Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_14-cv-02155/USCOURTS-caed-2_14-cv-02155-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1446 Petition for Removal

---

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 

1

UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF CALIFORNIA 

D.R. HORTON, INC. – SACRAMENTO, 

a California corporation, 

 Plaintiff, 

v. 

NATIONAL UNION FIRE INSURANCE 

COMPANY OF PITTSBURGH, PA, a 

Pennsylvania corporation; AIG 

SPECIALTY INSURANCE COMPANY, 

f.k.a. AMERICAN INTERNATIONAL 

SPECIALTY LINES INSURANCE 

COMPANY, an Illinois corporation; and 

DOES 1 through 100, inclusive, 

Defendants. 

No. 14-cv-2155-KJM-DAD 

ORDER 

 

 Competing motions for summary judgment filed by plaintiff and defendants are 

currently pending before the court. (ECF Nos. 20, 21, 22.) The court held a hearing on the 

motions on February 27, 2015, at which John McLeod appeared for plaintiff D.R. Horton, Inc. 

(Horton), and Andrew McCloskey appeared for defendants National Union Fire Insurance 

Company of Pittsburgh (National Union) and AIG Specialty Insurance Company (AIG) 

(collectively, defendants). As explained below, the court GRANTS each motion. 

///// 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 1 of 14
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 

2

I. UNDISPUTED FACTS 

 Through the instant lawsuit, Horton seeks to recover from defendants the sums 

Horton paid to settle another lawsuit. Horton, a home builder, was involved in the construction of 

an apartment complex in Rocklin, California. (First Am. Compl. (Compl.) ¶ 18, ECF No. 10; 

ECF No. 27-1 ¶ 13.) In March 2011, the owners’ association for that complex filed a lawsuit 

against Horton, alleging construction defects (Underlying Action).1 (Compl. ¶ 19; ECF No. 27-1 

¶ 13.) Horton notified defendants of that lawsuit and asked defendants to defend and indemnify it 

under the insurance policies at issue here. (Compl. ¶ 20; ECF No. 27-1 ¶ 16.) National Union 

agreed to defend Horton “subject to a reservation of rights sent on February 29, 2012.” (ECF No. 

27-1 ¶ 18.) AIG refused to defend Horton. (ECF No. 28-1 ¶ 11.) 

 In November 2012, Horton negotiated a “tentative” settlement of the claims in the 

Underlying Action for the amount of $3.2 million. (ECF No. 27-1 ¶ 20.) In August 2013, Horton 

sent a letter to National Union’s counsel, requesting that it fund $1.04 million of the $3.2 million 

settlement. (Id. ¶ 26.) In the same month, National Union and AIG responded to that request by 

declining to provide the requested funds. (Id. ¶ 27; ECF No. 28-1 ¶ 14.) In December 2013, 

Horton finalized the settlement agreement in the Underlying Action in the amount of $3.05 

million. (ECF No. 27-1 ¶ 28; ECF No. 28-1 ¶ 15.) The settlement amount was satisfied by funds 

Horton received from various sources: certain subcontractors provided $615,000; Great Lakes 

Reinsurance, LLC (U.K.) (GLUK) provided $1.6 million; and Horton itself contributed $835,000. 

(ECF No. 28-1 ¶ 15.) GLUK had provided second layer excess policies to Horton, which applied 

in excess of AIG’s policies. (Compl. ¶ 17.) 

 The insurance policies at issue in this case are first-layer umbrella policies and 

include commercial umbrella liability insurance issued by National Union, policy no. 7018605 

 1

 The Underlying Action was captioned Rocklin Park Place Condominium Owners 

Association v. D.R. Horton Inc. – Sacramento, No. SCV0028920 (Placer Cnty. Super. Ct. 2011). 

At Horton’s request (ECF No. 22-6), the court takes judicial notice of the filings in that case 

because they are directly relevant to the issues in this case. See U.S. ex rel. Robinson Rancheria 

Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992) (courts “may take notice of 

proceedings in other courts, both within and without the federal judicial system, if those 

proceedings have a direct relation to matters at issue”). 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 2 of 14
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 

3

(effective July 1, 2000 to July 1, 2001) (00-01 Policy or National Union Policy), and a 

commercial umbrella liability insurance issued by AIG, policy no. 7411565 (effective July 1, 

2001 to July 1, 2002) (01-02 Policy or AIG Policy) (collectively, the Policies). (ECF No. 27-1 

¶ 1; ECF No. 28-1 ¶ 1.) As noted, second layer excess policies were issued by GLUK: policy 

nos. 01-UK-CT-0000001-00 (effective July 1, 2000 to July 1, 2001) and 01-UK-CT-0000001-01 

(effective July 1, 2001 to July 1, 2002) (collectively, GLUK Policies). In addition, Horton had 

commercial general liability insurance from Admiral Insurance Company (Admiral), policy nos. 

A00AG08810 (effective July 1, 2000 to July 1, 2001) and A01AG10939 (effective July 1, 2001 

to July 1, 2002) (collectively, Admiral Policies), affording Horton aggregate limits of $2 million. 

(ECF No. 27-1 ¶ 3.) It is undisputed that the first policy issued by Admiral had been exhausted at 

the time Horton commenced this lawsuit. (Id. ¶ 4.) 

Horton commenced this action in Placer County Superior Court on August 15, 

2014. (ECF No. 1-1.) Defendants removed the action to this court, asserting diversity-ofcitizenship jurisdiction under 28 U.S.C. § 1332. (ECF No. 1.) The first amended complaint, the 

operative complaint here, alleges nine claims against all defendants: (1) breach of contract for 

failure to defend; (2) breach of contract for failure to settle; (3) breach of contract for failure to 

indemnify; (4) breach of the implied covenant of good faith and fair dealing for failure to defend; 

(5) breach of the implied covenant of good faith and fair dealing for failure to settle; (6) breach of 

the implied covenant of good faith and fair dealing for failure to indemnify; (7) equitable 

subrogation; (8) equitable contribution; and (9) equitable indemnity. (See generally ECF No. 10.) 

II. LEGAL STANDARD ON MOTION FOR SUMMARY JUDGMENT 

Under Federal Rule of Civil Procedure 56(a), a “party may move for summary 

judgment, identifying each claim or defense—or the part of each claim or defense—on which 

summary judgment is sought.” Fed. R. Civ. P. 56(a). Partial summary judgment may be granted 

on motion of either party for adjudication of a particular claim. Id. The standards and procedures 

are the same as for summary judgment. Wang Labs., Inc. v. Mitsubishi Electronics Am., Inc., 860 

F. Supp. 1448, 1451 (C.D. Cal. 1993). 

///// 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 3 of 14
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 

4

A court will grant summary judgment “if . . . there is no genuine dispute as to any 

material fact and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a). 

The “threshold inquiry” is whether “there are any genuine factual issues that properly can be 

resolved only by a finder of fact because they may reasonably be resolved in favor of either 

party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).3 

The moving party bears the initial burden of showing the district court “that there 

is an absence of evidence to support the nonmoving party’s case.” Celotex Corp. v. Catrett, 

477 U.S. 317, 325 (1986). The burden then shifts to the nonmoving party, which “must establish 

that there is a genuine issue of material fact . . . .” Matsushita Elec. Indus. Co. v. Zenith Radio 

Corp., 475 U.S. 574, 585 (1986). In carrying their burdens, both parties must “cit[e] to particular 

parts of materials in the record . . . ; or show [] that the materials cited do not establish the 

absence or presence of a genuine dispute, or that an adverse party cannot produce admissible 

evidence to support the fact.” FED. R. CIV. P. 56(c)(1); see also Matsushita, 475 U.S. at 586 

(“[the nonmoving party] must do more than simply show that there is some metaphysical doubt as 

to the material facts”). Moreover, “the requirement is that there be no genuine issue of material

fact . . . . Only disputes over facts that might affect the outcome of the suit under the 

governing law will properly preclude the entry of summary judgment.” Anderson, 477 U.S. at 

248 (emphasis in original). 

In deciding a motion for summary judgment, the court draws all inferences and 

views all evidence in the light most favorable to the nonmoving party. Matsushita, 475 U.S. at 

587–88; Whitman v. Mineta, 541 F.3d 929, 931 (9th Cir. 2008). “Where the record taken as a 

whole could not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine 

issue for trial.’” Matsushita, 475 U.S. at 587 (quoting First Nat’l Bank of Ariz. v. Cities Serv. 

Co., 391 U.S. 253, 289 (1968)). 

///// 

 3 Rule 56 was amended, effective December 1, 2010. However, it is appropriate to rely on 

cases decided before the amendment took effect, as “[t]he standard for granting summary 

judgment remains unchanged.” Fed. R. Civ. P. 56, Notes of Advisory Comm. on 2010 

amendments.

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 4 of 14
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 

5

A court may consider evidence as long as it is “admissible at trial.” Fraser v. 

Goodale, 342 F.3d 1032, 1036 (9th Cir. 2003). “Admissibility at trial” depends not on the 

evidence’s form, but on its content. Block v. City of L.A., 253 F.3d 410, 418–19 (9th Cir. 2001) 

(citing Celotex Corp., 477 U.S. at 324). The party seeking admission of evidence “bears the 

burden of proof of admissibility.” Pfingston v. Ronan Eng’g Co., 284 F.3d 999, 1004 (9th Cir. 

2002). If the opposing party objects to the proposed evidence, the party seeking admission must 

direct the district court to “authenticating documents, deposition testimony bearing on attribution, 

hearsay exceptions and exemptions, or other evidentiary principles under which the evidence in 

question could be deemed admissible . . . .” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 385–86 

(9th Cir. 2010). However, courts are sometimes “much more lenient” with the affidavits and 

documents of the party opposing summary judgment. Scharf v. U.S. Atty. Gen., 597 F.2d 1240, 

1243 (9th Cir. 1979). 

This standard does not change when the parties file cross-motions for summary 

judgment: the court must apply the same standard and rule to each motion independently because 

the granting of one motion does not necessarily translate into the denial of the other unless the 

parties rely on the same legal theories and same set of material facts. See Pintos v. Pac. Creditors 

Ass’n, 605 F.3d 665, 674 (9th Cir. 2010). 

III. INSURANCE POLICIES 

A. General Rules of Interpretation 

 Because this is a diversity action, this court applies the substantive law of 

California and federal procedural law. See Bell Lavalin, Inc. v. Simcoe & Erie Gen. Ins. Co., 61 

F.3d 742, 745 (9th Cir. 1995). Under California law, contract interpretation is a question of law 

unless the interpretation depends on the credibility of extrinsic evidence. Legacy Vulcan Corp. v. 

Superior Court, 185 Cal. App. 4th 677, 688 (2010). Courts interpret insurance policies utilizing 

the same interpretation rules as for other contracts. Id. The aim is to effectuate the contracting 

parties’ mutual intention at the time of the contract’s formation. Id. Courts ascertain that 

intention from the parties’ writing and also consider the circumstances surrounding the contract’s 

formation and the contract’s subject matter. Id. In doing so, courts read the contract as a whole 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 5 of 14
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 

6

and “interpret its language in context so as to give effect to each provision, rather than interpret 

contractual language in isolation.” Id. Unless the parties use words in a technical sense or a 

special meaning is accorded to them by usage, courts interpret words in accordance with their 

plain meaning, as laypeople ordinarily would. Id. If the contract’s language is clear and involves 

no ambiguities, the plain meaning governs. Id. “Policy language is ambiguous if it is susceptible 

of more than one reasonable interpretation in the context of the policy as a whole. Whether 

policy language is ambiguous is a question of law . . . . Any ambiguity must be resolved in a 

manner consistent with the objectively reasonable expectations of the insured in light of the 

nature and kind of risks covered by the policy.” Id. In addition, if there is a provision limiting 

“coverage reasonably expected by the insured,” it must be “conspicuous, plain, and clear to be 

effective.” Id. 

 The Ninth Circuit has summarized these rules of contract interpretation as 

requiring a three-step process: 

The first step is to examine the clear and explicit meanings of the 

terms as used in their ordinary and popular sense. In assessing the 

terms’ meanings, we may not take individual terms out of context: 

Language in a contract must be construed in the context of that 

instrument as a whole . . . and cannot be found to be ambiguous in 

the abstract. Thus, if the meaning a layperson would ascribe to 

contract language is not ambiguous, we apply that meaning. 

If (and only if) a term is found to be ambiguous after undertaking 

the first step of the analysis, the court then proceeds to the second 

step and resolves the ambiguity by looking to the expectations of a 

reasonable insured. Under California law, an insurance policy 

provision is ambiguous when it is capable of two or more 

constructions both of which are reasonable. 

Finally, if the ambiguity still remains, it is construed against the 

party who caused the ambiguity to exist. In the insurance context, 

this is almost always the insurer, as the California Supreme Court 

has held that ambiguities are generally resolved in favor of 

coverage, and that the courts are to generally interpret the coverage 

clauses of insurance policies broadly, protecting the objectively 

reasonable expectations of the insured. 

In re K F Dairies, Inc. & Affiliates, 224 F.3d 922, 925–26 (9th Cir. 2000) (internal citation and 

quotation marks omitted). 

///// 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 6 of 14
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 

7

B. Terminology 

 The parties use various terms of art in their filings: “primary” as opposed to 

“excess” and “umbrella” insurance. Generally speaking, these terms refer to the order in which 

insurers must pay for an insured’s loss. See N. Am. Capacity Ins. Co. v. Claremont Liab. Ins. Co., 

177 Cal. App. 4th 272, 291–92 (2009). Primary insurance provides immediate coverage “upon 

the ‘occurrence’ of a ‘loss’ or the ‘happening’ of an ‘event’ giving rise to liability. It is defined as 

‘insurance coverage whereby, under the terms of the policy, liability attaches immediately upon 

the happening of the occurrence that gives rise to liability.” Id. at 291 (emphases in original). 

Generally, a primary insurer has “the primary duty to defend and to indemnify the insured, unless 

otherwise excused or excluded by specific policy language.” Id. (emphasis in original). 

 An excess insurance policy is a type of a secondary policy. Id. The excess 

insurance policy insurer is not required to respond to a claim until the limits of the primary policy 

have been exhausted. Id. In some situations, excess policies may be layered over other 

secondary policies. See Signal Companies, Inc. v. Harbor Ins. Co., 27 Cal. 3d 359, 366 (1980). 

 An umbrella insurance policy is another type of secondary insurance. “The term 

‘umbrella’ coverage refers to coverage that ‘drops down’ to cover occurrences that are not 

covered by [any] underlying policies of insurance.” Powerine Oil Co. v. Superior Court, 37 Cal. 

4th 377, 402 n.9 (2005). “In the ordinary case, excess or umbrella coverages are designed to pick 

up where the primary insurance coverage leaves off, providing an excess layer of coverage above 

the limit of the primary policy,” and to “protect against gaps in coverage.” Garamendi v. Mission 

Ins. Co., 131 Cal. App. 4th 30, 46 (2005) (internal quotation marks omitted). “[U]mbrella 

coverages, almost without dispute, are regarded as true excess over and above any type of 

primary coverage, excess provisions arising in any manner, or escape clauses.” Cont'l Ins. Co. v. 

Lexington Ins. Co., 55 Cal. App. 4th 637, 647 (1997). 

IV. DISCUSSION 

A. National Union’s Motion for Partial Summary Judgment 

 After hearing, on May 28, 2015, the parties filed two stipulations. (ECF Nos. 37, 

38.) According to the stipulations, Horton agrees to dismiss National Union from this action with 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 7 of 14
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 

8

prejudice. (ECF No. 37 at 2.) The parties also stipulate to National Union’s withdrawing its 

motion for partial summary judgment in its entirety. (ECF No. 38 at 2.) The court hereby 

approves the parties’ stipulations. National Union is dismissed from this action with prejudice, 

and National Union’s motion for partial summary judgment is withdrawn. 

B. AIG’s Motion for Partial Summary Judgment 

AIG moves for partial summary judgment on Horton’s first six claims. (ECF No. 

21.) Specifically, AIG argues Horton’s claims fail as a matter of law because under its insurance 

policy, coverage attaches only after Horton satisfies a $1.5 million Self-Insured Retention (SIR), 

which AIG says Horton did not satisfy. (Id. at 1.) In its motion, AIG “seeks an adjudication that 

. . . Horton has the obligation to satisfy the [SIR] before the applicable excess coverage attaches 

. . . .” (Id.) 

Horton counters AIG’s SIR requirement is unenforceable because “it was not 

conspicuous, plain and clear.” (ECF No 28 at 7.) Alternatively, Horton seeks a continuance to 

conduct further discovery. (Id. at 15–16.) Finally, Horton argues, assuming the SIR is 

enforceable, that requirement was satisfied by the combined settlement payments it made in the 

Underlying Action. (Id. at 19–20.) Considering the parties’ arguments, the court finds AIG’s 

motion should be denied, as explained below. 

 The AIG Policy’s declaration page reads as follows: 

ITEM 3. LIMITS OF INSURANCE: 

 The Limits of Insurance, subject to all the terms of this policy, are: 

A. $25,000,000 Each Occurrence 

B. $25,000,000 General Aggregate . . . 

 . . . 

 D. $0 Self Insured Retention 

(ECF No. 21-5, Ex. A at 2 (Commercial Umbrella Declarations).) 

///// 

///// 

///// 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 8 of 14
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 

9

On a separate page titled “Schedule of Underlying Insurance,” the AIG Policy 

provides as follows, in relevant part: 

TYPE OF POLICY 

 OR COVERAGE LIMITS 

 GENERAL LIABILITY $1,500,000 

 S.I.R. EACH AND EVERY OCCURRENCE 

 INDEMNITY ONLY 

 . . . . 

(Id. at 4.) 

 Under the heading “Insuring Agreements” later in the agreement, the AIG Policy 

provides as follows, in relevant part: 

II. Defense 

A. We shall have the right and duty to defend any claim or 

suit seeking damages covered by the terms and 

conditions of this policy when: 

1. The applicable Limits of Insurance of the underlying 

policies listed in the Schedule of Underlying 

Insurance and the Limits of Insurance of any other 

underlying insurance providing coverage to the 

Insured have been exhausted by payment of claims 

to which this policy applies; or 

2. Damages are sought for . . . Property Damage . . . 

covered by this policy but not covered by any 

underlying insurance listed in the Schedule of 

Underlying Insurance or any other underlying 

insurance providing coverage to the Insured. 

(Id. at 19.) 

As is evident from the latter passage, the AIG Policy offered both excess and 

umbrella provisions; subparagraph 1 being the excess provision and subparagraph 2 being the 

umbrella provision, as both terms are defined above. Based on the above quoted provisions, AIG 

argues “[s]ince the retention was never exhausted, no duty to defend ever arose under the AIG . . . 

Policy.” (ECF No. 21-1 at 9.) But AIG has not met its burden on summary judgment of showing 

that the SIR provision limits the coverage reasonably expected by Horton. 

As noted above, “[t]he interpretation of a contract, including the resolution of any 

ambiguity, is solely a judicial function, unless the interpretation turns on the credibility of 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 9 of 14
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 

10

extrinsic evidence.” GGIS Ins. Servs., Inc. v. Superior Court, 168 Cal. App. 4th 1493, 1507 

(2008) (citing Parsons v. Bristol Dev. Co., 62 Cal. 2d 861, 865 (1965)). Under the framework for 

interpreting insurance policies, exclusions and limitations of coverage must be conspicuous, 

plain, and clear to be enforceable. See Travelers Prop. Cas. Co. of Am. v. Superior Court, 215 

Cal. App. 4th 561, 575 (2013). “[A]n insurer cannot escape its basic duty to insure by means of 

an exclusionary clause that is unclear. . . . any exception to the performance of the basic 

underlying obligation must be so stated as clearly to apprise the insured of its effect.” Id. 

(internal quotation marks omitted). Consistent with these directives, “any such limitation must be 

placed and printed so that it will attract the reader’s attention. . . . [and] must be stated precisely 

and understandably, in words that are part of the working vocabulary of the average layperson.” 

Id. The burden of making coverage exceptions and limitations conspicuous, plain and clear rests 

with the insurer.” Id. at 575. 

The principles applicable to interpreting coverage exclusions and limitations come 

into play “only when the insured has a reasonable expectation of coverage[,]” defined by the 

language of the policy. Id.; see also Haynes v. Farmers Ins. Exch., 32 Cal. 4th 1198, 1214 

(2004); Spangle v. Farmers Ins. Exch., 166 Cal. App. 4th 560, 569 (2008) (“The best indicator of 

an insured's reasonable expectation of coverage is, of course, the language of the insurance 

policy.”). Whether an exclusion or limitation is “conspicuous, plain and clear” is a question of 

law. Sprinkles v. Associated Indem. Corp., 188 Cal. App. 4th 69, 77 (2010). 

Here, preliminarily, Horton had a reasonable expectation of coverage because the 

declaration page of the AIG Policy, in expressly listing the limits of the policy, provides that the 

limits of SIR are “$0.” (ECF No. 21-5, Ex. A at 2.) The plain reading of this page is that the 

insured bears no portion of a loss otherwise covered by the policy. That is, the insured has zero 

initial responsibility that must be satisfied before there is any coverage under the policy. But the 

parties have not specifically raised arguments as to whether there was a reasonable expectation of 

coverage. Rather, they have concentrated their arguments on whether the limitation was 

conspicuous, plain and clear. (ECF No. 30 at 2–4.) The court thus “assumes a reasonable 

///// 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 10 of 14
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 

11

expectation of coverage and turn[s] to whether the limitation is conspicuous, plain and clear.” 

Travelers Prop. Cas. Co. of Am. v. Superior Court, 215 Cal. App. 4th 561, 575 (2013). 

First, the court finds the SIR limitation is conspicuous because it is written in 

capital letters and is not placed on an overcrowded page. But the limitation is not plain and clear. 

On the one hand, the declaration page expressly provides that there are no limits applicable to 

SIR. (ECF No. 21-5, Ex. A at 2.) But the prefatory language says the limits are “subject to all 

the terms of this policy.” (Id.) Those other terms include the “Schedule of Underlying Insurance, 

which provides that general liability limits are “$1,500,000.” (Id. at 4.) Immediately below and 

on the same line as this dollar amount, the Schedule includes the following language: “S.I.R. 

EACH AND EVERY OCCURRENCE” “INDEMNITY ONLY.” (Id.) On its face, this latter 

provision of the schedule contradicts the information on the declaration page. In addition, the 

phrase “indemnity only” suggests the limitation applies to indemnity claims only and not to the 

duty to defend as AIG argues in saying the policy “clearly requires exhaustion of the limits 

specified therein before AIG . . . has any duty to defend.” (ECF No. 21-1 at 8.) 

Contrary to AIG’s argument, the AIG Policy, read as one document, does not 

clearly specify that the SIR on the declaration page applies to the umbrella provision only and 

that the $1.5 million SIR applies to the excess provision. Accordingly, AIG has not met its 

burden of showing a plain and clear coverage limitation as a matter of law. 

AIG’s motion for partial summary judgment is DENIED. 

C. Horton’s Motion for Partial Summary Judgment 

In light of Horton’s stipulated dismissal of National Union, the court addresses 

Horton’s motion directed against AIG only. 

Horton’s motion, thus narrowed, argues (1) the no voluntary payment (NVP) and 

“no action” provisions of the AIG Policy are unenforceable; and (2) Horton did not violate any 

provisions of the agreement by settling the Underlying Action without AIG’s consent. (ECF No. 

22 at 1.) 

///// 

///// 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 11 of 14
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 

12

1. The NVP Provision of the AIG Policy 

Horton argues that because AIG refused to defend Horton in the Underlying 

Action, AIG has lost the right to assert the NVP provision. (ECF No. 22-1 at 8, 18-19.) 

 “The general validity of no-voluntary-payment provisions in liability insurance 

policies is well-established.” Insua v. Scottsdale Ins. Co., 104 Cal. App. 4th 737, 742 (2002). 

The purpose of an NVP clause is “to prevent collusion as well as to invest the insurer with the 

complete control and direction of the defense or compromise of suits or claims . . . .” Gribaldo, 

Jacobs, Jones & Associates v. Agrippina Versicherunges A., 3 Cal. 3d 434, 449 (1970) (ellipsis in 

original). Such clauses “ensure that responsible insurers that promptly accept a defense tendered 

by their insureds thereby gain control over the defense and settlement of the claim.” Jamestown 

Builders, Inc. v. Gen. Star Indem. Co., 77 Cal. App. 4th 341, 346 (1999). An insurer need not 

reimburse its insured for amounts unilaterally paid to settle a claim without notice to the insurer 

in violation of an NVP clause. Id. at 350. However, the rule is subject to exceptions: an NVP 

clause does not relieve an insurer’s liability when there is (1) an economic necessity, (2) a 

mistake, or (3) the insurer refuses to defend. See Low v. Golden Eagle Ins. Co., 110 Cal. App. 4th 

1532, 1545–47 (2003). 

Here, it is undisputed that AIG refused to defend Horton. But as explained below, 

Horton has not met its burden on summary judgment to show there is no genuine dispute that AIG 

had a duty to defend and that duty was triggered. Accordingly, this court cannot enter summary 

judgment in Horton’s favor concerning the NVP provision of the AIG Policy. 

2. The “No Action” Provision of the AIG Policy 

 “No action” clauses are intended to prevent actions by insureds against the insurer 

until damages have been determined by a final judgment or settlement. See Eureka Fed. Sav. & 

Loan Ass’n v. Am. Cas. Co. of Reading, Pa., 873 F.2d 229, 233 (9th Cir. 1989). Such clauses also 

prevent an insured from settling directly with the injured party without the insurer’s consent 

before a final judgment. The insurer can decide whether or not to settle so long as it is providing 

a defense. See Safeco Ins. Co., 71 Cal. App. 4th at 787. If an insurer refuses to defend a third 

party claim against its insured, it may be estopped from asserting the “no action” clause. In such 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 12 of 14
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 

13

cases, the insured may settle the underlying case in good faith and then seek a claim against the 

insurer to recover the amount of the settlement. See Clark v. Bellefonte Ins. Co., 113 Cal. App. 

3d 326, 335 (1980). As noted above, the burden is on the insured to tender a defense. See Truck 

Ins. Exch. v. Unigard Ins. Co., 79 Cal. App. 4th 966, 971 (2000). And the duty to defend arises 

when the insured tenders defense. Montrose Chem. Corp. v. Superior Court, 6 Cal. 4th 287, 295 

(1993). 

 Here, it is undisputed that AIG did not defend Horton in the Underlying Action. 

But Horton has not made any argument that AIG had a duty to defend Horton. Because Horton 

has not met its burden on summary judgment to show AIG had such a duty and that the duty was 

triggered by the Underlying Action, this court cannot enter summary judgment in Horton’s favor 

concerning the “no action” provision of the AIG policy. Accordingly, the court DENIES 

Horton’s motion for partial summary judgment. 

V. CONCLUSION 

 For the foregoing reasons the court orders as follows: 

1. National Union is DISMISSED from this action with prejudice, and National 

Union’s motion for partial summary judgment is WITHDRAWN. 

2. AIG’s motion for partial summary judgment is DENIED. 

3. Horton’s motion for partial summary judgment against National Union is 

WITHDRAWN. 

4. Horton’s motion for partial summary judgment against AIG is DENIED. 

5. This order resolves ECF Nos. 20, 21, 22. 

6. As proposed by the parties’ stipulation to participate in a private mediation 

(ECF No. 43), the parties are directed to complete a private mediation within 

seventy-five (75) days of the date of this order. The parties shall file a joint 

status report setting forth the results of the mediation and, if the case has not 

settled, proposing a date for a status conference. 

///// 

///// 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 13 of 14
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 

14

7. The status conference set for October 1, 2015 is VACATED, to be reset after 

the mediation referenced above. 

 IT IS SO ORDERED 

DATED: September 1, 2015. 

Case 2:14-cv-02155-KJM-DAD Document 44 Filed 09/01/15 Page 14 of 14