Travelers Indem. Co. of Conn., Corp. v. Hudson Ins. Co.

442 F.Supp.3d 1259

The TRAVELERS INDEMNITY COMPANY OF CONNECTICUT, a Connecticut Corporation, and The Travelers Property Casualty Company of America, a Connecticut Corporation, Plaintiffs,

v.HUDSON INSURANCE COMPANY, a Delaware Corporation Defendant.

No. 1:18-cv-00720-DAD-JLT

United States District Court, E.D. California.

Signed March 5, 2020

Aaron C. Agness, Edmond Sung, Weston & McElvain LLP, El Segundo, CA, for Plaintiffs

Stephen Alter Scott, Hayes Davis Bonino Ellingson McLay and Scott, Redwood City, CA, for Defendant.

ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT IN PART AND GRANTING DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT IN PART

Dale A. Drozd, UNITED STATES DISTRICT JUDGE

This matter is before the court on the parties' cross-motions for summary judgment.

(Doc. Nos. 16, 17, 18.) A hearing on the motions was held on June 18, 2019. Attorney Aaron Agness appeared in person on behalf of plaintiffs, and attorney Stephen Scott appeared in person on behalf of defendant. Having considered the parties' briefs and oral arguments, and for the reasons set forth below, the court will grant both motions in part.

BACKGROUND

Plaintiffs The Travelers Indemnity Company of Connecticut ("Travelers Indemnity") and The Travelers Property Casualty Company of America ("Travelers Property") (collectively, "Travelers") and defendant Hudson Insurance Company ("Hudson") each and separately insured NV5 Holdings, Inc. and Nolte Associates, Inc. (collectively, "Nolte"). (Doc. No. 18-2) (Joint Statement of Undisputed Facts ("JSUF")) at 2, 4.) Travelers issued Nolte commercial general liability policies, and Hudson issued Nolte a professional services policy. (Id. at 2–4.) While insured under those policies, Nolte, a firm that provides construction management services, was named as a defendant in an underlying state court action stemming from a construction site accident. (Id. , Ex. 5.)

The present action is an insurance coverage dispute arising from a settlement paid by Travelers on behalf of Nolte in that underlying state court action. Travelers contends that Hudson must reimburse it for the entire settlement amount and half of the defense fees and costs it incurred in defending Nolte in that action, because the allegations against Nolte in that underlying action arose out of Nolte's professional services. (Doc. No. 18 at 2.) Hudson counters that Travelers' complaint fails as a matter of law because: (1) Travelers has pled the wrong causes of action; and (2) the events that gave rise to the underlying action against Nolte are not within the scope of the policy that Hudson issued to Nolte. (Doc. No. 17 at 7.) The following facts are relevant to the pending motions.¹

A. The Underlying Lawsuit and Background Facts

1. Nolte's Construction Management Agreement with the City of Bakersfield

On May 20, 2009, Nolte and the City of Bakersfield (the "City") entered into a construction management agreement (the "CMA"). (JSUF at 4–5 & Ex. 4.) Pursuant to the CMA, Nolte was to "furnish a licensed Civil Engineer as Construction Manager" and to "competently and thoroughly provide Construction Management Services" for the second phase of the City's planned construction of a six-lane freeway (the "Project"). (Id. at 302, 313; Doc. No. 17 at 7.) These services included "construction observation, materials testing, and contract administration" for the Project, as well as "structural observation services, roadway observation services, survey quality assurance, [and] materials testing and support staff, as needed, during the course of the construction." (JSUF at 313.) As relevant here, the CMA provided that:

The Construction Management staff will conduct onsite observations of the work in progress to determine that it is, in general, proceeding in accordance with the Contract Documents.

The Construction Management staff shall advise the Contractor whenever they believe that any work is unsatisfactory, faulty or defective or does not conform to the Contract Documents, or has been damaged, or does not meet the requirements of any field observation, test or approval required to be made; and advise the Contractor of work that should be corrected or rejected or should be uncovered for observation, or requires special testing, or approval ....Nolte personnel or subconsultants shall provide construction observation, material testing and quality control for the project. Construction observation, material testing and quality control shall conform to the State of California Construction Manual and Material Testing Manual.

(Id. at 317–318.) The CMA further provided that:

Through more extensive onsite observations of the work in progress and field checks by the construction management staff, Nolte shall endeavor to provide further protection for the City against defects and deficiencies in the work of the Contractor; but, the furnishing of such services will not make Nolte responsible for or give Nolte control over construction means, methods, techniques, sequences, or procedures, or for safety precautions or programs, or responsibility for Contractor's failure to perform the Work in accordance with the Contract Documents.

(Id. at 314–15.) Finally, the CMA noted that Nolte's "tasks shall include all the procedures necessary to properly perform the Construction Management tasks, whether specifically included in the scope of work or not." (Id. at 302.)

2. The Underlying Lawsuit, the Tenders, and the Defense of Nolte

Justin Todahl ("Todahl") was employed as a laborer by one of the contractors working on the Project. (Id. at 5.) On August 28, 2012, Todahl was injured while working on the Project. (Id. ) The parties agree that on the date Todahl sustained his injuries, Nolte representatives were at the construction site "for the purpose of providing professional services pursuant to the Construction Management Agreement." (Id. at 6.)

On August 22, 2014, Todahl filed a first amended complaint against Nolte and other defendants in the Kern County Superior Court (the "Todahl action" or the "underlying action"). (Id. at 5.) Therein, Todahl alleged that, on the date of the incident, "a cement truck suddenly and without warning backed into him, crushing his body between the cement truck and paving trough." (Id. ) Todahl asserted a general negligence cause of action against Nolte, alleging that it was "negligent in the selection, hiring, training, education, supervision, management, and retention of [contractors] ... so as to have actually, legally, and proximately caused [Todahl] to suffer serious injuries." (Id. at 336.) Todahl alleged that Nolte "had a responsibility to supervise the job and ensure that the job was being performed in a safe manner and in compliance with state and federal regulations[ ] because [Nolte]...w[as] responsible for providing construction management and/or general contractor services for the [Project]." (Id. at 337.)

In September 2014, Nolte tendered the Todahl action to Travelers under Travelers' Comprehensive General Liability Policy and to Hudson under Hudson's Professional Liability Policy. (Doc. Nos. 20-1 at 17; 21-4 at 6.) Travelers agreed to defend Nolte under a reservation of rights, citing the professional services exclusion in its policy as the basis for its reservation. (Doc. No. 21-4 at 6.) In or around October 2014, Travelers retained defense counsel to defend Nolte in the Todahl action, and it tendered Nolte's defense to Hudson. (Id. ) It appears that sometime thereafter Hudson "closed its file at the request of [Nolte]." (JSUF at 365.)

In February 2017, Todahl was deposed. During his deposition, he testified that a Nolte employee or representative instructed him to clean out the paving trough between truckloads of cement. (Doc. No. 21-4 at 5.) Specifically, Todahl testified that:

[The Nolte employee] said [the troughs] need to be cleaned out after every truck, if not every two, because that way—and I think he said the same or you did, was so that it could meet the spec—the spec on—the poured concrete because if it wasn't cleaned out after every one or two trucks, that it would mix with the old concrete with the new concrete and then it would have to be removed.

(Id. at 6–7.)

On September 5, 2017, Travelers retendered its defense of Nolte to Hudson. (JSUF at 6.) On November 2, 2017, Hudson responded to Travelers and acknowledged that the Todahl action was potentially covered under the policy it had issued to Nolte. (Id. ; see also id. , Ex. 7.) Specifically, Hudson stated that "we have determined that there may be a potential of coverage; however, any such coverage would be excess to Travelers' policy, so Hudson will participate in the defense and indemnity of [Nolte] subject to a full reservation of rights following the exhaustion of Travelers' policy." (JSUF at 347.) On December 13, 2017, Travelers responded to Hudson, contending that "Hudson's excess coverage position was erroneous" and that "Traveler's coverage is co-primary with Hudson's." (Id. at 353.) Travelers demanded that "Hudson participate in resolution of th[e] claim on a pro-rata basis" given that "th[e] case clearly implicates Hudson's professional coverage." (Id. ) On February 27, 2018, Hudson informed Travelers that it would participate in a mediation of Todahl's claim against Nolte scheduled for March 13, 2018. (Id. at 358.) Hudson also asserted that it had no duty to provide coverage because the allegations against Nolte did not arise out of Nolte's professional services and because its policy's "actual construction" exclusion precluded coverage. (Id. at 358–59.) Hudson reiterated its position that its coverage was only in excess to Travelers' primary coverage. (Id. at 359.) On March 2, 2018, Travelers responded to Hudson, contending that both policies were primary policies and that, depending on whether the underlying claim is a general liability claim or a professional services claim, either Travelers or Hudson would be responsible for indemnifying Nolte. (Id. at...