Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_06-cv-01113/USCOURTS-caed-1_06-cv-01113-2/pdf.json

Parties Involved:
Peerless Insurance Company
Defendant
Progressive Casualty Insurance Company
Plaintiff

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This Court carefully reviewed and considered all arguments, points and authorities, declarations,

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depositions, exhibits, statements of undisputed facts and responses thereto, objections and other papers filed by the parties.

Omission of reference to an argument, document, paper or objection is not to be construed to the effect that this Court did

not consider the argument, document, paper or objection. This Court thoroughly reviewed and considered the evidence it

deemed admissible, material and appropriate for summary judgment.

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

PROGRESSIVE CASUALTY CASE NO. CV F 06-1113 LJO SMS

INSURANCE CO.,

SUMMARY JUDGMENT DECISION

Plaintiff, (Docs. 10, 18.)

vs.

PEERLESS INSURANCE CO.,

Defendants.

 /

INTRODUCTION

In this insurance coverage action, plaintiff Progressive Casualty Insurance Company

(“Progressive”) and defendant Peerless Insurance Company (“Peerless”) seek this Court’s determination

whether they are co-primary insurers or whether Peerless is an excess insurer for an underlying fatality

involving tractor insured by Progressive and a trailer insured by Peerless. This Court considered the

parties’ summary judgment motions on the record and without oral argument or a hearing, pursuant to

this Court’s Local Rule 78-230(h). For the reasons discussed below, this Court GRANTS Peerless 1

summary judgment that its policy is excess over Progressive’s policy.

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BACKGROUND

Insurance Policies, Sub-Haul Agreement And Equipment Lease

Herbert Simon, dba Simon & Simon (“Mr. Simon”), owned and drove a tractor (“Simon tractor”)

and was the named insured under a Progressive commercial automobile policy (“Progressive policy”),

which covered the Simon tractor and a non-owned trailer. Kroeker, Inc. (“Kroeker”) is a Fresno

company which engages in demolition and recycling and maintains a 35-vehicle fleet. Peerless issued

a commercial automobile to Kroeker which covered Kroeker’s trailer (“Kroeker trailer”) involved in the

underlying fatality. The Progressive policynamed Kroeker as an additional insured. The Peerless policy

did not name Mr. Simon as an additional insured.

Kroeker and Mr. Simon entered into a January 1, 2004 subhaul agreement whereby Mr. Simon,

as an independent contractor, agreed to transport freight for Kroeker. The subhaul agreement required

Mr. Simon to obtain liability insurance and to indemnify Kroeker:

Subhauler [Mr. Simon] shall, at his sole cost and expense, carry Property Damage

and Personal Liability insurance on his equipment. Subhauler agrees to have a

Certificate of Insurance sent to the Prime Carrier [Kroeker] verifying that fact of

coverage on equipment. Subhauler at his own expense shall carry Public Liability with

a combined single limit of $7,000,000 each accident asrequired by law. Subhauler shall

Indemnify, Save Harmless, and Defend Prime Carrier against any and all suits, actions,

legal proceedings, claims, demands, damages, liabilities, cost or expense in connection

with the injury or death of any person or persons and damage to any property arising out

of the operations conducted by Subhauler. It is also agreed that no payment will be made

until such Certificate of Insurance naming KROEKER as Additional Insured is furnished.

(underlining in original.) 

Kroeker, as lessor, and Mr. Simon, as lessee, entered into a January 1, 2004 equipment lease

wherebyMr. Simon leased from Kroeker “ANY & ALL EQUIPMENT.” The equipment lease required

Mr. Simon to secure liability insurance: “Lessee [Mr. Simon], at his own expense, shall carry adequate

public liability insurance against injury, including death, and against property damage . . .” The

equipment lease also required Mr. Simon to indemnify Kroeker:

Lessee assumes all risk, responsibility and liability arising from the possession, operation

and use of the equipment however imposed, including damages for injury and or death

to persons and property damage howsoever arising therefrom or because thereof. Lessee

shall indemnify, save and hold harmless from any and all of the following whether the

same be actual or alleged: . . . all loss, damage, claims, penalties, fines, liability and

expense, including Attorney’s fees, howsoever arising or incurred because of said

equipment or the storage, maintenance, use, operation or return to lessor thereof.

/ / /

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Underlying Fatality And Progressive’s Declaratory Relief Claim

On June 30, 2005, Ryan Dobbs (“Mr. Dobbs”) was electrocuted to death when unloading sand

from the Kroeker trailer which was attached to the Simon tractor. The Kroeker trailer contacted

electrical lines to cause Mr. Dobbs’ electrocution. Mr. Dobbs’ widow pursued an underlying wrongful

death action against P, G & E, Mr. Simon and Kroeker in Fresno County Superior Court (“underlying

wrongful death action”). Peerless contends that Kroeker leased the Kroeker trailer to Mr. Simon

pursuant to the subhaul agreement and equipment lease. Since the equipment lease refersto no specific

vehicles, Progressive “doubts that there was a lease for the trailer involved in the accident.”

Progressive refused Peerless’ request to defend Kroeker pursuant to the Progressive policy and

defense and indemnity provisions in the subhauler agreement and equipment lease. Progressive filed

this action to seek declaratory relief that Peerless is obligated to defend and indemnify Mr. Simon and

Kroeker and that Peerless and Progressive share co-primary obligations.

A tentative $1.7 million settlement was reached in the underlying wrongful death action,

including contributions of $675,000 by Progressive for Mr. Simon, $350,000 by Peerless for Kroeker,

and $350,000 by P, G & E. Resolution of this action’s insurance coverage dispute will determine

responsibility for the remaining $325,000.

Peerless And Progressive’s Summary Judgment Motions

Peerless and Progressive seek summary judgment based on their differing interpretations of

California Insurance Code section 11580.9 (“section 11580.9"). In short, Peerless contends that under

section 11580.9, its coverage is excess to Progressive’s coverage. Progressive contends that under

section 11580.9, Progressive and Peerless are co-primary insurers who share the loss equally ($675,000

each). Thus, Progressive seeks an order that Peerless pay the remaining $325,000 to complete the

tentative settlement total.

DISCUSSION

Prior Section 11580.9(b) Effective At Mr. Dobbs’ Death

At the time of Mr. Dobbs’ electrocution, the prior version of section 11580.9(b) (“prior section

11580.9(b)”) provided:

(b) Where two or more policies apply to the same loss, and one policy affords

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coverage to a named insured in the business of renting or leasing motor vehicles

without operators, it shall be conclusively presumed that the insurance afforded by that

policy to a person other than the named insured or his or her agent or employee, shall be

excess over and not concurrent with, any other valid and collectible insurance applicable

to the same loss covering the person as a named insured as an additional insured under

a policy with limits at least equal to the financial responsibility requirements specified

in Section 16056 of the Vehicle Code. The presumption provided by this subdivision

shall apply only if, at the time of the loss, the involved motor vehicle:

(1) Qualifies as a “commercial vehicle.” For purposes of this subdivision,

“commercial vehicle” means a type of vehicle subject to registration or identification

under the laws of this state and one of the following:

. . .

(B) Designed, used, or maintained primarily for the transportation of property.

(2) Has been leased for a term of six months or longer. (Bold added.)

 

Peerless argues that “[s]ince Kroeker leased a commercial vehicle designed for transportation

of property to Simon without an operator, the Peerless policy is excess over the Progressive policy.”

Progressive counters that since Kroeker was not primarily in the business of renting or leasing motor

vehicles, prior section 11580.9(b) does not render the Peerless policy as excess. Progressive argues that

neither a single nor occasional, incidental motor vehicle lease invokes prior section 11580.9(b), which

Progressive claims “was intended to apply only to policies issued to entities engaged primarily in the

renting or leasing business.”

Recognizing a split of authority among California appellate courts, the Ninth Circuit Court of

Appeals certified to the California Supreme Court the question: “What is the appropriate test for

determining whether an insured is “engaged in the business of renting or leasing motor vehicles without

operators” under California Insurance Code § 11580.9(b)?” Sentry Select Insurance Co. v. Fidelity &

Guaranty, 455 F.3d 956, 956 (9 Cir. 2006) (italics in original). The Ninth Circuit noted that th

California’s second appellate district looks at the insured’s primary business purpose to determine

whether it is “engaged in the business of” leasing motor vehicles. Sentry Select, 455 F.3d at 957 (citing

two California appellate cases). The NinthCircuitfurther noted that California’s first and fifth appellate

districts examine the specific transaction to determine the question and that no California Supreme Court

decision is on point. Sentry Select, 455 F.3d at 957 (citing three California appellate cases).

In the case at hand, the evidence of Kroeker’s engaging “in the business of renting or leasing

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motor vehicles without operators” is the subhaul agreement and equipment lease with Mr. Simon.

Peerless asks this Court to apply prior section 11580.9(b) to the transaction between Kroeker and Mr.

Simon. Peerless also asks this Court to examine the amended version of section 11580.9(b), effective

January 1, 2007.

Amended Section 11580.9(b)

In August 2006, the California Legislature amended section 11580.9(b) (“amended section

11580.9(b)”) to read:

(b) Where two or more policies apply to the same loss, and one policy affords

coverage to a named insured who in the course of his or her business rents or leases

motor vehicles without operators, it shall be conclusively presumed that the insurance

afforded by that policy to a person other than the named insured or his or her agent or

employee, shall be excess over and not concurrent with, any other valid and collectible

insurance applicable to the same loss covering the person as a named insured or as an

additional insured . . . (Bold added.)

“A statute that merely clarifies, rather than changes, existing law is properly applied to

transactions predating its amendment.” Carter v. Calif. Dept. Of Veterans Affairs, 38 Cal.4th 914, 922,

44 Cal.Rptr.3d 223, 229 (2006). But a statute may not apply retroactively if “it substantially changes

the legal consequences of past actions, or upsets expectations based in prior law.” Carter, 38 Cal.4th

at 922, 44 Cal.Rptr.3d at 229. “Statutes are disfavored as retroactive when their application ‘would

impair rights a party possessed when he acted, increase a party’s liability for past conduct, or impose

new duties with respect to transactions already completed.’” Fernandez-Vargas v. Gonzales, __ U.S. __,

126 S.Ct. 2422, 2427-2428 (2006) (quoting Landgraf v. USI Films Prods., 511 U.S. 244, 280, 114 S.Ct.

1483 (1994)).

Peerless argues that amended section 11580.9(b) clarifies “that the Legislature was not altering

the law, but was simply clarifying the intended effect of the statute.” Peerless points to an Assembly

Committee on Insurance summary which indicates that amended section 11580.9(b) “[c]larifies that a

policy covering an insured who in the course of his or her business rents or leases motor vehicles for

either commercial purposes or for at least a six-month term is considered excess to other insurance

/ / /

/ / /

/ / /

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Peerless also points to an Assembly Committee on Insurance report that amended section 11580.9(b) “is 2

necessary to avoid uncertainty and unnecessary litigation in these cases, and to restore legislative intent after several

conflicting court decisions.” Ass. Comm. on Ins., Analysis of Ass. Bill No. 1909 (2005-2006 Reg. Sess) as introduced

January 26, 2006.

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 policies covering the same loss.” (Bold added.) According to Peerless, prior section 11580.9(b) “could 2

be interpreted in a manner consistent with” amended section 11580.9(b).

Progressive argues that amended section 11580.9(b) makes a substantive change to preclude

retroactive application. Progressive notes that amended section 11580.9(b) requires that the insured only

conduct leasing or renting vehicles in the course of its business and not be in the business of leasing and

renting vehicles, as prior section 11580.9(b) required. According to Progressive, such change

presumably “means that leasing will no longer need to be a primary business of the insured.”

This Court is more persuaded by Peerless’ evaluation of amended section 11580.9(b) that the

Legislature recognized a split in judicial interpretation, not a substantive law change, and clarified the

correct interpretation. This Court agrees with Peerless that the Legislature clarified section 11580.9(b)’s

original intent by replacing the ambiguous “named insured engaged in the course of business” with

“named insured who in the course of his or her business.” The Legislative Counsel’s Digest for the

Assembly Bill to amend section 11580.9(b) provides insight to Peerless:

Existing law provides that where 2 or more insurance policies apply to the same

loss and one policy affords coverage to a named insured engaged in the business of

renting or leasing motor vehicles without operators, it is conclusively presumed,

subject to specified conditions, that the policy to the named insured shall be excess to the

other valid and collectible insurance policy.

This bill would instead provide that where 2 or more insurance policies apply to

the same loss and one policy affords coverage to a named insured who in the course of

his or her business rents or leases motor vehicles without operators, it is conclusively

presumed, subject to specified conditions, that the policy to the named insured shall be

excess to the other valid and collectible insurance policy. 

Legislative Counsel’s Digest (2005-2006), Chapter 345.

Progressive fails to demonstrate that amended section 11580.9(b) is more than clarification and

substantially changes legal consequences of past actions or upsets expectations based in prior law to

preclude retroactive application of amended section 11580.9(b). In connection with its business,

Kroeker leased the Kroeker trailer without an operator to Mr. Simon. In his declaration, Kroeker

secretary Jeff Kroeker notes that at the time of Mr. Dobbs’ electrocution, “Mr. Simon had possession

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of the Kroeker trailer pursuant to the Sub-Haul Agreement and the Equipment Lease.” Progressive

acknowledges that it was aware that its insured, Mr. Simon, “might lease or borrow dump trailers from

trucking companies” and so based its premiums. Under its policy’s declarations, Progressive covered

an unidentified trailer. As such, under prior or amended section 11580.9(b), Kroeker’s Peerless policy

is excess to Mr. Simon’s Progressive policy.

Peerless’ position is further bolstered by the Legislative declaration of California Insurance Code

section 11580.8:

The Legislature declares it to be the public policy of this state to avoid so far as

possible conflicts and litigation, with resulting court congestion, between and among

injured parties, insureds, and insurers concerning which, among various policies of

liability insurance and the various coverages therein, are responsible as primary, excess,

or sole coverage, and to what extent, under the circumstances of any given event

involving death or injury to persons or property caused by the operation or use of a motor

vehicle.

Peerless correctlynotes that “Section 11580.9(b)should be interpreted in themanner that would be most

effective in reducing litigation.” Progressive’s interpretation of section 11580.9 would promote

litigation between wouldbe co-primary insurers and as to what constitutes engaging in the business of

renting or leasing motor vehicles. Peerless’ interpretation offers more of a bright line to decrease

litigation and promote the public policy codified in California Insurance Code section 11580.8.

Motor Vehicle

Peerless and Progressive agree that if neither prior nor amended section 11580.9(b) applies,

section 11580.9(d) applies. Section 11580.9(d) has not been amended since Mr. Dobbs’ electrocution

and states:

(d) Except as provided in subdivisions (a), (b), and (c), where two or more

policies affording valid and collectible liability insurance apply to the same motor

vehicle or vehicles in an occurrence out of which a liability loss shall arise, it shall be

conclusively presumed that the insurance afforded by that policy in which the motor

vehicle is described or rated as an owned automobile shall be primary and the insurance

afforded by any other policy or policies shall be excess. (Bold added.) 

Peerless and Progressive disagree as to application of a motor vehicle in a tractor-trailer case. Peerless

contends that since it insured, and its policy rates or describes, only the Kroeker trailer, its insurance is

excess under section 11580.9(d). Peerless notes that the Simon tractor does not appear on its policy’s

declarations and that it charged no additional premium for the Simon tractor. Peerless argues that

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In Maben v. Superior Court, 255 Cal.App.2d 708, 713, 63 Cal.Rptr. 439, 442 (1967), the court explained 3

that statements in legislative committee reports “concerning the statutory objects and purposes, which are in accord with a

reasonable interpretation of the statute, will be followed by the courts. And it will be presumed that the Legislature adopted

the proposed legislation with the intent and meaning expressed in committee reports.” (citation omitted.)

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Progressive rated or described the tractor-trailer rig on its policy and charged Mr. Simon additional

premium for “unidentified, non-owned trailers.” Progressive argues that since the motor vehicle here

comprised the Simon tractor and the Kroeker trailer, the Progressive and Peerless policies are pro-rated.

Progressive further argues that since Progressive and Peerless “rated or described one portion of the rig

as an owned auto, the loss must be pro-rated.”

Unfortunately, California courts are split on section 11580.9(d) interpretation with some courts

holding that a policy covering either the tractor or trailer is co-primary with another policy covering the

tractor or trailer. Other California courts held that “motor vehicle” under section 11580.9(d) includes

the trailer.

As noted by Peerless, to address the split, the California Legislature in August 2006 added

subsection (h) to section 11580.9 and which provides:

(h) Notwithstanding subdivision (b), when two or more policies affording valid

and collectible automobile liability insurance apply to a power unit and an attached trailer

or trailers in an occurrence out of which a liability loss shall arise, and one policy affords

coverage to a named insured in the business of a trucker, defined as any person or

organization engaged in the business of transporting property by auto for hire, then the

following shall be conclusively presumed: If at the time of the loss, the power unit is

being operated by any person in the business of a trucker, the insurance afforded by the

policy to the person engaged in the business of a trucker shall be primary for both

power unit and trailer or trailers, and the insurance afforded by the other policy shall be

excess. (Bold added.)

Peerless contends that section 11580.9(h) was added to clarify amended section 11580.9(d). Peerless

points to a Senate committee report that states that August 2006 amendments “clarify which of two

policies pays for losses arising from a trucking accident in which there is one insurance policy on the

power unit and a [different] policy or policies on the trailer(s) involved in the accident” and that “the

insurance policy covering the power unit pays first, and that the insurance policy and policies covering

the trailer(s) pays second.” Sen. Banking, Fin., and Ins. Comm., Analysis fo Ass. Bill No. 1909 (2005- 3

2006 Reg. Sess.), as amended Aug. 7, 2006. The committee report further explained that the subject

Assembly Bill No. 1909 “eliminates the ambiguities in existing law surrounding primary and excess

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coverage of rented or leased commercial vehicles, thus eliminating coverage to pay damages to the

injured party.” Sen. Banking, Fin., and Ins. Comm., Analysis of Ass. Bill No. 1909 (2005-2006 Reg.

Sess.), as amended Aug. 7, 2006. Legislative history also notes that “when a trucking accident occurs

and there is one insurance policy covering the power unit it shall be considered primary, and the

insurance policy or policies covering the trailer or trailers shall be excess.” Ass. Floor Analysis,

Analysis of Ass. Bill No. 1909 (2005-2006 Reg. Sess.), as amended Aug. 7, 2006. 

If courts have not finally and conclusively interpreted a statue, “a declaration of a later

Legislature as to what an earlier Legislature intended is entitled to consideration.” McClong v.

Employment Development Dept., 34 Cal.4th 467, 473, 20 Cal.Rptr.3d 428 (2004). “[A] subsequent

expression of the Legislature as to the intent of the prior statute, although not binding on the court, may

properly be used in determining the effect of a prior act.” Calif. Emp. etc. Com. v. Payne, 31 Cal.2d 210,

213-214, 187 P.2d 702 (1947).

Section 11580.9(h) serves as guidance for this Court. Mr. Simon was in the business of a trucker

when he operated the power unit (Simon tractor) at the time of Mr. Dobbs’ electrocution. The Peerless

policy’s declarations did not list the Simon tractor. Peerless charged no additional premium to insure

the Simon tractor. The Progressive policy’s declaration included a non-owned trailer to cover the

Kroeker trailer for which Progressive charged Mr. Simon an additional premium. With support from

section 11580.9(h), the Peerless policy is excess.

Other Insurance Provisions

Peerless contends that “other insurance” provisions in the Peerless and Progressive policies

demonstrate that Peerless policy is excess coverage. The Peerless policy’s “other insurance” provision

states:

a. For any covered “auto” you own, this Coverage Form provides primary

insurance. For any covered “auto” you don’t own, the insurance provided by this

Coverage Form is excess over any other collectible insurance. However, while a

covered “auto” which is a “trailer” is connected to another vehicle, the Liability

Coverage this Coverage Form provides for the “trailer” is:

(1) Excess while it is connected to a motor vehicle you do not own. (Bold

added.)

The Progressive policy’s “other insurance provision” provides: “This coverage is primary when your

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insured auto which is a trailer is attached to an insured auto you own and is excess while attached

to a motor vehicle you do not own.” (Bold in original.) The Progressive policy defines “Your insured

auto” or “insured auto” as “[a]ny auto described in the Declarations or any replacement auto . . .”

and “Trailers designed primarily for travel on public roads, even if such trailers are not shown in the

Declarations, but only while upon a public road and connected to your insured auto . . .” (Bold in

original.)

Peerless notes that the Progressive policy’s declarations describe a non-owned trailer without a

vehicle identification number and that Kroeker has an additional interest in the trailer. Since Kroeker

leased different trailers to Mr. Simon, who agreed to obtain insurance for them, Peerless concludes that

the Kroeker trailer qualifies as a “non-owned” trailer described in the Progressive policy’s declarations.

Peerless further contends that the Progressive policy states an intent to be primary coverage and the

Peerless policy indicates an intent to be excess coverage. Progressive argues that section 11580.9 trumps

the other “other insurance” provisions in the policies.

As noted above, interpretation of section 11580.9, not the “other insurance” provisions,

determines this dispute. Nonetheless, Peerless’ “other insurance” arguments bolsters its position.

Indemnity And Insurance Procurement Provisions

Based on the indemnity and insurance procurement provisions in the subhaul agreement and

equipment lease, Peerless argues that Mr. Simon and Kroeker intended that Mr. Simon “would primarily

be responsible for personal injury liability arising from Simon’s operations.” Peerless claims that if the

Peerless policy is primary, the defense and indemnity agreements between Mr. Simon and Kroeker

“would be effectively negated.” Progressive responds that the indemnity provisions, which Peerless and

Progressive did not sign, cannot defeat section 11580.9's presumptions. 

Progressive is correct. Section 11580.9(f) provides:

The presumptions stated in subdivisions (a) to (d), inclusive, may be modified or

amended only by written agreement signed by all insurers who have issued a policy or

policies applicable to a loss described in these subdivisions and all named insureds under

these policies.

Section 11580.9(f) “requires insurers to sign a written agreement before their relationships can be

altered.” Mission Ins. Co. v. Hartford Ins. Co., 155 Cal.App.3d 1199, 1215, 202 Cal.Rptr. 635, 645

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(1984) (subhaul agreement was inadequate to change or modify conclusive presumption of section

11580.9(d) because it was not signed by insurers). Neither Peerless nor Progressive signed the subhaul

agreement and equipment lease to preclude the agreement and lease to modify the insurers’ relationships

under section 11580.9.

CONCLUSION AND ORDER

For the reasons discussed above, this Court:

1. GRANTS Peerless summary judgment that its policy is excess over the Progressive

policy;

2. DENIES Progressive summary judgment;

3. DIRECTS this Court’s clerk to enter judgment in favor of defendant Peerless Insurance

Company and against plaintiff Progressive Casualty Insurance Company; and

4. VACATES all pending dates, including May 24, 2007 pretrial conference and July 5,

2007 trial.

IT IS SO ORDERED.

Dated: March 8, 2007 /s/ Lawrence J. O'Neill 

66h44d UNITED STATES DISTRICT JUDGE

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