LYKES LINES LIMITED LLC, Plaintiff,

v.

BRINGER CORPORATION, Brasif Duty Free Shop Ltda., Axa Seguros Brasil S/A, Eurotrade Ltd. and Parbel of Florida, Defendants.

March 12, 2007.

 

 

DECISION AND ORDER

BERMAN, J.

 

I. Background

 

On or about June 15, 2004, Lykes Lines Limited LLC (“Plaintiff” or “Lykes”) filed a complaint (“Complaint”) against Bringer Corporation (“Bringer”), Brasif Duty Free Shop Ltda. (“Brasif”), Axa Seguros Brasil S/A (“Axa”), Eurotrade Ltd. (“Eurotrade”) and Parbel of Florida (“Parbel”) (together, “Defendants”), alleging, among other things, that by commencing a lawsuit in Brazil (“Brazil Action”) relating to damage to a shipment of certain toiletries in July, 2003, Defendants (i.e., Axa) “deprived plaintiff of its right to be sued only in this district and of the limitation of liability provided by U.S. law and by contract.” (Complaint ¶  16.) Among other things, Plaintiff seeks a declaration that the Carriage of Goods by Sea Act, 46 U.S.C. §  1300 et seq. (“COGSA”) “limit[s] its liability … to no more than $18,500” (“Declaratory Judgment Claim”); an “injunction prohibiting defendants from maintaining any suit relating to damage or loss of cargo … in any forum other than the United States District Court for the Southern District of New York” (“Injunction Claim”); and “judgment against [Defendants] in an amount which reflects the difference between the judgment [$184,602.34] awarded against plaintiff by [the] Brazilian Court [“Brazil Judgment”] and $18,500” (“Offset Claim”). (Complaint ¶ ¶  18-22.) None of the Defendants has filed an Answer to the Complaint, and only Axa and Brasif have participated in the instant motion practice.

 

This case involves the shipment (“Shipment”), on or about July 31, 2003, of a 20-foot container holding 14 pallets and 23 loose cartons-or a total of 37 “packages”-of toiletries which had been loaded in Miami, Florida by Bringer, the “shipper/exporter.” (Complaint ¶  7.) Upon receiving the container from Bringer, Lykes “issued [a] non-negotiable bill of lading [dated July 31, 2003] to Bringer … for the carriage of the container from Miami, Florida to Santos, Brazil aboard M/V CSAV NEW YORK.” (Complaint ¶  7; see also Bill of Lading, dated July 31, 2003 (“Bill of Lading”), attached as Exhibit (“Ex.”) A to Declaration of Patrick L. Jones, dated August 24, 2006.) “When the container arrived in … Brazil, various contents of various cartons of perfumery were missing.” (Declaration of Nilo Dias De Carvalho Filho, dated August 10, 2006 (“Filho Dec.”), ¶  3.)

 

Brasif was named in the Bill of Lading as consignee of the Shipment, and the contents of the container were owned by Eurotrade and Parbel. (Complaint ¶ ¶  6-8, 10.) Axa had issued a marine cargo insurance policy to Brasif, dated January 1, 2003 (“Policy”), which “insured the contents of the container for marine risks, (Complaint ¶  9), and Eurotrade was the designated beneficiary under the Policy. “Brasif … made a claim as the assured under the policy for the shortage” (Filho Dec. ¶  3), and on November 14, 2003, Axa paid Eurotrade $184,602.34 (as beneficiary) and Axa became “subrogated to the rights of Brasif” against Lykes under the Bill of Lading. (Complaint ¶  9; Filho Dec. ¶  3.)

 

The Bill of Lading provides, among other things, that: (i) “[COGSA] shall be compulsorily applicable” (Bill of Lading §  5(a)(2)); (ii) any claim regarding shipments to and from the United States “shall be subject to the exclusive jurisdiction of the U.S. District Court of the Southern District of New York which shall apply U.S. Law” (Bill of Lading §  3(b)); and (iii) “[i]n no event shall the carrier be liable for loss or damage in connection with the goods in an amount exceeding … U.S. $500 per package.” (Bill of Lading §  18(b).)

 

 

Applying this $500 per package limitation to the 37 packages, Plaintiff alleges that its liability should be limited to $18,500. (See Complaint ¶  15.)

 

On or about July 8, 2004, Axa “filed a complaint in Civil District Court in Brazil against Lykes … seeking recovery for damage to [the contents of the container] insured by Axa.” (Defendants’ Rule 56.1 Statement, dated Jan. 5, 2007 (“Def.56.1”) ¶  1.) Lykes (unsuccessfully) moved to dismiss the complaint based upon the Bill of Lading forum selection clause. (See Filho Dec. ¶ ¶  3-4 (“[Lykes] filed an appearance and answer … raising affirmatively the defense that the court in Brasil lacked jurisdiction because [the Bill of Lading] contains a forum selection clause which requires all cargo claims to be prosecuted in the United States District Court for the Southern District of New York. At the time the motion was filed, [it was] understood that it was likely that the motion would be denied”).); see also Declaration of Cintia Malfatti Massoni, dated Dec. 29, 2006, ¶  4 (“[Lykes] specifically alleged that the Southern District of New York was the proper venue for this action”).) Lykes’s motion to dismiss was denied by the Brazilian court on or about July 26, 2005.  (Filho Dec. ¶  4.) On May 31, 2006, “after a trial on all the merits … the District Court for Santos-SP, Brazil, held in favor of Axa, ordering … Lykes to pay Axa the sum of 532,227.01 Brazilian Reales” or approximately $184,602.34. (Def. 56.1 ¶  4; Filho Dec. ¶  4.)

 

On or about January 5, 2007, Axa and Brasif moved in this Court, pursuant to Federal Rules of Civil Procedure (“Fed. R. Civ.P.”) 12(b)(2), 12(b)(3) and 56, to dismiss the Complaint and for summary judgment (and opposed Plaintiff’s motion for a default judgment and partial summary judgment which had been filed on or about September 5, 2006) arguing, among other things, that: (1) “[s]ince Brazilian law requires that a Brazilian Defendant be served with a letter rogatory through [the] Brazilian [ ] central authority, adequate service on Defendant Axa … has not been accomplished”; and Lykes’s “purported service upon Brasif in Miami” was improper because Lykes “failed to properly serve Brasif’s registered agent”; (2) because “Lykes’ full participation in the Brazil Action waived Lykes’ right to enforce the New York forum selection clause” the Court should “enforce the [Brazilian Judgment] under [New York’s Uniform Foreign Judgment Recognition Act, N.Y. C.P.L.R. §  5302]”; and (3) in light of their jurisdictional defenses, “Axa and Brasif cannot be held in default.” (See Notice of Cross Motion, dated Jan. 5, 2007 (“Cross Motion”); Defendant’s Memorandum of Law, dated Jan. 5, 2007 (“Def.Mem.”); see also Defendants’ Memorandum of Law in Reply to Plaintiff’s Opposition to Defendants’ Cross-Motion, dated Feb. 12, 2007.)

 

As noted, on or about September 5, 2006, Plaintiff moved, pursuant to Fed.R.Civ.P. 55(b)(2), 56 and 57, against Axa, Brasif and Eurotrade-but not against Bringer or Parbel-for a default judgment and for partial summary judgment. Plaintiff argues, among other things, that: (1) “[Axa] cannot … argue that it did not have actual notice of this legal action” but “even if the Court lacks jurisdiction over [Axa], the Court should grant plaintiff the relief sought against Brasif”; (2) “Lykes did not … implicitly or explicitly relinquish its right to enforce the forum sleection clause” by participating in the Brazil Action and “the proceeding in [Brazil] was contrary to an agreement between the parties”; and (3) default judgment is warranted because Eurotrade, Axa, and Brasif have not “appeared in the action or otherwise answered.” (See Notice of Motion for Default Judgment, Injunction, Declaratory Judgment and Partial Summary Judgment, dated Sept. 5, 2006 (“Motion”); Memorandum of Law in Support of Plaintiff’s Motion, dated Sept. 6, 2006 (“Pl.Mem.”); Reply Memorandum of Law in Support of Plaintiff’s Motion, dated Jan. 31, 2007 (“Reply”).)

 

The parties have waived oral argument.

 

For the following reasons, Defendants’ motion to dismiss is granted without prejudice with respect to Axa for lack of personal jurisdiction and the Complaint is dismissed without prejudice as against the Defendants other than Axa for lack of subject matter jurisdiction.

 

 

II. Legal Standard

 

“[A] federal court generally may not rule on the merits of a case without first determining that it has jurisdiction over the cause (subject-matter jurisdiction) and the parties (personal jurisdiction).” Sinochem Intern. Co. Ltd. v. Malaysia Intern. Shipping Corp., 127 S.Ct. 1184, 1186 (2007) (citation omitted). “[A] court … will raise lack of subject-matter jurisdiction on its own motion.” Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982).

 

“Valid service of process is an indispensable prerequisite to the assertion of personal jurisdiction over a defendant.” Ferrostaal, Inc. v. HACI HASSAN YARDIM, No. 03 Civ. 4886, 2006 WL 2819585, at(S.D.N.Y. Sept. 29, 2006).  “When the validity of personal jurisdiction or service of process is challenged through a motion pursuant to Fed.R.Civ.P. 12(b)(2) or 12(b)(5), the plaintiff bears the burden of proving that process was properly served.” Id.

 

“If a dispute is not a proper case or controversy, the courts have no business deciding it, or expounding the law in the course of doing so.”  DaimlerChrysler Corp. v. Cuno, 126 S.Ct. 1854, 1860-61 (2006).

 

 

III. Analysis

 

(1) Personal Jurisdiction

 

 

Defendants argue that “Lykes’ invalid service of process [upon Axa] in Brazil did not confer personal jurisdiction on [the Court],” and that although “the docket sheet does reflect a purported service upon Brasif in Miami … Lykes’s process server failed to properly serve Brasif’s registered agent.” (Def. Mem. at 5; Declaration of John J. Sullivan, dated Jan. 5, 2007 (“Sullivan Dec.”), ¶  5.) Plaintiff counters that while failure to properly serve Axa “may constitute lack of legally sufficient service depriving this Court of personal jurisdiction, [Axa] cannot and does not argue that it did not have actual notice of this legal action” and “[Axa] has waived the affirmative defense of insufficient process by … assert[ing] a counterclaim” (Reply at 2-3). Plaintiff also argues that “[t]he service of process on [the] general manager of Brasif [in Florida] complied with [Florida law].” (Reply at 2-4.)

 

 

Axa

 

Rule 4(f) of the Federal Rules of Civil Procedure governs service of process upon a foreign defendant and provides, in pertinent part, that service may be effected:

(1) by any internationally agreed means reasonably calculated to give notice, such as those means authorized by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents; or

(2) if there is no internationally agreed means of service … [then as follows]:

(A) in the manner prescribed by the law of the foreign country for service in that country in an action in any of its courts of general jurisdiction….

 

Fed.R.Civ.P. 4(f). The parties do not dispute that “Brazilian law requires that service of process by a foreign party upon a party domiciled in Brazil must be made by means of letters rogatory.” Alpha Omega Technology, Inc. v. PGM-Comercio E Participacoes Ltda., No. 93 Civ. 6257, 1994 WL 37787, at(S.D.N.Y. Feb. 9, 1994). And, because Plaintiff concedes that “[Axa] was not served in accordance with Inter-American Convention of Letters Rogatory” (Reply at 2), jurisdiction over Axa has not been obtained. See Tucker v. Interarms, 186 F.R.D. 450, 453 (N.D.Ohio 1999) (“[Plaintiff] has not yet obtained sufficient service of process upon [Brazilian defendant]”); see also Weston Funding, LLC v. Consorcio G Grupo Dina, S.A. de C.V., 451 F.Supp.2d 585, 589 (S.D.N.Y.2006) (“Defective service [cannot] be ignored on the mere assertion that a defendant had actual notice”); Zeballos v. Tan, No. 06 Civ. 1268, 2006 WL 1975995, at(S.D.N.Y. July 10, 2006) (“The trend in recent cases … is to hold that no Rule 12(b) defense is waived by the assertion of a counterclaim, whether permissive or compulsory.”) (quotation omitted).

 

Although a court “may excuse failure to comply with … service requirement[s] for good cause,” Jonas v. Citibank, N.A., 414 F.Supp.2d 411, 416 (S.D.N.Y.2006), “Plaintiff has not shown good cause for [its] failure to serve,” Cunningham v. City of New York, No. 04 Civ.1998, 2006 WL 1520210, at(S.D.N.Y. June 1, 2006). Accordingly, the Complaint is dismissed without prejudice against Axa. See Astarita v. Urgo Butts & Co., No 96 Civ. 6991, 1997 WL 317028, at(S.D.N.Y. June 10, 1997) (“[P]laintiff offers no explanation or reasonable excuse for her failure to serve, and dismissal is warranted.”).

 

 

Brasif

 

As to Brasif, which is registered with the Florida Secretary of State as a foreign (Brazilian) corporation (Sullivan Dec. Ex. K), Fed.R.Civ.P. 4(h)(1) “provides that service may be made on a corporation in the manner prescribed for individuals in Rule 4(e)(1),” State Farm Mut. Auto. Ins. Co. v. CPT Medical Services, Inc., No. 04 CV 5045, 2005 WL 2465818, at(E.D.N.Y. Oct. 6, 2005), i.e., “pursuant to the law of the state in which … service is effected.” Fed.R.Civ.P. 4(e)(1). Florida law provides that “[p]rocess against any private corporation, domestic or foreign, may be served … on [a corporation’s] cashier, treasurer, secretary, or general manager.” Fla. Stat. Ann. §  48.081(1) (West 2007).

 

An Affidavit of Service, dated October 25, 2004, indicates that Brasif was served in Miami, Florida via Ernesto Cruz, “as General Manager of the within named corporation, in compliance with Florida Statutes.” (See Affidavit of Service, dated Oct. 25, 2004, attached as Ex. I to Sullivan Dec.) Defendants’ argument that “Brasif had a registered agent for service of process in Florida … but Lykes’s process server failed to properly serve Brasif’s registered agent” (Sullivan Dec. ¶  5), is unpersuasive because Plaintiff “chose to serve process in accordance with the method prescribed in 48.081(1), rather than serve the registered agent…. That choice was the plaintiff’s to make; it was not required to serve the registered agent.” NTCA Corp. v. Associates Commercial Corp., 812 So.2d 506, 507 (Fla Dist. Ct.App.2002).

 

 

(2) The Brazil Action and Judgment

 

Because the Court lacks jurisdiction over Axa, it is inappropriate to consider Axa’s claim to enforce the Brazilian Judgment against Lykes. See Zeballos, 2006 WL 1975995 at(“[T]he Court views the assertion of counterclaims as contingent on the Court’s rejection of defendant’s defense of improper service. As the Court has not rejected the service-based defense, defendant’s contingent counterclaims remain, for the time being, a legal nullity.”); see also Wafios Machinery Corp. v. Nucoil Industries Co., No. 03 Civ. 9865, 2004 WL 1627168, at(S.D.N.Y. July 21, 2004) (“[W]hen both jurisdictional defenses and counterclaims are included in a single responsive pleading, it is appropriate to treat the counterclaim as conditional: its assertion being hypothecated upon an adverse ruling on Defendant’s jurisdictional defenses.”) (quotation omitted).

 

 

Nor is the Court deciding whether “Lykes has waived its right [to limit liability] by willfully defending its interests in Brazil through to unfavorable verdict” (Def. Mem. at 6), because, without Axa, it would be difficult if not impossible to resolve the significant factual and legal issues associated with the Brazilian litigation.

 

(3) Default Judgment

 

The Court does not reach the merits of Plaintiff’s Motion for default judgment because, without Axa in the case, there appears to be no case or controversy. See Holt v. Lake County Bd. of Com’rs, 408 F.3d 335, 336-37 (7th Cir.2005) see also Goldman v. Fairbanks Capital Corp., 348 F.Supp.2d 115, 119 (S.D.N.Y.2004). “A claim is not ripe for adjudication if it rests upon ‘contingent future events that may not occur as anticipated, or indeed may not occur at all.” ’ Texas v. U.S., 523 U.S. 296, 300 (1998) (citation omitted). A court “may examine subject matter jurisdiction, sua sponte, at any stage.” F .D.I.C. v. Four Star Holding Co., 178 F.3d 97, 100 n. 2 (2d Cir.1999).

 

 

Plaintiff bears the burden of proving the existence of an actual controversy, i.e., “one that is real and substantial admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.” E.R. Squibb & Sons, Inc. v. Lloyd’s & Companies, 241 F.3d 154, 177 (2d Cir.2001).

 

Plaintiff has not met its burden of proving a “real and substantial” controversy for several reasons. First, because Axa is “subrogated to the rights of Brasif” against Plaintiff (see Complaint ¶  9), Brasif does not appear to have a claim against Plaintiff-and vice versa. See Allstate Ins. Co. v. Mazzola, 175 F.3d 255, 259 (2d Cir.1999) (“Subrogation is the principle which exists to prevent double recovery by the insured….”). Second, because Axa and Plaintiff appear to have been the (only) parties to the Brazil Action and the Brazil Judgment (Plaintiff’s Response to Defendants’ Rule 56.1 Statement, dated Jan. 31, 2007, ¶ ¶  1-5), Brasif does not appear to have standing to enforce the Brazil Judgment against Plaintiff. See Sanders v. Republic Services of Kentucky, LLC, 113 Fed. Appx. 648, 650 (6th Cir.2004) (non-parties to judgment lacked standing to enforce its terms). Third, without Axa, Plaintiff’s request that the Court enjoin or limit or reduce the Brazilian Judgment would if granted result in little more than an advisory ruling on a hypothetical set of facts. See Associated Indem. Corp. v. Fairchild Indus., Inc ., 961 F.2d 32, 35 (2d Cir.1992) (where there was no “ ‘practical likelihood that the [relevant] contingencies will occur …” ’) (citation omitted); Josephthal & Co. Inc. v. John Phillips & Co., No. 00 Civ. 3479, 2001 WL 286719, at(S.D.N.Y. March 23, 2001) (“[The] mere apprehension of a future enforcement proceeding does not provide this Court with a justiciable controversy”); see also Bastys v. Rothschild, No. 97 Civ. 5154, 2000 WL 1810107, at (S.D.N.Y. Nov. 21, 2000) (court may not rule upon “hypothetical claims”).  Fourth, Plaintiff’s argument that Brasif failed to “instruct[ ] its assignee/subrogee AXA Seguros not to sue Lykes in Brazil because that constituted a breach of the contract of carriage which was binding on Brasif” (Pl. Reply at 5), is not supported by “any colorable legal authority suggesting that Brasif belongs in the financial hotseat on account of the actions of its subrogee, Axa.” (Def. Reply at 1 n. 1); see, e.g., Farrell Lines Inc. v. Columbus Cello-Poly Corp., 32 F.Supp.2d 118, 126 (S.D.N.Y.1997); Multi Video Group, Ltd. v. Canarick, No. 01 Civ. 1753, 2001 WL 1631420, at(S.D.N.Y. Dec. 19, 2001).

 

 

Similarly, the “declaration sought will not settle the legal relations in issue at the present juncture nor will it terminate the controversy giving rise to the proceeding.” New York Guardian Mortgagee Corp. v. Cleland, 473 F.Supp. 409, 418 (S.D.N.Y.1979). “[N]o useful purpose would be served by permitting [Plaintiff] to litigate the question” because Axa, “the party with whom [Plaintiff] has the most immediate and concrete controversy, would not be bound by an adverse judgment.” Delpro Co. v. National Mediation Bd. of U.S. A., 509 F.Supp. 468, 476-77 (D.C.Del.1981); accord Meyer Mfg. Co., Ltd. v. Cuisine-Ware, Inc., No. 86 C 8144, 1987 WL 5394, at(N.D.Ill. Jan. 14, 1987) (“[T]he court, in its discretion, can decline to entertain an action for declaratory relief because of the non-joinder of an interested party, regardless of whether the absent party is indispensable.”).

 

IV. Decision and Order

 

For the reasons stated herein, the Complaint is dismissed without prejudice with respect to Axa for lack of personal jurisdiction and with respect to the other Defendants for lack of subject matter jurisdiction. The Clerk of the Court is respectfully requested to close this case.

United States District Court,E.D. California.

PROGRESSIVE CASUALTY INSURANCE CO., Plaintiff,

v.

PEERLESS INSURANCE CO., Defendants.

 

March 9, 2007.

 

 

 

 

SUMMARY JUDGMENT DECISION (Docs.10, 18.)

LAWRENCE J. O’NEILL, United States District Judge.

 

INTRODUCTION

 

In this insurance coverage action, plaintiff Progressive Casualty Insurance Company (“Progressive”) and defendant Peerless Insurance Company (“Peerless”) seek this Court’s determination whether they are co-primary insurers or whether Peerless is an excess insurer for an underlying fatality involving tractor insured by Progressive and a trailer insured by Peerless. This Court considered the parties’ summary judgment motions on the record and without oral argument or a hearing, pursuant to this Court’s Local Rule 78-230(h). For the reasons discussed below, this Court GRANTS Peerless summary judgment that its policy is excess over Progressive’s policy.

 

 

This Court carefully reviewed and considered all arguments, points and authorities, declarations, depositions, exhibits, statements of undisputed facts and responses thereto, objections and other papers filed by the parties. Omission of reference to an argument, document, paper or objection is not to be construed to the effect that this Court did not consider the argument, document, paper or objection. This Court thoroughly reviewed and considered the evidence it deemed admissible, material and appropriate for summary judgment.

 

BACKGROUND

 

Insurance Policies, Sub-Haul Agreement And Equipment Lease

 

 

Herbert Simon, dba Simon & Simon (“Mr.Simon”), owned and drove a tractor (“Simon tractor”) and was the named insured under a Progressive commercial automobile policy (“Progressive policy”), which covered the Simon tractor and a non-owned trailer. Kroeker, Inc. (“Kroeker”) is a Fresno company which engages in demolition and recycling and maintains a 35-vehicle fleet. Peerless issued a commercial automobile to Kroeker which covered Kroeker’s trailer (“Kroeker trailer”) involved in the underlying fatality. The Progressive policy named Kroeker as an additional insured. The Peerless policy did not name Mr. Simon as an additional insured.

 

Kroeker and Mr. Simon entered into a January 1, 2004 subhaul agreement whereby Mr. Simon, as an independent contractor, agreed to transport freight for Kroeker. The subhaul agreement required Mr. Simon to obtain liability insurance and to indemnify Kroeker:

Subhauler [Mr. Simon] shall, at his sole cost and expense, carry Property Damage and Personal Liability insurance on his equipment. Subhauler agrees to have a Certificate of Insurance sent to the Prime Carrier [Kroeker] verifying that fact of coverage on equipment. Subhauler at his own expense shall carry Public Liability with a combined single limit of $7,000,000 each accident as required by law. Subhauler shall Indemnify, Save Harmless, and Defend Prime Carrier against any and all suits, actions, legal proceedings, claims, demands, damages, liabilities, cost or expense in connection with the injury or death of any person or persons and damage to any property arising out of the operations conducted by Subhauler. It is also agreed that no payment will be made until such Certificate of Insurance naming KROEKER as Additional Insured is furnished. (underlining in original.)

 

 

Kroeker, as lessor, and Mr. Simon, as lessee, entered into a January 1, 2004 equipment lease whereby Mr. Simon leased from Kroeker “ANY & ALL EQUIPMENT.” The equipment lease required Mr. Simon to secure liability insurance: “Lessee [Mr. Simon], at his own expense, shall carry adequate public liability insurance against injury, including death, and against property damage …” The equipment lease also required Mr. Simon to indemnify Kroeker:

Lessee assumes all risk, responsibility and liability arising from the possession, operation and use of the equipment however imposed, including damages for injury and or death to persons and property damage howsoever arising therefrom or because thereof. Lessee shall indemnify, save and hold harmless from any and all of the following whether the same be actual or alleged: … all loss, damage, claims, penalties, fines, liability and expense, including Attorney’s fees, howsoever arising or incurred because of said equipment or the storage, maintenance, use, operation or return to lessor thereof.

 

 

 

Underlying Fatality And Progressive’s Declaratory Relief Claim

 

On June 30, 2005, Ryan Dobbs (“Mr.Dobbs”) was electrocuted to death when unloading sand from the Kroeker trailer which was attached to the Simon tractor. The Kroeker trailer contacted electrical lines to cause Mr. Dobbs’ electrocution. Mr. Dobbs’ widow pursued an underlying wrongful death action against P, G & E, Mr. Simon and Kroeker in Fresno County Superior Court (“underlying wrongful death action”). Peerless contends that Kroeker leased the Kroeker trailer to Mr. Simon pursuant to the subhaul agreement and equipment lease. Since the equipment lease refers to no specific vehicles, Progressive “doubts that there was a lease for the trailer involved in the accident.”

 

Progressive refused Peerless’ request to defend Kroeker pursuant to the Progressive policy and defense and indemnity provisions in the subhauler agreement and equipment lease. Progressive filed this action to seek declaratory relief that Peerless is obligated to defend and indemnify Mr. Simon and Kroeker and that Peerless and Progressive share co-primary obligations.

 

A tentative $1.7 million settlement was reached in the underlying wrongful death action, including contributions of $675,000 by Progressive for Mr. Simon, $350,000 by Peerless for Kroeker, and $350,000 by P, G & E. Resolution of this action’s insurance coverage dispute will determine responsibility for the remaining $325,000.

 

 

Peerless And Progressive’s Summary Judgment Motions

 

Peerless and Progressive seek summary judgment based on their differing interpretations of California Insurance Code section 11580 .9 (“section 11580.9”). In short, Peerless contends that under section 11580.9, its coverage is excess to Progressive’s coverage. Progressive contends that under section 11580.9, Progressive and Peerless are co-primary insurers who share the loss equally ($675,000 each). Thus, Progressive seeks an order that Peerless pay the remaining $325,000 to complete the tentative settlement total.

 

 

DISCUSSION

 

Prior Section 11580.9(b) Effective At Mr. Dobbs’ Death

 

 

At the time of Mr. Dobbs’ electrocution, the prior version of section 11580.9(b) (“prior section 11580.9(b)”) provided:

(b) Where two or more policies apply to the same loss, and one policy affords coverage to a named insured in the business of renting or leasing motor vehicles without operators, it shall be conclusively presumed that the insurance afforded by that policy to a person other than the named insured or his or her agent or employee, shall be excess over and not concurrent with, any other valid and collectible insurance applicable to the same loss covering the person as a named insured as an additional insured under a policy with limits at least equal to the financial responsibility requirements specified in Section 16056 of the Vehicle Code. The presumption provided by this subdivision shall apply only if, at the time of the loss, the involved motor vehicle:

(1) Qualifies as a “commercial vehicle.” For purposes of this subdivision, “commercial vehicle” means a type of vehicle subject to registration or identification under the laws of this state and one of the following:

…

(B) Designed, used, or maintained primarily for the transportation of property.

(2) Has been leased for a term of six months or longer. (Bold added.)

 

 

Peerless argues that “[s]ince Kroeker leased a commercial vehicle designed for transportation of property to Simon without an operator, the Peerless policy is excess over the Progressive policy.” Progressive counters that since Kroeker was not primarily in the business of renting or leasing motor vehicles, prior section 11580.9(b) does not render the Peerless policy as excess. Progressive argues that neither a single nor occasional, incidental motor vehicle lease invokes prior section 11580.9(b), which Progressive claims “was intended to apply only to policies issued to entities engaged primarily in the renting or leasing business.”

 

Recognizing a split of authority among California appellate courts, the Ninth Circuit Court of Appeals certified to the California Supreme Court the question: “What is the appropriate test for determining whether an insured is “engaged in the business of renting or leasing motor vehicles without operators” under California Insurance Code §  11580.9(b)?” Sentry Select Insurance Co. v. Fidelity & Guaranty, 455 F.3d 956, 956 (9th Cir.2006) (italics in original). The Ninth Circuit noted that California’s second appellate district looks at the insured’s primary business purpose to determine whether it is “engaged in the business of” leasing motor vehicles. Sentry Select, 455 F.3d at 957 (citing two California appellate cases). The Ninth Circuit further noted that California’s first and fifth appellate districts examine the specific transaction to determine the question and that no California Supreme Court decision is on point. Sentry Select, 455 F.3d at 957 (citing three California appellate cases).

 

In the case at hand, the evidence of Kroeker’s engaging “in the business of renting or leasing motor vehicles without operators” is the subhaul agreement and equipment lease with Mr. Simon. Peerless asks this Court to apply prior section 11580.9(b) to the transaction between Kroeker and Mr. Simon. Peerless also asks this Court to examine the amended version of section 11580.9(b), effective January 1, 2007.

 

 

Amended Section 11580.9(b)

 

In August 2006, the California Legislature amended section 11580.9(b) ( “amended section 11580.9(b)”) to read:

(b) Where two or more policies apply to the same loss, and one policy affords coverage to a named insured who in the course of his or her business rents or leases motor vehicles without operators, it shall be conclusively presumed that the insurance afforded by that policy to a person other than the named insured or his or her agent or employee, shall be excess over and not concurrent with, any other valid and collectible insurance applicable to the same loss covering the person as a named insured or as an additional insured … (Bold added.)

 

 

“A statute that merely clarifies, rather than changes, existing law is properly applied to transactions predating its amendment.” Carter v. Calif. Dept. Of Veterans Affairs, 38 Cal.4th 914, 922, 44 Cal.Rptr.3d 223, 229, 135 P.3d 637 (2006). But a statute may not apply retroactively if “it substantially changes the legal consequences of past actions, or upsets expectations based in prior law.” Carter, 38 Cal.4th at 922, 44 Cal.Rptr.3d at 229, 135 P.3d 637.  “Statutes are disfavored as retroactive when their application ‘would impair rights a party possessed when he acted, increase a party’s liability for past conduct, or impose new duties with respect to transactions already completed.’  “ Fernandez-Vargas v. Gonzales, — U.S. —-, 126 S.Ct. 2422, 2427-2428, 165 L.Ed.2d 323 (2006) (quoting Landgraf v. USI Films Prods., 511 U.S. 244, 280, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994)).

 

Peerless argues that amended section 11580.9(b) clarifies “that the Legislature was not altering the law, but was simply clarifying the intended effect of the statute.” Peerless points to an Assembly Committee on Insurance summary which indicates that amended section 11580.9(b) “[c]larifies that a policy covering an insured who in the course of his or her business rents or leases motor vehicles for either commercial purposes or for at least a six-month term is considered excess to other insurance policies covering the same loss.” (Bold added.)  According to Peerless, prior section 11580.9(b) “could be interpreted in a manner consistent with” amended section 11580.9(b).

 

 

Peerless also points to an Assembly Committee on Insurance report that amended section 11580.9(b) “is necessary to avoid uncertainty and unnecessary litigation in these cases, and to restore legislative intent after several conflicting court decisions.” Ass. Comm. on Ins., Analysis of Ass. Bill No.1909 (2005-2006 Reg. Sess) as introduced January 26, 2006.

 

Progressive argues that amended section 11580.9(b) makes a substantive change to preclude retroactive application. Progressive notes that amended section 11580.9(b) requires that the insured only conduct leasing or renting vehicles in the course of its business and not be in the business of leasing and renting vehicles, as prior section 11580.9(b) required. According to Progressive, such change presumably “means that leasing will no longer need to be a primary business of the insured.”

 

This Court is more persuaded by Peerless’ evaluation of amended section 11580.9(b) that the Legislature recognized a split in judicial interpretation, not a substantive law change, and clarified the correct interpretation. This Court agrees with Peerless that the Legislature clarified section 11580.9(b)’s original intent by replacing the ambiguous “named insured engaged in the course of business” with “named insured who in the course of his or her business.” The Legislative Counsel’s Digest for the Assembly Bill to amend section 11580.9(b) provides insight to Peerless:

Existing law provides that where 2 or more insurance policies apply to the same loss and one policy affords coverage to a named insured engaged in the business of renting or leasing motor vehicles without operators, it is conclusively presumed, subject to specified conditions, that the policy to the named insured shall be excess to the other valid and collectible insurance policy.

This bill would instead provide that where 2 or more insurance policies apply to the same loss and one policy affords coverage to a named insured who in the course of his or her business rents or leases motor vehicles without operators, it is conclusively presumed, subject to specified conditions, that the policy to the named insured shall be excess to the other valid and collectible insurance policy.

 

Legislative Counsel’s Digest (2005-2006), Chapter 345.

 

Progressive fails to demonstrate that amended section 11580.9(b) is more than clarification and substantially changes legal consequences of past actions or upsets expectations based in prior law to preclude retroactive application of amended section 11580.9(b). In connection with its business, Kroeker leased the Kroeker trailer without an operator to Mr. Simon. In his declaration, Kroeker secretary Jeff Kroeker notes that at the time of Mr. Dobbs’ electrocution, “Mr. Simon had possession of the Kroeker trailer pursuant to the Sub-Haul Agreement and the Equipment Lease.” Progressive acknowledges that it was aware that its insured, Mr. Simon, “might lease or borrow dump trailers from trucking companies” and so based its premiums. Under its policy’s declarations, Progressive covered an unidentified trailer. As such, under prior or amended section 11580.9(b), Kroeker’s Peerless policy is excess to Mr. Simon’s Progressive policy.

 

Peerless’ position is further bolstered by the Legislative declaration of California Insurance Code section 11580.8:

The Legislature declares it to be the public policy of this state to avoid so far as possible conflicts and litigation, with resulting court congestion, between and among injured parties, insureds, and insurers concerning which, among various policies of liability insurance and the various coverages therein, are responsible as primary, excess, or sole coverage, and to what extent, under the circumstances of any given event involving death or injury to persons or property caused by the operation or use of a motor vehicle.

 

Peerless correctly notes that “Section 11580.9(b) should be interpreted in the manner that would be most effective in reducing litigation.” Progressive’s interpretation of section 11580.9 would promote litigation between wouldbe co-primary insurers and as to what constitutes engaging in the business of renting or leasing motor vehicles. Peerless’ interpretation offers more of a bright line to decrease litigation and promote the public policy codified in California Insurance Code section 11580.8.

 

 

Motor Vehicle

 

Peerless and Progressive agree that if neither prior nor amended section 11580.9(b) applies, section 11580.9(d) applies. Section 11580.9(d) has not been amended since Mr. Dobbs’ electrocution and states:

(d) Except as provided in subdivisions (a), (b), and (c), where two or more policies affording valid and collectible liability insurance apply to the same motor vehicle or vehicles in an occurrence out of which a liability loss shall arise, it shall be conclusively presumed that the insurance afforded by that policy in which the motor vehicle is described or rated as an owned automobile shall be primary and the insurance afforded by any other policy or policies shall be excess. (Bold added.)

 

Peerless and Progressive disagree as to application of a motor vehicle in a tractor-trailer case. Peerless contends that since it insured, and its policy rates or describes, only the Kroeker trailer, its insurance is excess under section 11580.9(d). Peerless notes that the Simon tractor does not appear on its policy’s declarations and that it charged no additional premium for the Simon tractor. Peerless argues that Progressive rated or described the tractor-trailer rig on its policy and charged Mr. Simon additional premium for “unidentified, non-owned trailers.” Progressive argues that since the motor vehicle here comprised the Simon tractor and the Kroeker trailer, the Progressive and Peerless policies are pro-rated. Progressive further argues that since Progressive and Peerless “rated or described one portion of the rig as an owned auto, the loss must be pro-rated.”

 

Unfortunately, California courts are split on section 11580.9(d) interpretation with some courts holding that a policy covering either the tractor or trailer is co-primary with another policy covering the tractor or trailer. Other California courts held that “motor vehicle” under section 11580.9(d) includes the trailer.

 

As noted by Peerless, to address the split, the California Legislature in August 2006 added subsection (h) to section 11580.9 and which provides:

(h) Notwithstanding subdivision (b), when two or more policies affording valid and collectible automobile liability insurance apply to a power unit and an attached trailer or trailers in an occurrence out of which a liability loss shall arise, and one policy affords coverage to a named insured in the business of a trucker, defined as any person or organization engaged in the business of transporting property by auto for hire, then the following shall be conclusively presumed: If at the time of the loss, the power unit is being operated by any person in the business of a trucker, the insurance afforded by the policy to the person engaged in the business of a trucker shall be primary for both power unit and trailer or trailers, and the insurance afforded by the other policy shall be excess. (Bold added.)

 

Peerless contends that section 11580.9(h) was added to clarify amended section 11580.9(d). Peerless points to a Senate committee report that states that August 2006 amendments “clarify which of two policies pays for losses arising from a trucking accident in which there is one insurance policy on the power unit and a [different] policy or policies on the trailer(s) involved in the accident” and that “the insurance policy covering the power unit pays first, and that the insurance policy and policies covering the trailer(s) pays second.”  Sen. Banking, Fin., and Ins. Comm., Analysis fo Ass. Bill No.1909 (2005-2006 Reg. Sess.), as amended Aug. 7, 2006. The committee report further explained that the subject Assembly Bill No.1909 “eliminates the ambiguities in existing law surrounding primary and excess coverage of rented or leased commercial vehicles, thus eliminating coverage to pay damages to the injured party.” Sen. Banking, Fin., and Ins. Comm., Analysis of Ass. Bill No.1909 (2005-2006 Reg. Sess.), as amended Aug. 7, 2006. Legislative history also notes that “when a trucking accident occurs and there is one insurance policy covering the power unit it shall be considered primary, and the insurance policy or policies covering the trailer or trailers shall be excess.” Ass. Floor Analysis, Analysis of Ass. Bill No.1909 (2005-2006 Reg. Sess.), as amended Aug. 7, 2006.

 

 

In Maben v. Superior Court, 255 Cal.App.2d 708, 713, 63 Cal.Rptr. 439, 442 (1967), the court explained that statements in legislative committee reports “concerning the statutory objects and purposes, which are in accord with a reasonable interpretation of the statute, will be followed by the courts. And it will be presumed that the Legislature adopted the proposed legislation with the intent and meaning expressed in committee reports.” (citation omitted.)

 

If courts have not finally and conclusively interpreted a statue, “a declaration of a later Legislature as to what an earlier Legislature intended is entitled to consideration.” McClong v. Employment Development Dept., 34 Cal.4th 467, 473, 20 Cal.Rptr.3d 428, 99 P.3d 1015 (2004). “[A] subsequent expression of the Legislature as to the intent of the prior statute, although not binding on the court, may properly be used in determining the effect of a prior act.” Calif. Emp. etc. Com. v. Payne, 31 Cal.2d 210, 213-214, 187 P.2d 702 (1947).

 

Section 11580.9(h) serves as guidance for this Court. Mr. Simon was in the business of a trucker when he operated the power unit (Simon tractor) at the time of Mr. Dobbs’ electrocution. The Peerless policy’s declarations did not list the Simon tractor. Peerless charged no additional premium to insure the Simon tractor. The Progressive policy’s declaration included a non-owned trailer to cover the Kroeker trailer for which Progressive charged Mr. Simon an additional premium. With support from section 11580.9(h), the Peerless policy is excess.

 

 

Other Insurance Provisions

 

Peerless contends that “other insurance” provisions in the Peerless and Progressive policies demonstrate that Peerless policy is excess coverage. The Peerless policy’s “other insurance” provision states:

a. For any covered “auto” you own, this Coverage Form provides primary insurance. For any covered “auto” you don’t own, the insurance provided by this Coverage Form is excess over any other collectible insurance. However, while a covered “auto” which is a “trailer” is connected to another vehicle, the Liability Coverage this Coverage Form provides for the “trailer” is:

(1) Excess while it is connected to a motor vehicle you do not own. (Bold added.)

 

The Progressive policy’s “other insurance provision” provides: “This coverage is primary when your insured auto which is a trailer is attached to an insured auto you own and is excess while attached to a motor vehicle you do not own.”  (Bold in original.) The Progressive policy defines “Your insured auto” or “insured auto” as “[a]ny auto described in the Declarations or any replacement auto …” and “Trailers designed primarily for travel on public roads, even if such trailers are not shown in the Declarations, but only while upon a public road and connected to your insured auto …” (Bold in original.)

 

Peerless notes that the Progressive policy’s declarations describe a non-owned trailer without a vehicle identification number and that Kroeker has an additional interest in the trailer. Since Kroeker leased different trailers to Mr. Simon, who agreed to obtain insurance for them, Peerless concludes that the Kroeker trailer qualifies as a “non-owned” trailer described in the Progressive policy’s declarations. Peerless further contends that the Progressive policy states an intent to be primary coverage and the Peerless policy indicates an intent to be excess coverage. Progressive argues that section 11580.9 trumps the other “other insurance” provisions in the policies.

 

As noted above, interpretation of section 11580.9, not the “other insurance” provisions, determines this dispute. Nonetheless, Peerless’ “other insurance” arguments bolsters its position.

 

 

Indemnity And Insurance Procurement Provisions

 

Based on the indemnity and insurance procurement provisions in the subhaul agreement and equipment lease, Peerless argues that Mr. Simon and Kroeker intended that Mr. Simon “would primarily be responsible for personal injury liability arising from Simon’s operations.” Peerless claims that if the Peerless policy is primary, the defense and indemnity agreements between Mr. Simon and Kroeker “would be effectively negated.” Progressive responds that the indemnity provisions, which Peerless and Progressive did not sign, cannot defeat section 11580.9’s presumptions.

 

Progressive is correct. Section 11580.9(f) provides:

The presumptions stated in subdivisions (a) to (d), inclusive, may be modified or amended only by written agreement signed by all insurers who have issued a policy or policies applicable to a loss described in these subdivisions and all named insureds under these policies.

 

Section 11580.9(f) “requires insurers to sign a written agreement before their relationships can be altered.” Mission Ins. Co. v. Hartford Ins. Co., 155 Cal.App.3d 1199, 1215, 202 Cal.Rptr. 635, 645 (1984) (subhaul agreement was inadequate to change or modify conclusive presumption of section 11580.9(d) because it was not signed by insurers). Neither Peerless nor Progressive signed the subhaul agreement and equipment lease to preclude the agreement and lease to modify the insurers’ relationships under section 11580.9.

 

 

CONCLUSION AND ORDER

 

For the reasons discussed above, this Court:

1. GRANTS Peerless summary judgment that its policy is excess over the Progressive policy;

2. DENIES Progressive summary judgment;

3. DIRECTS this Court’s clerk to enter judgment in favor of defendant Peerless Insurance Company and against plaintiff Progressive Casualty Insurance Company; and

4. VACATES all pending dates, including May 24, 2007 pretrial conference and July 5, 2007 trial.

 

 

IT IS SO ORDERED.