San Diego Unified Port Dist. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., Co., Case No.: 15cv1401 BEN (MDD)

SAN DIEGO UNIFIED PORT DISTRICT, Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANYOF PITTSBURGH, PA., as successor-in-interest toLANDMARK INSURANCE COMPANY, Defendant.

Case No.: 15cv1401 BEN (MDD)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

March 29, 2018

ORDER:

(1) DENYING NATIONAL UNION'S FIRST MOTION FOR PARTIAL SUMMARY JUDGMENT

(2) GRANTING PORT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

(3) GRANTING NATIONAL UNION'S SECOND MOTION FOR PARTIAL SUMMARY JUDGMENT

[Docket Nos. 33, 34, 47.]

Presently before the Court is Plaintiff San Diego Unified Port District ("Port"), a California public entity, and Defendant National Union Fire Insurance Company of Pittsburgh, PA¹ ("National Union"). This case arises from a disagreement between the Port and National Union, one of its liability insurance companies.

FACTUAL AND PROCEDURAL HISTORY

I. Background²

Defendant National Union, successor-in-interest to Landmark Insurance Company ("Landmark") sold the Port both primary liability and umbrella liability insurance policies, promising to defend and indemnify the Port against certain property damage liability claims or lawsuits. National Union issued four primary policies to the Port.³ National Union also sold the Port "the first layer of liability insurance directly above the Unexhausted Primary Policies and Exhausted Primary Policies in the form of" umbrella insurance policies. Coverage under the four Umbrella Policies is triggered once the Primary Policies are exhausted.

According to the First Amended Complaint ("FAC"), the Port tendered, and National Union agreed to provide a defense under the Unexhausted Primary Policies to certain claims ("Claims") and lawsuits ("Suits") asserted against the Port.⁴ Subsequently, National Union informed the Port that it "unilaterally would be assigning payments for one of the Port's defense experts to [National Union's] indemnity obligation against theUnexhausted Primary Policies' limits." National Union then tendered the asserted remaining policy limits to the Port and informed the Port that "[National Union] considered the Unexhausted Primary Policies to be exhausted and that it would cease defending the Port in the Claims and Suits." National Union did not seek a judicial determination concerning exhaustion.

The Port contested National Union's assertion that the Unexhausted Primary Policies were exhausted. The Port also asserted that even if the Unexhausted Primary Policies were exhausted, "the terms of the Umbrella Policies would require National Union to drop down and defend the Port in the Claims and Suits."

National Union "repeatedly disputed" having a defense obligation under the Umbrella Policies. But on September 15, 2015, between the filing of the original complaint and the operative FAC, National Union acknowledged through a letter from counsel that it "has a defense obligation to defend [S]uits in accordance with the terms of its [U]mbrella Policies."⁵ As a result of National Union's failure to defend, the Port incurred its own defense costs.

The Port commenced the present action on June 25, 2015, and subsequently filed the FAC on November 20, 2015, asserting five causes of action. On December 14, 2015, National Union filed a Motion to Dismiss, Sever and Stay which was denied. On July 20, 2016, National Union submitted its Answer to the Port's FAC. The Port seeks a determination that the Primary Policies have not been exhausted as claimed by National Union and that it should have continued defending the Port until the Court or the Port agreed that the remaining two Primary Policies were exhausted. National Union disagrees with the Port's claims, contends that it has reimbursed all accrued defense fees and costs, and it maintains its actions have been both reasonable and correct. NationalUnion also believes that the Port failed to cooperate as required under the policies because the Port withheld information and deprived National Union of the right to participate in the settlement of certain lawsuits.

The parties have filed three cross-motions for summary judgment. (Doc. Nos. 33, 34, 47.)

II. Cross-motions for Summary Judgment⁶

A. National Union's Motion for Partial Summary Judgment on the Third Cause of Action.

National Union moved for partial summary judgment of the third cause of action in the FAC. This motion requests the Court to dismiss the third cause of action in the FAC which seeks a judicial declaration that the Port is entitled to a defense of Claims under the Umbrella Policies if the Primary Policies are exhausted and find that the Umbrella Policies do not cover Claims. (Doc. No. 34 at 2.)

Port disputes National Union's position arguing the only reasonable interpretation of the policies support that the Claims coverage provided at the primary level was intended to continue at the excess/umbrella level. Alternatively, interpretation of the scope of coverage creates an ambiguity that must be resolved in favor of the Port. (Doc. No. 38 at 3.)

B. Port's Motion for Partial Summary Judgment on the Second and Third Cause of Actions.

Port moved for partial summary judgment of the second and third causes of action in the FAC. This motion seeks judicial declarations that National Union must defend and indemnify the Port against Suits and Claims under Umbrella Policies 'UMB-6000046,' 'UMB-6000116,' and 'UMB-6000145' immediately upon exhaustion of the underlying Primary Policies. (Doc. No. 34 at 2.)

National Union disputes the Port's argument as to the second and third causes of action asserting the Port's interpretation disregards proper contract interpretation; ignores policy terms, conditions, and endorsements and ultimately seeks the benefits of umbrella policy protections before those protections have been triggered. (Doc. No. 39 at 7-10.)

C. National Union's Second Motion for Partial Summary Judgment on the Second Cause of Action.

National Union moved for partial summary judgment of the second cause of action in the FAC. This motion seeks a judicial declaration that 'horizontal exhaustion' of all the primary policies is required before the Umbrella Policies are triggered and that the 1985 Umbrella Policy excludes coverage under the absolute pollution exclusion. (Doc. No. 47 at 2.)

Port disputes National Union's position because the policy "endorsement and declarations confirm the AIG excess/umbrella policies to be specific excess, they are obligated to cover the District immediately upon the exhaustion of the identified underlying AIG primary policy." (Doc. No. 48 at 8.)

STANDARD OF REVIEW

I. Summary Judgment

Summary judgment is appropriate under Rule 56(c) where the moving party demonstrates the absence of a genuine issue of material fact and entitlement to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is material when, under the governing substantive law, it could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute about a material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." (Id. at 248.)

A moving party bears the initial burden of showing there are no genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). It can do so by negating an essential element of the non-moving party's case, or by showing that the non-moving party failed to make a showing sufficient to establish an element essential to thatparty's case, and on which the party will bear the burden of proof at trial. (Id.) The burden then shifts to the non-moving party to show that there is a genuine issue for trial. (Id.)

"Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248. As a general rule, the "mere existence of a scintilla of evidence" will be insufficient to raise a genuine issue of material fact; there must be evidence on which the jury could reasonably find for the non-moving party. (Id. at 252.)

A moving party is only entitled to summary judgment where it has shown that there are no genuine issues of material fact, even if the nonmoving party does not offer materials in support of its opposition. Henry v. Gill Indus. Inc., 983 F.2d 943, 950 (9th Cir. 1993). Summary judgment is inappropriate where the movant's papers are insufficient to support that motion or on their face reveal a genuine issue of material fact. See (Id.) "The filing of cross-motions for summary judgment 'does not necessarily mean that there are no disputed issues of material fact and does not necessarily permit the judge to render judgment in favor of one side or the other.'" Hahn v. Massage Envy Franchising, LLC, No. 12cvl53, 2014 WL 5100220, at *3 (S.D. Cal. Sept. 25, 2014) (citation omitted); see Halbert v. Cnty. of S.D., No. 07cv1607, 2010 WL 1292163, at *6 (S.D. Cal. Mar. 30, 2010).

The Court's subject matter jurisdiction over this case is based upon diversity jurisdiction under 28 U.S.C. § 1332(a). Under Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), a federal court sitting in diversity jurisdiction applies state substantive law and federal procedural law. When addressing Plaintiffs' and Defendants' claims, the Court will, therefore, apply California Law.

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II. California Insurance Law

California law obligates an insurer to defend the insured when the facts alleged in the complaint create a potential for coverage. Scottsdale Ins. Co. v. MV. Transp., 36 Cal. 4th 643, 654 (2005). However, in evaluating the duty to defend, the insurer may also consider facts outside those alleged in the complaint. (Id.) "If any facts stated or fairly inferable in the complaint, or otherwise known or discovered by the insurer, suggest a claim potentially covered by the policy, the insurer's duty to defend arises and is not...