1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 STARR INDEMNITY & LIABILITY Case No. 20-cv-00959-SI COMPANY, 8 Plaintiff, ORDER DENYING PLAINTIFF’S 9 MOTION FOR JUDGMENT ON THE v. PLEADINGS 10 AMGUARD INSURANCE COMPANY, Re: Dkt. No. 72 11 Defendant. 12 --------------------------------------------------- 13
14 AMGUARD INSURANCE COMPANY, Third Party Plaintiff and 15 Counterclaimant, 16 v. 17 ZORIALL LLC, a California limited liability company; ANNE KIHAGI, a 18 California citizen; CHRISTINA MWANGI, a California citizen; DALE DUNCAN, a 19 California citizen; MARTA MUNOZ 20 MENDOZA, a California citizen; and STARR INDEMNITY & LIABILITY 21 COMPANY, Third Party Defendants and Counter- 22 Defendant.
23 Plaintiff and counter-defendant Starr Indemnity & Liability Company (“Starr”) has filed a 24 motion for judgment on the pleadings, and the motion is scheduled for a hearing on August 27, 25 2021. Pursuant to Civil Local Rule 7-1(b), the Court determines that the matter is appropriate for 26 resolution without oral argument, and VACATES the hearing. For the reasons set forth below, the 27 1 DISCUSSION 2 Starr filed this action against AmGUARD Insurance Company (“AmGUARD”) seeking 3 declaratory and equitable relief regarding the defense and indemnity of Starr and AmGUARD’s 4 mutual insureds, Zoriall LLC, Anne Kihagi, and Christina Mwangi (collectively, the “Kihagi 5 Parties”1), against the claims and damages alleged against the Kihagi Parties in the underlying Smyth 6 and Duncan Lawsuits. AmGUARD denies that it owed a duty to defend or indemnify the Smyth 7 and Duncan Lawsuits, and has asserted 22 affirmative defenses, including misrepresentation, fraud 8 and concealment in the insurance application (eleventh affirmative defense) and rescission (twelfth 9 affirmative defense). AmGUARD has also filed a third party complaint against the Kihagi Parties 10 and Starr seeking rescission of the insurance policy and a judicial declaration that there is no 11 coverage under its policy for the Smyth and Duncan Lawsuits due to Zoriall LLC’s alleged material 12 misrepresentations and/or concealment of material facts in its insurance application. 13 Starr requests judgment on the pleadings in favor of Starr and against AmGUARD on the 14 following: (1) Starr’s second claim for relief for declaratory relief on AmGUARD’s duty to defend 15 the Smyth Lawsuits; (2) AmGUARD’s fourth cause of action for declaratory relief as to Starr on the 16 duty to defend the Smyth Lawsuits; (3) AmGUARD’s twelfth affirmative defense of rescission; and 17 (4) AmGUARD’s first cause of action for recission as to Starr. Starr’s motion does not seek 18 judgment on the pleadings with regard to AmGUARD’s duty to defend or indemnify the Duncan 19 Lawsuits. 20 Starr contends that it is entitled to judgment on the pleadings because AmGUARD has 21 admitted that it agreed to defend the Smyth Lawsuits pursuant to a reservation of rights, admitted 22 that it sent a letter to its insured stating it would join in paying (with Starr) the fees and costs incurred 23 in defending the Smyth Lawsuits, and admitted that it did not pay any sums to Starr for the defense 24 fees and costs. Citing Angle v. U.S. Fid. & Guar. Co., 201 Cal. App. 2d 758, 763 (1962), Starr 25 contends that AmGUARD “cannot belatedly assert rescission to bar Starr’s rights because the rights 26
27 1 Starr and AmGUARD both issued policies to Zoriall LLC. Anne Kihagi is the sole member 1 of Starr intervened and circumstances changed [such] that rescission may not be decreed without 2 injury to Starr’s rights to equitable contribution and indemnity against AmGUARD.” Reply at 2-3. 3 Starr also argues that AmGUARD cannot seek rescission because it did not promptly assert 4 rescission and instead waited until this lawsuit to raise rescission in its answer and counter- and 5 cross-complaint. 6 AmGUARD contends that Starr’s motion must be denied because AmGUARD asserts 7 numerous affirmative defenses that, if successful, would result in voiding AmGUARD’s policy ab 8 initio. AmGUARD argues that if the policy is voided, all of Starr’s claims against AmGUARD fail 9 as a matter of law because Starr’s claims for equitable indemnity, contribution and subrogation 10 depend upon the existence of a valid policy issued by AmGUARD. AmGUARD argues that the 11 Court must take as true AmGUARD’s allegations that the AmGUARD policy was procured by 12 material misrepresentation, concealment and fraud, and that whether AmGUARD is entitled to 13 rescind the policy raises factual questions beyond the scope of the pleadings. AmGUARD also 14 argues that as a factual matter, “Starr has not suffered any damages because of anything AmGUARD 15 did” because Starr “issued a policy to its insured and made a determination to defend its insured 16 under a reservation of rights before AmGUARD ever issued its reservation letters, which were not 17 even addressed to Starr.” Opp’n at 18. 18 Judgment on the pleadings is appropriate when, even if all material facts in the pleading 19 under attack are true, the moving party is entitled to judgment as a matter of law. Hal Roach Studios, 20 Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1989). “All allegations of fact by 21 the party opposing the motion are accepted as true, and are construed in the light most favorable to 22 that party.” General Conference Corp. of Seventh-Day Adventists v. Seventh-Day Adventist 23 Congregational Church, 887 F.2d 228, 230 (9th Cir. 1989). A plaintiff is not entitled to judgment 24 on the pleadings when the answer raises issues of fact or an affirmative defense which, if proved, 25 would defeat recovery. Id. 26 The Court concludes that judgment on the pleadings is not appropriate because 27 AmGUARD’s affirmative defenses, if proved, would defeat Starr’s recovery. As an initial matter, 1 cross-claims. See Resure, Inc. v. Sup. Ct., 42 Cal. App. 4th 156, 166 (1996) (rescission may be 2 asserted as affirmative defense); LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co., 156 Cal. 3 App. 4th 1259, 1267-68 (2007) (insurer may file cross-complaint for rescission). None of the cases 4 cited by Starr, including Angle, hold as a matter of law that an insurance company may not seek to 5 rescind a policy based upon an insured’s alleged fraud and misrepresentations in procuring the 6 policy when another insurance company has filed suit seeking equitable contribution, indemnity 7 and/or subrogation. Instead, courts have held under the particular facts of those cases that “there 8 can be no rescission where the rights of third parties would be prejudiced.” Angle, 201 Cal. App. 9 2d at 763. For example, in Angle, a dwelling was covered by two fire insurance policies issued by 10 different companies. After a fire, one insurance company issued a back-dated replacement policy – 11 referred to as a “rescission” by the trial court – with reduced coverage limits. The court held the 12 insurance company could not “rescind” its policy because “in these circumstances” the rights of the 13 other insurance company would be prejudiced. Id. The other cases cited by Starr are similarly 14 distinguishable on their facts. See, e.g., Beckwith v. Sheldon, 165 Cal.
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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 STARR INDEMNITY & LIABILITY Case No. 20-cv-00959-SI COMPANY, 8 Plaintiff, ORDER DENYING PLAINTIFF’S 9 MOTION FOR JUDGMENT ON THE v. PLEADINGS 10 AMGUARD INSURANCE COMPANY, Re: Dkt. No. 72 11 Defendant. 12 --------------------------------------------------- 13
14 AMGUARD INSURANCE COMPANY, Third Party Plaintiff and 15 Counterclaimant, 16 v. 17 ZORIALL LLC, a California limited liability company; ANNE KIHAGI, a 18 California citizen; CHRISTINA MWANGI, a California citizen; DALE DUNCAN, a 19 California citizen; MARTA MUNOZ 20 MENDOZA, a California citizen; and STARR INDEMNITY & LIABILITY 21 COMPANY, Third Party Defendants and Counter- 22 Defendant.
23 Plaintiff and counter-defendant Starr Indemnity & Liability Company (“Starr”) has filed a 24 motion for judgment on the pleadings, and the motion is scheduled for a hearing on August 27, 25 2021. Pursuant to Civil Local Rule 7-1(b), the Court determines that the matter is appropriate for 26 resolution without oral argument, and VACATES the hearing. For the reasons set forth below, the 27 1 DISCUSSION 2 Starr filed this action against AmGUARD Insurance Company (“AmGUARD”) seeking 3 declaratory and equitable relief regarding the defense and indemnity of Starr and AmGUARD’s 4 mutual insureds, Zoriall LLC, Anne Kihagi, and Christina Mwangi (collectively, the “Kihagi 5 Parties”1), against the claims and damages alleged against the Kihagi Parties in the underlying Smyth 6 and Duncan Lawsuits. AmGUARD denies that it owed a duty to defend or indemnify the Smyth 7 and Duncan Lawsuits, and has asserted 22 affirmative defenses, including misrepresentation, fraud 8 and concealment in the insurance application (eleventh affirmative defense) and rescission (twelfth 9 affirmative defense). AmGUARD has also filed a third party complaint against the Kihagi Parties 10 and Starr seeking rescission of the insurance policy and a judicial declaration that there is no 11 coverage under its policy for the Smyth and Duncan Lawsuits due to Zoriall LLC’s alleged material 12 misrepresentations and/or concealment of material facts in its insurance application. 13 Starr requests judgment on the pleadings in favor of Starr and against AmGUARD on the 14 following: (1) Starr’s second claim for relief for declaratory relief on AmGUARD’s duty to defend 15 the Smyth Lawsuits; (2) AmGUARD’s fourth cause of action for declaratory relief as to Starr on the 16 duty to defend the Smyth Lawsuits; (3) AmGUARD’s twelfth affirmative defense of rescission; and 17 (4) AmGUARD’s first cause of action for recission as to Starr. Starr’s motion does not seek 18 judgment on the pleadings with regard to AmGUARD’s duty to defend or indemnify the Duncan 19 Lawsuits. 20 Starr contends that it is entitled to judgment on the pleadings because AmGUARD has 21 admitted that it agreed to defend the Smyth Lawsuits pursuant to a reservation of rights, admitted 22 that it sent a letter to its insured stating it would join in paying (with Starr) the fees and costs incurred 23 in defending the Smyth Lawsuits, and admitted that it did not pay any sums to Starr for the defense 24 fees and costs. Citing Angle v. U.S. Fid. & Guar. Co., 201 Cal. App. 2d 758, 763 (1962), Starr 25 contends that AmGUARD “cannot belatedly assert rescission to bar Starr’s rights because the rights 26
27 1 Starr and AmGUARD both issued policies to Zoriall LLC. Anne Kihagi is the sole member 1 of Starr intervened and circumstances changed [such] that rescission may not be decreed without 2 injury to Starr’s rights to equitable contribution and indemnity against AmGUARD.” Reply at 2-3. 3 Starr also argues that AmGUARD cannot seek rescission because it did not promptly assert 4 rescission and instead waited until this lawsuit to raise rescission in its answer and counter- and 5 cross-complaint. 6 AmGUARD contends that Starr’s motion must be denied because AmGUARD asserts 7 numerous affirmative defenses that, if successful, would result in voiding AmGUARD’s policy ab 8 initio. AmGUARD argues that if the policy is voided, all of Starr’s claims against AmGUARD fail 9 as a matter of law because Starr’s claims for equitable indemnity, contribution and subrogation 10 depend upon the existence of a valid policy issued by AmGUARD. AmGUARD argues that the 11 Court must take as true AmGUARD’s allegations that the AmGUARD policy was procured by 12 material misrepresentation, concealment and fraud, and that whether AmGUARD is entitled to 13 rescind the policy raises factual questions beyond the scope of the pleadings. AmGUARD also 14 argues that as a factual matter, “Starr has not suffered any damages because of anything AmGUARD 15 did” because Starr “issued a policy to its insured and made a determination to defend its insured 16 under a reservation of rights before AmGUARD ever issued its reservation letters, which were not 17 even addressed to Starr.” Opp’n at 18. 18 Judgment on the pleadings is appropriate when, even if all material facts in the pleading 19 under attack are true, the moving party is entitled to judgment as a matter of law. Hal Roach Studios, 20 Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1989). “All allegations of fact by 21 the party opposing the motion are accepted as true, and are construed in the light most favorable to 22 that party.” General Conference Corp. of Seventh-Day Adventists v. Seventh-Day Adventist 23 Congregational Church, 887 F.2d 228, 230 (9th Cir. 1989). A plaintiff is not entitled to judgment 24 on the pleadings when the answer raises issues of fact or an affirmative defense which, if proved, 25 would defeat recovery. Id. 26 The Court concludes that judgment on the pleadings is not appropriate because 27 AmGUARD’s affirmative defenses, if proved, would defeat Starr’s recovery. As an initial matter, 1 cross-claims. See Resure, Inc. v. Sup. Ct., 42 Cal. App. 4th 156, 166 (1996) (rescission may be 2 asserted as affirmative defense); LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co., 156 Cal. 3 App. 4th 1259, 1267-68 (2007) (insurer may file cross-complaint for rescission). None of the cases 4 cited by Starr, including Angle, hold as a matter of law that an insurance company may not seek to 5 rescind a policy based upon an insured’s alleged fraud and misrepresentations in procuring the 6 policy when another insurance company has filed suit seeking equitable contribution, indemnity 7 and/or subrogation. Instead, courts have held under the particular facts of those cases that “there 8 can be no rescission where the rights of third parties would be prejudiced.” Angle, 201 Cal. App. 9 2d at 763. For example, in Angle, a dwelling was covered by two fire insurance policies issued by 10 different companies. After a fire, one insurance company issued a back-dated replacement policy – 11 referred to as a “rescission” by the trial court – with reduced coverage limits. The court held the 12 insurance company could not “rescind” its policy because “in these circumstances” the rights of the 13 other insurance company would be prejudiced. Id. The other cases cited by Starr are similarly 14 distinguishable on their facts. See, e.g., Beckwith v. Sheldon, 165 Cal. 319, 324 (1917) (holding, in 15 context of a real estate transaction, that where plaintiff’s intestate transferred water rights to 16 defendants, who expended large sums of money building an irrigation system, plaintiff could not 17 rescind the contract because “[i]t is, of course, fundamental that where the rights of others have 18 intervened and circumstances have so far changed that rescission may not be decreed without injury 19 to those parties and their rights, rescission will be denied and the complaining party left to his other 20 remedies.”). 21 Here, Starr claims that if AmGUARD is permitted to seek rescission of its policy, Starr will 22 be harmed because it will have to bear the entire cost of defending the Smyth Lawsuits, and therefore 23 that AmGUARD is not entitled to seek rescission. However, that argument proves too much because 24 under Starr’s theory, any time multiple insurance policies covered the same loss, an insurance 25 company could bar another insurance company from seeking rescission simply on the ground that 26 the rescission would result in greater liability for the non-rescinding company. To the contrary, 27 California law provides that when multiple insurance companies are potentially liable for the same 1 resolved in the same action. Cf. Truck Ins. Exch. v. Sup. Ct., 60 Cal. App. 4th 342, 349 (1997) (in 2 action by two insurers seeking rescission against defaulting insured, court must allow third insurance 3 || company to intervene to protect its right to seek equitable contribution: ‘Permitting Truck to 4 || intervene and putting Transco and Alpine to their proof will simply bar them from unilaterally 5 obtaining a judicial determination that their policies are rescinded. The intervention certainly will 6 || not foreclose the possibility that they will prevail but will force them to prove their case. .. However, 7 if the evidence to support rescission is insufficient, then Truck’s interest in preserving its claim for 8 equitable indemnity would not be lost if the matter 1s concluded due to [the insured’s] default.”). 9 || Whether AmMGUARD is entitled to rescind its policy, and whether a rescission would prejudice Starr 10 such that the rescission should be denied, are questions that involve numerous factual determinations 11 beyond the scope of the pleadings. Accordingly, the Court DENIES Starr’s motion for judgment 12 || on the pleadings.
IT IS SO ORDERED. Gun lite 16 Dated: August 16, 2021 SUSAN ILLSTON 17 United States District Judge 18 19 20 21 22 23 24 25 26 27 28