Opinion
2d Civil No. B228871 Super. Ct. No. 1303227
10-11-2011
STEADFAST INSURANCE COMPANY, Plaintiff and Respondent, v. GEMINI INSURANCE COMPANY, Defendant and Appellant.
Charlston, Revich & Wollitz LLP, Howard Wollitz and Allan J. Favish for Appellant. Branson, Brinkop, Griffith & Strong, LLP, John H. Podesta and Geoffrey Hutchinson for Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
Respondent Steadfast Insurance Company (Steadfast) and appellant Gemini Insurance Company (Gemini) were successive insurers of Avanti Roofing Company, a roofing subcontractor (Avanti). A dispute arose between Steadfast and Gemini over amounts to be contributed toward settlement of a residential construction defect case. Gemini believed that the homeowners' settlement demand to Avanti was unreasonable and refused to contribute. As a result, Steadfast had to decide if it would go to trial and face the possibility of a significantly larger judgment, accept Gemini's offer and pay the difference to meet the demand, or pay the entire demand and seek equitable contribution from Gemini. It chose the latter course.
Steadfast and Gemini filed competing motions seeking summary judgment which the trial court denied. Thereafter, the parties stipulated to a bench trial based solely on the affidavits and evidence that accompanied those motions. In ruling for Steadfast, the trial court found that its conduct was reasonable while Gemini's "refusal to participate in the settlement was unreasonable." Based on the principle of "time on the risk," the trial court ordered Gemini to reimburse Steadfast for 75 percent of the amount of the settlement. We affirm.
Facts and Procedural History
Avanti is a roofing subcontractor hired by a general contractor, Paul Franz Construction Company (Franz), to provide roofing and sub-slab waterproofing for a large residence in Montecito. Respondent Steadfast insured Avanti for one year from January 1, 2002, through January 1, 2003. Appellant Gemini insured Avanti for the succeeding three years from January 1, 2003, through January 1, 2006. After the residence was completed, the homeowners discovered multiple latent defects, including roofing and foundation leaks. The homeowners sued Franz for breach of contract and negligence. Franz, in turn, filed a cross-complaint against multiple parties, including all its subcontractors, for indemnity and declaratory relief.
Franz initially demanded $1 million from Avanti, but lowered its demand to $750,000 in November 2006. In February 2007, Franz again demanded $1 million from Avanti, but indicated a willingness to accept $750,000, subject to certain deadlines of acceptance of that demand.
While the demand was pending, Steadfast attempted to obtain Gemini's agreement on a method of sharing the cost of funding a settlement. Gemini rejected Steadfast's offer of using a time on the risk allocation. Steadfast and Gemini also disagreed as to the reasonableness of the demand. Gemini believed the case against Avanti was weak, based on evidence that Franz ordered Avanti to deviate from the plans and specifications, statements by Franz that it was satisfied with Avanti's work, conflicting expert opinion as to Avanti's culpability, and its attorneys' belief that Avanti's fair share of the settlement was between $200,000 and $300,000.
Shortly before trial, Gemini and Steadfast tentatively agreed that Gemini would pay $100,000 and Steadfast would pay $650,000, and resolve the contribution issue at a later date. At the hearing to put the settlement on the record, Gemini placed a new condition on its offer--it would pay $100,000 in settlement only if Steadfast waived any right to pursue further contribution. Rather than waive its right to contribution, Steadfast paid the entire $750,000. The total settlement amount was $8 million.
After the trial court denied both parties' motions for summary judgment, the parties agreed to submit the case for decision solely on the evidence submitted in support of their summary judgment motions. The trial court found that Gemini unreasonably refused to pay its fair share of the settlement, and, using the "time on the risk" ratio, awarded Steadfast $562,500 plus prejudgment interest in the amount of $134,729.63. Gemini filed a timely appeal.
DISCUSSION
Standard of Review
To the extent this case presents purely legal issues, it is subject to de novo review. (Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 437-438.) To the extent the stipulated facts give rise to conflicting inferences, we review the trial court's resolution of those conflicts for substantial evidence. (Ibid.) We review the trial court's selection of a method for allocating defense costs among insurers for an abuse of discretion. (Centennial Ins. Co. v. United States Fire Ins. Co. (2001) 88 Cal.App.4th 105, 111 (Centennial).)
Principles of Equitable Contribution
"Equitable contribution apportions costs among insurers sharing the same level of liability on the same risk as to the same insured . . . ." (Safeco Ins. Co. of America v. Superior Court (2006) 140 Cal.App.4th 874, 879.) It is available when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others. (Ibid.) In an action by an insurer to obtain contribution from a coinsurer, the inquiry is whether the nonparticipating coinsurer had a legal obligation to provide a defense or indemnity coverage for the claim prior to the date of settlement. (Ibid.) When a duty to defend is shown, the courts have held that, by its refusal to participate, the nonparticipating coinsurer waives the right to challenge the reasonableness of the defense costs and amounts paid in settlement. (Id. at p. 880.)
"'The reciprocal rights and duties of several insurers who have covered the same event do not arise out of contract, for their agreements are not with each other. . . . Their respective obligations flow from equitable principles designed to accomplish ultimate justice in the bearing of a specific burden. As these principles do not stem from agreement between the insurers their application is not controlled by the language of their contracts with the respective policy holders.'" (Signal Companies, Inc. v. Harbor Ins. Co. (1980) 27 Cal.3d 359, 369, quoting Amer. Auto. Ins. Co. v. Seaboard Surety Co. (1957) 155 Cal.App.2d 192, 195-196.)
Insurer's Duty to Accept Reasonable Settlement Offer
There is an implied covenant of good faith and fair dealing in every liability insurance policy that obligates the insurer to accept a reasonable demand to settle a lawsuit against the insured within policy limits. (Hamilton v. Maryland Cas. Co. (2002) 27 Cal.4th 718, 724.)
In deciding whether to settle, the insurer must give at least as much consideration to the insured's interest as it does to its own. (See Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 429 ["In determining whether an insurer has given consideration to the interests of the insured, the test is whether a prudent insurer without policy limits would have accepted the settlement offer"].) The insurer must fairly appraise the potential exposure and the strengths and weaknesses of the case based on facts known or available at the time of the settlement demand. (Isaacson v. California Ins. Guarantee Assn. (1988) 44 Cal.3d 775, 792-793; Camelot by the Bay Condominium Owners' Assn. v. Scottsdale Ins. Co. (1994) 27 Cal.App.4th 33, 48.) The insurer must make an "honest and intelligent" decision whether to settle the claim. "In order that it be honest and intelligent it must be based upon a knowledge of the facts and circumstances upon which liability is predicated, and upon a knowledge of the nature and extent of the injuries so far as they reasonably can be ascertained." (Brown v. Guarantee Ins. Co. (1957) 155 Cal.App.2d 679, 685.) The insurer's conduct must be measured against "the totality of the circumstances" in which its decision was made. (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 723.)
"[T]he rejection of a settlement within the limits where there is any danger of a judgment in excess of the limits can be justified, if at all, only on the basis of interests of the insurer, and, in light of the common knowledge that settlement is one of the usual methods by which an insured receives protection under a liability policy, it may not be unreasonable for an insured who purchases a policy with limits to believe that a sum of money equal to the limits is available and will be used so as to avoid liability on his part with regard to any covered accident. In view of such expectation an insurer should not be permitted to further its own interests by rejecting opportunities to settle within the policy limits unless it is also willing to absorb losses which may result from its failure to settle." (Crisci v. Security Ins. Co., supra, 66 Cal.2d at pp. 430-431.) "[A]n insurer's 'good faith,' though erroneous, belief in noncoverage affords no defense to liability flowing from the insurer's refusal to accept a reasonable settlement offer." (Johansen v. California State Auto. Assn. Inter-Ins. Bureau (1975) 15 Cal.3d 9, 16, fn. omitted (Johansen).)
Substantial Evidence Supports the Trial Court's Finding that
Gemini Acted Unreasonably in Rejecting the Settlement Offer
In support of its contention that it did not unreasonably refuse to participate in the settlement, Gemini points to the following: (1) the general contractor's deposition testimony that he was satisfied with Avanti's work, and any deviation from plans and specifications as to waterproofing was due to the general contractor's instructions; (2) Avanti's expert's opinions that the roofing defects were minor and could be repaired for $25,000, and Avanti was not liable for any defects in waterproofing because Avanti did what the general contractor told it to do; (3) Gemini's counsel's opinions that the homeowners' claims of damage were greatly exaggerated and that the reasonable settlement value of the case on behalf of Avanti was $200,000 to 300,000; (4) Gemini's counsel's opinions that the homeowners would not be sympathetic witnesses, and Avanti's owner and project manager, who believed Avanti had done nothing wrong, would make good witnesses; and (5) Gemini's claims adjuster's greater experience than Steadfast's adjuster and his opinion that there was a very good chance of a defense verdict in favor of Avanti.
Most, if not all, of Gemini's evidence as to Avanti's potential liability and cost of repairs was disputed by the homeowners' experts and Steadfast's claims representatives. One of the experts opined that the entire below-grade waterproofing system would have to be redone because of defects in the installation, including missing and improperly installed waterproofing material. The same expert testified that the lack of proper waterproofing caused substantial damage to the foundation walls, the reinforcing steel, and the concrete slab. He estimated the cost of repair would be $733,180.13. Another of the homeowners' experts opined that the roof could not be repaired and would need to be replaced at a cost of $140,000.
Substantial evidence supports the trial court's finding that Gemini acted unreasonably in refusing to accept its fair share of settlement liability. (See Ieremia v. Hilmar Unified School Dist. (2008) 166 Cal.App.4th 324, 328 [if stipulated facts leave an ultimate question of fact open for resolution, the substantial evidence rule applies].) Under the substantial evidence test, we do not reweigh the evidence; rather we consider the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving conflicts in support of the judgment. (Concord Christian Center v. Open Bible Standard Churches (2005) 132 Cal.App.4th 1396, 1408-1409.) The evidence submitted by the homeowners' experts gives rise to at least an inference that some of the defects occurred due to Avanti's work, and that the amount demanded of Avanti to settle was reasonable.
Remaining Arguments
General Contractor's Satisfaction with Avanti's Work
Gemini asserts that it had a right to refuse to settle because the general contractor testified at his deposition that he had no problem with Avanti's work. The argument is without merit. A general contractor's satisfaction with a subcontractor's work does not absolve the subcontractor of liability if the work was negligently performed because the subcontractor had a common law duty to perform the work in a "good and workmanlike manner." (Stonegate Homeowners Ass'n v. Staben (2006) 144 Cal.App.4th 740, 748; see also Willdan v. Sialic Contractors Corp. (2007) 158 Cal.App.4th 47, 58.) Moreover, the general contractor could hardly take a contrary position because its contract with the homeowners made it liable for the faulty work of the subcontractors it hired. Right to Consent to Settlement
Gemini argues that Steadfast had no right to settle without Gemini's consent. We agree with the trial court that "the law of equitable contribution provides just such a right. . . . [I]f a non-settling insurer could defeat a co-insurer's right to contribution by withholding its consent to the settlement, or conditioning its consent on a greatly undervalued settlement offer, the law of equitable contribution would have no meaning or effect." (See Mitchell, Silberberg & Knupp v. Yosemite Ins. Co. (1997) 58 Cal.App.4th 389, 394 ["an insurer may settle a claim against its insured without prejudice to its right to seek equitable indemnity from other insurers potentially liable on the same risk"]; see also Clarendon America Ins. Co. v. Mt. Hawley Ins. Co. (C.D.Cal. 2008) 588 F.Supp.2d 1101, 1106 [insurer does not become a volunteer and thereby waive its right to seek indemnification or contribution by participating in the settlement of a potentially covered claim].)
Gemini's reliance on Catholic Relief Ins. Co. of America v. Liquor Liability Joint Underwriting Assn. (Dec. 22, 1997) 8 Mass. L.Rep. 80 is misplaced. The issue in that case was breach of a "voluntary payments clause" in an insurance policy issued by one of two primary insurers, prohibiting the insured from settling without the insurer's consent. The court held that breach of a voluntary payments clause released the insurer from any indemnity obligation and thus it had no duty to contribute to a settlement entered into by the other insurer. Here, there is no voluntary payments clause. Right to Control Litigation Strategy
Gemini contends that, because it had insured the homeowners for a longer period of time than Steadfast and bore a larger share of the risk, it had the right to control litigation and settlement strategy. Gemini cites no authority for this argument and we will not consider it. (See, e.g., Jimmy Swaggart Ministries v. State Bd. of Equalization (1988) 204 Cal.App.3d 1269, 1294 ["'Where a point is merely asserted by appellant's counsel without any argument of or authority for the proposition, it is deemed to be without foundation and requires no discussion by the reviewing court . . .'"].) Moreover, by acting unreasonably during settlement negotiations, Gemini forfeited its right to challenge the reasonableness of the defense costs and amounts paid in settlement. (Safeco Ins. Co. of America v. Superior Court, supra, 140 Cal.App.4th at p. 881.) Indemnity Language in Policies
Relying on Civil Code section 2782, Gemini asserts that the amount of its potential liability was lessened or eliminated because the indemnity clause in the contract between Avanti and Franz is invalid. That provision makes Avanti liable to indemnify Franz for "liability for any and all damage . . . caused by, resulting from, arising out of or occurring in connection with the execution of the work provided for in this contract." The provision applies "whether such claim may be based upon Paul Franz Construction Inc.'s alleged active or passive negligence or participation in the wrong . . . ."
Civil Code section 2782, subdivision (a), prohibits a general contractor from obligating a subcontractor to indemnify the general contractor against liability for damages caused by the "sole negligence or willful misconduct" of the general contractor. However, the parties are free to contract for indemnification of an indemnitee who is partially negligent. (See, e.g., Armco Steel Corp. v. Roy H. Cox Co. (1980) 103 Cal.App.3d 929, 934 [§ 2782 prevents indemnification for the indemnitee's sole negligence but does not prevent indemnification where there is concurrent negligence]; Smoketree-Lake Murray, Ltd. v. Mills Concrete Construction Co. (1991) 234 Cal.App.3d 1724, 1738 [§ 2782 does not prohibit agreements for indemnification when the loss is due only in part to the indemnitee's negligence].) Here, Avanti contracted to indemnify Franz for liability arising out of the negligence of both parties. Therefore, the indemnity agreement was valid under section 2782. Failure to Respond to Gemini's Request for Theories of Liability and Coverage
Gemini also argues that it would be inequitable to award contribution because Steadfast agreed to settle without replying to Gemini's request for the reasons Steadfast believed the settlement offer was reasonable. Again, we agree with the trial court: "Steadfast was under no legal obligation to provide Gemini with a liability and coverage analysis. Prior to the settlement in April 2007, Gemini had been defending the action for over two years with its own retained defense counsel." Court's Refusal to Consider Claims Adjusters' Relative Experience
Gemini also argues that the trial court erred in refusing to consider the relative claims handling expertise of the parties' claims adjusters. We disagree. The opinion of an insurer's claims adjuster is relevant to a determination of the insurer's likely risk. However, the opinion of a second insurer's claims adjuster is not determinative of the first insurer's duty to settle. As discussed above, the test for reasonableness in this context looks to the insurer's duty to its insured to settle based on the insurer's sole liability. (See Johansen, supra, 15 Cal.3d at p. 16 ["in deciding whether or not to compromise the claim, the insurer must conduct itself as though it alone were liable for the entire amount of the judgment"].)
The Trial Court Did Not Err in Apportioning Liability Based on Time on the Risk There are various methods a trial court may choose for determining an equitable allocation. They include time on the risk, policy limits, combined policy limits/time on the risk, equal shares and maximum loss. (Golden Eagle Ins. Co. v. Insurance Co. of the West (2002) 99 Cal.App.4th 837, 854-855.) "In choosing the appropriate method of allocating defense costs among multiple liability insurance carriers, each insuring the same insured, a trial court must determine which method of allocation will most equitably distribute the obligation among the insurers 'pro rata in proportion to their respective coverage of the risk,' as 'a matter of distributive justice and equity.'" (Centennial, supra, 88 Cal.App.4th at p. 111.)
The allocation of defense costs is a matter of equity which necessarily involves the weighing of competing considerations. "There is no single method of allocating defense or indemnity costs among coinsurers. 'The reason for the courts' refusal to establish such a bright-line rule is the existence of differing factual circumstances varying from case to case, which unavoidably give rise to different equitable considerations that must be taken into account.' [Citation.] '[T]he courts in California have consistently held that trial courts must maintain equitable discretion to fashion a method of allocation suited to the particular facts of each case and the interests of justice, subject to appellate review for abuse of that discretion.'" (Golden Eagle Ins. Co. v. Insurance Co. of the West, supra, 99 Cal.App.4th at p. 854.)
Under the time on the risk method, apportionment is based upon the relative duration of each insurance policy as compared to the overall period during which the loss occurred. Steadfast's one-year policy covered the time frame when the construction was undertaken and completed. Gemini's three successive one-year policies covered the time frame when the losses were discovered. Such apportionment has been approved by the courts in numerous cases under similar facts. (See, e.g., Centennial, supra, 88 Cal.App.4th at p. 111, and Stonewall Ins. Co. v. City of Palos Verdes Estates (1996) 46 Cal.App.4th 1810, 1861-1862.)
Gemini contends that the time on the risk method is inequitable here because it takes into account uncovered damages. We disagree for two reasons. First, "[w]hen a duty to defend is shown, nonparticipating coinsurers are presumptively liable for both the costs of defense and settlement. [Citations.] On the more precise issue of just how much the nonparticipating coinsurer has to pay, the courts have held that, by its refusal to participate, the recalcitrant coinsurer waives the right to challenge the reasonableness of defense costs and amounts paid in settlement (because any other rule would render meaningless the insured's right to settle)." (Safeco Ins. Co. of America v. Superior Court, supra, 140 Cal.App.4th at p. 880.)
In addition, "the triggering of liability coverage under a [comprehensive general liability] policy is established at the time the complaining third party was actually damaged . . . ." (Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 670.) The residence was completed in October 2002, near the end of the Steadfast policy and at the beginning of the three successive Gemini policies. The first and subsequent Gemini policies were in effect when the homeowners discovered the various defects in the roofing and waterproofing. Where, as here, successive comprehensive liability insurance policies provide coverage for bodily injury or property damage occurring during the policy period, and bodily injury and property damage is continuous or progressively deteriorating through several policy periods, the damages are potentially covered by all policies in effect during those periods. (Id. at p. 689.)
On the record before us, the trial court did not abuse its discretion in concluding that the time on the risk method of apportionment was the most equitable method of allocation.
Award of Prejudgment Interest
Gemini challenges the trial court's award of prejudgment interest under Civil Code section 3287 on the ground that the amount it was required to contribute to the Ortega settlement was unknown.
The award or denial of prejudgment interest under section 3287, subdivision (a) presents a question of law we review de novo. (Pierotti v. Torian (2000) 81 Cal.App.4th 17, 27-28.)
Civil Code section 3287, subdivision (a) provides for the payment of prejudgment interest to every person entitled to receive damages that are certain, or capable of being made certain by calculation, if the right to receive such damages vested on a particular day. "Under [Civil Code] section 3287, subdivision (a) the court has no discretion, but must award prejudgment interest upon request, from the first day there exists both a breach and a liquidated claim." (North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th 824, 828.) Civil Code section 3287 does not authorize prejudgment interest where the amount of damage, as opposed to the determination of liability, "'. . . "depends upon a judicial determination based upon conflicting evidence and is not ascertainable from truthful data supplied by the claimant to his debtor.". . . '" (Wisper Corp. v. California Commerce Bank (1996) 49 Cal.App.4th 948, 960.) The certainty addressed by Civil Code section 3287 is the certainty of the damages suffered by the plaintiff, not the certainty of a defendant's ultimate liability. "[A] defendant's denial of liability does not make damages uncertain for purposes of Civil Code section 3287." (Wisper, at p. 958; Credit Managers' Assn. v. Brubaker (1991) 233 Cal.App.3d 1587, 1595.)
As applied to an equitable contribution claim, the courts have held that a dispute over the relative positions of different insurers does not make damages so uncertain as to make prejudgment interest inappropriate. (Fireman's Fund Ins. Co. v. Allstate Ins. Co. (1991) 234 Cal.App.3d 1154, 1173 [awarding prejudgment interest where insurer contested the amount of its liability for contribution to settlement made by other insurers because the amount it owed was readily ascertainable and the only issue was whether it was legally required to pay full amount]; Hartford Accident & Indemnity Co. v. Sequoia Ins. Co. (1989) 211 Cal.App.3d 1285, 1307 [awarding prejudgment interest where only question in suit for contribution by settling insurer against two nonsettling insurers was how the court would prioritize the policies].)
The award was appropriate because Gemini had an obligation to contribute to the settlement no later than the date the settlement was paid, and the settlement amount -- the damages for the purpose of the equitable contribution claim -- was certain. This is not a situation in which "the amount of damage, as opposed to the determination of liability, 'depends upon a judicial determination based upon conflicting evidence and is not ascertainable . . . .'" (Fireman's Fund Ins. Co. v. Allstate Ins. Co., supra, 234 Cal.App.3d at p. 1173, quoting Esgro Central, Inc. v. General Ins. Co. (1971) 20 Cal.App.3d 1054, 1062 [awarding prejudgment interest on fire loss where dispute was based on coverage, not amount of loss, which could be computed].)
We therefore conclude the trial court did not err in awarding prejudgment interest on the amount Gemini was required to pay in equitable contribution under the judgment in this action.
Conclusion
Steadfast agreed to a reasonable settlement offer based on the totality of the circumstances. Gemini's refusal to settle entitled Steadfast to equitable contribution and prejudgment interest.
The judgment is affirmed. Respondent shall recover costs on appeal.
NOT TO BE PUBLISHED.
PERREN, J.
We concur:
GILBERT, P.J.
COFFEE, J.
Denise de Bellefeuille, Judge
Superior Court County of Santa Barbara
Charlston, Revich & Wollitz LLP, Howard Wollitz and Allan J. Favish for Appellant.
Branson, Brinkop, Griffith & Strong, LLP, John H. Podesta and Geoffrey Hutchinson for Respondent.