U.S. Court of Appeals for the Ninth Circuit, Milos Product Tanker Corp. v. Valero, Docket No. 23-55655

Incoterms

 

CFR

 

 

 

(…) On July 14, Valero agreed to purchase the jet fuel from Koch on “cost and freight” (“CFR”) terms. Under CFR terms, the seller arranges and pays for transportation to the port of delivery, while the buyer assumes title and risk of loss as soon as the cargo is loaded onto the carrier at the port of origin. See, e.g., BP Oil Int'l, Ltd. v. Empresa Estatal Petroleos de Ecuador, 332 F.3d 333, 338 (5th Cir. 2003).

 

 

 

(U.S. Court of Appeals for the Ninth Circuit, Sept. 18, 2024, Milos Product Tanker Corp. v. Valero, Docket No. 23-55655, for Publication)

 

U.S. Court of Appeals for the Ninth Circuit, Milos Product Tanker Corp. v. Valero, Docket No. 23-55655

Transportation by Sea

 

Maritime Transportation Contract (or Charter Party)

 

Common Carrier v. Private-Carriage Case

 

Bill of Lading

 

Letter of Indemnity

 

Freight Costs

 

 

-       If a contract allocates freight liability to a nonparty

 

-       For common carriage contracts, the published rate forms an “offer,” which is “accepted” by receipt of the goods under a bill of lading, charter party, or default rules obligating a consignee (about default rules, see Interstate Commerce Act (“ICA”), 49 U.S.C. §§ 101 et seq.; see also 49 C.F.R. §1035.1)

 

 

 

 

Appeal from the United States District Court for the Central District of California.

 

 

Defendant–Appellant Valero Marketing and Supply company (“Valero”) appeals the district court’s grant of summary judgment for Plaintiff–Appellee Milos Product Tanker Corporation (“Milos”). In 2020, Milos transported by sea roughly 40,000 tons of jet fuel belonging to Valero. This transport cost a little over $1,000,000. But after Milos delivered, Valero refused to pay. Valero had already paid freight costs when it bought the fuel from a third company, Koch Refining International PTE Ltd., Co. (“Koch”), and had no intention of paying twice. Koch was also unwilling to pay Milos. Milos’s contract was with a fourth company, GP Global PTE Ltd. on behalf of Gulf Petrochem FCZ (“GP Global”), which arranged the voyage. But GP Global had “experienced financial difficulties” and could not pay. So Milos sued Valero for, relevant here, breach of contract.

 

 

Reviewing de novo, we agree with Valero. Valero was not party to the contract between Milos and GP Global. That contract specifically stated that GP Global would pay freight. Why Valero’s payment for freight to Koch never made it to Milos through GP Global is beyond the scope of this case. And States Marine (States Marine International, Inc. v. Seattle-First National Bank, 524 F.2d 245, 248 (9th Cir. 1975)) does not support an implied obligation for Valero to pay. States Marine modestly extended freight rules established in railroad cases to ocean carriers “operating under tariffs”—that is, from railroad common carriers to ocean common carriers. In both railroad and ocean contexts, common carriers must publish their rates and are subject to default terms of a universal bill of lading. These distinctions permit a presumption that whoever accepts delivery of a shipment from a common carrier understands what they are liable to pay. But in a private-carriage case like this one, notice of shipping costs and default terms cannot be presumed. It was therefore error to find that Valero had an implied obligation to pay under States Marine, and we must reverse.

 

 

(…) The Charter Party authorized the ship captain to sign bills of lading for the cargo. A bill of lading is a document “issued by the shipowner when goods are loaded on its ship, and may, depending on the circumstances, serve as a receipt, a document of title, a contract for the carriage of goods, or all of the above.” Asoma Corp. v. SK Shipping Co., 467 F.3d 817, 823 (2d Cir. 2006). Ordinarily, a carrier like Milos is responsible for releasing cargo only to the party who presents an original bill of lading. See C-ART, Ltd. v. Hong Kong Islands Line Am., S.A., 940 F.2d 530, 532 (9th Cir. 1991).

 

 

(…) On July 14, Valero agreed to purchase the jet fuel from Koch on “cost and freight” (“CFR”) terms. Under CFR terms, the seller arranges and pays for transportation to the port of delivery, while the buyer assumes title and risk of loss as soon as the cargo is loaded onto the carrier at the port of origin. See, e.g., BP Oil Int'l, Ltd. v. Empresa Estatal Petroleos de Ecuador, 332 F.3d 333, 338 (5th Cir. 2003).

 

 

(…) We begin with the law governing maritime freight liability. It is “well settled” that the party who sends the goods—the “shipper” or “consignor”—is “primarily liable to the carrier for freight charges.” States Marine, 524 F.2d at 247 (citing Louisville & Nashville R.R. Co. v. Cent. Iron & Coal Co., 265 U.S. 59, 67 (1924)). That is true even when a bill of lading purports to impose liability on the receiver of the goods (the “consignee”). Louisville & Nashville R.R. Co., 265 U.S. at 67. After all, “the shipper is presumably the consignor; the transportation ordered by him is presumably on his own behalf; and a promise by him to pay therefor is inferred.” Id. However, a contract or statute may form binding obligations that modify the general rule. See States Marine, 524 F.2d at 247–48. Of the two, a contract may be more significant because statutory default terms only come into play in the absence of a contract. See Louisville & Nashville R.R. Co., 265 U.S. at 65–67. That is natural because parties are generally free to negotiate and assign freight liability however they like. Id. (the shipper’s obligation to pay freight is not “absolute”—a “carrier and shipper are free to contract” as to “when or by whom the payment should be made”). If a contract allocates freight liability to a party, that ends the court’s inquiry. See Travelers Indem. Co. v. Bailey, 557 U.S. 137, 150–51 (2009) (citing 11 WILLISTON ON CONTRACTS § 30:4 (4th ed. 1999)); see also C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 479 (9th Cir. 2000) (citing Fikse & Co. v. United States, 23 Cl. Ct. 200, 204 (1991)); In re Roll Form Prods., Inc., 662 F.2d 150, 154 (2d Cir.1981) (citing Consol. Freightways Corp. v. Admiral Corp., 442 F.2d 56, 62 (7^th Cir. 1971)).

 

 

If a contract allocates freight liability to a nonparty, then the court must determine whether the nonparty consented to be bound under the contract. In re M/V Rickmers Genoa Litig., 622 F. Supp. 2d 56, 71–72 (S.D.N.Y. 2009), aff'd sub nom. Chem One, Ltd. v. M/V Rickmers Genoa, 502 Fed. App’x 66 (2d Cir. 2012). For example, a bill of lading might allocate freight liability to a consignee. But the consignee would not be obligated to pay freight without evidence the consignee consented to be bound under the bill of lading. That evidence can be supplied by context. See, e.g., Ingram Barge Co. v. Zen-Noh Grain Corp., 3 F.4th 275, 279 (6th Cir. 2021). Typically, consignees demonstrate consent to be bound by presenting the bill of lading and accepting the goods under it. See id. at 282 (White, J., dissenting) (citing Neilsen v. Jesup, 30 F. 138, 139 (S.D.N.Y. 1887); Pacific Coast Fruit Distribs. v. Pa. R.R. Co., 217 F.2d 273, 275 (9th Cir. 1954)). Similarly, consignees may show their consent to be bound under a bill of lading by suing on the bill of lading, or by silence in context of longstanding dealings, or by the consignee’s agent negotiating the bill of lading. See Ingram Barge, 3 F.4th at 279. Notice that all these contexts show the consignee is aware of the terms to which they are agreeing.

 

 

If no contract allocates freight liability, courts may still find an implied promise to pay in some circumstances. For example, common carriers must charge publicly posted rates and are subject to default terms of a uniform bill of lading. See Interstate Commerce Act (“ICA”), 49 U.S.C. §§ 101 et seq.; see also 49 C.F.R. §1035.1. In that context, “where the parties fail to agree or where discriminatory practices are present, . . . the ICA's default terms bind the parties.” C.A.R. Transp. Brokerage Co., 213 F.3d at 479 (citing In re Roll Form Prods., Inc., 662 F.2d at 154).

 

 

A narrow reading of States Marine is in harmony with basic principles of contract formation. “The law of private carriage, now primarily charter parties, . . .  is still governed by the principle of freedom of contract.” Common Carriage and Private Carriage, 1 ADMIRALTY & MAR. LAW § 10:3 (6th ed.). Parties to a freight contract, like any other contract, are free to assign liability as they wish, provided their allocation does not run afoul of the law. See Oak Harbor Freight Lines, Inc. v. Sears Roebuck, & Co., 513 F.3d 949, 956 (9th Cir. 2008) (citing Louisville & Nashville R.R. Co., 265 U.S. at 66–67); C.A.R. Transp. Brokerage Co, 213 F.3d at 479. Beyond that, an offer generally must precede acceptance. See 1 WILLISTON ON CONTRACTS § 4:16; RESTATEMENT (SECOND) OF CONTRACTS § 23 (AM. L. INST.1981); see also Schnabel v. Trilegiant Corp., 697 F.3d 110, 121 (2d Cir. 2012). For common carriage contracts, the published rate forms an “offer,” which is “accepted” by receipt of the goods under a bill of lading, charter party, or default rules obligating a consignee. Without a published rate, it would be quite possible for a private consignee’s “acceptance” to precede the “offer” of the private carrier’s rates. And the consignee’s “acceptance” could only demonstrate a meeting of the minds if consignee liability was one of the terms of the transaction.

 

 

Any implied obligation for private-carrier consignees to pay freight must fit with foundational contract principles. Unlike common-carrier consignees, private-carrier consignees are not presumed to know key terms simply because they receive and accept goods. And they are certainly not expected to know they are liable for freight when an express contract says they are not. Therefore, private-carrier consignees cannot be under the same presumptive obligation to pay freight upon acceptance. A narrow reading of States Marine makes that clear.

 

 

 

(U.S. Court of Appeals for the Ninth Circuit, Sept. 18, 2024, Milos Product Tanker Corp. v. Valero, Docket No. 23-55655, for Publication)

 

U.S. Court of Appeals for the Ninth Circuit, Milos Product Tanker Corp. v. Valero, Docket No. 23-55655

Quantum Meruit

Quasi-Contract

Equity

Unjust Enrichment

 

 

(…) See In re De Laurentiis Ent. Grp., Inc., 963 F.2d 1269, 1272 (9th Cir. 1992) (“Quantum meruit (or quasi-contract) is an equitable remedy implied by the law under which a plaintiff who has rendered services benefiting the defendant may recover the reasonable value of those services when necessary to prevent unjust enrichment of the defendant.”). Valero paid cost and freight charges to Koch when it purchased the jet fuel under CFR terms. Because Valero was not unjustly enriched, Milos cannot recover from Valero under a quasi-contract.

 

(U.S. Court of Appeals for the Ninth Circuit, Sept. 18, 2024, Milos Product Tanker Corp. v. Valero, Docket No. 23-55655, for Publication)

California Court of Appeal, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803

Demurrer

 

Dismissal

 

California Law

 

 

 

 

(…) We set forth the governing principles in Chiatello v. City & County of San Francisco (2010) 189 Cal.App.4th 472, 480: “‘Because this case comes to us on a demurrer for failure to state a cause of action, we accept as true the well pleaded allegations in plaintiffs’ third amended complaint. “‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.]”’ We likewise accept facts that are reasonably implied or may be inferred from the complaint’s express allegations.’ [Citations.] ‘“‘A demurrer tests the legal sufficiency of the complaint . . ..’ [Citations.] On appeal from a dismissal after an order sustaining a demurrer, we review the order de novo, exercising our independent judgment about whether the complaint states a cause of action as a matter of law. [Citations.] When the trial court sustains a demurrer without leave to amend, we must also consider whether the complaint might state a cause of action if a defect could reasonably be cured by amendment. If the defect can be cured, then the judgment of dismissal must be reversed to allow the plaintiff the opportunity to do so. The plaintiff bears the burden of demonstrating a reasonable possibility to cure any defect by amendment.”’” In 2021, we added this: “We also assume the attachments to the complaint are true, and they take precedence over any conflicting allegations in the TAC. [Citation.] Finally we ‘will affirm if there is any ground on which the demurrer can properly be sustained, whether or not the trial court relied on proper grounds or the defendant asserted a proper ground in the trial court proceedings.” (George v. eBay, Inc. (2021) 71 Cal.App.5th 620, 628 (George).)

 

Although we review the complaint de novo, the plaintiff has the burden of showing that the facts pleaded are sufficient to establish every element of the cause of action and overcoming all of the legal grounds on which the trial court sustained the demurrer. If the defendant negates any essential element, we will affirm the order sustaining the demurrer as to the cause of action. [Citation]. Kahan v. City of Richmond (2019) 35 Cal.App.5th 721, 730 (Kahan).)

 

 

 

 

 

California Court of Appeal, Sept. 5, 2024, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication)

 

California Court of Appeal, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803

Aiding and Abetting (Torts)

 

California Law

 

 

 

 

(…) Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328, 343, the case cited by the trial court, sets forth the elements of aiding and abetting. We had occasion to apply Nasrawi in George, supra, 71 Cal.App.5th at p.641, there, as here, in a setting involving a claim of breach of fiduciary duty. This is what we said: “Citing CACI, Nasrawi, supra, 231 Cal.App.4th at p. 343... sets forth the four elements of a claim for aiding and abetting, therein a claim involving an alleged breach of fiduciary duty: ‘(1) a third party’s breach of fiduciary duties owed to plaintiff; (2) defendant’s actual knowledge of that breach of fiduciary duties; (3) substantial assistance or encouragement by defendant to the third party’s breach; and (4) defendant’s conduct was a substantial factor in causing harm to plaintiff. (Judicial Council of Cal., Civ. Jury Instns. (CACI) (2014) No. 3610...)’ Appellants’ conclusory allegation the eBay was ‘aware’ of ‘unscrupulous buyers who take unfair advantage of sellers’ is manifestly insufficient. (Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138, 1154 [dismissing aiding and abetting claim where plaintiff alleged that defendant generally knew of ‘wrongful or illegal conduct’ but did not plead knowledge of specific alleged fraud]; Das v. Bank of America, N.A. (2010) 186 Cal.App.4th 727, 745.) “Moreover, knowledge alone, even specific knowledge, is not enough to state a claim for aiding and abetting. California law ‘necessarily’ requires that for aiding and abetting liability to attach, a defendant have made ‘“‘a conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act.’”’ (American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451,1476.) Or as the Court of Appeal put it in Gerard v. Ross (1988) 204 Cal.App.3d 968, 983, an alleged aider and abettor must have ‘acted with the intent of facilitating the commission of that tort.’ Such is lacking here.”

 

 

 

 

California Court of Appeal, Sept. 5, 2024, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication)

 

 

 

California Court of Appeal, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication

Insurance Contracts

 

Interpretation

 

California Law

 

Croskey, et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2023)

 

 

 

 

(…) The provisions in the excess policies, policies that, as plaintiffs concede, are “generally interpreted using the ordinary rules of contractual interpretation.” We described this and other rules of policy interpretation in Alterra Excess & Surplus Ins. Co. v. Snyder (2015) 234 Cal.App.4th 1390, 1402: “‘“while insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.” [Citations.] “The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. [Citation.]” [Citation.] “Such intent is to be inferred, if possible, solely from the written provisions of the contract.” [Citation.] “If contractual language is clear and explicit, it governs. (Civ. Code, §1638.)” [Citation.] Moreover, if the policy’s terms are “‘used by the parties in a technical sense or a special meaning is given to them by usage,’” this use or meaning “controls judicial interpretation.” [Citation.]’ (La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co. (1994) 9 Cal.4th27, 37.)” In short, the “interpretation of an insurance policy is a question of law.” (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18 (Waller).) And “if contractual language is clear and explicit, it governs.”  (Yahoo, Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA (2022) 14Cal.5th 58, 67.)

 

 

 

(California Court of Appeal, Sept. 5, 2024, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication)

 

California Court of Appeal, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803

Estoppel

 

California Law

 

 

 

As to estoppel, we discussed this as well, in California-American Water Co. v. Marina Coast Water District (2022) 86 Cal.App.5th 1272, 1292−1293, noting among other things that estoppel “‘generally requires a showing that a party’s words or acts have induced detrimental reliance by the opposing party.’ (Lynch v. California Coastal Com. (2017) 3 Cal.5th470, 475–476; see Rubin v. Los Angeles Fed. Sav. & Loan Assn. (1984).

 

159 Cal.App. 3d 292, 298 [‘detrimental reliance is not a necessary element of waiver, only of estoppel’]; City of Hollister v. Monterey Ins. Co. (2008) 165 Cal.App.4th 455, 487 [same].)”

 

 

 

 

(California Court of Appeal, Sept. 5, 2024, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication)

 

 

 

California Court of Appeal, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803

Declaratory Relief

 

California Law

 

 

 

By way of brief background, the trial court discussed the law of declaratory relief in its analysis of Twin City’s demurrer, beginning with this observation: “The court may sustain a demurrer on the ground that the complaint fails to allege an actual or present controversy, or that it is not ‘justiciable.’ The court may also sustain a demurrer without leave to amend if it determines that a judicial declaration is not ‘necessary or proper at the time under all the circumstances,’” citing DeLaura v. Beckett (2006) 137 Cal.App.4th 542, 545 and Wilson v. Transit Authority (1962) 199 Cal.App.2d 716, 721. Indeed. Code of Civil Procedure section 1060 provides in pertinent part that declaratory relief is proper as to a contract “in cases of actual controversy relating to the legal rights and duties of the respective parties.” But even if such “actual controversy” is established, Code of Civil Procedure section 1061 goes on to state that a court “may refuse to exercise the power” to grant declaratory relief “in any case where its declaration or determination is not necessary or proper at the time under all the circumstances. ”As our Supreme Court has observed, Code of Civil Procedure sections 1060 and 1061 “must be read together” (Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 647), going on to hold that “when resolution of the controversy over future remedies would have little practical effect in terms of altering parties' behavior, courts have considerable discretion, pursuant to Code of Civil Procedure section 1061, to deny declaratory relief because it ‘is not necessary or proper at the time under all the circumstances.’ ” (Id. at p. 648.)

 

(…)

 

“The object of the declaratory relief statute is to afford a new form of relief where needed and not to furnish a litigant with a second cause of action for the determination of identical issues.” (General of America Insurance Co. v. Lilly (1968) 258 Cal.App.2d 465, 470.) “The availability of another form of relief that is adequate will usually justify refusal to grant declaratory relief.” (Girard v. Miller (1963) 214 Cal.App.2d 266, 277.)

 

 

 

California Court of Appeal, Sept. 5, 2024, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication)

 

California Court of Appeal, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803

Waiver

 

California Law

 

 

 

We described waiver at some length in Antonopoulos v. Mid-Century Ins. Co. (2021) 63 Cal.App.5th 580, 599−600: “Waiver is the intentional relinquishment of a known right after knowledge of the facts.’ [Citations.] The burden. . . is on the party claiming a waiver of a right to prove it by clear and convincing evidence that does not leave the matter to speculation, and ‘doubtful cases will be decided against a waiver’ [citation].” . . .  The waiver may be either express, based on the words of the waiving party, or implied, based on conduct indicating an intent to relinquish the right.’ (Waller [, supra,] 11 Cal.4th [at p.] 31). Our Supreme Court has recognized that these general waiver rules apply in the context of an insurer relinquishing its right to deny coverage. ([Ibid.]) The Monteleone v. Allstate Ins Co. (1996) 51 Cal.App.4th 509 court recognized the same: ‘Waiver requires the insurer to intentionally relinquish its right to deny coverage. [Citation.]’.”

 

(…) As we put it in Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1535, “waiver” “cannot be reconciled with the integration clauses of the contract” providing that the contract “‘may not be modified or amended by oral agreement, or course of conduct, but only by an agreement in writing signed by the parties.’”

 

 

 

 

(California Court of Appeal, Sept. 5, 2024, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication)

 

California Court of Appeal, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803

Settlements

 

Insurance Law

 

California Law

 

 

 

Public policy favoring settlements. (See, e.g., Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital (1994) 8 Cal.4th 100, 110.) As our Supreme Court earlier put it, “‘A man is allowed to negotiate for the purchase of his peace without prejudice to his rights.’ ” (Potter v. Pacific Coast Lumber Co. of California (1951) 37 Cal.2d 592, 600.) So, too, an excess insurer.

 

 

 

(California Court of Appeal, Sept. 5, 2024, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication)

 

California Court of Appeal, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803

Excess Insurers

 

Exhaustion of the Underlying Policies

 

Attachment Point of the Excess Policy

 

Breach of Contract

 

Insurance Law

 

California Law

 

Croskey, et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2023)

 

 

 

(San Francisco County Super. Ct. No. CGC17557275)

 

 

(…) (Archdale v. American International Specialty Lines Ins. Co. (2007) 154 Cal.App.4th 449, 466 [breach of contract cause of action “necessarily relates only to the express promises made by [an insurer] in its policy”]; see also Levy v. State Farm Mutual Auto. Ins. Co. (2007) 150 Cal.App.4th 1, 5, 58 [demurrer properly sustained where plaintiff offered mere allegation of breach without facts demonstrating “a link” between the alleged violations “and the insurance contract”].) And as to the allegation as to what might be a breach of contract, i.e., the failure to pay covered claims, it fails as well, as the policies are excess policies, described this way by the late Justice Croskey in his leading commentary: “‘Excess’ insurance: Excess insurance ‘refers to indemnity coverage that attaches upon the exhaustion of underlying insurance coverage for a claim.’ (Montrose Chemical Corp. Of Calif. v. Superior Court (Canadian Universal Ins. Co., Inc.) (Montrose III) (2020) 9 Cal.5th 215, 222 (internal quotes omitted); Powerine Oil Co., Inc. v. Superior Court (Central Nat’l Ins. Co. Of Omaha) (Powerine II) (2005) 37 Cal.4th 377 (citing text).) “ In other words, excess insurance ‘provides coverage after other identified insurance is no longer on the risk.’ (North American Capacity Ins. Co. v. Claremont Liability Ins. Co. (2009) 177 Cal.App.4th 272, 291.)

 

“An excess insurer’s coverage obligation begins once a certain level of loss or liability is reached; that level is generally referred to as the ‘attachment point’ of the excess policy. [Citations.]” (Croskey, et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2023) 8:177.) In Reserve Insurance Co v. Pisciotta (1982) 30 Cal.3d 800—there addressing the issue of insolvency of an underlying insurer—our Supreme Court held that “we must look to the excess policy’s express language to determine whether an excess insurer is obligated” on its policy. (Id. at p. 814.) We do that, and easily conclude that plaintiffs show no such “obligation.” The policies have not, in Justice Croskey’s words, “attached.” The St. Paul policy provides that St. Paul “shall only be liable . . . after the total amount of all Underlying Limits of Liability has been paid in legal currency by the Issuers of all Underlying Insurance as covered loss thereunder.”

 

(…)

 

Finally, there are sound policy reasons why the excess insurers should stay on the sidelines without incurring these unnecessary costs. A strict exhaustion requirement brings stability and predictability to the excess insurance system, both for insurers and insureds. “An excess insurer predicates the premiums it charges upon the obligations that it and the primary insurer assume . . ..”  (Hartford Accident and Indemnity Company v. Continental National Insurance Cos. (1988 861 F.2d184, 1187.) Thus, burdening the excess insurers with prematurely litigating coverage issues before exhaustion upsets insurers’ settled expectations. Again, Iolab is apt, where the court concluded that “requiring the excess insurer to defend against [the insured’s] claim would impose on the excess insurers the unnecessary cost of litigating a claim that may never trigger excess coverage and thereby frustrate the policy adopted by the California courts.” (Iolab, supra, 15 F.3d at pp. 1504−1505.)

 

 

 

 

(California Court of Appeal, Sept. 5, 2024, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication)

California Court of Appeal, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803

Good Faith

 

Good Faith and Fair Dealing

 

Insurance Contracts

 

California Law

 

 

 

 

Plaintiffs have, as noted above, not alleged exhaustion under the excess policies, and thus no coverage, a failure fatal to their claim for bad faith. As our Supreme Court succinctly put it in Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 408, citing Waller: “Of course, without coverage there can be no liability for bad faith . . .. [Citation.]” Or as Waller itself put it, citing to, and quoting from, a leading Court of Appeal case: “It is clear that if there is no potential for coverage and, hence, no duty to defend under the terms of the policy, there can be no action for breach of the implied covenant of good faith and fair dealing because the covenant is based on the contractual relationship between the insured and the insurer.

 

(Love v. Fire Ins. Exchange [(1990)] 221 Cal.App.3d 1136, 1151−1153 [(Love)].)” (Waller, supra, 11 Cal.4th at p. 36.) Addressing claims by insureds similar to those plaintiffs make here, this is how the Court of Appeal distilled the law in Brown v. Mid-Century Ins. Co. (2013) 215 Cal.App.4th 841, 858: “The Browns allege that Mid-Century breached the implied covenant of good faith and fair dealing by failing to investigate their claim properly, engaging in unlawful and deceptive claims practices, and refusing to indemnify the Browns under the policy. Because the policy did not cover the Browns’ claims, however, the Browns do not have a claim for breach of the implied covenant of good faith and fair dealing. (See Kransco v. American Empire Surplus Lines Ins. Co. [,supra,] 23 Cal.4th [at p.] 408 [‘without coverage there can be no liability for bad faith on the part of the insurer’]; Cardio Diagnostic Imaging, Inc. v. Farmers Ins. Exchange [(2012)] 212 Cal.App.4th [69,] 76 [‘because no policy benefits were due under the policy, [the insured’s] claim for breach of the implied covenant of good faith and fair dealing cannot be maintained’].)” This is how Justice Croskey’s commentary puts it: “[12:45] No ‘Bad Faith’ Liability Where No Breach of Contract: The insurer’s obligations under the implied covenant do not extend beyond the purposes and objectives of the existing insurance contract: ‘The covenant of good faith is read into contracts in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract’s purposes.’ [Citations.] “In short, if the insurer did not breach the policy, it did not breach the implied covenant. (See Waller [, supra,] 11 Cal.4th [at p.] 36 [‘the conclusion that a bad faith claim cannot be maintained unless policy benefits are due is in accord with the policy in which the duty of good faith is [firmly] rooted].’) [Citations.]” (Croskey, et al., Cal. Practice Guide: Insurance Litigation, supra, ¶ 12:45.)

 

Love held that “a bad faith claim cannot be maintained unless policy benefits are due.” (Love, supra, 221 Cal.App.3d at p.1153.) Or as that case put it at an earlier point, “there are at least two separate requirements to establish breach of the implied covenant: (1) benefits due under the policy must have been withheld; and (2) the reason for withholding benefits must have been unreasonable or without proper cause.” (Love, supra, 221 Cal.App.3d at p. 1151.)

 

 

 

 

California Court of Appeal, Sept. 5, 2024, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication)