Insurance Co. of Pa v. County of San Bernardino

• Court: Court of Appeals for the Ninth Circuit
• Decided: June 10, 2019
• Docket: 17-56825
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUN 10 2019 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

THE INSURANCE COMPANY OF THE No. 17-56825 STATE OF PENNSYLVANIA, D.C. No. Plaintiff-counter- 5:16-cv-00128-PSG-SS defendant-Appellee,

v. MEMORANDUM*

COUNTY OF SAN BERNARDINO,

Defendant-counter-claimant- Appellant.

Appeal from the United States District Court for the Central District of California Philip S. Gutierrez, District Judge, Presiding

Argued and Submitted May 14, 2019 Pasadena, California

Before: LIPEZ,** WARDLAW, and HURWITZ, Circuit Judges.

The question in this diversity case is whether certain language (“Condition

C”) in three policies issued by the Insurance Company of the State of Pennsylvania

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Kermit V. Lipez, United States Circuit Judge for the First Circuit, sitting by designation. (“ICSOP”) to the County of San Bernardino (“the County”) is an enforceable

antistacking provision that precludes the County from aggregating the per-

occurrence policy limits in the three policies. Reviewing the district court’s

summary judgment decision in favor of ICSOP de novo, Rocky Mountain Farmers

Union v. Corey, 730 F.3d 1070, 1086 (9th Cir. 2013), and applying California

substantive law, Karen Kane Inc. v. Reliance Ins. Co., 202 F.3d 1180, 1183 (9th Cir.

2000), we conclude that Condition C is an enforceable antistacking provision, and

affirm.

1. Under California law, the plain language of an insurance contract governs.

State v. Cont’l Ins. Co., 281 P.3d 1000, 1004 (Cal. 2012). Like the majority of courts

to interpret Condition C, we conclude that its plain language unambiguously

precludes stacking. See, e.g., Olin Corp. v. OneBeacon Am. Ins. Co., 864 F.3d 130,

147–48 (2d Cir. 2017); Plantation Pipeline Co. v. Cont’l Cas. Co.,

No. 1:03-CV-2811-WBH, 2008 WL 10884027, at *3 (N.D. Ga. July 9, 2008);

Stonewall Ins. Co. v. E.I. du Pont de Nemours & Co., 996 A.2d 1254, 1259 (Del.

2010).1 The County relies on cases that found ambiguity in contractual language

that differed from Condition C and involved disputes about the definition of

1 We do not rely on the unpublished section of Fuller-Austin Insulation Company v. Highlands Insurance Company, No. B170079, at 65–66 (Cal. Ct. App. Jan. 19, 2006), which both parties contended at oral argument supports their respective positions.

2 17-56825 “occurrence” as applied to a highly specific factual scenario. See A.B.S. Clothing

Collection, Inc. v. Home Ins. Co., 41 Cal. Rptr. 2d 166, 170–74 (Cal. Ct. App. 1995);

Karen Kane Inc., 202 F.3d at 1183–88.

2. California “[c]ourts will not strain to create an ambiguity where none

exists.” Waller v. Truck Ins. Exch., Inc., 900 P.2d 619, 627 (Cal. 1995). The

County’s various attempts to create ambiguity are ineffectual. In particular, the

County’s alternative reading of Condition C—that its purpose is to prevent double

recovery of specific expenses—would render other language in the contract

superfluous. See Mirpad, LLC v. Cal. Ins. Guar. Ass’n, 34 Cal. Rptr. 3d 136, 147

(Cal. Ct. App. 2005) (“An interpretation of the policy that creates an ambiguity

where none existed by rendering words redundant or superfluous violates all rules

of construction.”). The County’s proffered interpretation of “any amounts due”

would lead to the potentially absurd conclusion that policy limits are reduced so long

as the prior insurer has not paid its policy limits but are not reduced once the limits

are paid. The County’s arguments based on the use of the term “loss” in the policies

are also unpersuasive. Condition C applies to any “covered” loss, and courts have

typically rejected any interpretation of “covered” in an insurance contract as

meaning something other than “within the scope of coverage.” See, e.g., Wells

Fargo Bank, N.A. v. Cal. Ins. Guar. Ass’n, 45 Cal. Rptr. 2d 537, 544–45 (Cal. Ct.

App. 1995).

3 17-56825 3. The ICSOP policies are “excess policies” within the scope of Condition C.

The policies are labelled as “umbrella liability” policies, and umbrella policies

ordinarily “are excess policies in the sense they afford coverage that is excess over

underlying insurance.” CSE Ins. Grp. v. Northbrook Prop. & Cas. Co., 29 Cal. Rptr.

2d 120, 122 n.1 (Cal. Ct. App. 1994). The ICSOP policies also exhibit the hallmarks

of excess policies: they include a schedule of underlying insurance and are not

ordinarily triggered until the underlying policies are exhausted.2 See H. Walter

Croskey, et al., California Practice Guide: Insurance Litigation, Ch. 8-C, § 8:177

(Aug. 2018). Finally, the language of Condition C— “any other excess policy”—

suggests that each ICSOP policy is itself an excess policy for purposes of Condition

C.

4. The County’s suggestion that reading Condition C as an antistacking

provision is antithetical to their reasonable expectations of coverage is unavailing.

By purchasing the second and third policies, the County did receive additional

coverage—the first policy would not cover claims for property damage resulting

2 The County’s argument that the ICSOP policies sometimes act as primary insurance, and thus cannot be considered to be “excess policies,” depends on accepting the proposition that the self-insured retention is not technically equivalent to an underlying insurance policy. Courts, however, have generally treated policies that are only triggered once self-insurance is exhausted as excess policies, at least in the context of indemnification. See, e.g., Pac. Emp’rs Ins. Co. v. Domino’s Pizza, Inc., 144 F.3d 1270, 1276–77 (9th Cir. 1998). The cases cited by the County are distinguishable because they involve the specific question of an insurer’s duty to defend when a policy includes a self-insured retention.

4 17-56825 from an occurrence that developed after the expiration of the first policy period.

Furthermore, the promise in Condition C’s second paragraph of continuing coverage

after the policy period’s expiration is entirely consistent with interpreting Condition

C as an antistacking provision. The second paragraph simply memorializes the

principle under California law that insurers are “liable to indemnify the insured,”

subject to policy limits, “against all claims that resulted from some triggering harm

during the respective policy periods, even if the claims arose after the policy period

expired.” Cont’l Ins., 281 P.3d at 1006 (emphasis omitted).

5. Condition C is not an unenforceable “escape clause.” California law makes

clear that insurance provisions should be interpreted in their context, including as

they are applied to the facts underlying the coverage dispute. See, e.g., Bay Cities

Paving & Grading, Inc. v. Lawyers’ Mut. Ins. Co., 855 P.2d 1263, 1271 (Cal. 1993);

Cont’l Ins., 281 P.3d at 1004-05 (“[L]anguage in a contract must be construed . . . in

the circumstances of that case, and cannot be found to be ambiguous in the abstract.”

(alteration in original) (internal quotation marks omitted)). To the extent Condition

C precludes the County from stacking the per-occurrence limits of the three ICSOP

policies, it is not an unenforceable escape clause because it neither reduces ICSOP’s

coverage obligations to zero nor shifts liability wholly or largely to another insurer.

See Dart Indus., Inc. v. Commercial Union Ins. Co., 52 P.3d 79, 93 (Cal. 2002). The

County’s reliance on cases suggesting that all antistacking provisions are escape

5 17-56825 clauses is unavailing given the California Supreme Court’s recognition that

antistacking provisions are enforceable. See Cont’l Ins., 281 P.3d at 1009.

AFFIRMED.

6 17-56825