Filed 7/11/17 Marin Schools Insurance Authority v. Schools Excess Liability Fund CA1/5
NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.


IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE


MARIN SCHOOLS INSURANCE AUTHORITY,
Plaintiff and Appellant,
v.
SCHOOLS EXCESS LIABILITY FUND,
Defendant and Respondent.

A145365

(Napa County
Super. Ct. No. 26-62558)


In this indemnity action, plaintiff Marin Schools Insurance Authority (MSIA) appeals the trial court’s orders granting summary judgment to defendant Schools Excess Liability Fund (SELF) and awarding fees. We affirm the summary judgment order but reverse the fee award.
BACKGROUND
Factual Background
MSIA is a joint powers authority that provides its school district members with coverage for workers’ compensation claims. MSIA is in turn a member of SELF, another joint powers authority, which provides excess coverage for its members’ workers’ compensation claims.
This lawsuit arises from SELF’s refusal to provide MSIA with excess coverage for the workers’ compensation claim of Joseph Digiacinto (the Claim). The terms of SELF’s coverage for the Claim is governed by a memorandum of coverage executed in 1989 (the Contract). The Contract provides, as relevant here, that MSIA “shall give prompt written notice to [SELF] if a claim for an injury or disease occurs, in which the incurred value (amounts paid plus outstanding reserves) totals 50% of the self-insured retention level.” MSIA’s retention level under the Contract was $250,000, therefore the notice provision was triggered when a claim’s incurred value reached $125,000.
Digiacinto was injured in 1990. At the time, a third party administrator—ESIS, Inc. (ESIS)—handled MSIA’s workers’ compensation claims. ESIS authorized surgeries for Digiacinto in 2001 and 2004. MSIA did not notify SELF of the Claim until 2006. It is undisputed that the incurred value of the Claim at the time of the notice exceeded $125,000. In 2007, SELF issued a reservation of rights to deny the Claim on the ground that notice was late and the late notice caused prejudice to SELF because MSIA had been exposed to liability apparently unrelated to the workplace injury. The Contract does not discuss prejudice as a consideration in reviewing untimely claims, or in any other respect.
Prior Lawsuit: MSIA v. ESIS and SELF
In 2006 MSIA filed a lawsuit against ESIS and SELF (the Prior Lawsuit). MSIA alleged ESIS mishandled numerous workers’ compensation claims—including Digiacinto’s claim—by, among other things, failing to properly administer the claims, under-reserving the claims, and failing to timely notify SELF. MSIA alleged SELF breached the Contract by refusing to reimburse various claims, including Digiacinto’s.
The court found that MSIA’s action against SELF with respect to the Claim was not ripe because the Claim had not yet reached SELF’s layer of coverage. However, MSIA and SELF litigated two other late-noticed claims. As to these claims, the court ruled that prompt written notice was a condition precedent for coverage under the Contract, and therefore it upheld the denials on the sole ground that notice was late-provided, regardless of prejudice.
MSIA’s contention that ESIS mishandled the Claim was tried before a jury, which found for MSIA and against ESIS. However, the court subsequently granted ESIS’s motion for judgment notwithstanding the verdict, finding “the jury verdict showed an implied finding that the claim would likely not have been compensable had it been properly handled. The record regarding this claim lacks any evidence (medical opinion) from which the jury could reasonably infer that [Digiacinto’s] ailment was not caused, at least in part, by the alleged industrial injury.”
MSIA filed an appeal in the Prior Lawsuit but subsequently dismissed the appeal.
Current Lawsuit
The Claim ultimately reached the excess coverage limit and when MSIA requested reimbursement from SELF, SELF refused. In 2012, MSIA filed the current lawsuit against SELF challenging its denial of coverage for the Claim.
SELF moved for summary judgment. In part, SELF argued MSIA was collaterally estopped from relitigating the issue decided in the Prior Lawsuit that prompt written notice is a condition precedent for coverage under the Contract. The trial court granted SELF’s motion for summary judgment and subsequently awarded SELF attorney fees.
DISCUSSION
I. Summary Judgment
“[W]e review the grant of summary judgment de novo.” (Y.K.A. Industries, Inc. v. Redevelopment Agency of City of San Jose (2009) 174 Cal.App.4th 339, 354 (Y.K.A. Industries).) MSIA argues the trial court’s summary judgment order was error because collateral estoppel does not bar relitigation of whether prompt written notice is a condition precedent to coverage under the Contract and because SELF failed to demonstrate there are no disputed facts regarding whether notice of the Claim was late. We disagree with both contentions.
A. Collateral Estoppel
“ ‘Collateral estoppel precludes relitigation of issues argued and decided in prior proceedings. [Citation.] Traditionally, we have applied the doctrine only if several threshold requirements are fulfilled. First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding.’ ” (Hernandez v. City of Pomona (2009) 46 Cal.4th 501, 511.) MSIA does not dispute that these requirements are satisfied here. Instead, it argues the application of collateral estoppel would be unjust. (Mooney v. Caspari (2006) 138 Cal.App.4th 704, 717 [“collateral estoppel will not be applied ‘if injustice would result’ ”].)
We review de novo the trial court’s application of collateral estoppel, including the determination that the application of collateral estoppel would not be unjust. (Roos v. Red (2005) 130 Cal.App.4th 870, 878 (Roos); Smith v. ExxonMobil Oil Corp. (2007) 153 Cal.App.4th 1407, 1415 (Smith).)
1. Newly Discovered Evidence
MSIA first argues collateral estoppel would be unjust because SELF withheld evidence in discovery in the Prior Litigation which would have materially impacted the relevant decision in that case. (Smith, supra, 153 Cal.App.4th at p. 1416 [“collateral estoppel does not apply ‘when the party against whom the earlier decision is asserted did not have a “full and fair opportunity” to litigate the claim or issue’ ”]; Rest.2d, Judgments, § 28, com. j [where, in the prior action, “one party . . . conceal[s] from the other information that would materially affect the outcome of the case,” the court in the second action may find collateral estoppel “should not apply because the party sought to be bound did not have an adequate opportunity or incentive to obtain a full and fair adjudication in the first proceeding”].) MSIA points to documents, which it obtained after the Prior Lawsuit, regarding SELF’s policy of reviewing for prejudice late claims governed by the Contract. Because we conclude MSIA fails to demonstrate these documents would have materially impacted the decision in the Prior Lawsuit, we reject the contention.
i. Background
In the Prior Lawsuit, MSIA and SELF litigated SELF’s denial of two late-noticed claims (neither of which was the Claim). SELF argued the denials could be upheld solely on the basis of late notice because timely notice was a condition precedent to coverage under the Contract.
MSIA argued that SELF in fact applied a “notice prejudice” standard, providing coverage for late-noticed claims unless it determined the late notice caused prejudice. MSIA presented the testimony of Steve Schempp, the SELF employee who oversaw the internal handling of all workers’ compensation claims reported to SELF. Schempp testified that when a claim governed by the Contract was reported late, “[t]he late reporting acts as a flag to look at the case in greater detail to determine the underlying claims handling, to make certain that it is consistent with what would be appropriate claims handling and that nothing was done that would be detrimental to the other [SELF] members.” Schempp further testified SELF provided coverage for a number of late-reported claims when “the SELF board, after reviewing these cases, determined that they did not see [other SELF members] were harmed by the failure to report the claim in a timely manner.”
At oral argument in the Prior Lawsuit, the parties argued whether the Contract language was ambiguous regarding whether late notice was a condition precedent to coverage, and whether SELF’s past practice waived any such condition if no prejudice resulted. The court ruled as follows: “Deciding whether this contract language is ambiguous, it is a province of the Court. I did look at Mr. Schempp’s testimony again, and I interpreted it as Mr. Schempp saying that SELF doesn’t deny claims because of late notice exclusively. But if there is late notice and prejudice, then they will deny the claim. To me, that doesn’t make the contract language ambiguous, and that’s where I think the analysis does stop. [¶] Timely notice to SELF is an expressed condition of the contract, and because this notice was waived in 12 other claims or in other matters, doesn’t mean it’s waived in every claim or case. I kind of compare it to like a landlord/tenant where it’s an agreement to pay by the first of the month; and then if the landlord accepts the rent late, it doesn’t prevent the landlord from enforcing the condition, the timeliness of the condition later. Anyway, I’m going to give a Directed Verdict to SELF.”
In 2012, MSIA obtained documents from SELF pursuant to a Public Records Act request. One of these documents was an agenda item for a 2007 SELF Board of Directors meeting, indicating SELF staff was seeking approval for a new procedure for processing workers’ compensation claims. The agenda item provided as background: “Currently, every claim reported late under [the Contract] is sent for an audit, then presented to the Committees or Board of Directors, to determine if the interests of the SELF pool have been prejudiced. This has created a huge backlog of audits . . . . [¶] Under the revised process, staff would make a preliminary determination as to prejudice as a result of the late reporting. A file would only be sent for an audit if staff first determines that SELF was prejudiced by the late reporting . . . .” A second document was the minutes of that meeting, indicating the SELF Board of Directors approved the new procedure. A third document was a flowchart, apparently prepared by SELF staff to represent the new procedure, showing all untimely claims reviewed for prejudice and, if no prejudice is found, processed.
ii. Analysis
MSIA argues that, had it obtained the new documents during discovery in the Prior Lawsuit, they would have materially impacted the court’s determination of whether prompt written notice is a condition precedent for coverage under the Contract. We disagree.
As an initial matter, the parties dispute whether SELF was obligated to produce the documents during discovery in the Prior Lawsuit. SELF did not contend below that the undisputed facts showed it was not so obligated. Moreover, SELF’s brief in this court argues solely that MSIA failed to demonstrate its discovery requests encompassed the new documents. As the moving party, it is SELF’s burden to demonstrate MSIA’s discovery requests did not encompass the new documents. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 (Aguilar) [“the party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact”].) SELF has not met this burden and we therefore do not rely on this ground.
Turning to whether the new documents would have materially affected the Prior Lawsuit, MSIA does not dispute Schempp testified in the Prior Lawsuit that SELF’s practice was to assess late-noticed claims for prejudice. However, MSIA argues, the new evidence shows that SELF’s Board of Directors—the contracting party to the Contract—formally approved this practice.
To determine whether this difference would have materially affected the decision in the Prior Lawsuit, we begin with background principles of contract interpretation. (South El Monte, 38 Cal.App.4th at p. 1639 [for joint power authority insurance arrangements, “questions of coverage are properly answered by relying on rules of contract law that emphasize the intent of the parties”].) In interpreting a contract, “[t]he threshold question . . . is whether the writing is ambiguous—that is, reasonably susceptible to more than one interpretation. [Citations.] . . . [C]ontract interpretation always looks first to the words of the contract, but may also extend to parol evidence outside the four corners of the written agreement [citation], such as the parties’ course of dealing over time [citation]. [¶] In cases involving integrated contracts, the use of parol evidence is always subject to the limitation that parol evidence may not be used to vary or contradict the words the parties agreed upon, since an integrated writing must be taken as the best and final expression of their intent. [Citations.] If there is no ambiguity—that is, the language is reasonably susceptible to only one interpretation—our inquiry into meaning has been completed and the one reasonable interpretation applies to the facts.” (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 986–987 (Thompson).)
The court in the Prior Lawsuit concluded the Contract’s language unambiguously provided that prompt written notice was a condition precedent to coverage. The court heard Schempp’s testimony about SELF’s practice of reviewing late-noticed claims for prejudice, but concluded that this practice did not give rise to an ambiguity: “I did look at Mr. Schempp’s testimony again, and I interpreted it as Mr. Schempp saying that SELF doesn’t deny claims because of late notice exclusively. But if there is late notice and prejudice, then they will deny the claim. To me, that doesn’t make the contract language ambiguous, and that’s where I think the analysis does stop.” We fail to see how evidence that SELF’s Board of Directors formally approved the practice would have materially changed the court’s analysis. The new documents do not state the Board considers the practice required under the Contract; even if they did, “parol evidence may not be used to vary or contradict the words the parties agreed upon.” (Thompson, supra, 6 Cal.App.5th at pp. 986–987.)
MSIA points to the following discussion in South El Monte, supra, a case also involving the coverage of a joint powers authority insurance pool: “Members jointly determine the scope and extent of their own coverage. They do so by creating member-written agreements and programs tailored to suit the needs of the participating entities. The governing bodies of these pooling arrangements interpret the agreements and programs to implement the intent of the members. The joint powers agreement, bylaws and the self-insurance program, with related coverage memoranda, provide the framework within which to determine the rights, liabilities, and intentions of the pools and their respective members. [¶] In our case, an analysis of duty to defend and coverage issues must give full effect to the intent of the member cities of the [joint powers authority] as reflected in the policies and procedures adopted by the executive committee with the approval of the Board.” (South El Monte, supra, 38 Cal.App.4th at pp. 1639–1640, italics added.) In that case, the Court of Appeal defined a contract term by looking to extrinsic documents incorporated by the joint powers authority board’s memoranda; however, the definition of the relevant contract term contained in the extrinsic documents was “the same definition” as that set forth in the original memorandum setting forth the terms of the coverage program. (Id. at p. 1641.) Thus, the extrinsic evidence was consistent with the underlying contract. In contrast, the court in the Prior Lawsuit found the extrinsic evidence of SELF’s practice inconsistent with the Contract’s unambiguous language.
MSIA also points to the following argument made by SELF’s counsel in the Prior Lawsuit: “The document speaks loudly and clearly; it’s an expression of the intent of the parties. [¶] To have someone who was not a member of the creation of the document -- Mr. Schempp made a great example -- come in and say this is what people mean is, of course, ridiculous. He’s not even a contracting party, and the Board -- the Board, of course, is allowed to waive any condition that’s in there.” Despite counsel’s argument, there is no indication that the court’s analysis hinged on the fact that Schempp was not a party to the Contract. Instead, the court found that Schempp’s testimony regarding SELF’s practice in assessing late-noticed claims did not create an ambiguity in the Contract’s language regarding prompt written notice.
In sum, because the new evidence would not have materially affected the outcome of the Contract interpretation dispute in the Prior Litigation, it does not preclude the application of collateral estoppel. (Cf. Smith, supra, 153 Cal.App.4th at p. 1420 [declining to apply collateral estoppel effect to prior litigation where the losing party’s “inability, through no fault of its own, to produce evidence on these crucial issues makes it impossible to say that the prior trial provided it a full and fair opportunity to present a defense” (italics added)].)
2. Litigation Position in Other Cases
MSIA next argues the application of collateral estoppel would be unjust because it would result in MSIA being treated differently than other SELF members. (See Rest.2d, Judgments, § 28 [collateral estoppel will not apply where “[t]he issue is one of law and . . . a new determination is warranted . . . to avoid inequitable administration of the laws”].) Specifically, MSIA contends that SELF’s litigation position on this issue in two prior cases involving other pool members is inconsistent with the one SELF asserts against MSIA.
In the first case, MSIA points to SELF’s statements that its practice is to review late-noticed claims for prejudice, the Contract does not require SELF to deny coverage when a claim is late noticed, and SELF has the discretion to excuse late notice. SELF summarized this position in a brief filed in that case: “The obligation to timely report claims that may fall into SELF’s excess layer qualifies as a condition precedent to coverage under the [Contract]. Under Civil Code section 1436, a ‘condition precedent’ is one which is to be performed before some right dependent thereon accrues, or some act dependent thereon is performed. By accepting and deciding to pay certain late claims, the Board construed the timely-notice provisions of the [Contract] to be a condition precedent which it had the discretion to waive.” In the second case, MSIA contends SELF did not argue timely notice was a condition precedent to coverage. To the contrary, a brief filed by SELF in that case argues “timely reporting is a condition precedent.”
The trial court implicitly found SELF’s litigation positions in these other cases were not inconsistent with the position taken by SELF in its litigation with MSIA. We agree. The interpretation of the Contract urged by SELF in these two cases, like the one taken in the Prior Lawsuit as well as the instant case, is that timely notice is a condition precedent for coverage under the Contract which SELF may—but is not contractually obligated to—waive for any given claim. The trial court did not err in finding SELF’s litigation position in these other cases does not render application of collateral estoppel unjust.
B. Timely Notice
MSIA next argues SELF failed to establish the Claim was late-reported as a matter of law. Below, SELF argued MSIA was judicially estopped from denying that the Claim was late-noticed because it took a contrary position in the Prior Lawsuit, and further argued the Claim was in fact late-noticed. The trial court found MSIA was judicially estopped from denying late notice. We conclude SELF failed to demonstrate judicial estoppel, but did establish notice was in fact late.
1. Judicial Estoppel
“ ‘ “Judicial estoppel precludes a party from gaining an advantage by taking one position, and then seeking a second advantage by taking an incompatible position. . . . ” ’ [Citation.] The doctrine applies when ‘(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.’ ” (Aguilar v. Lerner (2004) 32 Cal.4th 974, 986–987.)
MSIA argues SELF failed to demonstrate MSIA successfully asserted in the Prior Lawsuit that the Claim was late-noticed. We agree. In the Prior Lawsuit, MSIA pled that ESIS mishandled numerous claims—including the Claim—in various ways, including failing to timely notify SELF; the complaint does not specifically allege that ESIS failed to timely notify SELF with respect to the Claim. Although the jury reached a verdict against ESIS as to the Claim, the verdict form does not establish whether the verdict was based on a finding that ESIS provided late notice or a finding that it mishandled the Claim in some other way. Indeed, the trial court in the Prior Lawsuit found the jury verdict with respect to the Claim “shows an implied finding that the claim would likely not have been compensable had it been properly handled,” indicating the verdict was not based on late notice. Therefore, SELF failed to demonstrate MSIA successfully asserted the Claim was late-noticed in the Prior Lawsuit.
B. Late Notice
MSIA also contends on appeal that SELF failed to show by undisputed facts that notice of the Claim was in fact late. We disagree.
SELF submitted a transcript of the deposition of MSIA’s expert witness in the Prior Lawsuit in which he testified the incurred value of the Claim in August 2004 exceeded $200,000. Moreover, it is undisputed that the incurred value of the claim exceeded $150,000 at the time notice was provided—more than the $125,000 triggering the “prompt written notice” provision. This evidence constitutes a prima facie showing that notice was late-provided and SELF therefore met its initial burden on this issue. (Aguilar, supra, 25 Cal.4th at p. 850 [“the party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact”].)
On appeal, MSIA argues it is nonetheless a triable issue of fact because the term “prompt” is not defined in the Contract and SELF did not submit evidence regarding when the incurred value reached $125,000. We disagree. As an initial matter, SELF submitted evidence, in the deposition transcript from the Prior Lawsuit, that the incurred value exceeded $200,000 nearly two years before notice was provided to SELF. Moreover, because SELF met its initial burden, MSIA was the party obligated to submit evidence about the meaning of “prompt” in the Contract and the date on which the incurred value reached $125,000, in order to demonstrate the existence of a disputed issue of fact. (Aguilar, supra, 25 Cal.4th at p. 850 [once the moving party meets its burden of production, “the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact”].) While MSIA speculates that the incurred value may have only reached $125,000 shortly before notice was provided in 2006, it points to no evidence of when the incurred value reached $125,000, or even of any relevant events occurring shortly before notice was provided that might have increased the incurred value of the Claim (i.e., an additional surgery or diagnosis). MSIA therefore failed to carry its burden of production to show the existence of a disputed fact.
II. Attorney Fees
MSIA challenges the trial court’s order awarding fees to SELF pursuant to Code of Civil Procedure section 1038 (section 1038). We reverse the fee award.
Section 1038 authorizes an award of fees for a defendant in an indemnity action after prevailing on a dispositive motion (including summary judgment) if the plaintiff did not bring the proceeding “with reasonable cause and in the good faith belief that there was a justifiable controversy under the facts and law.” (§ 1038.) The trial court found MSIA lacked both reasonable cause and good faith. Because the determination that MSIA lacked good faith rests solely on the lack of reasonable cause, we review whether there was reasonable cause. Our review on this issue is de novo. (Austin B. v. Escondido Union School Dist. (2007) 149 Cal.App.4th 860, 888 [“[t]he ‘reasonable cause’ prong [of § 1038] is reviewed de novo”].)
“ ‘[R]easonable cause’ [is] defined under an objective standard as ‘ “whether any reasonable attorney would have thought the claim tenable.” ’ ” (Kobzoff v. Los Angeles County Harbor/UCLA Medical Center (1998) 19 Cal.4th 851, 857 (Kobzoff ).) “[T]he term ‘reasonable cause’ in section 1038 . . . is synonymous with the term ‘probable cause’ in malicious prosecution law.” (Clark v. Optical Coating Laboratory, Inc. (2008) 165 Cal.App.4th 150, 183.) The probable cause standard, in turn, is “equivalent to that for determining the frivolousness of an appeal . . . . Only those actions that ‘ “any reasonable attorney would agree [are] totally and completely without merit” ’ may form the basis for a malicious prosecution suit.” (Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 817 (Wilson).) For example, in cases where “the plaintiffs were injured on public property and sued . . . governmental entities for their injuries: the city, county, and state,” and were subsequently informed that two of the three entities “neither owned nor controlled the accident sites,” reasonable cause under section 1038 was lacking as to those defendants. (Kobzoff, supra, 19 Cal.4th at p. 859 [discussing Carroll v. State of California (1990) 217 Cal.App.3d 134 and Knight v. City of Capitola (1992) 4 Cal.App.4th 918].) Similarly, a plaintiff lacked reasonable cause where a “conclusive statutory immunity” protected the defendant from liability. (Kobzoff, at p. 863.)
Although we have concluded SELF was properly granted summary judgment, “[a] defendant may not recover section 1038 costs simply because it won a summary judgment or other dispositive motion; victory does not per se indicate lack of reasonable cause.” (Kobzoff, supra, 19 Cal.4th at p. 856.) We conclude MSIA’s newly discovered documents, although not particularly persuasive and ultimately unsuccessful, were not a frivolous ground to attempt to avoid the collateral estoppel effect of the Prior Lawsuit. (Wilson, supra, 28 Cal.4th at p. 817 [litigants “ ‘ “have a right to present issues that are arguably correct, even if it is extremely unlikely that they will win” ’ ”].)
DISPOSITION
The portion of the judgment awarding attorney fees and costs to SELF is reversed. In all other respects, the judgment is affirmed. The parties shall bear their own costs on appeal.





SIMONS, J.



We concur.




JONES, P.J.




BRUINIERS, J.