Source: https://caselaw.findlaw.com/ca-court-of-appeal/1460933.html
Timestamp: 2019-04-19 09:44:24+00:00

Document:
Court of Appeal, First District, Division 1, California.
HARTFORD CASUALTY INSURANCE COMPANY, Plaintiff, Cross-defendant and Appellant, v. TRAVELERS INDEMNITY COMPANY, Defendant, Cross-complainant and Respondent.
Nielsen, Haley & Abbott, James C. Nielsen, and Thomas H. Nienow, San Francisco, for Plaintiff, Cross-Defendant and Appellant. Morison-Knox Holden Melendez & Prough, William C. Morison-Knox, Walnut Creek, Marc J. Derewetzky and Robert J. Scott, Jr., for Defendant, Cross-Complainant and Respondent.
Hartford Casualty Insurance Company (Hartford) appeals from a summary judgment in this declaratory relief action against Travelers Indemnity Company (Travelers). The parties ask us to resolve issues involving the effect of certain lease provisions on coverage, the scope of coverage for additional insureds under the tenant's policy, the relationship of other insurance clauses, and the equitable considerations of competing other insurance clauses. We conclude that the trial court correctly determined that the landlord was an additional insured under the tenant's Hartford policy and that Hartford's coverage was not limited to liability directly caused by the tenant, Hartford's insured. We reject Hartford's argument that the presumption pertaining to settlement of an underlying action set forth in Peter Culley & Associates v. Superior Court (1992) 10 Cal.App.4th 1484, 13 Cal.Rptr.2d 624 (Peter Culley ) establishes a lack of coverage. Based on the equitable considerations involving the facts of this case and the policy language, we also reject Hartford's attack on the trial court's determination that the Travelers policy for the landlord was excess. We, therefore, affirm the judgment.
Travelers, MPOC's insurer, retained attorney Robert Ford and initially assumed the defense of the Daher action. On October 31, 2000, Travelers tendered the defense of the Daher action to Hartford, pursuant to the additional insureds clause in Hartford's policy issued to Cornerstone. Hartford accepted, with a reservation of rights. Attorney Ford continued to defend the action at Hartford's request.
On November 20, 2000, Hartford filed a declaratory relief action against Travelers, seeking a determination that MPOC was not entitled to defense or indemnity under the Hartford policy. Hartford sought reimbursement of funds expended for defense and indemnity in the Daher action.
On January 19, 2001, Travelers filed a cross-complaint seeking a declaration that Hartford was obligated to defend and indemnify MPOC under the Hartford policy and under the terms of the lease agreement between Cornerstone and MPOC. It also sought a determination that any potential coverage by Travelers was excess to the Hartford coverage.
On or about August 10, 2001, Hartford and Travelers agreed to settle the Daher action. Hartford paid $495,000 to the plaintiffs and Travelers contributed $255,000.1 Hartford paid attorney Ford $38,422.35 in fees and costs, plus $16,473.35 in additional costs such as fees of court reporters. Hartford and Travelers each reserved the right to seek contribution from the other in connection with the settlement payments.
The lease between Cornerstone and MPOC provided that Cornerstone leased the second floor and a portion of the third floor of the office building located at 1000 El Camino Real in Menlo Park.2 Although the drawings defining the rented premises in the lease did not include exterior decks, Hartford apparently concedes that Cornerstone employees had access to a wooden deck on the third floor exterior balcony. Hartford submitted pictures of the balcony area in support of a motion for summary judgment. The pictures showed a table and chairs on a fenced wooden deck on the balcony. The balcony area outside the wooden deck area is apparently the area from which Daher fell.
Cornerstone agreed to hold MPOC harmless from and defend it against all claims for injury or death of any person, “arising in or from the use of the Premises by [Cornerstone],” or “arising from the negligence or willful misconduct of [Cornerstone], its employees, agents or contractors in, upon or about those portions of the Building other than the Premises.” The lease required Cornerstone to endorse its commercial general liability insurance policy to name MPOC and its property management company as additional insureds, and to provide that MPOC's insurance is excess and noncontributing. However, Cornerstone's policy with Hartford did not contain this language in its additional insureds endorsement.
Travelers issued a commercial general liability policy to MPOC that was also in effect at the time of Daher's death. An endorsement to the Travelers policy entitled “Other Insurance-Additional Insureds” provides: “This insurance is excess over any of the other Insurance; whether primary, excess, contingent or on any other basis: [¶] ․ [¶] (4) That is valid and collectible Insurance available to you [MPOC] if you are added as an additional insured under any other policy. [¶] When this Insurance is excess, we will have no duty under Coverage A or B to defend any claim or ‘suit’ that any other Insurer has a duty to defend.” This provision in the Travelers policy tracked the statement in the Lease regarding MPOC's insurance being excess.
Hartford filed a motion for summary judgment prior to the August 2001 settlement of the Daher action. The motion was heard and submitted on October 25, 2001, but the court did not issue a decision until January 4, 2002. In that decision, the court denied Hartford's motion, and determined that MPOC was covered as an additional insured under the Hartford policy.
On December 14, 2001, after the Daher action was settled, Hartford and Travelers filed cross-motions for summary judgment, each seeking reimbursement for their settlement contributions. Hartford also requested recovery of its defense fees and costs.
On February 15, 2002, the court issued an order granting Travelers' motion. The court agreed with the January 4 decision, finding that MPOC was an additional insured entitled to coverage under the Hartford policy. The court also determined that Travelers met its burden of showing that Hartford's coverage was primary and Travelers' coverage was excess and that Travelers was entitled to recover the amounts it paid in settlement of the Daher action. Judgment was entered on April 30, 2002, from which Hartford timely appeals.
Hartford raises several issues on appeal. It first contends that MPOC is not an additional insured under Cornerstone's policy. Next, it argues that its additional insured endorsement contains the restrictive phrase, “but only with respect to,” that limits coverage to liability directly caused by Cornerstone's operations or use of the premises. Because the Daher action was directed only at MPOC, Hartford contends that the Daher liability was not even potentially covered and its duty to defend never arose.
Hartford also argues that because the Daher action settled, Travelers must first establish Cornerstone's liability and the existence of coverage in order to trigger Hartford's coverage. Hartford argues that the Daher liability arose solely from MPOC's own negligence and was therefore not covered by the additional insured endorsement.
Finally, Hartford contends that even if it covered MPOC along with Travelers, the trial court erred by giving effect to the excess clause in Travelers' policy. Hartford claims that Travelers should be ordered to reimburse it for a portion of the expense of defending and settling the Daher action.
We have reviewed Hartford's claims, but find no basis for reversal of the judgment. We discuss the claims in the order presented by Hartford.
Hartford argues generally that contracting parties must clearly manifest the intent to name a third party beneficiary such as an additional insured in an insurance policy. In this case, the requirement is unmistakably met by the terms of the lease contract between MPOC and its tenant, Cornerstone. The lease requires Cornerstone to endorse its commercial general liability insurance policy to designate MPOC as an additional insured. The Hartford policy recognizes as an insured, any person or organization with whom Cornerstone agreed in a written contract to provide insurance. MPOC is an additional insured under the Hartford policy through its definitional language.
Cornerstone's policy provides coverage to an additional insured, “but only with respect to” Cornerstone's work or operations or facilities owned or used by Cornerstone and Cornerstone's providing of or failure to provide warnings or instructions. Hartford apparently concedes that there would be coverage if the provision had substituted “liability arising out of” in place of the questioned phrase. Hartford attempts to distinguish the qualifying language, “but only with respect to,” in its policy from the often used “arising out of” language discussed in cases such as Acceptance Ins. Co. v. Syufy Enterprises (1999) 69 Cal.App.4th 321, 81 Cal.Rptr.2d 557 (Syufy ). The main problem with Hartford's argument is that the descriptive terms that follow the phrase “with respect to” characterize its obligations to MPOC, rather than the definition given to the “with respect to” language.
Hartford urges this court to interpret the phrase “but only with respect to” as restrictively referring only to liability that is directly caused by Cornerstone. Neither Syufy nor the language of Hartford's policy support that narrow semantic interpretation.
Hartford also cites Consolidation Coal Co., Inc. v. Liberty Mut. Ins. Co. (W.D.Pa.1976) 406 F.Supp. 1292 (Consolidation Coal ), Stevens Painton v. First State Ins. Co. (Pa.Super.2000) 746 A.2d 649 (Stevens Painton ) and National Union v. City of St. Louis (Mo.1997) 947 S.W.2d 505 (National Union ) as cases that apply the phrase “but only with respect to” in a focused narrow fashion that would preclude coverage in this case. Because the Syufy court cited Consolidation Coal with approval, Hartford argues that California courts would also recognize the distinction it seeks to make in this case.
The Consolidation Coal case involved an endorsement that added an additional insured, “ ‘but only with respect to acts or omissions of the named insured in connection with the named insured's operations.’ ” (Consolidated Coal, supra, 406 F.Supp. at p. 1294.) The focus of the court's analysis in Consolidation Coal was the meaning of the words “acts or omissions.” (Id. at p. 1298.) The court held that unless the additional insured's liability was the result of an act or omission of the named insured there was no coverage. (Id. at pp. 1298-1299.) In that case, the sole cause of the injury was the act of the additional insured's employee. (Id. at p. 1294.) The underlined language that narrowed the meaning of the endorsement in Consolidation Coal is not present in Hartford's policy.
Significantly, none of the cited cases focused on the meaning of “but only with respect to,” or contrasted that phrase with “arising out of,” but each relied on interpretation of the language following those phrases to ascertain the meaning of the policy. The policy in this case does not restrict its coverage to operations, but employs more expansive language.
Because the cited cases involved policies with different language, they are not dispositive of the issue presented here. We interpret the words of the policies before us, using as our polestar the familiar rubrics for discerning meaning. “ ‘Words used in an insurance policy are to be interpreted according to the plain meaning which a layman would ordinarily attach to them. Courts will not adopt a strained or absurd interpretation in order to create an ambiguity where none exists.’ [Citation.]” (St. Paul Fire & Marine Ins. Co. v. American Dynasty Surplus Lines Ins. Co. (2002) 101 Cal.App.4th 1038, 1056, 124 Cal.Rptr.2d 818.) Our determination of the meaning of the Hartford policy language begins and ends with the plain meaning of the unambiguous words used.
The coverage afforded in this case relates to subjects much broader than mere operations or use of the interior of the MPOC premises. The Hartford policy, read according to the plain commonsense meaning of its terms, extended coverage to liabilities potentially imposed on MPOC that are related to Cornerstone's business presence in MPOC's facilities, as well as specific events occurring during the actual performance of Cornerstone's own work or operations.
The trial court correctly determined that the wording of the policy did not require a showing of direct causation by Cornerstone and that the nexus was more than minimal.
Relying on Peter Culley, supra, 10 Cal.App.4th 1484, 13 Cal.Rptr.2d 624, and Lamb v. Belt Casualty Co. (1935) 3 Cal.App.2d 624, 40 P.2d 311, Hartford contends that the presumption raised by the settlement of the Daher action establishes that the claim had nothing to do with Cornerstone's use of the premises, but was grounded solely on MPOC's own negligence, thereby making the Travelers payment towards the settlement that of a volunteer.
In this case, unlike the Isaacson line of cases, there was no refusal to defend, nor was there a settlement made without the insurer's participation. In fact, it was Hartford itself that defended the Daher action and presumably arranged the settlement with the Daher plaintiffs in which Travelers participated. Hartford has not contested the amount of the settlement or the fact of MPOC's liability, but only seeks to show that the Daher claim was not covered by the additional insured endorsement to its policy.
Also, the dispute here is not between an insured and a reluctant insurer. The Isaacson court itself stated that the presumption has no application unless there has been a denial of coverage or refusal to defend.6 (Isaacson, supra, 44 Cal.3d at p. 794, 244 Cal.Rptr. 655, 750 P.2d 297.) The issue here is whether Hartford or Travelers, or both, are responsible for the sums paid to settle the action. The Isaacson presumption of shifting the burden in this case is not needed. The battle is between two insurers who participated in the underlying action and who do not dispute the fact of MPOC's liability or the amount thereof. Normal principles of contract interpretation and equitable contribution are appropriate to resolve the issues between the two carriers.
Hartford attempts to restrict the inquiry regarding coverage to the two causes of action pled in the Daher complaint. According to Hartford, those allegations establish that MPOC alone was liable for the alleged injury. Hartford argues that the Daher action alleged only premises liability and negligence against MPOC for its own actions.7 But Hartford cannot ignore the other available facts, including those produced in support of the summary judgment motion, the lease provisions and the broad language of the additional insured endorsement in its own policy.
“Defendant cannot construct a formal fortress of the third party's pleadings and retreat behind its walls. The pleadings are malleable, changeable and amendable․ [C]ourts do not examine only the pleaded word but the potential liability created by the suit.” (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 276, 54 Cal.Rptr. 104, 419 P.2d 168.) Similarly, we are not limited by the face of the complaint in determining whether MPOC's liability in the Daher case is covered under the Hartford policy, but need to examine all relevant factors.
The terms of the lease between MPOC and Cornerstone, requiring indemnification, additional insured status and excess status for the landlord's insurer, illustrate the intent of the parties to ensure that the tenant's insurance would protect the landlord from any liability related to the tenant's presence and activities on the landlord's property.8 Hartford fails to consider its own broad policy language, including coverage for liabilities regarding Cornerstone's use of the facilities and its failure to warn or give instructions. Hartford's policy covered MPOC for liability related to Cornerstone's tenant activity in MPOC's building. As noted above, when the landlord is held liable for an injury related to the tenant's use of the property, the policy language in this case covers the landlord. There is no limitation to the tenant's “operations” and no requirement that the tenant be at fault.
The particular facts of this case show a sufficient connection between Daher's death and Cornerstone's business use of the facilities of MPOC to effectuate Hartford's coverage. To the extent MPOC had a duty to prevent the employees of a tenant from falling off the roof, that duty is related to the tenant's operations, work, use of the facilities and the tenant's own failure to provide warnings or instructions to its employees.11 This kind of accident is the precise reason why a landlord obtains coverage as a tenant's additional insured-to protect against liability imposed on the landlord because of the occupation and use of the landlord's property by the business tenant.
Hartford's final contention is that the trial court erred when it gave effect to the excess clause in the Travelers' policy and required Hartford to pay all of the defense and indemnity costs of the Daher action. Hartford seeks pro rata reimbursement of the amounts so expended.
In evaluating competing claims for equitable contribution, the trial court exercises its discretion to weigh the equities to “ ‘ “accomplish ultimate justice.” ’ ” (Fireman's Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279, 1305-1306, 77 Cal.Rptr.2d 296 (Fireman's Fund ).) Because resolution of this conflict between Hartford and Travelers involves consideration of the equities of the case, we use the abuse of discretion standard of review to uphold the determination in this case.
Hartford, citing Fireman's Fund, supra, 65 Cal.App.4th 1279, 77 Cal.Rptr.2d 296 and similar cases, argues that excess only clauses, like the Travelers clause, are disfavored “escape clauses” which generally are not enforced.12 We do not disagree with the discussion or result in the Fireman's Fund case. However, we do find that its facts differ significantly from this case, and reach a different result based on the facts and equities of this case.
We are aware that the recent trend is against rigid enforcement of excess only clauses. “In Commerce & Industry Ins. Co. v. Chubb Custom Ins. Co.  75 Cal.App.4th 739 [89 Cal.Rptr.2d 415] [Commerce & Industry], the court noted that although ‘there is authority that an excess only clause will prevail over either a pro rata clause or an escape clause[,] the recent trend is to pro rate the loss between the carriers.’ (Id. at p. 749 [89 Cal.Rptr.2d 415], citing Croskey et al., Cal. Practice Guide: Insurance Litigation [The Rutter Group 1999] ¶¶ 8:27 to 8:29, pp. 8-6 to 8-7.)” (Pacific Indemnity Co. v. Bellefonte Ins. Co. (2000) 80 Cal.App.4th 1226, 1237, 95 Cal.Rptr.2d 911; see also DiMugno & Glad, Cal. Insurance Law Handbook (2003) § 60.03, p. 1260.) 13 Notwithstanding the trend, this case presents equities that favor enforcement of the excess clause as written, as we now explain.
The Hartford policy also provided that it was primary, except when there is other insurance for fire, extended coverage, builder's risk, and similar coverage, and when Cornerstone was an additional insured under another policy. When its coverage was primary, the Hartford policy provided that Hartford would share with other valid and collectible primary insurance.
Equity should not be employed to override the terms of the insurance policies in this case. By its terms, the Hartford policy is primary except in specified instances that do not apply in this case. The Travelers policy is primary except in the specific instance that does apply in this case-when the insured is named as an additional insured under another policy, which makes the Travelers policy excess by definition. Because the policy terms, as they apply in this case, do not conflict or offend public policy and do not infringe on any rights of the insured, there is no reason to disregard the express terms of both policies.
Moreover, Hartford, for underwriting purposes, was aware that additional insureds would have coverage in certain circumstances through Hartford's special broad form general liability endorsement because Hartford changed its policy to add that endorsement. Hartford accepted the risk of additional insureds such as MPOC and presumably structured premiums accordingly. No inequitable legerdemain of unanticipated risk shifting is present. The trial court did not abuse its discretion by refusing to order contribution.
The result in this case is based on the language of the relevant policies. References to the terms of the lease serve only to highlight the intent of the parties. Because Travelers does not urge this argument on appeal, we need not comment further.
1. We have found no indication in the record on appeal for the basis of this allocation.
2. The lease contains language that appears to state that Cornerstone also leased part of the first floor and the entire third floor.
3. At oral argument, Hartford's counsel indicated that the provision relating to warnings or instructions was intended only for products liability matters. Our review of paragraph 19 of the “Definitions” section of the Hartford policy does not support that suggestion.
4. “Arising out of,” defined as “to originate from a specified source,” has no more expansive meaning than “with respect to.” (Webster's 3d New Internat. Dict., supra, p. 117.) Both phrases connote some connection between two objects or events.
5. The second possibility is not an issue in this case. Hartford admits that it has never contended that MPOC had no liability in the Daher action.
9. Although the Daher complaint alleged that MPOC failed to use due care in the management of its property in that it did not erect a guard railing as required by the Uniform Building Code, it did not allege either “gross negligence” or “willful misconduct,” which were excepted from Cornerstone's obligation to indemnify MPOC.
10. Hartford objected to the admission of the Cal/OSHA citation for purposes of the summary judgment motion and on appeal. However, when Travelers requested Hartford to admit that the Cal/OSHA citation was issued to Cornerstone because “[r]estrictions regarding access outside of the deck area ․ were not enforced and employees were not informed of potential fall hazards if anyone steps off the deck area,” Hartford responded: admit that a notice was issued on or about October 8, 1999, the entire terms of which speak for themselves, and which include the quoted language; except as so admitted, deny.” Hartford points to the boilerplate preface to its response to Travelers' requests for admissions to argue that it reserved the right to object to admission of its responses as evidence. However, the specific response admitted the date of issuance of the Cal/OSHA citation and the relevant language without qualification.
13. The Second District Court of Appeal in a recent case refused to enforce an “other insurance” clause. That case involved successive policies with conflicting clauses and enforcement would have inequitably nullified the clauses in the policies of the other primary insurers to allow a carrier with concurrent coverage to escape its obligations. (Century Surety Co. v. United Pacific Ins. Co. (2003) 109 Cal.App.4th 1246, 1250, 135 Cal.Rptr.2d 879.) We agree with the result, but find the facts and equitable considerations are not similar to this case.
We concur: STEIN and SWAGER, JJ.

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