Opinion ID: 753370
Heading Depth: 1
Heading Rank: 1

Heading: Mass. Mutual claims

Text: 4 Hughes Aircraft Company (Hughes) leased property at Fullerton, California for manufacturing operations from 1958 until 1971, when Hughes vacated the site. Massachusetts Mutual Life Insurance Company (Mass.Mutual) purchased the Fullerton site in 1968. Hughes again leased part of the site from 1978 to 1991. 5 Hughes' manufacturing operations used a cleaning and degreasing agent known as trichloroethylene (TCE). Hughes discovered TCE contamination of the Fullerton property in 1986 when three underground tanks (a clarifier and two sumps) containing a hazardous chemical sludge, were excavated and removed. Hughes used TCE in manufacturing operations at the Fullerton property between 1958 and 1971. Hughes reported the contamination to the Orange County Health Care Agency (Agency). The Agency directed Hughes to propose a clean-up plan for the site. 6 In 1988, Hughes hired Hargis and Associates (H & A) to conduct studies and develop a remediation plan. H & A designed a four-phase clean-up program; obtained government approval for the first three phases; and performed substantial clean-up work costing millions of dollars. 7 On August 1, 1991, Mass. Mutual, which still owned the Fullerton site, sued Hughes for damages resulting from the TCE contamination. On February 14, 1992, Catellus Development Corporation (Catellus), owner of property adjacent to the site, sued Hughes for damages said to have occurred from the migration of TCE to the Catellus property. 8 On October 21, 1991, Hughes tendered defense of the Mass. Mutual and Catellus suits 1 to Century Indemnity Company (INA). 2 INA provided insurance to Hughes during all relevant time periods. Hughes also demanded indemnification of the remediation costs incurred or to be incurred by Hughes. On May 26, 1992, INA offered to participate in the defense of Hughes, on an equitable basis and pursuant to a Defense Agreement, along with all of Hughes' other carriers, subject to a full reservation of rights.... 9 Hughes settled the Mass. Mutual claim in early 1992 by paying Mass. Mutual $11.6 million and taking title to the Fullerton property. In June of 1993, Hughes settled the Catellus lawsuit by paying Catellus $250,000 and by entering into certain contingent agreements with Catellus. 10 On November 12, 1992, Hughes filed a complaint in state court against its insurer, INA. Hughes sought reimbursement of the settlement and defense costs incurred in the Mass. Mutual and Catellus suits and the costs of remediating the groundwater belonging to the State of California. Hughes further alleged that INA breached its covenant of good faith and fair dealing by not defending the Mass. Mutual and Catellus actions and by not indemnifying Hughes for its remediation and settlement costs. INA removed the case to federal court based on diversity of citizenship. 11 In August of 1993, INA moved for summary judgment on all of Hughes' claims. The district court granted INA's motion for summary judgment on Hughes' claims for indemnification of settlement costs incurred in the Mass. Mutual suit, reasoning that the applicable insurance policies excluded coverage for damage to property used by, occupied by, rented or leased to, or in the care, custody or control of the insured. 3 Having granted INA's motion for summary judgment with respect to Hughes' claim for indemnification for settlement costs, the court also granted INA's motion for summary judgment on Hughes' claims that INA's failure to make such indemnification was a breach of contract and breach of the covenant of good faith and fair dealing. 12 However, the district court denied INA's motion for summary judgment as to Hughes' request for a declaration that INA owed Hughes a duty to defend the Mass. Mutual suit. The court ruled that even though Hughes had no right to indemnification from INA for costs incurred in the settlement of the Mass. Mutual suit, Hughes nonetheless had a right to indemnification for costs incurred in defending the Mass. Mutual claims. The trial court found that because there was at least a potential for coverage under the insurance policy, INA owed Hughes a duty to defend. Moreover, the district court found that INA, through its defense agreement with other insurers, met its duty to defend Hughes. Accordingly, the district court granted INA's motion for summary judgment as to Hughes' cause of action for breach of contract and breach of the covenant of good faith and fair dealing for INA's failure to defend the Mass. Mutual suit. In so doing, the district court found that INA's reservation of a right of reimbursement of defense costs did not constitute a breach of the duty to defend Hughes. 13 The district court also granted INA's motion for summary judgment regarding Hughes' request for a declaration that INA owed Hughes a duty to indemnify Hughes for remediation costs incurred prior to October 21, 1991. The court found that Hughes voluntarily paid remediation expenses, and that such voluntary payments were not subject to indemnification subject to the voluntary payment provision found in the applicable INA policies. Having granted INA's motion for summary judgment on Hughes' claim for indemnification for remediation expenses, the district court also granted INA's motion for summary judgment on Hughes' claims for breach of contract and breach of the covenant of good faith and fair dealing regarding INA's failure to indemnify Hughes for remediation costs. 14 Hughes appeals the district court's grant of summary judgment against Hughes on its claims for recovery of Mass. Mutual defense costs. Hughes' also appeals the court's grant of summary judgment against Hughes on its claim for voluntary remediation costs incurred prior to October 21, 1991, the date when Hughes tendered defense of the Mass. Mutual and Catellus lawsuits. Additionally, Hughes appeals the district court's grant of summary judgment against Hughes on its claims of breach of the covenant of good faith and fair dealing based on INA's failure to defend and indemnify Hughes. 15 An order granting summary judgment is reviewed de novo. Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir.1996). In reviewing a grant of summary judgment, we must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Id. 16 1. Did the district court err by granting summary judgment in favor of INA on Hughes' cost of defending the Mass. Mutual suit? 17 Although the district court found that INA had no duty to indemnify Hughes for its settlement costs, the court also found that there was at least a potential for coverage under the insurance policies and, therefore, that INA owed Hughes a duty to defend the Mass. Mutual suit. Gray v. Zurich Ins. Co., 65 Cal.2d 263, 419 P.2d 168, 58 Cal.Rptr. 104 (1966). The district court went on to find that INA met its duty to defend the Mass. Mutual claims by agreeing to share in the defense costs with other insurers. The district court also ruled that INA's reservation of a right to seek reimbursement from Hughes for defense costs, if it was later determined that the claims were not covered by the policies, did not breach the duty to defend. 18 As the district court found, the leases covering Hughes' rental of the Fullerton property between 1958 and 1971, the time period during which TCE was used at the site, required Hughes to purchase insurance for the property for the benefit of the lessor, Mass. Mutual. The INA policies purchased by Hughes ran from January 1, 1965 to January 1, 1970. The district court concluded that the Fullerton property was owned by Mass. Mutual and leased to Hughes during the relevant time period and that the INA policies plainly excluded coverage for damage to property which Hughes leased, occupied, and used in Fullerton. Based on the policy language, the district court could have found that INA had no duty to defend Hughes in the Mass. Mutual action. An insurer owes a duty to defend even where coverage is in doubt, Haskel, Inc. v. The Superior Court of California, 33 Cal.App.4th 963, 978, 39 Cal.Rptr.2d 520 (1995). Here, however, there is no doubt that the insurance polices which Hughes purchased for the benefit of Mass. Mutual excluded damage to the Fullerton property. Thus, under the INA policies, there was no potential for coverage of Hughes' claims involving the Fullerton property. The district court failed to explain why it believed a potential for coverage existed. 19 Although, as noted above, the district court found that there was at least a potential for coverage under the policies and, therefore, that INA owed Hughes a duty to defend the Mass. Mutual suit, we may affirm the district court on any basis supported by the record. Shaw v. California Depot. of Alcoholic of Beverages Control, 788 F.2d 600, 603 (9th Cir.1986). Accordingly, because INA neither owed nor breached a duty to defend Hughes with respect to the Mass. Mutual claims, the district court correctly granted summary judgment to INA on this claim. 20 2. Did the district court err in granting summary judgment against Hughes on its claim for voluntary remediation costs incurred by Hughes prior to October 21, 1991? 21 The voluntary payment clause in the applicable policy provides that the insured shall not, except at its own costs, voluntarily make any payment, assume any obligations, or incur any expenses.... Hughes argues that it received unequivocal directives from the government to remedied the site. In a letter from the Orange County Health Care Agency, Hughes was directed to develop and submit a site assessment plan respecting the TCE contamination at Fullerton. The letter did not, however, direct or order Hughes to remedied the site. Rather, the letter directed Hughes to submit proposals for site remediation to the Agency for approval. Hughes' decision to remedied prior to tendering the defense to INA on October 21, 1991 was voluntary within the meaning of the voluntary payment clause. 22 Hughes argues that INA must show actual and substantial prejudice to deny a payment under the voluntary payment clause, yet the cases Hughes cites in support of this argument address a cooperation clause or notice clause which are not at issue here. See Billington v. Interinsurance Exchange of S. California, 456 P.2d 982, 987, 79 Cal.Rptr. 326, 71 Cal.2d 728 (1969); Abrams v. American Fidelity & Cas. Co., 195 P.2d 797, 799-800, 32 Cal.2d 233 (1948). The only case which supports Hughes' argument is a New Mexico case which is not relevant to and does not control the present California case. See Roberts Oil Co. v. Transamerica Ins. Co., 833 P.2d 222, 133 N.M. 745 (1992). 23 We noted in Faust v. The Travelers, 55 F.3d 471 (9th Cir.1995) that California courts have consistently honored voluntary payment provisions ... [plaintiff] does not cite any California authority, and this court is aware of none, that imposes a prejudice requirement for enforcement of the provision. Id. at 472 (citation omitted). 24 The district court correctly ruled that Hughes could not recover voluntary payments made before October 21, 1991. 4 25 3. Did the district court err in ruling that INA did not breach the covenant of good faith and fair dealing? 26 We have carefully reviewed the record in this case, and agree with INA that Hughes waived the bad faith claim with respect to Mass. Mutual by failing to mention it until after the Mass. Mutual claims were dismissed from the lawsuit on January 18, 1994. See Pierce County Hotel Employees v. Elks Lodge, 827 F.2d 1324, 1329 (9th Cir .1987) (Issues not preserved in the pretrial order are eliminated from the action.). The district court did not err in denying Hughes' bad faith claim with respect to Mass. Mutual.