Yecny Enterprises v. United States Aircraft Ins. Group

Filed 6/20/06 Yecny Enterprises v. United States Aircraft Ins. Group CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

When an airplane operated by Yecny Enterprises, Inc., crashed, a dispute arose over whether Yecny had $5 million in personal injury liability insurance or

$1 million as claimed by its insurers. Before Yecny's complaint for declaratory relief could be resolved, its insurers paid $5 million to a passenger injured in the crash and cross-complained against Yecny for $4 million in reimbursement. Yecny also filed an action against its broker alleging that any failure to obtain $5 million in coverage resulted from the broker's negligence. The broker cross-complained against the insurers for equitable indemnity.

After a declaration that the policy limit was $1 million, Yecny and its insurers settled the reimbursement cross-complaint. The trial court then granted the insurers' motion that the settlement was made in good faith and, based on that ruling, dismissed the broker's indemnity cross-complaint in the negligence case. (Code Civ. Proc., § 877.6)[1]

The broker, Greenarc Insurance Services, appeals dismissal of its cross-complaint. Greenarc contends the insurers were not entitled to a good faith settlement order because they were not settling as tortfeasors, the settlement deprived Greenarc of its offset under section 877, and for other reasons. We reverse.

FACTS AND PROCEDURAL HISTORY

Yecny Enterprises, Inc., is in the business of providing charter airplane flights and other aviation services. Yecny was insured by United States Aircraft Insurance Group and United States Aviation Underwriters, Inc. (collectively USAIG). Greenarc Insurance Services acted as Yecny's broker in obtaining the insurance policies. During a two-year period before the crash, USAIG insured Yecny's charter flights under a policy with a $5 million per passenger limit. USAIG declined to renew the $5 million policy after its September 2000 anniversary date. Instead, USAIG offered alternative coverages, including a $2 million policy with a per passenger limit of $1 million. Yecny and Greenarc objected to the policy reduction for several reasons but, after unsuccessful negotiations, Yecny accepted the $1 million per passenger limit and such coverage became effective as of October 31, 2000.

In November 2000, an airplane chartered by Yecny crashed, killing the pilot and seriously injuring a passenger. The passenger filed a lawsuit against Yecny and others for personal injuries. Yecny tendered the claim to USAIG who provided a defense with a reservation of rights to limit its indemnity obligation to $1 million.

Yecny filed a complaint for declaratory relief against USAIG alleging that the policy or policies in effect at the time of the crash had a coverage limit of $5 million or more. USAIG answered by alleging that the coverage limit was $1 million. Yecny also filed a complaint against Greenarc alleging that, if USAIG prevailed on the coverage issue, the failure to maintain a $5 million policy resulted from Greenarc's negligence (negligence case). Greenarc filed a cross-complaint against USAIG for indemnity in the negligence action. The two actions were assigned to the same department of the San Luis Obispo Superior Court but were not consolidated.

While the actions were pending, USAIG paid $5 million to the passenger injured in the crash in response to a section 998 settlement offer and Yecny's demand that USAIG accept the offer. USAIG then filed a cross-complaint against Yecny in the declaratory relief action alleging that Yecny was contractually obligated to reimburse USAIG for $4 million which constituted payment of a non-covered claim under the insurance policy (reimbursement case). A contribution of $200,000 by a third party reduced USAIG's reimbursement claim from $4 million to $3.8 million.

After bifurcation from the reimbursement case, the declaratory relief complaint was tried and resulted in a judgment that the policy limit was $1 million. Thereafter, Yecny and USAIG settled the reimbursement case (Settlement). As set forth in two agreements, the terms of the Settlement were (1) entry of a stipulated judgment of $1.9 million against Yecny, (2) an agreement by USAIG "not to attempt to satisfy the stipulated judgment," (3) an assignment by Yecny to USAIG of all of its rights to prosecute the negligence action against Greenarc, and (4) an agreement that, if USAIG obtained a monetary recovery from Greenarc, USAIG would pay Yecny 40 percent of the first $150,000 recovered, 10 percent of the next $800,000, and $5,000 subject to another contingency, for a total possible payment of $145,000. The Settlement was conditioned on the trial court's order setting aside its statement of decision regarding the judgment on the declaratory relief complaint. The trial court entered such an order.

After the Settlement, USAIG moved for a determination that the Settlement was made in good faith as set forth in section 877.6. Greenarc received notice of the motion and submitted written and oral opposition. On April 5, 2005, the trial court granted the motion. The court ruled that the Settlement was made in good faith and, as a result of that finding, dismissed Greenarc's indemnity cross-complaint against USAIG in the negligence case. (§ 877.6, subds. (a), (c).)

DISCUSSION

Greenarc contends the trial court erred in determining that the Settlement was made in good faith and in dismissing Greenarc's indemnity cross-complaint against USAIG in the negligence case. Greenarc argues that section 877.6 does not apply to the Settlement because USAIG was not a defendant joint tortfeasor, Greenarc was not a party to the reimbursement case, the Settlement deprives Greenarc of its legitimate offset under section 877, and the Settlement was collusive. We agree in part.

USAIG and Yecny are free to settle upon terms of their choosing, and we do not question the validity of the Settlement. USAIG made a decision to pay $5 million to the passenger injured in the plane crash and to seek recovery of its $4 million "overpayment" from Yecny. USAIG then relinquished its contract claim against Yecny in order to acquire the right to pursue Yecny's negligence claim against Greenarc. There is no basis to question these decisions or the underlying settlement strategies.

There is a distinction, however, between a reasonable settlement and a settlement that can be deemed in "good faith" under the statutory requirements of section 877.6. (See Arizona Pipeline Co. v. Superior Court (1994) 22 Cal.App.4th 33, 47.)

The Settlement in this case does not satisfy the statutory requirements of section 877.6, nor has USAIG shown that the objectives underlying sections 877 and 877.6 can be achieved by the Settlement. Accordingly, we conclude that USAIG may not obtain a section 877.6 order that the Settlement was made in good faith.

Under section 877.6, "[a]ny party to an action in which it is alleged that two or more parties are joint tortfeasors . . . shall be entitled to a hearing on the issue of the good faith of a settlement entered into by the plaintiff or other claimant and one or more alleged tortfeasors . . . ." (At subd. (a)(1).)[2] The court can find the settlement to be in good faith whenever "the amount of the settlement is within the reasonable range of the settling tortfeasor's proportional share of comparative liability for the plaintiff's injuries." (Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 499.) "A determination by the court that the settlement was made in good faith shall bar any other joint tortfeasor . . . from any further claims against the settling tortfeasor . . . for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault." (§ 877.6, subd. (c).)

The good faith settlement procedure is designed to achieve the dual goals of encouraging settlements and assuring an equitable sharing of costs among the parties at fault. (Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 872-873.) The procedure encourages settlements by cutting off the right of other defendants to seek equitable indemnity or contribution from the settling defendant. (§ 877.6, subd. (c).) And, a companion statute assures an equitable sharing of fault by reducing the potential liability of nonsettling defendants through an offset against the plaintiff's claim equal to "the amount of the consideration paid for" the settlement. (§ 877, subd. (a); see Abbott Ford, supra, at pp. 872-873; United Services Auto. Ass'n v. Superior Court (2001) 93 Cal.App.4th 633, 641.)

As a settlement of the reimbursement action, the Settlement turns the provisions of section 877.6 on their head. Section 877.6 applies to "an action in which it is alleged that two or more parties are joint tortfeasors." (§ 877.6, subd. (a), italics added.) Both the declaratory relief complaint and the reimbursement cross-complaint allege claims arising from contractual obligations and do not allege any tort. In addition, section 877.6 allows a settling joint tortfeasor to limit its liability by barring indemnity claims by "any other joint tortfeasor." (§ 877.6, subd. (c), italics added.) The statute does not contemplate or permit a settling plaintiff to obtain a good faith determination in order to bar an indemnity or contribution claim against the plaintiff. (Doose Landscape, Inc. v. Superior Court (1991) 234 Cal.App.3d 1698, 1701.)

Here, it is a settling plaintiff who sought the benefit of the good faith determination, not a settling defendant. USAIG was named as a defendant in the declaratory relief complaint, but settled as a cross-complainant seeking monetary damages from Yecny. A cross-complainant is the functional equivalent of a plaintiff, and the term "plaintiff or other claimant" in section 877.6 refers to the injured party seeking relief whether that party is denominated a plaintiff or a cross-complainant. (Arizona Pipeline Co. v. Superior Court, supra, 22 Cal.App.4th at p. 42.)

Although it settled the reimbursement case, USAIG argues that the Settlement also covered the negligence case. USAIG asserts that the Settlement justified a section 877.6 dismissal of Greenarc's indemnity cross-complaint in the negligence case because it has the effect of settling USAIG's potential liability to Yecny as a joint tortfeasor with Greenarc. (See Mattco Forge, Inc. v. Arthur Young & Co. (1995) 38 Cal.App.4th 1337, 1347-1348 [parties can be joint tortfeasors under section 877.6 even though one party is a cross-defendant].)[3]

The Settlement included terms affecting the negligence action, and it is reasonable to conclude that the primary goal of USAIG in the Settlement was to acquire Yecny's rights against Greenarc in that case. The effect of the Settlement on the negligence case, however, does not transform USAIG from a plaintiff into a settling defendant joint tortfeasor for purposes of sections 877.6 or 877. To the contrary, it reveals that USAIG's objective was to obtain a monetary recovery, not limit its liability.

The $1.9 million stipulated judgment with a covenant not to enforce the judgment and an assignment of Yecny's claim against Greenarc, constitutes a settlement with no monetary consideration that left USAIG bearing the entire financial burden of its payment to the injured passenger. The primary result of the Settlement was to transform USAIG from a defendant (cross-defendant) in the negligence action into a plaintiff and provide USAIG with another potential source of reimbursement for at least a substantial portion of its $4 million "overpayment." As such, the Settlement may be effective, but it does not satisfy sections 877.6 and 877's goals of encouraging settlements and fairly allocating fault to culpable tortfeasors.

Sections 877.6 and 877 provide a defensive procedure by which a joint tortfeasor may extricate itself from a lawsuit and bar actions for equitable indemnity by the remaining joint tortfeasors. (Mel Clayton Ford v. Ford Motor Co. (2002) 104 Cal.App.4th 46, 58.) In the Settlement, USAIG gives up a contract claim in return for an offensive weapon. USAIG did not buy its peace by limiting its exposure as a culpable tortfeasor to the monetary amount it paid in settlement. Yecny bought its peace. USAIG bought continued litigation.

In addition, the purpose of a section 877.6 hearing is to ensure fairness to absent tortfeasors, not fairness to the settling parties. (Hamilton v. Maryland Cas. Co. (2002) 27 Cal.4th 718, 729.) USAIG asserts that the $1.9 million stipulated judgment and other terms of the Settlement reflect a reasonable approximation of its potential liability as a cross-defendant and tortfeasor, and provide a reasonable offset of

$1.9 million to Greenarc. We disagree. The $1.9 million amount is an artificial number that will never be paid. It is not connected to the economic realities of the Settlement, and there is no evidence or other basis to show that it constitutes "the amount of the consideration paid for" the settlement of USAIG's potential liability as a cross-defendant in the negligence case. (§ 877, subd. (a).)

The artificiality of the $1.9 million amount can be illustrated by altering the procedural posture of this case in which USAIG made what it characterized as a

$4 million "overpayment" and, thereafter, filed a cross-complaint seeking reimbursement of the $4 million from its insured. Hypothetically, if the injured passenger had obtained a $5 million judgment against Yecny, and USAIG paid only $1 million (with a third party paying $200,000), Yecny would have sued USAIG and Greenarc for the other

$3.8 million. In this hypothetical situation, USAIG would have been a defendant and, as such, a more conventional moving party under section 877.6.

But, to conform to the actual money trail in the case, the hypothetical settlement by USAIG as a defendant would have to include a payment of $5 million to the injured passenger. In other words, the settlement would have to include USAIG's payment to Yecny of the entire $3.8 million because USAIG paid that amount in reality. With this hypothetical $3.8 million payment, Yecny would be recovering 100 percent of its claim in the settlement. A good faith settlement determination would then result in the dismissal of Greenarc's indemnity cross-complaint, but it would also entitle Greenarc to the benefit of a 100 percent offset against Yecny's claim. (§ 877, subd. (a).) To be in good faith for purposes of section 877.6, the actual settlement that is the subject of this appeal would have to have a similar result. It does not.

The judgment is reversed. Costs are awarded to Greenarc.

NOT TO BE PUBLISHED.

PERREN, J.

We concur:

YEGAN, Acting P.J.

COFFEE, J.

Roger T. Picquet, Judge

Superior Court County of San Luis Obispo

______________________________

Kerry, Garcia & Lewis, William H. Kerry and Daniel G. Lewis for Appellants.

Duggan Smith & Hutkin and Maria L. Hutkin for Respondents Yecny Enterprises, Inc., Alan Yecny and Christine Yecny.

Reily & Jeffery and Janine K. Jeffery for Respondents United States Aircraft Insurance Group and United States Aviation Underwriters, Inc.

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[1] All statutory references are to the Code of Civil Procedure unless otherwise stated.

[2] Section 877.6 applies to "co-obligors on a contract debt" as well as joint tortfeasors, but there is no contention that Yecny or Greenarc are co-obligors of USAIG on any contract. (See Pacific Estates, Inc. v. Superior Court (1993) 13 Cal.App.4th 1561, 1571-1572.)

[3] It is not critical that Greenarc was not a party to the reimbursement case. The two cases were assigned to the same department of the superior court and Greenarc fully participated in the hearing on the good faith settlement motion. (See Britz, Inc. v. Dow Chemical Co. (1999) 73 Cal.App.4th 177, 181-182.)