John P Pringle v. Water Quality Insurance Syndicate, et al, No. 2:2004cv08495 - Document 263 (C.D. Cal. 2009)
Court Description: ORDER GRANTING Summary Judgment to WQIS and EPG 72 ; DENYING Plaintiff's Motion for Summary Judgment 97 by Judge Dean D. Pregerson. Based on the foregoing analysis, the Court GRANTS WQIS request for a declaration of rescission and GRANTS EPGs motion for summary judgment. Pringles motion for summary judgment that WQIS has a duty to defend is DENIED. (sch)
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John P Pringle v. Water Quality Insurance Syndicate, et al Doc. 263 1 2 3 4 5 6 O 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 JOHN P. PRINGLE, Bankruptcy Trustee for the Estate of San Pedro Boat Works, Inc., 13 14 15 16 17 18 19 20 21 22 23 Plaintiff, v. WATER QUALITY INSURANCE SYNDICATE, an unincorporated syndicate organized under the laws of the State of New York; ENVIRONMENTAL POLLUTION GROUP, INC., a Corporation organized under the laws of the State of New York; CERTAIN SOLVENT LLOYD'S UNDERWRITERS THAT SUBSCRIBED TO ENVIRONMENTAL POLLUTION GROUP, INC., POLICY NOS. 01-02001, 0202001,03-02001, 04-02001, 502001 and 6-02001, unknown foreign entities organized under the laws of the United Kingdom, 24 Defendants. 25 26 27 28 ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 04-08495 DDP (RCx) ORDER GRANTING SUMMARY JUDGMENT TO WQIS AND EPG; DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT [Motions filed on August 8, 2006, Dkt. No. 72, September 18, 2006, Dkt. No. 97.] Dockets.Justia.com 1 I. BACKGROUND 2 A. The City Action 3 From approximately 1984 to 2003, San Pedro Boat Works (“SPBW”) 4 operated boatyards at Berths 44 and 57 in the Port of Los Angeles.1 5 SPBW used copper-nickel sandblast material in its boatyard 6 operations that it knew to “produce . . . slag containing hazardous 7 wastes (i.e., marine paint particles, residue etc.).” 8 3.) 9 investigating SPBW for alleged environmental pollution occurring at (SPBW Reply Beginning in 1989, the City of Los Angeles (the “City”) began 10 Berths 44 and 57. 11 investigation led to a June 1990 order requiring SPBW to 12 investigate and remediate any contamination. 13 (SGI ¶¶ 6, 30-33.) The City’s 1989 In February 1992, SPBW purchased a marine pollution liability 14 insurance policy from Water Quality Insurance Syndicate (“WQIS”) 15 with a one-year policy period (“Policy # 8602-01"). 16 This policy covered specific pollution liabilities relating to 17 SPBW’s ownership and operation of three vessels – two drydocks 18 referred to as AFDL 19 and AFDL 27 (collectively, “the drydocks”) 19 and a tugboat/towboat referred to as “Cindy M.” 20 drydocks were located and operated at SPBW’s Berth 57 facility 21 within the Port of Los Angeles. 22 renew its policy, and WQIS issued a second policy (“Policy # 8602- 23 02"), which expired on February 1, 1994. 24 February 1, 1994, through February 1, 2002, SPBW purchased similar 25 marine insurance policies from Environmental Pollution Group, Inc. 26 (“EPG”) (collectively the “EPG Policies”). (SGI ¶ 5.) (SGI ¶ 34.) (SGI ¶¶ 3-5.) The SPBW then requested to (SGI ¶¶ 34-35.) (SGI ¶ 12.) From While 27 1 28 Unless otherwise noted, all facts relied upon by the Court are undisputed by the parties. 2 1 applying for the WQIS Policies, WQIS contends that SPBW did not 2 disclose certain facts pertaining to the City’s investigation into 3 SPBW’s potential environmental contamination. 4 the omitted facts would have been material to its underwriting 5 decisions. 6 WQIS contends that In October 2002, the City sued SPBW for environmental 7 contamination, claiming that hazardous substances generated in the 8 ordinary course of operations had been stored in improper 9 containers at both Berths 44 and 57 (the “City Action”). (SGI ¶ 10 37.) 11 prior to WQIS, initially funded SPBW’s legal fees, but terminated 12 that funding as of October 2006. London Market Insurers Underwriters (“LMI”), SPBW’s insurer 13 B. 14 Two months after the initiation of the City Action, in The Chapter 7 Bankruptcy Proceeding 15 December 2002, SPBW filed for Chapter 7 bankruptcy protection. 16 (SGI ¶ 38.) 17 Schedule B, under penalty of perjury, listing all of its personal 18 property assets. 19 specifically includes a category named “Interests in Insurance 20 Policies.” 21 against its insurers WQIS and EPG. (SGI ¶ 10.) 22 As part of its bankruptcy petition, SPBW filed a (Id.) (RJN Ex. C; SGI ¶ 9.) The Schedule B form SPBW did not list its right to bring claims In March 2003, SPBW’s bankruptcy trustee John Pringle 23 (“Trustee”) filed a motion to abandon certain assets of SPBW’s 24 bankruptcy estate not listed in the Schedule B form (“non-scheduled 25 assets”). 26 motion on April 25, 2003. 27 abandoned by the Trustee’s motion and the Bankruptcy Court’s order 28 consisted of dry docks and cranes; and the motion and order did not (SGI ¶ 13.) The Bankruptcy Court granted the Trustee’s (SGI ¶ 14.) 3 The non-scheduled assets 1 mention potential insurance claims against WQIS and EPG. (SGI ¶ 2 13.) 3 In April 2003, the City filed with the Bankruptcy Court a 4 motion for relief from the automatic stay2 to (1) take possession 5 of Berths 44 and 57 from SPBW and (2) to continue the City Action 6 against SPBW. (SGI ¶ 15.) 7 opposition and the Bankruptcy Court granted the City’s motion. 8 (Id.; RJN Ex. H.) 9 pertinent part: The Trustee filed a notice of non- The Bankruptcy Court’s order stated, in 10 11 12 13 “[The City] may enforce its remedies . . . to pursue and prosecute its action . . . including to obtain a final judgment therein against [SPBW] and to collect or enforce such judgment from any applicable insurance policies of [SPBW] and the insurers thereunder provided that the automatic stay shall remain in effect with respect to collection of any such judgment directly from [SPBW].” 14 (RJN Ex. I.) 15 In September 2003, the Trustee moved to abandon the assets of 16 SPBW’s bankruptcy estate listed in the Schedule B form (“scheduled 17 assets”) back to SPBW. (SGI ¶ 17.) The scheduled assets consisted 18 of accounts receivable, a truck, a tow boat, office equipment, an 19 insurance refund of $13,556, and SPBW’s books and records. (Id.) 20 The Trustee’s motion did not mention the potential claims against 21 WQIS or EPG. (Id.; RJN Ex. J.) The Bankruptcy Court ordered 22 SPBW’s scheduled assets abandoned in October 2003. (SGI ¶ 18; RJN 23 Ex. K.) Thereafter, the Trustee filed a report stating that SPBW 24 had no scheduled assets of value to the bankruptcy estate. (SGI ¶ 25 26 27 28 2 With the filing of a bankruptcy petition, a self-executing automatic stay is imposed pursuant to 11 U.S.C. § 362 (“§ 362 relief") that enjoins the commencement or continuation of any judicial proceedings against the debtor. 11 U.S.C. § 362; Catalano v. Comm’r, 279 F.3d 682, 686 (9th Cir. 2002). 4 1 19; RJN Ex. L.) 2 SPBW bankruptcy proceeding, considering it a “no asset” case. 3 ¶ 20; RJN Ex. M.) 4 unsecured creditors. (Id.) In December 2003, the Bankruptcy Court closed the (SGI There were no distributions made to SPBW’s 5 C. 6 In March 2003, SPBW tendered a claim for defense and 7 indemnification to WQIS and EPG under the respective insurance 8 policies for claims made against it in the City Action. 9 14.) The SPBW Action (SGI ¶ WQIS allegedly learned during its investigation of the claim 10 that SPBW did not disclose facts pertaining to the City’s 11 investigation. 12 underwriting decisions and SPBW’s failure to disclose it during 13 application entitled WQIS to unilaterally rescind the WQIS 14 Policies. 15 WQIS contends that such facts are material to its (SGI ¶¶ 15-16.) After WQIS’ unilateral rescission, SPBW sued WQIS in August 16 2004 alleging breach of contract and related claims (“SPBW 17 Action”). 18 counterclaimed for a declaration that the WQIS policies were 19 properly rescinded and are void, and that WQIS therefore has no 20 obligations to SPBW arising thereunder. 21 additional defendant in December 2005. WQIS removed the SPBW Action to federal court and EPG was added as an 22 D. 23 On August 8, 2006, SPBW filed a motion for summary judgment Procedural History 24 against WQIS, claiming that WQIS has a duty to defend SPBW in the 25 underlying City Action and that WQIS’s counterclaim for rescission 26 is barred by the applicable statute of limitations. 27 18, 2006, EPG filed a motion for summary judgment claiming that 28 5 On September 1 SPBW has no standing in the SPBW Action due to its Chapter 7 2 bankruptcy. 3 On October 24, 2006 in a hearing before the Honorable Barry 4 Russell, United States Bankruptcy Judge, counsel for all parties 5 discussed the reopening of the bankruptcy estate for a 6 determination by the Trustee of his stake in the rights at issue. 7 At that hearing, counsel for John Pringle, the former Trustee, 8 noted that he needed time to evaluate the value of the claims and 9 determine if he would administer or abandon the claims. Judge 10 Russell ordered the case reopened and that Mr. Pringle be 11 reappointed as Trustee for a determination of the status of the 12 claims. 13 On January 19, 2007, in part responding to EPG’s motion for 14 summary judgment on the ground of SPBW’s lack of standing, the 15 Court sua sponte entered an Order Re: Standing of Plaintiff San 16 Pedro Boat Works To Bring This Action on the issue of whether to 17 delay this case for lack of party-in-interest standing. 18 Order, the Court found that SPBW was no longer a real party in 19 interest in this matter. 20 Procedure 17, the Court postponed all proceedings pending the 21 decision of the reopened bankruptcy estate to give reasonable time 22 for the real party in interest, the Trustee, to respond. 23 further found that the Trustee, Pringle, did have standing. 24 January 29, 2007, the Trustee, John Pringle, automatically 25 substituted for debtor SPBW as plaintiff in the instant action by 26 operation of law under 11 U.S.C. § 323 and Federal Rule 17(a). 27 December 2007 and January 2008, in light of the Trustee’s 28 substitution as Plaintiff and the time that had elapsed since the In its In accordance with Federal Rule of Civil 6 The Court On In 1 filing of the cross motions for summary judgment, the Court 2 afforded Pringle, WQIS, and EPG the chance to submit supplemental 3 briefing. 4 Angeles’s motion for leave to intervene in the SPBW lawsuit. 5 the same day, the Court requested further supplemental briefing 6 from Plaintiff Pringle, Plaintiff-Intervenor City of Los Angeles, 7 and Defendant EPG on the question of whether the language of the 8 EPG Policies precluded relief for SPBW, and whether the Court 9 should reconsider its January 2007 Order finding that Pringle had On January 28, 2008, the Court granted the City of Los On 10 standing. 11 briefing from Plaintiff Pringle and Defendant WQIS on the question 12 of whether Defendant WQIS had validly rescinded the WQIS policies. 13 Finally, on May 15, 2008, the Court granted the parties further 14 time to supplement the record based on Plaintiff Pringle’s 15 representation that there had not had been sufficient time to 16 conduct discovery in this matter. 17 an extension until October 24, 2008, to file their briefing. 18 that date, the parties submitted extensive supplemental evidence. 19 On April 9, 2008, the Court again requested supplemental The parties then stipulated to On The Court now considers the parties’ motions for summary 20 judgment. 21 II. LEGAL STANDARD 22 Summary judgment is appropriate where “the pleadings, the 23 discovery and disclosure materials on file, and any affidavits show 24 that there is no genuine issue as to any material fact and that the 25 movant is entitled to a judgment as a matter of law.” 26 Fed. R. Civ. P. 56(c). 27 judgment, all reasonable inferences from the evidence must be drawn 28 in favor of the nonmoving party. In determining a motion for summary Anderson v. Liberty Lobby, Inc., 7 1 477 U.S. 242, 255 (1986). 2 is such that a reasonable jury could return a verdict for the 3 nonmoving party”; and material facts are those “that might affect 4 the outcome of the suit under the governing law.” 5 U.S. at 248. 6 record taken as a whole could not lead a rational trier of fact to 7 find for the non-moving party.” 8 Zenith Radio Corp., 475 U.S. 574, 587 (1986). 9 III. DISCUSSION A genuine issue exists if “the evidence Anderson, 477 However, no genuine issue of fact exists “[w]here the Matsushita Elec. Indus. Co. v. 10 The Court has before it three motions for summary judgment. 11 Plaintiff moves for summary judgment on WQIS’s duty to defend it 12 under its insurance policies. 13 judgment as to the validity of its rescission of the WQIS policies. 14 Defendant EPG brings a motion for summary judgment against 15 Plaintiff, arguing that Pringle lacks standing because he cannot 16 possibly obtain any relief against EPG. 17 WQIS’s and EPG’s motions. Defendant WQIS moves3 for summary The Court GRANTS both Plaintiff’s motion is DENIED. 18 A. 19 In January 1992, WQIS issued to SPBW a one-year term marine Plaintiff Pringle’s and Defendant WQIS’s Motions 20 insurance policy. The policy insured three vessels: two drydocks 21 permanently located and operated at SPBW’s Berth 57 in the Port of 22 Los Angeles; and one tugboat referred to as Cindy M. 23 1993, SPBW renewed the same policy (collectively “WQIS Policies”). 24 Coverage under the WQIS Policies terminated on February 1, 1994. On March 12, 25 3 26 27 28 WQIS’s motion originated as an opposition to Plaintiff’s motion for summary adjudication on whether WQIS had a duty to defend. After determining it would be in the interest of judicial economy to decide the question of rescission first, the Court converted this briefing into a motion for summary judgment by WQIS on the validity of its rescission. 8 1 The pertinent portions of the WQIS Policies read: 2 [T]he Subscribers to the WATER QUALITY INSURANCE SYNDICATE (WQIS) do hereby agree to: (1) Indemnify the Assured for such amounts as the Assured shall have become liable to pay and shall have paid as owner or operator of the vessel named on the Vessel Schedule attached to and forming part of this Policy, hereafter the “Vessel”, and if more than one Vessel is named, all clauses shall apply as though a separate Policy had been issued for each, (2) Reimburse the Assured for such certain other costs and expenses, as described below, which the Assured shall have by reason of or with respect to: . . . SECTION C Liability imposed under Section 107(a)(1) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Public Law 96-510), hereafter “CERCLA”, and costs and expenses incurred by the Assured for removal, response or remedial action (as “removal”, “response” and “remedial action” are defined under Section 101 of CERCLA) for which liability would have been imposed under Section 107(a)(1) of CERCLA had the Assured not undertaken such removal, response or remedial action voluntarily. Liabilities imposed under any other Section or Subsection of CERCLA are specifically EXCLUDED. 3 4 5 6 7 8 9 10 11 12 13 14 15 WQIS contends that because SPBW failed to disclose certain material 16 facts relating to the City’s pollution investigation on the 17 applications4 for the WQIS Policies, WQIS had the right to 18 unilaterally rescind the Policies. Because validly rescinded 19 policies are null and void ab initio, argues WQIS, any obligation 20 potentially arising from those policies, such as the duty to 21 reimburse SPBW for its defense and investigation expenses in the 22 City’s lawsuit, is likewise extinguished. Plaintiff Pringle 23 counters that the rescission was not valid, and alternatively 24 rescission is barred by the statute of limitations, waiver, and 25 estoppel. 26 27 4 28 These applications were oral and not reduced to written form. 9 1 2 1. Rescission a. Legal Standard 3 The parties dispute whether federal admiralty law or 4 California law applies to the insurance policies in this case. 5 Ninth Circuit has confirmed that vessel liability insurance – which 6 the WQIS policies are – is marine insurance, that “courts should 7 look first to federal admiralty law” in interpreting marine 8 insurance policies, and that uberrimae fidae is an “established 9 federal maritime law rule” that applies to such insurance. The Certain 10 Underwriters at Lloyds, London v. Inlet Fisheries Inc., 518 F.3d 11 645, 649-55 (9th Cir. 2008). 12 imposes a duty of utmost good faith, and requires that an insured 13 fully and voluntarily disclose to the insurer all facts material to 14 a calculation of the insurance risk.” 15 citation and quotation marks omitted). 16 “obligated to disclose all material information, regardless of a 17 request by” the insurer. 18 contract if it can show either intentional misrepresentation of a 19 fact, regardless of materiality, or nondisclosure of a fact 20 material to the risk, regardless of the risk.” 21 (internal quotation marks omitted). 22 b. “The doctrine of uberrimae fidae Id. Id. at 648 (internal Further, an insured is “An insurer may rescind an insurance Id. at 655 Application 23 The Court finds that there is no genuine issue of material 24 fact, as would be necessary to preclude summary judgment, about 25 whether SPBW failed to disclose material information to WQIS when 26 applying for the WQIS policies. 27 28 Plaintiff Pringle asserts that WQIS has not provided any evidence of this nondisclosure, but he is mistaken. 10 WQIS has 1 submitted the declaration of Richard Hobbie, President and CEO of 2 WQIS. 3 WQIS underwriting criteria, that he reviewed WQIS’ “entire 4 underwriting file relating to” SPBW, and that “there is no 5 evidence” in the file that SPBW disclosed, before applying for the 6 WQIS polices, that (1) “that it used hazardous heavy metal 7 sandblast media aboard the drydocks,” (2) “that the marine sediment 8 in the immediate area of the Drydocks was known or alleged to be 9 contaminated with” that same material, (3) “that the Los Angeles 10 County Department of Health raised pollution concerns and issued 11 Notices of Violations relating to the drydocks,” and (4) “that SPBW 12 had pollution problems that were being investigated by the 13 Hazardous Materials Control Program at the Department of Health.”5 14 (Hobbie Decl. ¶¶ 7, 9, 11, 13, 15-18.) 15 WQIS representative that conducted the application process, which 16 in this case was verbal, Hobbie nonetheless provides competent 17 evidence that WQIS has no record of SPBW ever disclosing the 18 abovementioned information. 19 Hobbie’s declaration states that he is familiar with the Although Hobbie was not the In contrast, throughout the nearly three years and many 20 supplemental briefs presented to the Court since this motion was 21 filed in August 2006, Plaintiff has not alleged or presented 22 evidence that it did disclose: (1) its use of hazardous heavy 23 5 24 25 26 27 28 Pringle moves to strike the Hobbie declaration on the grounds that Mr. Hobbie fails to demonstrate the requisite personal knowledge because he does not attach the underwriting file upon which he relies. See Fed. R. Civ. P. 56(e)(1). The Court declines this request. Rule 56(e)(1) states that “[i]f a paper or part of a paper is referred to in an affidavit,” a copy must be attached. Mr. Hobbie does not rely on information in a paper or part of a paper; he relies on the absence of information in a file. Therefore, Hobbie’s sworn declaration of what he did not discover in the file is competent evidence. 11 1 metal sandblast media aboard the drydocks, (2) the known or alleged 2 contamination of the marine sediment in the immediate area of the 3 drydocks at Berth 57 related to this sandblasting, or (3) the 4 violation notices issued by the City. 5 that it disclosed the fact that it was under investigation by the 6 Los Angeles Department of Health for pollution at Berth 44. Instead, Plaintiff argues 7 Plaintiff, however, focuses on arguing that (1) allowing 8 verbal insurance contracts like the one in this case constitute bad 9 public policy because the insurer can manufacture alleged 10 nondisclosures after the fact, and that (2) any nondisclosures were 11 not material. 12 valid concern, but given that he does not in fact dispute the 13 alleged nondisclosures here, the concern is irrelevant. 14 As to the first point, Plaintiff Pringle may have a As to the second, the Court disagrees. Plaintiff spends 15 significant time in its briefs addressing whether sandblast 16 material is in fact hazardous, and what information about any such 17 hazards was so basic in the marine insurance industry that WQIS 18 should have known it by virtue of being such a large player in the 19 field. 20 nondisclosure: 21 policies, the Los Angeles Health Department and Hazardous Materials 22 Control Program had for several years been investigating possible 23 pollution by SPBW in areas including Berth 57 (where the WQIS- 24 insured drydocks were located), and indeed had issued several 25 Notices of Violation. 26 1990 Notice of Violation by LA Dep’t of Health for “waste 27 paint/paint residue” at Berths 44 and 57); Id. Ex. 15 (June 1990 28 Report of Investigation by Hazardous Materials Controls Program These arguments miss the most important potential that, at the time SPBW applied for the WQIS (See, e.g., Hobbie Decl. Ex. 14, June 7, 12 1 noting soil contamination at Berths 44 and 57); Id. Ex. 31 (Nov. 2 30, 1989 enforcement referral requesting followup inspection of 3 SPBW at Berths 44 and 57 because of allegations of “illegal 4 disposal of sandblasting spent sand offsite”). 5 Plaintiff also contends that “compliance with disposal 6 regulations was a common problem for boat yards inspected by [the 7 City] in 1990.” 8 charged with polluting has no bearing on whether the insured has an 9 obligation to disclose such information on an insurance The fact that many companies might have been 10 application. 11 ongoing investigation and citations for pollution by a local 12 agency, and that a failure to disclose such information would be 13 material to an insurer’s decision to insure.6 14 insurance against the possibility of a loss in the future. 15 ongoing pollution investigation means the loss may have already 16 occurred. 17 It is self-evident that an insured must disclose an Insurers provide An In his final supplemental briefing, Pringle also argues that 18 disclosure of the City’s investigation or notices of violations 19 could not have been material to WQIS, because (as WQIS concedes) 20 they would not have evidenced a nexus between the insured drydocks’ 21 “discharge” and the contamination, or that the notice of pollution 22 was apparently unrelated to the insured vessels. The implication 23 24 25 26 27 28 6 The materiality of the concealed information is determined “solely by the probable and reasonable influence of the [concealed] facts upon the [insurer] in forming [its] estimate of the disadvantages of the proposed contract, or in making his inquiries.” Cal. Ins. Code § 334. This is a subjective test; the critical question is the effect truthful answers would have had on the insurer at issue, not on some “average reasonable” insurer. Imperial Cas. and Indem. Co. v. Levon Sogomonian, 198 Cal. App. 3d 169, 181 (Ct. App. 1988). 13 1 of this argument is that Pringle could not have advised WQIS of 2 what it, itself, did not know. 3 fact that SPBW was aware that it had received a notice of violation 4 in 1989 for waste produced by “discharge” as well as the “disposal” 5 of waste at Berths 44 and 57, resulting from its sandblasting 6 activities. 7 This argument omits the crucial (See Walsh Decl. Ex. 8.) In sum, WQIS has presented uncontested evidence that SPBW 8 failed to properly disclose that it was under a multi-year 9 investigation for pollution by the County of Los Angeles resulting 10 in part from discharges from its vehicles at the time it applied 11 for the WQIS insurance policies. 12 full disclosure of such investigation and notices of violation is, 13 under the circumstances of this case and as a matter of law, a 14 material fact. 15 policy. 16 17 2. The Court further finds that the Accordingly, WQIS was entitled to rescind its Statute of Limitations, Waiver, Estoppel7 Plaintiff argues that WQIS’s argument for rescission is barred 18 by the statute of limitations, by waiver, and by estoppel. 19 Court rejects these contentions. 20 a. 21 The Statute of Limitations The California Code of Civil Procedure provides for a four 22 year statute of limitations for “[a]n action based upon the 23 rescission of a contract in writing.” 24 However, the California Supreme Court has explained that Cal. Civ. Proc. Code § 337. 25 26 7 27 28 As both parties agree, California law governs these issues. See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) (holding that federal courts presiding must apply state substantive law in diversity actions). 14 1 2 3 4 5 6 a defense may be raised at any time, even if the matter would be barred by a statute of limitations if asserted as the basis for affirmative relief. The rule applies in particular to contract actions. One sued on a contract may urge defense that render the contract unenforceable, even if the same matters, alleged as grounds for restitution after rescission, would be untimely. Styne v. Stevens, 26 Cal. 4th 42, 51-52 (Cal. 2001). Plaintiff argues that Styne is distinguishable, and that the 7 statute of limitations therefore applies, because Styne only 8 applies to defenses based on fraud or misrepresentation, and 9 because WQIS is here acting in an affirmative rather than a defense 10 capacity by “bringing an action for relief based on rescission.” 11 (Pringle Rescission Br. 14.) 12 The Court disagrees. First, as to the fraud question, Styne explicitly states that 13 the “same reasoning” that excuses fraud and misrepresentation 14 defenses from the statute of limitations “applies to any grounds 15 for asserting the illegality of the contract upon which the 16 plaintiff sues.” 17 contrary to Plaintiff’s contention, this is a case involving fraud 18 or misrepresentation. 19 undisputed facts showed that SPBW failed to disclose material 20 information when applying for the WQIS insurance coverage. 21 22 26 Cal. 4th at 52 (emphasis added). Moreover, Indeed, the Court has just found that the Second, WQIS is not acting in an affirmative capacity here. The California Supreme Court has addressed this issue: 23 24 25 26 27 Styne asserts that Stevens has actually sought affirmative relief by asking, in effect, for a declaration that the contract is void and unenforceable. But the cases belie such an argument; one who raises the defense that a contract is illegal and unenforceable necessarily asks for a determination to that effect. If the result the defendant seeks is simply that he or she owes no obligations under an agreement alleged by the plaintiff, the matter must be deemed a defense to which the statute of limitations does not apply. 28 15 1 Id. at 53. 2 obligations under the insurance contracts. 3 asking for a declaration that the contract was void ab initio – 4 rescission. 5 other than a declaration of the contract’s invalidity. 6 51-52 (noting that a claim for restitution after rescission would 7 be affirmative, rather than defensive (emphasis added)). 8 of Styne, WQIS’s argument must be considered defensive, and 9 therefore the statute of limitations is not applicable.8 10 11 Here, SPBW brought an action alleging that WQIS owed WQIS responded by WQIS is not seeking any relief based on the rescission b. Cf. id. at In light Waiver/Estoppel “In the insurance context, California courts have applied the 12 general rule that waiver requires the insurer to intentional 13 relinquish its right to deny coverage . . . .” 14 v. Md. Cas. Co., 80 Cal. App. 4th 1165, 1188 (Cal. Ct. App. 2000). 15 Further, “[t]he burden is on the party claiming a waiver of a right 16 to prove it by clear and convincing evidence that does not leave 17 the matter to speculation, and doubtful cases will be decided 18 against a waiver.” 19 4th 1, 31 (Cal. 1995)(internal alterations and quotation marks 20 omitted). Ringler Ass. Inc. Waller v. Truck Ins. Exchange, Inc., 11 Cal. Plaintiff has not met his burden here. 21 22 23 8 24 25 26 27 28 Plaintiff highlights the distinction between effecting a nonjudicial unilateral rescission and obtaining relief pursuant to that rescission in court, but the Court finds that any such distinction, even assuming its legitimacy, is of no consequence here. Court approval of rescission as a form of relief is no different from court approval of any other contract defense. The California Supreme Court has made clear that urging the invalidity of a contract in response to a lawsuit is considered a defense. Such a declaration may well be a form of relief, but it therefore is nonetheless a relief not subject to the statute of limitations. 16 1 Plaintiff’s only evidence that WQIS intentionally relinquished 2 its rights is a March 1993 letter in which in SPBW wrote to its 3 insurers to 4 5 6 7 8 9 formally place [them] on notice . . . regarding SPBW’s claim for defense and indemnification of all costs associated with SPBW’s alleged liability for investigation and remediation of contamination at the above-referenced site (“the site”.) In June, 1990, the Los Angeles County Department of Health Services ordered SPBW to conduct an investigation and remediate any contamination found in the northeast section of Berth 44. The lead agency is now the Health Hazardous Materials Division of the Los Angeles County Fire Department (“the County”). 10 (Smith Decl., Ex. 9.) 11 clear and convincing evidence. 12 only to Berth 44, while the WQIS-insured drydocks were located in 13 Berth 57. 14 clearly as to potential contamination at the entire site,” the 15 “above-referenced site” in fact clearly refers to “Re: Billfish, 16 Inc. dba San Pedro Boat Work, Berth 44, San Pedro, CA 90731.” 17 (Smith Decl., Ex. 9 (emphasis added).) 18 mentions nothing about the actual violations issued, nor does it 19 detail the kind or degree of pollution at issue. 20 would surely be relevant before assuming that WQIS intentionally 21 waived related rights. 22 receipt of a vague letter about pollution at Berth 44 cannot 23 provide the strong showing necessary to demonstrate intentional 24 waiver of WQIS’s rights regarding pollution at Berth 57. 25 This letter does not provide the requisite Specifically, the letter refers to Contrary to Plaintiff’s suggestion that the “notice is Moreover, the letter Such details Accordingly, failure to act following Plaintiff’s estoppel claim also fails because he cannot meet 26 two of the requirements for proving equitable estoppel: 27 knew all the relevant facts, or that WQIS intended that its 28 “conduct shall be acted upon, or must so act that the party 17 that WQIS 1 asserting the estoppel had a right to believe that it was so 2 intended.” 3 18, 24 (Cal. Ct. App. 1967). 4 provided WQIS with notice of the requisite facts, but as already 5 discussed the letter is insufficiently specific to justify a 6 finding that WQIS intended its silence to be acted upon, or a 7 finding that it was reasonable for SPBW to believe that WQIS so 8 intended. 9 Gaunt v. Prudential Ins. Co. of Am., 255 Cal. App. 2d 3. Plaintiff argues that the 1993 letter Conclusion - Pringle’s and WQIS’s Motions 10 Having rejected the statute of limitations, waiver, and 11 estoppel arguments, the Court GRANTS summary judgment in favor of 12 WQIS. 13 duties that might have arisen therefrom are unenforceable. 14 Therefore, Plaintiff’s motion for summary judgment that WQIS had a 15 duty to defend arising from these Policies is DENIED. The WQIS Policies are hereby officially rescinded, and any 16 B. 17 In September 2006, Defendant EPG filed a motion for summary EPG’s Motion 18 judgment arguing that SPBW was not the real party in interest and, 19 in any case, lacked standing to bring its claim because it had no 20 redressable injury. 21 that SPBW did have standing and allowed Pringle, the bankruptcy 22 trustee, to substitute in as Plaintiff on the grounds that he is 23 the real party in interest. 24 Court requested supplemental briefing on whether it should 25 reconsider the standing question because the EPG insurance policies 26 left Plaintiff Pringle and Plaintiff-Intervenor City of Los Angeles 27 without a redressable injury. 28 briefing, the Court now finds that Plaintiff and Plaintiff- In January and February 2007, the Court found Subsequently, in January 2008, the After considering this supplemental 18 1 Intervenor have no redressable injury and, therefore, do not have 2 constitutional standing to bring this claim against EPG. 3 The crux of EPG’s argument is that the EPG policies at issue 4 are indemnity, rather than liability policies. 5 policies require that “payment” is a condition precedent to insurer 6 obligation, and Plaintiff has not made any payments, EPG is not 7 responsible. 8 Intervenor have no redressable injury in fact and lack standing. 9 As described below, the Court agrees.9 10 11 1. 14 15 16 Therefore, EPG argues that Plaintiff and Plaintiff- The EPG Policies are Indemnity Policies The EPG policies state in relevant part: 12 13 Because indemnity Limited U.S. Oil Pollution Insurance Policy 1. Insuring Agreement In consideration of the premium stated herein and subject to all of the terms, conditions and limitations contained herein, the Underwriters do hereby agree to indemnify the Assured for such amounts in excess of the Underlying Limits . . . as the Assured shall, [as owner or operator of the Vessel(s) or Facility(s) named on the Declaration pages], have become liable to pay and shall pay, by reason of or with respect to: 17 FOURTH: 18 19 20 21 22 Costs, charges and expenses incurred, with the written consent of Underwriter, in defending against or investigating or adjusting any liabilities insured against [under the policy]. . . . III. CONDITIONS * * * * 4. Attachment of Liability Liability to pay under this Policy shall not attach unless and until the Assured has paid or has paid on its behalf any sum set forth in Sections . . . Fourth. 23 24 25 26 27 28 9 In light of this determination, the Court need not reach EPG’s argument that Plaintiff Pringle should not have been allowed to substitute in as the real party in interest. The Court also declines to address the question of whether SPBW’s bankruptcy affects standing. 19 1 (Smith Decl. Feb. 11, 2008, Ex. 2, P02-P04.)10 2 can be either liability or indemnity policies. 3 provides coverage for a loss which the insured becomes legally 4 obligated to pay, whereas an indemnity policy provides coverage 5 only for those losses actually paid out by the insured.” 6 Supermarkets v. Underwriters at Lloyd’s London, 843 F. Supp. 597, 7 603 (N.D. Cal. 1994). 8 triggered until the insured has actually paid for its losses. 9 Insurance contracts “A liability policy Save Mart Therefore, indemnity policies are not The plain language of the EPG policies reveals them to be 10 indemnity policies. 11 of Wausau, 130 Cal. App. 4th 99, 115 (Ct. App. 2005) (“When an 12 insurance policy contains clear and unequivocal provisions, the 13 only reasonable expectation to be found is that afforded by the 14 plain language of the terms in the contract.”) 15 at issue here, EPG promised to “indemnify” SPBW the “for such 16 amounts . . . as the Assured shall, . . . have become liable to pay 17 and shall pay.” (Pl. 2d Am. Comp. Ex. 3, 4.) 18 emphasizes that “[l]iability to pay under this Policy shall not 19 attach unless and until the Assured has paid or has paid on its 20 behalf any sum set forth in Sections.” Travelers Cas. and Sur. Co. v. Employers Ins. (Id.) Under the contracts The contract also Accordingly, the 21 10 22 23 24 25 26 27 28 Plaintiff has objected to the declaration of EPG’s attorney Forrest Booth, which attached as an exhibit the relevant policy provisions, for lack of personal knowledge. In spite of Pringle’s suggestion that Booth’s representation of the policy language might be inaccurate, the policy language that the parties’ both rely on is identical. Because there is no actual dispute over the literal wording of the policies, the Court denies Plaintiff’s evidentiary objection as moot. Further, the Court rejects Plaintiff’s claim that Booth has not established personal knowledge of the insurance policies because he only attached excerpts to his declaration. Booth has submitted a declaration under penalty of perjury swearing that he has reviewed the policies. He also attached to that declaration what he believed to be the relevant provisions. There is no prohibition on attaching relevant excerpts. 20 1 contract clearly states that EPG’s liability is not triggered 2 “unless and until” SPBW has already paid or payments have been made 3 on its behalf. (Id.) 4 Plaintiff and Plaintiff-Intervenor argue that the policy 5 language is ambiguous because the words “shall have become liable 6 to pay and shall pay” could equally mean “must pay in the future” 7 as well as “has already paid.” 8 Standing and Contract Interp. 8 & n.14.) 9 argument might have some merit. (See Pringle Suppl. Brief Re In the abstract, this However, in this case the 10 provision stating that “[l]iability to pay under this Policy shall 11 not attach unless and until the Assured has paid or has paid on its 12 behalf any sum” extinguishes any potential ambiguity and makes 13 clear that “shall pay” indeed means “has already paid.” 14 Plaintiff Pringle next argues that the policies are not 15 indemnity policies because “what distinguishes indemnity contracts 16 from insurance policies” is that indemnity contracts “include a 17 duty to reimburse certain amounts paid upon judgment (“liability 18 imposed . . . by law”) or agreement,” but that the “EPG Policies . 19 . . have no language that conditions reimbursement on judgment or 20 settlement.” 21 distinguishing factor between liability and indemnity policies is 22 whether the insured “suffers actual loss by being compelled to pay 23 the claim,” not just whether a judgment imposing liability has 24 occurred.11 This is not correct. As noted above, the Gribaldo, Jacobs, Jones & Associates v. Agrippina 25 11 26 27 28 Indeed, the case Plaintiff relies upon for its “judgment” argument, In re Liquidation of Pine Top Ins. Co., 639 N.E. 2d 168, 170 (Ill. App. Ct. 1994), supports the Court’s conclusion. Pine Top states that “[t]he substantive distinction between indemnity and liability policies is that payment of a claim by the insured is (continued...) 21 1 Versicherunges A., 3 Cal. 3d 434, 447 (Cal. 1970). 2 contrary to Plaintiff’s contention, the EPG policy language is 3 equivalent, though not identical, to the sorts of policies that 4 even Plaintiff and Plaintiff-Intervenor agree are indemnity 5 policies. 6 Interp. 9 (citing as an example of an indemnity policy Save Mart 7 Supermarkets v. Underwriters at Lloyd’s London, 843 F. Supp. 597, 8 603 (N.D. Cal. 1994), which had a policy that required the 9 reimbursement of “all payments made”).) 10 Therefore, (See Pringle Suppl. Brief Re Standing and Contract Moreover, the Ninth Circuit has recently emphasized that one 11 of the three defining characteristics of a marine insurance policy 12 is that it is “a contract of indemnity.” 13 Lloyds, London v. Inlet Fisheries Inc., 518 F.3d 645, 654-55 (9th 14 Cir. 2008). 15 at issue are contracts for “marine insurance.” 16 confirms what the plain language of the policies already reveals: 17 the EPG Policies at issue in this case are contracts of indemnity, 18 and as such are only triggered upon payments actually made. 19 2. Certain Underwriters at The parties do not dispute that the insurance policies Inlet Fisheries Plaintiff and Plaintiff-Intervenor Have No Constitutinal Standing 20 “The irreducible constitutional minimum of standing requires a 21 plaintiff to show injury in fact, causation of that injury by the 22 23 11 24 25 26 27 28 (...continued) a condition precedent to an insured’s right to recover under the form, but not that later [sic].” Plaintiff urges that the operative word in this holding is “claim,” and that “claim” equals “judgment.” The Court believes, rather, that the operative words are “payment” and “condition precedent,” and thus articulate the same distinction between liability and indemnity policies as do the authority cited by the Court. To the extent Pine Top can be interpreted differently, however, the Court does not find this reasoning persuasive. 22 1 defendant’s conduct, and redressability of the injury by the 2 requested relief.” 3 Pacific Ins. Co., 219 F.3d 895, 900 (9th Cir. 2000)(internal 4 quotation marks omitted). 5 Plaintiff-Intervenor can meet neither the first criterion nor the 6 third. 7 Pershing Park Villas Homeowners Ass’n v. United The Court finds that Plaintiff and Having found that the insurance policies in question are 8 indemnity contracts triggered only by actual loss and payment of 9 funds by the insured, Plaintiff must show that some funds were 10 actually paid either by SPBW or on its behalf. 11 could not have injured SPBW by failing to reimburse. 12 Plaintiff-Intervenor concede that SPBW has not made any payments 13 itself. 14 already made payments on its behalf, and that SPBW is responsible 15 for approximately $80,000 of those costs. 16 Mot. Summ. J. ¶ 5.) 17 Otherwise, EPG Plaintiff and Instead, they argue that SPBW’s previous insurer, LMI, has (Smith Decl. Opp’n to This argument, however, ignores the central components of an 18 indemnity policy, which are the payment of legal liability causing 19 actual loss to the insured. 20 Inc., 117 Cal. App. 4th 301, 312 (Cal. Ct. App. 2004)(“[A]n 21 indemnitor is not obligated for a claim made against an indemnitee 22 until the indemnitee has incurred an actual loss by having paid the 23 claim.”). 24 be a consequence of payment, no matter whether that payment is made 25 “by or on behalf of” the indemnitee. 26 Casualty Co., 88 Cal. App. 2d 891, 899 (Cal. Ct. App. 1948)(“[T]he 27 indemnitor's liability for the loss does not arise until the debt 28 has been paid and the indemnitee has thus suffered a See Superior Gunite v. Ralph Mitzel In other words, the loss suffered by the indemnitee must 23 See Alberts v. American 1 loss.”)(emphasis added). 2 insurer, LMI, made payments to reimburse Plaintiff’s defense 3 liability, but Plaintiff provides no evidence or allegation 4 demonstrating how these payments caused Plaintiff actual loss. 5 Therefore, this injury cannot be redressed by EPG. 6 against liability regardless of loss is a different contract than 7 the one at issue here; and Plaintiff’s argument is essentially 8 another way of saying that his insurance contract includes 9 liability instead of indemnity coverage. 10 In this case, a third-party liability Insurance Finally, the City suggests that Trustee Pringle has 11 independent standing because a successful lawsuit would aid the 12 bankruptcy estate by obtaining insurance proceeds. 13 begs the question, because a successful lawsuit is an impossibility 14 if there has been no injury in fact; there is simply no injury to 15 redress. 16 This contention In sum, the EPG Policies are contracts of indemnity, triggered 17 only by payment by or on behalf of SPBW causing actual loss. 18 is no dispute that no such payment has been made and, accordingly, 19 there is no loss to indemnify. 20 its previous Order finding that SPBW had standing. 21 of injury in fact, Plaintiff Pringle lacks standing to bring his 22 claims against EPG. 23 for summary judgment. Therefore, the Court reconsiders 25 /// 27 /// 28 /// Based on a lack Consequently, the Court GRANTS EPG’s motion 24 26 There 24 1 2 IV. CONCLUSION Based on the foregoing analysis, the Court GRANTS WQIS’ 3 request for a declaration of rescission and GRANTS EPG’s motion for 4 summary judgment. 5 has a duty to defend is DENIED. Pringle’s motion for summary judgment that WQIS 6 7 IT IS SO ORDERED. 8 Dated: August 6, 2009 9 DEAN D. PREGERSON 10 United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 25
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