Filed 10/7/20 Zenith Ins. v. Liberty Mutual Fire Ins. CA2/2

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions 

not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion 

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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

APPEAL from a judgment of the Superior Court of 

Los Angeles County. Gregory Keosian, Judge. Affirmed.

Valle Makoff, Jeffrey B. Valle, Susan L. Klein, and Steven 

M. Ragona for Plaintiff and Appellant.

Lindahl Beck and Kelley K. Beck for Defendant and 

Respondent.

ZENITH INSURANCE COMPANY,

Plaintiff and Appellant,

v.

LIBERTY MUTUAL FIRE 

INSURANCE COMPANY,

Defendant and Respondent.

 B301659

 (Los Angeles County

 Super. Ct. No. BC505477)
2

This is the second appeal from an insurance coverage 

action involving a workers’ compensation insurance policy issued 

by Liberty Mutual Fire Insurance Company (Liberty). In the 

previous appeal, we reversed the judgment entered against 

Liberty and in favor of Zenith Insurance Company (Zenith) 

because the trial court erroneously submitted to the jury the legal 

determination of coverage under the Liberty policy. (Zenith 

Insurance Company v. Liberty Mutual Fire Insurance Company

(Aug. 29, 2018, B284295) [nonpub. opn.] (Zenith I).) We 

remanded the matter for the trial court to determine Liberty’s

obligations under the policy.

On remand, the trial court ruled that the Liberty policy did 

not provide coverage for a workers’ compensation claim Zenith 

paid, under a reservation of rights, to FFC, Inc. (FFC). Zenith 

appeals from the judgment entered upon that ruling.

We affirm the judgment.

BACKGROUND

Factual background1

Shea Homes SHPIP

Liberty has issued workers’ compensation and general 

liability insurance policies to Shea Homes (Shea) since 2010. 

Shea, a residential real estate developer, maintains an ownercontrolled insurance program called the Shea Homes Partnership 

Insurance Program (SHPIP). Under the SHPIP, Shea purchases 

workers’ compensation insurance coverage for contractors

enrolled in the program. Enrollment in the SHPIP is mandatory 

for all contractors working at Shea projects.

____________________________________________________________

1 Much of the factual background concerning this dispute is 

set forth in our opinion in the previous appeal, Zenith I. We 

reiterate the pertinent facts as necessary.
3

Shea’s third party SHPIP administrator, Orion Risk 

Management (Orion), processes contractor enrollments, provides 

enrollment information to Liberty, and obtains contractor payroll 

reports that are the basis for SHPIP premium payments. After 

Orion provides enrollment information to Liberty, Liberty 

processes the enrollment and issues to the enrolled contractor a 

Liberty policy providing SHPIP coverage. Once enrolled, a 

contractor is placed on an Excel spreadsheet of approved Shea 

trade partners. An enrolled contractor has its Liberty policy 

automatically renewed for each policy year thereafter in which it 

remains on the approved trade partner spreadsheet and in which 

it has a current construction contract with Shea.

Falcon Framing and FFC

Falcon Framing Company, Inc. (Falcon) was an approved 

Shea trade partner and had been continuously enrolled in the 

SHPIP since at least 2009. On March 1, 2012, Falcon and Shea 

entered into a construction contract for the Shea Seaside project 

in Encinitas, California.

On April 5, 2012, Falcon’s sole officers and shareholders, 

Lester Phipps and Terry Morgan, formed a new corporate entity 

named FFC, Inc. (FFC). FFC’s sole shareholders and officers 

were Phipps and Morgan, and it conducted the same business, at 

the same office, with the same customers, suppliers, and 

equipment as Falcon. FFC acquired Falcon’s assets for no 

consideration and Falcon was dissolved on August 13, 2012.

Morgan and Phipps did not notify Shea, Orion, or Liberty 

that they had dissolved Falcon and were continuing their 

business operations through FFC until August 20, 2012, when an 

FFC employee suffered catastrophic injuries while working at the 

Shea Seaside project. 
4

Liberty policy

Liberty issued a workers’ compensation and employers 

liability insurance policy, with a policy period from 8/1/2012 to 

8/1/2013 to Falcon as the named insured (the Liberty policy). The 

Liberty policy was a renewal of a previous policy Liberty had 

issued to Falcon for the period 8/1/2011 to 8/1/2012.

The Liberty policy includes an Unintentional Errors and 

Omissions Endorsement that states in part:

“It is agreed that in the event of your unintentional 

failure to disclose all hazards, prior occurrences or 

factual information on applications, supplements or 

other documents existing as of the inception date of 

this policy, will not prejudice the coverage provided 

under this policy.”

The accident

On August 20, 2012, an FFC employee named Marc Corbett 

(Corbett) was injured while working at the Shea Seaside project. 

At the time of the accident, Falcon had been paid in full for the 

Seaside project and had paid all of the premiums for the Liberty 

policy issued to Falcon. Although Falcon had been paid in full for 

the Seaside project, some finishing work remained to be 

completed, and FFC sent Corbett and other employees to the 

jobsite to complete that work. Corbett’s first day of work for FFC 

was August 13, 2012, the date Falcon was dissolved. Corbett had 

never been employed by Falcon.

FFC tendered the worker’s compensation claim for 

Corbett’s injuries to Liberty and to Zenith, who had issued a 

worker’s compensation policy to Falcon for work on projects other 

than Shea jobsites. Liberty denied coverage for the claim. Zenith 
5

paid $3,239,003.86, subject to a reservation of rights, to resolve 

the claim.

Procedural history

Zenith commenced this action against Liberty for 

declaratory relief and equitable indemnity. The matter 

proceeded to a jury trial in which the jury returned a general 

verdict in favor of Zenith and against Liberty and that Zenith 

was entitled to reimbursement from Liberty in the amount of 

$3,230.003.86. Judgment was subsequently entered in Zenith’s 

favor.

In the prior appeal, we reversed the judgment, concluding 

the trial court had erred by submitting to the jury the legal 

determination of whether Liberty owed coverage to FFC for 

Corbett’s worker’s compensation claim. We remanded the matter 

for a determination of Liberty’s obligations under its policy.

On remand, the trial court ruled that the Liberty policy did 

not provide coverage to FFC for Corbett’s injuries and that 

Liberty had no obligation to indemnify or reimburse Zenith for 

sums paid on FFC’s worker’s compensation claim. Judgment was 

entered in Liberty’s favor, and this appeal followed.

DISCUSSION

I. Applicable law and standard of review

This appeal concerns the interpretation of an insurance 

policy and certain other contract documents to undisputed facts. 

“‘The interpretation of an insurance policy as applied to 

undisputed facts . . . is a question of law for the [appellate] court, 

which is not bound by the trial court’s construction.’ [Citation.]” 

(Bjork v. State Farm Fire & Casualty Co. (2007) 157 Cal.App.4th

1, 6, quoting Quan v. Truck Ins. Exchange (1998) 67 Cal.App.4th

583, 590.)
6

Interpretation of an insurance contract is governed by the 

general rules of contract interpretation. (Waller v. Truck Ins. 

Exchange, Inc. (1995) 11 Cal.4th 1, 18.) Under these rules, the 

mutual intention of the parties at the time the insurance contract 

is formed governs interpretation, and such intent is to be 

inferred, if possible, solely from the written provisions of the 

policy. (Civ. Code, § 1636; TRB Investments, Inc. v. Fireman’s 

Fund Ins. Co. (2006) 40 Cal.4th 19, 27.) The “clear and explicit” 

meaning of the policy provisions in their “ordinary and popular 

sense” controls their interpretation, unless “used by the parties in 

a technical sense, or unless a special meaning is given to them by 

usage.” (Civ. Code, § 1644; TRB, at p. 27.) The policy language 

must be read in the context of the instrument as a whole and a 

provision will be considered ambiguous when it is capable of two 

or more reasonable constructions. If a policy provision is 

ambiguous, the ambiguity must be resolved in the insured's 

favor, consistent with the insured’s reasonable expectations. (Id. 

at pp. 27-28.)

II. The Liberty policy does not provide coverage to FFC

FFC is not an insured under the Liberty policy. The 

Liberty policy identifies “Who is Insured” under the policy as 

follows: “You are insured if you are an employer named in Item 1 

of the Information Page. If that employer is a partnership, and if 

you are one of its partners, you are insured, but only in your 

capacity as an employer of the partnership’s employees.” The 

only entity listed in item 1 of the Liberty policy Information Page 

is “Falcon Framing Company, Inc.” FFC is not named as an 

insured under the policy.

The Liberty policy’s coverage provision states that “[w]e 

will pay promptly when due the benefits required of you [the 
7

insured employer, Falcon] by the workers’ compensation law.” 

The plain language of the policy extends coverage only to Falcon, 

and not to FFC.

Zenith provides no legal support for its contention that the

successor corporation of a named insured employer in a worker’s 

compensation policy acquires the named insured’s rights under 

the policy. 

The Unintentional Errors and Omissions Endorsement to 

the Liberty policy does not extend coverage to FFC. That

endorsement states:

“It is agreed that in the event of your unintentional 

failure to disclose all hazards, prior occurrences or 

factual information on applications, supplements or 

other documents existing as of the inception date of 

this policy will not prejudice the coverage provided 

under this policy.”

The language of the endorsement is clear and 

unambiguous. It states that Falcon, the insured, will not have its 

coverage under the policy prejudiced by its inadvertent failure to 

disclose hazards or factual information in applications or other 

documents existing as of the date of the policy’s inception, August 

1, 2012. Falcon’s failure to notify Liberty of its dissolution and 

the formation of FFC after the date of the policy’s inception did 

not extend coverage to FFC. The plain language of the Liberty 

policy does not provide coverage to FFC.

III. The Shea contract documents do not make FFC an 

insured

Section 13.5 of the Shea Master Agreement does not 

support Zenith’s argument that FFC, as Falcon’s successor, 

assumed all of Falcon’s rights and obligations under the Shea 
8

contract documents, including the right to coverage under the 

SHPIP. Section 13.5 of the Master Agreement states:

“13.5 No Assignment by Contractor. Contractor may 

not assign, by operation of law or otherwise, any of its 

rights and obligations under the Contract Documents 

without Builder’s prior written consent, which may 

be granted or withheld in Builder’s sole discretion. 

The making of any assignment by Contractor, or any 

consent to it by Builder, will in no event relieve 

Contractor, or its surety, of any of its obligations 

under the Contract Documents. This Section 13.5 

does not apply to the subcontracting by Contractor of 

a portion of the Work, under the Contract 

Documents. Subject to the above, the Contract 

Documents are binding upon and will inure to the 

benefit of the successors and permitted assigns of the 

parties.”

It is undisputed that Falcon did not obtain Shea’s approval 

to assign its rights and obligations under the Shea contract 

documents to FFC. Even if FFC is considered Falcon’s successor, 

rather than its assignee under the Master Agreement, FFC did 

not thereby become an insured under the Liberty policy. Liberty 

is not a party to the Master Agreement. 

Section 13.5 clearly and unambiguously states that FFC is 

entitled to assume only Falcon’s rights and obligations under the 

“Contract Documents,” defined in section 2 of the Master 

Agreement as the construction contract between Falcon and 

Shea, specifications and reports set forth in the construction 

contract, applicable regulations, Shea safety and quality 
9

requirements, and the Master Agreement itself.

2 Neither the 

Shea SHPIP Manual nor the Liberty policy is included in the 

definition of “Contract Documents.” FFC, even if considered 

Falcon’s successor under section 13.5 of the Master Agreement, 

did not thereby become an insured under the Liberty policy.

The insurance provisions of the Master Agreement did not 

obligate Liberty to provide insurance coverage to FFC. As 

discussed, Liberty is not a party to the Master Agreement and is 

not bound by its provisions. (EEOC v. Waffle House, Inc. (2002) 

534 U.S. 279, 294 [“[i]t goes without saying that a contract cannot 

bind a nonparty”]; Jones v. Aetna Casualty & Surety Co. (1994) 

26 Cal.App.4th 1717, 1724 [nonparty to insurance contract 

cannot state cause of action for breach of insurer’s contractually 

based duty].)

Notwithstanding Zenith’s argument to the contrary, the 

Master Agreement did not give FFC an automatic right to SHPIP 

participation. Rather, the Master Agreement expressly states

that “SHPIP . . . will not cover suppliers and subcontractors that 

have not been provided a certificate of insurance. Contractors, 

subcontractors, and suppliers who do not have a certificate of 

____________________________________________________________

2 The term “Contract Documents” is defined in the Master 

Agreement as follows: “‘Contract Documents’ means the Master 

Agreement, the Contract Plans, Specifications, and other reports 

set forth in the Contract, Title 24 requirements, Title 7 

Documents, Shea Standard Quality Requirements, Shea 

Standard Safety Requirements and other documents specified in 

Schedule B attached to the Contract, and all subsequent Change 

Orders, CORs and LMAs.” “Contract” is defined in section 1.1 of 

the Master Agreement as “any specific Construction Contract . . . 

entered into between [Shea] and Contractor.” 
10

insurance must secure and maintain, at their own cost, the 

insurance coverage specified in the Contract.” The Master 

Agreement further states that “[i]n the event Contractor’s Work 

is not enrolled in SHPIP, or any other wrap-up insurance 

program, Contractor must secure and maintain, at its own cost,” 

specified limits of worker’s compensation and employer’s liability 

insurance. Nothing in the Master Agreement provides automatic 

SHPIP enrollment for persons or entities who acquire the assets 

of a previously enrolled contractor.

IV. Zenith’s cited cases do not support coverage

University of Judaism v. Transamerica Ins. Co. (1976) 61 

Cal.App.3d 937 (University of Judaism) and California 

Compensation & Fire Co. v. Industrial Acci. Com. (1965) 62 

Cal.2d 532 (California Compensation), on which Zenith relies, are 

inapposite and do not support its coverage arguments.

University of Judaism involved the insureds’ express 

assignment of a fire insurance policy to the plaintiff, along with 

the transfer of the insured property. The insureds did not obtain 

the insurer’s consent to assign the policy. Soon after the transfer, 

the property was destroyed by fire. Both before and after the 

property transfer, and until its destruction by fire, the property 

was leased to the same tenant, who conducted the same business 

operations on the property. The insurer denied coverage based 

on a policy provision that stated: “‘Assignment of this policy shall 

not be valid except with the written consent of [the insurer].’” 

(University of Judaism, supra, 61 Cal.App.3d at pp. 939-940.) 

The appellate court reversed the judgment entered in the 

insurer’s favor, interpreting the assignment provision of the 

policy, noting that “Forfeitures on technical grounds which bear 
11

no substantial relationship to the insurer’s risk are disfavored.” 

(Id. at p. 941.)

The plaintiff in University of Judaism had an express 

assignment of the policy before the fire occurred, and the 

appellate court ruled that the insurer could not invoke the 

assignment clause to deny coverage. Here, the Liberty policy’s 

assignment provision is not at issue. There was no assignment of 

the Liberty policy and no forfeiture based on technical grounds.

California Compensation is equally inapposite. That case 

involved interpretation of an ambiguous exclusion in a workers’ 

compensation policy issued to “‘Richard Jones, Edward Mello and 

Wesley Johnson, joint and not severally d.b.a. South Bay 

Insulation Company.’” Under a special endorsement the benefits 

of the policy were made applicable to Jones, Mello, and Johnson. 

After the policy was issued, Joseph Ambriz, without the 

knowledge of the insurer, became a member of the insured 

partnership. A dispute among the partners arose, and Johnson 

shot and killed Jones and Mello in the partnership office. The 

insurer sought to deny coverage based on an exclusion that stated 

in relevant part: “‘It is Agreed that, anything in this Policy to the 

contrary notwithstanding, this Policy Does Not Insure: Any 

liability which the named Employer may have arising out of 

operations conducted jointly by said named Employer with any 

other person, firm or corporation. . . .’” (California Compensation, 

supra, 62 Cal.2d at pp. 533-534.) The insurer argued that this 

exclusion barred coverage because the liability arose out of 

operations conducted by the partnership jointly with Ambriz. 

The court in California Compensation rejected the insurer’s 

argument and found the exclusion to be ambiguous but 
12

inapplicable to situations involving the addition of a partner. (Id. 

at pp. 534-535.)

This case does not involve the addition of a partner or the 

application of an ambiguous policy exclusion. The principles set 

forth in California Compensation do not apply.

V. Public policy does not compel coverage

We are unpersuaded by Zenith’s arguments that public 

policy supports a finding that the Liberty policy covered FFC’s 

claim for Corbett’s injuries. The cases cited by Zenith do not 

support such a finding.

Graham v. Workers’ Comp. Appeals Bd. (1989) 210 

Cal.App.3d 499 involved issues of statutory construction, 

specifically, whether Civil Code section 3333.1, which abrogated 

the collateral source rule in medical malpractice actions, 

prevented an employer from obtaining credit against future 

benefits it owed to the injured employee under certain credit 

provisions of the Labor Code. (Graham, at pp. 504-505.) That 

case did not involve any public policy considerations concerning 

the interpretation of a workers’ compensation policy.

Catholic Healthcare West v. California Ins. Guarantee Assn.

(2009) 178 Cal.App.4th 15 also involved an issue of statutory 

construction, not the interpretation of an insurance policy. (Id. at 

p. 31.) No such issue is presented here.

The trial court did not err by concluding the Liberty policy

did not provide coverage to FFC.
13

DISPOSITION

The judgment is affirmed. Liberty shall recover its costs on 

appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

____________________________, J.

CHAVEZ

We concur:

__________________________, Acting P. J.

ASHMANN-GERST

__________________________, J.

HOFFSTADT