Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_99-cv-05461/USCOURTS-caed-1_99-cv-05461-4/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:2201 Declaratory Judgement (Insurance)

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

CLARENDON NATIONAL INSURANCE ) 

COMPANY, a New Jersey )

Corporation, )

 )

Plaintiff, )

)

v. )

)

INSURANCE COMPANY OF THE WEST,)

a Texas Corporation, et al., )

)

)

 Defendants. )

______________________________)

)

INSURANCE COMPANY OF THE WEST,)

 )

 Counter-Claimant, )

 )

v. )

 )

CLARENDON NATIONAL INSURANCE )

COMPANY, )

 )

 Counter-Defendant. )

 )

CV F 99 5461 SMS

ORDER DETERMINING THE PERTINENT

PREJUDGMENT INTEREST RATE

ORDER DIRECTING THE PARTIES TO

FILE A JOINT PROPOSED FINAL ORDER

AND JUDGMENT DECLARING THE

PARTIES’ RIGHTS AND OBLIGATIONS

NO LATER THAN SEPTEMBER 20, 2006

On August 23, 2006, the parties submitted a joint proposed

final order; on August 29, 2006, the parties submitted letter

briefs concerning the one disputed matter involved in the

proposed final order, namely, the pertinent rate of prejudgment

interest.

Case 1:99-cv-05461-SMS Document 280 Filed 09/11/06 Page 1 of 8
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I. Prejudgment Interest Rate

Clarendon alleged in the first amended complaint (FAC) that

it had paid money to defend and settle the Moore action; the

Clarendon policy did not cover the loss; the ICW policy covered

the loss; and therefore Clarendon was entitled to recoup the

entire amount from ICW under the “law of equitable subrogation

and equitable indemnity.” (FAC ¶¶ 2-3.) 

The basis of the Court’s ruling was that ICW’s policy

provided coverage and Clarendon’s did not (except for coverage

under the ICC endorsement that ran to third parties only and thus

was not implicated in this dispute between insurers). The Court

so concluded because the ICW policy specifically described the

truck, while the Clarendon policy did not. (Judge Coyle’s order

of June 30, 2000 p. 14.) It rejected ICW’s contention that

Clarendon was required to provide primary coverage and a defense

for H&G, G&P, and their agents and contractors and employees

pursuant to the MCS-90 attached to Clarendon’s policy for H&G;

indeed, it concluded, consistent with Canal Ins. Co. v. First

General Ins. Co., 889 F.2d 604 (5 Cir. 1989), that where the th

policy itself does not provide coverage except to third-party

members of the public through operation of the ICC endorsement,

the policy provides no coverage for purposes of disputes among

insurers over ultimate liability. (Id. pp. 14-17.) Judge Coyle

expressly decided that “as against ICW, the Clarendon policy

provides no coverage.” (Order p. 18.) Judge Coyle further

concluded that where an insurer’s liability arises only from a

governmentally required filing, the insurer is entitled to

indemnity for defense fees from the insurer whose policy provides

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coverage. (Id. p. 18.) Because H&G’s liability arose from the

MCS-90 only, then Clarendon was entitled to reimbursement from

ICW for the cost of defending H&G. (Id.) With respect to

reimbursement, the authority relied on by Judge Coyle stands for

the proposition that where ICW has a duty to defend a party under

its policy, and Clarendon did not but provided a defense pursuant

to the endorsement, ICW must reimburse Clarendon for its costs of

defense and settlement. Canal, 889 F.2d at 612.

Both parties here agree that California law governs the rate

of interest. ICW asserts that the liability it has towards

Clarendon is a non-contractual liability in the nature of

equitable contribution, and therefore the rate of interest due to

Clarendon is the non-contractual interest measure of seven per

cent set by Cal. Const., Art. 15, § 1, which sets forth a basic

limit of seven per cent interest on any account after demand.

An equitable contribution claim carries a seven per cent

interest rate. Equitable contribution is a loss-sharing procedure

among several insurers who insure the same risk at the same level

(e.g., all primary insurers), and one pays the entire loss.

Croskey & Heesman, Cal. Practice Guide, Insurance Litigation §

8:65.1 p. 8-23 (2005). A claim for equitable contribution is

independent of the contract or the basis for the insured’s right;

the insurer pursuing an equitable contribution claim does not

stand in the shoes of the insured but rather has a separate claim

against the other insurers on the risk. Fireman’s Fund Ins. Co. v

Maryland Cas. Co., 65 Cal.App.4th 1293-94 (1998).

Equitable indemnity, on the other hand, is a loss-shifting

procedure in which one party pays a debt for which another is

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primarily liable and which in equity and good conscience should

have been paid by the latter party. United Services Auto. Ass’n

v. Alaska Ins. Co., 94 Cal.App.4th 638, 644-45 (2001). 

Likewise, equitable subrogation permits a party who has been

required to satisfy a loss created by a third party’s wrongful

act to step into the shoes of the loser and pursue recovery from

the responsible wrongdoer; in the context of insurance, it means

that the paying insurer may be placed in the shoes of the insured

and may pursue recovery from third parties responsible to the

insured for the loss for which the insurer was liable and paid.

Id. at 645. As now applied the doctrine of equitable subrogation

is broad enough to include every instance in which one person,

not acting as a mere volunteer or intruder, pays a debt for which

another is primarily liable, and which in equity and good

conscience should have been discharged by the latter. Hartford

Cas. Ins. Co. v. Mt Hawley Ins. Co., 123 Cal.App.4th 278, 287.

The elements of equitable subrogation have been described

generally as 1) payment was made by the subrogee to protect his

own interest, 2) he did not act as a volunteer; 3) the debt paid

was one for which he was not primarily liable; 4) the entire debt

must have been paid; 5) subrogation must not work any injustice

to the rights of others. Employers Mut. Liability Ins. Co. of

Wisconsin v. Pacific Indemnity Co., 167 Cal.App.2d 369, 376

(1959). The elements of an insurer's cause of action for

equitable subrogation are: (1) the insured has suffered a loss

for which the party to be charged is liable; (2) the insurer has

compensated for the loss; (3) the insured has existing,

assignable causes of action against the party to be charged,

Case 1:99-cv-05461-SMS Document 280 Filed 09/11/06 Page 4 of 8
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which the insured could have pursued had the insurer not

compensated the loss; (4) the insurer has suffered damages caused

by the act or omission which triggers the liability of the party

to be charged; (5) justice requires that the loss be shifted

entirely from the insurer to the party to be charged; and (6) the

insurer's damages are in a stated sum, which is usually the

amount paid to the insured. United Services Auto. Ass’n v. Alaska

Ins. Co., 94 Cal.App.4th 638, 645-46 (citing Gulf Ins. Co. v. TIG

Ins. Co. (2001) 86 Cal.App.4th 422, 432 [103 Cal.Rptr.2d 305].)

Here, the subrogee (Clarendon) who pays the obligation of

the principal debtor (ICW) to the subrogor (the creditor or

claimant, and here ICW’s insured, on whose behalf the payments

were made) is equitably subrogated to the claimant or subrogor

and succeeds to the subrogor’s rights against the obligor.

Hartford Cas. Ins. v. Mt. Hawley Ins., Co., 123 Cal.App.4th 278,

287 (2004). Subrogation rights are purely derivative. United

Services Auto. Ass’n v. Alaska Ins. Co., 94 Cal.App.4th 638, 645. 

Because Clarendon and ICW did not insure the same risk at

the same level, they were not both primarily liable, and thus the

nature of the claim for reimbursement which Clarendon

successfully brought in this Court was not an equitable

contribution claim. It was more in the nature of equitable 

subrogation. 

The right to which Clarendon has become subrogated is the

right to coverage defined by the ICW policy. (Cmplt. p. 4, FAC 1

p. 1.) It is thus a contractual right to which Clarendon has

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succeeded and which defines the obligation in question.

Hartford Accident & Indemnity Co. v. Sequoia Ins. Co., 211

Cal.App.3d 1285, 1306-07 (1989), which applied the seven per cent

interest rate and which was cited by ICW, involved a contribution

action where the dispute concerned which of multiple policies was

primary and which was excess or secondary (p. 1297, 1301-02), and

the parties conceded that the relevant statute was Cal. Civ. Code

§ 3287(a). The precise question of the applicable rate of

prejudgment interest was not addressed, and the discussion of

interest was in the context of the certainty of the sum due.

In North River Ins. Co. v. American Home Assurance Co, 210

Cal.App.3d 108, 116 (1989), also cited by ICW, the parties agreed

that the prejudgment interest rate of seven per cent per annum

applied pursuant to Cal. Civ. Code § 3287, which provided for

prejudgment interest generally and specifically for every person

entitled under a judgment to receive damages based on a cause of

action in contract where the claim was unliquidated. Id. pp. 116-

17. However, as Clarendon notes, this case, as well as Hartford

Accident and Indemnity Co., predated the enactment of Cal. Civ.

Code § 3289 in its present form, in which § 3289(b) provides that

if a contract entered into after January 1, 1986, does not

stipulate a legal rate of interest, the obligation shall bear

interest at a rate of ten percent per annum after a breach. (Cal.

Stats. 1985, ch. 663, § 1.) 

An action for breach of an insurance contract against an

insurance company to recover policy benefits is an action to

recover damages for breach of contract. Pilimai v. Farmers Ins.

Exchange Co., 39 Cal.4th 133, 146 (2006). The California

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statutory rate of prejudgment interest chargeable after a breach

of contract is ten per cent per annum. Cal. Civ. Code § 3289(b);

Chiariello v. Ing Groep NV, 2006 WL 1889920 at *5 (N.D.Cal. July

10, 2006).

In summary, even though equitable principles are involved in

Clarendon’s recovery, the right to which Clarendon succeeded and

which provides the basis of its recovery is the contractual

obligation of ICW under its policy of insurance. Therefore, the

Court concludes that pursuant to Cal. Civ. Code § 3289(b), the

applicable rate of prejudgment interest is ten per cent per annum

after the breach.

II. Submission of Joint Proposed Final Order 

It is the Court’s understanding that the parties have agreed

to all other matters involved in the form and content of a

proposed final order, declaration of rights, and judgment.

The Court has reviewed the proposed final order submitted on

August 23, 2006. The Court assumes that pursuant to the ruling

stated above, the parties will be able to fill in all amounts

that appear as blanks in the proposed order filed on August 23,

2006. Because the order is in fact a judgment as well, the

document should be entitled as a final order and judgment and not

merely a final order. Further, because the procedure for taxing

costs is set forth in the pertinent federal and local rules, the

Court prefers that the parties not specify, as they have

presently done in paragraph number seven, the time for the

Court’s determination of taxable costs.

Accordingly, the parties ARE DIRECTED to prepare a joint

stipulated proposed final order and judgment consistent with the

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Court’s ruling with respect to the applicable prejudgment

interest rate, and incorporating the matters mentioned in the

previous paragraph. The parties should e-file the proposed order

and judgment in PDF and also send it in Word or Word Perfect to

the order box of the undersigned Magistrate Judge. The document

should be submitted no later than September 20, 2006.

IT IS SO ORDERED.

Dated: September 8, 2006 /s/ Sandra M. Snyder 

icido3 UNITED STATES MAGISTRATE JUDGE

Case 1:99-cv-05461-SMS Document 280 Filed 09/11/06 Page 8 of 8