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)