In re American Bankers Insurance Company of Florida

Background

The action consisted of two consolidated cases involving the City of Walnut Creek and several insurers. The underlying lawsuits alleged that the City’s failure to develop and maintain storm drains caused flooding and damage to real property. The City settled those lawsuits and sought defense and indemnification from insurers whose policies covered periods between 1968 and 1986. The motion addressed only three Travelers entities: The Travelers Indemnity Company, The Phoenix Insurance Company, and The Charter Oak Fire Insurance Company.

Travelers issued three general-liability policies to Walnut Creek: a Phoenix policy covering January 16, 1968, through January 16, 1971; a Charter Oak policy covering January 16, 1971, through July 1, 1971; and an Insurance Company of the Pacific Coast policy covering July 1, 1975, through July 1, 1976. Each policy had a $300,000 limit. The policies required notice of an occurrence as soon as practicable and immediate forwarding of demands, notices, summonses, or other legal process.

Walnut Creek first tendered notice to Travelers on January 31, 2017. By then, one underlying case had been settled, and the other two had also proceeded through litigation and settlement negotiations. Travelers denied coverage on May 16, 2017.

Summary-judgment standard

The court explained that summary judgment is appropriate when there is no genuine dispute about a fact that could affect the outcome and the moving party is entitled to judgment under the law. Once the moving party meets its initial evidentiary burden, the opposing party must identify evidence supporting its claim or defense.

Analysis

Travelers argued that the underlying property damage did not occur during any policy period, that Walnut Creek gave untimely notice, and that the requested amounts were excluded by the policies’ no-voluntary-payments provision or were preventive rather than covered damages.

The court first considered whether the alleged damage was an insured “occurrence.” Under California law, liability-insurance coverage generally attaches when the complaining party is actually damaged. Continuous or progressively deteriorating property damage may potentially trigger policies in effect during the period of damage. The court therefore recognized that the policy language could support coverage if Walnut Creek could show a continuous condition that caused damage during the policy periods.

The court concluded, however, that Walnut Creek had not produced evidence creating a genuine factual dispute about when the damaging flooding began. The City’s upstream development in the 1960s was not itself property damage. The underlying complaints and settlement materials indicated that the plaintiffs sought compensation for damage occurring on or after December 2000, and the earliest indication of actual property damage was damage incurred within three years before December 22, 2003. The court found that the continuing property damage began no earlier than 2000—decades after the last policy ended in 1976. Because Walnut Creek provided no evidence placing that fact in dispute, the court held that no covered occurrence triggered Travelers’ duty to defend or indemnify.

The court also ruled alternatively that the late notice independently precluded coverage. Walnut Creek waited more than fourteen years after the first underlying case was filed, and three to five years after the other underlying cases were filed, before notifying Travelers. The court rejected the City’s explanation that it did not know the policies existed, noting that the City had not shown due diligence and had previously tendered notice of a different suit under the Insurance Company of the Pacific Coast policy.

Under California’s notice-prejudice rule, an insurer must show that late notice substantially prejudiced its ability to investigate, defend, or negotiate the claim. The court found that Travelers made that showing because it could not participate in selecting defense counsel, control defense costs, or meaningfully participate in settlement negotiations. Travelers therefore established substantial prejudice from the delayed notice.

Other requests and disposition

The court denied as moot Travelers’ motion for judicial notice of the underlying complaints because the court could consider the documents submitted as evidence without taking judicial notice. The court also denied Walnut Creek’s request for additional discovery concerning Travelers’ loss reserves and legal rates. The court found that the City had not provided the required detailed explanation for why the additional discovery was needed, and noted that an insurer’s loss reserve cannot accurately be treated as an admission of liability or the value of a particular claim.

The court granted Travelers’ motion for summary judgment. The Clerk was directed to terminate The Travelers Indemnity Company, The Phoenix Insurance Company, and The Charter Oak Fire Insurance Company from the case.