OneBeacon America Ins. Co. v. Superior
Court

 

 

 

 

 

 

 

 

 

 

 

Filed 6/17/13  OneBeacon America Ins. Co. v. Superior Court
CA2/7

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>NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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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  This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115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

 

SECOND
APPELLATE DISTRICT

 

DIVISION
SEVEN

 

 
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ONEBEACON AMERICA INSURANCE COMPANY,               Petitioner,               v.   THE SUPERIOR COURT OF LOS ANGELES COUNTY,               Respondent;   ROCKWELL AUTOMATION CORPORATION, et al.,               Real Parties in Interest.

No. B244628         (Super. Ct. No. BC327570)       (Elihu M. Berle, Judge)         WRIT OF MANDATE

 

            ORIGINAL
PROCEEDING.  Petition for writ of
mandate. Elihu Berle, Judge.  Writ
granted.

            Selman
Breitman, Jeffrey C. Segal and Ilya A. Kosten for Petitioner.

            No
appearance for Respondent.

            Latham
& Watkins, G. Andrew Lundberg, Karen R. Leviton, Alexandra A. Roje, and
Ashley N. Johndro for Real Parties in Interest.

 

_______________________

In this complex insurance
litigation, OneBeacon America Insurance Company petitions this court for a writ
of mandate compelling the trial court to vacate its ruling granting a motion
for summary adjudication filed by Rockwell Automation, Inc., Meritor, Inc., and
Invensys, Inc.  We issued an order to
show cause why the trial court should not be compelled to vacate its order and
enter a new order denying the motion for
summary adjudication, and we now grant the petition for writ of mandate.

 

FACTUAL AND PROCEDURAL BACKGROUND

 

Petitioner OneBeacon is a successor in interest to
three insurance companies that allegedly provided insurance coverage in the
1960s and 1970s to predecessor entities of Rockwell International Company,
known by the parties as “Old Rockwell.” 
OneBeacon acknowledges that Old Rockwell would be entitled by operation
of law to insurance coverage under the policies issued by OneBeacon’s
predecessors.

In 1988, Old Rockwell sold its measurement and flow
control business to BTR Dunlop pursuant to an asset sale agreement.  That agreement was later supplemented by a
1995 agreement between Old Rockwell and BTR Dunlop concerning the allocation of
liabilities between the two entities. 
Through further business transactions, BTR Dunlop became Invensys plc,
the parent company of real party in interest Invensys, Inc. 

In 1996, Old Rockwell conveyed its
“non-aviation/non-defense” or “non-aerospace and non-defense” businesses to
Rockwell International Corporation, known as “New Rockwell.”  Old Rockwell then merged with a subsidiary of
Boeing, and that subsidiary subsequently merged with Boeing.  New Rockwell underwent a series of name
changes and became Rockwell Automation, Inc., a real party in interest.

New Rockwell is alleged to have conveyed its
automotive business to subsidiaries of Meritor Automotive, Inc. in 1997 by
distribution agreement.  Meritor
Automotive merged with Arvin Industries, Inc. in 2000 to form ArvinMeritor,
Inc., one of the real parties in interest, which has since changed its name to
Meritor, Inc. 

Real parties in interest Rockwell Automation, Meritor,
and Invensys (collectively, the Rockwell parties”) seek insurance coverage
under the policies that were issued by OneBeacon’s predecessors to the
predecessors of Old Rockwell.  The
Rockwell parties are defendants and cross-complainants in the instant
litigation.  OneBeacon is a defendant and
cross-defendant. 

The litigation has been proceeding in phases.  The parties stipulated that the first issue
to be adjudicated by the trial court is the “Assignment Issue”:  “Whether the several transactions between
1988 and 1997, inclusive, involving assets of Rockwell International
Corporation, as among the parties to those transactions, assigned or otherwise
transferred any interests in or rights under any or all of the Policies to
defendants Rockwell Automation, Inc., ArvinMeritor, Inc., and/or Invensys, Inc.
(the ‘Rockwell Parties’).”

On May 6, 2011, the Rockwell parties moved for summary
adjudication of the issue of duty:  they
sought a summary adjudication that based on the insurance policies issued to
the predecessors of the Rockwell parties, OneBeacon and the other insurers owed
the Rockwell parties the duties running from insurer to insured with respect to
asbestos claims that had been asserted against them.

After two hearings on the motion and supplemental
briefing, the trial court granted the motion for summary adjudication.  OneBeacon subsequently filed the instant writ
petition seeking relief from the court’s ruling.  We issued an order to show cause why the
trial court should not be compelled to vacate its ruling and issue a new and
different order denying the summary adjudication motion.

 

DISCUSSION

 

I.                   
The Law of Summary Adjudication

“A party may move for summary adjudication as to one
or more causes of action within an action, one or more affirmative defenses,
one or more claims for damages, or one or more issues of duty, if that party
contends that the cause of action has no merit or that there is no href="http://www.fearnotlaw.com/">affirmative defense thereto, or that
there is no merit to an affirmative defense as to any cause of action, or both,
or that there is no merit to a claim for damages, as specified in Section 3294
of the Civil Code, or that one or more defendants either owed or did not owe a
duty to the plaintiff or plaintiffs.  A
motion for summary adjudication shall be granted only if it completely disposes
of a cause of action, an affirmative defense, a claim for damages, or an issue
of duty.”  (Code Civ. Proc., § 437c,
subd. (f)(1).) 

The party moving for summary adjudication bears the
“initial burden of production to make a prima facie showing of the nonexistence
of any triable issue of material fact” with respect to the cause of action,
affirmative defense, claim of damages, or issue of duty that is the basis of
the motion.  (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 (Aguilar);
see Code Civ. Proc., § 437c, subd. (p).)  “A prima
facie showing is one that is sufficient to support the position of the party in
question.”  (Aguilar, at p. 851.)  If
the moving party makes such a showing, the burden shifts to the other party to
show that a triable issue of one or more material facts exists as to the
litigated cause of action, defense, claim of damages, or issue of duty.  (Id. at p. 849; Code Civ. Proc., § 437c, subd. (p).)  If the other party does not make this
showing, summary judgment in favor of the defendant is appropriate.  If the other party makes such a showing,
summary judgment should be denied.  On appeal, we review the
trial court’s ruling de novo.  (>Conejo Wellness Center, Inc. v. City of
Agoura Hills (2013) 214 Cal.App.4th 1534, 1548.) 

 

II.                
Summary Adjudication Motion and Ruling

 

The Rockwell parties moved for a summary adjudication
on the issue of duty:  they claimed that
OneBeacon and the other insurers owed them the duties running from insurer to
insured under the insurance policies that had been issued to their predecessors
because the rights to the insurance coverage were assigned to them by the
various agreements conveying the business operations to them.  The Rockwell parties articulated a legal
theory that, as a matter of law, the present-day concurrence of the contracting
parties as to the meaning of the agreements was conclusive on the issue of
whether assignments had occurred, and the insurers, including OneBeacon, had no
legal right to dispute the meaning ascribed to the agreements by the successors
of the contracting parties. 

Pursuant to this theory, the Rockwell parties argued
that only one fact was material to the determination of whether they were
assigned the insurance coverage at the time they took over various business
operations:  do the parties to those
transactions now agree that the Rockwell parties were assigned insurance
coverage?  As evidence to establish that
no triable issue of material fact existed concerning the concurrence among the
Rockwell parties and Boeing as to their present-day construction of the
contract, the Rockwell parties submitted certifications by each real party in
interest, a further declaration from each certifying officer, and declarations
from Boeing officials attesting that each business now agrees that the
contracts should be understood as assigning insurance coverage as part of the
transactions. 

The trial court accepted the Rockwell parties’
argument that the present mutual interpretation of the contract language is
determinative, and concluded that OneBeacon owes the Rockwell parties the
duties running from insurer to insured under the insurance policies that its
predecessors had issued to the Rockwell parties’ predecessors.  The court noted that although the general
rule is that contracts are construed in light of the circumstances existing at
the time of the making of the contract, that rule developed in the context of
parties disagreeing “as to the contractual intent of the initial parties to the
contract.”  But here, the parties to the
transaction agreements agreed on their interpretation, and the court concluded
that it should not override the mutual understanding of the parties to the
contracts absent circumstances in which equitable concerns required a different
result. 

The court found that the Rockwell parties had submitted sufficient
evidence to demonstrate Boeing and the Rockwell parties’ present shared
understanding that the transaction agreements assigned them Boeing’s rights to
coverage for the asbestos liabilities at issue in the litigation, and that they
had met their initial burden on summary adjudication.  The insurers’ showing in response, the trial
court ruled, was insufficient to demonstrate a triable issue of material fact
“regarding Rockwell parties’ and Boeing’s mutual current understanding to be
that the Rockwell parties were assigned the specific rights at issue in the
present case.”  Their evidence of statements
made in another action involved different policies, issued by different
insurers, covering different businesses, and those statements were not
inconsistent with Boeing’s “current recognition that it assigned specific
rights of the policies at issue here to the Rockwell parties.”  The insurers’ evidence on the issue of what
the court called “historical intent”—intent at the time of the transaction
agreements—was “immaterial,” because “the parties’ present understanding must
control.”  Evidence of Boeing’s intent
prior to entering the transaction agreements was “immaterial as to what the
contracting parties ultimately decided was the meaning of the transaction
agreements, and, therefore, the court concludes that the evidence regarding
Boeing’s prior musings is insufficient to raise [a] triable issue of material
fact.” 

The court concluded that OneBeacon and the other
insurers had not presented evidence showing that as a matter of equity the
court should depart from the general rule that the contracting parties’ mutual
understanding of the contract is conclusive on its interpretation.  At most, the court found, they had argued
that the Rockwell parties could change the intent and meaning of the
transactions at any time, leading to a potentially different understanding of
the meaning of the transaction agreements at any point in the future, but this
argument was insufficient to establish a triable issue of material fact because
the insurers presented no evidence of detrimental reliance, a contrary position,
potential double recovery, or any other equitable concern. 

Accordingly, the trial court
concluded, the Rockwell parties had established that they were entitled to
summary adjudication of the issue of duty in their favor, although the specific
details of the duties owed under each policy remained to be determined later in
the action. 

III.              
The Motion for Summary Adjudication Should Have Been Denied

A.    
Relevant Law on Intent and Contract Interpretation

Although OneBeacon raises a number of procedural
challenges to the grant of summary adjudication, we address the central
substantive question underlying the motion for summary adjudication:  Is the mutual present interpretation of a
contract by the successors of the contracting parties determinative of the
meaning of the contract as it relates to the question of duty?  While there appears to be some debate whether
California or New York law applies to this question, under either state’s law
the outcome is the same.

Under both California and New York law, the fundamental
goal of contract interpretation is to carry out the mutual intention of the
parties at the time of contracting.href="#_ftn1"
name="_ftnref1" title="">[1]  California Civil Code section 1636 provides,
“A contract must be so interpreted as to give effect to the mutual intention of
the parties as it existed at the time of contracting, so far as the same is
ascertainable and lawful.”  In New York,
“[i]t is well settled that [the court’s] role in interpreting a contract is to
ascertain the intention of the parties at the time they entered into the
contract.”  (Evans v. Famous Music Corp. (N.Y. 2004) 807 N.E.2d 869, 872.)  The trial court’s conclusion that the
parties’ mutual present understanding as to the meaning of contracts entered
into by their predecessors conclusively establishes the meaning of those
contracts contravenes this principle. 
Present-day concurrence between the successors to the original parties
to the contracts as to how they now contend the contracts should be interpreted
is neither equivalent to nor determinative of the objectively manifested intent
of the original contracting parties at the time they entered into the
contracts.  (See Steller v. Sears, Roebuck and Co. (2010) 189 Cal.App.4th 175,
184-185 [intent of parties determined based on objective manifestations of
agreement and expressions of intent]; Brown
Bros. Elec. Contrs., Inc. v. Beam Constr. Corp. (N.Y. 1977) 361 N.E.2d 999,
1001 [look to “the objective manifestations of the parties as gathered by their
expressed words and deeds” when determining whether a contract was formed and
what were the terms].)

Because the goal of contract
interpretation is to carry out the mutual intention of the parties at the time
of contracting, the central question on the issue of duty here is the mutual
intention of the parties at the time of contracting with respect to the
assignment of insurance coverage, if any mutually held intent existed.  The Rockwell parties’ motion for summary
adjudication was not directed toward establishing that no triable issue of
material fact existed on this issue, and the evidentiary showing did not
pertain to intent at the time of entering into the contract.  Accordingly, the Rockwell parties failed to
meet their initial burden to demonstrate no triable issue of fact existed as to
duty, and the trial court should have denied their motion for summary
adjudication.  (Code Civ. Proc.,
§ 437c, subd. (p).) 

 

B.        Rockwell Parties’ Arguments

 

We are not persuaded by the Rockwell parties’
arguments for disregarding the central precept that the meaning of the contract
is the meaning that the parties ascribe to it at the time of contracting.  First, the Rockwell parties rely upon section
201(1) of the Restatement (Second) of Contracts.  Restatement (Second) of Contracts, section
201 provides that if the parties attach the same meaning to a contract or
contract term, the contract is interpreted in accordance with that meaning; but
if the parties differ in the meaning they attach to a contract or term thereof,
it is interpreted in accordance with the meaning attached by one of them if at
the time the agreement was made that party did not know of or had no reason to
know of any different meaning attached by the other, but the other knew or had
reason to know the meaning attached by the first party.  (Rest. 2d. Contracts, § 201.)  Not only does section 201, when read in its
entirety rather than taking one subdivision in isolation, appear to concern the
meaning held by the parties at the time of contracting, but also the
Restatement cannot supersede California and New York law that the intent at the
time of contracting is the intent to be effectuated when interpreting a
contract.  (Cal. Civ. Code, § 1636; >Evans v. Famous Music Corp., >supra, 807 N.E.2d at p. 872.)

Next, the Rockwell parties rely upon >Insurance Corporation of America v. Dillon,
Hardamon & Cohen (N.D. Ind. 1988) 725 F.Supp. 1461, in which the
parties to an insurance contract agreed on the amount of coverage provided by
the policy per policy year, and the insurer argued that when an insurer and
insured agree on the interpretation of a particular provision, that agreement
ends all inquiry into the meaning of the contract.  (Id.
at pp. 1464-1465.)  While the
district court did find attractive the mutual-agreement argument advanced by
the insurer, noting that it “has much to recommend it” (id. at p. 1465), the court did not accept the insurer’s
argument and treat the agreement between the parties as conclusive.  Instead, after acknowledging the
persuasiveness of that argument, the district court ruled that the agreement or
disagreement of the parties was ultimately irrelevant because the insurance
contract was not ambiguous and could reasonably be interpreted in only one
way.  (Id. at pp. 1465-1467.) 
Moreover, this approach to contract interpretation may have appealed to
the Dillon court because it was
applying Indiana law, which the court did not understand to require
determination of the intent of the parties at the time of contracting:  The Dillon
court described its obligation “to ascertain and enforce the intent of the
parties,” but the court did not appear to believe itself restricted to
ascertaining and enforcing the intent of the parties at any particular point in
time.  (Id. at p. 1464.)  A
court applying California or New York law is, in contrast to the >Dillon court, properly focused on the
intent of the parties at the time they entered into the contract in
question.  (Cal. Civ. Code, § 1636; >Evans v. Famous Music Corp., >supra, 807 N.E.2d at p. 872.)

Last, the Rockwell parties assert without supporting
authority that the principle that contracts are to be interpreted in accordance
with the intent of the parties at the time of contracting “simply has no
application where, as here, the contracting parties are in accord on that
intent . . . .”  The
Rockwell parties, however, did not present evidence in conjunction with their
summary adjudication motion of any accord as to intent at the time the
contracting parties entered into the contracts regarding assignments of
insurance coverage.  Their evidentiary
showing was limited to establishing a shared present-day understanding of the
contracts, and they argued that evidence pertaining to intent at the time of
contracting was irrelevant and immaterial. 


The Rockwell parties’ position that the contracting
parties’ present day agreement is paramount and conclusive on the meaning of
the contracts with respect to assignments fails not only because it contravenes
California and New York law on the interpretation of contracts, but also
because it presents significant potential for abuse.  This view amounts to an assertion that when
two parties enter into a contract that impacts the obligations of a third
party, then regardless of what the contract terms provide,href="#_ftn2" name="_ftnref2" title="">[2]
the parties to that contract (or their successors) may, at any point in the
future, decide what they at that juncture wish the contract to mean with
respect to the third party, then compel the third party to comply with their
later-selected interpretation.  The
affected third party has no recourse, no matter what the parties have later
decided their earlier contract obligated the third party to do, for to resist
the latter-day agreement about the earlier contract would make the third party
an “officious intermeddler.”  Or, to
place this argument in the context of the factual allegations in this case,
Boeing and the Rockwell parties can in 2011 agree to interpret their contracts
dating from 1988 to 1997 as having assigned insurance coverage rights in the
subject transactions.  Then, by virtue of
this 2011 agreement, they may compel the insurers that issued numerous
insurance policies decades earlier to cover claims made against the Rockwell
parties—regardless of what the contracting companies intended to happen to the
insurance coverage at the time they entered into the contracts.  The insurers apparently have no ability to
constrain or challenge the interpretation of the successors to the contracting
parties despite the obvious impact on their obligations, nor does the court
appear to have any role except to enforce whatever Boeing and the Rockwell
parties in the present day agree about what they would like those contracts to
have accomplished with respect to assigning insurance coverage.  This cannot be the law. 

We conclude that because the
mutual present interpretation of a contract by the successors of the
contracting parties is not determinative of the meaning of the contract, the
Rockwell parties’ motion for summary adjudication and accompanying evidentiary
showing were insufficient to demonstrate that no triable issue of material fact
existed as to the issue of duty. 
(Code Civ. Proc., § 437c, subd. (p).)  The trial
court erred in granting the motion for summary adjudication.href="#_ftn3" name="_ftnref3" title="">[3]

DISPOSITION

            The writ of mandate is
issued directing the trial court to vacate its order of September 14, 2012,
granting the motion for summary adjudication, and to enter a new and different
order denying the motion. 

 

 

 

                                                                                    ZELON,
J.

We
concur:

 

 

 

            WOODS, Acting P. J.

 

 

 

            SEGAL, J.href="#_ftn4" name="_ftnref4" title="">*