Judge David S. Cunningham, Case Number: 19STCV24262, Date: 2024-11-07 Tentative Ruling

Judge: David S. Cunningham, Case: 19STCV24262, Date: 2024-11-07 Tentative Ruling

Opposing Party: American Home Assurance Co. (“American Home”), Lexington Insurance Co. (“Lexington”), and National Union Fire Insurance Co. of Pittsburgh, PA (“National Union”)

American Home, Lexington, and National Union’s request for judicial notice is granted as to exhibits 1, 2, 4, 5, 6, 7, 8, 9, 10, and 11 and denied as to exhibits 3 and 12. The documents are court records. The Court will judicially notice the documents’ existence.

This is an insurance case. The proposed second amended complaint (“SAC”) alleges:

1. . . . This action addresses Employers Reinsurance Corporation [(“ERC”)], Transport Insurance Company [(“Transport”)], and Lexington[’s] . . . duty to defend Vulcan in product liability lawsuits claiming property damage to water supplies allegedly caused by 1,4-dioxane, a chemical compound once used to stabilize chlorinated solvents such as 1,1,1-trichloroethane (“1,4-dioxane Actions”).

2. This insurance coverage case is related to another pending civil case filed in this Court, No. BC328022, which has been assigned to the Complex Civil Litigation Program, the Honorable David S. Cunningham III, Department 11, presiding. By Court order, three Complex actions, Nos. BC328022, BC354664 and BC481850, have been consolidated for all purposes, captioned as “In re: Vulcan Materials Consolidated Coverage Litigation,” and identified as Case No. BC328022. Vulcan previously filed and served a Notice of Related Case, and requested that this case and Case No. BC328022, In Re: Vulcan Materials Consolidated Coverage Litigation, be related. California Rules of Court, rule 3.300.

3. Vulcan is the country’s leading producer of construction aggregates — primarily crushed stone, sand and gravel — used in nearly all types of construction, especially large infrastructure projects such as roads, airports, railroads, and water and sewer systems. Vulcan at one time had a chemical division that manufactured and sold chemical products. Vulcan divested the chemical division in 2005. Vulcan continues, however, to face potential liabilities arising out of its legacy chemicals operations.

4. Starting in late 2017, Vulcan has been named as a defendant in at least twenty-nine (29) product liability lawsuits asserting claims that Vulcan is legally liable to pay damages because of damage to groundwater and water supply systems, including drinking water wells, allegedly caused by 1,4-dioxane, a chemical compound once used as a stabilizer in a chlorinated solvent product at one time manufactured and sold by Vulcan, 1,1,1-trichloroethane (“TCA”). Vulcan expects that it will be named as a defendant in one or more additional lawsuits making similar allegations. The pending and future 1,4-dioxane product liability lawsuits will be referred to herein as “1,4-dioxane Actions.” The pending 1,4-dioxane Actions are identified in the chart attached to this Complaint as Exhibit A, which is incorporated here by reference.

5. This insurance coverage action addresses only [ERC], Transport . . . , and Lexington[’s] . . . duty to defend Vulcan in and against the 1,4-dioxane Actions, and a dispute as to whether the other defendant insurers also owe Vulcan either a duty to defend Vulcan against those Actions and/or an obligation to indemnify Vulcan against defense costs incurred in relation to those Actions and, if so, whether that duty/obligation affects the scope of [ERC], Transport, and/or Lexington’s duty to defend. This coverage action does not address any insurer’s contractual obligation to cover any indemnity obligation that Vulcan may incur through settlement of or judgment in the 1,4-dioxane Actions. To the extent any insurer at this time seeks to litigate over insurance coverage for any indemnity obligation Vulcan may incur in the 1,4-dioxane Actions, Vulcan will and hereby does move the Court to stay the insurer’s action pending resolution of the 1,4-dioxane Actions because such coverage litigation would be both premature as well as prejudicial to Vulcan inasmuch as the dispute over coverage for any such indemnity obligation would or could turn on facts to be litigated in the 1,4-dioxane Actions.

6. Transport . . . issued a liability insurance policy in effect from January 1, 1981, to January 1, 1982, number XGL-731-81-1 (“1981 Transport Policy” or “Transport Policy”). The 1981 Transport Policy’s Insuring Agreement includes two clauses giving Transport a duty to defend Vulcan under certain circumstances. Clause (1) provides “umbrella” coverage that “drops down” to provide primary defense coverage for claims not covered by underlying primary insurance. In the context of claims that another chemical product at one time manufactured and sold by Vulcan, perchloroethylene (a dry cleaning product marketed as “PerSec”), had contaminated groundwater and water wells, the California Court of Appeal held that Transport “had a duty to defend under clause (1) if any claim was potentially covered by [the 1981 Transport Policy] but was not within the terms of coverage of ‘underlying insurance’” policies identified in the Transport Policy’s Schedule A. Legacy Vulcan Corp. v. Superior Court (2010) 185 Cal.App.4th 677, 693.

7. The claims asserted in the 1,4-dioxane Actions are covered by the 1981 Transport Policy and not within the terms of coverage of the underlying insurance policies identified in the Transport Policy’s Schedule A. Transport therefore has a contractual duty to defend Vulcan in and against the 1,4-dioxane Actions.

8. Despite having a duty to defend as held by the Court of Appeal, Transport has denied and repudiated any duty to defend and has refused and failed to defend Vulcan in and against the 1,4-dioxane Actions.

9. Transport has refused and failed to defend Vulcan without any reasonable good faith basis for doing so. Transport has refused and failed to defend Vulcan solely in order to deprive Vulcan of the financial benefit of its insurance policy, and to wrongfully use the funds to which Vulcan is entitled for Transport’s own benefit — i.e., to create an artificial financial “surplus” — and for the benefit of a third party (Randall & Quilter Investment Holdings plc) that owns and controls Transport and seeks to maximize Transport’s “surplus” with the intent to siphon off the supposed “surplus” for the benefit of Randall & Quilter and its investors to the detriment of Vulcan and other Transport policy holders.

10. Transport has broadly reserved or purported to reserve rights to deny coverage for any indemnity obligation that Vulcan may incur through settlement of or judgment in the 1,4-dioxane Actions. In addition, Transport has repudiated and denied any duty to defend Vulcan or to otherwise provide for Vulcan’s defense in and against the 1,4-dioxane Actions, I stating only that it is “willing to participate in the defense of Vulcan in these cases” “subject to . an appropriate allocation of defense costs across all implicated time periods.” Transport’s “acceptance of a ... share of the defense burden [is] the equivalent of a defense denial.” Haskel, Inc. v. Superior Court (1995) 33 Cal.App.4™ 963, 976 n. 9. Transport also has stated that it “exercises its right to associate in the defense of” the 1,4-dioxane Actions pursuant to the terms and conditions of insurance policies other than the 1981 Transport Policy, further indicating its disavowal of the duty to defend Vulcan imposed by the 1981 Transport Policy. For all the foregoing reasons, Transport’s interests in defending the 1,4-dioxane Actions are in conflict with Vulcan’s interests. This conflict of interests creates a duty on the part of Transport to provide independent counsel selected by Vulcan to represent and defend Vulcan in and against the 1,4-dioxane Actions.

11. Transport has refused and failed to provide Vulcan with independent counsel, and has refused and failed to consent to Vulcan’s selection of independent counsel and/or to pay the fees and costs of independent counsel. Transport has refused and failed to provide Vulcan with independent counsel without any reasonable good faith basis for doing so. Transport has refused and failed to provide Vulcan with independent counsel solely in order to deprive Vulcan of the financial benefit its insurance policy, and to wrongfully use the funds to which Vulcan is entitled to create an artificial financial “surplus” for Transport’s own benefit and the benefit of Randall & Quilter Investment Holdings plc and its investors, as alleged hereinabove at Paragraph 9, to the detriment of Vulcan and other Transport policy holders.

12.- In the Vulcan Materials Consolidated Coverage Litigation, Transport has sued all of the six (6) other defendants named in this vcase, seeking equitable indemnity and/or equitable contribution from those insurers as to sums Transport paid to Vulcan in early 2017 to settle disputed claims that Transport owed Vulcan a duty to defend certain third-party liability lawsuits other than 1,4-dioxane Actions. Vulcan therefore is informed and believes, and on that basis alleges, that in stating its willingness “to participate” in Vulcan’s defense of the 1,4- dioxane Actions “subject to ... an appropriate allocation,” Transport contends that its duty to defend does not require Transport to fully bear Vulcan’s defense, contrary to established law holding that if an insurer “owes any defense burden, it must be fully borne with allocations of that burden among other responsible parties to be determined later.” Haskel, supra at 976 n. 9 (citation omitted).

(Gupta Decl., Ex. A, ¶¶ 1-12 [attaching the proposed SAC], underlining of case names added.)

Here, Vulcan moves for leave to file the SAC. In particular, Vulcan seeks leave to add breach-of-contract claims against Lexington and ERC for allegedly failing to defend Vulcan in certain New York and New Jersey lawsuits.

“The court may grant leave to amend the pleadings at any stage of the action. A party may discover the need to amend after all pleadings are completed and new information requires a change in the nature of the claims or defenses previously pleaded.” (Edmon & Karnow, Cal. Practice Guide: Civ. Procedure Before Trial (The Rutter Group June 2024 Update) ¶ 6:636, emphasis in original.) “Such changes usually cannot be made on ex parte procedure [citation]. Rather, a formal motion to amend must be served and filed.” (Ibid.)

“Motions for leave to amend are directed to the sound discretion of the judge.” (Id. at ¶ 6:637.) “The court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading.” (Cal. Code Civ. Proc. § 473, subd. (a)(1).) “However, the court’s discretion will usually be exercised liberally to permit amendment of pleadings.” (Howard v. County of San Diego (2010) 184 Cal.App.4^th 1422, 1428.)

“The policy favoring amendment is so strong that it is a rare case in which denial of leave to amend can be justified.” (Ibid.) “Leave to amend should be denied only where the facts are not in dispute, and the nature of the plaintiff’s claim is clear, but under substantive law, no liability exists and no amendment would change the result.” (Edwards v. Superior Court (2001) 93 Cal.App.4^th 172, 180.) In fact, “[i]f the motion to amend is timely made and the granting of the motion will not prejudice the opposing party, it is error to refuse permission to amend and where the refusal also results in a party being deprived of the right to assert a meritorious cause of action or a meritorious defense, it is not only error but an abuse of discretion.” (Morgan v. Superior Court (1959) 172 Cal.App.2d 527, 530.)

* California’s policy in favor of granting leave to amend is liberal (see Motion, p. 5);

American Home, Lexington, and National Union disagree. They assert that California is an inconvenient forum and that the case should be litigated in Alabama. As a result, they claim the proposed SAC is futile. (See Opposition, pp. 5-11.)

Their argument concerns the doctrine of forum non conveniens, which “invoke[es] the discretionary power of a court to decline to exercise the jurisdiction it has over a transitory cause of action when it believes that the action may be more appropriately and justly tried elsewhere.” (Stangvik v. Shiley Inc. (1991) 54 Cal.3d 744, 751.) “The moving party bears the burden of proving that California is an inconvenient forum.” (Ford Motor Co. v. Insurance Co. of North America (1995) 35 Cal.App.4th 604, 610 (“Ford”).) “There must be evidence – not merely bald assertions – to support the trial court’s determination.” (Ibid.)

“The quantum of evidence needed to satisfy that burden may vary, however, depending on whether plaintiff is or is not a California resident and whether defendant seeks a stay of the action or dismissal.” (Edmon & Karnow, supra, at ¶ 3:408.5.) “Where plaintiff is a California resident . . . , there is a ‘strong presumption’ in favor of plaintiff's choice of forum.” (Id. at ¶ 3:408.6.) By contrast, “[a] nonresident plaintiff's choice of forum is entitled to ‘due deference’ under all circumstances, but not a ‘strong presumption’ of appropriateness.” (Id. at ¶ 3:408.7.)[2]

Courts use a two-step test to analyze forum non conveniens. The first step is to assess whether a suitable alternative forum exists. (See id.) If one does, “the next step is to consider the private interests of the litigants and the interests of the public in retaining the action for trial in California.” (Ibid.)

The first step requires the trial court to “determine whether the alternate forum is a ‘suitable’ place for trial.” (Ford, supra, 35 Cal.App.4th at 610.) This is non-discretionary inquiry. “An alternative forum is ‘suitable’ if it has jurisdiction and an action in that forum will not be barred by the statute of limitations.” (Edmon & Karnow, supra, at ¶ 3:420, emphasis in original.)

Regarding jurisdiction, a leading treatise advises that the moving party must show that all defendants are subject to jurisdiction in the alternative forum, “not just the ‘primary’ defendants[.]” (Id. at ¶ 3:421.1.)

The case law is more nuanced. In American Cemwood Corp. v. American Home Assurance Co. (2001) 87 Cal.App.4^th 431 (“American Cemwood”), where only five defendants were named in the case, the Court of Appeal held that the moving party needed to demonstrate jurisdiction as to all defendants. In Hansen v. Ownes-Corning Fiberglass Corp. (1996) 51 Cal.App.4^th 753, on the other hand, where there were more than 200 named defendants, the Court of Appeal held the opposite.[3]

For the second step, the trial court must consider private-interest factors and public-interest factors. The private-interest factors include “the ease of access to sources of proof, the cost of obtaining attendance of witnesses, and the availability of compulsory process for attendance of unwilling witnesses.” (Ford, supra, 35 Cal.App.4^th at 610.) The public-interest factors include “avoidance of overburdening local courts . . . , protecting the interests of potential jurors so that they are not called upon to decide cases in which the local community has little concern, and weighing the competing interests of California and the alternate jurisdiction in the litigation.” (Stangvik, supra, 54 Cal.3d at 751.)

Given these rules, the Court agrees with Vulcan. The motion for leave to amend is granted because:

* California’s amendment policy is very liberal (see Howard, supra, 184 Cal.App.4^th at 1428);

* American Home, Lexington, and National Union do not argue delay (see Opposition, pp. 5-11);

* in effect, their opposition brief constitutes an unnoticed motion to dismiss based on forum non conveniens;

* to establish forum non conveniens, American Home, Lexington, and National Union must present evidence (see Ford, supra, 35 Cal.App.4th at 610);

* necessarily, the burden on Vulcan, in turn, is to present opposing evidence, yet it is inappropriate to require Vulcan to submit evidence in connection with a motion for leave to amend (see, e.g., Edmon & Karnow, supra, at ¶ 6:639.5 [noting that it is “error to condition leave to amend on plaintiff ‘producing admissible evidence’”]);

* at most, the request for judicial notice (“RJN”) can only be granted as to the existence of the exhibits, not as to the truth of the contents (see RJN, Exs. 1-12; see also, e.g., Fairbank, et al. Cal. Practice Guide: Civ. Trials and Evidence (The Rutter Group October 2023 Update) ¶¶ 8:861-8:862.1, 8:863.2, 8:864-8:865.1, 8:866, 8:867, 8:871, 8:874-8:876);

* American Home, Lexington, and National Union’s current showing fails to satisfy the first and second steps (see Opposition, pp. 7-11 [citing the RJN exhibits and unverified website pages and stating, conclusively, that “there is nothing to indicate that Vulcan’s claims would be barred by Alabama’s statute of limitations”]; see also Reply, pp. 3-7 [arguing that (1) it is premature to analyze the first and second steps, (2) American Home, Lexington, and National Union fail to prove that Alabama is suitable, and (3) the private-interest factors and public-interest factors weigh against dismissal]);); and

* the prejudice, if any, is minimal since American Home, Lexington, and National Union will be free to challenge the new allegations and/or to file a noticed forum-non-conveniens motion, with evidence, once the SAC is filed.

[1] Defendants are Transport, American Home, Century Indemnity Co., Fireman’s Fund Insurance Co., Lexington, National Union, and ERC. (See Gupta Decl., Ex. A, ¶¶ 14-20 [attaching the proposed SAC].)

[2] “Several cases have stated that the motion must be denied unless defendant establishes that California is a ‘seriously inconvenient’ forum.” (Id. at ¶ 3:408.8.) But, “where plaintiff is a nonresident, it is error for the trial court to impose the ‘seriously inconvenient’ burden on defendant.” (Ibid.) “To the extent this standard is appropriate . . . , it applies only when defendant seeks dismissal of the action on forum non conveniens grounds. It does not apply when defendant seeks a stay of the action.” (Ibid., emphasis in original.)

[3] There are only seven Defendants here, so the Court intends to follow the American Cemwood rule.