Westport Ins. Corp. v. Cal. Cas. Mgmt. Co.

249 F.Supp.3d 1164

WESTPORT INSURANCE CORPORATION, Plaintiff,

v.CALIFORNIA CASUALTY MANAGEMENT CO., Defendant.

Case No. 3:16-cv-01246-WHO.

United States District Court, N.D. California.

Signed April 7, 2017

Adam H. Fleischer, Michael H. Passman, BatesCarey, LLP, Mark G. Sheridan, Chicago, IL, Grant D. Henderson, William Clayton Crawford, Jr., Foland, Wickens, Eisfelder, Roper & Hofer, PC, Kansas City, MO, Michael Kenneth Johnson, Lewis Brisbois Bisgaard & Smith LLP, San Francisco, CA, for Plaintiff.

Derek H. Mackay, Brown & James, PC, Kansas City, MO, Mark Giovanni Bonino, Hayes, Scott, Bonino, Ellingson, & McLay, LLP, Redwood City, CA, for Defendant.

ORDER GRANTING WESTPORT'S MOTION FOR SUMMARY JUDGMENT AND DENYING CALIFORNIA CASUALTY'S MOTION FOR SUMMARY JUDGMENT

Re: Dkt. No. 61, 67

William H. Orrick, United States District Judge

INTRODUCTION

Plaintiff Westport Insurance Corporation ("Westport") provided liability and excess insurance policies for the Moraga School District in California (the "School District"), including coverage for the School District's administrators. Defendant California Casualty Management Company ("California Casualty") also provided excess coverage for certain school administrators in the School District. After a School District teacher sexually molested three students, the students sued the School District and three of its administrators (the "Administrators") for negligent supervision. Westport funded the settlement of the claims alone after California Casualty declined to contribute and sued California Casualty for declaratory relief and equitable contribution.

Westport has moved for summary judgment, seeking declarations regarding each insurer's obligations and contribution from California Casualty. California Casualty cross-moved for summary judgment on ground that the School District (and its insurance) is obligated under California Government Code sections 825 and 825.4 to indemnify the Administrators as public employees. In the alternative, it argues (among other things) that its obligation to provide coverage was not triggered because its policies provided "extreme excess" coverage, and, at most, its contribution should be prorated.

California Casualty's policy is not as limited as it claims, and contribution is not precluded by the California Government Code. For the reasons discussed below, Westport's motion is GRANTED and California Casualty's motion is DENIED. California Casualty shall contribute $2.6 million to Westport's funding of the settlement.

BACKGROUND

I. FACTUAL BACKGROUND

Three students (Does 1, 2, and 3) at Joaquin Moraga Intermediate School in the School District alleged that they were sexually molested by their teacher in the mid–1990s. Compl. ¶ 2 (Dkt. No. 1). When the students came forward in 1996, the teacher killed himself. Id. In 2013, the students sued the Administrators and the School District for negligent supervision of the teacher.¹ Id. ¶¶ 10–22. Does 1 and 2 filed one lawsuit against the Administrators and the School District in January 2013. Id. ¶ 10; see Does 1 and 2 Compl. (DeLonay Aff. ISO Westport's Mot., Ex. 6, DKt. No. 68–6). Doe 3 filed another lawsuit against the Administrators and the School District in the same month. Compl. ¶ 19; see Doe 3 Compl. (DeLonay Aff., Ex. 7. Dkt. No. 68–7).

The students alleged that the teacher had molested them in the following school years:

 1993-1994 1994-1995 1995-1996 1996-1997
School Year School Year School Year School Year
Doe 1        X                 X                 X
  Doe 2                                            X                X
  Doe 3                                                             X

Compl. ¶¶ 12–14, 16–17, 21; see also Westport's Mot. for Summ. J. at 9 ("Westport's Mot.")(Dkt. No. 67).²

Westport provided insurance for the School District via two policies of primary general liability insurance ("Westport Primary Policies") under which the Administrators were also insured. Compl. ¶¶ 23–30; DeLonay Aff. ¶ 2.³ One of the Westport Primary Policies was effective from October 1, 1991 through October 1, 1994, and the other from October 1, 1994 through October 1, 1997. Id. ¶¶ 24–25; see Westport 1991–1994 Policy (DeLonay Aff., Ex. 1, Dkt. No. 68–1); Westport 1994–1997 Policy (DeLonay Aff., Ex. 2, Dkt. No. 68–2). According to Westport, the Primary Policies indicate a limit of liability of "$1,000,000 each occurrence." Westport 1991–1994 Policy at 000008. Westport also issued to the School District a series of policies of excess liability insurance ("Westport Excess Policies"). DeLonay Aff. ¶ 8. One of the excess policies was effective from October 1, 1991 to October 1, 1994; the other three were effective for consecutive one-year periods starting October 1, 1994. Compl. ¶ 27; see Westport Excess Policy Renewal (DeLonay Aff., Exs. 4, Dkt. No. 68–4); Westport Later Excess Policy (DeLonay Aff., Ex. 5, Dkt. No. 68–5).

In contrast with Westport, California Casualty provided only excess liability insurance that covered the Administrators, not the School District. Compl. ¶ 3; see California Casualty 1994–1995 Policy (Sheridan Decl. ISO Westport's Mot., Ex. 2, Dkt. No. 69–2); California Casualty 1993–1997 Excess Policies (Moreno Decl. ¶ 6, Ex. E, Dkt. No. 65–2 at 47). California Casualty issued successive annual liability policies ("California Casualty Policies") to the Association of California School Administrators and the Association of California Community College Administrators. Compl. ¶ 31.

The California Casualty Policies were in effect from at least July 1, 1994, to at least July 1, 1997. Compl. ¶ 32; see California Casualty Excess Policies. Westport alleges that each of the California Casualty Policies contains "substantially similar" language. Compl. ¶ 34. The policy defines the term "Insured," in relevant part, as "[a] member of the Associate of California School Administrators who is employed by a school board, board of trustees or other similar governing body of an educational unit." See California Casualty 1994–1995 Policy (Sheridan Decl., Ex. 2 at 109–10). The policy includes the following provisions:

COVERAGES AND LIMITS OF LIABILITY

Coverage A. Administrator Excess Liability

$150,000.00 per occurrence, Over $1,000,000.00 of Underlying Primary Layer/ $2,000,000.00 aggregate per annual policy period

[...]

III. COVERAGES

In this section the Company indicates the coverages provided, subject to the exclusions, limits of liability and other terms of this policy.

A. ADMINISTRATORS' EXCESS LIABILITY. The Company agrees to pay all damages in excess of the required underlying primary collectible insurance or self-insurance which the insured shall become legally obligated to pay as a result of any claim arising out of an occurrence in the course of the insured educational employment activities, and caused by any acts or omissions of the insured, or any other person for whose acts the insured is legally liable, not to exceed the limits of liability stated in the Declarations for this coverage.

[...]

IV. LIMITS OF LIABILITY

The combined limits of liability for each coverage stated in the Declarations are the limits of the Company's liability to each Insured for all damages arising out of one occurrence, except as provided in Coverage A, additional coverages, but in no event shall the Company's liability be more than $250,000 for all damages and costs of defense arising out of one occurrence. The fact that there may be multiple claims against the Insured as a result of the occurrence shall not operate to increase the limit of the Company's liability under this policy. The aggregate liability for all damages for all Insureds occurring during any one annual policy period shall not exceed $2,000,000.00.

[...]

VII. EXCLUSIONS

A. OTHER INSURANCE. At the time of an occurrence there must be underlying primary collective insurance or self-insurance available to the insured; particularly the insurance or self-insurance provided on behalf of the insured pursuant to Sections 35208, 35214, 72506 and 72511 of the Education Code of the State of California; or pursuant to the provisions of Sections 825 and 825.4 of the Government Code of the State of California; or insurance or self-insurance provided on behalf of the insured by any public entity, school district, governing board, board of trustees, board of regents or any agency established to maintain the California public school system or a four-year institution of higher education; with a minimum per occurrence limit of $1,000,000. There shall be no insurance afforded under this policy until the required $1,000,000 limit of liability afforded the Insured by such other insurance or self-insurance is exhausted. Insurance under this policy shall not be construed to be pro rata, concurrent or contributing with any other insurance or self-insurance which is available to the Insured.

Id.

Around September 3, 2013, the Doe 3 lawsuit settled for $1.8 million. Compl. ¶ 45; DeLonay Aff. ¶ 15. Around June 12, 2014, the Does 1 and 2 lawsuit settled for $14 million (or $7 million per student). Compl. ¶ 54; DeLonay Aff. ¶ 16. Westport asserts that the settlements more than exhausted the applicable limits on the Westport Primary Policies, thereby requiring California Casualty to contribute under the California Casualty Policies. Compl. ¶¶ 46–47, 54–55. When California Casualty refused to contribute, Westport paid the remainder of the settlements from the Westport Excess Policies. Id. ¶¶ 56–57; DeLonay Aff. ¶¶ 15–16.

II. PROCEDURAL HISTORY

Westport initiated this action on April 13, 2015. Dkt. No. 1. The complaint alleges two causes of action against California Casualty, declaratory relief and equitable contribution. Compl. ¶¶ 73–81. The parties agree that California law governs both causes of action. See, e.g., Mot. for J. on the Pleadings at 10 n.2 (Dkt. No. 40); Opp'n to Pl.'s Mot. for J. on the Pleadings at 1 n.1 (Dkt. No. 45).

Westport asserts that California Casualty "refused to satisfy its...