Evanston Insurance Company v. American Safety Indemnity Company, No. 4:2010cv01472 - Document 27 (N.D. Cal. 2011)

Court Description: ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS 20 MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING DEFENDANTS 21 CROSS-MOTION FOR SUMMARY JUDGMENT. Case Management Statement due by 6/2/2011. Further Case Management Conference set for 6/9/2011 02:00 PM. Motion Hearing set for 6/9/2011 02:00 PM before Hon. Claudia Wilken. Signed by Judge Claudia Wilken on 2/10/2011. (ndr, COURT STAFF) (Filed on 2/10/2011)

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Evanston Insurance Company v. American Safety Indemnity Company Doc. 27 1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 No. C 10-01472 CW EVANSTON INSURANCE COMPANY, 5 6 7 ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING DEFENDANT’S CROSS-MOTION FOR SUMMARY JUDGMENT (Docket Nos. 20 and 21) Plaintiff, v. AMERICAN SAFETY INDEMNITY COMPANY, 8 Defendant. / 9 United States District Court For the Northern District of California 10 11 12 13 Plaintiff Evanston Insurance Company asserts an equitable 14 contribution claim against Defendant American Safety Indemnity 15 Company. 16 opposes Plaintiff’s motion and cross-moves for summary judgment 17 that Plaintiff is not entitled to equitable contribution. 18 Plaintiff opposes Defendant’s cross-motion. 19 under submission on the papers. 20 submitted by the parties, the Court GRANTS in part Plaintiff’s 21 motion for partial summary judgment and DENIES it in part and 22 DENIES Defendant’s cross-motion for summary judgment. Plaintiff moves for partial summary judgment. Defendant The motions were taken Having considered the papers 23 BACKGROUND 24 The parties are insurance companies with a common insured, 25 Northern California Universal Enterprise Company (Northern Cal). 26 Northern Cal is a developer which constructed single-family 27 residences in Mendota, California. 28 Ayala v. Northern California Universal Enterprise Company, No. These homes are at issue in Dockets.Justia.com 1 07CECG01000-AMS, a lawsuit pending in Fresno County Superior Court. 2 Plaintiff seeks contribution from Defendant for the costs to defend 3 Northern Cal in the Ayala action. 4 The parties maintain that the current action raises only legal 5 questions concerning one of the insurance policies Defendant issued 6 to Northern Cal. 7 described below. They stipulate to the facts and evidence 8 A. 9 Both parties issued general liability policies to Northern Northern Cal’s Insurance Policies United States District Court For the Northern District of California 10 Cal. 11 ESL010742-05-01, which was effective September 19, 2005 through 12 September 19, 2006. 13 of two policy endorsements and one exclusion on Defendant’s duty to 14 defend Northern Cal in the Ayala action. 15 This action concerns only one of Defendant’s policies, No. In particular, the parties dispute the effects The policy contains a Self-Insured Retention (SIR)1 16 Endorsement. 17 occurrence, which applies to “all damages, however caused.” 18 Stip. ¶ 7. 19 20 21 22 23 The endorsement provides an SIR of $50,000 per Jt. The endorsement further states, As a condition precedent to our obligations to provide or continue to provide indemnity, coverage or defense hereunder, the insured, upon receipt of notice of any “suit”, incident or “occurrence” that may give rise to a “suit”, and at our request, shall pay over and deposit with us all or any part of the self-insured retention amount as specified in the policy, requested by us, to be applied by us as payment toward any damages or SUPPLEMENTARY PAYMENTS - COVERAGES A AND B incurred in 24 1 27 An SIR, which is also referred to as a “retained limit,” pertains to “a specific sum or percentage of loss that is the insured's initial responsibility and must be satisfied before there is any coverage under the policy.” Forecast Homes, Inc. v. Steadfast Ins. Co., 181 Cal. App. 4th 1466, 1474 (2010) (citation omitted). 28 2 25 26 1 the handling or settlement of any such incident, “occurrence” or “suit”. 2 Id. Occurrence is defined to mean “an accident, including 3 continuous or repeated exposure to substantially the same general 4 harmful conditions.” Jt. Stip., Ex. 2, at 12. 5 The policy also includes a Subcontractor’s Warranty 6 Endorsement, which provides, 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 As a condition precedent to coverage for the insured under this policy for injury or damage covered by this policy arising directly or indirectly out of the actions of a subcontractor working directly or indirectly on behalf of the Named Insured and for which the Named Insured becomes legally liable, it is hereby agreed and understood that such subcontractor shall maintain occurrence form general liability coverage covering the work performed by such subcontractor . . . . Such insurance must also include the Named Insured as an Additional Insured. We shall have no obligation for defense or indemnity of any insured for actions of subcontractors if, at any time, all of the terms and conditions of this Endorsement are not satisfied. 15 Jt. Stip. ¶ 8. 16 conditions and exclusions under the policy are applicable to this 17 Endorsement and remain unchanged.” 18 19 20 21 The endorsement further states, “All other terms, Id. Finally, the policy contains a Total Prior Work Exclusion, which states, (3) The “occurrence” and resulting injury or damage must result, in its entirety, from “your work” performed during the policy period of this policy: 22 27 If the “occurrence” or resulting injury or damage is claimed to have resulted from “your work” first commenced during the policy period of this policy, then the only applicable policy is this policy, regardless of whether “your work” continued beyond the policy period of this policy. If “your work” was performed in part during the policy period of this policy, in part prior to the policy period of this policy, any “occurrence” and resulting injury or damage claimed to result from “your work” will be deemed to have resulted, in its entirety, solely from 28 3 23 24 25 26 1 “your work” prior to the policy period of this policy except if this policy is a renewal of an immediate preceding policy issued by us so that coverage is continuous, without any gap in time, between this policy and the immediately preceding prior policy issued by us, in which case any “occurrence” and resulting injury or damage claimed to result from “your work” will be deemed to have resulted, in its entirety, solely from “your work” in the policy period of the immediately preceding prior policy issued by us. Under no circumstances shall more than one policy issued by us apply to any “occurrence” and resulting injury or damage, and under no circumstances shall the total limits of insurance applicable to any “occurrence” and resulting injury or damage exceed the lesser of, the limits of this policy or the limits of any prior or subsequent policy issued by us, even if the “occurrence” and resulting injury or damage occurred in, or commenced and concluded, in different policy periods. 2 3 4 5 6 7 8 9 United States District Court For the Northern District of California 10 11 Jt. Stip. ¶ 9. 12 conditions and exclusions under the policy are applicable to this 13 Endorsement and remain unchanged.” The exclusion further states, “All other terms, Id. 14 B. 15 The Ayala action was filed on April 2, 2007. Underlying Action and Northern Cal’s Tender for Defense The Ayala 16 plaintiffs allegedly own single-family homes constructed by 17 Northern Cal in Mendota. 18 other unknown defendants, “did not construct the property in a 19 workmanlike manner,” leading to several defects. 20 ¶ 15. 21 of the implied warranties of fitness and merchantability, and 22 negligence. 23 They aver that Northern Cal, along with Jt. Stip., Ex. 1 They assert claims for strict products liability, breaches Twenty-one homes are involved in the Ayala action. Six of 24 these homes were completed prior to the inception of Defendant’s 25 policy. 26 27 28 Northern Cal tendered defense of the Ayala action to Defendant on June 29, 2008. In a letter dated August 29, 2008, Defendant 4 1 responded to Northern Cal, stating that it 2 agrees to participate in the defense of Northern California Universal in the underlying suit, subject to pay over of the $50,000 Self-Insured Retention (“SIR”) under policy number ESL010742-05-01 (eff. 9/19/059/19/06) and pay over of the $50,000 SIR under ESL01074206-02 (eff. 9/19/06-09/19/07), and pursuant to the terms, conditions and/or provisions of the ASIC policies and under a reservation of rights as set forth herein. 3 4 5 6 Jt. Stip., Ex. 5, at 1. The letter further stated that, once 7 Defendant received “one of the two $50,000 SIR payments,” it would 8 “retain attorney Sheila Fix . . . to defend Northern California 9 Universal.” Id. The letter then recited the relevant facts of the United States District Court For the Northern District of California 10 Ayala action, stating, 11 Six (6) of the homes in this litigation were completed prior to the inception of the first ASIC policy period. . . . Fourteen (14) homes in this litigation were completed during the first ASIC policy period (effective 9/19/05-9/19/06). . . . One of the homes in this litigation . . . was completed during the second ASIC policy period (effective 9/19/06-9/19/07). 12 13 14 15 Id. The letter also detailed various exclusions and endorsements 16 contained in Northern Cal’s policy and stated that, by listing 17 these provisions, Defendant “does not intend to waive any of the 18 terms, conditions or defenses available to it under the above 19 referenced policies of insurance, or defenses available under the 20 law.” Id. at 10. 21 In a follow-up letter dated October 16, 2008, Defendant 22 informed Northern Cal that its defense of the Ayala action was 23 dependent on Northern Cal satisfying two conditions precedent. Jt. 24 Stip., Ex. 6, at 1. The first required Northern Cal’s payment of 25 one of the $50,000 SIRs. The second involved the Subcontractor’s 26 Warranty Endorsement. With regard to this condition, the letter 27 28 5 1 stated, 2 As a condition precedent to coverage under the policy, Northern California Universal was required to be named as an additional insured under all of the subcontractor policies. In the event Northern California Universal was not named as an additional insured under all subcontractor policies, then you did not meet your condition precedent relative to this endorsement. 3 4 5 6 Id. at 3. 7 Sometime thereafter, Northern Cal informed Defendant of its 8 objection to paying one of the $50,000 SIRs “up front,” stating 9 that all “damages and attorneys will ultimately be paid by United States District Court For the Northern District of California 10 subcontractor insurers. 11 and will pay up to $50,000 at the end of the settlement process.” 12 Jt. Stip., Ex. 7, at 1. 13 Defendant responded to Northern Cal’s objections, reiterating that 14 payment “of the SIR is a condition precedent to coverage” and that 15 “coverage will not be triggered until at least one SIR is paid.” 16 Id. 17 satisfy “the condition precedent in the Subcontractors Warranty 18 Endorsement.” 19 20 To the exten[t] they are not, Northern can In a letter dated February 25, 2009, Defendant further restated that Northern Cal also had to Id. On or about October 21, 2009, Northern Cal tendered a check for $50,000 to Defendant to cover one of its SIRs. 21 In a letter dated June 14, 2010, Defendant acknowledged that 22 Northern Cal had satisfied the condition to pay one of its $50,000 23 SIRs. 24 met the condition under the Subcontractor’s Warranty Endorsement. 25 Defendant thus requested documentary evidence that Northern Cal was 26 included as an “Additional Insured” on its subcontractors’ 27 policies. 28 However, Defendant indicated that Northern Cal had not yet Jt. Stip., Ex. 9, at 3. 6 Northern Cal, however, 1 “obtained no Additional Insured endorsements in its favor from any 2 of the subcontractors that performed work at the development at 3 issue.” 4 Jt. Stip. ¶ 11. Defendant has not paid any defense costs incurred by Northern 5 Cal in the Ayala action. 6 tendered by Northern Cal for the SIR. 7 8 Nor has it returned the $50,000 check LEGAL STANDARD Summary judgment is properly granted when no genuine and disputed issues of material fact remain, and when, viewing the 10 United States District Court For the Northern District of California 9 evidence most favorably to the non-moving party, the movant is 11 clearly entitled to prevail as a matter of law. 12 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); 13 Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir. 14 1987). 15 16 Fed. R. Civ. P. DISCUSSION Defendant asserts that the Subcontractor’s Warranty 17 Endorsement and the Total Prior Work Exclusion preclude coverage 18 for any claims in the Ayala action and, as a result, it does not 19 have a duty to defend Northern Cal. 20 even if it had a duty, it did not attach until October 21, 2009, 21 the date Northern Cal tendered its check for $50,000. 22 Defendant also maintains that, Plaintiff asks the Court to adjudicate summarily that neither 23 the Subcontractor’s Warranty Endorsement nor the Total Prior Work 24 Exclusion bars coverage and that Defendant’s duty to defend began 25 to run on June 29, 2008, the date Northern Cal tendered defense of 26 the Ayala action to Defendant. 27 28 7 1 2 I. Existence of a Duty to Defend A “liability insurer owes a broad duty to defend its insured 3 against claims that create a potential for indemnity.” 4 Ins. Co. v. Barbara B., 4 Cal. 4th 1076, 1081 (1993) (citing Gray 5 v. Zurich Ins. Co., 65 Cal. 2d 263 (1966)). 6 entitled to a defense if the underlying complaint alleges the 7 insured’s liability for damages potentially covered under the 8 policy, or if the complaint might be amended to give rise to a 9 liability that would be covered under the policy.” Horace Mann An “insured is Montrose Chem. United States District Court For the Northern District of California 10 Corp. v. Superior Court, 6 Cal. 4th 287, 299 (1993) (emphasis in 11 original and citation omitted). 12 only a showing of a potential for liability is “one reason why it 13 is often said that the duty to defend is broader than the duty to 14 indemnify.” 15 That the duty to defend requires Id. at 299. To show that a duty to defend has attached, an insured “must 16 prove the existence of a potential for coverage.” 17 4th at 300 (emphasis in original). 18 duty exists, “the insurer must establish the absence of any such 19 potential.” 20 insured need only show that the underlying claim may fall within 21 policy coverage; the insurer must prove it cannot.” 22 in original). 23 Montrose, 6 Cal. In contrast, to show that no Id. (emphasis in original). “In other words, the Id. (emphasis A duty to defend may exist “even where coverage is in doubt 24 and ultimately does not develop.” 25 internal quotation marks omitted). 26 inferable in the complaint, or otherwise known or discovered by the 27 insurer, suggest a claim potentially covered by the policy, the 28 Id. at 295 (citation and 8 “If any facts stated or fairly 1 insurer’s duty to defend arises and is not extinguished until the 2 insurer negates all facts suggesting potential coverage.” 3 Scottsdale Ins. Co. v. MV Transp., 36 Cal. 4th 643, 655 (2005). 4 “Determination of the duty to defend depends, in the first 5 instance, on a comparison between the allegations of the complaint 6 and the terms of the policy.” Id. 7 A. 8 Defendant maintains that, under the Subcontractor’s Warranty Effect of the Subcontractor’s Warranty Endorsement Endorsement, Northern Cal’s failure to obtain “Additional Insured” 10 United States District Court For the Northern District of California 9 endorsements in its favor from any of its subcontractors precludes 11 all coverage under the policy at issue here. 12 The plain language of the endorsement does not support 13 Defendant’s broad reading. 14 provides that the requirement that Northern Cal be named as an 15 Additional Insured on its subcontractors’ policies is “a condition 16 precedent to coverage . . . under this policy for injury or damage 17 covered by this policy arising directly or indirectly out of the 18 actions of a subcontractor working directly or indirectly on behalf 19 of the Named Insured and for which the Named Insured becomes 20 legally liable.” 21 later states that Defendant “shall have no obligation for defense 22 or indemnity of any insured for actions of subcontractors if, at 23 any time, all of the terms and conditions of this Endorsement are 24 not satisfied.” 25 restricts the condition precedent to instances in which Northern 26 Cal seeks defense or indemnity for a particular subcontractor’s 27 actions. 28 As noted above, the endorsement Jt. Stip. ¶ 8 (emphasis added). Id. (emphasis added). The endorsement This language unambiguously Defendant’s interpretation fails to give effect to the 9 1 limiting prepositional phrases “for injury or damage . . . arising 2 directly or indirectly out of the actions of a subcontractor” and 3 “for actions of subcontractors.” 4 them, did not appear in the policy at issue in Scottsdale Insurance 5 Co. v. Essex Insurance Co., 98 Cal. App. 4th 86 (2002), a case 6 Defendant cites. 7 “conditions for coverage” was that the insured “will be named as 8 additional insured on all subcontractors general liability 9 policies.” These two phrases, or variants of There, the policy provided that one of the Id. at 93-94. The court held this condition to be United States District Court For the Northern District of California 10 enforceable and, because the insured was not so named, the policy 11 offered no coverage. 12 however, the endorsement in Scottsdale did not limit the 13 requirement to coverage for certain actions. 14 Id. at 94-98. Unlike the endorsement here, Defendant’s reliance on North American Capacity Insurance Co. 15 v. Claremont Liability Ins. Co., 177 Cal. App. 4th 272 (2009), is 16 similarly unavailing. 17 contained in Claremont’s policy, nearly identical to the one at 18 issue here, with which the insured had failed to comply. 19 276. 20 from those here. 21 contribution from Claremont for indemnity costs related to a $1.1 22 million settlement. 23 trial court concluded that, because of the warranty endorsement, 24 Claremont had no liability for $909,574 in damages caused by the 25 insured’s subcontractors. 26 court affirmed the judgment of the trial court. 27 does not point to any evidence that any or all of the damages 28 That case involved a warranty endorsement, Id. at However, the circumstances of the case are distinguishable There, North American sought equitable Id. at 275-76. Following a bench trial, the See id. at 276, 287-291. 10 The appellate Here, Defendant 1 alleged in the Ayala action are attributable to Northern Cal’s 2 subcontractors. 3 position. 4 warranty endorsement, Claremont was found to be liable for 5 $40,027.55 of the $1.1 million settlement. 6 suggests that, here, Defendant is potentially liable for a portion 7 of Northern Cal’s loss, giving rise to a duty to defend. 8 9 Indeed, North American supports Plaintiff’s Notwithstanding that insured’s failure to satisfy the Id. at 276. This A review of the Ayala complaint confirms a potential for liability. The plaintiffs allege that Northern Cal failed to United States District Court For the Northern District of California 10 construct their homes “in a workmanlike manner,” which has caused 11 defects. 12 led to “resultant and consequential damage,” including “excessive 13 moisture intrusion through concrete slabs damaging floor coverings, 14 furnishings and personal effects” of the plaintiffs. 15 Defendant maintains that its policy “does not cover the cost of 16 removing, repairing, or replacing the defective work performed by” 17 Northern Cal. 18 cites do not appear to address damage to the Ayala plaintiffs’ 19 personal property.2 Jt. Stip., Ex. 1 ¶ 15. Def.’s Mot. 8. In turn, these purported defects Id. ¶ 16. However, the exclusions Defendant 20 2 27 Defendant cites the policy’s exclusions for property damage to “your product,” property damage to “your work,” and property damage to “impaired property” or property that has not been physically injured resulting from defects in “your product” or “your work.” See Jt. Stip., Ex. 2, CG 00 01 07 98, at 4. “Your product” is defined to mean any “goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by” Northern Cal. Id. at 13. “Your work” is defined to mean “[w]ork or operations performed by you or on your behalf; and . . . [m]aterials, parts or equipment furnished in connection with such work or operations.” Id. “Impaired property” refers to “tangible property other than ‘your product’ or ‘your work’, that cannot be used or is less useful because . . . [i]t incorporates ‘your product’ or ‘your work’ that is known or thought be defective, 28 11 21 22 23 24 25 26 1 As in North American, Northern Cal’s failure to satisfy the 2 Subcontractor’s Warranty Exclusion may limit Defendant’s exposure 3 for indemnity costs. 4 possibility that, notwithstanding Northern Cal’s default, some of 5 the Ayala plaintiffs’ claims could be covered by its policy. 6 Accordingly, the Court grants Plaintiff’s motion for partial 7 summary judgment with respect to the Subcontractor’s Warranty 8 Exclusion and summarily adjudicates that this endorsement does not 9 preclude coverage for all claims in the Ayala action. However, Defendant has not foreclosed the The Court United States District Court For the Northern District of California 10 denies Defendant’s motion for summary judgment based on this 11 endorsement. 12 B. 13 Defendant maintains that, because six of the homes at issue in Effect of the Total Prior Work Exclusion 14 the Ayala action were completed before the effective date of its 15 policy, the Total Prior Work Exclusion precludes any coverage. 16 Defendant’s reading is not supported. 17 As noted above, the exclusion requires that the “‘occurrence’ 18 and resulting injury or damage must result, in its entirety, from 19 ‘your work’ performed during the policy period of this policy.” 20 Jt. Stip. ¶ 9. 21 The exclusion explains, If “your work” was performed in part during the policy period of this policy, in part prior to the policy period of this policy, any “occurrence” and resulting injury or damage claimed to result from “your work” will be deemed to have resulted, in its entirety, solely from “your work” prior to the policy period of this policy . . . . 22 23 24 Id. 25 Defendant’s argument requires interpreting “occurrence” to 26 27 28 deficient, inadequate or dangerous.” 12 Id. 1 refer to all the claims asserted in the Ayala lawsuit. 2 Defendant maintains that, because the Ayala action involves some 3 claims concerning homes on which Northern Cal performed work before 4 the inception of the policy, the exclusion precludes coverage for 5 all claims, including for those homes on which Northern Cal began 6 work during the policy period and completed during the period or 7 thereafter. 8 included homes worked on or completed before the policy period, 9 Northern Cal would be covered. In essence, Under Defendant’s theory, had the Ayala lawsuit not This reading impermissibly premises United States District Court For the Northern District of California 10 coverage on the scope of the underlying lawsuit. 11 Supreme Court has stated, “the third party plaintiff cannot be the 12 arbiter of coverage.” 13 As the California Montrose, 6 Cal. 4th at 296. The exclusion, when read in the context of the policy, 14 unambiguously provides that there is no coverage for claims of 15 injury or damage resulting from work that began or was completed 16 before the policy’s effective date. 17 Northern Cal’s actions, not on the claims the Ayala plaintiffs 18 chose to include in a single lawsuit. 19 confirmed not only by the exclusion itself, which refers to 20 Northern Cal’s work, but by the definition of “occurrence,” which 21 is “an accident.” 22 the word “accident” its ordinary meaning, it is apparent that an 23 occurrence refers to some act by Northern Cal, not the lawsuit 24 filed by the Ayala plaintiffs. 25 The exclusion focuses on This interpretation is Jt. Stip., Ex. 2, CG 00 01 07 98, at 12. While some acts of Northern Cal may not be covered, Defendant 26 has not foreclosed the potential for coverage. 27 does not allege when the homes were built. 28 Giving 13 The Ayala complaint And while the parties 1 stipulate to the fact that six of the twenty-one homes were 2 completed before the policy period, they do not indicate when work 3 on the other homes began. 4 evidence that an accident caused by Northern Cal’s work during the 5 period before the policy’s inception caused all the injury or 6 damage alleged in the Ayala suit. 7 claims are potentially covered by Defendant’s policy, which imposes 8 a duty to defend on Defendant. 9 Further, Defendant does not offer As a result, some of the Ayala Accordingly, the Court grants Plaintiff’s motion for partial United States District Court For the Northern District of California 10 summary judgment with respect to the Total Prior Work Exclusion and 11 summarily adjudicates that this endorsement does not preclude 12 coverage for all claims in the Ayala action. 13 Defendant’s motion for summary judgment based on this endorsement. 14 Because neither the Subcontractor’s Warranty Exclusion nor the 15 Total Prior Work Exclusion bars coverage, the Court summarily 16 adjudicates that Defendant has a duty to defend Northern Cal. 17 II. 18 The Court denies Date on which Duty to Defend Attached As already noted, Defendant’s policy at issue here contained a 19 $50,000 SIR, which Northern Cal paid on October 21, 2009. 20 relevant part, Defendant’s SIR endorsement provides that, as “a 21 condition precedent to our obligations to provide . . . defense 22 hereunder, the insured, upon receipt of notice of any 23 ‘suit’ . . . , and at our request, shall pay over and deposit with 24 us all or any part of the self-insured retention amount as 25 specified in the policy, requested by us . . . .” 26 27 28 In Jt. Stip. ¶ 7. Plaintiff does not dispute that the endorsement’s language plainly and clearly states that satisfaction of the SIR is a 14 1 condition precedent to Defendant’s duty to defend. 2 Plaintiff maintains that once an SIR is satisfied, an insurer’s 3 duty to defend should, as a matter of law, run retroactively to the 4 date an insured made a tender for defense. 5 However, Plaintiff relies solely on Montrose, in which the California Supreme Court stated, “The defense duty is a continuing one, 7 arising on tender of defense and lasting until the underlying 8 lawsuit is concluded.” 9 Montrose did not make the insurer’s duty to defend dependent on the 10 United States District Court For the Northern District of California 6 payment of a self-insured retention, and the court did not consider 11 what impact such a condition precedent would have on when the duty 12 would arise. 13 6 Cal. 4th at 295. However, the policy in In Legacy Vulcan Corp. v. Superior Court, the court addressed 14 the impact of an SIR on an insurer’s duty to defend. 15 4th 677, 694-97 (2010). 16 exhaustion of an SIR does not, on its own, prevent the imposition 17 of duty to defend upon an insurer’s tender for defense. 18 696. 19 states that the insurer’s duty to defend is conditioned on the 20 exhaustion of an SIR, the duty will not arise at tender, but rather 21 when such exhaustion occurs. 22 ‘self-insured retention,’ expressly limits the duty to indemnify to 23 liability in excess of a specified amount and expressly precludes 24 any duty to defend until the insured has actually paid the 25 specified amount.” 26 185 Cal. App. It concluded that a provision requiring Id. at However, the court stated, if a policy plainly and clearly See id. “In our view, a true Id. at 694 n.12 (emphasis added). Legacy Vulcan comports with other California cases 27 interpreting a condition precedent. 28 15 In North American, the court 1 summarized that such a condition “refers to an act, condition or 2 event that must occur before the insurance contract becomes 3 effective or binding on the parties.” 4 (citation and internal quotation marks omitted). 5 “neither confer nor exclude coverage for a particular risk but, 6 rather, impose certain duties on the insured in order to obtain the 7 coverage provided by the policy.” 8 quotation marks omitted). 9 Defendant’s defense duty on Northern Cal’s payment of the SIR. 177 Cal. App. 4th at 289 These conditions Id. (citation and internal Here, the policy clearly conditioned United States District Court For the Northern District of California 10 duty to defend attached until that payment was received, and 11 No Montrose does not require otherwise. 12 Plaintiff asserts that Defendant’s SIR endorsement states that 13 Northern Cal’s obligation to pay the SIR is not triggered until 14 Defendant makes a request. 15 construction permits Defendant to “manipulate and postpone” its 16 defense obligations by delaying its request for the SIR.3 17 Mot. 14. 18 argument to support its assertion that the plain language of the 19 policy should be disregarded. 20 21 Plaintiff complains that this Pl.’s However, Plaintiff offers no authority or persuasive Defendant’s duty to defend did not arise on the date Northern Cal made its tender for defense. Accordingly, the Court denies 22 23 3 27 Notably, Defendant demanded payment of the SIR in August, 2008, two months after Northern Cal tendered the Ayala action for defense. The SIR was not paid until more than a year later, apparently because of Northern Cal’s intransigence. Further, adopting Plaintiff’s position could expose an insurer to unwarranted prejudice. An insured could, as here, refuse to pay an SIR until the end of an action. As a result, an insurer could be saddled, through no fault of its own, with defense costs that it had no role in incurring. 28 16 24 25 26 1 Plaintiff’s motion for partial summary judgment that Defendant is 2 obliged to share with Plaintiff payment of defense costs from the 3 date of Northern Cal’s tender of defense.4 4 5 CONCLUSION For the foregoing reasons, the Court GRANTS in part 6 Plaintiff’s motion for partial summary judgment and DENIES it in 7 part (Docket No. 20), and DENIES Defendant’s motion for summary 8 judgment (Docket No. 21). 9 the Subcontractor’s Warranty Endorsement nor the Total Prior Work It is summarily adjudicated that neither United States District Court For the Northern District of California 10 Exclusion preclude coverage for all claims in the Ayala action and, 11 therefore, Defendant has a duty to defend. 12 Plaintiff’s motion for partial summary judgment that Defendant 13 became liable for defense costs from the date that Northern Cal 14 offered its tender for defense. 15 evidence to which Defendant objected.5 16 objections are overruled as moot. 17 The Court denies The Court did not rely on any Accordingly, Defendant’s The parties shall meet and confer to attempt to agree on 18 Defendant’s fair share of defense costs, and arrange for payment 19 thereof. 20 Court and stipulate to Plaintiff’s voluntary dismissal of this 21 action. 22 either or both of the parties wish to appeal this Order, the If the parties reach an agreement, they shall notify the See Fed. R. Civ. P. 41(a)(1)(A)(ii). Alternatively, if 23 24 25 4 Defendant did not move, in the alternative, for partial summary judgment on the date on which its duty to defend arose. 5 26 27 28 Defendant’s submission of evidentiary objections in a brief separate from its reply brief violates this Court’s Standing Order and Civil L.R. 7-3(c). In any future filing, Defendant shall comply with this Court’s Standing Order and the Civil Local Rules. 17 1 parties may reach a conditional agreement with respect to the 2 amount of damages and then move for judgment pursuant to Federal 3 Rule of Civil Procedure 54(b). 4 If they cannot agree on the amount of damages, the parties 5 shall file cross-motions for summary judgment on damages. 6 Plaintiff’s motion for summary judgment shall be due April 28, 7 2011. 8 to Plaintiff’s motion shall be due May 12, 2011. 9 opposition to Defendant’s cross-motion and reply in support of its Defendant’s cross-motion for summary judgment and opposition Plaintiff’s United States District Court For the Northern District of California 10 motion shall be due May 19, 2011. 11 its cross-motion shall be due May 26, 2011. 12 motions and a further case management conference will be held on 13 June 9, 2011 at 2:00 p.m., unless the issue is taken under 14 submission on the papers. 15 Defendant’s reply in support of A hearing on these IT IS SO ORDERED. 16 17 18 Dated: 2/10/11 CLAUDIA WILKEN United States District Judge 19 20 21 22 23 24 25 26 27 28 18

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