Santa Clara Waste Water Co. v. Allied World Nat'l. Assur. Co. ( 2017 )

Filed 12/20/17
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
SANTA CLARA WASTE 2d Civil No. B279679
WATER COMPANY, (Super. Ct. No. 56-2014-
00461747-CU-IC-VTA)
Plaintiff, Cross-defendant (Ventura County)
and Appellant,
v.
ALLIED WORLD NATIONAL
ASSURANCE COMPANY,
Defendant, Cross-
complainant and Respondent;
GREEN COMPASS
ENVIRONMENTAL
SOLUTIONS, LLC,
Cross-defendant and
Appellant.
Santa Clara Waste Water Company (SCWW) and
Green Compass Environmental Solutions, LLC (GCES) appeal an
order granting Allied World National Assurance Company’s
applications for prejudgment attachment. SCWW and GCES
seek reversal of the order on the ground that Allied did not show
the probable validity of its claims as required by Code of Civil
Procedure section 484.090, subdivision (a).1 We affirm.
FACTS AND PROCEDURAL HISTORY
SCWW owned a wastewater treatment facility in
Santa Paula. GCES, a subsidiary company owned by SCWW,
operated a trucking unit that transported wastewater. SCWW
and GCES applied for insurance coverage with Allied. In their
insurance application and related correspondence, SCWW and
GCES represented that they did not accept, process, transport, or
discharge hazardous waste.
Allied issued a $2 million “Primary Environmental
Liability Policy” and a $5 million umbrella policy. The policy
covered “‘environmental damage’” or “‘emergency response
expenses’” arising out of a “‘pollution incident.’” The policy also
contained an “intentional noncompliance” provision, which
excluded coverage for damages resulting from the “intentional
disregard of or deliberate willful or dishonest noncompliance”
with law or regulations.
After obtaining coverage, a GCES vacuum truck
exploded at the SCWW facility when a truck driver mixed
wastewater with a chemical (sodium chlorite). Chemical spillage
from the explosion spontaneously combusted and caused a fire.
SCWW submitted a claim to Allied to cover the cleanup costs.
Allied did not pay the claim.
The parties entered mediation and reached a partial
settlement including a “Payment Term Sheet.” The Payment
Term Sheet provided that Allied would pay $2.5 million to
1 Further unspecified statutory references are to the Code
of Civil Procedure.
2
SCWW, but if Allied obtained a judgment that it was not
obligated to pay SCWW’s damages under its policy, then SCWW
would reimburse Allied. Allied paid the $2.5 million.
SCWW sued Allied for failing to pay damages up to
the policy limit. Allied filed a first amended cross-complaint
against SCWW and GCES for declaratory relief, reimbursement
of defense costs and expenses, unjust enrichment, fraud,
rescission, and unlawful business practices.
Allied filed applications for a right to attach order
and writ of attachment against both SCWW and GCES for $2.5
million plus costs and interest based on an express contract (the
Payment Term Sheet) and implied contract theories of unjust
enrichment and rescission.2 In support of its applications, Allied
presented evidence showing that the intentional noncompliance
policy exclusion applied because SCWW and GCES violated laws
and regulations when they stored and concealed the presence of
sodium chlorite at the facility. Allied also presented evidence
showing that the policy should be rescinded because SCWW and
GCES misrepresented that they did not accept, process,
transport, or discharge hazardous waste.
2 Although GCES is not a party to the Payment Term
Sheet, GCES raises the issue of its nonsignatory status for the
first time in its reply brief on appeal. Failure to raise a timely
objection forfeits the argument. (Tudor Ranches, Inc. v. State
Comp. Ins. Fund (1998) 65 Cal. App. 4th 1422, 1433 (Tudor
Ranches) [failure to object and give the trial court an opportunity
to consider an issue forfeits the issue on appeal]; Telish v. State
Personnel Bd. (2015) 234 Cal. App. 4th 1479, 1487, fn. 4 [failure to
raise an argument in the opening brief waives the issue on
appeal].)
3
The trial court granted the applications, finding that
Allied “established the probable validity of its implied contract
and rescission claims.” Specifically, it found the evidence
supported the “applicability of the ‘intentional noncompliance’
policy exclusion, and the existence of hazardous waste discharge
prior to the policy application.” The court issued writs of
attachment against both SCWW and GCES.
DISCUSSION
Prejudgment Attachment
SCWW and GCES contend the trial court erred in
granting the applications for prejudgment attachment because
Allied did not establish the probable validity of its claims. We
disagree.
A party seeking a prejudgment attachment must
demonstrate the probable validity of its claim. (§ 484.090, subd.
(a).) Probable validity means that “more likely than not” the
plaintiff will obtain a judgment on that claim. (§ 481.190.) An
order granting an application for a prejudgment attachment is
directly appealable. (§ 904.1, subd. (a)(5).) A trial court’s finding
on whether a plaintiff established probable validity is reviewed
for substantial evidence. (Lorber Industries v. Turbulence, Inc.
(1985) 175 Cal. App. 3d 532, 535.)
Unjust Enrichment
Allied established the probable validity of its unjust
enrichment claim. Where an insurer pays an amount not covered
under its policy, it has a right of reimbursement that is implied-
in-law under an unjust enrichment theory. (Buss v. Superior
Court (1997) 16 Cal. 4th 35, 51.)
Allied had a right of reimbursement because the
intentional noncompliance policy exclusion applied. Under this
4
exclusion, if the damages (i.e., cleanup costs) resulted from
SCWW and GCES’s intentional noncompliance with law and
regulations, then Allied was not obligated to pay damages.
SCWW and GCES failed to comply with law and
regulations when they stored sodium chlorite at the facility.
They were required to report and update a “Hazardous Materials
Business Plan” within 30 days of receiving a 275-gallon container
of sodium chlorite. (Health & Saf. Code, § 25508.1.) They did not
do so.
Moreover, SCWW and GCES failed to comply with
law when they concealed chemicals from inspectors. Employees
testified that they consolidated and cleaned chemical totes before
inspections to hide the presence of unreported chemicals at the
facility. Employees removed labels from chemical totes that
identified their contents or indicated they were hazardous
materials. SCWW’s environmental compliance manager
admitted that he ordered employees to move unreported
chemicals to a trucking yard before an inspection in order to hide
them from the inspectors. The storage of these chemicals at the
trucking yard violated SCWW’s lease with the City of Santa
Paula.
The cleanup costs resulted from SCWW and GCES’s
intentional noncompliance with law and regulations. Moments
before the explosion, a truck driver was cleaning sodium chlorite
totes to prepare for an inspection the next day. Because the
presence of sodium chlorite was unreported, it was illegally
stored at the facility and should not have been present. The
explosion and fire occurred when wastewater mixed with sodium
chlorite. Thus, the unreported presence of sodium chlorite was
the cause of the explosion and fire.
5
Because the evidence supports the trial court’s
finding that the intentional noncompliance exclusion applies, the
trial court properly found that Allied established the probable
validity of prevailing on its unjust enrichment claim.
Rescission
Although the unjust enrichment claim alone is
sufficient to support an order for prejudgment attachments,
Allied also established the probable validity of its rescission
claim. Misrepresentation or concealment of a material fact in
connection with an insurance application is grounds for rescission
of the policy. (Ins. Code, § 359; Superior Dispatch, Inc. v.
Insurance Corp. of New York (2010) 181 Cal. App. 4th 175, 191.)
“Each party to a contract of insurance shall communicate to the
other, in good faith, all facts within his knowledge which are or
which he believes to be material to the contract.” (Ins. Code, §
332.) In determining whether a fact is material, we consider the
“probable and reasonable” effect a misrepresentation of that fact
has on the insurer. (Ins. Code, § 334.)
Here, SCWW and GCES’s representation that they
did not accept, process, transport or discharge hazardous waste
was a material fact because Allied asked questions regarding
hazardous waste in its application and related correspondence,
including whether SCWW and GCES transported hazardous
waste, the type of waste they disposed of, and several questions
regarding their history of hazardous waste discharge. An Allied
executive declared that Allied would not have issued a policy
under the same terms if SCWW had represented that “it
accepted, stored, or disposed of hazardous waste at any of its
facilities,” and that Allied would not have added GCES under an
6
umbrella policy if Allied knew GCES transported any hazardous
waste.
Substantial evidence supports the finding that
SCWW and GCES misrepresented and concealed this material
fact. The evidence showed that SCWW and GCES accepted,
processed, and transported wastewater regardless of whether it
tested positive as hazardous. For instance, before Allied’s policy
was in effect, SCWW ordered a wastewater sample to be retested
after it tested positive for “corrosivity.” The proper action was to
identify the wastewater as hazardous and reject it, but SCWW
ordered the sample to be retested. In another instance, when
SCWW retained a lab to produce reports to send to regulatory
agencies, it ordered the lab not to send any reports of wastewater
samples with a pH level above 12.5 (which indicated
hazardousness). Other evidence shows that SCWW accepted and
transported wastewater knowing that it exceeded a pH of 12.5.
Additionally, the evidence shows that SCWW
discharged wastewater that it knew was hazardous. SCWW’s
environmental compliance manager admitted that he altered lab
results of wastewater that was discharged into pipelines
connected to the Oxnard water treatment facility to reflect levels
of pollutants below the pollutant discharge limit.
The evidence shows that SCWW and GCES’s
misrepresentations both preceded and followed the effective date
of coverage. The dates on the lab results reflect that SCWW
altered results even before Allied’s policy was in effect. After the
policy went into effect, but before the explosion incident, the City
of Oxnard sent SCWW a cease and desist letter because tests
revealed that wastewater being discharged into pipelines violated
7
the discharge limits under SCWW’s Industrial Wastewater
Discharge Permit.
SCWW and GCES claim the trial court erred in its
ruling on the rescission claim because Allied did not assert a
separate claim of rescission in its applications for an attachment.
But Allied expressly stated that it based its applications for
prejudgment attachment “under two implied contract theories:
unjust enrichment and rescission.”
SCWW and GCES also argue that Allied cannot
prevail on its rescission claim because it was required but failed
to give proper notice and to offer to restore premiums prior to
bringing its rescission claim. (Village Northridge Homeowners
Assn. v. State Farm Fire & Casualty Co. (2010) 50 Cal. 4th 913,
921; Joshua Tree Townsite Co. v. Joshua Tree Land Co. (1950)
100 Cal. App. 2d 590, 596.) But filing the action was sufficient to
meet those requirements here. (Resure, Inc. v. Superior Court
(1996) 42 Cal. App. 4th 156, 164, 166-167.) “When notice of
rescission has not otherwise been given or an offer to restore the
benefits received under the contract has not otherwise been
made, the service of a pleading in an action or proceeding that
seeks relief based on rescission shall be deemed to be such notice
or offer or both.” (Civ. Code, § 1691.)
We also reject SCWW and GCES’s claim that the
trial court erred in finding they discharged hazardous waste
because there was insufficient evidence that wastewater was in
fact hazardous. This claim is forfeited because it was not raised
in the trial court. (Tudor Ranches, supra, 65 Cal.App.4th at p.
1433.) But, this claim also fails on the merits based on the lab
results and the cease and desist letter showing that the
discharged wastewater exceeded pollutant discharge limits.
8
No Express Contract or Condition Precedent
SCWW argues that Allied cannot prevail on implied
contract theories because the same subject matter is addressed in
an express contract (i.e., the Payment Term Sheet). (Wal-Noon
Corp. v. Hill (1975) 45 Cal. App. 3d 605, 613.) SCWW forfeited
this argument because it was raised for the first time on appeal.
(Tudor Ranches, supra, 65 Cal.App.4th at p. 1433.) It also fails
on the merits.
The trial court did not err in granting the
applications for prejudgment attachment based on implied
contract theories even if an express contract covers the same
subject. First, SCWW and GCES cannot assert the existence of
an express contract when they successfully argued for the
exclusion of that contract from evidence. Under the invited error
doctrine, a party cannot challenge a court’s finding made at its
insistence. (Jentick v. Pacific Gas & Electric Co. (1941) 18 Cal. 2d
117, 121.) Here, SCWW and GCES argued that the Payment
Term Sheet was inadmissible and was not an express contract on
which the applications for prejudgment attachment can be based.
They raised an evidentiary objection to the Payment Term Sheet,
which the trial court sustained. Because the court excluded the
Payment Term Sheet at their request, they are barred on appeal
from asserting that the trial court failed to consider the Payment
Term Sheet.
Moreover, even if the Payment Term Sheet is a valid
express contract, the court properly granted the applications for
prejudgment attachment based on implied contract theories. An
attachment may be granted if a party shows the probable validity
of the claim on a contract that is either express or implied. (§
483.010, subd. (a).) All that is required is proof that the amount
9
is due based on a contract. (Eaton v. Queen (1947) 78 Cal. App. 2d
571, 574.) Where there is both an express and implied contract,
relief is available under an implied contract if the material terms
do not conflict with the express contract. (Hartford Casualty Ins.
Co. v. J.R. Marketing, L.L.C. (2015) 61 Cal. 4th 988, 1001.) Here,
the material terms of the Payment Term Sheet and the implied
contract are the same—that the $2.5 million Allied paid would be
reimbursed if the policy did not cover SCWW and GCES’s
cleanup costs.
SCWW and GCES also claim that the order granting
the applications for prejudgment attachment was improper
because a judgment of noncoverage was a condition precedent.
This claim lacks merit. The purpose of a writ of attachment is to
ensure payment will be recovered if judgment is entered. Allied
is only required to establish the “probable validity” of its claims.
Whether Allied’s claims are “actually valid” is determined in a
subsequent proceeding and not affected by the court’s order on
the applications for prejudgment attachment. (§ 484.050, subd.
(b).) An attachment remedy would be useless if it required the
court to first decide the merits and issue a judgment.
SCWW and GCES’s reliance on Robinson v. Varela
(1977) 67 Cal. App. 3d 611 is misplaced. In Robinson, the trial
court dissolved a writ attachment that was previously granted to
a plaintiff, who claimed the defendant failed to pay rent on a
sublease. (Id. at p. 618.) The court dissolved the writ attachment
when the defendant successfully argued that no rent was due
because the plaintiff failed to satisfy a condition precedent—
obtaining a lease extension from the owner. (Ibid.) But here, all
that Allied had to establish was the probability that their policy
did not cover the damages. Allied did so by showing that the
10
noncompliance policy exclusion applied and that SCWW and
GCES misrepresented and concealed material facts. The trial
court properly granted Allied’s applications for prejudgment
attachment based on these claims against SCWW and GCES.
Prejudgment Interest
SCWW and GCES contend that prejudgment interest
should be calculated from the date of the judgment awarding
reimbursement, and not from the date Allied paid $2.5 million.
This claim is forfeited, because no objection to prejudgment
interest was made below. (Tudor Ranches, supra, 65 Cal.App.4th
at p. 1433.)
Even if we address the claim on its merits, there was
no error. Prejudgment interest begins to accrue from the date
Allied paid the $2.5 million because interest is owed from the
time the obligation to pay money begins, even if judgment
awarding the reimbursement is decided on a later date. (See
Ohio Casualty Ins. Co. v. Garamendi (2006) 137 Cal. App. 4th 64,
84 [“prejudgment interest should accrue from the date the
assessments were due, not the date of the Commissioner’s order
directing petitioners to pay the assessments”].) The trial court
properly calculated prejudgment interest from the date Allied
paid $2.5 million.
DISPOSITION
The order is affirmed. Allied shall recover its costs
on appeal.
CERTIFIED FOR PUBLICATION.
TANGEMAN, J.
We concur:
GILBERT, P. J. YEGAN, J.
11
Vincent J. O’Neill, Jr., Judge
Superior Court County of Ventura
______________________________
Weintraub Tobin Chediak Coleman Grodin, Andrew
M. Gilford and Jessica R. Corpuz, for Plaintiff, Cross-defendant
and Appellant Santa Clara Waste Water Company and Cross-
defendant and Appellant Green Compass Environmental
Solutions, LLC.
Cozen O’Connor, Maria Louise Cousineau; McCurdy
& Fuller, Mary P. McCurdy and Rosemary J. Springer, for
Defendant, Cross-complainant and Respondent.