Court Opinion

ID: 9945900
Source: CourtListenerOpinion
Date Created: 2024-02-28 19:04:42.279636+00
Date Added: 2024-06-11T14:23:19.210728
License: Public Domain

Filed 2/28/24 Zurich Am. Ins. Co. v. Old Republic General Ins. Corp. CA1/2
                  NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or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

                                      FIRST APPELLATE DISTRICT

                                                   DIVISION TWO

 ZURICH AMERICAN INSURANCE
 COMPANY,
           Plaintiff and Appellant,                                      A166715

 v.                                                                      (San Francisco County
 OLD REPUBLIC GENERAL                                                    Super. Ct. No. CGC-21-592417)
 INSURANCE CORPORATION,
           Defendant and Respondent.

         Appellant Zurich American Insurance Company (Zurich) sued Old
Republic Insurance Corporation (Old Republic), seeking reimbursement for
expenses Zurich expended in defending general contractor Martin McNerney
Development Company (McNerney) in a construction defect lawsuit. Zurich
alleged Old Republic had a duty to defend McNerney in the underlying action
because McNerney is an additional insured under insurances policies issued
to subcontractor Broadway Mechanical Contractors, Inc. (Broadway).
Following a bench trial on stipulated facts, the court entered judgment in
favor of Old Republic. On appeal, Zurich argues the court erred in
determining McNerney was not an additional insured under the Old Republic
policies. We affirm.

                                                               1
                               BACKGROUND1
The Project and Related Subcontract Between McNerney and
Broadway
      In 2004, McNerney entered into a construction contract with 418 Jessie
Historic Properties, LLC to perform seismic upgrades and tenant
improvements for condominiums on Jessie Street in San Francisco, now
commonly known as Mint Plaza (project).
      In April 2006, McNerney and Broadway entered into a “Subcontract
Agreement” (agreement or subcontract) under which Broadway was to
perform plumbing work at the project. Under the “General Subcontract
Provisions” the agreement required Broadway to maintain general liability
insurance naming McNerney as an additional insured for work performed on
the project, including completed operations. The insurance clause provided,
in part, as follows:
      “A.    INSURANCE — SUBCONTRACTOR shall at all times carry on
all operations hereunder, Worker’s Compensation Insurance covering all of
its employees, Public Liability and Property Damage Insurance and
Automotive Public Liability and Property Damage Insurance, including
liability coverage for (a) all operations, (b) subcontract work, (c) contractual
obligations, (d) product or completed operations, (e) all owned vehicles, (f)
non-owned vehicles, in forms, amounts and underwritten by insurance
companies satisfactory to CONTRACTOR. . . . The SUBCONTRACTOR
shall, at his own expense, maintain in effect at all times during the
performance of the work, for or on behalf of [McNerney] Workers’
Compensation insurance and General Liability insurance. The General

      1 The facts we recite are not in dispute.
                                              The case was submitted for
trial on a written stipulation executed between the parties.

                                        2
Liability insurance shall . . . carry a minimum of $1,000,000 limit of liability
on an each occurrence basis including Products/Completed Operations, and
$2,000,000 general aggregate. All Subcontractor’s policies shall name
[McNerney] as additional insured . . . . [McNerney] . . . its officers and
employees are to be covered as insureds with respect to liability arising out of
automobiles owned, leased, hired or borrowed by or on behalf of
subcontractor, and with respect to liability arising out of work or operations
performed by or on behalf of the subcontractor . . . including materials, parts
or equipment furnished in connection with such work or operations.
SUBCONTRACTOR shall maintain all of the foregoing insurance coverages
in force until the work under this Agreement is fully completed. The
requirement for carrying the foregoing insurance shall not derogate from the
provisions for indemnification of CONTRACTOR by SUBCONTRACTOR
under paragraph B of this Agreement.”
      The subcontract also required Broadway to indemnify and hold
McNerney harmless with respect to all claims for damage to property arising
out of work performed by Broadway. The indemnity clause provided, in part,
as follows:
      “B.     GENERAL INDEMNITY — All work covered by this Agreement
done at the site of construction or in preparing or delivering materials
SUBCONTRACTOR exclusively. SUBCONTRACTOR shall, with respect to
all work which is covered by or incidental to this contract, indemnify and hold
CONTRACTOR . . . harmless from and against all claims, damages, losses
and expenses including but not limited to attorneys’ fees, awards, fines or
judgments arising by reason of the death or bodily injury to persons, injury
to property . . . caused by, arising out of, connected with, or resulting from in
whole or in part, the performance of the Work, regardless of whether or not

                                        3
such liability, claim, damage, loss or expense was caused in part by any
negligent act or omissions, whether active or passive by a party indemnified
hereunder. . . . The indemnity obligations herein shall survive the
termination of the Contract for any reason and shall survive the completion
of the work on the project. . . . The SUBCONTRACTOR’S liability insurance
shall provide coverage for the SUBCONTRACTOR’S obligations under this
indemnification clause.”
      Broadway completed its work on the project in September 2007.
Broadway issued a one-year warranty for its work on the project.
Broadway’s Insurance Policies
      Zurich insured Broadway under commercial general liability policies,
which were in effect for one-year periods between September 2003 through
September 2008 and again from September 2009 through September 2011.2
      Old Republic insured Broadway under commercial general liability
policies which were in effect for one-year periods between September 2011
and September 2016 (Old Republic policies). Each policy contained two
“Additional Insured” endorsements, each with nearly identical language.
One endorsement covers liability arising from Broadway’s ongoing operations
(ongoing operations endorsement),3 while the other endorsement covers
liability arising from Broadway’s completed operations (completed operations

      2 Another insurance company that is no longer party to this action

insured Broadway for the one-year period of September 29, 2008 until
September 29, 2009.
      3 The ongoing operations endorsement provides coverage to the

additional insured for damage caused by acts or omissions “in the
performance of [Broadway’s] operations for the additional insured.” It
expressly excludes coverage for damage “when [Broadway’s] operations for
[the additional insured] are completed.”

                                      4
endorsement).4 As it is undisputed Broadway had finished its work on the
project long before the inception of the Old Republic policies, we limit the
discussion to the completed operations endorsement.
      The completed operations endorsement does not identify who is an
additional insured. Instead, it is a “blanket” endorsement that provides
coverage for additional insured persons or organizations “where required by
written contract, but only when coverage for completed operations is
specifically required by that contract.” (Capitalization omitted.) The
endorsement further provides: “[I]f coverage provided to the additional
insured is required by a contract or agreement, the insurance afforded to
such additional insured will not be broader than that which you are required
by the contract or agreement to provide for such additional insured.”
Underlying Litigation
      In 2016, the homeowners’ association for the project sued developers,
including McNerney, alleging construction defects. The lawsuit alleged,
among other things, plumbing defects and resulting damages that occurred at
an unspecified time. McNerney cross-complained against numerous
subcontractors, including Broadway. McNerney sought recovery from
Broadway under the express indemnity provision of the subcontract.
      In response to Broadway’s tender, both Zurich and Old Republic
defended Broadway in the construction action. Zurich and Old Republic
equally split defense expenses.

      4 The completed operations endorsement provides coverage to the

additional insured for damages caused by Broadway’s work performed for the
additional insured and included in the “ ‘products-completed operations
hazard.’ ” The “ ‘products-completed operations hazard’ ” provides coverage
for liability arising out of Broadway’s work, with the exception of work that
has not been completed.

                                       5
      Separate from the defense of Broadway, Zurich agreed to defend
McNerney as an additional insured. Zurich paid in excess of $430,000 to
defend McNerney in the construction action. Old Republic did not participate
in McNerney’s defense.
      In 2018, the homeowners’ association and Broadway reached a
settlement. Zurich and Old Republic equally funded the settlement on behalf
of Broadway. The two insurers also equally funded the settlement of
McNerney’s cross-complaint against Broadway.
      Zurich brought this action, seeking reimbursement from Old Republic
for an equitable share of McNerney’s defense fees and costs. Zurich’s
complaint alleged four causes of action: declaratory relief, equitable
contribution, equitable indemnity, and subrogation.
                                 DISCUSSION
      The parties agree Zurich is entitled to relief only if it is able to establish
McNerney is an additional insured under the Old Republic policies. (See,
e.g., Truck Ins. Exch. v. Uniguard Ins. Co. (2000) 79 Cal.App.4th 966, 974
[equitable contribution exists only between carriers that insure same party].)
The resolution of this issue does not involve the intricacies of the duty to
defend, but rather the application of basic contract interpretation principles.
Because the material facts are not in dispute, the resolution of that issue
depends entirely on our interpretation of the Old Republic policies and the
relevant contract between Broadway and McNerney, which is subject to our
independent review.5 (Westrec Marina Management, Inc. v. Arrowood
Indemnity Co. (2008) 163 Cal.App.4th 1387, 1391 [absent factual dispute,

      5 For these reasons, Old Republic’s argument in favor of substantial

evidence review is without merit.

                                         6
interpretation of contracts are questions of law reviewed de novo].) For the
reasons that follow, we conclude McNerney is not an additional insured.
      The usual rules of contract interpretation apply to insurance policies.
(Hervey v. Mercury Casualty Co. (2010) 185 Cal.App.4th 954, 961.) The
mutual intention of the contracting parties at the time the contract was
formed governs. (Civ. Code, § 1636; Hess v. Ford Motor Co. (2002) 27 Cal.4th
516, 524.) We ascertain that intention solely from the written contract, if
possible, but also consider the circumstances under which the contract was
made and the matter to which it relates. (Civ. Code, §§ 1639, 1647; Hess, at
p. 524.) We consider the contract as a whole and construe the language in
context, rather than interpret a provision in isolation. (Civ. Code, § 1641.)
We interpret words in a contract in accordance with their ordinary and
popular sense, unless the words are used in a technical sense, or a special
meaning is given to them by usage. (Civ. Code, § 1644.) If contractual
language is clear and explicit and does not involve an absurdity, the plain
meaning governs. (Civ. Code, § 1638.)
      In determining whether McNerney is an additional insured under the
Old Republic policies, we first look to the terms of the completed operations
endorsement. That endorsement does not specifically identify who is an
additional insured. Instead, it defines an additional insured as a person or
organization that Broadway “is required by contract or agreement” to name
as an additional insured “but only when coverage for completed operations is
specifically required by that contract.” By using the present-tense phrase “is
required,” the completed operations endorsement requires an existing
contractual obligation. Thus, for an organization to qualify as an additional
insured, Broadway must have had an existing contractual obligation to name
it as an additional insured while the Old Republic policies were in effect.

                                        7
      Having determined the meaning of the relevant policy language, we
now turn to whether Broadway had a contractual obligation to name
McNerney as an additional insured while the Old Republic policies were in
effect. “When additional insured endorsements, by their own terms, depend
on the existence of a written contract between the named insured and the
additional insured, the contract is a significant circumstance in determining
the objectively reasonable expectations of the additional insured.” (St. Paul
Mercury Ins. Co. v. Frontier Pacific Ins. Co. (2003) 111 Cal.App.4th 1234,
1245.)
      Pursuant to paragraph A of the general subcontract provisions,
Broadway was required “at all times” to carry, among other things, liability
coverage for “product or completed operations” and to name McNerney as an
“additional insured . . . with respect to liability arising out of work or
operations performed by [Broadway] . . . until the work under this Agreement
is fully completed.”
      Old Republic argues any contractual obligation to extend “additional
insured” coverage for McNerney ended in 2007, when Broadway completed its
work on the project.6 We agree. The subcontract clearly and unambiguously
sets forth the period of time that Broadway was required to provide
additional insured coverage for McNerney. Such coverage was to remain in
effect “until the work under [the subcontract]” was “fully completed.”
      Zurich argues this interpretation renders the additional insured
coverage illusory because by its very nature completed operations coverage
applies to damage occurring after the completion of Broadway’s work. Zurich
asserts a more reasonable way to interpret the phrase “until the work under

      6 We express no opinion regarding Old Republic’s alternate argument

that its blanket endorsements are limited to a specific policy year.

                                         8
this Agreement is fully completed” is one “requiring the maintenance of
insurance for a time period extending beyond the completion of the
construction itself and through the statute of limitations on construction
defect actions.” Alternatively, Zurich contends another reasonable
interpretation is the time limitation applies only to those types of insurance
which would have been relevant to Broadway’s ongoing operations—namely,
workers’ compensation and auto liability.
      Obviously, the parties were free to insert such qualifying language, but
they did not. The goal of contract interpretation is not to rewrite contracts to
make different or better deals for the parties than they negotiated for
themselves. (Series AGI West Linn of Appian Group Investors DE, LLC v.
Eves (2013) 217 Cal.App.4th 156, 164 (Series AGI).) “It is widely recognized
that the courts are not at liberty to revise an agreement under the guise of
construing it. Neither abstract justice nor the rule of liberal interpretation
justifies the creation of a contract for the parties which they did not make
themselves.” (Hinckley v. Bechtel Corp. (1974) 41 Cal.App.3d 206, 210; see
Code Civ. Proc., § 1858 [“the office of the Judge is . . . not to insert what has
been omitted”]; Levi Strauss & Co. v. Aetna Casualty & Surety Co. (1986) 184
Cal.App.3d 1479, 1486 [“The court . . . cannot insert in the contract language
which one of the parties now wishes were there”].)
      Similarly lacking is Zurich’s contention that Old Republic’s
interpretation of the phrase “until the work under this Agreement is fully
completed” renders the indemnity provision moot. The separate indemnity
provision in the subcontract supports, not undermines, the conclusion that
Broadway’s obligation to provide additional insured coverage for McNerney
ceased when it concluded its work on the project. The inclusion of the phrase
“shall survive the termination of the Contract and shall survive the

                                         9
completion of the work on the project” in the indemnity provision establishes
the parties knew how to unambiguously provide for the continuation of
contractual obligations post-termination when that was their intent. (See
Series AGI, supra, 217 Cal.App.4th at p. 164 [“courts assume that each party
to a contract is alert to, and able to protect, his or her own best interests”].)
      That the subcontract did not temporally limit the indemnity provision
but did limit the defense provision, illustrates the two are not coextensive.
The subcontract distinguished between the length of time Broadway was
required to insure McNerney and the longer period of time it was required to
insure itself for its indemnity obligation to McNerney. The last sentence of
the insurance provision makes clear that the limited period of time Broadway
was required to insure McNerney “shall not derogate” from its longer
indemnity obligation.7
      Relying on Pardee Construction Co. v. Insurance Co. of the West (2000)
77 Cal.App.4th 1340, 1360–1361, Zurich argues Old Republic’s interpretation
ignores the practical reality of complex construction defect cases, in which
damage from a subcontractor’s work often does not materialize until years
after work has been completed. We have no quarrel with this
characterization of construction defect cases. However, Pardee is readily
distinguishable. Although, there, as here, the challenged insurance policies
incepted after the construction project was completed (id. at p. 1345), this is
where the similarities end. In Pardee, it was undisputed that the general
contractor was an additional insured. (Id. at p. 1356.) The narrow issue

      7 The Old Republic policies reflect Broadway did insure itself for this

longer indemnity obligation; Old Republic paid $25,000 to resolve the cross-
complaint McNerney had filed against Broadway.

                                        10
before the court was whether the additional insured endorsements explicitly
excluded coverage for the subcontractors’ completed operations. (Ibid.)
      Here, it is undisputed that the challenged policies provide completed
operations coverage to additional insureds where required by contract. We
conclude the plain and unambiguous language of the completed operations
endorsement and the related subcontract establish McNerney was not an
additional insured under the Old Republic policies.
                               DISPOSITION
      The judgment is affirmed. Old Republic is entitled to its costs on
appeal.

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                                         _________________________
                                         Mayfield, J.*

We concur:

_________________________
Stewart, P. J.

_________________________
Richman, J.

Zurich American Insurance Company v. Old Republic Insurance Corporation
(A166715)

     * Judge of the Mendocino Superior Court, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.

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