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Court of Appeal, Second District, Division 1, California.

TRANSPORT INSURANCE COMPANY, Plaintiff and Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant and Respondent.

ESIS, INC., Plaintiff and Respondent, v. TRANSPORT INSURANCE COMPANY, Defendant and Appellant.

No. B097350.

Decided: December 05, 1996

Kearney, Bistline & Cohoon, Gregory D. Bistline and Ted H. Luymes, Los Angeles, for Plaintiff, Defendant and Appellant. Hagenbaugh & Murphy, Craig D. Aronson and Melinda W. Ebelhar, Glendale, for Defendant, Plaintiff and Respondents.

Insurance Code section 11580.9, subdivision (c) 1 states that where two (or more) policies apply to the same loss arising out of the loading or unloading of a motor vehicle, and one policy insures the owner of the premises and the other insures the vehicle, the policy covering the premises owner shall be primary and the vehicle policy shall be excess.   In this case, we must decide whether this statute applies when the premises owner's policy is a so-called fronting policy, where the policy limit equals and includes the deductible, thereby failing to shift the risk of loss from the premises owner to the insurer.   We conclude this particular fronting policy is not an insurance policy within the meaning of section 11580.9, subdivision (c).  We affirm the judgment and hold that the vehicle policy was primary under the facts of this case.


In June 1990, Ralph Williams, in the course and scope of his employment with Spreader Specialists, was injured while unloading a tractor-trailer in Hendersen, Nevada.   The tractor-trailer components were separately owned.   Spreader Specialists owned the tractor and Koch Materials, a subsidiary of Koch Industries (collectively, “Koch”), owned the trailer.   Koch also owned the facility where the accident occurred.

Spreader's motor vehicle policy with Transport Insurance Company covered both Spreader's tractor and Koch's trailer.   Transport does not dispute that Koch was an additional insured under its policy.

Koch's liability policy with Insurance Company of North America (“INA”) had a $2 million policy limit which equaled and included the $2 million deductible.   Koch had a claims servicing agreement with ESIS, Inc., under which ESIS was obligated to provide investigation, defense and settlement services to Koch.   The INA policy stated that in light of Koch's agreement with ESIS, INA would have no duty to provide those same services or pay for or contribute to the fees payable by Koch under the claims servicing agreement.   The INA policy further stated that INA had the right to pay, in its sole discretion, any damages within the amount of the $2 million deductible (which also comprised the policy limit).   If INA elected to make such a payment, the policy required Koch to reimburse INA promptly.

Williams filed a personal injury lawsuit against Koch in San Bernardino County Superior Court.   Neither Transport nor INA provided Koch with a defense.   Instead, ESIS paid Koch's defense costs of about $30,000.   Transport paid Koch's settlement costs of $50,000 under an express agreement that it could recover that amount from Koch or INA if it was later determined that Transport owed no coverage or that its policy was excess over any other applicable coverage.

ESIS sued Transport for declaratory relief and reimbursement of Koch's defense costs, and Transport sued INA for reimbursement of Koch's settlement costs.   Both actions were consolidated below.   Transport contended that under section 11580.9, subdivision (c), INA's policy is primary and Transport's policy is excess.2

The consolidated actions were tried on stipulated facts.   Applying California law, the trial court entered judgment for INA and ESIS, finding Transport's policy was primary and awarding ESIS reimbursement of Koch's $30,000 defense costs in the personal injury action.   Transport appealed from the judgment.


 We conclude the trial court correctly resolved the matter against Transport.   Despite being labeled an insurance policy, INA's $2 million policy limit expressly included a $2 million deductible.   Accordingly, the policy was not susceptible to an interpretation that Koch would pay the first $2 million of a claim, and INA would pay the second $2 million.   Because the total amount of coverage equaled and included the total amount of the deducible, Koch was effectively uninsured.   Since INA's policy does not apply to the loss, this case does not fall under section 11580.9, subdivision (c).

 On this record, we can only conclude that INA's policy is what is called “a non-risk transfer or ‘fronting’ arrangement.”  (Playtex FP, Inc. v. Columbia Cas. Co. (Del.Super.Ct.1991) 609 A.2d 1087, 1091.)  “Large companies use fronting policies to comply with statutory filing requirements, and for business purposes such as leasing property or equipment and satisfying vendors' requirements for insurance coverage.  [Citation.]”  (Ibid.) “There is no common way of effectuating fronting policies.  [Citation.]   Deductible equals limits policies are one method.”  (Ibid.) That was the method employed by INA and Koch.  (See Union Oil Co. v. International Ins. Co. (1995) 37 Cal.App.4th 930, 933, 44 Cal.Rptr.2d 4, fn. 2 [“The Continental policy was considered a ‘fronting policy’ because, through an agreement reached between Continental and Union Oil, Union Oil's deductible was equal to the limits of liability of the Continental policy”];  Whittaker Corp. v. Allianz Underwriters, Inc. (1992) 11 Cal.App.4th 1236, 1240, 14 Cal.Rptr.2d 659 [“Whittaker's ‘underlying fronting’ policy was with Insurance Company of North America (INA) which provided coverage of $1 million per occurrence and $2 million in the aggregate, with a deductible in these same amounts.   Whittaker describes this as its ‘underlying self retention.’ ”].) 3

The facts that the policy limit equaled and included the deductible, INA had the discretionary right to pay damages, and INA had the unconditional right to reimbursement, all distinguish INA's fronting policy from a classic insurance policy.   In a classic insurance policy, the “insurer is the primary party liable upon the occurrence of the contingency, and with the occasional exception as to liability insurance and automobile insurance, must bear the ultimate loss.”  (1 Couch on Insurance 3d (1995) Background & Overview of Ins., § 1:18, p. 1–31.) 4

In order for section 11580.9, subdivision (c) to apply, there must be “two or more policies [that] are applicable to the same loss arising out of the ․ unloading of a motor vehicle.” (§ 11580.9, subd. (c).)  One policy insures the premises owner and one insures the motor vehicle.   Although INA's fronting policy says it is a liability policy insuring the premises owner, it is not an indemnity policy and, accordingly, INA's fronting policy is not covered by section 11580.9.

 Our determination is buttressed because Transport's policy would be excess under section 11580.9, subdivision (c) only if there is “other valid and collectible insurance applicable to the same loss․” (§ 11580.9, subd. (c), emphasis supplied.)   While we express no opinion as to whether fronting policies are “valid,” we conclude INA's policy is not “collectible” because it is not an indemnity policy.   We reject Transport's assertion that the term “collectible insurance” applies only when the insurer is insolvent.   While the insurer's insolvency is certainly one instance of uncollectible insurance, nothing on the face of section 11580.9 limits the term to that singular definition.   When, as here, a fronting policy provides no right of coverage under any circumstances except at the insurer's discretion, there is no “collectible insurance” as a matter of law within the meaning of section 11580.9, subdivision (c).5

While at least one published decision involving a fronting policy has indicated that the holders of such policies are self-insured to the extent of their policy limits (see, e.g., United States Elevator Corp. v. Associated Internat. Ins. Co. (1989) 215 Cal.App.3d 636, 641, 263 Cal.Rptr. 760), Koch is not self-insured for purposes of section 11580.9, subdivision (c).   As indicated in section 11580.9, subdivision (h), self-insurers must be issued a certificate of self insurance before they will be considered to be self-insured under section 11580.9.   There is no evidence that Koch had obtained such a certificate, as even Transport's attorney admitted below:  “․ Koch was not technically self-insured within the meaning of that term.   In practicality, they were because of the liability deductible.   But they had to have this policy issued in order to meet the various regulatory schemes.”   For this reason, we distinguish Nabisco, Inc. v. Transport Indemnity Co. (1983) 143 Cal.App.3d 831, 192 Cal.Rptr. 207, which addressed the distinguishable issue of the meaning of the term “self-insurance” as used in an insurance policy rather than as used in section 11580.9.

Transport asserts our result is unfair because Koch, on the one hand, may claim the INA policy is an insurance policy for regulatory purposes, while INA, on the other hand, is being allowed to deny that its policy is an insurance policy under section 11580.9, subdivision (c).   While we cannot deny the logic of Transport's assertion, we do not decide the validity of fronting policies for regulatory purposes and express no opinion on that matter.

Having conceded below that its policy covered the loss, Transport may not dispute that it was required to bear Koch's defense and settlement costs if its policy is deemed to be primary, which it is.   Accordingly, the trial court properly ordered Transport to reimburse ESIS for Koch's defense costs, and denied Transport's request for reimbursement from INA of Koch's settlement costs.


We affirm the judgment for INA and ESIS and award them costs on appeal.


1.   Unless otherwise indicated, all further statutory references are to the Insurance Code.Section 11580.9, subdivision (c) provides:  “Where two or more policies are applicable to the same loss arising out of the loading or unloading of a motor vehicle, and one or more of the policies is issued to the owner, tenant, or lessee of the premises on which the loading or unloading occurs, it shall be conclusively presumed that the insurance afforded by the policy covering the motor vehicle shall not be primary, notwithstanding anything to the contrary in any endorsement required by law to be placed on the policy, but shall be excess over all other valid and collectible insurance applicable to the same loss with limits up to the financial responsibility requirements specified in Section 16056 of the Vehicle Code;  and, in that event, the two or more policies shall not be construed as providing concurrent coverage, and only the insurance afforded by the policy or policies covering the premises on which the loading or unloading occurs shall be primary and the policy or policies shall cover as an additional insured with respect to the loading or unloading operations all employees of the owner, tenant, or lessee while acting in the course and scope of their employment.”

2.   At trial, the court applied California law as urged by Transport.   On appeal, Transport contends for the first time in its reply brief that Nevada law applies.   Relying on INA's alternative argument that if we overturn the trial court's interpretation of California law we should nevertheless affirm the judgment under Nevada law, Transport asserts it owes no coverage under Nevada law.   According to Transport, it would owe no coverage because Nevada courts would give effect to an employee exclusion contained in its policy.We need not and do not reach the choice of law issue.   Having urged the court below to apply California law to this case, Transport is estopped to argue the court erred in doing so.  “Where a party by his conduct induces the commission of error, he is estopped from asserting it as a ground for reversal.   This application of the estoppel principle is generally known as the doctrine of invited error.  [Citations.]”  (9 Witkin, Cal.Procedure (3d ed. 1985) Appeal, § 301, p. 313.)

3.   We express no opinion as to whether other types of fronting policies are covered by section 11580.9, subdivision (c).   See Columbia Casualty Co. v. Northwestern Nat. Ins. Co. (1991) 231 Cal.App.3d 457, 282 Cal.Rptr. 389, where the appellate court held that parol evidence was admissible to interpret a policy which the insurer claimed was a fronting policy.   In that case, the policy limit was $1 million, with a $1 million deductible.   The insurer's position was that although “its policy[ was] labeled as one of indemnity, and phrased as such, [it was] a surety instrument.”  (Id. at p. 471, 282 Cal.Rptr. 389.)   The appellate court rejected the insurer's assertion that when the deductible equals the liability limit, the policy holder is, as a matter of law, uninsured.   The court stated that the policy was susceptible to other interpretations, necessitating a trial.Here, on the other hand, the policy plainly stated that the $2 million policy limit included a $2 million deductible.   In that regard, the policy was unambiguous and not susceptible to other interpretations.   In this case we were able to decide, as a matter of law, that the INA policy was “a ‘fronting policy’—a policy which does not indemnify the insured but which is issued to satisfy financial responsibility laws of various states․”  (Columbia Casualty Co. v. Northwestern Nat. Ins. Co., supra, 231 Cal.App.3d at p. 471, 282 Cal.Rptr. 389.)

4.   While surety agreements often contain right to reimbursement clauses, the INA policy is unlike a classic surety agreement because INA's obligation to pay is purely discretionary.   If any evidence exists in this record of a side agreement between INA and Koch whereby INA would be obligated to pay, for example, if Koch were insolvent, we have not been apprised of it.

5.   Transport argues that if we exclude this fronting policy from section 11580.9, subdivision (c), we will by implication exclude policies which have large deductibles and claims which fail to exceed the deductible.   We do not so hold.   That issue is not before us and we express no opinion on that issue.

ORTEGA, Associate Justice.

SPENCER, P.J., and MIRIAM A. VOGEL, J., concur.