PEP Boys Manny Moe & Jack of Cal. v. Old Rep. Ins. Co.

316 Cal. Rptr. 3d 600

The PEP BOYS MANNY MOE & JACK OF CALIFORNIA, et al., Plaintiffs and Appellants,

v.OLD REPUBLIC INSURANCE COMPANY, et al., Defendants and Respondents.

A166574

Court of Appeal, First District, Division 4.

Filed December 28, 2023

As Modified January 18, 2024

Trial Court: San Francisco City & County Superior Court, Trial Judge: Hon. Murlene J. Randle (San Francisco County Super. Ct. No. CGC-21-590238)

Roxborough, Pomerance, Nye & Adreani LLP, Drew E. Pomerance, Woodland Hills; Yoka & Smith LLP, Walter Michael Yoka, Michelle J. An for Plaintiff and Appellant.

Nicolaides Fink Thorpe Michaelides Sullivan LLP, Matthew C. Lovell, San Francisco, Alison V. Lippa, Kimberly A. Hartman for Defendant and Respondent Fireman’s Fund Insurance Company.

Clausen Miller, PC, Ian R. Feldman, Mission Viejo, Amy R. Paulus, Don R. Sampen for Defendant and Respondent Old Republic Insurance Company

Craig & Winkelman LLP, Bruce H. Winkelman, Berkeley, for Defendant and Respondent New England Reinsurance Corporation and Executive Risk Indemnity, Inc fka American Excess Insurance Company.

BROWN, P. J.

The Pep Boys — Manny, Moe & Jack and The Pep Boys Manny Moe & Jack of California LLC (together, Pep Boys) appeal from the trial court’s judgment against them in a coverage action against their insurers, Old Republic Insurance Company (Old Republic); Executive Risk Indemnity Company, as successor to certain insurance contracts issued by American Excess Insurance Company (American Excess); and Fireman’s Fund Insurance Company (Fireman’s Fund). We agree with Pep Boys that the language of their policies with Old Republic and Fireman’s Fund, which were for terms longer than 12 months, dictates that the policies contained two separate annual periods for the purposes of the annual aggregate limits of liability. But we agree with the trial court that the American Excess policy, which had different language, had only one period for purposes of that policy’s annual aggregate limits. We will therefore reverse the trial court’s judgment in part.

BACKGROUND

Pep Boys sells automotive products at its stores nationwide, with over 145 stores in California. Hundreds of people, including more than 500 in California, filed claims against Pep Boys alleging harm from exposure to asbestos in products Pep Boys sold. In 2004, Pep Boys sought coverage for hundreds of these claims from insurers who sold a "tower" of commercial general liability policies providing coverage between February 1, 1981, and July 1, 1982.

At the base of the tower, Protective National Insurance Company of Omaha (Protective), provided primary coverage. The policy originally covered from February 1, 1981, to February 1, 1982, up to a limit of $500,000 per occurrence and $500,000 in the aggregate "during each annual period while this policy is in force commencing from its effective date." Protective later extended the policy period by endorsement to June 30, 1982, in exchange for an additional prorated premium.

New England Reinsurance Corporation (New England) provided the first layer of umbrella coverage. New England’s policy initially covered from February 1, 1981, to June 30, 1982, up to a limit of $10,000 per occurrence and $10 million "in the aggregate for each annual period." The policy described its aggregate limit as an "annual aggregate limit … on account of all occurrences during each policy year …. " (Capitalization omitted.) In exchange for an additional prorated premium, New England later extended its policy to July 1, 1982.

Old Republic and American Excess shared the second layer of excess coverage. As originally written, the Old Republic policy covered the period from February 1, 1981, to June 30, 1982. It provided excess coverage up to $10 million per occurrence and $10 million "in the aggregate for each annual period during the currency of this policy." A letter from Pep Boys’ broker submitting the application for the insurance said that Pep Boys wanted the policy to cover 17 months to "get [its] insurance program concurrent with [its] fiscal year end accounting." The broker calculated the premium due for the 17 months by prorating the 12-month premium. The premium Old Republic charged was consistent with the broker’s calculation. Old Republic later extended the policy period by one day to July 1, 1982, for an additional prorated premium.

American Excess issued the other policy in the second layer, and it originally covered from February 1, 1981, to February 1, 1982. The policy states that American Excess’s liability would be "limited, where and as applicable, to the amount stated" in the declarations as the insurer’s "‘aggregate’ with respect to loss excess of the Underlying Insurance which occurs during the term of this Certificate," which was $5 million. An endorsement later extended the policy to July 1, 1982, for $11, which was one day’s prorated premium.¹ This endorsement also states that "the total premium is amended to $5,171.00 and the total annual premiums [remain] $3,665.00."

Fireman’s Fund participated in the third and final layer of excess coverage. Its policy covered from April 3, 1981, to July 1, 1982. It covered up to $15 million per occurrence and $15 million aggregate "for all damages sustained during each annual period of this policy" as part of a total third layer of $25 million. Another insurance company that is now insolvent provided the balance of coverage in the third layer.

After Pep Boys demanded coverage, Protective became insolvent and went into receivership. But it agreed to provide two $500,000 aggregate limits payments, one for the period from February 1, 1981, to February 1, 1982, and a second for the period from February 1, 1982, to June 30, 1982.

Although it had taken the position that Protective owed two aggregate limits payments, New England nonetheless asserted that its own policy provided only one aggregate annual limit. Accordingly, after New England paid $10 million, it notified Pep Boys that its policy was exhausted. Old Republic, American Excess, and Fireman’s Fund took the same position regarding their respective policies. Pep Boys therefore filed a declaratory judgment action against all four insurers, seeking a ruling that each policy provided two aggregate annual limits, one for the first 12 months of the policies and one for the remaining period.

Pep Boys moved for summary adjudication of these coverage issues as to each insurer. Fireman’s Fund cross-moved for summary judgment, arguing that Pennsylvania law governed the interpretation of the policy and under Pennsylvania law all of the claims against Pep Boys arose from one occurrence. According to Fireman’s Fund, the per occurrence limit in its policy therefore capped Fireman’s Fund’s liability at $15 million, regardless of how the court construed the aggregate limits provision.

Pep Boys reached a settlement with New England and dismissed it before the hearing on the motions.

The trial court denied Pep Boys’ motion, ruling that the policies of Old Republic, American Excess, and Fireman’s Fund each provided only a single aggregate limit. The court denied Fireman’s Fund’s motion as moot. The parties agreed that the court’s ruling fully disposed of Pep Boys’ claims, so they stipulated to entry of judgment.

DISCUSSION

[1–4] A party is entitled to summary adjudication if there is no triable issue as to any material fact and the matter can be adjudicated as a matter of law. (London Market Insurers v. Superior Court (2007) 146 Cal.App.4th 648, 655, 53 Cal.Rptr.3d 154.) "On appeal, we independently review the trial court’s ruling and apply the same legal standard that governs the trial court." (Ibid.) The trial court’s reasons for its ruling "are not binding on us because we review its ruling, not its rationale." (Ram’s Gate Winery, LLC v. Roche (2015) 235 Cal.App.4th 1071, 1079, 185 Cal. Rptr.3d 935.) We "must affirm on any ground supported by the record." (Jimenez v. County of Los Angeles (2005) 130 Cal.App.4th 133, 140, 29 Cal.Rptr.3d 553.)

[5–8] "‘"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.] "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." [Citation.]’ [Citation.]

[9–12] " ‘ "A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable." [Citations.] … " ‘[L]anguage in a contract must be construed in the context of that instrument as a whole, and in the circumstances of that case, and cannot be found to be ambiguous in the abstract.’ " [Citation.] "If an asserted ambiguity is not eliminated by the language and context of the policy, courts then invoke the principle that ambiguities are generally construed against the party who caused the uncertainty to exist (i.e., the insurer) in order to protect the insured’s reasonable expectation of coverage." [Citation.]’ [Citation.] [¶] … [S]tandard form policy provisions are interpreted under the same rules of construction. ‘ "[W]hen they are examined solely on a form, i.e., apart from any actual agreement between a given insurer and a given insured, the rules stated above apply mutatis mutandis. That is to say, where it is clear, the language must be read accordingly, and where it is not, in the sense that satisfies the hypothetical insured’s objectively reasonable expectations." ’ " (Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377, 390–391, 33 Cal.Rptr.3d 562, 118 P.3d 589 (Powerine Oil).)

Because the language of each of the policies at issue is different, we examine the policies each individually.

I. Old Republic

A. Policy language

Old Republic’s policy establishes the benefits limit as $10...