Court Opinion

ID: 4573898
Source: CourtListenerOpinion
Date Created: 2020-10-07 19:03:34.798185+00
Date Added: 2024-06-11T13:32:07.643969
License: Public Domain

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   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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
has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
           SECOND APPELLATE DISTRICT
                  DIVISION TWO

 ZENITH INSURANCE COMPANY,                                       B301659

           Plaintiff and Appellant,                              (Los Angeles County
                                                                 Super. Ct. No. BC505477)
           v.

 LIBERTY MUTUAL FIRE
 INSURANCE COMPANY,

           Defendant and Respondent.

     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.
       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 owner-
controlled 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.

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       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.

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       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

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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.)

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       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

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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

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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

                                8
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.”

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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

                                10
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

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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.

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                       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

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