UNITED PACIFIC RELIANCE INSURANCE COMPANY v. COMMERCIAL UNION INSURANCE COMPANY (1990)

United Pacific Reliance Insurance Company obtained a judgment against Commercial Union Insurance Company for a share of the amount previously paid by United Pacific in settlement of a wrongful-death action.   Commercial Union appeals, asserting that the trial court erred in three essentially procedural respects.   We shall affirm the judgment.

This matter was submitted to the trial court upon a written stipulation of facts.¹

Steven Hodgert was the chief executive officer of Hodgert Construction Inc.   At the time of the fatal accident he was also employed by Trilex Corporation as a construction supervisor at a project in Pacific Grove, and Trilex had agreed to reimburse him $150 per month for the use of his pickup truck in his work with Trilex.   Hodgert Construction owned certain construction equipment and had agreed to rent the equipment to Trilex for use at the Pacific Grove site.   The equipment was stored at the home of Hodgert's brother.

At the time of the accident Hodgert was driving his pickup truck toward the Pacific Grove site, transporting equipment he had picked up at his brother's home.   Hodgert's pickup truck crossed a highway center line and struck a vehicle driven by Richard Gallegos.   Gallegos was killed.

Gallegos's heirs brought a wrongful-death action against Hodgert, Hodgert Construction, and Trilex.   Trilex cross-complained against Hodgert Construction for contribution and indemnity.   It appears Hodgert Construction was never served in the wrongful-death lawsuit.

Three insurance companies had potential coverage for the asserted liabilities.   Mid–Century Insurance Company, which insured Hodgert's pickup truck, contributed its $35,000 policy limits to the eventual settlement and is not involved in this matter.   United Pacific had in effect a policy, with liability coverages, which designated Trilex as the named insured.   Commercial Union had in effect a policy, with liability coverages, which designated Hodgert Construction as a named insured.   Any relevant coverage provided by either United Pacific or Commercial Union was excess to the primary coverage provided and paid by Mid–Century.   As the wrongful-death lawsuit progressed, responsibility for defense of the action and for indemnification of the defendants and cross-defendant were repeatedly tendered to Commercial Union.   Commercial Union refused all tenders, taking the position its policy provided no relevant coverage.   United Pacific and Mid–Century participated in the defense and ultimately negotiated a settlement for a payment of slightly more than $500,000, for which the wrongful-death plaintiffs gave releases to everyone except Hodgert, Hodgert Construction, and Commercial Union, and also gave a covenant not to execute against any assets of Hodgert or Hodgert Construction.   All causes of action against Trilex were dismissed.

United Pacific then filed this action against Commercial Union, for a declarations of rights and duties under the insurance policies and for recovery of Commercial Union's proportional share of the amount contributed to the settlement by United Pacific.   Neither Hodgert nor Hodgert Construction is a party to this lawsuit.

In the trial court United Pacific pursued alternative theories of recovery.

First, it argued that Trilex, Hodgert, and Hodgert Construction were “concurrent tortfeasors,” that under principles developed in American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899.   Trilex, having settled the wrongful-death lawsuit, was entitled to partial indemnity from Hodgert and from Hodgert Construction, and that United Pacific, having funded the settlement, “stands in the shoes of Trilex” and could pursue Trilex's indemnity claims against Commercial Union as the insurance carrier with relevant liability coverages for Hodgert and Hodgert Construction.

Second, it argued it was entitled to proceed directly against Commercial Union under “the doctrine of equitable subrogation,” in accordance with the broad principle that “ ‘no insurer which deliberately breaches its obligation to the insured should be permitted thereby to profit, whether at the expense of the insured, or of an insurer which faithfully discharges its obligation.’ [Citation.]  And the same principles apply when the dispute is between several insurers:  The ‘respective obligations [of several insurers who have covered the same event] flow from equitable principles designed to accomplish ultimate justice in the bearing of a specific burden.’  [Citations.]”  (State Farm & Casualty Co. v. Cooperative of American Physicians, Inc. (1984) 163 Cal.App.3d 199, 204–205, 209 Cal.Rptr. 251.)

Neither of United Pacific's theories would work unless Commercial Union could be shown to have provided liability coverage relevant to the wrongful-death claim.   United Pacific took the position Commercial Union provided relevant coverages for both Hodgert and Hodgert Construction.²  Commercial Union continued to deny coverage for the wrongful-death claim, arguing that although both Hodgert Construction and Hodgert were “named insureds” the language of its policy excluded coverage for Hodgert's accident.

Hodgert Construction clearly was a named insured under the Commercial Union policy, but the policy did not make clear whether Hodgert was or was not a named insured.   The comprehensive general liability section of the policy contained standard bodily injury coverage provisions requiring Commercial Union to pay, and to defend its “insured” against, claims for bodily injury (defined to include death) “to which this insurance applies.”   This coverage was made subject to an explicit exclusion for bodily injury arising out of operation of any automobile owned or operated by any insured or operated by any person in the course of his employment by any insured.³  The policy also included an “employer's non-ownership and hired automobile liability insurance endorsement schedule.”   Commercial Union acknowledges that the non-ownership endorsement provided limited coverage for losses arising out of the use of non-owned automobiles.   The non-ownership endorsement required Commercial Union to pay “on behalf of the insured,” and to defend “the insured” against, bodily injury claims “arising out of the use of ․ any non-owned automobile in the business of the named insured by any person other than the named insured․” ⁴  For purposes of this “non-ownership endorsement,” “persons insured” were defined to include “the named insured” and “any partner or executive officer thereof, but with respect to a non-owned automobile only which such automobile is being used in the business of the named insured․”  Neither “the owner of a non-owned automobile” nor “an executive officer of the named insured with respect to an automobile owned by him” was an insured.⁵  A “non-owned automobile” was defined as an automobile “not owned by, registered in the name of, hired by (or used under contract in behalf of), or loaned to the named insured․”

The trial court concluded in pertinent part that Hodgert “was employed by both TRILEX and HODGERT CONSTRUCTION and, at the time of the accident, was in the course and scope of employment of both”;  that Hodgert was not a “named insured” under the Commercial Union policy;  that the Commercial Union policy provided coverage of the accident for Hodgert Construction but not for Hodgert, and that on this basis United Pacific was entitled to recover approximately $200,000 from Commercial Union.

Commercial Union's appeal followed.   In this court Commercial Union does not contend that United Pacific would not have been entitled, upon appropriate procedures and findings, to the relief the trial court granted.   It argues only that the trial court made an unwarranted finding and countenanced improper procedures, contending

(1) That the finding that Hodgert was acting within the course and scope of his employment by Hodgert Construction was not supported by the stipulated facts upon which the matter was submitted for decision;

(2) That the trial court improperly allowed a “direct action” by United Pacific, as the insurer of one of the wrongful-death defendants, against Commercial Union as the insurer of a second defendant who “is not a mutual insured ”;  and

(3) That the trial court improperly rendered a decision against Hodgert Construction without joining Hodgert Construction as an “indispensable party” to this lawsuit.

1. The Factual Finding.

The non-ownership endorsement of the Commercial Union policy provided coverage for bodily injury claims “arising out of the use of ․ any non-owned automobile in the business of the named insured by any person other than the named insured.”   The trial court's conclusion that Hodgert Construction was covered for the Gallegos claim was based on the court's determinations that Hodgert's pickup was a non-owned automobile, that Hodgert had been using the pickup “in the course and scope of employment” by Hodgert Construction, and that Hodgert was not a named insured.

Commercial Union attacks only the determination that Hodgert was acting within the course and scope of his employment by Hodgert Construction, arguing that this determination neither is included in, nor can reasonably be reached from, the written stipulation of facts.   Commercial Union points particularly to statements in the written stipulation of facts that “[u]nder the employment agreement with Trilex ․, Hodgert was reimbursed $150.00 per month for the use of his truck in his work with Trilex” and that “Hodgert transported the rental equipment at the request of Trilex.”   Apparently to buttress its argument, Commercial Union points out it had previously refused to stipulate that Hodgert was driving “in the business of” Hodgert Construction.

The parties stipulated that Hodgert was the chief executive officer of Hodgert Construction.   It is true the question whether at the time of the accident Hodgert was or was not acting “in the business of” Hodgert Construction, within the meaning of the non-ownership endorsement, is not explicitly answered by the written stipulation.   It was therefore necessary for the trial court to arrive at the answer by inference from the stipulated facts.  (Cf. McKinney v. Kull (1981) 118 Cal.App.3d 951, 956, 173 Cal.Rptr. 696.)

“Our scope of review is governed by the rule of conflicting inferences.  ‘Where different inferences may reasonably be drawn from undisputed evidence, the conclusion of the jury or trial judge must be accepted by the appellate court.’  [Citation.]  ‘[E]ven though all the facts are admitted or uncontradicted, nevertheless, if it appears that either one of two inferences may fairly and reasonably be deduced from those facts, there still remains in the case a question of fact to be determined by the [trier of fact]․  In so far as the evidence is subject to opposing inferences, it must upon a review thereof be regarded in the light most favorable to the support of the judgment․’  (Italics added.)  [Citation.]”  (McKinney v. Kull, supra, 118 Cal.App.3d at p. 955, 173 Cal.Rptr. 696.)

One available inference, from the quoted statements to which Commercial Union has directed our attention, would be that Hodgert was acting within the scope of his employment by Trilex.   But neither such an inference nor the quoted statements would exclude a further inference (if supported by the stipulated facts) that Hodgert was also acting within the scope of his employment by (and thus “in the business of”) Hodgert Construction.  (Cf. Societa per Azioni de Navigazione Italia v. City of Los Angeles (1982) 31 Cal.3d 446, 460, 183 Cal.Rptr. 51, 645 P.2d 102;  Hiner v. Olson (1937) 23 Cal.App.2d 227, 230, 72 P.2d 890.)   The trial court drew both inferences, finding that Hodgert was acting in the scope of his employment by both Trilex and Hodgert Construction.   The stipulated facts that Hodgert Construction had agreed to rent certain equipment to Trilex, for use at the Pacific Grove site, for a set rental fee, and that at the time of the accident Hodgert was transporting some of the rented equipment from its normal place of storage to the Pacific Grove site, sufficiently support inferences that Hodgert as Hodgert Construction's chief executive officer was acting for Hodgert Construction's benefit and thus within the scope of his employment by Hodgert Construction.  (Cf. McKinney v. Kull, supra, 118 Cal.App.3d 951, 955, 173 Cal.Rptr. 696.)

2. “Direct Action.”

Commercial Union's second and third contentions share the common premise that before it could have judgment against Commercial Union, United Pacific was obliged to obtain a judicial determination that Commercial Union's named insured, Hodgert Construction, was liable to United Pacific.

First Commercial Union argues this was an impermissible “direct action” by United Pacific against Commercial Union.   Commercial Union takes the position that United Pacific should have been required first to sue, and to obtain a judgment against, Hodgert Construction.

The essence of the direct action rule on which Commercial Union relies is that where a claimant is injured by act of an insured for which the insured's insurer affords liability coverage, the claimant may not bring an action directly against the insurer until the claimant has obtained a judgment against the insured.

Particularized to this action, Commercial Union's argument is, simply, that United Pacific could not sue Commercial Union until it had obtained a judgment against Commercial Union's named insured, Hodgert Construction.

Commercial Union's argument disregards the substantial distinction between an action by a claimant against the tortfeasor's liability insurer, on the one hand, and an action between or among liability insurers to establish and prorate their respective responsibilities for an insured event, on the other.

Usually an injured claimant's direct action against a tortfeasor's liability insurer carrier is maintained on the theory that the claimant is or should be regarded as a third-party beneficiary of the insurance contract.   The rationale of the direct action proscription is that until the claimant has a judgment against the insured defendant, the claimant's status as a third-party beneficiary has not been perfected.  (Cf. Zahn v. Canadian Indem. Co. (1976) 57 Cal.App.3d 509, 512–514, 129 Cal.Rptr. 286.)

Actions between liability insurers, on the other hand, are not necessarily dependent on contract concepts.  “The reciprocal rights and duties of several insurers who have covered the same event do not arise out of contract, for their agreements are not with each other.  [Citations.]  Their respective obligations flow from equitable principles designed to accomplish ultimate justice in the bearing of a specific burden.   As these principles do not stem from agreement between the insurers their application is not controlled by the language of their contracts with the respective policy holders.”  (Amer. Auto. Ins. Co. v. Seaboard Surety Co. (1957) 155 Cal.App.2d 192, 195–196, 318 P.2d 84;  cf. Signal Companies, Inc. v. Harbor Ins. Co. (1980) 27 Cal.3d 359, 369, 165 Cal.Rptr. 799, 612 P.2d 889.)   Under orthodox principles insurers may resolve disputes as to their respective rights and duties by actions directly among themselves.   The proscription against direct actions is inapplicable.

Nor is this action controlled by principles announced in Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58.  Moradi–Shalal dealt with the situation in which a claimant, dissatisfied with the performance of the tortfeasor's insurer, seeks to sue the insurer directly for breach of the statutory duties imposed by Insurance Code section 790.03.   Again, an action between or among insurers to adjust essentially equitable rights and duties is wholly distinct from a claimant's action on section 790.03.

In the course of rejecting a similar contention by Commercial Union, the trial court cited Smith v. Travelers Indemnity Co. (1973) 32 Cal.App.3d 1010, 108 Cal.Rptr. 643.   In this court Commercial Union argues that Smith is distinguishable:  In Smith both carriers afforded primary coverage for the alleged tortfeasor;  Commercial Union argues that there is no such “mutual insured” in this case.

Commercial Union's distinction is irrelevant to the question it has chosen to raise:  Whether United Pacific might maintain this action directly against Commercial Union without first obtaining a judgment against Hodgert Construction.  Smith may or may not be direct authority for the trial court's conclusion, on the merits, that United Pacific, as one of two providers of excess coverage, should prevail against Commercial Union, as the other.   Presumably the trial court reached its conclusion in light of the general principle that “no insurer which deliberately breaches its obligation to the insured should be permitted thereby to profit, whether at the expense of the insured, or of an insurer which faithfully discharges its obligation.”   (Continental Cas. Co. v. Zurich Ins. Co. (1961) 57 Cal.2d 27, 38, 17 Cal.Rptr. 12, 366 P.2d 455;  cf. also Amer. Auto. Ins. Co. v. Seaboard Surety Co., supra, 155 Cal.App.2d 192, 195–196, 318 P.2d 84;  State Farm & Casualty Co. v. Cooperative of American Physicians, Inc., supra, 163 Cal.App.3d 199, 204–205, 209 Cal.Rptr. 251.)   But the point is not before us because (beyond the preliminary question whether Hodgert was acting “in the business of” Hodgert Construction) Commercial Union has not chosen to challenge the judgment on its merits.   In its reply brief, in connection with its contention that Hodgert should not have been found to have been acting in the course and scope of his employment by Hodgert Construction, Commercial Union belatedly makes assertions and cites cases which may be intended to relate to the merits.   We disregard these points, both in light of the general rule that points raised in the reply brief for the first time will not be considered and because the relevance of the points is neither so clearly developed nor so self-evident as to warrant an exception to the general rule.  (See generally 9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 496, pp. 484–485.)

3. “Indispensable party.”

In this action the trial court did purport to determine Hodgert Construction's liabilities to the wrongful-death claimants, to Trilex, and implicitly to United Pacific.   Commercial Union's final argument is that the trial court lacked jurisdiction to adjudicate these issues “against Hodgert Construction” because Hodgert Construction was an “indispensable party” to this action, but was not in fact joined as a party.

Although the “indispensable party” concept was substantially revised and limited by the 1971 amendment to Code of Civil Procedure section 389 (see generally 4 Witkin, Cal. Procedure (3d ed. 1985) Pleading, §§ 166–171, pp. 196–206;  McKeon v. Hastings College (1986) 185 Cal.App.3d 877, 888–890, 230 Cal.Rptr. 176), it remains clear if only as a matter of rudimentary due process that the trial court could not have undertaken expressly and materially to diminish or impair Hodgert Construction's rights, duties, or interests in legal proceedings to which Hodgert Construction was not a party.  (Cf. In re Marriage of Lugo (1985) 170 Cal.App.3d 427, 433, 217 Cal.Rptr. 74.)

The short answer to Commercial Union's succinctly-stated contention is that the trial court's judgment did not have the proscribed effect upon Hodgert Construction in this case.   United Pacific sought relief only against Commercial Union.   To the extent the rights or duties of Hodgert Construction might be relevant to United Pacific's claim against Commercial Union, the trial court could judicially determine those rights and duties, and in that sense it did adjudicate Hodgert Construction's liabilities.   But the adjudication could not have bound Hodgert Construction itself.   We anticipate no circumstance in which this conclusion will be tested:  The terms of the covenant not to execute given by the wrongful-death plaintiffs make clear that they have fully compromised their claim against Hodgert Construction, and given satisfaction of United Pacific's judgment against Commercial Union we perceive no factual or legal theory upon which any party might hereafter assert a right to recovery against Hodgert Construction on the basis of the trial court's judicial determination of its liabilities in this matter.   Commercial Union suggests that “[i]f Hodgert Construction's limits of liability are exhausted in the aggregate, then the insured is faced with an uninsured exposure to all potential claims.”   Nothing in the record gives substance to this essentially abstract concern.

In the circumstances of this case Hodgert Construction's absence did not deprive the trial court of jurisdiction to render judgment as between the parties that were properly before it.  (McKeon v. Hastings College, supra, 185 Cal.App.3d 877, 889–890, 230 Cal.Rptr. 176.)

The judgment is affirmed.

APPENDIX A

Superior Court of California, County of MontereyNo. M 16626United Pacific Reliance Insurance Company, Plaintiff,vs.Commercial Union Insurance Company, et al., Defendants.STIPULATION OF FACTSFiled July 7, 1988

IT IS HEREBY STIPULATED AND AGREED by and between the parties hereto, by their respective counsel, that, for the purpose of trial in the above-entitled cause, the facts hereinafter stated are undisputed and may be treated by the Court as facts proven in open court.

The parties may, on the trial of said cause, call witnesses and offer evidence for the purpose of proving such additional facts as the parties may see fit.

The undisputed facts are as follows:

I. ACCIDENT

1. On April 11, 1984, in Monterey County, a vehicle driven by Steven Hodgert on Highway 1 crossed over the centerline and collided with a vehicle driven by Richard Gallegos who was killed in the accident.

2. The vehicle driven by Steven Hodgert was a 1983 Toyota pick-up truck which was registered to and owned by Steven Hodgert.

3. On April 11, 1984, Steven Hodgert was employed by Trilex Corporation as a construction supervisor at a Trilex Construction project called “The Glen” in Pacific Grove, California.

4. Under the employment agreement with Trilex Corporation, Steven Hodgert was reimbursed $150.00 per month for the use of his truck in his work with Trilex.

5. On April 11, 1984, Steven Hodgert was the Chief Executive Officer of Hodgert Construction Inc.

6. Prior to April 11, 1984, Hodgert Construction Inc. had agreed to rent to Trilex for use at “The Glen”, various pieces of construction equipment such as power saws, forklifts, and framing equipment which were owned by Hodgert Construction Inc. and stored at the residence of James Hodgert (Steven's brother).

7. Steven Hodgert transported the rental equipment at the request of Trilex.

8. Under the agreement between Trilex Corporation and Hodgert Construction Inc., Trilex paid Hodgert Construction Inc. a set rental fee per day or per month for use of saws and other framing equipment, forklifts and the provision of temporary power, among other things.

9. At the time of the accident Steven Hodgert was transporting three Hodgert Construction Inc. power saws to be used by Trilex Corporation at “The Glen” jobsite which he had picked up at his brother's house on his way to work at “The Glen”.

II. ACTION (Gallegos vs. Hodgert )

10. On April 11, 1984, United Pacific provided coverage with combined limits of $1,000,000.00.

11. On April 11, 1984, Commercial Union provided coverage with limits of $500,000.00.

12. Mid–Century Insurance Company insured the 1983 Toyota pick-up truck owned and driven by Steven Hodgert, individually.

13. The heirs of Richard Gallegos brought a wrongful death action, Monterey County Superior Court Case No. 80573, against Steven Hodgert, Trilex Corporation and Hodgert Construction Inc.

14. Trilex Corporation filed a cross-complaint for contribution and indemnity against Hodgert Construction Inc.

15. Trilex tendered its defense and indemnification in the Gallegos action to Commercial Union claiming it was an additional insured under that policy.

16. Steven Hodgert and Hodgert Construction Inc. tendered their defenses and indemnification in the Gallegos action to Commercial Union claiming they were insured under the policy for that action.

17. Mid–Century defended Steven Hodgert and contributed $35,000.00 to the settlement of the case (Gallegos vs. Hodgert ).

18. United Pacific defended Trilex Corporation and Steven Hodgert and contributed $477,909.63 in settlement and paid $9,222.76 in defense costs which amounts were reasonable under the circumstances of the wrongful death action.

19. Commercial Union refused to defend and indemnify Steven Hodgert and Hodgert Construction Inc. in the Gallegos vs. Hodgert action and related cross-complaint of Trilex Corporation on the ground that there was no coverage under its insurance policy for the incident.   Commercial Union refused the defense of Trilex Corporation in the main action.

20. On August 22, 1985, Plaintiffs in the Gallegos vs. Hodgert action executed Exhibit “A”.   The genuineness of the Release and Covenant Not to Execute is admitted and a copy is attached as Exhibit “A” and incorporated by reference herein.

21. On September 16, 1985, a dismissal was entered as to all causes of actions against Trilex Corporation and James Hodgert in Action No. 80573.

22. The genuineness of Commercial Union Policy No. NAF521229, a copy of which is attached hereto as Exhibit “B”, is hereby admitted.

23. The reference to the Montebello Estates project does not apply to this action.

24. The genuineness of the United Pacific Policy No. LP 6707701, a copy of which is attached hereto as Exhibit “C” is hereby admitted.

DATED:  July 6, 1988

HARRAY, HUDSON & KINGSLEY

/s/ R.K. Harray

R.K. HARRAY

DATED:  July 7, 1988

BRANSON, FITZGERALD & HOWARD

/s/ Harry Griffith

HARRY GRIFFITH

FOOTNOTES

1.   The stipulation of facts is set forth in Appendix A of this opinion.

2.   United Pacific also argued that Trilex was an additional insured under the Commercial Union policy, but the trial court rejected this argument and United Pacific has not pursued it.

3.   “I.   EXCLUSIONS [¶] This insurance does not apply:  ․ [¶] (b) to bodily injury or property damage arising out of the ownership, maintenance, operation, use, loading or unloading of [¶] (1) any automobile or aircraft owned or operated by or rented or loaned to any insured, or [¶] (2) any other automobile or aircraft operated by any person in the course of his employment by any insured․”

4.   “The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence and arising out of the use, including loading and unloading, of:  [¶] (1) any non-owned automobile in the business of the named insured by any person other than the named insured, or [¶] (2) any hired automobile in the business of the named insured by any person, [¶] and the Company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage․”

5.   “II.   PERSONS INSURED [¶] Each of the following is an insured under this endorsement to the extent set forth below:  [¶] (a) the named insured;  [¶] (b) any partner or executive officer thereof, but with respect to a non-owned automobile only which such automobile is being used in the business of the named insured;  [¶] (c)․ [¶] (d) any other person or organization but only with respect to his or its liability because of acts or omissions of an insured under (a), or (b) or (c) above.  [¶] None of the following is an insured:  [¶] (i)․[¶] (ii) the owner of a non-owned automobile nor any agent or employee of such owner;  [¶] (iii) an executive officer of the named insured with respect to an automobile owned by him or by a member of his household․”

BAMATTRE–MANOUKIAN, Associate Justice.

CAPACCIOLI, Acting P.J., and COTTLE, J., concur.