Beneficial Standard Life Insurance v. J.C. Penney Life Insurance

MEMORANDUM * J.C. Penney appeals the district court’s judgment in favor of Beneficial Standard [11] Life Insurance Co. (“Beneficial”), releasing Beneficial from its indemnity and reimbursement obligations as to claims asserted under the policies at issue, numbers 1281 and 1284. Beneficial cross appeals, contending that the court erred in holding that it has an obligation to indemnify and reimburse J.C. Penney for costs incurred responding to any claims under pre-sale Beneficial Fire and Casualty Insurance Company (“BF & C”) policies. We have jurisdiction over this diversity action under 28 U.S.C. § 1291.1 We affirm in part and reverse in part. I. Beneficial’s Appeal, No. 03-55444 We affirm the district court’s summary judgment ruling in favor of J.C. Penney regarding Beneficial’s obligation to indemnify J.C. Penney for claims under pre-sale BF & C policies. Article V of the Purchase Agreement clearly states that, “On the terms and subject to the conditions herein set forth, Beneficial will pay, perform and discharge, and indemnify VAIC, BF & C and Penney against and save them harmless from ... all debts, obligations (including contractual obligations) and liabilities (including other tax liabilities) of VAIC and BF & C, contingent or otherwise, disclosed or undisclosed, known or unknown, as the same shall exist on the Closing Date, whether payable on or subsequent to the Closing Date.” Article V further states, “Beneficial Standard will reimburse VAIC, BF & C and Penney for any payments or expenses made or incurred by any of them in respect of any such tax liability, debt, obligation or other liability.” In addition, Schedule D provides for full indemnification to cover J.C. Penney’s contingent liability in the event that the reinsuring company, Transit, was unable to meet its obligations to BF & C. The clear language of Article V of the Purchase Agreement supports the district court’s conclusion that Beneficial’s duty to indemnify J.C. Penney extended to Penney’s contingent liabilities, including costs incurred in handling claims under pre-sale BF & C casualty policies following Transit’s insolvency. See Cal. Civ.Code § 1638. The district court’s ruling is further supported by the additional evidence relating to the context of the sale and the intentions of the parties as reflected in contemporaneous documents, such as the Memorandum of Understanding.2 II. J.C. Penney’s Appeal, No. 03-55358 In its appeal, J.C. Penney argues that the district court erred in concluding that Beneficial did not have a duty to indemnify J.C. Penney under policies 1281 and 1284 because J.C. Penney unreasonably acknowledged the existence and terms of policy 1281, thereby waiving a lost policy defense. We agree. Although the California courts historically have required that an indemnity agreement explicitly provide for indemnification against an indemnitee’s own negligence, it is not a hard and fast rule. As explained by the California Supreme Court in Rossmoor Sanitation, Inc. v. Pylon, Inc., “the question whether an indemnity agreement covers a given case turns primarily on contractual interpretation, and it is the intent of the parties as expressed in [12] the agreement that should control.” 13 Cal.3d 622, 119 Cal.Rptr. 449, 532 P.2d 97, 104 (1975). Therefore, “[rjecent cases have embraced the rule that the intent of the parties controls and have found indemnity agreements apply to the indemnitee’s active negligence even where the indemnity agreement does not expressly address the issue of the indemnitee’s negligence.” Rooz v. Kimmel, 55 Cal.App.4th 573, 64 Cal.Rptr.2d 177, 184 (1997). Here, the text of Article V of the Purchase Agreement and the context of the sale establish that the parties intended for Transit to provide 100 percent reinsurance on pre-sale BF & C policies. Further, it is clear that this reinsurance would be backed fully by J.C. Penney’s right of indemnity from Beneficial in the event that Transit failed and J.C. Penney became contingently liable for claims on pre-sale BF & C policies. In light of the breadth of Beneficial’s indemnity and reimbursement obligations under Article V, we conclude that the parties intended that Beneficial would indemnify J.C. Penney even where Penney acted unreasonably in handling claims on pre-sale BF & C policies. See Roosmoor, 119 Cal.Rptr. 449, 532 P.2d at 104; Rooz, 64 Cal.Rptr.2d at 185; SCM Corp. v. Berkel, Inc., 73 Cal.App.3d 49, 140 Cal.Rptr. 559, 564 (1977). In light of our conclusion, we also reject the district court’s determination that Beneficial’s duty to indemnify and reimburse J.C. Penney was discharged because J.C. Penney materially prejudiced the rights Beneficial bargained for under the Purchase Agreement. Our conclusion is further supported by the fact that BF & C was not to hold “any obligations, liabilities, or business,” except those in Schedule D, and that J.C. Penney would not be selling casualty insurance policies after the sale. Cf. Rooz, 64 Cal. Rptr.2d at 185. Further, “[t]he purpose of the indemnity law requirement of clear and explicit language appears to be to serve the deterrenee/risk-avoidance functions of tort law by looking with disfavor upon attempts by the negligent party to avoid accountability for its own actions.” SCM Corp., 140 Cal.Rptr. at 564. This policy justification does not support the application of the explicit language requirement in the context of the buyer-seller relationship between J.C. Penney and Beneficial. Having determined that Beneficial’s indemnification obligation encompasses J.C. Penney’s negligence, we need not determine whether the admission of policy 1281 was tantamount to an unreasonable admission of the existence and terms of policy 1284. We note, however, that, in order to trigger coverage under policy 1284, the insured has the burden to provide evidence of both the existence and the material terms of the lost excess policy 1284. See Dart Indus., Inc. v. Commercial Union Ins. Co., 28 Cal.4th 1059, 124 Cal.Rptr.2d 142, 52 P.3d 79, 87-88 (2002). AFFIRMED IN PART, REVERSED IN PART, and REMANDED for further proceedings consistent with this disposition. Appellant-Appellee J.C. Penney shall recover its costs on appeal. Footnotes [*] This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Ninth Circuit Rule 36-3. [1] "A district court's interpretation of state contract law is reviewed de novo.” Jorgensen v. Cassiday, 320 F.3d 906, 914 (9th Cir.2003). We also review the district court's decision to grant summary judgment de novo. S. Cal. Painters v. Best Interiors, Inc., 359 F.3d 1127, 1130 (9th Cir.2004). [2] We also conclude that the district court did not abuse its discretion in admitting extrinsic evidence. See Tritchler v. County of Lake, 358 F.3d 1150, 1155 (9th Cir.2004).