Filed 11/25/15 City of San Bernardino Municipal Water Dept. v. American Alternative Ins. Corp. CA4/1

                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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                    COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                  DIVISION ONE

                                           STATE OF CALIFORNIA



CITY OF SAN BERNARDINO                                              D068482
MUNICIPAL WATER DEPARTMENT,

         Plaintiff and Appellant,
                                                                    (Super. Ct. No. RIC1202114)
         v.

AMERICAN ALTERNATIVE INSURANCE
CORPORATION,

         Defendant and Respondent.


         APPEAL from a judgment of the Superior Court of Riverside County, Richard J.

Oberholzer and Edward D. Webster, Judges. Judgment affirmed. Appeal from denial of

summary adjudication dismissed.

         Radcliff & Saiki and Eric H. Saiki for Plaintiff and Appellant.

         Wood, Smith, Henning & Berman, Kevin D. Smith, Stacey F. Blank, Nicholas M.

Gedo and Keith E. Smith for Defendant and Respondent.
       In 2004 the City of San Bernardino Municipal Water Department (City) purchased

a blended insurance policy and investment product through an insurance broker, Alliant

Insurance Services (Alliant). The insurance was designed to insure against City's

liability, and also pay for environmental remediation caused by chemical pollution

introduced into a local aquifer by a United States military base during World War II.

       When the state assessed a $1.64 million tax on this insurance, a dispute arose

between the City and Alliant over who was responsible to pay the tax. Ultimately,

Alliant paid about $1.4 million of the tax. City sued Alliant for professional negligence,

among other things, and Alliant cross-complained against City seeking reimbursement

for the tax it paid.

       City tendered defense of the cross-complaint to American Alternative Insurance

Corporation (AAIC), which had issued City a liability policy. After AAIC denied

coverage, City filed a motion for summary adjudication on the issue of duty to defend.

About a month later, AAIC filed a motion for summary judgment, asserting there was no

coverage as a matter of law. The trial court denied City's motion and granted AAIC's

motion.

       City contends the judgment should be reversed because: (1) having determined

triable issues of fact precluded summary adjudication in favor of City, the trial court was

required to deny AAIC's motion for summary judgment on the same grounds; (2) the trial

court failed to determine whether AAIC owed a duty to defend in 2007, when Alliant

filed its cross-complaint; (3) Alliant's cross-complaint alleged tort theories; which along

                                             2
with "extrinsic evidence" established a potential for coverage and a duty to defend; (4)

the alleged wrongful conduct "clearly occurred within the pertinent time period"; and (5)

the "undisputed evidence" is City "had no reason to know at policy inception that Alliant

would make a formal claim."

        We affirm. The trial court correctly determined there was no potential coverage

because Alliant's claims against City were exclusively for breach of contract, which

AAIC's policy excludes. Because there was no possibility of coverage, and therefore no

duty to defend on this ground, the trial court correctly entered judgment in favor of

AAIC.

                   FACTUAL AND PROCEDURAL BACKGROUND

        A. The AIG Blended Policy

        City owns property that had ground water contamination as a result of its use by

the United States military during World War II. In ensuing litigation, City and the United

States entered into a consent decree that contemplated City managing a 50-year

remediation program using federal funds.

        To fund the remediation program using the settlement proceeds, City consulted

with Kennen Staley, an insurance broker who was employed by Alliant. Staley

negotiated with American International Group, Inc. (AIG) for an insurance product

consisting of (1) liability coverage for pollution causing bodily injury or property

damage, and (2) an investment designed to generate sufficient returns to pay remediation

costs for the first 30 years of City's remediation obligations.



                                              3
       The premium for the AIG policy was over $51 million. Of this amount,

approximately $42.5 million was the premium for the investment or annuity portion, and

approximately $8.9 million was the premium for the liability portion.

       B. Surplus Lines Tax Dispute

       California law imposes a 3 percent surplus lines premium tax plus other fees on

policies issued by nonadmitted insurers, such as AIG. (Ins. Code, § 1775.5.) The $51

million premium did not include any such tax. A letter from AIG to Staley states "[i]t is

the [b]roker's responsibility to access, collect, and remit these charges."

       In 2004 Staley discussed this tax with the California Department of Insurance.

From those informal and nonbinding discussions, Staley believed the state would assess

tax on only the liability premium portion of the policy, resulting in a tax of approximately

$225,000.

       Several months later, however, Staley reported the Department of Insurance was

inclined to change its position and tax the entire $51 million premium. The total tax due

would be $1,660,589. In March or April 2005, with the tax issue still unsettled, City paid

the $51 million premium.

       In April 2005 the City's then-lawyer, Russell Randle write to Staley, telling him

the City "[did] not have the cash to pay a $1,660,000 tax . . . . Randle told Staley the City

wanted AIG to "meet us halfway on this problem."

       AIG offered City a $600,000 reduction in premium, which City accepted. Stacey

Aldstadt, the City's general manager, testified AIG reduced the City's premium by

$600,000 because "AIG recognized that there was a problem and that we had been caught

                                              4
unaware of that problem and that we were in a very difficult position." Thomas

Jacobson, an attorney representing City at the time wrote, "AIG paid the Water

Department $600,000 to be used to resolve the tax issue."1

       With an enormous tax potentially looming, City looked for a political solution,

first through the California Department of Justice and then with its state Assembly

member. Meanwhile, in November 2005 Staley informed City the Department of

Insurance had decided to imposes taxes and fees on the entire $51 million premium.

       The next month, Jacobson wrote to Alliant's lawyer, Cheryl Orr, stating City paid

$275,000, the tax on the premium attributable to the liability portion of policy. Jacobson

said City would not pay any additional taxes and asserted Alliant was legally responsible

for the remaining taxes and fees.

       In January 2006 Alliant sent a $1,370,875.62 invoice to City for the "remaining

tax obligation." Alliant's cover letter stated, "As you are aware it is the obligation of the

insurance broker to assess, collect and remit these taxes to the State of California." Two

weeks later, Alliant sent a $1,706,756.98 invoice to City, representing the tax, interest,

and penalties the Department of Insurance assessed.

       In February 2006 Jacobson wrote to the Department of Insurance, stating,

"Though the tax . . . is imposed on the broker, we are requesting an opportunity to

participate in discussions concerning this matter because Driver is claiming they may



1      In its reply brief, City states, "the contention [that City received a premium
reduction to offset any tax liability] is a blatant misrepresentation," even though that is
exactly what Jacobson wrote at the time.
                                              5
have the right to seek indemnity or contribution from us if the tax is imposed in amounts

in addition to those already paid."2

       In June 2006 Orr wrote to Jacobson, stating Alliant was obligated to pay the tax or

else face possible suspension or revocation of its broker's license. Orr's letter included a

demand City pay the tax, now $1,538,577.51 plus interest at $419.25 per day. Orr's letter

reminded City, "AIG agreed to refund $600,000 in premium to the Water Department for

the purpose of applying those funds to any surplus lines tax liability that might eventually

be assessed . . . ."

       After settlement attempts failed, in October 2006 Orr wrote to Jacobson, stating

Alliant "will be paying the tax and accrued interest" and would "undertake to protest the

tax determination . . . and seek a refund." Orr threatened to sue City "to seek full

recovery of the tax . . . ."

       C. Alliant's Government Claim

       In December 2006 Orr sent a "Notice of Claim Against Public Entity" addressed to

the City of San Bernardino Water Department.3 The notice of claim asserted in




2      The parties refer to Alliant as Alliant, Driver-Alliant Insurance Services, or
Driver. The parties do not advise us of any relevant distinction among these names for
purposes of this case. For clarity, we use Alliant throughout this opinion.

3      On June 21, 2007, Orr sent another notice of claim, this one addressed to the City
of San Bernardino (instead of "Water Department"), repeating the substance of the
December 2006 notice. The parties do not discuss the legal significance, if any, of two
such notices.
                                              6
October 2006 Alliant paid $1,377,251.77 "for tax liabilities incurred by the Water District

but that the Water District failed and refused to pay."

       D. City's Tender of Defense

       City's AAIC policy provides AAIC "shall have the right and duty to defend the

Insured against any 'suit'" seeking specified damages. Although no suit had yet been

filed, in January 2007 Jacobson wrote to AAIC, forwarding a copy of Alliant's notice of

claim, explaining the background of the AIG insurance and tax dispute, and "tendering"

the claim "pursuant to the terms of the policy covering acts and omissions."

       E. AAIC Denies Defense

       In February 2007 Glatfelter Claims Management, Inc. (Glatfelter), acting on

AAIC's behalf, denied defense on the grounds the claim arose (1) from City's refusal to

pay a tax, representing a "financial gain to which the City was not legally entitled," and

therefore not a covered "wrongful act"; and (2) from the purchase of an insurance

contract that allegedly created a contractual obligation upon the City to pay the tax, and

there is a policy exclusion for failing to perform or breach of contract.

       F. City Sues Alliant

       In June 2007 City sued Alliant and Staley for alleged breach of fiduciary duty,

breach of contract, professional negligence, negligent misrepresentation, and declaratory

relief. City alleged as damages "fees it has been forced to pay, and continues to pay, to

lobbyists, consultants, and attorneys in efforts to mitigate the putative additional costs

that the City may owe on the investment contract portion of the AIG Agreement."

                                              7
       G. Coverage Dispute Continues

       By July 2007 Jacobson no longer represented City in dealing with AAIC, City

having retained new counsel, Radcliff & Saiki, LLP.

       Jules Radcliff, Jr., sent a letter to Glatfelter to "alert[] you to the fact that

additional information has been developed and will soon be provided to you." Radcliff

asserted he met with Alliant's attorneys and "have engaged in a more informed discussion

of said counsel's theories of recovery and understanding of the facts supporting those

theories." He added, "your insured, by its conduct . . . caused, or substantially

contributed to, a series of events that resulted in significant miscommunication with

various state governmental agencies, including the California Department of Insurance

[and] . . . through a further series of errors [led] . . . to the improper leveling of a

premium tax . . . ." Radcliff ended the letter by promising, "In the coming days we will

provide you with additional information and details, together with supporting

documentation wherever available." (Italics added.)

       Despite promising to provide additional information "in the coming days," in fact

Radcliff did not again communicate with Glatfelter until seven months later. In February

2008 Radcliff wrote to Glatfelter, complaining "[w]e have heard nothing further from

AAIC but silence." He asserted, "For over one year this factually-complex claim has

been ignored by you, no investigation at all has been conducted, and the interests of your

insured have been abandoned." Counsel stated Glatfelter's denial of coverage and

defense was "squarely at odds with the facts underlying this claim."



                                                8
           Radcliff's February 8, 2008 letter contained no new factual information. But there

had been a significant event. In November 2007 Alliant filed a cross-complaint against

City. The proof of service shows Alliant served Radcliff & Saiki, LLP, with the cross-

complaint on November 2, 2007.

           H. Alliant's Cross-Complaint

           Alliant's cross-complaint alleged four theories of liability against City: (1)

account stated; (2) open book account; (3) equitable indemnity; and (4) unjust

enrichment. Alliant's cross-complaint alleged "[i]t is the custom and standard practice in

the insurance brokerage industry for the surplus lines broker . . . to bill the insured for the

premium and all applicable taxes and fees . . . ." Alliant also alleged AIG discounted the

premium by $600,000 "to provide the City with additional funds" for paying the surplus

lines tax. Alliant alleged City agreed to pay the tax, Alliant sent City invoices for taxes

due, and City refused to pay.

           I. Continuing Dispute About Coverage

           In February 2008, still unaware that Alliant had filed a cross-complaint against

City, Glatfelter responded to Radcliff's letter of February 8. Glatfelter reminded counsel

that in July 2007 he had promised to provide additional information "in the near future";

however, "[t]o date, I have not received the information discussed in the July 9, 2007

letter."

           On March 17, 2008—more than four months since being served with Alliant's

cross-complaint—Radcliff again wrote to Glatfelter stating, "[W]e have no idea what

information you may actually need and find most relevant." Radcliff stated there had

                                                  9
been "numerous developments that, presumably, would be of interest to you and to

AAIC"—but he said nothing about Alliant's cross-complaint. Instead, Radcliff stated

City was "shocked and dismayed by AAIC's initial denial of coverage" and "will hold

AAIC and its agents responsible for this continuing abandonment in the face of a clearly

covered claim." Radcliff added that he had spoken to Alliant's lawyer, who stated he

intended to pursue a negligence claim against City. However, Radcliff did not enclose a

copy of Alliant's cross-complaint, which contains no negligence allegations.4

       On April 2, 2008, Radcliff wrote another letter to Glatfelter. The letter begins, "I

wanted to give you a heads-up that after a period of relative inactivity the litigation part

of this matter is about to heat up considerably . . . ." But still, Radcliff did not enclose

Alliant's cross-complaint.

       The next day, Glatfelter wrote Radcliff, requesting a copy of Alliant's cross-

complaint, stating, "Your recent correspondence states a lawsuit has been filed against

the Water Department. The Common Policy Conditions of the Special Districts

Insurance Program Policy require an insured to immediately forward a copy of a suit for

our review. To date, we have not received a copy . . . ."

       On April 9, 2008—five months after Alliant served its cross-complaint—Radcliff

sent Glatfelter the cross-complaint.




4      City's brief asserts, "Throughout the entire dispute between [City] and
Alliant . . . [City's] counsel continually provided AAIC with facts and information
concerning developments in the [u]nderlying [a]ction." The facts stated in the text do not
support this assertion.
                                              10
       On May 5, 2008, Glatfelter denied coverage and defense on the grounds: (1) the

conduct Alliant alleges is not a "wrongful act" as defined in the policy because the

lawsuit sought restitution of financial gain to which the City was not legally entitled; (2)

the policy excludes coverage for (i) failure to perform or breach of contract; and (ii)

liability arising from Superfund obligations.

       Radcliff replied to Glatfelter the next day, stating Alliant's attorneys "have

informed me that they will try the case as a negligence action against your insured rather

than simply as a tax reimbursement claim." The letter ended by stating, "Your handling

of this claim is just unfathomable."

       J. Legislative Solution

       In early June 2008, Radcliff wrote to Glatfelter, stating, "We may soon have a

determination that the financing component of the blended finite risk product that was

utilized in this matter is not subject to taxation." He stated this was the basis of Alliant's

"negligence" claim against the City. He ended by stating, "AAIC has acted in egregious

bad faith in its handling of this claim to date."

       In September 2008 the Legislature amended Insurance Code section 1775.5,

subdivision (a) to exclude from taxation any portions of premiums for the investment

portion of a blended finite risk product used in financing Superfund environmental

settlements. As a result, the state refunded $1,377,251.77 tax Alliant had paid, plus

interest. Alliant dismissed its cross-complaint against City.




                                              11
       K. City's Complaint Against Alliant Goes to Trial

       Even with Alliant's cross-complaint dismissed, City continued to litigate its

complaint against Alliant to recover its lobbying costs. Despite Radcliff's repeated

assertions that Alliant intended to present a negligence case against City, Alliant never

asserted City's purported negligence in any pleading in that litigation until literally the

11th hour—when Alliant filed a motion to amend its answer to assert a comparative fault

affirmative defense a week before the case went to the jury, nearly two years after Alliant

had dismissed its cross-complaint.

       In July 2011 a jury returned a special verdict in City's favor against Alliant for

professional negligence and negligent misrepresentation in the amount of $650,820.68.

The jury found City was 25 percent negligent.5

       After judgment, City and Alliant apparently settled the case. In connection with

the settlement, they stipulated to vacate the judgment. On April 27, 2012, the trial court

obliged and entered an order vacating the judgment.

       L. City Sues AAIC for Breach of Contract and Bad Faith

       In August 2012 City sued AAIC for breach of the insurance contract and bad faith.

The complaint alleges AAIC "refused to provide the City with a defense" to Alliant's

government claim and cross-complaint. City alleges AAIC breached the implied

covenant of good faith and fair dealing by "denying the City a defense without proper




5      The parties do not inform us why City's cause of action against Alliant for breach
of contract is not in the verdict form.
                                              12
cause and without regard to the provisions of the policy, relevant case law, and the

undisputed facts underlying the [government] claim and cross-complaint."

          M. City's Motion for Summary Adjudication

          City filed a motion for summary adjudication of the issue of AAIC's duty to

defend. Stating, "Alliant sought from the outset" to assert "tort theories," City asserted

there was a potential for coverage, triggering AAIC's duty to defend.

          In its motion, City acknowledged that to obtain coverage (and defense), the AAIC

policy requires the alleged "'wrongful act'" to have occurred either during the policy

period, or before the policy so long as the insured "'neither knew nor could have

reasonably foreseen that such 'wrongful act' might have been the basis of a claim or

'suit.'" City asserted there was "undisputed evidence" City "had no reason to know at

policy inception that Alliant would make a formal claim." The cited "undisputed

evidence" was a declaration by Stacey R. Aldstadt, City's general manager, a lawyer, who

stated:

             "At the time of the policy's inception on June 30, 2006, I had no
             knowledge whatsoever that CSB [City] . . . had committed any act
             or omission that could become the basis of a claim or lawsuit against
             CSB. In particular, I had no knowledge that anyone at CSB,
             including its employees, attorneys, etc., had done or failed to do
             anything that would be the basis of a claim by Staley, Alliant . . . ."

          N. Alliant's Opposition to City's Motion for Summary Adjudication

          After City filed its motion, but before opposition was due, Alliant deposed

Aldstadt. In deposition testimony, Aldstadt admitted that before the June 30, 2006 policy

inception date, she knew Alliant was claiming City was responsible for paying the tax:


                                               13
          "Q: . . . Were you aware in February 2006 that Alliant was making
          the assertion that they would seek contribution from [City] for the
          surplus lines tax on the policy?

          "A: . . . So yes . . . I would have been aware at that point that that
          may have been what Driver Alliant was alleging or claiming."

       Aldstadt also admitted Alliant sent City invoices for the tax before the policy's

inception date:

          "Q: Isn't it true that prior to June 30th, 2006, you had received
          invoices from Alliant requesting that [City] pay the surplus lines
          tax?

          "A: I think that's a true statement."

          "Q: Isn't it true that as of June 30th, 2006, you were aware of the
          fact that Alliant was asserting [City] owed a surplus lines tax above
          and beyond that had already been paid? [¶] . . .

          "A: . . . I am aware that Cheryl Orr had written a letter in early June
          2006 asserting that [City] was responsible for paying. However, I
          did not believe that was to be—that was a true statement."

       AAIC also deposed Jacobson. On June 14, 2006—two weeks before the AAIC

policy inception—Jacobson wrote a letter to Orr, suggesting the parties and attorneys

meet in an attempt to avoid litigation Jacobson testified:

          "Q: As of June 14, 2006, when you wrote this letter . . . did you
          believe there was a potential for litigation between [City] and Alliant
          over the surplus lines tax?

          "A: . . . I saw, given Miss Orr's conduct at that point in time, that if
          it was up to her, she would litigate first and discuss later.

          "Q: And by this letter you wanted to meet to avoid potential
          litigation?




                                             14
           "A: My client did. Mr. Staley did. Everybody wanted to besides
           Miss Orr."6

       Opposing City's motion for summary adjudication, AAIC argued "[t]he heart of

the dispute between [City] and Alliant . . . arose out of [City's] failure to perform" its

contractual obligation to pay the surplus lines tax. Because the policy excludes coverage

for "failure to perform or breach of contract," AAIC asserted there was no duty to defend.

AAIC also argued there was no coverage because the undisputed evidence established

City knew of the potential claim before policy inception, and failed to disclose the

potential claim on the insurance application.

       O. City's Reply on Its Motion for Summary Adjudication

       Given the deposition testimony showing City well knew of the potential claim

before policy inception, City's reply argued AAIC's duty to defend cannot be decided

"with the benefit of 20/20 hindsight" and instead must be based on what facts AAIC

knew "as of February 21, 2007, when it disclaimed coverage . . . ." City asserted, "Thus,

whether today, in 2013, it can establish a lack of coverage does not negate the fact that a

duty to defend existed in 2007 and thereafter . . . ."

       P. The Court Denies Summary Adjudication

       The trial court (Judge Oberholzer) denied City's motion for summary adjudication

on the grounds that "triable issues of material fact" existed, namely: (1) "[w]hen the duty

to defend arose"; (2) "[w]hether the exclusion for failure to perform a breach of contract


6     Ignoring this deposition testimony, City's brief asserts there was "undisputed
evidence that . . . [City] had no reason to know at policy inception that Alliant would
make a formal claim against [City]."
                                              15
applies"; (3) "[w]hether the City was obtaining improper financial gain"; and (4)

"]w]hether wrongful acts occurred or took place during the policy period."

       Q. AAIC's Motion for Summary Judgment

       Meanwhile, in October 2013, AAIC filed a motion for summary judgment.

AAIC's motion, and City's opposition, mostly repeated the same arguments made in the

context of City's motion for summary adjudication. For example, AAIC argued there was

no duty to defend because: (1) no "wrongful act" occurred within the policy period; (2)

there is no coverage for a tax obligation; and (3) no coverage for breach of contract.

       City opposed the motion, asserting: (a) the duty to defend is determined by

information the carrier possessed when it refused to defend, and the carrier cannot justify

a refusal to defend by hindsight; (b) AAIC's duty to defend was triggered by Alliant's

government claim; (c) Alliant pursued tort theories; (d) the policy exclusion for breach of

contract did not apply; and (e) the trial court's previous ruling denying City's motion for

summary adjudication already established there were triable issues of fact precluding

summary judgment.

       R. The Trial Court Grants Summary Judgment

       The trial court (Hon. Edward D. Webster) granted summary judgment. The court

stated the "first and strongest argument" is City knew of Alliant's claim and failed to

disclose it before purchasing the AAIC policy:

          "There were discussions going back, letters going back. There was a
          dispute already raging as to who's going to be responsible for the
          tax. In fact, at some point . . . the City got a $600,000 refund on the
          underlying policy. [¶] But again, clearly, the act and knowledge of
          the act occurred before June 30th, 2006. So, on the very terms of the

                                             16
             policy, any claims for coverage by the City for the attorney's fees in
             that litigation is not covered. To me, that is clear as can be."

          The trial court also granted summary judgment because AAIC's policy excludes

coverage for breach of contract claims. The court stated:

             "I agree that the policy exclusion providing 'liability for damages
             arising out of failure to perform or breach of contractual obligation'
             applies. [¶] To my mind, the issue of who's going to pay the tax is
             not a tort. It involves a dispute, either express or implied contract,
             who's going to be responsible for it. I mean, there's even an
             agreement by [AIG] that they were going to give a $600,000 refund
             to the City, which it got, on a reduction of the premium, arguably to
             cover the tax. So this is all related to agreements or understandings
             between the parties. This is not a tort situation."

          The trial court rejected City's argument that "extrinsic" evidence outside the cross-

complaint's allegations created a duty to defend. Addressing City's lawyer, the court

stated:

             "Even your very best argument for coverage, it seems to me,
             depends upon a remarkably slender thread of logic, and that is,
             because Alliant said in the letter it may have a claim for negligence
             where no one had a clue what they were talking about, and which
             was not reflected in the cross-complaint, that somehow that
             ephemeral statement in the letter is enough to give right to duty to
             defend. That's your argument at best, what I heard, for whatever it's
             worth. [¶] So I will grant the motion on the grounds stated."

          City timely filed a notice of appeal from the judgment. City's notice of appeal also

purports to appeal from "The Order Denying Plaintiff's Motion for Summary

Adjudication of Issues entered on February 28, 2014."




                                               17
                                        DISCUSSION

                              I. THE STANDARD OF REVIEW

       "We review the trial court's grant of summary judgment under a de novo standard

of review." (Gonzalez v. Fire Ins. Exchange (2015) 234 Cal.App.4th 1220, 1229.) "In

reviewing a grant of summary judgment in favor of the defendant, as in this situation, we

must review the entire record de novo and determine whether the defendant

'"conclusively negated a necessary element of the plaintiff's case or demonstrated that

under no hypothesis is there is a material issue of fact that requires the process of trial."'"

(Ibid.) "'[T]he trial court's stated reasons for its rulings do not bind us. We review the

ruling, not its rationale.'" (Monticello Ins. Co. v. Essex Ins. Co. (2008) 162 Cal.App.4th

1376, 1385.)

                   II. CITY'S APPEAL FROM THE ORDER DENYING
                       SUMMARY ADJUDICATION IS DISMISSED

       The trial court denied City's motion for summary adjudication on the grounds

"triable issues" existed. City contends this ruling necessarily requires AAIC's motion for

summary judgment to also be denied. We disagree because City's argument ignores the

applicable standard of review. As noted, we review the summary adjudication and

summary judgment orders de novo. Moreover, we review the trial court's ruling, not the

court's rationale. (Kids' Universe v. In2Labs (2002) 95 Cal.App.4th 870, 878.) Because

in our de novo review we determine summary judgment for AAIC should be affirmed,

then necessarily the order denying City's motion for summary adjudication was also




                                              18
correct, regardless of whether the reasons (i.e., the existence of triable issues) given for

that ruling were right or wrong.

       Additionally, City's purported appeal from the order denying summary

adjudication must be dismissed. An order denying summary adjudication is not

separately appealable, but it may be reviewed on appeal from summary judgment. (Cale

v. Transamerica Title Insurance (1990) 225 Cal.App.3d 422, 428, fn. 2.) However,

because we affirm the summary judgment for AAIC, we have no occasion to consider the

denial of City's motion for summary adjudication. The purported appeal from the

nonappealable order denying summary adjudication must therefore dismissed.7 (Ibid.)

                               III. THE DUTY TO DEFEND

       "A liability insurer owes its insured a broad duty to defend against claims creating

a potential for indemnity. [Citations.] The duty to defend is broader than the duty to

indemnify, and may exist even if there is doubt about coverage. [Citation.]

When determining whether a duty to defend exists, the court looks to all of the facts

available to the insurer at the time the insured tenders its claim for a defense. [Citation.]

Initially, the court compares the allegations of the complaint with the terms of the policy.

[Citation.] The proper focus is on the facts alleged in the complaint, rather than the



7      Cale also involved a denial of summary adjudication followed by a grant of
summary judgment. The Cale court dismissed the purported appeal from the order
denying summary adjudication, stating, "Since we affirm the summary judgment for
Transamerica, we have no occasion to consider the denial of Cale's motion for summary
adjudication. The purported appeal therefrom is dismissed." (Cale v. Transamerica Title
Insurance, supra, 225 Cal.App.3d at p. 428, fn. 2.)

                                              19
alleged theories for recovery. Nevertheless, the insured '"'may not speculate about unpled

third party claims to manufacture coverage,'" . . . , and the insurer has no duty to defend

where the potential for liability is "tenuous and farfetched." . . . The ultimate question is

whether the facts alleged "fairly apprise" the insurer that the suit is upon a covered claim.'

[Citation.] Facts extrinsic to the complaint may also be examined and may either

establish or preclude the duty to defend. [Citation.] Any doubt as to whether the facts

give rise to a duty to defend is resolved in favor of the insured." (Albert v. Mid-Century

Ins. Co. (2015) 236 Cal.App.4th 1281, 1289-1290.) "'Since pleadings are easily

amended, the proper focus is on the facts alleged, rather than the theories for recovery.'"

(Gonzalez v. Fire Ins. Exchange, supra, 234 Cal.App.4th at p. 1230.)

       The duty to defend is determined by facts known to the insurer at the time of the

tender of defense. (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287,

300.) "The crucial question is whether [the insurer] was in possession of factual

information which gave rise to potential liability under its policy when the company

denied [the insured] a defense in [the underlying] action." (Mullen v. Glen Falls Ins. Co.

(1977) 73 Cal.App.3d 163, 170.)

       Thus, where the insurer moves for summary judgment based on the lack of a duty

to defend, the insurer must present undisputed facts establishing "the absence of any such

potential" for coverage. (Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th at

p. 300, italics omitted.) In so doing, if coverage depends on an unresolved dispute over a

factual question, the very existence of that dispute would not only result in the denial of



                                             20
the motion, but also establish a possibility of coverage and thus a duty to defend.

(Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1085.)

       "On the other hand, 'in an action wherein none of the claims is even potentially

covered because it does not even possibly embrace any triggering harm of the specified

sort within the policy period caused by an included occurrence, the insurer does not have

a duty to defend. [Citation.] "This freedom is implied in the policy's language. It rests

on the fact that the insurer has not been paid premiums by the insured for [such] a

defense. . . . [T]he duty to defend is contractual. 'The insurer has not contracted to pay

defense costs" for claims that are not even potentially covered." ' " (Scottsdale Ins. Co. v.

MV Transportation (2005) 36 Cal.4th 643, 655.) "This includes claims falling outside

the scope of the insuring clause, or within an express exclusion from coverage." (Alterra

Excess & Surplus Ins. Co. v. Snyder (2015) 234 Cal.App.4th 1390, 1401.)

                                 IV. THE AAIC POLICY

       Effective June 30, 2006, AAIC issued liability insurance coverage to City, Policy

No. SDISSK 9100525-3. The policy period is June 30, 2006 to June 30, 2007. Section I,

"Insuring Agreement," part A provides in part:

          "We shall pay on behalf of the Insured those sums that the Insured
          becomes legally obligated to pay as damages because
          of . . . 'wrongful acts' . . . to which this Coverage Part applies. We
          shall have the right and duty to defend the Insured against any 'suit'
          seeking those damages, even if the allegations are groundless, false
          or fraudulent. However, we will have no duty to defend the Insured
          against any 'suit' seeking those damages to which this insurance does
          not apply."




                                             21
       Section I, part F, entitled "Wrongful Acts" provides in part:

          "This Coverage Part applies to 'wrongful acts' which take place
          during the policy period. Coverage is extended to include damages
          or injuries caused by 'wrongful acts' committed prior to the policy
          period . . . provided that: [¶] (1) At the inception of the policy
          period, the Insured against whom the claim is made neither knew nor
          could have reasonably foreseen that such 'wrongful act' might have
          been the basis of a claim or 'suit'; and [¶] (2) No other valid or
          collectible insurance applies to the 'wrongful act.'"

       Section V, entitled "Exclusions," part M entitled "Failure to Perform or Breach of

Contract" provides in part:

          "This Coverage Part does not apply to: [¶] . . . [¶] Liability for
          damages arising out of failure to perform or breach of a contractual
          obligation."

       V. THE TRIAL COURT PROPERLY GRANTED SUMMARY JUDGMENT
       BECAUSE COVERAGE IS EXCLUDED FOR BREACH OF CONTRACT

       A. Any Duty To Defend Was Triggered by Alliant's Cross-Complaint, Not Its
          Government Claim

       At the outset, the parties dispute whether AAIC's duty to defend was potentially

triggered by Alliant's government claim or instead Alliant's cross-complaint. The

insuring agreement provides the duty to defend is triggered by "suit." Section VI,

"Definitions," defines "suit" as follows:

          "'Suit' means a civil proceeding in which damages are alleged
          because of . . . wrongful acts . . . to which this insurance applies."

       A government claim is a statutory prerequisite to certain suits, but it is not a suit.

"The primary attribute of a 'suit,' as that term is commonly understood, is that parties to an

action are involved in actual court proceedings initiated by the filing of a complaint."

(Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, 878.)

                                              22
"'While a claim may ultimately ripen into a suit, "claim" and "suit" are not synonymous.'"

(Id. at p. 879.) "Thus, a reasonable construction of the word "suit" is a lawsuit." (Ibid.)

       The policy also defines "suit" to include:

            "An arbitration proceeding . . . . or [¶] [a]ny other alternative dispute
            resolution proceeding in which such damages are claimed and to
            which an Insured submits with our consent."

       City contends its government claim is a "suit" under this alternative definition

because the purpose of the claims filing requirement is to afford the government an

opportunity to settle claims early, and thus constitutes an "alternative dispute resolution

proceeding in which such damages are claimed." City's argument fails for two reasons.

A government claim is not an "alternative dispute resolution proceeding." It is not an

"alternative" to anything. Moreover, City's argument ignores the second clause of the

definition. The "alternative dispute resolution proceeding" must be one "to which an

insured submits with our consent." The government claims process did not involve City

submitting to a proceeding, nor was the claim filed with AAIC's consent.

       B. Alliant's Cross-Complaint Solely Alleges Contractual Theories of Liability

       "The determination whether the insurer owes a duty to defend usually is made in

the first instance by comparing the allegations of the complaint with the terms of the

policy." (Horace Mann Ins. Co. v. Barbara B., supra, 4 Cal.4th at p. 1081.) As

explained next, the allegations in Alliant's cross-complaint sound exclusively in contract,

not tort.




                                               23
       1. Common allegations

       Alliant's cross-complaint alleges the following "allegations common to all causes

of action":

          "16. It is the custom and standard practice in the insurance
          brokerage industry for the surplus lines broker . . . to bill the insured
          for the premium and all applicable taxes and fees, including any
          surplus lines taxes . . . ."

          "17. The parties negotiating the AIG Policy, fully contemplated that
          a surplus lines tax might be imposed . . . ."

          "19. . . . [R]epresentatives of the City, including its Water
          Department, Alliant, and AIG met in New York in 2004 to discuss
          the premium payment for the AIG Policy and the surplus lines tax
          problem. At that meeting, AIG agreed to discount the premium on
          the AIG Policy by $600,000. The intent of the discount was to
          provide the City with additional funds in the event that the DOI
          [Department of Insurance] did not agree that the [policy's investment
          portion] was not subject to the surplus lines tax."

          "32. In December, 2005, Alliant sent the City a second invoice,
          invoicing the surplus lines tax . . . . [¶] 33. The City failed and
          refused to pay the invoice within thirty days."

          "35. . . . Alliant sent another invoice to the City for the outstanding
          tax . . . . The City did not pay the January 27, 2006 invoice."

          "37. On or about February 7, 2006, Alliant sent a letter to the City
          requesting payment of the outstanding surplus lines tax fees and
          interest. The City, again, refused to make the payment."

          "41. On or about June 6, 2006, Alliant requested the City to forward
          $1,442,935.02, the amount due . . . as of May 30, 2006 . . . . [¶] 42.
          The City refused to and failed to remit payment . . . ."

       Based on these allegations, Alliant alleged four causes of action: (1) account

stated, (2) open book account, (3) equitable indemnity, and (4) unjust enrichment.



                                             24
         2. Account stated is a contractual theory of liability

         The first cause of action for account stated alleges, "On or about April 25,

2005 . . . an account was stated between Alliant and the City. . . . [¶] . . . At the time of

the statement of the account, the City agreed to pay the amount of the surplus lines

tax . . . ."

         Account stated is a contractual theory of liability. "An account stated is an

agreement, based on prior transactions between the parties, that the items of an account

are true and that the balance struck is due and owing. [Citation.] To be an account

stated, 'it must appear that at the time of the statement an indebtedness from one party to

the other existed, that a balance was then struck and agreed to be the correct sum owing

from the debtor to the creditor, and that the debtor expressly or impliedly promised to pay

to the creditor the amount thus determined to be owing.' [Citation.] The agreement

necessary to establish an account stated need not be express and is frequently implied

from the circumstances. When a statement is rendered to a debtor and no reply is made

in a reasonable time, the law implies an agreement that the account is correct as

rendered." (Maggio, Inc. v. Neal (1987) 196 Cal.App.3d 745, 752-753.)

         3. Open book account is a contractual theory of liability

         "The term 'book account' means a detailed statement which constitutes the

principal record of one or more transactions between a debtor and a creditor arising out of

a contract or some fiduciary relation, and shows the debits and credits in connection

therewith, and against whom and in favor of whom entries are made, is entered in the

regular course of business as conducted by such creditor or fiduciary, and is kept in a

                                               25
reasonably permanent form and manner and is (1) in a bound book, or (2) on a sheet or

sheets fastened in a book or to backing but detachable therefrom, or (3) on a card or cards

of a permanent character, or is kept in any other reasonably permanent form and

manner." (Code Civ. Proc., § 337a.)

       Here, Alliant's cross-complaint alleges City "agreed to pay the amount of the

surplus lines tax" The alleged liability is one between debtor and creditor and is

contractual.

      4. Alliant's cause of action for equitable indemnity is for implied contractual
indemnity

       Alliant's third cause of action, entitled equitable indemnity, alleges Alliant paid

taxes and fees "due to the refusal of the City to pay those amounts, which in equity and

good conscience and under the law, are amounts payable by the City, not its insurance

broker, Alliant."

       City contends equitable indemnity is necessarily "tort-based" and therefore this

cause of action precluded the trial court from entering summary judgment based on the

breach of contract exclusion.

       To begin with, "coverage turns not on 'the technical legal cause of action pleaded

by the third party' but on the 'facts alleged in the underlying complaint' or otherwise

known to the insurer." (Gonzalez v. Fire Ins. Exchange, supra, 234 Cal.App.4th at p.

1235, italics omitted.) Therefore, even if equitable indemnity did always involve tort

liability, the label "equitable indemnity" is not controlling. The facts alleged are

controlling.


                                             26
       Moreover, equitable indemnity is not exclusively a tort-based theory of liability.

To the contrary, the theory includes implied contractual indemnity.

       In general, indemnity refers to "the obligation resting on one party to make good a

loss or damage another party has incurred." (Rossmoor Sanitation, Inc. v. Pylon, Inc.

(1975) 13 Cal.3d 622, 628.) "Historically, the obligation of indemnity took three forms:

(1) indemnity expressly provided for by contract (express indemnity); (2) indemnity

implied from a contract not specifically mentioning indemnity (implied contractual

indemnity); and (3) indemnity arising from the equities of particular circumstances

(traditional equitable indemnity). (Prince v. Pacific Gas & Electric Co. (2009) 45

Cal.4th 1151, 1157 (Prince).)

       "Although the foregoing categories of indemnity were once regarded as distinct,

we now recognize there are only two basic types of indemnity: express indemnity and

equitable indemnity." (Prince, supra, 45 Cal.4th at p. 1157.) "[I]implied contractual

indemnity is but a form of equitable indemnity." (Id. at p. 1157, fn. 2, italics added.)

       "'The right to implied contractual indemnity is predicated [on] the indemnitor's

breach of contract.'" (Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc./Obayashi

Corp. (2003) 111 Cal.App.4th 1328, 1350.) "'Implied contractual indemnity is applied to

contract parties and is designed to apportion loss among contract parties based on the

concept that one who enters a contract agrees to perform the work carefully and to

discharge foreseeable damages resulting from that breach.'" (Ibid.) "An implied

contractual indemnity action does not amount to a claim for contribution from a joint

tortfeasor because it is founded neither in tort nor on any duty that the indemnitor owes to

                                             27
the injured party. Rather, it is predicated on the indemnitor's breach of duty owing to the

indemnitee to properly perform its contractual responsibilities." (Id. at p. 1351.)

       In this case, the allegations in Alliant's third cause of action for "equitable

indemnity" invoke principles of implied contractual indemnity. For example, paragraph

16 alleges the "custom and standard practice" to bill the insured for the tax. Paragraph 19

alleges City's acceptance of a $600,000 premium discount to offset the tax. Paragraph 65

alleges the City's legal obligation to pay the tax, and paragraph 67 alleges Alliant paid the

tax "to avoid further interest and penalties." Paragraph 68 alleges Alliant seeks

"equitable indemnity" for amounts "which in equity and good conscience and under the

law, are amounts payable by the City . . . ."

       5. Unjust enrichment

       Alliant's fourth cause of action, entitled "unjust enrichment," sought restitution of

the $600,000 premium reduction. Alliant alleged it was entitled to restitution because the

money was intended to be used for paying the surplus lines tax on the investment portion

of the policy, but instead, City retained the money. However, "'[t]here is no cause of

action in California for unjust enrichment.' [Citations.] Unjust enrichment is

synonymous with restitution." (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th

1350, 1370.) The facts alleged, as already discussed, sound in contract.

       C. The Trial Court Correctly Determined There Was No Duty To Defend

       The trial court granted summary judgment on several alternative grounds, one of

which is "[t]here is no coverage or duty to defend under the subject insurance policy for

the failure to perform or breach of contract."

                                                28
       The trial court correctly determined AAIC owed no duty to defend from the first

tender of suit. The AAIC policy specifically excludes coverage for "Liability for

damages arising out of failure to perform or breach of a contractual obligation."

Glatfelter consistently cited this exclusion as a basis for denying coverage and defense

from tender (of the government claim) through conclusion.8 As explained ante, Alliant's

cross-complaint alleged City's liability on exclusively contractual grounds. Based on the

allegations of the cross-complaint, there was simply no potential for coverage for City's

alleged breach of an agreement to pay the taxes. "'The insurer's duty to defend does not

extend to claims for which there is no potential for liability coverage. This includes

claims . . . within an express exclusion from coverage.'" (Alterra Excess & Surplus Ins.

Co. v. Snyder, supra, 234 Cal.App.4th at p. 1401, italics omitted.)

       In its reply brief, City contends AAIC is relying on the breach of contract

exclusion "for the first time on appeal" and should not be allowed to change theories.

       City misreads the record. AAIC relied on the breach of contract exclusion in

opposing City's motion for summary adjudication and argued the issue in its

memorandum of points and authorities. AAIC also relied on the same exclusion in its

motion for summary judgment.




8      City contends the trial court decided there was no duty to defend based on facts
existing in 2014, but failed to decide the duty to defend issue based on facts existing at
the time of tender. City's argument fails because Glatfelter's initial denial of coverage in
February 2007 cited the policy exclusion for breach of contract and the trial court relied
on the same policy exclusion in granting summary judgment.
                                             29
       City also contends the exclusion for claims arising from breach of contract cannot

apply because Insurance Code section 1775.5 imposes a duty only on the surplus lines

broker to pay the tax, not the policyholder. However, City's argument misunderstands

the relevant standard, which involves initially a comparison between the allegations in

the complaint and the terms of the insurance policy. (Albert v. Mid-Century Ins. Co.,

supra, 236 Cal.App.4th at pp. 1289-1290.) Alliant's cross-complaint alleged City agreed

to pay the tax and breached that agreement. Paragraph 16 alleged an implied agreement

in accordance with the "custom and standard practice in the insurance brokerage

industry." Paragraph 19 alleged an oral agreement in consideration of a $600,000

premium reduction. Paragraph 54 alleged "City agreed to pay the amount of the surplus

lines tax." The alleged conduct falls squarely within the policy exclusion for breach of

contract.

       Next, City contends there is additional evidence, outside the four corners of

Alliant's cross-complaint, that was available to AAIC and creates a potential of coverage.

City argues "the trial court erred in granting AAIC summary judgment when it never

decided the key issue in the case, i.e., the duty to defend on the basis of any potential

liability arising from facts available to the insurer from the complaint or other sources

available to it at the time of the tender of defense."

       The extrinsic evidence City relies on mostly consists of its attorney's letters to

AAIC. Radcliff repeatedly told AAIC that based on conversations with Alliant's

attorneys, Alliant would present a negligence theory against the City. For example, on

May 6, 2008, Radcliff wrote that Alliant's attorneys "have informed me that they will try

                                              30
the case as a negligence action against your insured rather than simply as a tax

reimbursement claim." In another letter, Radcliff wrote "it is the claimant's assertion that

it was through the negligence and errors of your insured" that the state assessed tax on the

investment portion of the AIG policy.

       In addition to these letters, City notes in July 2011 the jury in City's case against

Alliant assessed City with 25 percent comparative fault—demonstrating Radcliff was

right: Alliant was intending to, and would, successful make negligence claims against

the City.

       We reject City's argument about the comparative fault finding for two reasons.

First, the time span is too attenuated to draw any relevant conclusions. Alliant did not

even amend its answer to assert comparative fault until just eight days before the jury

returned its verdict in that case, and nearly four years after Alliant filed its cross-

complaint against City. Second, the comparative fault finding does not even actually

exist anymore. Based on City's stipulation, the trial court vacated the City's judgment

against Alliant.

       More importantly, City's argument about the information contained in Radcliff's

letters to Glatfelter is based on a misunderstanding of law. In Gunderson v. Fire Ins.

Exchange (1995) 37 Cal.App.4th 1106, the court held "[a]n insured may not trigger the

duty to defend by speculating about extraneous 'facts' regarding potential liability or ways

in which the third party claimant might amend its complaint at some future date." (Id. at

p. 1114.)



                                               31
       Similarly, in Hurley Construction Co. v. State Farm Fire & Casualty Co. (1992)

10 Cal.App.4th 533, where the insured's counsel sent several letters to the insurer setting

forth counsel's belief as to how the underlying action could potentially assert covered

claims, the court rejected the argument that these "self-serving letters" to the insurer

"bridged the coverage gap." (Id. at p. 540.) As the court explained, "[T]he insured may

not speculate about unpled third party claims to manufacture coverage." (Id. at p. 538;

see Baroco West, Inc. v. Scottsdale Ins. Co. (2003) 110 Cal.App.4th 96, 104 [finding that

even if insured's assertions in its tender letter of various factual situations that could

create a potential for coverage were "within the realm of possibility," the insured's

argument was still "nothing more than speculation" and did not trigger the duty to

defend].) "[W]hile the universe of facts bearing on whether a claim is potentially covered

includes extrinsic facts known to the insurer at the inception of the suit as well as the

facts in the complaint, it does not include made up facts, just because those facts might

naturally be supposed to exist along with the known facts. An insured is not entitled to a

defense just because one can imagine some additional facts which would create the

potential for coverage. . . . [¶] . . . [¶] . . . You don't prove an insurer has a duty to

defend merely by making a good argument for potential coverage, you show it by

demonstrating a potential for coverage under the terms of the actual policy." (Friedman

Prof. Management Co., Inc. v. Norcal Mutual Ins. Co. (2004) 120 Cal.App.4th 17, 34-

36.)




                                               32
       City asserts Radcliff was not speculating about amendments to Alliant's cross-

complaint and was not making anything up; rather, he was providing "facts and

information" by "concerning developments in the underlying action."

       The record shows otherwise. Radcliff merely characterized Alliant's claims as

involving unspecified "actions and inactions" by City that "caused . . . a series of

events . . . [and] a further series of errors and miscommunications, leading to the

improper leveling of a premium tax." Counsel stated, "[I]t is the claimant's assertion that

it was through the negligence and errors of your insured" that the tax was assessed—

although Radcliff promised to provide "additional information and details"— he never

did.

       There were neither evidence nor facts to support Radcliff's assertions about City

negligence. City never provided AAIC with facts that, if true, would establish a potential

for coverage; rather, City provided their counsel's uncorroborated analysis of the third

party's claims. An insured's counsel's self-serving legal opinion about potentially covered

claims "hardly constitutes a 'fact' known to [the insurer] which . . . gives rise to a . . . duty

to defend." (National Union Fire Ins. Co. v. Siliconix, Inc. (N.D.Cal. 1989) 726 F.Supp.

264, 272.)

       There is nothing in City's tender of the suit that even hinted at a potentially

covered claim. And nothing AAIC received later altered that initial view. Having

determined the trial court properly granted summary judgment on this ground, we need

not consider any of the remaining grounds asserted by AAIC or City's responses.



                                               33
                                    DISPOSITION

      The judgment is affirmed. The appeal from the denial of summary adjudication is

dismissed. AAIC shall recover its costs on appeal.



                                                                           NARES, J.

WE CONCUR:


HUFFMAN, Acting P. J.


McDONALD, J.




                                           34
