Starr Indemnity & Liability Company v. Allianz Global Corporate & Specialty

Background

Starr Indemnity & Liability Company defended R.E. Staite Engineering, Inc. in a personal-injury lawsuit filed in California state court. Daniel A. Lerma alleged that he was injured while on a barge in San Diego Harbor when a shoreside crane operated by R.E. Staite’s employees was negligently operated. Starr paid $164,053.77 in defense costs. R.E. Staite was insured under Starr’s Commercial Marine Liability Policy and under a Protection and Indemnity Policy for which AGCS Marine Insurance Company was the lead insurer. AGCS did not participate in the defense after the claim was tendered to it.

Starr sued AGCS seeking reimbursement. Starr asserted breach of contract, alleging that AGCS was responsible under the Protection and Indemnity Policy for defense-related costs, and equitable subrogation, a doctrine allowing an insurer that paid costs to pursue the rights of the insured against another insurer primarily responsible for the loss. Starr also asserted unjust enrichment, alleging that AGCS benefited when Starr paid costs that AGCS should have paid.

Rule 12(b)(6) standard

AGCS moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that Starr had not stated a legally sufficient claim. At this stage, the court accepted Starr’s well-pleaded factual allegations as true and considered the insurance policies and other documents properly incorporated into or integral to the complaint. The court could dismiss only if the allegations did not plausibly support relief.

Choice of law

The court applied federal maritime choice-of-law principles because the insurance policies were maritime contracts. After considering the policies’ connections to various states—including where the policies were issued or signed, where performance occurred, where the insured property and underlying events were located, and the parties’ business connections—the court concluded that California had the predominant connection. The court therefore applied California law to the insurance dispute.

Breach-of-contract claim

The court held that the Protection and Indemnity Policy did not impose an affirmative duty on AGCS to defend R.E. Staite. The policy required notice of covered occurrences and legal papers, imposed obligations concerning cooperation and settlement, and provided for reimbursement of certain defense costs. It did not expressly require AGCS to take over the defense. The court therefore rejected Starr’s theory that AGCS breached a contractual duty to defend.

The court nevertheless held that Starr’s breach-of-contract claim could proceed because the policy potentially required AGCS to indemnify R.E. Staite for covered defense costs. Under the policy, defense costs could be reimbursable if, among other possibilities, R.E. Staite obtained AGCS’s written consent, consent could not be obtained without unreasonable delay, or the costs were reasonably and properly incurred. The court also rejected AGCS’s argument that Starr could not claim damages because R.E. Staite, rather than Starr, ultimately bore responsibility for the costs. The court reasoned that R.E. Staite could have been liable for costs and damages from the underlying matter even though its insurers had agreed to shift responsibility for direct payment.

The court further concluded that Starr had alleged a sufficient connection between Lerma’s injury and R.E. Staite’s ownership or repair of an insured vessel. The court accepted Starr’s allegations for purposes of the motion, while noting that whether those allegations were true and whether the required connection actually existed remained to be proven later. The court therefore found that the underlying claim was potentially within the Protection and Indemnity Policy’s coverage.

The court also held that Starr adequately pleaded an equitable-subrogation theory. Starr alleged that its policy made it an excess insurer when other primary insurance covered the same loss. The court interpreted the term “loss” in Starr’s policy broadly enough to include defense costs, not only damages awarded after a judgment. Because Starr plausibly alleged that AGCS’s policy was primary for the potentially covered claim, Starr could seek reimbursement from AGCS for the defense costs it paid.

AGCS also raised arguments about allegedly late notice, lack of written consent, and the timing of Starr’s effort to recover costs. The court held that those arguments depended on facts outside the pleadings and were more appropriately addressed in a later motion for summary judgment rather than on a motion to dismiss.

Unjust-enrichment claim

The court allowed Starr to plead unjust enrichment in the alternative to breach of contract under California law. Starr plausibly alleged that AGCS received a benefit because Starr paid defense costs that AGCS might have been required to pay under the Protection and Indemnity Policy. The court also concluded that Starr’s Commercial Marine Liability Policy allegedly made Starr an excess insurer when other applicable insurance existed, so Starr’s payment of the defense costs could potentially have shifted an obligation that belonged to AGCS. The court therefore found the unjust-enrichment claim legally viable.

Disposition

Judge Katherine Polk Failla denied AGCS Marine Insurance Company’s motion to dismiss. The court denied the motion as to Starr’s breach-of-contract claim and denied it as to Starr’s unjust-enrichment claim. The court ordered AGCS to file a responsive pleading by August 4, 2021, and ordered the parties to submit a proposed case-management plan by August 11, 2021. The opinion did not finally determine whether AGCS must reimburse Starr or the amount ultimately owed.