Ecolite Concrete USA v. G.S. Levine Ins. Services CA4/1 (2014) · DecisionDepot
Ecolite Concrete USA v. G.S. Levine Ins. Services CA4/1
California Court of Appeal Dec 31, 2014 No. D064178Unpublished
Filed 12/31/14 Ecolite Concrete USA v. G.S. Levine Ins. Services CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
ECOLITE CONCRETE U.S.A., INC., et al., D064178, D064917, D064918 Plaintiffs and Appellants,
Ecolite argues the trial court erred by finding that the Insurer had no duty to
indemnify it based on the insured vs. insured exclusion because (1) the RQ lawsuit was
not filed by or "at the direction" of an insured within the meaning of the exclusion, (2) a
reasonable insured in Ecolite's position would expect D&O coverage for a third-party
lawsuit claiming harm from misrepresentations allegedly made by its own CEO and
board director, and (3) the exclusion is ambiguous on the particular facts of this case. We
begin our discussion of these contentions by examining the language of the Policy.
The Policy provided coverage for a loss arising from claims made against Ecolite
for a "[w]rongful act" taking place during the policy period. The Policy defined a
wrongful act as including any "error, omission, misleading statement, misstatement,
neglect, [or] breach of duty" by Ecolite's directors and officers. The Policy included an
insured vs. insured exclusion. With certain specified exceptions not applicable here, this
provision excluded claims "brought or maintained by, on behalf of, in the right of, or at
the direction of any Insured in any capacity, . . . and whether or not collusive . . . ."
(Italics added.)
It is undisputed that from August 2008 to July 2009, Rogers and Patterson were
directors of Ecolite. The Policy defined "Insureds" to mean "the Company and the
Directors and Officers" and it defined "Directors and Officers" to mean "any person who
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was, now is, or shall become" a "duly elected or appointed director, officer, or similar
executive of the Company. . . ." Thus, under the plain language of the policy, Rogers and
Patterson were "Insureds."
Substituting "Rogers and Patterson" in place of the words "any Insured" in the
insured vs. insured exclusion results in the exclusion applying if RQ's claims were
"brought or maintained by, on behalf of, in the right of, or at the direction of [Rogers and
Patterson] in any capacity . . . and whether or not collusive . . . ." Accordingly, under the
plain language of the policy, the insured vs. insured exclusion applied if Rogers and
Patterson "direct[ed]" RQ to bring claims against Ecolite.
On this issue, the trial court examined the evidence and concluded that RQ's
claims were brought at the direction of Rogers and Patterson. GSL asserts, and Ecolite
does not contest, that substantial evidence supported this conclusion. We agree. Briefly,
Rogers and Patterson were majority shareholders of RQ. Rogers was chairman of the
board of RQ and Patterson was a director. Rogers and Patterson authored the demand
letters to Ecolite threatening suit by RQ. RQ filed its action against Ecolite before RQ
held a board meeting on the matter. The RQ board of directors later " 'ratified' " the
" 'decision of the officers' " to file the action.
Ecolite attempts to avoid this result by arguing that the insured vs. insured
exclusion is ambiguous as there are competing interpretations of the Policy language.
First, the interpretation adopted by the trial court that the RQ lawsuit was brought "at the
direction" of an insured because Rogers and Patterson were insureds under the Policy and
the primary decision-makers for RQ. Ecolite claims another equally reasonable
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interpretation of the Policy language is that the lawsuit was not brought "at the direction"
of an insured because Rogers and Patterson were acting on behalf of a noninsured
corporation that was governed by its board as a collective body, as distinguished from its
individual directors.
We reject Ecolite's contention that its interpretation of the insured vs. insured
exclusion is equally reasonable given that the Policy (1) was a business and management
indemnity policy, (2) provided D&O coverage, and (3) defined "Insureds" as "the
Company and the Directors and Officers." Put another way, it appears the Insurer drafted
the insured vs. insured exclusion to encompass this precise situation—an insured (Rogers
and Patterson), acting in any capacity, directing the filing of an action against another
insured (Ecolite) to recover business losses.
Ecolite asserts that " '[t]he insured versus insured exclusion was designed by
insurance carriers to deter so-called "friendly" or "collusive" suits by which companies
sought to recoup ordinary business losses by asserting claims against insured directors
and officers, and recovering from the insurer after reaching a settlement.' (Annot.,
Construction and Application of Insured vs. Insured Exclusion of Directors and Officers
Insurance Policy (2006) 14 A.L.R.6th 687.)" While we acknowledge the history and
purpose of a clause may be used as an aid to discern the meaning of disputed policy
language (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 653), history and
purpose cannot be used to defeat the plain language of a policy (see Sphinx Int'l, Inc. v.
Nat'l Union Fire Ins. Co. (11th Cir. 2005) 412 F.3d 1224, 1229 [exclusion's rationale
does not trump text]). Here, the insured vs. insured exclusion excluded coverage for "any
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Claim . . . brought or maintained . . . at the direction of any Insured in any capacity . . .
whether or not collusive." (Italics added.) The trial court found, and Ecolite does not
contest, that the insertion of the italicized phrase eliminated any inquiry into whether the
underlying lawsuit was collusive.
Ecolite also contends the trial court erred by finding the Insurer had no duty to
defend the RQ lawsuit. Specifically, the trial court found that when Ecolite informed
GSL of the claims for tender to the necessary insurance carriers, the carriers had all of the
evidence and facts needed to discover and evaluate application of the insured vs. insured
exclusion. The court further found that "[e]ven assuming the application of this
exclusion was not readily apparent upon the initial tender of the claim, plaintiff's defense
costs for the underlying action were paid for a number [of] months by Scottsdale
Insurance. As a result, plaintiff has not sustained damages and the application of this
exclusion operates to bar any recovery by plaintiff in this action." Necessarily implied in
these express findings is the finding that the Insurer owed no duty to defend Ecolite
beyond Scottsdale's withdrawal. The evidence presented at trial supports the trial court's
latter no damages finding.
The duty to defend turns on whether an insurer has extrinsic evidence, containing
undisputed facts, which conclusively eliminate a potential for liability. (Montrose
Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 298-299.) Here, the factual
question whether the RQ lawsuit was filed "at the direction" of Rogers and Patterson was
not resolved until this trial concluded. Accordingly, it cannot be said that at the inception
of RQ's lawsuit, the facts known to the Insurer conclusively demonstrated no potential for
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coverage. Nonetheless, the evidence supports the trial court's finding that Ecolite
suffered no damages based on a breach of the duty to defend.
On December 4, 2009, RQ filed its action against Ecolite. On June 3, 2010,
counsel for Scottsdale sent a letter to Ecolite informing them that Scottsdale would be
defending the RQ action under a reservation of rights. In a letter dated November 18,
2010, Scottsdale withdrew its defense on the grounds RQ's claims arose under the
coverage period for the Policy and the insured vs. insured exclusion in the Scottsdale
policy precluded coverage. In 2012, after Scottsdale withdrew its defense, a judgment
was entered against Smith and a default judgment entered against EcoliteUSA and
EcoliteINT in the RQ action.
These facts support the trial court's findings that during the time period the Insurer
potentially wrongfully failed to defend Ecolite in the RQ action, Scottsdale defended
Ecolite. Ecolite conceded at trial that they were not claiming any fees prior to the
withdrawal of coverage by Scottsdale. Thus, the absence of a defense by the Insurer
resulted in no damages to Ecolite based on the trial court's conclusion that the Insurer
owed no duty to defend Ecolite beyond Scottsdale's withdrawal and would have
ultimately properly denied coverage based on application of the insured vs. insured
exclusion.
II. RPS's Appeal
A. Facts
GSL and RPS filed cross-complaints against each other. RPS dismissed its cross-
complaint against GSL with prejudice. GSL requested costs against RPS in the amount
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of $18,529.44. The court later entered judgment in favor of GSL on RPS's cross-
complaint and awarded GSL its requested costs in the amount of $18,529.44.
The matter proceeded to trial on GSL's cross-complaint against RPS for breach of
the "LEMAC Producer Agreement" (the producer agreement), express or implied
equitable contractual indemnity, equitable indemnity, contribution, declaratory relief and
negligence. After the bench trial, the court issued a tentative statement of decision
directing entry of judgment in favor of GSL and against RPS on GSL's cross-complaint.
RPS requested the court issue a further statement of decision addressing certain
controverted issues and clarifying certain factual findings. The court issued its final
statement of decision that eliminated the language directing entry of judgment in favor of
GSL and against RPS on GSL's cross-complaint. Nonetheless, the final statement of
decision found that the producer agreement contained a mutual contractual indemnity
provision that unambiguously required each party to indemnify the other for liability
arising from the conduct of the indemnitor. The trial court concluded that RPS and GSL
had " 'contractualized' " the doctrine of equitable indemnity. RPS timely appealed.
B. Analysis
RPS asserts the trial court erred in concluding that it and GSL had contractualized
the doctrine of equitable indemnity. It also claims that to the extent we affirm the ruling
on the insured vs. insured exclusion, the court erred by not rendering judgment in RPS's
favor on GSL's cross-complaint. Finally, RPS argues the trial court erred in awarding
GSL double recovery of costs. We examine each contention in turn.
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RPS first contends the trial court's conclusion that the producer agreement
contained a mutual indemnity provision is a final judgment on GSL's declaratory relief
claim. RPS claims the trial court erroneously interpreted the indemnity provision as the
provision does not evidence an intent on the part of GSL or RPS to indemnify each other
for a harm one of them caused. GSL argues that, to the extent we affirm the judgment in
its favor against Ecolite, this issue is moot as there are no damages for either party to
indemnify. We agree with GSL.
"An appeal should be dismissed as moot when the occurrence of events renders it
impossible for the appellate court to grant appellant any effective relief." (Cucamongans
United for Reasonable Expansion v. City of Rancho Cucamonga (2000) 82 Cal.App.4th
473, 479.) The policy underlying the rule is that the Court of Appeal "decide[s]
justiciable controversies and will normally not render advisory opinions." (Ebensteiner
Co., Inc. v. Chadmar Group (2006) 143 Cal.App.4th 1174, 1179.)
This portion of RPS's appeal is in the nature of a protective cross-appeal. Our
affirmance of the GSL-Ecolite judgment eliminates any need for indemnity as between
RPS and GSL. (GEM Developers v. Hallcraft Homes of San Diego, Inc. (1989) 213
Cal.App.3d 419, 430 [no indemnity without joint and several liability by the prospective
indemnitor and indemnitee].) The affirmance also renders moot any need to interpret the
mutual indemnity provision contained in the producer agreement. Consequently, any
opinion addressing the merits of this portion for the appeal would be purely advisory.
We dismiss this portion of the appeal as moot.
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RPS next asserts that, to the extent we affirm the ruling on the insured vs. insured
exclusion, the trial court erred by not rendering judgment in its favor on GSL's cross-
complaint. GSL disagrees, claiming it prevailed as against RPS as the trial court adopted
its interpretation of the indemnity provision. GSL also contends the trial court
determined it was the prevailing party and that RPS forfeited any error or ambiguity
regarding the resolution of the GSL cross-complaint by failing to bring the matter to the
court's attention.
GSL's cross-complaint against RPS contained six causes of action. The trial
court's statement of decision, however, only addressed GSL's declaratory relief cause of
action, finding the contract between GSL and RPS required the parties indemnify each
other on a comparative fault basis. Review of GSL's trial brief shows the court adopted
GSL's interpretation of the contractual indemnity provision.
Based on this finding, it is reasonable to assume the trial court considered GSL to
be the prevailing party on its cross-complaint against RPS. The trial court's tentative
statement of decision ordered that judgment be entered in GSL's favor as against Ecolite
and RPS and named GSL the prevailing party. The court's final statement of decision,
however, inexplicably deleted this language. We note that GSL did not file its own
appeal to address this issue. Although RPS responded to the court's tentative statement of
decision with a request for a further statement of decision, it did not request the trial court
name it the prevailing party on GSL's cross-complaint. Because RPS failed to bring the
purported error to the trial court's attention, we deem it forfeited. (Perez v. Grajales
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(2008) 169 Cal.App.4th 580, 591-592 [arguments raised for the first time on appeal are
deemed forfeited].)
Finally, RPS argues the trial court erred in awarding GSL double recovery of
costs. We agree.
GSL does not contest that it was awarded costs against RPS for the same expenses
it later sought and was awarded in connection with its defense of Ecolite's complaint.
Instead, GSL argues that RPS waived any error by failing to file a motion to tax costs and
by not timely objecting to the proposed judgment. These arguments lack merit.
GSL filed its memorandum of costs against RPS on February 26, 2013. About
three months later, it filed a memorandum of costs seeking those same expenses against
Ecolite. Thus, by the time RPS discovered this issue, the time to file a motion to tax
costs had expired. (Cal. Rules of Court, Rule 3.1700(b)(1) [motion to tax costs must be
filed within 15 days of service of memorandum of costs].) Upon discovering the issue,
RPS objected to the proposed judgment against it and asked the trial court to strike the
costs award from the judgment. We reject GSL's assertion that the objection was
untimely.
A party must object within 10 days after service of a proposed judgment. (Cal.
Rules of Court, Rule 3.1590(j).) Where a document is served by mail, subdivision (a) of
Code of Civil Procedures section 1013 extends by five calendar days the time for
performing any act following service of a document by mail. Here, GSL served its
proposed judgment by mail on September 13, 2013 and RPS timely objected 11 days
later on September 24, 2013. RPS's objection to the proposed judgment sought to strike
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the duplicative costs, properly placed the issue before the trial court and preserved the
alleged error for our review.
Comparison of the costs memorandum filed by GSL as to RPS and Ecolite show
that GSL sought and was awarded the same costs as against both RPS and Ecolite. The
costs award as to Ecolite is now final. Accordingly, we agree that the duplicative costs
award as to RPS is unreasonable and must be stricken. (Code Civ. Proc., § 1033.5
["Allowable costs shall be reasonable in amount."].)
DISPOSITION
The judgment in favor of GSL as against Ecolite is affirmed. As between Ecolite
and GSL, GSL is entitled to its costs on appeal. The judgment in favor of GSL against
RPS is modified to strike the cost award of $18,529.44. In all other respects, the
judgment in favor of GSL against RPS is affirmed. As between RPS and GSL, the
parties are to bear their own costs on appeal.
MCINTYRE, J.
WE CONCUR:
HALLER, Acting P. J.
MCDONALD, J.
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AI Brief
AI-generated · verify before citing
Holding. The court held that the insured vs. insured exclusion in the policy barred coverage for the underlying lawsuit because the claims were directed by insured parties, and that the insured suffered no damages from the insurer's failure to defend because a separate policy provided a defense. The court also struck a duplicative cost award against a cross-defendant.
Issues
Whether the insured vs. insured exclusion in a D&O policy applied to claims directed by insured directors against the company.
Whether the insurer's failure to defend caused damages to the insured when a separate policy provided a defense.
Whether the trial court erred in awarding duplicative costs against a cross-defendant.
Disposition. Affirmed and affirmed as modified.
Quotations verified verbatim against the opinion
“the insured vs. insured exclusion contained in Ecolite's insurance policy excluded coverage for the action filed against Ecolite.”
“the absence of a temporary defense by the Insurer caused no harm because Scottsdale defended Ecolite.”