Northrop Grumman Corporation v. Factory Mutual Insurance Company et al, No. 2:2005cv08444 - Document 348 (C.D. Cal. 2011)
Court Description: ORDER GRANTING DEFENDANTS MOTION FOR PARTIAL SUMMARY JUDGMENT ASTO NORTHROP GRUMMANS THIRD, FOURTH, FIFTH, SIXTH, SEVENTH, EIGHTH, AND NINTH CAUSES OF ACTION 289 by Judge Dean D. Pregerson (lc)
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Northrop Grumman Corporation v. Factory Mutual Insurance Company et al Doc. 348 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 NORTHROP GRUMMAN CORPORATION, 12 Plaintiff, 13 v. 14 15 FACTORY MUTUAL INSURANCE COMPANY, 16 17 Defendant. ___________________________ 18 ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 05-08444 DDP (PLAx) ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT AS TO NORTHROP GRUMMAN’S THIRD, FOURTH, FIFTH, SIXTH, SEVENTH, EIGHTH, AND NINTH CAUSES OF ACTION [Motion filed on April 29, 2011] Presently before the court is Factory Mutual Insurance 19 Company’s (“Factory Mutual”’s) Motion for Partial Summary Judgment 20 on Northrop Grumman Corporation’s (“Northrop”’s) Third, Fourth, 21 Fifth, Sixth, Seventh, Eighth, and Ninth Causes of Action. 22 No. 289.) 23 considering the arguments therein, and hearing oral argument, the 24 court GRANTS Defendants’ motion and adopts the following order. 25 I. (Dkt. After reviewing the materials submitted by the parties, Background 26 For the April 1, 2005, to April 1, 2006, policy year, Northrop 27 purchased approximately $20 billion in all risk property insurance. 28 During this period, Aon Risk Services, Inc. of Southern California Dockets.Justia.com 1 Insurance Services (“Aon”) represented Northrop in the insurance 2 marketplace. 3 In preparation for the renewal of Northrop’s insurance for the 4 2005-06 coverage year, Aon prepared a binder of materials entitled 5 “Underwriting Detail” for consideration by Northrop and the other 6 potential insurers. 7 included a review of Northrop’s objectives, probable loss 8 scenarios, risk assessments by Factory Mutual, and location 9 information. (Id.) (Compl. ¶ 17.) The Underwriting Detail The Underwriting Detail identified Northrop’s 10 “Renewal Objectives” as including protection against catastrophic 11 earthquake, flood, and wind damage, and the Underwriting Detail 12 defined “storm surge” as “[q]uickly rising ocean water levels 13 associated with windstorms . . . .” 14 (Compl. ¶ 17a-d.) Ultimately, Northrop’s 2005-2006 property insurance program 15 consisted of two layers. 16 of primary coverage (the “Primary Layer”). 17 comprised of approximately 30 policies. 18 of the Primary Layer’s policies (the “Factory Mutual Primary 19 Policy” or “Primary Policy”). The second layer was the excess 20 layer (the “Excess Policy”). The Excess Policy was one all risk 21 policy sold to Northrop by Factory Mutual. 22 provided for approximately $20 billion worth of coverage for losses 23 in excess of $500 million. 24 exclusion for flood damage (the “Flood Exclusion”). 25 The first layer provided for $500 million The Primary Layer was Factory Mutual issued one The Excess Policy The Excess Policy contained an In August 2005, Hurricane Katrina hit the Gulf Coast and 26 caused significant damage to Northrop properties. 27 estimates that it has sustained almost $940 million in property 28 damage and other loss as a result of the Hurricane. 2 Northrop 1 On November 4, 2005, Northrop filed suit against Factory 2 Mutual in California state court, claiming coverage for “storm 3 surge” damage under the Excess Policy. 4 case to this court, and the parties filed cross-motions for summary 5 judgment on whether the Excess Policy’s Flood Exclusion barred 6 coverage for storm surge damage from Hurricane Katrina. 7 16, 2007, this court entered partial summary judgment for Northrop, 8 and on April 2, 2009, the Ninth Circuit reversed, holding that the 9 Excess Policy’s Flood Exclusion encompassed storm surge damage. Factory Mutual removed the On August 10 See Northrop Grumman Corp. v. Factory Mut. Ins. Co., 563 F.3d 777, 11 788 (9th Cir. 2009). 12 plain language of the Flood Exclusion unambiguously bars coverage 13 for the water damage [i.e. storm surge damage] to Northrop’s 14 shipyards.” 15 Specifically, the court concluded that “the Id. at 784. Presently before the court is Factory Mutual’s Motion for 16 Partial Summary Judgment as to Northrop’s Third, Fourth, Fifth, 17 Sixth, Seventh, Eighth, and Ninth Causes of Action. 18 opposes the motion. 19 II. 20 Northrop Legal Standard Summary judgment and summary adjudication are appropriate 21 where "the pleadings, the discovery and disclosure materials on 22 file, and any affidavits show that there is no genuine issue as to 23 any material fact and that the movant is entitled to a judgment as 24 a matter of law." 25 Catrett , 477 U.S. 317, 324 (1986). 26 summary judgment, the evidence is viewed in the light most 27 favorable to the non-moving party, and all justifiable inferences Fed. R. Civ. P. 56(c); see also Celotex Corp. v. 28 3 In deciding a motion for 1 are to be drawn in its favor. 2 Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255 (1986). 3 A genuine issue exists if "the evidence is such that a 4 reasonable jury could return a verdict for the nonmoving party," 5 and material facts are those "that might affect the outcome of the 6 suit under the governing law." 7 fact exists "[w]here the record taken as a whole could not lead a 8 rational trier of fact to find for the non-moving party." 9 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 10 Id. at 248. No genuine issue of 587 (1986). 11 It is not enough for a party opposing summary judgment to 12 "rest on mere allegations or denials of his pleadings." 13 477 U.S. at 259. 14 pleadings to designate specific facts showing that there is a 15 genuine issue for trial. 16 existence of a scintilla of evidence" in support of the nonmoving 17 party's claim is insufficient to defeat summary judgment. 18 Anderson, 477 U.S. at 252. 19 III. 20 Anderson, Instead, the nonmoving party must go beyond the Celotex, 477 U.S. at 325. The "mere Discussion Factory Mutual moves this court for summary adjudication in 21 its favor of Northrop’s Third Cause of Action for tortious breach 22 of the implied covenant of good faith and fair dealing; Fourth 23 Cause of Action for fraud based upon an alleged promise made 24 without intent to perform; Fifth Cause of Action for fraud based on 25 misrepresentation; Sixth Cause of Action for fraud based upon 26 concealment; Seventh Cause of Action for negligent 27 misrepresentation; and Eight and Ninth Causes of Action for 28 4 1 reformation based upon fraud and mistake. 2 causes of action in turn. 3 A. The court considers the Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing 4 Following Hurricane Katrina, Factory Mutual informed Northrop 5 that the insurer was taking the position that the damage caused by 6 the Hurricane was attributable to the two separate perils of flood 7 and wind, and that flood damage, which is excluded under the Excess 8 Policy, includes storm surge and flood-related time element loss. 9 (Compl. ¶ 53.) Northrop contests Factory Mutual’s interpretation of 10 the Excess Policy. Northrop contends that all damage arising from 11 a Named Windstorm is covered by the Excess Policy, including storm 12 surge and flood-related time element loss. Accordingly, Northrop 13 argues that Factory Mutual has withheld coverage benefits in bad 14 faith, thereby committing the tort of breach of the implied 15 covenant of good faith and fair dealing. (Compl. ¶ 71.) Northrop 16 seeks to recover punitive damages. 17 In California, “[i]n addition to the right to sue an insurer 18 in contract, if the insurer acts unreasonably and without proper 19 cause in failing to investigate a claim, refusing to provide a 20 defense, or either delaying or failing to pay benefits due under 21 the policy, the insured can sue in tort for breach of the covenant 22 of good faith and fair dealing.” Richards v. Sequoia Ins. Co., 195 23 Cal. App. 4th 431, 438 (2011) (citing Emerald Bay Community Assn. 24 v. Golden Eagle Ins. Corp., 130 Cal. App. 4th 1078, 1093 (2005)). 25 To recover on Northrop’s cause of action for breach of the implied 26 covenant of good faith and fair dealing, Northrop must establish 27 both that benefits were withheld and that such withholding was 28 5 1 unreasonable or without proper cause. 2 221 Cal. App. 3d 1136, 1151 (1990). 3 See Love v. Fire Ins. Exch., Factory Mutual argues that because its denial of storm surge 4 related damages was found by the Ninth Circuit to be correct, such 5 denial was not unreasonable as a matter of law. 6 Mutual cannot have withheld benefits in bad faith that were never 7 due. 8 claims-handling conduct is ordinarily a question of fact, it 9 becomes a question of law where the evidence is undisputed and only The court agrees. That is, Factory While the reasonableness of an insurer's 10 one reasonable inference can be drawn from the evidence. 11 v. Blue Chip Stamps 150 Cal. App. 3d 187, 196 (1983). 12 benefits are withheld for proper cause, there is no breach of the 13 implied covenant. California Shoppers Inc. v. Royal Globe Ins. Co., 14 175 Cal. App. 3d 1, 54-55 (1985). 15 grants Factory Mutual summary judgment on Northrop’s Third Cause of 16 Action as respects storm surge benefits. 17 Paulfrey Where For these reasons, the court Northrop also asserts a claim for bad faith based on Factory 18 Mutual’s failure to pay Northrop’s business interruption losses. 19 Coverage of Northrop’s flood-related business interruption damages 20 has been disputed by the parties and was, as the court explained in 21 its July 27, 2011 Order, ambiguous. 22 Northrop had the duty to seek clarification at the time of entering 23 and agreeing to the policy. 24 to seek clarification at the time of signing resulted in a 25 surviving ambiguity and a concomitant forfeiture of the right to 26 seek bad faith damages. 27 28 Where a contract is ambiguous, Under the facts of this case, failure The duty imposed by law is not to unreasonably withhold payments due under the policy. See Neal v. Farmers Ins. Exchange, 6 1 21 Cal.3d 910, 920 (1978). 2 erroneous] withholding of policy benefits, if reasonable or if 3 based on a legitimate dispute as to the insurer's liability, . . . 4 does not expose the insurer to bad faith liability.” 5 Transamerica Ins. Co., 25 Cal. App. 4th 1269, 1280-1281 (1994). 6 Because there was a genuine dispute as to whether Northrop was 7 entitled to flood-related time element damages, Factory Mutual’s 8 withholding of these claimed damages was neither unreasonable nor 9 without proper cause. Without more, “the mistaken [or Tomaselli v. Factory Mutual is entitled to summary 10 judgment in its favor on Northrop’s Third Cause of Action for 11 tortious breach of the implied covenant of good faith and fair 12 dealing. 13 B. 14 Northrop’s Fourth, Fifth, Sixth, and Seventh Causes of Action 15 assert claims for promissory fraud, intentional misrepresentation, 16 concealment, and negligent misrepresentation respectively. 17 ¶¶ 72-102.) 18 judgment on these causes action because (1) the plain language of 19 the contract excluded coverage for storm surge damage and (2) 20 Northrop has not alleged a material misrepresentation made by 21 Factory Mutual or justifiable reliance. 22 11: 15-23.) 23 Misrepresentation-based causes of action (Compl. Factory Mutual contends that it is entitled to summary (Factory Mutual’s Reply The elements of a claim for the fraud of intentional 24 misrepresentation are a misrepresentation, made with knowledge of 25 its falsity (scienter) and with an intent to defraud or induce 26 reliance, justifiable reliance, and resulting damage. 27 Center, Inc. v. Farmers Group, Inc., 140 Cal. App. 4th 327, 377 28 (2006). R&B Auto A claim for negligent misrepresentation requires proof of 7 1 each of the same elements except, for purposes of establishing a 2 negligent misrepresentation, a defendant’s honest belief in the 3 truth of the statement, without a reasonable ground for that 4 belief, is sufficient. 5 States Fid. & Guar. Co., 192 Cal. App. 3d 684, 693 (1987). Id.; see also Orient Handel v. United 6 Promissory fraud is a subspecies of the action for fraud. 7 Behnke v. State Farm General Ins. Co., 196 Cal. App. 4th 1443, 1453 8 (2011). 9 intention to perform; hence, where a promise is made without such 10 intention, there is an implied misrepresentation of fact that may 11 be actionable fraud.” 12 promise made regarding a material fact without any intention of 13 performing it; the existence of the intent not to perform at the 14 time the promise was made; intent to deceive or induce the promisee 15 to enter into a transaction; reasonable reliance by the promisee; 16 nonperformance by the party making the promise; and resulting 17 damage to the promise. 18 19 20 21 22 23 24 25 “A promise to do something necessarily implies the Id. The elements of promissory fraud are a Id. A tort claim for fraud and deceit based upon concealment requires the plaintiff to plead and prove the following: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage. 26 Grayson Services, Inc. v. Wells Fargo Bank, — Cal. Rptr. 3d —, 2011 27 WL 4436470, at *18 (Cal. App. Sept. 26, 2011). 28 8 1 Each of the misrepresentation-based causes of action requires 2 a misrepresentation and reasonable reliance thereupon.1 3 Factory Mutual contends that Northrop has not – and cannot — 4 established either a material misrepresentation by Factory Mutual 5 or reasonable reliance on any such alleged misrepresentation by 6 Northrop because the Excess Policy is unambiguous. 7 relies on the Ninth Circuit’s finding that “the plain language of 8 the [Excess Policy’s] Flood Exclusion unambiguously bars coverage 9 for the water damage [i.e. storm surge damage] to Northrop’s Here, Factory Mutual 10 shipyards,” because “water damage [i.e. storm surge damage] . . . 11 falls squarely within the ordinary and plain meaning of flood.” 12 Northrop Grumman Corp., 563 F.3d at 784. 13 reasoning, any claim of fraud is defeated by the Ninth Circuit’s 14 finding that the contract was unambiguous. 15 Northrop disagrees. By Factory Mutual’s Northrop contends that the Ninth Circuit 16 did not consider extrinsic evidence, but rather, limited its review 17 to the Excess Policy and whether the Policy’s terms were clear. 18 Northrop argues that — for purposes of a fraud analysis — this 19 court may now consider the course of dealing and extrinsic 20 communications between the parties, which Northrop avers resulted 21 in a shared and alternate understanding of the terms of the 22 contract. 23 extrinsic communications with Factory Mutual and that, accordingly, 24 it justifiably expected that all damage from a Named Windstorm, Northrop maintains that it reasonably relied on its 25 1 26 27 28 Except the tort of concealment, which requires a showing of a misrepresentation but does not appear to require reasonable reliance. Grayson Services, Inc., 2011 WL 4436470 at *18. Instead, the tort of concealment requires that the plaintiff establish that the defendant had a special duty to disclose the concealed information to the plaintiff. Id. 9 1 including storm surge damage, would be covered by the Excess 2 Policy. 3 In support of Northrop’s position that the Ninth Circuit’s 4 prior ruling does not necessarily foreclose Northrop’s bad faith 5 claim, Northrop relies on Hackethal v. National Casualty Company, 6 189 Cal. App. 3d 1102, (1987). 7 of Appeal concluded that the terms of the contract in that case 8 were unambiguous but nonetheless went on to consider whether the 9 defendant “may be held liable for fraud as a result of alleged In Hackethal, the California Court 10 misrepresentations” made to the plaintiff. 11 1111. 12 had not demonstrated any material misrepresentations by the insurer 13 and, therefore, could not establish either a fraudulent 14 misrepresentation or reasonable reliance thereupon. Id. 189 Cal. App. 3d at The Hackenthal court ultimately concluded that the plaintiff Id. 15 This court could imagine that a course of events whereby two 16 parties agree to an insurance policy that is, on its face, clear; 17 nonetheless, the parties have reached a different, secret, agreed 18 upon alternate understanding of the terms of the agreement. 19 however, the court need not decide whether a plaintiff can sustain 20 a claim of fraudulent misrepresentation in the context of such an 21 unambiguous contract. 22 plead sufficient facts to create a triable issue of fact that 23 Factory Mutual materially misrepresented the terms of the Excess 24 Policy. 25 misrepresentations was not justifiable, and therefore, Factory 26 Mutual is entitled to summary judgment on Northrop’s causes of 27 action for fraud and negligent misrepresentation. Here, The court concludes that Northrop has not Furthermore, any reliance on the alleged 28 10 1 The heart of Northrop’s fraud claims is that Factory Mutual 2 misrepresented or concealed facts regarding the scope of the 3 alleged “Named Windstorm” coverage. 4 contends that: 5 6 7 8 9 10 11 12 13 14 15 16 In particular, Northrop In selling the excess policy to Northrop, Factory represented that its primary and excess policies were “all risk” policies . . . [and] Factory never distinguished between the perils of “wind” and “flood” related to hurricanes or Named Windstorms, and never said that it could consider hurricanes and Named Windstorms as involving two separate perils – wind, which its excess policy would cover, and “flood,” which its excess policy would not cover. (Compl. ¶ 73.) Northrop further alleges that: Factory’s policies also contain representations that they are “all risk” policies, that they cover losses from Gulf state hurricanes, that they cover “Named Windstorm,” which includes “Named Windstorm” storm surges and wind-driven water, [and] that they do not exclude losses from Named Windstorms, storm surges, or wind-driven water . . . . 17 (Compl. ¶ 74.) 18 maintains, “knowing that they were false,” and Northrop reasonably 19 relied upon them. 20 Factory Mutual made these representations, Northrop (Compl. ¶¶ 75, 77.) Northrop’s primary point of contention concerns the insured’s 21 understanding that it was purchasing a blanket or “all risk” 22 coverage for the peril of “Named Windstorm.” 23 explained in its July’ 27, 2011 Order, Named Windstorm refers to a 24 deductible found in the Primary Policy and not a peril or type of 25 coverage in the either the Primary or Excess Policy. 26 conclusion was based on a plain reading of the terms of the 27 policies. 28 11 However, as the court The court’s 1 Northrop’s primary evidence in support of its alternate 2 understanding of “Named Windstorm” is a March 2002 email between 3 Robert Roach of Factory Mutual and Robert (“Bob”) Hayes of Aon. 4 That email, sent from Roach to Hayes, states that when Factory 5 Mutual: 6 refer[s] to excluding ‘wind’ and the ‘wind’ deductible . . . it is actually a Named Windstorm Deductible, that applies to wind and flood – anything related to a named windstorm. So if we went to either of these solutions, the coverage and/or deductible we are talking about would be the Named Windstorm deductible, applying to both wind and flood. 7 8 9 10 11 (Northrop’s Opp’n, Ex. 15.) 12 not by any measure clearly state that there is coverage for the 13 peril “Named Windstorm.” 14 Windstorm deductible. 15 The Roach email, while confusing, does Indeed, it twice refers to a Named Northrop also claims reliance on a 2004 “Property Insurance 16 Renewal Briefing,” which was prepared by Aon and presented to 17 Factory Mutual, and a 2001 “Engineering Risk Assessment” prepared 18 by Factory Mutual. 19 Windstorm” under “Perils Insured” along with “Earthquake” and 20 “Flood.” 21 report lists Northrop’s natural hazard exposures and includes, 22 among the list, Windstorms. 23 Assessment also explains that the “severity” of damage from “wind” 24 is “based . . . [on] exposure to storm surge, and other factors.” 25 (Id.) 26 The Renewal Briefing booklet lists “Named (Fleishman Decl. ¶ 5, Ex. 11.) The Risk Assessment (Northrop Opp’n, Ex. 14.) The Risk The court is not persuaded that either of these documents 27 could amount to a material misrepresentation by Factory Mutual as 28 to the Excess Policy’s coverage. The Policy itself, as the court 12 1 has explained before, unambiguously considers Named Windstorm a 2 deductible, not a coverage. 3 prepared by Aon contradicts the clear terms of the policy, the 4 terms of the policy govern, and Aon’s understanding of Named 5 Windstorm as a peril cannot, without more, amount to a 6 misrepresentation by Factory Mutual. 7 2001 Risk Assessment report that storm surge damage was wind- 8 related does not create coverage, or a fraudulent representation 9 thereof, for the peril of “Named Windstorm.” 10 Where a Renewal Briefing booklet Accordingly, a statement in a Finally, Northrop offers the 2005 Underwriting Detail, which 11 was prepared by Aon and expresses Northrop’s understanding that 12 “storm surge estimates are included in our windstorm analyses 13 unless mentioned otherwise.” 14 notes that Factory Mutual objected to this definition of storm 15 surge but did not offer any explanation for its objection. 16 Northrop’s reliance on Factory Mutual’s silence, even if such 17 silence did amount to a material misrepresentation, was not 18 reasonable in light of the plain language of the contract, which 19 excluded storm surge as flood. 20 no specific duty to its insured to determine whether the coverage 21 issued meets the insured’s expectations. 22 Employers Ins. Co., 162 Cal. App. 3d 441, 452 (1984); Schultz Steel 23 Co. v. Hartford Acc. & Indem. Co., 187 Cal. App. 3d 513, 522 24 (1986). 25 (Northrop Opp’n, Ex. 15.) Northrop As a general rule, an insurer owes See, e.g., Gibson v. Gov. Factory Mutual’s decision to include storm surge as wind 26 damage after the 1998 Hurricane Georges does not affect this 27 independent policy. 28 13 1 In sum, Northrop has not provided or alleged facts to support 2 a finding that Factory Mutual represented to Northrop that all 3 damage from a Named Windstorm would be covered in the Excess Policy 4 or that such damage would not be subject to the other terms of the 5 Excess Policy, including the exclusion for flood. 6 belief on Northrop’s part to the contrary – in the absence of a 7 material misrepresentation and in light of the plain terms of the 8 contract – was not reasonable. 9 Accordingly, any It does not change the court’s analysis whether Aon told 10 Northrop that the Excess Policy would cover all damages caused by a 11 Named Windstorm. (Northrop’s Opp’n 6:8-19, 10:9-10). 12 misrepresented the coverage, then Northrop’s claim is more 13 appropriately taken up with Aon. 14 to read the express terms of the policy, or else, to suffer the 15 consequences of relying on an intermediary agent. 16 Hadland v. NN Investors Life Ins., 24 Cal. App. 4th 1578, 1588-89 17 (1994). 18 If Aon Northrop had an independent duty See, e.g., To the extent that Factory Mutual advised Northrop that the 19 Excess Policy covered all risks except those excluded, the 20 statement was neither fraudulent nor misleading since it was 21 consistent with the coverage provided under the Excess Policy. 22 Policy itself states that “This Policy covers property, as 23 described in this Policy, against ALL RISK OF PHYSICAL DAMAGE, 24 except as hereinafter excluded.” 25 It is undisputed that Aon, acting as Northrop’s agent for purposes 26 of obtaining the Excess Policy, read the Policy. 27 therefore, was on notice of the Policy’s exclusions and coverages. The (Excess Policy, Ex. 1B, p. 60.) 28 14 Nothrop, 1 Factory Mutual is entitled to summary judgment on the 2 misrepresentation-based causes of action. 3 C. 4 Northrop’s Eighth and Ninth Causes of Action seek reformation Reformation 5 of the Excess Policy. 6 articulates when a contract may be revised: 7 California Civil Code section 3399 11 When, through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value. 12 Cal. Civ. Code § 3399; see Am. Home Ins. Co. v. Travelers Indem. 13 Co., 122 Cal. App. 3d 100, 964 (1981). 14 evidence of fraud, mutual mistake, or knowledge by Factory Mutual 15 of any mistake by Northrop in support of reformation of the Excess 16 Policy, the court concludes that Factory Mutual is entitled to 17 summary judgment on Northrop’s Eighth and Ninth Causes of Action. 8 9 10 18 Because the court finds no “In order to be entitled to reformation, a party must present 19 clear and convincing evidence that the agreement as written does 20 not express the true intention of the parties and that there was a 21 mutual mistake.” Dictor v. David & Simon, Inc., 106 Cal. App. 4th 22 238, 253 (2003). This standard requires a “finding of high 23 probability” so that there is “no substantial doubt,” a standard 24 that is particularly difficult to satisfy where there is a written 25 contract. 26 contract is presumed to express the parties’ intentions. 27 Appalachian Ins. Co. v. McDonnel Douglas Corp., 214 Cal. App. 3d 1, 28 19 (1989). In re Angelia P., 28 Cal. 3d 908, 919 (1981). 15 A written 1 Here, Northrop alleges that Factory Mutual failed to include 2 coverage in the Excess Policy for storm surge, a coverage Northrop 3 wanted to purchase. 4 support a claim for reformation. 5 Without more, however, such a claim cannot A comparison with Taff is instructive. Taff v. Atlas 6 Assurance Co. Ltd., 58 Cal. App. 2d 696 (1943). 7 and insurer disputed an exclusion, and the insured sought 8 reformation to delete the exclusion. 9 Taff court explained: 10 11 12 13 14 15 16 17 18 19 In Taff an insured In denying that request, the Where the insured alleges as a fact that the defendant did not issue a policy covering the particular risk which he claims to have specified, he must in an action for revision allege more than the neglect of the insurer to cover such risk and his own demand for such coverage. If the insurer does not grant the coverage applied for, the insured may reject the policy. However, the mere failure to issue the policy requested does not necessarily constitute fraud or actionable mistake. It must be alleged that defendant knew or should have known that plaintiff would not examine the policy or that defendant took affirmative action to prevent such examination. Id. at 702. Here, there were no facts pleaded showing that Factory Mutual 20 knew or could have known that Northrop would not examine the Excess 21 Policy when issued to it, nor are there allegations that Factory 22 Mutual took affirmative action to prevent such examination. 23 Because there is no evidence to support a finding that Factory 24 Mutual made false statement regarding the scope of the coverage 25 provided, and the plain terms of the policy make clear that it is 26 subject to exclusions, which include a flood exclusion, Factory 27 Mutual is entitled to summary judgment on Northrop’s Eighth Cause 28 of Action for Reformation based on fraud. 16 Furthermore, because 1 there is no evidence in the record to support a finding that 2 Factory Mutual knew or suspected any unilateral mistaken 3 understanding on the part of Northrop, the court grants Factory 4 Mutual summary judgment as to Northrop’s Ninth Cause of Action for 5 reformation based on mistake. 6 (explaining that when “one party to the contract is mistaken as to 7 its provisions and his mistake is known or suspected by the other, 8 the contract may be reformed to express a single intention 9 entertained by both parties”). 10 11 IV. See Lemoge, 46 Cal. 2d at 663 Conclusion For the reasons stated above, the court GRANTS Factory 12 Mutual’s Motion for Partial Summary Judgment on Northrop Grumman’s 13 Third, Fourth, Fifth, Sixth, Seventh, Eighth, and Ninth Causes of 14 Action. 15 16 IT IS SO ORDERED. 17 18 19 Dated: September 28, 2011 DEAN D. PREGERSON United States District Judge 20 21 22 23 24 25 26 27 28 17
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