Interstate Fire & Casualty Company vs. Lennar Corporation

Opposition

Cal. Super. - 4th Dist.July 19, 2010

10 11 12 13 14 I5 16 17 18 19 20 21 22 23 24 23 26 27 28 RALPH A. GUIRGIS, State Bar No. 143262 ralph.guirgis@clydeco.us CURTIS D. PARVIN, State Bar No. 116079 curtis.parvin@clydeco.us SEAN R. SIMPSON, State Bar No. 192400 sean.simpson@clydeco.us CLYDE & CO US LLP 2020 Main Street, Suite 1100 Irvine, California 92614 Telephone: (949) 852-8200 Facsimile: (415) 365-9801 Attorneys for Cross-Defendant GENERAL SECURITY INDEMNITY COMPANY OF ARIZONA ELECTROMICALLY FILED Superior Court of Califarnia, County of Orange 07/17/2018 at 04:43:00 PM Clerk of the Superior Court By Sarah Loose, Deputy Clerk SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF ORANGE, CIVIL COMPLEX CENTER INTERSTATE FIRE & CASUALTY COMPANY, an Illinois corporation, Plaintiff, v. LENNAR CORPORATION, a Delaware Corporation, LENNAR HOMES OF CALIFORNIA, INC., a California corporation, LENNAR SALES CORP. a California corporation, and DOES 1 - 250, inclusive, Defendants. LENNAR CORPORATION, a Delaware Corporation; LENNAR HOMES OF CALIFORNIA, INC., a California corporation and LENNAR SALES CORP., a California corporation, Cross-Complainants, V. INTERSTATE FIRE & CASUALTY COMPANY, an Illinois corporation; GENERAL SECURITY INDEMNITY COMPANY OF ARIZONA, an Arizona corporation; and ROES 1 through 100, inclusive, Cross-Defendants. 3939345 .GSINDA’S OPPOSITION TO LENNAR’S MOTION F Case No. 30-2010-00390819 CU IC CXC Assigned for All Purposes to: Hon. Glenda Sanders Department CX-101 OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE APPLICATION OF SELF INSURED RETENTION; MEMORANDUM OF POINTS AND AUTHORITIES Filed Concurrently with: - Declarations of Pascal Madiba and Curtis D. Parvin - Response to Separate Statement of Undisputed Material Facts and Additional Undisputed Material Facts Judge: Hon. Glenda Sanders Date: ~~ August 17, 2018 Time: 1:30 p.m. Dept... CX-101 Action Filed: July 19,2010 Trial Date: None Set 1 OR SUMMARY ADJUDICATION RE THE SIR ISSUE co A N \O 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page MEMORANDUM OF POINTS AND AUTHORITIES .....c.coeotveriieirinieinieinienseessesesresaessesessennes 2 L INTRODUCTION .......evteriieiniiiisiinieieitrcissetsie sts ete tsetse sete ste sest eben tebe ass asbe ta se anaes 2 II. GSINDA INCORPORATES BY REFERENCE ITS MOTION FOR SUMMARY ADJUDICATION AND RELATED PAPERS ....c.cooceotitietreietreitnieesieesiert nesses 4 III. ~~ THE XL POLICY INCLUDES A “TRAILING”/“MAINTENANCE” SIR THAT EY 3d MISA 5 12) 1 OR -- 5 IV. THE GSINDA POLICY - BY VIRTUE OF FOLLOWING FORM TO THE XL POLICY - CONTAINS A $1 MILLION “TRAILING”/”MAINTENANCE” SIR APPLICABLE TO EACH “OCCURRENCE” wmomsmmsmesssonsmmmmnmmseesnmiosssssssssssissas 7 V. GSINDA PROVIDES NO BROADER COVERAGE THAN THAT AVAILABLE DINDER. THE KL, POLICY 0mmweeas sevice sass sss sad cs sess assssss sass sssisnssisssi 9 VI. THE GSINDA POLICY EXPRESSLY STATES THAT IT APPLIES EXCESS OF ALL AMOUNTS SET FORTH IN THE XL POLICY, WHICH INCLUDES THE $1 MILLION “TRAILING”/”"MAINTENANCE” SIR APPLICABLE TO EACH OCCURRENCE” i usssunsssnmsnussnsmmsssssssss ma st ass re i ii S ii s ass ssiassn 10 VII. LENNAR EXPRESSLY NEGOTIATED THE SIR IT NOW SEEKS TO AVOID........... 11 VIII. LENNAR’S ARGUMENTS FAIL TO CONSIDER THE FULL TERMS OF THE GSINDA POLICY AND THE XL POLICY TO WHICH IT FOLLOWS FORM ............. 13 A. Lennar’s “All Sums” Argument Is Misguided and Wrong.........c.ccoevvvvvereevrnreennne. 13 B. Lennar’s Improper Reliance On “Excess” Provisions Replaced By ERA OTEEIMETR 1x sso 555 5 5.65 5.050 5 5.5050.5.05.854545 45-45 ATA AGATA S858 45 (hhh rain fh ams sass monmmmmmasan 14 C Lennar’s Reliance On “Follow Form” Wording Replaced By Endorsement .......... 14 D. Lennar’s Attempt To Avoid Application Of The Operative “Follow Form” WOTAINE everett crete eerste terete ete s tebe ete a este sa eben be sae s bebe ba ste ebe see sbens 15 E. Lennar’s Attempt To Argue That The SIR In The XL Policy Is Carved Out Of The Follow Form Provision Is Misguided ..........cccvverencinerenrieninneniinneneeeeeenenn, 17 F. Lennar Improperly Attempts To Artificially Limit The Scope Of The SIR ............ 18 IX. THE ARBITRATION APPELLATE DECISION DOES NOT SUPPORT LENNAR’S POSITION ....coitiiiiiicieitinincieie eects stesse steers sre sbe seers 18 X. CONCLUSION ...oiiiiiiitiieiteciiiictestsseisnse stent tesae ssc sree tenet tebe ste sa ese e eras beneas 21 3939345 i GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE Oo N N n A 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page CASES General Corp. v. Transport Indem. Co. (1997) 17 Cal. 4th 38.....c.covvvvvieeiieisisieeeeeseee seer e ns 3 General Corp. v. Transport Indem. Co. (1997) 17 Cal.4th 38, 50.....cccecivrverereverereeiieerereeeineinnens 14 General Corp. v. Transport Indem. Co., supra, 17 Cal.dth at 50 .......ccccovveiverivricriiiiicrirereeene 16 Bay Cities Paving & Grading v. Lawyers’ Mut. Ins. Co. (1993) 5 Cal.4th 854, 867 ..........ouuuu..... 13 Century Surety Co. v. United Pacific Ins. Co. (2003) 109 Cal. App. 4th 1246, 1255 ..........ccuun...... 9 Clarendon Am. Ins. Co. v. N. Am. Capacity Ins. Co. (2010) 186 Cal. App.4th 556, 561 .................. 8 Coca cola Bottling Co. v. Columbia Casualty Ins. Co. (1992) 11 Cal.App.4th 1176, 1181- ; Coca cola Bottling Co. v. Columbia Casualty Ins. Co., supra, 11 Cal. App.4th at 1182- : Fire Ins. Exch. v. Sup. Ct. (2004) 116 Cal. App.4th 446, 454 ......cooueeeeeeeeeeeereeeeeeeeeeeeeeeeeeens 13 Forecast Homes, Inc. v. Steadfast Ins. Co. (2010) 181 Cal. App.4™ 1466, 1480 .................. 8, 16,17 Garcia v. Truck Ins. Exch. (1984) 36 Cal.3d 426, 436 ...c.oooueeeeeeiiiieeeieeieeeeeeeeeetesee s e e e sesees nns 11 General Star Indem. Co. v. Superior Court (1996) 47 Cal.App.4th 1586, 1594-1595 ........cveuuenee. 5 George v. Automobile Club of Southern Calif. (2011) 201 Cal.App.4th 1112, 1120 ..................... 1 Haering v. Topa Ins. Co. (2016) 244 Cal. App.4th 725, 734-735 ...ocniveeeeeeereeeesree ve 15 Holz Rubber Co. v. American Star Ins. Co. (1975) 14 Cal.3d 45, 56 ......couvereveervecreeirerereesreenns 13 Housing Group. v. California Ins. Guarantee Assn. (1996) 47 Cal.App.4th 528, 535, ......ccoevvunee. 8 Indus. Indem. Co. v. Apple Computer, Inc. (1999) 79 Cal. App.4th 817, 840 .......cceevererevvvrerreennn, 9 King v. Larsen Realty, Inc. (1981) 121 Cal. App.3d 349, 357 c.oceiveeeecrereeeecreeeecteeeeres sree s enes 7 Lee v. Fidelity Nat'l Title Ins. Co. (2010) 188 Cal. App.4th 583, 598.....c.cevveevrerevreriierererieisreseeninns 11 Legacy Vulcan Corp. v. Superior Court (2010) 185 Cal. App.4th 677, 682 .......ccvevvverennane. 8, 16,17 Mirpad, LLC v. California Ins. Guar. Assn. (2005) 132 Cal.App.4th 1058, 1072 ....cccooeveverinnnene. 13 Pacific Coast Bldg. Products, Inc. v. AIU Ins. Co. (9th Cir. 2008) 300 F.Appx 546, 549 ............... 8 Pacific Gas & Elec. Co. v. G.W. Thomas Drayage & Riggin Co. (1968) 69 Cal.2d 33, 37........... 11 3939345 se 11 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O U S LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: Nn ~N O N nh 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (continued) Page Padilla Construction Co., Inc. v. Transportation Ins. Co. (2007) 150 Cal. App. 4th 984, LOO... seas ee este ee sre shah eae snes ashes a ease rt eta e Rb enr arte ebenbenee 8 Palmer v. Truck Ins. Exch. (1999) 21 Cal.4th 1109, 1116....... eee eee eneneesesese sesso 13 Republic Bank v. Marine Nat. Bank (1996) 45 Cal. App. 4th 919, 922) ....coovveeeicrerereiieerinnan 7 Vons Companies, Inc. v. United States Fire Ins. Co. (2000) 78 Cal. App.4th 52, 63........c.cceuevenee. 8 Wells Fargo Bank v. California Ins. Guarantee Assn. (1995) 38 Cal. App.4th 936, 940............ 9,19 OTHER AUTHORITIES 2 California Insurance Law (Lexis Nexis 2017), at §14.02[3][a], p. 14-6.cc.ecvvveeceeeecrenrerrereererennns 7 9 Witkin, Summary of California Procedure (53 Ed. 2008), Appeal, §476,p. 434 ..ccevvevererinn, 18 3939345 i GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & CO US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: Oo ee N Y n A 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION | Lennar espouses a position and seeks a ruling from this court on the self-insured retention (“SIR”) issue that is directly contrary to the terms and conditions of General Security Indemnity Company of Arizona’s (“GSINDA”) policy, the negotiations between the parties’ and the representations made to GSINDA in respect of Lennar’s insurance tower prior to GSINDA agreeing to go on risk and the issuing of its policy. It is undisputed that the XL Europe Limited (“XL”) Policy - the “controlling” underlying policy to the GSINDA Policy - includes a $1 million per “Occurrence” “trailing” or “maintenance” self-insured retention (“SIR”) (although Lennar disputes the scope of its application, see below), which was negotiated for Lennar by its insurance brokers, E&S (Lennar’s agent). (GSUF 8-39). When excess insurance was sought from GSINDA, E&S informed GSINDA about the available limits in the underlying coverage, as well as Lennar’s decision/agreement to include a “trailing”/“maintenance” SIR. (GSUF 8-18).> Having been provided with confirmation that Lennar had agreed to the inclusion of a $1 million “trailing”/“maintenance” SIR, GSINDA agreed to issue a policy to Lennar expressly providing it was to follow form to (that is to adopt and include the terms and conditions of) XL’s underlying policy that included the $1 million per “Occurrence” “trailing”/“maintenance” SIR. (GSUF 19- 32). The policy GSINDA agreed to provide specifically provided that it was excess not only of ! Lennar’s negotiations with GSINDA on the terms and conditions of the insurance and the form of GSINDA’s policy were conducted by Lennar’s agents, its brokers (Charles Wardlaw and Victoria Snow of International E&S Insurance Brokers, Inc. (“E&S”). GSINDA’s Statement of Additional Undisputed Facts (“GSUF”) 8. See also GSUF 9-32. ? Including a substantial deductible or SIR is generally used to reduce the insurance premium payable because it limits the number of potential losses/occurrences that can be put to the insurance - that is only the insured’s large losses have the potential to trigger coverage, rather than every covered loss/occurrence (regardless of size). See, e.g., Forecast Homes, Inc. v. Steadfast Ins. Co. (2010) 181 Cal. App. 4th 1466 (“the primary purpose of an SIR provision is to allow the named insured to contain its insurance costs”-*[a]s with deductibles, the more risk the named insured claims for itself, the lower the premiums will be”). * “Trailing” or “maintenance” is a shorthand way of noting that there is an SIR that remains to be satisfied by the insured after an initial layer of coverage (in this instance retained by Lennar through the use of a “fronting” policy) is exhausted . As is apparent from the GSUF, the size of the “trailing”/“maintenance” SIR Lennar agreed should be incorporated into its insurance tower changed during the course of the contract negotiations, rising from $750,000 to $1 million per “Occurrence.” (GSUF 17-18). 3939345 2 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: the underlying policy limits, but also “excess of all the amounts specified in the Underlying Policy(ies) as more fully set forth in the Controlling Policy” - the XL Policy (GSUF 41-42). GSINDA now simply seeks to enforce the parties’ agreement and the terms of its policy as written, by requiring the application of a $1 million “trailing”/“maintenance” SIR in respect of each covered “Occurrence.” This was part of the process whereby Lennar, through ¢ $25 million HI its brokers, built a “tower” of insurance for Lennar. As depicted in the figure at left, the tower started with a * $10 million Sm SR 5 $10 million “fronting” policy issued by Old Republic Insurance Company (“Old Republic”). (Lennar Statement of * $20 million Undisputed Facts (“LSUF”) 1; GSUF 1-3). The XL Policy (with $20 million of per occurrence and in the aggregate limits) sits above the Old Republic Policy and represented the ¢ 510 million first actual transfer of risk by Lennar. (LSUF 2: GSUF 4). Interstate Fire & Casualty Company (“Interstate”) provided the next layer of coverage (with $10 million of per occurrence and in the aggregate limits) (LSUF 3; GSUF 5),’ followed by GSINDA (with $25 million of per occurrence and in the aggregate limits excess of the underlying limits and a $1 million per “Occurrence” SIR). There are multiple layers of additional insurance excess of GSINDA which are not at issue in this dispute. (GSUF 7). * A “fronting policy” refers to the use of a licensed, admitted insurer to issue an insurance policy on behalf of an organization without the parties intending there to be any ultimate transfer of the insurance risk. The insured risk of loss is in fact ultimately retained by the insured organization, which provides the insurer with an indemnity (or reinsurance) against the risks the “fronting” insurance policy it issued (at least facially) protects. IRMI.com, “Fronting.” See also, General Corp. v. Transport Indem. Co. (1997) 17 Cal. 4th 38, 49 n.3. * Interstate has conceded to Lennar that its policy does not include a “trailing”/“maintenance” or any other SIR - it now agrees it attaches immediately following the proper exhaustion of the underlying XL policy in respect of each covered claim. GSINDA was not a party to Lennar’s negotiations with Interstate on the form of the Interstate policy and is unaware of the circumstances of Interstate’s decision to agree its policy does not benefit from any SIR following X1.’s proper exhaustion. However, unlike the GSINDA Policy, which follows form to the XL Policy and defers to the language of the XL Policy wherever there is a conflict, the Interstate Policy favors its own policy language where there is a conflict between it and the XL Policy language. (Compendium of Exhibits (“COE”) Exhibit 5). Because the terms of the Interstate Policy are directly variant on a key provision, and because the reason(s) why Interstate decided not to pursue this issue further are unknown, the fact that Interstate has conceded the SIR issue to Lennar for its policy is not relevant to the dispute between GSINDA and Lennar on the SIR. 3939345 g GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & CO US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: 0 N N Ln B R A W N \O 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 * $25 million The XL Policy expressly provides that, upon exhaustion ES of the underlying “fronting” policy’s limits, each subsequent “Occurrence” is subject to a $1 million “trailing” or “maintenance” SIR that is before Lennar may access the XL insurance and any coverage obligations arise, Lennar promised * $20 million that it would absorb the first $1 million of loss in respect of each “Occurrence”. The figure at left shows the replacement of the Old Republic policy layer with the “trailing”/“maintenance” SIR. (GSUF 33, 37-39). As an excess insurer, GSINDA is set to ultimately “drop down” (Lennar’s words) into XL’s slot for covered claims after exhaustion of both XL’s and Interstates policy limits. In short, GSINDA steps into the same slot as XL subject to the very same terms and conditions expressed ~ in the XL Policy to which the GSINDA Policy indisputably * 25 million follows form. The final figure shows GSINDA now in the slot formerly occupied by XL, with XL and Interstate having been * 51 million | eliminated by exhaustion of applicable policy limits, and with the “trailing”/ “maintenance” SIR in place as agreed. To ensure the agreement between the parties is respected and the GSINDA Policy is enforced as written, Lennar’s motion should be denied and GSINDA’s separate motion seeking application of the agreed $1 million SIR applies on a per “Occurrence” basis to all claims covered by the GSINDA Policy should be granted. II. GSINDA INCORPORATES BY REFERENCE ITS MOTION FOR SUMMARY ADJUDICATION AND RELATED PAPERS On March 27, 2018, the court, understanding that these parties would be filing cross- motions for summary adjudication, advised the parties that they could cross-reference previously filed pleadings and materials that were part of the cross-motions. Much of what GSINDA would present in opposition to Lennar’s motion for summary adjudication on the SIR issue is, in fact, included in GSINDA’s own motion on the SIR issue. GSINDA incorporates the same, including 3939345 4 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: ®0w 3 A N nn \O 10 11 12 13 14 15 16 17 18 19 20 2] 22 23 24 25 26 27 28 the memorandum of points and authorities, the supporting declarations and evidence, and the separate statement of undisputed material facts. In summary, GSINDA incorporates its moving papers as if the same were repeated in their entirety. II. THE XL POLICY INCLUDES A “TRAILING”/“MAINTENANCE” SIR THAT APPLIES HERE The XL Policy provides coverage over what is essentially self-insurance by Lennar - the Old Republic fronting policies. Once those policies exhaust, Lennar expressly agreed to retain additional risk and assumed a further form of self-insurance - a “trailing”/*“maintenance” $1 million per “Occurrence” SIR. A “trailing” or “maintenance” SIR is designed to apply to each claim or occurrence. General Star Indem. Co. v. Superior Court (1996) 47 Cal. App.4th 1586, 1594-1595. Where the parties do not agree and the policy language does not specify an aggregate limit to the “trailing”/“maintenance” SIR, then (by its clear terms) its application is necessarily without limit. “The insured must exhaust that amount separately, over and over again as many times as there are claims. Before the insurer has any obligation on any single claim, the SIR must be exhausted for that claim.” Id. at 1594. The XL Policy’s “Insuring Agreement,” set forth in Section I of the policy provides two insuring grants: - Clause A, which provides coverage “in excess of the Self-Insured Retention”; and, - Clause B, which provides coverage “in excess of the total applicable limits of Scheduled Underlying Insurance.” (GSUF 34). Whilst Lennar admits coverage under Clause A of the XL Policy is subject to a $1 million “trailing”/“maintenance” SIR, it argues that the SIR does not apply to Clause B - the policy section Lennar advises it seeks coverage under. Notwithstanding Lennar’s argument, Section II of the XL Policy, “Self Insured Retention” on its face expressly applies to the entirety of the XL Policy, that is to both Clause A and Clause B of the coverage grant, stating: This insurance applies only in excess of the Self-Insured Retention and only for those coverages listed in the Self-Insured Retention Schedule referenced in Item 4 of the Declarations. (Emphasis added) (GSUF 35). 3939345 5 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & CO US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Sb 28 Regardless of Lennar’s efforts to parse the contract language and any other arguments to the contrary, there is only one reasonable interpretation of the “this insurance” phrase/words - it applies and can only be interpreted to mean all of the insurance provided under the XL Policy, not just some or part(s) of it - this contract language expresses no limitation to a specific coverage grant. Indeed, the second paragraph of the XL Policy refers to “this insurance” as referring to the insurance issued by XL as shown on the declarations page. (GSINDA Exhibit 16 - “The words ‘we’, ‘us’ and ‘our’ refer to the company issuing this insurance shown on the Declarations page.” (Emphasis added)). Lennar’s argument that the SIR does not apply to the Clause B coverage/claims of the coverage grant is at odds with the express language of the XI. Policy and any reasonable interpretation of it. Additionally, were further support for GSINDA’s reading and interpretation of the XL policy language required, Endorsement No. 2 (“Schedule of Self Insured Retentions”) of the XL Policy provides, in pertinent part, as follows: In the event of erosion of Scheduled Underlying Insurance only the following Self Insured Retention will apply. [{] i) USD1,000,000 each Occurrence (eroded by Defense Costs and Indemnity). . . .The Self Insured Retention applies only in the event that insurance purchased by the insured, as detailed in Endorsement 1 Schedule of Underlying Insurance, has been exhausted by payment of Loss. (GSUF 37). This (Erdarsement 2) language expressly provides that the SIR applies in all circumstances when the underlying insurance has been fully eroded. This necessarily means that both Clause A and Clause B of the XL Policy’s coverage grant are subject to application of the $1 million per “Occurrence” “trailing”/“maintenance” SIR once the underlying Old Republic insurance has been exhausted. . Further, to the extent that there is any conflicting language (which GSINDA asserts is not the case), Endorsement No. 2 controls. See General Corp. v. Transport Indem. Co. (1997) 17 Cal.4th 38, 50 (“if there is a conflict in the meaning between an endorsement and the body of the policy, the endorsement controls™). 3939345 6 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: 10 11 12 13 14 15 16 17 18 19 20 Zl 22 23 24 25 26 27 28 IV. THE GSINDA POLICY - BY VIRTUE OF FOLLOWING FORM TO THE XL POLICY - CONTAINS A $1 MILLION “TRAILING”/”MAINTENANCE” SIR APPLICABLE TO EACH “OCCURRENCE” As is typical of an excess policy, the GSINDA Policy incorporates by reference and specifically relies upon terms and conditions contained in a “controlling” underlying policy - in this case the XL Policy - to form the totality of the terms and conditions applicable to and governing the parties’ relationship and, in particular, the precise scope of coverage provided. See, 2 California Insurance Law (Lexis Nexis 2017), at §14.02[3][a], p. 14-6; Coca Cola Bottling Co. v. Columbia Casualty Ins. Co. (1992) 11 Cal.App.4th 1176, 1181-1183. Lennar’s assertion that an excess insurer’s reliance upon the wording in an underlying or any other insurance policy is somehow inadequate is without legal basis. As detailed in GSINDA’s own motion on the SIR issue, the terms and conditions incorporated by reference in a policy are just as much a part of the policy as any other terms and conditions that are fully set out in the policy itself. Where a policy follows form to another policy, such policy provides the same coverage as that afforded by the other policy to which it states it follows form - no more and no less. Coca Cola Bottling Co. v. Columbia Casualty Ins. Co., supra, 11 Cal.App.4th at 1182-1183. See also, Republic Bank v. Marine Nat. Bank (1996) 45 Cal. App. 4th 919, 922); King v. Larsen Realty, Inc. (1981) 121 Cal.App.3d 349, 357. See also, 2 California Insurance Law (Lexis Nexis 2017), at §14.02[3][a], [b], p. 14-6, 7. In Coca Cola, the language of the excess policy did not specify when the monetary limit applied or define certain other terms relevant to identifying the underlying limits - all of which the court considered normal given the nature of excess policies. Rather, the court understood it needed to look to the underlying policy to which the excess policy followed form to determine the precise scope of coverage and the agreed terms and conditions of the contract/policy. The court held, “[b]ecause the [excess] policy does not itself fully define the lower limits of its coverage, reference to the terms of the [underlying] policy is necessary” and determined the excess insurer’s attachment point by reference to the “amount recoverable” in the underlying policy. Id., at 1183- 1184 (internal citations omitted). 3939345 7 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 This practice of reliance on the terms of the controlling underlying policy is expressly set forth in the GSINDA Policy - GSINDA Policy’s Casualty Follow Form Endorsement states: [This insurance will follow the terms and conditions of the policy number IE00012802LI05A issued by: []] XL INSURANCE COMPANY, [1] in effect at the inception date of this policy [the XL Policy], notwithstanding the provisions of the Commercial Excess Liability policy number: []] 25-1.42000105-05 [the GSINDA Policy]. (GSUF 42). Consequently, the GSINDA Policy undisputedly “follows form” to all terms and conditions of the XL Policy. See Housing Group. v. California Ins. Guarantee Assn. (1996) 47 Cal.App.4th 528, 535, as modified on denial of reh’g (July 23, 1996) (holding that substantially similar wording “on its face, exempted nothing”). This includes following form to and incorporation of the SIR into the GSINDA Policy since California courts have repeatedly recognized a SIR to be a policy “term.” See, e.g., Clarendon Am. Ins. Co. v. N. Am. Capacity Ins. Co. (2010) 186 Cal. App.4th 556, 561; Vons Companies, Inc. v. United States Fire Ins. Co. (2000) 78 Cal. App.4th 52, 63, as modified (Mar. 6, 2000); Forecast Homes, Inc. v. Steadfast Ins. Co. (2010) 181 Cal. App.4™ 1466, 1480; Legacy Vulcan Corp. v. Superior Court (2010) 185 Cal.App.4th 677, 682. Contrary to Lennar’s arguments, GSINDA was not required to specifically identify and point to the SIR when incorporating it into its policy language. “[E]xpress reference to [an] SIR][] [is] unnecessary.” Pacific Coast Bldg. Products, Inc. v. AIU Ins. Co. (9th Cir. 2008) 300 F.Appx 546, 549 (applying California law). See also, Padilla Construction Co., Inc. v. Transportation Ins. Co. (2007) 150 Cal. App. 4th 984, 1004 (the fact that an excess insurer does not have a duty to defend an insured until an SIR is exhausted “applies with just as much force even if the excess insurer’s ‘other insurance’ clause does not contain a direct reference to ‘self-insurance’). It was sufficient for GSINDA, as it did here, to refer to the “amounts specified” in the underlying policy. See, e.g., Coca Cola Bottling Co. v. Columbia Casualty Ins. Co., supra, 11 Cal. App.4th at 1182- 1183 (reference to “amount recoverable” in the underlying policy). nn 1 3939345 8 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & CO US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: IN N Y Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 V. GSINDA PROVIDES NO BROADER COVERAGE THAN THAT AVAILABLE UNDER THE XL POLICY Following form excess coverage is, by design, limited to the scope of coverage available in the underlying controlling policy. That is, the excess policy provides no broader coverage than that available under the underlying policy. “A ‘following form’ policy incorporates the terms and conditions of another carrier’s policy and provides the same scope of coverage as the underlying policy.” Wells Fargo Bank v. California Ins. Guarantee Assn. (1995) 38 Cal.App.4th 936, 940. Excess insurance is “insurance that begins only after a predetermined amount of underlying coverage is exhausted and that does not broaden the underlying coverage.” Id., at 940 n.2. See also Indus. Indem. Co. v. Apple Computer, Inc. (1999) 79 Cal.App.4th 817, 840 (“following form excess coverage provides no broader scope of coverage than the underlying primary policy”); Century Surety Co. v. United Pacific Ins. Co. (2003) 109 Cal. App. 4th 1246, 1255 (“excess insurance is ... secondary to specific underlying coverage which ... does not broaden that underlying coverage”). The GSINDA Policy contains a number of provisions confirming what the straightforward statement that it follows form to the XL. (controlling) policy and the case law provide - that GSINDA’s insuring obligations mirror those of XL and that GSINDA has no obligation to pay sums that would not have been payable by XL if is policy limits had not been exhausted. Those provisions include: - Clause I.1.: Beyond those obligations set forth in the XL Policy, “[n]o other obligation or liability to pay sums or perform acts or services is covered.” (GSUF 40); - Clauses I.1.A. and 1.1.B.: “If the coverage provided by the [XL Policy] applies..., then the coverage provided by this excess policy only applies on the same basis...” (GSUF 40). ~The Casualty Follow Form Endorsement: “[T]his insurance will follow the terms and conditions of [the XL Policy], notwithstanding the provisions of [the GSINDA Policy]. (GSUF 42). 3939345 9 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O U S LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - The Casualty Follow Form Endorsement: “In no event shall this insurance be construed in any way to provide coverage outside the ... [XL Policy]...” (GSUF 42). - Clause 1.2.B.: “This insurance does not apply to ... [a]ny liability excluded by any underlying insurance.” (GSUF 40). - The Casualty Follow Form Endorsement: the GSINDA Policy “is excess of all the amounts specified in the Underlying Policy(ies).” (GSUF 42). These provisions reflect the basic purpose and intent of “follow form” excess insurance coverage - including that the coverage afforded is no broader than the controlling underlying policy. If, in this case, the “trailing”/“maintenance” SIR in the XL Policy is not applied under the GSINDA Policy, coverage under the GSINDA Policy would be substantially broader than exists under the XI, Policy and would be contrary to the clear and unambiguous wording of the GSINDA Policy, California law, and the parties’ stated intent. VI. THE GSINDA POLICY EXPRESSLY STATES THAT IT APPLIES EXCESS OF ALL AMOUNTS SET FORTH IN THE XI. POLICY, WHICH INCLUDES THE $1 MILLION “TRAILING”/”MAINTENANCE” SIR APPLICABLE TO EACH “OCCURRENCE” Lennar asserts the GSINDA Policy does not include contract language stating it is excess of the SIR in the XL Policy. For example, Lennar states that “[n]Jowhere does [the GSINDA Policy] condition its obligations on exhaustion of anything but the underlying limits.” (Mot. at p. 3). This statement and position are fundamentally incorrect. While the GSINDA Policy does not contain the words/phrase “self-insured retention” or “SIR”, the GSINDA Policy expressly states that it provides coverage excess of $30,000,000 “each and every loss, and/or in the aggregate, where applicable, and/or excess of all the amounts specified in the Underlying Policy(ies) as more fully set forth in the Controlling Policy. . .” (GSUF 42). This provision, which is set forth clearly in the Casualty Follow Form Endorsement, is both consistent with the communications to and from Lennar’s own brokers expressly stating that the GSINDA Policy would be excess of all underlying limits, deductibles, and SIRs (GSUF 20, 25, 27, 30) and a clear 3939345 10 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & CO US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: 10 11 IZ 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 additional statement that GSINDA is to benefit from the “trailing”/“maintenance” SIR in the XL Policy.’ The contract term is sufficiently clear and broad so as to capture every element of risk retained by Lennar or covered by an underlying insurer. Because the SIR is an amount specified in the XL Policy and because there is no way to interpret the phrase “all the amounts” in a manner that does not, in fact, include “all the amounts,” including the $1million “trailing”/“maintenance” SIR, Lennar instead ignores the provision. This it cannot do. VII. LENNAR EXPRESSLY NEGOTIATED THE SIR IT NOW SEEKS TO AVOID Lennar fails to say in its moving papers that it, through its agents (its brokers [include cite]) negotiated the SIR it now seeks to avoid. While the numerous provisions of the GSINDA Policy which apply or incorporate the SIR leave no room for doubt as to its applicability, communications to and from Lennar’s own brokers, which are generally admissible to establish the meaning of a policy provision, clearly reflect that it was always the intent of Lennar that GSINDA’s policy would be subject to the SIR. See Pacific Gas & Elec. Co. v. G.W. Thomas Drayage & Riggin Co. (1968) 69 Cal.2d 33, 37 (“The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonable susceptible”). This rule applies equally to insurance policies. Garcia v. Truck Ins. Exch. (1984) 36 Cal.3d 426, 436; George v. Automobile Club of Southern Calif. (2011) 201 Cal.App.4th 1112, 1120; Lee v. Fidelity Nat'l Title Ins. Co. (2010) 188 Cal.App.4th 583, 598. As more particularly articulated in GSINDA’s motion, Lennar’s agents, Charles Wardlaw and Victoria Snow of E&S, negotiated with Pascal Madiba (“Madiba”) of the SCOR Group (which includes GSINDA) to provide a layer of coverage within Lennar’s “tower” of insurance. (GSUF 8-10). The brokers expressly represented to Madiba that Lennar’s insurance “tower” ® GSINDA’s attachment point excess of all the amounts specified in the XL Policy appears repeatedly in quotations, binders and other documents exchanged between the brokers and GSINDA during the underwriting of the GSINDA Policy. (GSINDA Exhibit Nos. 5, 6, 10, 12 and 14). 3939345 11 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: [N N ~N S Y W n 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 5 28 included a “trailing” or “maintenance” SIR that would apply on a per-occurrence basis after exhaustion of original retained limits and exchanged documentation to support that representation in the form of information, quotes, and binders for the XL Policy that would be the controlling policy. (GSUF 11-15, 22-24). Madiba included the maintenance SIR information as part of his analysis of the Lennar risk and consideration of whether GSINDA should agree to provide liability insurance to Lennar, and in particular his understanding that the “trailing”/“maintenance” SIR was to apply to each “Occurrence” comprising a claim under any policy after exhaustion of the limits of one of the Old Republic Policies. That is, before the insurance policies in excess of the Old Republic Policies would be required to indemnify Lennar for any loss or damage incurred as a result of a covered loss, Lennar would be responsible for the first $1 million of loss or damage for each “Occurrence”, not its insurers (including GSINDA). (GSUF 16-21, 26). | When Madiba finally received a copy of the actual XL Policy, he confirmed that the XL Policy contained a “trailing”/“maintenance” SIR, as had been previously represented to him. (GSUF 27-29). During this period prior to issuance of the GSINDA Policy, communications to and from Lennar’s own brokers expressly stated that the GSINDA Policy would be excess of all underlying limits, deductibles, and SIRs. (GSUF 20, 25, 27, 30). When GSINDA issued its policy, it contained a Casualty Follow Form Endorsement, which expressly provides that “[t]his insurance will follow the terms and conditions of the [XL Policy], notwithstanding the provisions of the [GSINDA Policy].” (GSUF 42). The premium for the GSINDA Policy was $3 million. (GSUF 32, 42). Had GSINDA been requested to issue a policy without the benefit of a “trailing” or “maintenance” SIR, then Madiba’s analysis of the risk and decision to provide liability insurance to Lennar and the premium (price) charged by GSINDA would have been different and, had he still determined it was a risk he was prepared to write for GSINDA, the premium would have been higher. (GSUF 32). Thus, to the extent there were any doubt in the language and terms and conditions of the GSINDA Policy that it is subject to the agreed $1 million “trailing”/*“maintenance” per “Occurrence” SIR, which as discussed above there is not, the indisputable extrinsic evidence 3939345 12 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: S H O W N ~N Y W » 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 27 28 detailed above (and in GSINDA’s Motion for Summary Judgement on the SIR issue) makes clear that, at the time of contracting, the parties agreed that GSINDA would benefit from the $1 million “trailing”/“maintenance” per “Occurrence” SIR in the XL Policy. VIII. LENNAR’S ARGUMENTS FAIL TO CONSIDER THE FULL TERMS OF THE GSINDA POLICY AND THE XL POLICY TO WHICH IT FOLLOWS FORM Lennar’s motion isolates terms in the policies and conflates concepts in cases, presenting them out of context in an improper effort to mislead and to support its arguments. Interpreting an insurance policy, just like any other contract, requires that the entire policy be considered and read as a whole. Civ. Code §1641 (“The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practical, each clause helping to interpret the other”). See also, Bay Cities Paving & Grading v. Lawyers’ Mut. Ins. Co. (1993) 5 Cal.4th 854, 867 California law, and common sense, dictates that the terms of an insurance policy cannot be considered in isolation - rather, they must be considered in the context of the entire policy. Id. See also, Fire Ins. Exch. v. Sup. Ct. (2004) 116 Cal.App.4th 446, 454. In interpreting an insurance policy, a Court must try to give meaning to all of the words in the policy and avoid constructions that nullify any words, make them superfluous, or make portions inoperative. Civ. Code § 1641; Holz Rubber Co. v. American Star Ins. Co. (1975) 14 Cal.3d 45, 56; Palmer v. Truck Ins. Exch. (1999) 21 Cal.4th 1109, 1116; Mirpad, LLC v. California Ins. Guar. Assn. (2005) 132 Cal.App.4th 1058, 1072. A. Lennar’s “All Sums” Argument Is Misguided and Wrong Lennar argues that GSINDA agreed to pay “all sums” in excess of the underlying policy limits and that it has breached this obligation. (Mot. at p. 2-3). The argument lays bare a fundamental weakness in Lennar’s position - Lennar believes that it can disregard all limitations, conditions, and terms in the GSINDA Policy and the XL Policy to which it follows form, essentially suggesting that the GSINDA provides total coverage without exception. This is clearly 3939345 13 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O U S LL P 20 20 Ma in St re et , Su it e 11 00 ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: a ~N O Y W w» 10 11 12 13 14 15 16 17 18 19 20 21 29 23 24 25 26 97 28 not what either policy provides. The policies only apply to covered claims, and then only upon the terms and conditions set forth in the policy, including those relating to policy limits and the SIR.’ B. Lennar’s Improper Reliance On “Excess” Provisions Replaced By Endorsement Lennar also argues that the GSINDA policy form states that its limits of insurance shall “apply excess of underlying limits of insurance.” (Mot. at p. 2-3). Lennar ignores the fact that this wording was replaced by the Casualty Follow Form Endorsement, which expressly states that, in addition to underlying limits, the GSINDA Policy is “excess of all the amounts specified in the Underlying Policy(ies) as more fully set forth in the Controlling Policy. ..” (GSUF 42). Even if such wording did not exist in the GSINDA Policy, the Casualty Follow Form Endorsement is clear that it is the XL Policy, not the GSINDA Policy, which controls in the event of any conflict. Further, Clause III.2.c.1 of the GSINDA Policy on which Lennar relies states GSINDA will pay excess of reduced underlying limits “provided all ‘underlying insurance’ applies to ‘loss’...” While Lennar includes this phrase in its quote, it does not appear to appreciate the fact that, if the loss falls within the SIR, then necessarily the underlying insurance does not apply to the loss. C. Lennar’s Reliance On “Follow Form” Wording Replaced By Endorsement Lennar misleadingly cites the “follow form” wording in the Insuring Agreement of the GSINDA Policy form. (Mot. at p. 6, p. 8 fn. 5). As discussed in GSINDA’s motion, this wording was amended and superseded by the “Casualty Follow Form Endorsement,” which states that the GSINDA Policy follows form to all of the terms of the XL Policy, even where they contradict the GSINDA Policy, subject only to limits of liability. (GSUF 42). The language of the endorsement is controlling over the general policy language. General Corp. v. Transport Indem. Co. (1997) 17 Cal.4th 38, 50. Lennar’s failure to acknowledge this change is fatal to its argument. 7 Among the provisions cited by Lennar is a provision in the Casualty Follow Form Endorsement stating that GSINDA will pay “all sums in excess of the amount payable by ... all the underlying policies described in the Schedule of Insurance.” Beyond its ignoring of all the provisions in the Endorsement discussed above which apply or incorporate the SIR, Lennar fails to appreciate the fact that, if the “sum” falls within the $1 million “trailing”/ “maintenance” SIR set forth in the XL Policy, it is not an “amount payable by” the XL Policy. Similarly, statements in the Endorsement that GSINDA has no duty “before” exhaustion of the underlying policies and that the GSINDA Policy shall apply “only after” such exhaustion do nothing more than set forth one element-and not the only element-that must be satisfied for the GSINDA Policy to be implicated (underlying exhaustion). 3939345 14 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Furthering its misguided and inaccurate narrative, Lennar cites Haering v. Topa Ins. Co. (2016) 244 Cal. App.4th 725, 734-735 for the proposition that an excess policy form follows form to the underlying coverage with the exception of provisions inconsistent with the excess policy. However, Haering states only that this is generally the case - that is, Haering is not a statement of the law but rather a comment on what many excess policies provide in their wordings.® As Lennar itself quoted, this general rule applies “absent excess policy language to the contrary.” Id., at 734. Haering dealt with different policy language than the GSINDA Policy, which by endorsement expressly states that a specific underlying policy - the XL Policy - is the controlling policy if the provisions between the two documents are in any way inconsistent. The GSINDA Policy has the “express language to the contrary” referenced by the case and Haering is therefore inapposite, making Lennar’s argument relying upon it is misguided. D. Lennar’s Attempt To Avoid Application Of The Operative “Follow Form” Wording When Lennar finally acknowledges the existence of the Casualty Follow Form Endorsement, which applies the wording of the XL Policy regardless of the GSINDA Policy wording, it then seeks a determination that it is invalid because: (1) the GSINDA Policy form was attached and referenced in the endorsement; (2) policies must be interpreted so as to give effect to every term; and, (3) the follow form provision is not “clear and conspicuous” in its incorporation of the SIR. (Mot. at pp. 15-17). None of these arguments have merit. Lennar’s argument reflects a misunderstanding of how the endorsement operates - contrary to Lennar’s position, it does not replace all of the terms in the GSINDA Policy, rather it provides: (1) all terms of the XL Policy are incorporated into the GSINDA Policy except the limits of liability; and, (2) any “conflict” between the terms of the XI. Policy and the GSINDA Policy form is resolved by applying the XI. Policy terms, which always control. This does not mean that none of the terms in the GSINDA Policy form remain extant and operative - it is only when a ¥ Indeed, the original GSINDA Policy form, without the key endorsement, as well as the Interstate Policy, are consistent with that “general” approach. 3939345 15 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & CO US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 conflict exists that the terms in the GSINDA Policy do not apply (absent a conflict, the terms in the GSINDA Policy form still apply). Further, Lennar’s reliance on authorities holding that policies must be interpreted so as to give effect to every term are essentially irrelevant - once language has been removed from the contract it is no longer operative, as commonly occurs when an endorsement is issued, and should not be considered when the terms of the contract are being construed or interpreted by the court. General Corp. v. Transport Indem. Co., supra, 17 Cal.4th at 50. While Lennar cites the “clear and conspicuous” standard for an exclusion or a limitation on coverage, the follow form wording is neither an express exclusion nor an express limitation, but rather it is a clear and simple statement of which documents and wording comprise the contract between the parties/the operative policy. The authorities cited by Lennar in support of its argument are both irrelevant and inapposite. Where the exclusion or limitation at issue is incorporated as a result of a “follow form” provision, it is the followed policy that must be reviewed and interpreted. Most of the cases cited by Lennar do not even mention a SIR, which is neither an exclusion nor a limitation. One case that does deal with an SIR simply seeks to interpret the SIR provision itself under the unique facts presented in that case (The Vons Cos., Inc. v. United States Fire Ins. Co. (2000) 78 Cal. App.4™ 52, 63.” Contrary to Lennar’s assertions, in Forecast Homes, Inc. v. Steadfast Ins. Co. (2010) 181 Cal.App.4th 1466, the court expressly rejected the argument that “SIR endorsements ... are subject to a heightened level of scrutiny and are to be interpreted narrowly and strictly construed against the insurer.” Id., at 1475-1476. Additionally, as Lennar’s own cited cases make clear, the conspicuous, plain and clear standard applies only where the provision “limits coverage reasonably expected by the insured...” Legacy Vulcan Corp. v. Superior Court (2010) 185 Cal. App. 4th 677, 688. As the “follow form” wording is fundamental to all excess insurance coverage and as communications from Lennar’s brokers throughout the underwriting process expressly and ® The footnote in Vons cited by Lennar, placed in context, deals with an argument as to whether the insured must pay the SIR itself or whether other insurance can be used to satisfy the SIR. The issue was not whether an SIR applied, but how it was paid. . 3939345 16 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE CL YD E & CO US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 27 28 repeatedly acknowledged that GSINDA’s Policy was excess of the $1 million SIR, the conspicuous, plain and clear standard does not apply for the additional reason that Lennar could have no reasonable expectation to the contrary. In any event, the application/notice of an SIR in the XL Policy is conspicuous, plain and clear - Lennar does not argue otherwise and, indeed, Lennar admits that the XI. Policy contains a “trailing”/“maintenance” SIR. E. Lennar’s Attempt To Argue That The SIR In The XL Policy Is Carved Out Of The Follow Form Provision Is Misguided Notwithstanding the GSINDA Policy’s broad “follow form” wording, Lennar asserts the SIR is a “retained limit” falling outside of its scope. (Motion, p. 8-9). This argument fails for two reasons. First, the only exception to the follow form provision is the limits of liability - as discussed in GSINDA’s motion, the limits of liability and the SIR are different provisions, located in different sections of the XL Policy. There is no connection between the two provisions and the SIR is a fixed amount and applies entirely independently from the limit of liability. The Forecast Homes and Legacy Vulcan cases relied upon by Lennar to support its assertion that the SIR is not incorporated (because it is a retained limit), do not do so. Both cases refer to an SIR and/or a “retained limit” as a policy “term” and the GSINDA Policy states that it follows form to all “terms.” See, Forecast Homes, Inc. v. Steadfast Ins. Co, supra, 181 Cal.App.4th at1473-1476, 1480; Legacy Vulcan Corp. v. Superior Court, supra, 185 Cal. App.4th at 694-695. Consequently, there is no reasonable basis to dispute that the “trailing”/“maintenance” SIR is a “term” of the XL Policy and that it therefore applies equally to the GSINDA Policy - this is also reflected in the negotiations between the parties (or their agents) prior to GSINDA agreeing to go on risk, as discussed in Section VII above. Second, even if Lennar's argument were accepted, it would not allow Lennar to avoid application of the SIR because the GSINDA Policy attaches excess of the underlying limits of liability as well as “all the amounts” set forth in the XL Policy. Therefore, if the SIR is a “limit of liability,” then the GSINDA Policy would clearly be excess of it." 19 ennar’s reliance on the Minnesota In Re Silicone Implant case (2002) 652 N.W.2d 46 is misplaced. There is no factual or legal analysis in the opinion beyond the three sentences quoted by Lennar and the ruling does not describe 3939345 17 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O U S LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 F. Lennar Improperly Attempts To Artificially Limit The Scope Of The SIR As discussed above, Lennar ignores Endorsement no. 2 of the XL Policy when it argues that there is no SIR under the XL Policy following the triggering of coverage by the exhaustion of the underlying Old Republic layer - although later in the brief Lennar appears to recognize the endorsement’s existence when it presents its argument that, because the endorsement states that the SIR applies “[i]n the event of erosion of Scheduled Underlying Insurance,” the SIR applies only when the Old Republic policy is exhausted and then ceases to apply once the XL layer is exhausted. The argument is illogical and unsupportable - exhaustion of the XL Policy does not change the fact that the Old Republic Policy below it has been and remains exhausted and that application of the SIR has been triggered. IX. THE ARBITRATION APPELLATE DECISION DOES NOT SUPPORT LENNAR’S POSITION Lennar’s assertion that the Court of Appeal opinion in this case ruling on whether the parties’ disputes must be arbitrated also extend to include a ruling on the inclusion of an SIR in GSINDA'’s policy language improperly overstates the actual ruling and fails to reference key portions of the decision which support GSINDA’s position. Under California Rules of Court, Rule 8.1115(b)(1), “law of the case” refers to the ultimate legal conclusion of the court - it does not apply to legal issues that are not part of the subject appeal. 9 Witkin, Summary of California Procedure (5™ Ed. 2008), Appeal, §476, p. 434. Given the appellate decision was limited to whether GSINDA could compel Lennar to arbitrate the disputes it is of no relevance to the SIR issue, nor does it provide a “law of the case” exception to the rule that the case is non-citable. Even were the decision citable here, the Court of Appeal’s decision that this action is not subject to mandatory arbitration under the GSINDA Policy was based on specific points that are the policy in detail, although earlier in the opinion it states: “For the years 1981 to 1985, Lakeside Insurance provided primary coverage to 3M that contained the following deductible: ‘$5,000-per-occurrence or event including allocated claim expense.’ This policy language is easily distinguished from the GSINDA policy wording. In In Re Silicone Implant, the deductible was part of the excess carrier’s limits of liability, to which it did not follow form, whereas here the SIR is not in the limit of liability section and applies separately from the limits of liability. Further, the GSINDA Policy expressly states that it is excess of “all the amounts” detailed in the XL Policy and that it provides no broader coverage than the XL Policy. Decisions on insurance disputes cannot be applied without including an analysis of the actual policy language, which unsurprisingly dramatically change the outcome. 3939345 18 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & CO US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: No ~N ON Wn A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 not present with respect to the SIR dispute, such as issues relating to preemption and California law relating to application of arbitration provisions. (Lennar’s Exhibit C, p. 2). In addition, key to the appellate court’s decision was the requirement that arbitration clauses in particular must be drawn to the attention of the parties, that the GSINDA policy did not explicitly draw attention to the arbitration provision, and the parties would not have reasonably expected to be subject to arbitration in London when the insurance dealt with issues in the United States, the claims were in the United States, and both the insurer and insured were United States entities. Id. at 7-8. Lennar fails to mention that the appellate court acknowledged that the GSINDA Policy’s reference to the XL Policy validly incorporates the terms and conditions in the XL Policy regarding payments and coverage. (Lennar’s Exhibit V, p. 6). Further, the GSINDA Policy explicitly draws Lennar’s attention to the payment terms at issue here, including the SIR - it specifically references that it is excess to the “amounts specified” under the controlling underlying (XL) policy (the “amounts specified” by the XL. Policy include not only its limits, but also those of the underlying Old Republic Policy and, after its exhaustion, the “trailing”/“maintenance” SIR). The appellate court also confirmed that a following form excess policy is expected to provide the same kind of coverage (and limitations) as the policy to which it follows form. “The General Security policy ‘follows form to’ the XL policy language-in other words, the General Security policy incorporates the terms and conditions of the XL policy. A ‘following form’ policy incorporates the terms and conditions of another carrier’s policy and provides the same scope of coverage as the underlying policy.” Id. at p. 2-3 (citing Wells Fargo Bank v. California Ins. Guarantee Assn. (1995) 38 Cal. App.4th 936, 940. Unlike the parties’ dispute relating to a London arbitration, Lennar cannot reasonably argue that it could not have anticipated the inclusion of the SIR because it (through its agent, its broker) specifically raised the inclusion of a SIR in the negotiations to obtain coverage from GSINDA. (GSUF 8-18). The communications between GSINDA and Lennar’s agent (its brokers) during the underwriting of the GSINDA Policy evidence Lennar’s (and, in turn, 3939345 19 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O U S L L P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: No ] ~N S N Wn A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 GSINDA’s) clear intent and understanding that a “trailing”/“maintenance” SIR would apply to all claims under both the XL Policy and the GSINDA Policy." GSINDA relied upon this fran in agreeing to provide a policy in Lennar’s insurance tower. [SUF 12, 16, 19,27, 29, 32]. The responses from GSINDA-terms of potential offer, the quotation, and the binder-specifically reflected inclusion of all potentially applicable underlying amounts, not just the underlying limits, and expressly provide that the GSINDA Policy is excess of the SIR. Id. This underwriting history clearly illustrates that both parties understood there would be a “trailing”/“maintenance” SIR that would apply to all losses In summary, the appellate decision dealt with a different issue and different facts and has no relevance to the SIR dispute.’ 1" 1H 1" 1" / i" " / I" "In its email dated September 29, 2005 to GSINDA’s underwriter, Lennar’s broker acknowledged the existence of a “trailing”/“maintenance” SIR of $750,000, without limitation. _ (GSUF 11). The $750,000 “trailing”/“maintenance” SIR was ultimately increased to $1 million. (GSUF 17-18). XL’s “Renewal Quotation” attached to the September 29, 2005 email affirmed the existence of the “trailing”/“maintenance” SIR - described as a “trailing”/“maintenance” SIR applied to “Each and Every Occurrence” without expressing any limitation based on whether coverage was sought under Clause A or Clause B. (GSUF 15). XL’s Binder provided the same thing. (GSUF 22). In addition, the policy form provided by Lennar’s broker specifically included the “trailing”/“maintenance” SIR. (GSUF 24). 2 Lennar also makes reference to dicta offered by the prior judge assigned to this case in response to a demurrer filed by Interstate. Obviously, a demurrer applies a different standard than a motion for summary adjudication. In addition, the facts at that time had not yet been fully developed and were not presented there, GSINDA was not the moving party, and the motion involved a policy (Interstate’s) that is demonstrably different than GSINDA's in terms of how it incorporates the XL Policy as well as its own policy language generally. The dicta has no place here and is certainly not precedent of any kind. 3939345 20 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O US LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 92 61 4 Te le ph on e: Oo ee 9 NN na 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 X. CONCLUSION For the foregoing reasons GSINDA respectfully requests that this court deny Lennar’s motion for summary adjudication and, as requested in GSINDA’s separate SIR motion, that it hold there is an applicable $1 million “trailing”/“maintenance” SIR for each “Occurrence” (covered under the GSINDA policy). CLYDE & CO US LLP Be ear Ralph A. Guiirgis, f Curtis D. Parvin Sean R. Simpson Attorneys for Cross-Defendant GENERAL SECURITY INDEMNITY COMPANY OF ARIZONA Dated: July 17, 2018 3939345 21 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O US LL P 20 20 Ma in St re et , Su it e 11 00 ir vi ne , Ca li fo rn ia 9 2 6 1 4 T e l e p h o n e : 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF ORANGE At the time of service, I was over 18 years of age and not a party to this action. I am employed in the County of Orange, State of California. My business address is 2020 Main Street, Suite 1100, Irvine, CA 92614. On July 17, 2018, I served true copies of the following document(s) described as OPPOSITION TO MOTION FOR SUMMARY ADJUDICATION RE APPLICATION OF SELF INSURED RETENTION on the interested parties in this action as follows: SEE ATTACHED SERVICE LIST BY ELECTRONIC SERVICE: I served the document(s) on the person listed in the Service List by submitting an electronic version of the document(s) to One Legal, LLC, through the user interface at www.onelegal.com. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on July 17, 2018, at Irvine, California. VERLISA R. LEWIS 3939345 22 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE C L Y D E & C O U S LL P 20 20 Ma in St re et , Su it e 11 00 Ir vi ne , Ca li fo rn ia 9 2 6 1 4 T e l e p h o n e : 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SERVICE LIST Interstate Fire & Casualty Company v. Lennar Corporation, et al. Orange County Superior Court Case No. 30-2010-00390819-CU-IC-CXC Mary E. McPherson Tressler LLP 2 Park Plaza, Suite 1050 Irvine, CA 92614 Peter G. Thompson (Pro Hac Vice) April H. Gassler (Pro Hac Vice) Sperduto Thompson & Gassler PLC 1747 Pennsylvania Ave., N.W., Suite 1250 Washington, DC 20006 Gregory L. Dillion Alan H. Packer Bonnie Roadarmel Graham C. Mills Newmeyer & Dillion LLP 895 Dove Street, 5th Floor Newport Beach, CA 92660 3939345 Attorneys for Plaintiff/Cross-Defendant/Cross- Complainant Interstate Fire & Casualty Company Telephone: (949) 336-1200 Facsimile: (949) 752-0645 Email: mmcpherson@tresslerlip.com Attorneys for Plaintiff/Cross-Defendant/Cross- Complainant Interstate Fire & Casualty Company Telephone: (202) 408-8900 Facsimile: (202) 408-8910 Email: pthompson@stglawdc.com Email: agassler@stglawdc.com Attorneys for Defendants/Cross-Complainants Lennar Corporation, Lennar Homes of California, Inc., and Lennar Sales Corporation Telephone: (949) 854-7000 Facsimile: (949) 854-7099 Email: greg.dillion@ndlf.com Email: alan.packer@ndlf.com Email; bonnie.roadarmel@ndlf.com 23 GSINDA’S OPPOSITION TO LENNAR’S MOTION FOR SUMMARY ADJUDICATION RE THE SIR ISSUE