014-15. With respect to other primary insurance, the St. Paul

provides:

///

///

///

///

///

5

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 5 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

“When there is other primary insurance, we’ll share

with that insurance the amounts you’re legally required

to pay as damages.....

However, we’ll apply this agreement as excess insurance

over the part or parts of any other insurance which

provide:

...

protection to you as an additional insured or

additional protected person if you agree that we may

apply this agreement as excess insurance.”

Id. at SP 0035. Based on the above provision, and given its

representation that pursuant to said terms, Crown has agreed that

St. Paul’s policy is excess to the Continental policies, St. Paul

maintains that its policy is indeed excess in the calculus of

determining the priority of coverage for the subject loss. 

Additionally, in part due to the purported status of the St. Paul

policy as excess, St. Paul also argues that the lease’s indemnity

agreement also prevents its coverage from accruing until after

both the Continental policies.

Once the underlying wrongful death lawsuit was instituted,

Continental assumed the defense of its named insured, Tasq. 

Crown did not seek a defense from its own primary insurer, St.

Paul, because the St. Paul policy did not include any defense

obligation, but did tender its defense to Continental. Although

Continental initially denied Crown’s defense tender, it

ultimately defended both Tasq and Crown in the underlying action

under a reservation of rights. It appointed counsel to defend

Tasq and funded the separate cost of Crown’s separate defense

counsel (Tasq and Crown having cross complained against each

other, each arguing that the other was legally responsible for

Mr. Coupe’s death).

///

6

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 6 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

After more than four years of litigation, and as trial of

the underlying wrongful death case approached, Continental

decided to attempt a mediated settlement of the claim. On

September 21, 2006, some three weeks before the scheduled

October 10, 2006 mediation, Continental wrote to St. Paul and

invited St. Paul to attend the mediation. Continental further

advised St. Paul that it would look to St. Paul for contribution

of any expenditures it made to settle the claim against St.

Paul’s insured, Crown. St. Paul did not respond either to

Continental’s September 21, 2006 letter, or to follow-up

correspondence to the same effect sent the day before the

October 10, 2006 mediation. Nor did St. Paul participate in the

mediation. While, as stated above, a settlement on behalf of

both Crown and Tasq was ultimately reached for the amount of

$3,500,000, and although Continental accordingly obtained a full 2

dismissal, with prejudice, on behalf of both entities, St. Paul

never contributed anything towards the settlement. To date, no

determination of the relative fault for Daniel Coupe’s death as

between Tasq and Crown has occurred.

///

///

///

///

 Although St. Paul argues that Continental’s settlement was 2

made on the eve of a potentially negative state court decision

with respect to Tasq’s duty to indemnify Crown under the terms of

the lease, as set forth in more detail below, indemnification

under the terms of the lease is a concept distinct from the

priority of coverage in this case, and the lease terms are not

controlling in that regard.

7

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 7 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

STANDARD

The Federal Rules of Civil Procedure provide for summary

judgment when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law.” Rule 56(c). One of the principal purposes

of Rule 56 is to dispose of factually unsupported claims or

defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). 

Under summary judgment practice, the moving party

“always 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) (quoting

Rule 56(c)).

Rule 56 also allows a court to grant summary adjudication on

part of a claim or defense. See Rule 56(a) (“A party seeking to

recover upon a claim...may...move...for a summary judgment in the

party’s favor upon all or any part thereof.”); see also Allstate

Ins. Co. v. Madan, 889 F. Supp. 374, 378-79 (C.D. Cal. 1995);

France Stone Co., Inc. v. Charter Township of Monroe,

790 F. Supp. 707, 710 (E.D. Mich. 1992).

The standard that applies to a motion for summary

adjudication is the same as that which applies to a motion for

summary judgment. See Rule 56(a), 56(c); Mora v. ChemTronics,

16 F. Supp. 2d 1192, 1200 (S.D. Cal. 1998).

8

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 8 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

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,

585-587 (1986); First Nat’l Bank v. Cities Ser. Co., 391 U.S.

253, 288-289 (1968).

In attempting to establish the existence of this factual

dispute, the opposing party must tender evidence of specific

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

material, in support of its contention that the dispute exists. 

Rule 56(e). 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, 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 v.

Liberty Lobby, Inc., 477 U.S. 242, 248, 251-52 (1986); Owens v.

Local No. 169, Assoc. of Western Pulp and Paper Workers, 971 F.2d

347, 355 (9th Cir. 1987). Stated another way, “before the

evidence is left to the jury, there is a preliminary question for

the judge, not whether there is literally no evidence, but

whether there is any upon which a jury could properly proceed to

find a verdict for the party producing it, upon whom the onus of

proof is imposed.” Anderson, 477 U.S. at 251 (quoting

Improvement Co. v. Munson, 14 Wall. 442, 448 (1872)). 

///

///

///

///

9

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 9 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

As the Supreme Court explained, “[w]hen the moving party has

carried its burden under Rule 56(c), its opponent 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

586-87. In judging evidence at the summary judgment stage, the

court does not make credibility determinations or weigh

conflicting evidence. Anderson, 477 U.S. at 255, see also

Matsushita, 475 U.S. 587.

ANALYSIS

A. St. Paul's Primary Policy Insuring Crown Applies Before

Any Duty On Continental's Part To Indemnify Crown From

Its Umbrella Policy Is Triggered

Under principles of equitable contribution, an insurer has a

separate claim against other insurers who share the same risk for

payment of a loss involving their mutual insured. Fireman’s Fund

Ins. Co., v. Maryland Cas. Co., 65 Cal. App. 4th 1279, 1293

(1988). Equitable contribution is intended to equalize the

common burden shared by coinsurers and to prevent one insurer

from profiting at the expense of others. Id. 

Here, the language of the St. Paul policy itself would

appear to indicate on its face that the policy was intended to be

primary. A prima facie showing in that regard is made simply by

the policy’s reference to “other primary insurance”. See St.

Paul Policy, Ex. D to Stipulation of Facts, pp. SP 0035 and SP

0046. (emphasis added). 

10

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 10 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

St. Paul would not have used the term “other primary insurance”

if it did not view its own policy as primary. Insurance

contracts, like any other contract, must be construed in

accordance with their plain meaning pursuant to ordinary rules of

contractual interpretation. See AIU Ins. Co. v. Superior Court,

51 Cal. 3d 807, 822 (1990). “If contractual language is clear

and explicit, it governs.” Reliance Nat’l Indem. Co. v. General

Star Indem. Co., 72 Cal. App. 4th 1063, 1074 (1999).

St. Paul tries to avoid the import of its own

characterization of the policy as primary by pointing to a

provision that the policy can nonetheless be deemed excess

provided its own insured agrees “that we may apply this agreement

as excess insurance”. St. Paul Policy, Exh. D to Stipulation of

Facts, p. SP 0035. That attempt fails. St. Paul’s language as

cited above amounts to an impermissible “escape clause” that

cannot be enforced when broadly used to escape defense and

indemnity obligations whenever other insurance exists. See

Century Surety v. United Pacific Ins. Co., 109 Cal. App. 4th

1246, 1260 (2003). Although such clauses may be acceptable when

drafted narrowly, if an insurer’s coverage grant in fact

evaporates in the presence of other insurance, it amounts to the

prohibited escape clause. Because the terms of the St. Paul

policy gives St. Paul the power to essentially collude with its

own insured in deeming its policy excess, the Court believes the

language to be akin to a prohibited escape clause and

consequently finds it unenforceable. 

///

///

11

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 11 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Such a potentially unbridled ability to change the policy’s very

purpose could not have been the intent of the case law in

approving narrow exceptions to a policy’s characterization as

primary. 

Nor does the St. Paul policy’s use of a self-insured

retention alter the primary nature of the policy. To the extent

that Crown is responsible for a self-insured retention before the

St. Paul policy is triggered, that retention cannot be considered

insurance. See Montgomery Ward & Co., Inc. v. Imperial Cas &

Indem. Co., 81 Cal. App. 4th 356, 370 (2000). Since the St. Paul

policy allows any party (including, in this instance,

Continental) to satisfy that responsibility, once the retention

amount is satisfied a policy like St. Paul’s becomes primary. 

See California Pacific Homes, Inc. v. Scottsdale Ins. Co.,

70 Cal. App. 4th 1187, 1193-94 (1999).

Turning back to contractual interpretation, another seminal

guidepost in that regard is to “give effect to the mutual

intentions of the parties..” Bank of the West v. Superior Court,

2 Cal. 4th 1254, 1264 (1992); see also Cal. Civ. Code § 1636. 

This brings us to the question of what the parties to the

insurance agreements at issue herein sought to do when the

policies were obtained. As recognized by the court in Reliance

Nat’l Indem. Co. v. General Star Indem. Co., 72 Cal. App. 4th

1063, 1080-81 (1999), primary and excess insurer “do not share

the same level of coverage.” In JPI Westcoast Constr., L.P. v.

RJS & Assoc., Inc., 156 Cal. App. 4th 1448 (2007) (“JPI”), the

court articulated the basic differences between the two kinds of

coverage, stating as follows:

12

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 12 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

“California insurance law recognizes a fundamental

distinction between primary and excess 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... ‘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.... The ‘excess’ insurance

referred to in this definition is that secondary

insurance which provides coverage after other

identified insurance is no longer on the risk..... In

short, excess insurance is insurance that is expressly

understood by both the insurer and insured to be

secondary to specific underlying coverage which will

not begin until after that underlying coverage is

exhausted and which does not broaden that underlying

coverage.”

Id. at 1460 (internal citations omitted). The JPI opinion goes

on to note the difference between how premiums are calculated on

the two kinds of coverage. As the court states, the risks

bargained for and purchased are intrinsically distinct:

“[Primary insurers] calculate[] and accept[]

premiums with knowledge that they might be called upon

to satisfy a full judgment..... By contrast, an excess

insurer does not accept premiums with the full 

knowledge that it will be called upon to satisfy a full

judgment. The California Supreme Court has noted: ‘The

policyholder pays for two kinds of liability coverage,

each at a different rate. The premium charged by the

primary insurer supports more localized claims

adjustment facilities than those of the excess

carrier.’”

Id. at 1462-63 (internal citations omitted). Consequently, a

primary carrier must pay its limits before an umbrella carrier

becomes obligated to contribute. Reliance National, 72 Cal. App.

4th at 1083. Under the so-called rule of “horizontal exclusion”,

all applicable primary policies must accordingly exhaust “before

any excess will have coverage exposure.” Community Redevelopment

Agency v. Aetna Cas. & Surety Co., 50 Cal. App. 4th 329, 340

(1996).

13

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 13 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

In sum, then, because the Court finds the St. Paul policy to

offer primary coverage to its insured, Crown, any excess coverage

available to Crown under the Continental umbrella is not

triggered unless and until St. Paul’s primary policy is fully

depleted for purposes of covering Crown’s liability, if any, for

Daniel Coupe’s death.

B. The Indemnification Agreement Contained In The Subject

Equipment Lease Does Not Alter The Priority Of Coverage

St. Paul also argues that irrespective of the applicable

policy provisions, the indemnity provisions of the lease between

Crown and Tasq make Tasq, and not Crown, responsible for

satisfying any liability for the underlying claim. St. Paul’s

argument, however, in the end hinges on its claim, already

rejected below, that the St. Paul policy is excess. The case

St. Paul cites in support of its proposition that the indemnity

agreement is in fact controlling, Rossmoor Sanitation, Inc. v.

Pylon, Inc., 13 Cal. 3d 622 (1975), is distinguishable because it

involved a dispute between two primary carriers. Here, on the

other hand, the dispute is between two different layers of

coverage: St. Paul’s primary policy and the umbrella policy

issued by Continental. The effect of an indemnity agreement in

that context was squarely addressed in the JPI decision, which

addressed that precise scenario. In JPI, like this case, the

governing contract between the two parties contained an indemnity

provision. JPI, 156 Cal. App. 4th at 1451-52. 

///

///

14

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 14 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

In moving for summary judgment, JPI (the beneficiary of the

indemnity agreement) relied on Rossmoor in arguing that the

indemnity clause controlled the priority of coverage between the

two involved carriers. Id. at 1455. The trial court rejected

JPI’s reliance on Rossmoor, finding that the primary carrier had

to pay (despite the indemnity provision) before the excess

carrier was obliged to contribute. On appeal, California’s First

District agreed that Rossmoor did not control, finding “[t]he key

distinction between Rossmoor and the case at bar” to be the fact

that “Rossmoor involved a dispute between two primary carriers”,

as opposed to the circumstances before the JPI court which

involved a subrogation claim by a secondary or excess carrier

against a primary insurer. Id. at 1460. The JPI cited with

approval the reasoning employed by the earlier Reliance National

decision, which it deemed factually analogous:

“If we were to accept the arguments of Reliance [the

other primary carrier], the basic rules construing

primary and excess policies would be altered. A

primary insurer would be allowed to charge a higher

premium for insuring a greater risk; however, then the

primary insurer would be allowed to shift the loss to

an excess carrier which charged a lower premium. This

is not a case between two primary carriers which have

each received premiums for bearing the loss which

ultimately occurred; rather, this is an action between

an excess and a primary carrier. While the loss at

issue must be borne by Reliance [the other primary

carrier], it is nothing more than what is bargained

for, particularly given the absence of any

understanding that an indemnity agreement would exist

[between the parties]. Under the circumstances,

Rossmoor, a case involving a subrogation and indemnity

dispute between two primary carriers and their insured

is not controlling in the present case.”

///

///

///

15

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 15 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Reliance National, 72 Cal. App. 4th at 1082-83, as cited by JPI,

156 Cal. App. 4th at 1463. Consequently, the JPI case concluded

that the umbrella carrier was entitled to full reimbursement from

a primary insured for sums paid out on behalf of a mutual insured

regardless of the terms of the underlying indemnity agreement

between the insureds. That holding is conclusive with respect to

the present matter. The terms of an indemnity agreement cannot

trump general rules governing the application of primary, as

opposed to excess, coverage.

C. The Court Cannot Determine That Continental's Payments

To Settle The Underlying Lawsuit Were Voluntary To The

Extent They Were Made On Crown's Behalf

In an additional attempt to avoid bearing any potential

responsibility under its primary policy for the underlying claim,

St. Paul also claims that because Continental had no obligation

to pay anything on Crown’s behalf to settle the underlying

lawsuit, it cannot recover any gratuitous payments it made in

that regard from St. Paul. St. Paul correctly points out that in

order to recover from St. Paul, it must first establish that it

had an obligation to pay on behalf of Crown and was not acting as

a mere “volunteer”. Fireman’s Fund Ins. Co. v. Maryland Cas.

Co., 65 Cal. App. 4th at 1291-93. To the extent an insurer

indemnified a party not because of any obligation to do so, but

instead as a volunteer, it cannot recover from another carrier on

a theory of equitable subrogation. 

///

///

16

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 16 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Id. at 1292 (to recover on equitable subrogation grounds, the

insurer must show it “has paid the claim of its insured to

protect its own interest and not as a volunteer”).

St. Paul points to provisions in the Continental policies

which limit the coverage afforded to an additional insured under

a written contract or agreement to liability arising out of

premises that Tasq, as the named insured, owned, rented, leased

or occupied. See St. Paul’s Opp’n to Continental’s Mot., pp. 4-5

(delineating the applicable provisions of Continental’s primary

and umbrella policies in this regard). According to St. Paul,

because Continental cannot show that any potential liability of

Crown’s arose out of the use of the Tasq premises as opposed to

the operation, use and/or maintenance of the forklift

manufactured by Crown, Crown in fact cannot qualify as an

additional insured under the Continental policies.

The problem with this contention is that it requires the

weighing of factual issues in the context of liability, as

opposed to the subject matter of the present motions which bear

simply on the priority of coverage. Consequently said arguments

do not preclude summary adjudication in Continental’s favor with

respect to St. Paul’s status as a primary insurer. Nor can

St. Paul establish as a matter of law that under the

circumstances of the subject accident the condition of Tasq’s

premises are implicated. That is a liability determination

predicated on factual findings not amenable to disposition on

summary judgment.

///

///

17

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 17 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

D. St. Paul’s “No Action” Clause Does Not Bar

Continental’s Claims

The St. Paul policy contains a so-called “no action” clause

which by its terms precludes any action against an insurer on a

liability claim unless and until the insured’s liability to

claimants (here, Mr. Coupe’s heirs) has been determined either by

final judgment or pursuant to a settlement approved by the

insurer. St. Paul’s policy provides as follows:

“No one can sue us on a liability claim until the

amount of the protected person’s liability has been

finally decided either by a trial or by a written

agreement signed by the protected person, by us and by

the party making this claim. Once liability has been

determined by judgment or by written agreement, the

party making the claim may be able to recover under

this policy, up to the limits of coverage that apply. 

But that party can’t sue us directly or join us in a

suit against the protected person until liability has

been so determined.”

St. Paul Policy, Ex. D to Stipulated Facts, p. SP 009.

As St. Paul also points out, however, the purpose of a “no

action” clause it to prevent abuse, collusion and/or fraud

against the insurer in the settlement of claims against an

insured. See Rose v. Royal Ins. Co., 2 Cal. App. 4th 709, 715

(1991). A “no action” clause operates to preclude an insurer

from being bound by the terms of a stipulated judgment or a

settlement agreement to which it has not consented. See, e.g.,

Safeco Ins. Co. v. Superior Court, 71 Cal. App. 4th 782, 787

(1999). According to St. Paul, because all of Continental’s

claims are derivative of Crown’s purported, but unproven,

liability to the wrongful death claimants in the underlying

lawsuit, the “no action” clause completely bars all of

Continental’s claims in this action.

18

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 18 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

The present matter does not, however, involve any collusive

attempt to enforce a stipulated judgment reached behind St.

Paul’s back against St. Paul. Nor does it attempt to bind St.

Paul to the terms of a settlement agreement to which it did not

consent. To the contrary, the terms of the settlement agreement

contained no apportionment of liability vis-a-vis Crown and

Tasq. In addition, St. Paul was invited, twice, to participate 3

in the mediation that resulted in the settlement but chose not to

do so. Finally, it must be noted that the magistrate judge

assigned to this case, in ruling upon a motion to compel seeking

sanctions against St. Paul for concealing the existence of

communications between St. Paul and Crown and/or George Stephan

(Crown’s counsel in the underlying case) ordered, among other

things, that “in all future motions and proceedings involving

this litigation, an adverse inference will be drawn in

Continental’s favor on any factual dispute, claim, or defense

that depends on proving or disproving (1) what St. Paul knew and

when; and (2) that Crown and St. Paul acted in concert to defeat

Continental, including Crown’s insistence that the settlement

agreement exclude apportionment of liability between Crown and

Tasq.” See Continental’s Statement of Undisputed Fact No. 34. 

///

///

///

 While St. Paul infers that settlement was reached on the 3

eve of a state court ruling that appeared to be in its favor,

that decision pertained to the terms of the lease between Crown

and Tasq and did not involve the question now before this Court

as to the priority of coverage between the parties’ insurers, who

were obviously not privy to the terms of the subject lease.

19

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 19 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

That inference in and of itself prevents St. Paul from

establishing, as a matter of law on summary judgment, that it was

unaware of the settlement reached such that the “no action”

clause applies to bar Continental’s claims herein. There is no

indication of any fraud or collusion of the type that the “no

action” clause was intended to prevent. To the contrary, it

would be illogical to argue that Continental should not have

participated in settlement negotiations in the face of St. Paul’s

refusal to also participate, when failing to do so, and avoiding

settling the wrongful death claim on Crown’s behalf, would have

left Crown exposed to a potential adverse judgment.

E. The Doctrine Of “Unclean Hands” Does Not Bar The

Instant Lawsuit.

The doctrine of unclean hands requires that a party “who

comes into equity must come with clean hands.... [the doctrine]

closes the door of a court of equity to one tainted with

inequitableness or bad faith relative to the matter in which he

seeks relief, however improper may have been the behavior of the

defendant.” Precision Instrument Mfg. Co. v. Automotive

Maintenance Machinery Co., 324 U.S. 806, 814 (1945). As St. Paul

points out, under California law unclean hands can operate to

completely bar recovery by a culpable party in an equitable

proceeding like this one involving issues of relative

contribution:

///

///

///

20

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 20 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

“[W]henever a party who, as actor, seeks to set

judicial machinery in motion and obtain some remedy,

has violated conscience, good faith or other equitable

principle in his prior conduct, then the doors of the

court will be shut against him in limine; the court

will refuse to interfere on his behalf to acknowledge

his right, or to afford him any remedy.”

Lynn v. Duckel, 46 Cal.2d 845, 850 (1956).

Here, St. Paul argues that Continental’s “highly

questionable” handling of Crown’s defense in the underlying

action constitutes unclean hands and prevents Continental from

invoking equity in maintaining this lawsuit. St. Paul cites two

examples. First, it points to the fact that Crown failed to

accept a California Code of Civil Procedure § 998 Offer to

Compromise in the amount of $975,000 served by plaintiffs in the

underlying action on October 3, 2003. St. Paul argues that

Continental’s refusal to settle the case against Crown within the

$1,000,0000 limit of its general liability policy potentially

exposed Crown to the risk of a judgment against it in excess of

that policy limit. Second, St. Paul argues that a Continental

adjuster, Mitchell Roberts, executed a sworn declaration used in

opposition to Crown’s motion for summary judgment in the

underlying action as to the lease indemnity provisions between

Tasq and Crown.

///

///

///

///

///

///

///

21

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 21 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

The Court is unconvinced by either of St. Paul’s

contentions. First, since the same $975,000 § 998 Offer to 4

Compromise was directed to both Tasq and to Crown, Continental

could not have paid both demands within its primary $1,000,000

policy limit. Additionally, to the extent that coverage was also

available under Continental’s umbrella policy, Continental did

proactively seek to mediate the case later and was successful in

settling the case, even acceding to Crown’s request that

settlement be made without any apportionment of liability. Those

actions on Continental’s part do not smack of bad faith. Indeed,

if anything, St. Paul’s refusal to even participate in settlement

discussions, along with the magistrate judge’s finding which

suggests that St. Paul and Crown worked in concert to defeat

Continental’s interest, appears far more questionable in that

regard.

As to St. Paul’s second argument, the Declaration of

Mitchell Roberts merely explained his role as claims adjuster for

Crown and his duties in adjusting bill incurred by Crown for

independent counsel and submitted to Continental for payment.5

///

///

 While St. Paul also appears to argue that Continental’s 4

settlement may expose Crown to an obligation to pay its $250,000

in self-insured retention under the St. Paul policy (see St.

Paul’s Mot., 20:2-5), any payments made by Continental on Crown’s

behalf would operate to satisfy the self insured retention since

such retention can be satisfied through payment by any other

operative insurance. See Vons Companies, Inc. v. United States

Fire Ins. Co., 78 Cal. App. 4th 52, 63-64 (2000).

 St. Paul’s Request for Judicial Notice pursuant to Federal 5

Rule of Evidence 201, which includes the Roberts Declaration, is

unopposed and is hereby granted.

22

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 22 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

That adjustment groundwork was more foundational than substantive

and also does not trigger application of the unclean hands

doctrine in this matter.

F. Continental’s Claims Are Ripe For Adjudication Despite

St. Paul's Arguments To The Contrary

Finally, St. Paul argues that the equitable claims made by

Continental through this lawsuit, which include equitable

contribution and declaratory relief, are not ripe because

Continental has not established that it in fact paid any monies

in settlement of claims attributable to Crown’s negligence, as

opposed to Tasq’s. St. Paul points out that Continental’s

settlement did not include any apportionment of liability (even

though that omission was at Crown’s request. St. Paul

accordingly contends that there is no concrete case in

controversy, and that pinning any damages on the fault of Crown

is no more than speculation.

Article III of the United States Constitution does limit the

jurisdiction of federal courts to actual cases and controversies,

and mere advisory opinions are not permitted. Rhoades v. Avon

Products, Inc., 504 F.3d 1151, 1157 (9th Cir. 2007). “If a claim

is unripe, federal courts lack subject matter jurisdiction and

the complaint must be dismissed.” Southern Pac. Transp. Co. v.

City of Los Angeles, 922 F.2d 498, 502 (9th Cir. 1990).

An insurer that has settled a claim, however, need not

secure a judgment that the insured was in fact liable before

seeking contribution from another insurer covering the same loss.

///

23

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 23 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

“An insurer’s good faith settlement prior to a judicial

determination of coverage does not automatically bar equitable

apportionment of a loss. United Pacific Ins. Co. v. Hanover Ins.

Co., 217 Cal. App. 3d 925, 935 (1990). Significantly, too, the

right of one insurer to seek equitable contribution against

another insurer does not necessarily depend on the comparative

negligence of the two carriers’ respective insureds. See Fire

Ins. Exch. v. American States Ins. Co., 39 Cal. App. 4th 653, 663

(1995). To find otherwise would inappropriately encourage

insurance companies to affirmatively establish the guilt of its

insureds rather than focusing on the settlement of claims and the

elimination of any potential for excess liability on the part of

said insureds. Id.

St. Paul’s contention that this matter is unripe therefore

fails to pass muster, particularly since it appears the parties

themselves agreed to decide the priority of coverage issues that

are the subject of this motion first, before moving on to any

determination of liability. Given the $3,500,00 paid by

Continental to settle the underlying wrongful death claims, the

fact that St. Paul has a primary policy covering the same loss,

and the fact that St. Paul argues that Continental should have

settled any claims against Crown for the $975,000 amount of the

Offer to Compromise, it defies logic to contend as St. Paul does

that there is no actionable controversy. Despite St. Paul’s

protestations to the controversy, arguing that Continental seeks

nothing more than an advisory opinion under these circumstances

appears completely without merit.

///

24

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 24 of 25
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

CONCLUSION

Based on the foregoing, Continental’s Motion for Partial

Summary Judgment (ECF No. 101) as to priority of coverage is

GRANTED. St. Paul’s policy is primary, and to the extent that

Crown is found to be liable for payments made by Continental to

settle the underlying wrongful death lawsuit, St. Paul’s general

liability policy insuring Crown will apply before any excess

coverage under Continental’s umbrella policy is triggered. St.

Paul’s Motion for Summary Judgment, or in the alterative for

partial summary judgment, is DENIED.6

IT IS SO ORDERED.

Dated: March 21, 2011

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

 While the Court recognizes that St. Paul also seeks 6

summary adjudication as to the legal effect of the indemnity

agreement between Crown and Tasq, and asks the Court to find that

under the terms of the lease Tasq is in fact required to

indemnify Crown for any all damages it incurs, that request goes

beyond the scope of the present action, which seeks adjudication

as to the priority of coverage and equitable contribution between

the insurers, only. The parties to the lease agreement at issue,

Crown and Tasq, are not even parties to this litigation.

The Court further notes that St. Paul has filed extensive

objections to certain of the evidence submitted by Continental in

support of its motion. Since the Court has not relied on that

evidence in ruling on this matter, it need not rule on those

objections and specifically declines to do so.

25

Case 2:07-cv-01744-TLN-EFB Document 124 Filed 03/22/11 Page 25 of 25