Judge: Jon R. Takasugi, Case: 21STCV12443, Date: 2023-02-14 Tentative Ruling

Case Number: 21STCV12443    Hearing Date: February 14, 2023    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

AWAC’s motion for summary judgment is DENIED.

On 4/1/2021, Plaintiffs Caruso Affiliated Holdings, LLC, Caruso Management Company, Ltd., Americana Housing L.P., Americana Homes, LLC, Americana Homes II, LLC, and the Americana at Brand, LLC (collectively, Plaintiffs), filed suit against Allied World Assurance Company (U.S.) Inc., (AWAC) Endurance American Specialty Insurance Company, Endurance Assurance Corporation, Arthur J. Gallagher & Co. Insurance Brokers of California (Gallagher). On 1/10/2023, Plaintiffs filed a first amended complaint (FAC) alleging: (1) declaratory relief; (2) reformation; (3) negligence; (4) negligent misrepresentation; and (5) breach of fiduciary duty.

            Now, AWAC moves for summary judgment of Plaintiffs’ FAC.

Discussion

            Plaintiffs assert two causes of action against AWAC for declaratory relief and reformation.

            This dispute concerns four commercial general liability policies issued by AWAC:

-         Policy No. 0307-8932 (effective October 15, 2012 to October 15, 2013) (2012-2013 Policy)

-         Policy No. 0307-8932 (effective October 15, 2013 to October 15, 2014) (2013-2014 Policy)

-         Policy No. 0307-8932 (effective October 15, 2014 to October 15, 2015) (2014-2015 Policy)

-         Policy No. 0307-8932 (effective October 15, 2015 to October 15, 2016) (2015-2016 Policy)

Plaintiffs allege that while the latter two policies (i.e, the 2014-2015 and 2015-2016 policies) included a named insured endorsement listing a number of affiliated entities, the former two policies (i.e., the 2012-2013 and 2013-2014 policies) did not include the named insured endorsement. As a result, Plaintiffs seek to reform the first two AWAC policies to include the named insured endorsement.

AWAC argues that Plaintiffs’ claims are barred by the three-year statute of limitation for reformation, and there is no evidence of fraud or inequitable conduct that could have tolled the statute of limitations.

            In particular, AWAC argues that undisputed evidence establishes that:

-         The first policy incepted on October 15, 2012, the second policy incepted on October 15, 2013. (SS ¶ 4.)

-         The first two AWAC policies were issued exactly as intended by AWAC and Gallagher: without the named insured endorsement. (SS ¶ 9.) 

-         Gallagher admits the AWAC policies were checked for accuracy and were issued correctly. (SS ¶ 7.)

-         Neither Gallagher or its experienced lead liability broker on the Caruso account believed the named insurance endorsement was necessary. (SS ¶¶ 10, 13.)

-         Gallagher believed the named insured endorsement was superfluous as to the latter two policies. (SS ¶ 14.)

-         AWAC never specifically discussed the named insured schedule with Gallagher. (SS ¶ 15.)

AWAC argues that Gallagher, as an insurance broker, was acting as Plaintiffs’ agent when it received, and approved, the subject policies. (Carlton v. St. Paul Mercury Ins. Co., (1994) 30 Cal.App.4th 1450, 1457 ("a broker in securing a policy for a client `acts only as agent for the [in]sured.'") Receipt and acceptance of a policy binds the insured as well as the insurer:

The case law to which the court referred sets forth "'a general rule that the receipt of a policy and its acceptance by the insured without an objection binds the insured as well as the insurer and he [or she] cannot thereafter complain that he [or she] did not read it or know its terms. It is a duty of the insured to read his [or her] policy.' [Citation.]" (Aetna Casualty & Surety Co. v. Richmond (1977) 76 Cal.App.3d 645, 652, 143 Cal.Rptr. 75.) As Division One of this district has recently reiterated: " `A reasonable person will read the coverage provisions of an insurance policy to ascertain the scope of what is covered. [Citation.] ' ... Generally the insured is `bound by clear and conspicuous provisions in the policy even if evidence suggests that the insured did not read or understand them.' [Citation.]" (Malcom v. Farmers New World Life Ins. Co. (1992) 4 Cal.App.4th 296, 304, fn. 6, 5 Cal.Rptr.2d 584.)

(Hadland v. NN Investors Life Ins. Co. (1994) 24 Cal.App.4th 1578, 1586.)

Here, AWAC submitted evidence to show that Gallagher, did, in fact, review and accept the terms of the policy. However, even assuming they had not, Hadland makes clear that the insured is “bound by clear and conspicuous provisions in the policy even if evidence suggests that the insured did not read or understand them.” (Ibid.)

Taken together, AWAC argues that the statute of limitations expired in October 2015 for the first policy and October 2016 for the second policy. This action was not filed until April 1, 2021. Moreover, AWAC’s evidence supports a reasonable inference that the terms of the policies were clear, and that they were reviewed and accepted by Plaintiffs’ agent. As such, AWAC’s evidence supports a reasonable inference that the statute of limitations has expired, and there was no tolling. Accordingly, the burden shifts to Plaintiffs to disclose a triable issue of material fact. 

In opposition, Plaintiffs argues that: (1) there was a mutual mistake of AWAC and Gallagher that the Real Estate Broad Form Named Insured Endorsement, which was attached to the Early Policies and the Later Policies, afforded coverage for all the entities, trusts and individuals identified to AWAC by Gallagher; and (2) Plaintiffs’ claims are not time barred because Caruso did not discover that AWAC would take a position to the contrary until the Excelsior Action, during which time—and for the first time—AWAC raised its belief that the only named insured under the Early Policies was Caruso Management and not any of the other entities, trusts and individuals disclosed to AWAC by Gallagher.

In support, Plaintiffs submitted evidence that Gallagher prepared casualty specifications to send to AWAC which described Caruso’s entire operations to give AWAC an understanding of the exposures they were being asked to underwrite. (RSS ¶ 26.) The specifications for each of the AWAC Policies began with an Executive Summary, the very first sentence of which reads: “Caruso Management Company Ltd. and its affiliated entities, trusts and individual owners (commonly referred to as Caruso Affiliated Holdings) are owners-builders-landlords-property managers of upscale shopping centers with some limited office occupancy.” (RSS ¶ 29.) Gallagher’s lead broker acknowledged that the purpose of this language is to communicate to prospective insurers like AWAC “that [Gallagher] is looking for [the insurers] to come back with coverage for Caruso Management Company and its affiliated entities, trusts and individual owners.” (RSS ¶ 30.)

The specifications included a section entitled Named Insured Wording. The section begins by requesting wording substantially similar to the Real Estate Broad Form Named Insured Endorsement ultimately attached to each of the AWAC Policies. (RSS ¶ 4, 31.) The section then goes on to provide: “Listing of Named Insured Entities” and immediately following that is a long list of entities, trusts and individuals—81 for the 12-13 Policy, 106 for the 13-14 Policy and 14-15 Policy, and 107 for the 15-16 Policy. (SS ¶ 32.) AWAC understood that it was being asked to provide a general liability insurance quote for all the entities, trusts and individuals in the “Listing of Named Insured Entities.” (SS ¶ 34.) As AWAC’s underwriter explained:

Q: And when you would have reviewed the listing of named insured entities that are provided here [in the specifications], right?

A: Yep.

Q: And in doing so, what was your understanding of their inclusion, this listing of named insured entities, in the specifications?

A: I mean essentially it was Gallagher telling us who was – who were the entities that were going to have, I guess – that were going to be considered as named insureds under the policy.

(SS ¶ 35.)

AWAC’s quotes did not exclude any of the entities, trusts, or persons identified in the specifications. (SS ¶ 36.) AWAC never said it would not grant insured status to any of the entities, trusts and individuals that were disclosed. (SS ¶ 37.)

Moreover, Plaintiffs submitted evidence that they were informed by Gallagher that although they would only see Caruso Management Company as the first named insured and although they would not see the other entities, trusts and individuals listed as insureds in the AWAC Policies, they would be treated as insureds under the proposed AWAC policy. (SS ¶ 58.) Gallagher’s lead broker testified:

Q: [W]ould it be fair to say that in your communications with Caruso around the 12-13 policy and this new AWAC policy, that you were advising them that all of the entities listed in the insured schedule, named insured schedule, were going to be insureds under that Allied World policy?

A: Yes.

Q: And would that have been true of your communications with Caruso not just for the 12-13 but for all the policies from 2012 through 2020?

A: Yes, unless there was an entity that was specifically excluded.”

(RSS ¶ 59.)

Plaintiffs submitted evidence that AWAC’s assigned underwriter for the Caruso account was Michael Moraitis. (RSS ¶ 70.) At the time that AWAC quoted the 12-13 Policy, Mr. Moraitis needed the approval of his manager, Kevin Behan, to quote the risk. (RSS ¶ 71.) On September 27, 2012, after reviewing the specifications, Mr. Moraitis sent an e-mail to his supervisor. (RSS ¶ 72.) The very first sentence of the e-mail described the prospective Caruso account as follows: “Caruso Management Company Ltd. and its affiliated entities, trusts and individual owners (commonly referred to as Caruso Affiliated Holdings) are owner-builders-landlords-property managers of upscale shopping centers with some limited office occupancy.” (RSS ¶. 73.) Mr. Moraitis acknowledged that he cut and pasted this language from the Caruso specifications prepared by Gallagher “to communicate to Kevin the nature of the operations [Moraitis was] intending to quote.” (RSS ¶ 74.) Less than two hours later, Mr. Behan responded, saying: “Mike this is approved.” (RSS ¶ 75.)

Finally, Plaintiffs submitted evidence that when AWAC first issued a quote for the 14-15 Policy, the quote did not include a named insured endorsement. (RSS ¶ 97.) In October 2014, Gallagher asked AWAC to bind the policy and to add a named insured endorsement, even though the policy already included the requested named insured wording in the Real Estate Broad Form Named Insured Endorsement. (RSS ¶ 98.) AWAC agreed to add the named insured endorsement two hours later. (RSS ¶ 101.) AWAC did not charge any additional premium to add it. (RSS ¶ 102.) AWAC’s own underwriter testified:

Q: And if you had understood the endorsement to be expanding coverage under the policy, would you have charged an additional premium for it?

A: Yes.

Q: So it’s your understanding whether the policy included an additional named insured endorsement or didn’t, it was affording the same general scope of coverage, and the premiums that you charged for this policy would be the same with or without the additional named insured endorsement because the scope of coverage afforded by the policy was basically the same with or without the additional named insured endorsement; is that fair?

A: Yeah. I mean to me it appeared to be belt and suspenders.”

(RSS ¶ 104, emphasis added.)

Taken together, Plaintiffs’ evidence supports a reasonable inference that Gallagher understood the Real Estate Broad Form Named Insured Endorsement to capture all the named insured entities, trusts and individuals listed in the specifications, and that AWAC also believed it was affording coverage for the various listed entities, trusts and persons. AWAC’s own underwriter testified that AWAC would have understood the specifications were listing all entities, trusts and persons seeking coverage, and AWAC never indicated that it was excluding any entity included in the specifications. AWAC priced the policies based upon the entirety of the Caruso operations described in the specifications, and did not charge an additional premium for the latter two policies despite the inclusion of the named insured endorsement language. Gallager informed Caruso that the reason the various entities, trusts and individuals did not need to be listed on the proposed AWAC policy is that the policy included special named insured wording specific to real estate, which encompassed all the Caruso entities, trusts and individuals disclosed to AWAC in the specifications. As such, when Caruso received the 12-13 Policy and saw only Caruso Management listed as an insured, there was no reason for Caruso to be concerned. Gallagher told Caruso that this would be the case and not to worry. (RSS ¶ 67.)

In light of this, reading the policy would not have illuminated the mistake because Gallagher understood the policies to provide coverage to the various entities, trusts and individuals named in the Real Estate Broad Form Named Insured Endorsement, and Caruso was expressly warned that while only Caruso Management listed as an insured, this did not mean that that would be the only entity covered.

Where a contract does not express the intention of the parties, and the aggrieved party has been reasonably mistaken in supposing that it did, the fact of them having read the contract does not prevent a court from finding that it was executed under a mistake (Hess v. Ford Motor Co. (2002) 27 Cal. 4th 516, 529.) Here, there are triable issues of material fact as to the intention of the parties, and whether or not Plaintiffs were mistaken in understanding the first two policies to provide coverage to the various entities, trusts and individuals included in the casualty specifications.

For the same reason, there is a triable issue of material fact as to whether or not Plaintiffs discovered, or should have discovered, the mistake when the policies were first executed. Plaintiffs submitted evidence that during the Excelsior Action, sometime in 2019, coverage counsel for AWAC verbally advised Caruso’s counsel that AWAC was contending that only Caruso Management Company qualified as an insured under the Early Policies. (RSS ¶ 107.) As such, Plaintiffs have submitted evidence which supports a reasonable inference that they did not discover the mistake regarding the named insureds under the early policies until 2019. Given that this action was filed in April 2021, the claim would not be time-barred. Moreover, there is a reasonable inference that Plaintiffs have neither waived or been estopped from challenging the policies.

Based on the foregoing, AWAC’s motion for summary judgment is denied.

It is so ordered.

Dated:  February    , 2023

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar. 

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