Atain Specialty Insurance Co. v. Sierra Pacific Management Co.

• Court: Court of Appeals for the Ninth Circuit
• Decided: March 13, 2018
• Docket: 16-17221
• Status: Unpublished

Opinion

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS FILED FOR THE NINTH CIRCUIT MAR 13 2018 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS ATAIN SPECIALTY INSURANCE No. 16-17221 COMPANY, D.C. No. Plaintiff-counter- 2:14-cv-00609-TLN-DB defendant-Appellee,

v. MEMORANDUM*

SIERRA PACIFIC MANAGEMENT COMPANY,

Defendant,

and

CALIFORNIA CAPITAL INSURANCE COMPANY,

Defendant-counter-claim- 3rd-party-plaintiff- Appellant,

v.

JERRY LEE; BETTY LEE,

Third-party-defendants- Appellees.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Appeal from the United States District Court for the Eastern District of California Troy L. Nunley, District Judge, Presiding

Argued and Submitted February 15, 2018 San Francisco, California

Before: SCHROEDER, TORRUELLA,** and FRIEDLAND, Circuit Judges.

This appeal stems from a dispute between two insurance companies.

California Capital Insurance Company (“California Capital”) insured Jerry and

Betty Lee, the landlords of Pagoda Garden Apartments (“Pagoda Garden”). Sierra

Pacific Management Company (“Sierra Pacific”) managed Pagoda Garden and was

an “insured” by definition under California Capital’s insurance policy. Sierra

Pacific also had its own insurance through Atain Specialty Insurance Company

(“Atain”). California Capital sought contribution from Atain for the costs it

incurred in settling a personal injury lawsuit brought by a Pagoda Garden tenant.

Atain filed this action for a declaratory judgment that it had no duty to

defend or indemnify Sierra Pacific in the underlying personal injury lawsuit.

California Capital counter-claimed for breach of contract, for breach of the implied

covenant of good faith and fair dealing, for a declaration that Atain had a duty to

** The Honorable Juan R. Torruella, United States Circuit Judge for the First Circuit, sitting by designation. 2 defend and indemnify Sierra Pacific, and for equitable contribution and indemnity

from Atain. California Capital also alleged that its policy contained an anti-

stacking provision, which limited its policy coverage to $1 million over six policy

periods, and filed a third-party complaint against the Lees to recover the $900,000

it paid over the annual policy limit.

The District Court granted Atain’s and the Lees’ motions for summary

judgment. The District Court correctly determined that Atain’s “Real Estate

Property Managed” endorsement was an “excess clause” that rendered its

insurance excess to California Capital’s insurance, and that Atain’s coverage was

excess in one particular scenario—when liability arose out of Sierra Pacific’s

property management activities. The court therefore held that Atain had no duty to

defend or indemnify Sierra Pacific. The District Court also correctly determined

that California Capital’s policies did not contain an anti-stacking provision, and

that California Capital’s consecutive policies provided more than enough coverage

for the settlement in the underlying personal injury lawsuit.

On appeal, California Capital does not contest the District Court’s grant of

summary judgment to the Lees. Rather, California Capital argues that Atain’s

excess clause should not be enforced because it is an “escape clause” that attempts

to shift the burden of coverage away from Atain to other insurers such as

3 California Capital and because it conflicts with an excess insurance clause in its

own policy. See Dart Indus., Inc. v. Commercial Union Ins. Co., 52 P.3d 79, 93

(Cal. 2002). Because public policy disfavors escape clauses, “the modern trend is

[for courts] to require equitable contributions . . . from all primary insurers[.]” Id.

(citations omitted). However, in California, excess insurance clauses in otherwise

primary insurance policies may be enforceable in the limited circumstance of a

narrow clause declaring the policy “to be excess in the situation where the parties

and the insurers are most likely to intend that result—when the insured is covered

as an additional insured on another party’s policy for some specific event or

situation.” Hartford Cas. Ins. Co. v. Travelers Indem. Co., 2 Cal. Rptr. 3d 18, 31

(Cal. Ct. App. 2003).

Atain’s coverage is excess in the “specific instance” of when Sierra Pacific’s

liability arises out of its property management operations. See id. Its policies

contain an endorsement for “Real Estate Property Managed” that states, “With

respect to your liability arising out of your management of property for which you

are acting as real estate manager[,] this insurance is excess over any other valid and

collectible insurance available to you.” California Capital’s “other insurance”

provision contains no such specific exclusion or limitation and states its policy is

excess “[i]f there is other insurance covering the same loss or damage.” The

4 relationship between the parties in this case—and particularly the contractual

requirement that the Lees obtain insurance to cover Sierra Pacific and the

comparatively low premiums for property management in the Atain

policy—suggest that the Atain policy was intended to be excess to a landlord’s

underlying insurance policy. In this context, we decline to order equitable

contribution based on the interaction of the other insurance clauses.

California Capital further argues that its policies contain an anti-stacking

provision that limits its coverage to $1 million and that Atain is liable for the

$900,000 California Capital paid over that limit in settlement of the personal injury

lawsuit. Insurance policy limits may be stacked “when more than one policy is

triggered by an occurrence,” which creates “one giant ‘uber-policy’ with a

coverage limit equal to the sum of all purchased insurance policies.” State v.

Cont’l Ins. Co., 281 P.3d 1000, 1008 (Cal. 2012). Although insurers may include

anti-stacking language in their policies, id. at 1009, the District Court correctly

held that California Capital’s policies do not contain such language. California

Capital’s $1 million limit for bodily injury “arising out of any one ‘occurrence’”

“appl[ies] separately to each consecutive annual period.” The policies do not

indicate that the per-occurrence limit applies across policy periods. California

Capital issued six policies to the Lees with a $1 million limit per policy, and those

5 policies stacked to create “a coverage limit equal to” $6 million. See id. at 1008.

Because the $1.9 million settlement that California Capital paid did not exceed that

amount, Atain is not liable as an excess insurer.

AFFIRMED.