Williamsburg National Insurance Company v. New York Marine and General Insurance Company

Opinion

'O' CV 21-4377-RSWL-JDEx INSURANCE COMPANY, ORDER re: Defendant’s Motion to Dismiss [12] Plaintiff, v. GENERAL INSURANCE COMPANY, Defendant. Currently before the Court is Defendant New York Marine and General Insurance Company’s (“Defendant”) Motion to Dismiss (the “Motion”) [12]. Having reviewed all papers submitted pertaining to this Motion, the Court NOW FINDS AND RULES AS FOLLOWS: the Court GRANTS in part and DENIES in part the Motion. A. Factual Background

Plaintiff Williamsburg National Insurance Company (“Plaintiff”), a Michigan-based insurance corporation, issued a motor carrier liability policy to DLR Express, Inc. (“DLR”) that provides a $1,000,000 combined single limit for covered accidents. Compl. ¶¶ 3, 5, ECF No. 1. Attached to the policy is the MCS-90 endorsement, which is a standardized form that requires an insurer to pay up to its policy limit to members of the public for liability arising from its insured’s operations even where the policy itself provides no coverage. Id. ¶ 5. Defendant, a New York-based insurance corporation, issued a motor carrier liability policy (“Defendant Policy”) to Intermodal Contractor’s Association of North America. Id. ¶¶ 4,6. Arthur Trimble, Jr. (“Trimble”) was later added as a certificate holder under this policy. Id. ¶ 6. Defendant Policy similarly provides a $1,000,000 combined single limit and includes the MCS-90 endorsement. Id. ¶¶ 6, 31. DLR leased a tractor with an attached trailer to Trimble pursuant to an Equipment Lease Agreement and a sub-haul agreement (collectively, “Agreement”). Id. ¶ 8. Under the Agreement, Trimble agreed to indemnify and release DLR against all liability arising out of Trimble’s use of the tractor as follows: Lessee hereby releases and agrees to indemnify lessor, its officers, agents and employees afgianienss,t feaelsl, lpeevniaelst,i efso,r fteaixteusr,e s,l elgoasls , edxapmeangsee,,

expense and liability arising directly or indirectly out of the existence, condition, use, custody or operation of the Equipment . . . received by the Lessee until it is returned by the Lessor.

Id. ¶ 9. Pursuant to the Agreement, Trimble also added DLR to Defendant Policy as an additional insured with respect to the tractor. Id. ¶ 11. The Policy obligates Defendant to pay all sums Trimble is liable for related to any accident involving the tractor. Id. ¶ 29. On March 5, 2015, Trimble was driving the tractor pulling a loaded trailer when he rear-ended a truck being driven by Ronald Foster, Jr. Id. ¶ 7. On March 3, 2017, Foster, along with a passenger and the truck’s owner, filed a complaint against Trimble in Los Angeles Superior Court, alleging injuries and damages related to the accident. Id. ¶ 12. DLR was later named as a Doe defendant. Id. ¶ 15. Defendant defended and indemnified Trimble in the Foster litigation, and all claims against Trimble were settled for $155,000. Id. ¶ 13. Plaintiff alleges that Defendant “was aware, via its retained defense counsel for Trimble, that its additional insured DLR was named as a defendant in the Foster litigation.” Id. ¶ 14. However, neither Plaintiff nor Defendant provided a defense for DLR in the Foster litigation initially, and consequently DLR never appeared in the case. Id. ¶¶ 17, 18. A default judgment of $6,085,702 was entered

against DLR. Id. ¶ 18. DLR moved to set aside the default judgment, and subsequently filed an appeal when that motion was denied. Id. DLR then tendered its defense to Plaintiff, and Plaintiff agreed to defend DLR in the Foster litigation under a reservation of rights.1 Id. ¶ 19. A month later, DLR tendered its defense and request for indemnity to Defendant as an additional insured under Defendant Policy. Id. ¶ 21. Foster and the other plaintiffs then agreed to settle all claims against DLR for $1,000,000. Id. ¶ 22. Both DLR and Plaintiff demanded that Defendant contribute its remaining policy limit to settle the claim, but Defendant refused. Id. ¶¶ 23-25. Ultimately, Plaintiff paid the entire settlement amount on behalf of DLR. Id. ¶¶ 22, 26. Plaintiff alleges that Defendant had the primary duty to defend and indemnify DLR in the Foster litigation because DLR qualifies as an additional insured under Defendant Policy. Id. ¶ 34. B. Procedural Background On May 26, 2021, Plaintiff filed its Complaint [1] 1 Though not mentioned in the Complaint, Plaintiff explains in its Opposition to the Motion that it was required to provide coverage for DLR’s claim despite DLR’s lack of timely notice of the Foster litigation under the MCS-90 included in its own policy. Pl.’s Opp. to Mot. to Dismiss (“Opp.”) 16:27-17:3, ECF No. 15. alleging six causes of action: (1) declaratory relief

re: Defendant’s duty to indemnify, (2) declaratory

relief re: Defendant’s duty to defend, (3) equitable contribution for sums paid to indemnify, (4) equitable contribution for sums paid to defend, (5) equitable subrogation for sums paid to indemnify, and (6) equitable subrogation for sums paid to defend. Defendant filed this Motion [12] on July 16, 2021. Plaintiff then filed its Opposition [15] on August 3, 2021. Defendant replied [16] on August 10, 2021. A. Legal Standard Federal Rule of Civil Procedure (“Rule”) 12(b)(6) allows a party to move for dismissal of one or more claims if the pleading fails to state a claim upon which relief can be granted. A complaint must “contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quotation omitted). Dismissal is warranted for a “lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988) (citation omitted). In ruling on a 12(b)(6) motion, a court may generally consider only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice. Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). A court

must presume all factual allegations of the complaint to

be true and draw all reasonable inferences in favor of the non-moving party. Klarfeld v. United States, 944 F.2d 583, 585 (9th Cir. 1991). The question is not whether the plaintiff will ultimately prevail, but whether the plaintiff is entitled to present evidence to support its claims. Jackson v. Birmingham Bd. of Educ., 544 U.S. 167, 184 (2005) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). While a complaint need not contain detailed factual allegations, a plaintiff must provide more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). However, “a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and ‘that a recovery is very remote and unlikely.’” Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). B. Analysis 1. Judicial Notice Pursuant to Federal Rule of Evidence 201, “[a] court may judicially notice a fact that is not subject to reasonable dispute because it . . . can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Accordingly, while a court may take judicial notice of matters of public record, a court may not take judicial notice of the substance of such records if subject to reasonable

dispute. Lee v. City of Los Angeles, 250 F.3d 668, 689-

90 (9th Cir. 2001) (stating that a court may take judicial notice of the fact that certain court records were filed but not of the truth of any facts stated therein). a. Defendant’s Request Defendant requests the Court take judicial notice of ten court records and pleadings from the Foster litigation: (1) the docket, (2) the complaint, (3) Trimble’s answer, (4) the amendment to the complaint substituting DLR for a Doe defendant, (5) the proof of service of the amendment, (6) the default entered against DLR, (7) the order granting default judgment, (8) DLR’s motion to set aside default and default judgment, (9) the order denying DLR’s motion to set aside default and default judgment, and (10) the Los Angeles Superior Court’s entry of default judgment against DLR. See generally Def.’s Req. for Judicial Notice, ECF No. 12-1. Because these documents are all court records and consequently their existence is not subject to reasonable dispute, the Court GRANTS Defendant’s request. However, the Court does not take judicial notice of any reasonably disputed facts within these filings. See Selane Prods., Inc. v. Cont’l Cas. Co., No. 2:20-cv-07834-MCS-AFM, 2020 WL 7253378, at *3 (C.D. Cal. Nov. 24, 2020). b. Plaintiff’s Request Plaintiff requests the Court take judicial notice

of Trimble’s opposition to the plaintiff’s ex parte motion to continue trial and reopen discovery in the Foster litigation. See generally Pl.’s Req. for Judicial Notice, ECF No. 15-1. Because this document is a court record and therefore its existence is not subject to reasonable dispute, the Court similarly GRANTS Plaintiff’s request. However, the Court does not take judicial notice of any reasonably disputed facts within the opposition. 2. The Motion Defendant moves to dismiss all six causes of action against it, asserting that each claim is “predicated on the premise that [Defendant] had a duty to defend and indemnify [Plaintiff]’s insured.” Def.’s Mem. P. & A. in Supp. of Mot. to Dismiss (“Mot.”) 1:4-5, ECF No. 12- 2. Defendant argues primarily that because DLR failed to provide Defendant with pre-judgment notice of the claim against it, Defendant was not obligated to defend or indemnify DLR under Defendant Policy. Id. at 2:8-23. a. Equitable Subrogation In the insurance context, subrogation is defined as “an insurer’s right to be put in the position of the insured in order to pursue recovery from third parties legally responsible to the insured for a loss which the insurer has both insured and paid.” Fireman’s Fund Ins. Co. v. Md. Cas. Co., 77 Cal. Rptr. 2d 296, 302 (Cal. Ct. App. 1998). In other words, “[t]he right of subrogation

is purely derivative” because it requires the insurer to

“stand in the shoes” of its insured. Id. at 303. Accordingly, an essential element of a claim for subrogation is that “the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer.” Id. at 303. Under California law, an insurer’s duty to defend and subsequently indemnify an insured arises “on tender of defense” of a third-party lawsuit by the insured to the insurer. Foster-Gardner, Inc. v. Nat’l Union Fire Ins. Co., 959 P.2d 265, 273 (1998) (citations omitted). “[T]ender occurs when an insurance company is provided with the complaint, at which point the insurance company can make a proper determination whether policy coverage applies.” City of L.A. v. Nat’l Union Fire Ins. Co., Case No. 12-cv-07662-BRO-AGRx, 2013 WL 12121974, at *4 (C.D. Cal. Dec. 26, 2013). As between the insured and its insurer:

[m]ere knowledge that an insured is sued does not constitute tender of a claim. What is required is knowledge that the suit is potentially within the policy's coverage coupled with knowledge that the insurer's assistance is desired. An insurance company is not required to intermeddle officiously where its services have not been requested.

M.B.L., Inc. v. Fed. Ins. Co., Case No. CV 13-03951 BRO (AGRx), 2014 WL 12584437, at *7 (May 30, 2014) (quoting

Hartford Accident & Indem. Co. v. Gulf Ins. Co., 776 F.2d 1380, 1383 (7th Cir. 1985)). Defendant argues that because DLR failed to timely tender defense to Defendant and therefore has no direct claim against Defendant, Plaintiff’s claims for subrogation must also fail. Mot. 19:2-4. The Court agrees. While the Complaint alleges that DLR qualifies as an additional insured under Defendant Policy and that Defendant thus “owes the primary duty” to indemnify and defend DLR, Compl. ¶¶ 55, 60, Plaintiff does not allege that DLR itself has an existing, assignable cause of action against Defendant. Without establishing this necessary element, Plaintiff fails to state a claim for equitable subrogation. Moreover, Plaintiff itself relies on the distinction between its own position and that of DLR, suggesting that its claim is not predicated on stepping into DLR’s shoes. Opp. 15:17-28 (arguing that cases cited by Defendant are distinguishable because they involved “insureds suing insurers,” while the standard for notice is different when one insurer is suing another). The MCS-90 endorsement form attached to Defendant Policy is no help to Plaintiff with respect to its subrogation claim. It is true that this form requires an insurer to pay members of the public for final judgments obtained against the insured regardless of the insured’s failure to comply with policy conditions.

Global Hawk Ins. Co. v. Le, 170 Cal. Rptr. 403, 411

(Cal. Ct. App. 2014) (citing 49 C.F.R. § 387.15 (2013)). However, the MCS-90 form does not apply here because “the integral purpose of the MCS-90, to protect third party members of the public, is not implicated in a dispute between two insurers.” John Deere Ins. Co. v. Nueva, 229 F.3d 853, 858 (9th Cir. 2000).2 Because Trimble, the injured member of the public, has already been compensated for his injuries, Plaintiff cannot rely on the MCS-90 form to assert a claim against Defendant for subrogation. Accordingly, the Court GRANTS the Motion as to the fifth and sixth causes of action for equitable subrogation for defense and indemnity costs. b. Equitable Contribution Unlike subrogation, “the right to contribution arises when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the 2 To the extent the parties dispute whether John Deere is still because binding precedent on this Court of recent Regulatory Guidance published by the Federal Motor Carrier Safety Administration that contradicts John Deere’s holding, those arguments are inapplicable to the portion of the holding cited above. The parties seem to agree on this point. See Mot. 23:8- 11 (citing John Deere as binding authority on this point); See Opp. 18:11-17 (acknowledging that the entirety of John Deere is still binding authority). Moreover, regulatory guidance does not overrule previous Ninth Circuit authority because such agency interpretations do not carry the force of law. United States v. Mead Corp., 533 U.S. 218, 226-27 (2001). action without any participation by the others.”

Fireman’s Fund, 77 Cal. Rptr. 2d at 303. Rather than

standing in the shoes of the insured, contribution affords an insurer “independent standing to assert a cause of action against its coinsurers . . . when it has undertaken the defense or indemnification of the common insured.” Id. at 303. Further, because the right to equitable contribution does not stem from any contract between the insurers, an action for contribution is not controlled by the language of any policies between the insurers and their insureds. Id. at 313 (quoting Signal Companies, Inc. v. Harbor Ins. Co., 612 P.2d 889, 895 (1980)). Thus, while an insurer’s duty to defend only arises upon tender of defense by the insured, “an insured’s lack of tender or compliance with a policy provision is not fatal to a coinsurer’s right of equitable contribution; rather, adequate notice of the potential for contribution and the opportunity for investigation and participation in the defense in the underlying litigation will suffice.” OneBeacon Am. Ins. Co. v. Fireman’s Fund Ins. Co., 95 Cal. Rptr. 3d 808, 822 (Cal. Ct. App. 2009). Defendant argues that Plaintiff has failed to state a claim for contribution because DLR failed to tender defense to Defendant and thus was not covered under Defendant Policy. Mot. 9:4-11:23. Accordingly, Plaintiff is not entitled to contribution because Plaintiff and Defendant “did not afford coverage for the same risk.” Id. at 21:2-4. But whether DLR properly

tendered defense or otherwise complied with the terms of

Defendant Policy is irrelevant to Plaintiff’s claim for equitable contribution, as this claim does not hinge on any contract between DLR and Defendant. Rather, contribution requires only that Defendant had constructive notice of a claim that would be covered by Defendant Policy had DLR tendered defense. See OneBeacon, 95 Cal. Rptr. 3d at 823. Defendant further argues that it should not be subject to contribution because it suffered prejudice by DLR’s lack of tender, namely because DLR could have joined in the settlement that Defendant reached on behalf of Trimble. Mot. 18:6-9. However, such prejudice is mitigated where the insurer had sufficient notice and the opportunity to investigate and participate in the defense of DLR but nevertheless chose not to. See OneBeacon, 95 Cal. Rptr. 3d at 823. The Court next considers whether Plaintiff has adequately alleged that Defendant had sufficient inquiry notice of the potential for a contribution claim by DLR. “[A]n insurer’s obligation of equitable contribution for defense costs arises where, after notice of litigation, a diligent inquiry by the insurer would reveal the potential exposure to a claim for equitable contribution.” Id. A party is charged with notice of “all those facts which he might have ascertained had he diligently pursued the requisite inquiry.” Cal. Shoppers, Inc. v. Royal Globe Ins. Co., 221 Cal. Rptr.

171, 189 (Cal. Ct. App. 1985) (finding that insurer had

inquiry notice where insured tendered the summons and complaint for defense in an envelope marked with the wrong insured’s name); see also OneBeacon, 95 Cal. Rptr. 3d at 824-25 (finding that insurer had inquiry notice where insureds notified insurer of lawsuit against them, and numerous insurer documents contained the policy numbers of policies issued to named and additional insureds). Plaintiff alleges that Defendant “was aware, via its retained defense counsel for Trimble, that its additional insured DLR was named as a defendant in the Foster litigation.” Compl. ¶ 16. Plaintiff further alleges that Trimble had added DLR as an additional insured under Defendant Policy pursuant to a Certificate of Liability Insurance (“Certificate”). These facts, taken as true, are sufficient to plausibly allege that Defendant had notice to inquire further as to DLR’s coverage under Defendant Policy. Like OneBeacon, where the insurer had documents indicating policy coverage for the insureds, Defendant’s execution of the Certificate identifying DLR as an additional insured should have caused Defendant to inquire further once DLR was named as a Doe defendant in the Foster litigation. Defendant asserts that it did not have constructive notice of DLR’s addition to the litigation because the knowledge of Trimble’s defense counsel should not be imputed to Defendant. Mot. 16:4-7. The Court disagrees.

In the tripartite relationship between insurer, insured,

and counsel, counsel’s goal is to eliminate liability to third parties. San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc., 208 Cal. Rptr. 494, 498 (Cal. Ct. App. 1984). DLR’s addition to the case made it likely that DLR would assert a claim against Trimble and his insurer as an additional insured under Defendant Policy. Because defense counsel would have been obligated to inform his clients of this possibility, defense counsel’s knowledge of DLR’s presence in the action is imputed to Defendant. See Cal. Civ. Code § 2332 (stating that a principal has notice of anything an agent has notice of and “ought, in good faith and the exercise of ordinary care and diligence, to communicate to the other”).3 Defendant also argues that the Certificate naming DLR as an additional insured fails to show that Defendant had notice of DLR’s status because it does not show that Defendant Policy was ever actually amended. See Def.’s Reply Brief (“Reply”) 8:27-9:1, ECF No. 16. This argument is similarly unavailing. Plaintiff need not prove at this stage that Defendant Policy was

3 In any event, Plaintiff’s statement that Defendant had notice via defense counsel must be accepted as true. See Iqbal, 556 U.S. at 678. The allegation that defense counsel informed Defendant of DLR’s addition to the litigation, presumably because of Defendant’s potential liability to it, is at the very least plausible for the reasons stated above. amended to name DLR as an additional insured. Rather,

Plaintiff need only assert that Defendant had notice of

DLR’s status as an additional insured and of DLR’s potential claim for indemnification under Defendant Policy. Plaintiff has pled as much, and it is plausible that the Certificate put Defendant on notice of DLR’s status as an additional insured. See Compl. ¶¶ 11, 16. In sum, Plaintiff has sufficiently pled that Defendant had inquiry notice of DLR’s involvement in the Foster litigation and the potential for a claim for equitable contribution. Accordingly, the Court DENIES the Motion as to the equitable contribution claims. 3. Declaratory Relief The Declaratory Judgment Act provides that “any court of the United States, upon the filing of the appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C § 2201. A court has jurisdiction to issue a declaratory judgment if “there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality.” Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941). Defendant argues that declaratory relief in this case is inappropriate because declaratory relief is not designed to address past wrongs, and courts have dismissed claims for declaratory judgment that accompany breach of contract claims as duplicative. Mot. 24:5-

25:4. However, Defendant cites no authority, and the

Court has found none, to support the proposition that declaratory relief is inappropriate when accompanying a claim for equitable relief. Indeed, courts have repeatedly allowed for claims of both declaratory relief and equitable contribution in similar circumstances. See, e.g., Ironshore Spec.Ins. Co. v. Everest Indem. Ins. Co., No. 20-55860, 2021 WL 3878592, at *3 (9th Cir. Aug. 31, 2021); Westport Ins. Corp. v. California Cas. Mgmt. Co., 916 F.3d 769 (9th Cir. 2019); Axis Surplus Ins. Co. v. Glencoe Ins. Ltd., 139 Cal. Rptr. 3d 578 (Cal. Ct. App. 2012). Defendant further argues that because Plaintiff has not stated a claim for either contribution or subrogation, Plaintiff’s declaratory relief claims must be dismissed. Mot. 25:9-12. However, because the Court holds that Plaintiff sufficiently alleged the inquiry notice required for a contribution claim, the accompanying declaratory relief claims similarly survive a motion to dismiss. Accordingly, the Court DENIES the Motion as to Plaintiff’s claims for declaratory relief.

Based on the foregoing, the Court GRANTS in part and

DENIES in part Defendant’s Motion to Dismiss. Plaintiff’s fifth and sixth causes of action are dismissed with leave to amend within twenty-one (21) days of this Order. Defendant’s Motion is DENIED as to Plaintiff’s first, second, third, and fourth causes of action. DATED: September 29, 2021 _______/s_/ _R_o_n_al_d _S_.W__. L_e_w________ HONORABLE RONALD S.W. LEW Senior U.S. District Judge