Filed 10/27/15 Costco Wholesale Corp. v. Tokio Marine & Nichido Fire Ins. Co. Ltd. CA2/5
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                  DIVISION FIVE


COSTCO WHOLESALE                                                     B250794
CORPORATION,
                                                                     (Los Angeles County
         Plaintiff and Appellant,                                    Super. Ct. No. BC359837)

         v.

TOKIO MARINE AND NICHIDO FIRE
INSURANCE COMPANY LIMITED,
et. al.,

         Defendants and Respondents.


         APPEAL from a judgment of the Superior Court of Los Angeles County,
Richard E. Rico, Judge. Affirmed.
         McCormick, Barstow, Sheppard, Wayte & Carruth, James P. Wagoner, Timothy
R. Sullivan, Geni K. Krogstad, and Lejf E. Knutson for Plaintiff and Appellant.
         Gordon & Rees, Jeffrey A. Swedo and Stephanie Alexander for Defendants and
Respondents.
       Plaintiff and appellant Costco Wholesale Corporation (Costco) sued Tokio Marine
& Nichido Fire Insurance Co., Ltd. (Tokio Marine Japan) and Tokio Marine & Nichido
Fire Insurance Co., Ltd. (U.S. Branch) (Tokio Marine USA; the two companies together
are referred to as Tokio Marine) in 2006. The complaint alleged Costco was insured
under the terms of a general liability insurance policy issued by Tokio Marine to
Yokohama Tire Corporation (Yokohama). The complaint further alleged that Tokio
Marine breached its duty under the policy to defend Costco in a product liability lawsuit
filed by a consumer who purchased a Yokohama-manufactured tire sold by Costco. After
a bench trial, the superior court determined that Costco was not an additional insured
party under Yokohama’s insurance policy and entered judgment for Tokio Marine.
       Costco appeals, contending that certain of the trial court’s factual findings are not
supported by the evidence, and that the court misinterpreted certain key contract
provisions. We conclude that the trial court’s factual findings are supported by
substantial evidence, and that Costco fails to establish any legal error under the applicable
standard of review. We therefore affirm the judgment.


                     FACTUAL AND PROCEDURAL SUMMARY
       The contracts between Costco and Yokohama
       In October 1994, Yokohama and Costco entered into a form vendor agreement
(the VA) to govern Costco’s purchase of Yokohama-branded tires for sale in Costco’s
stores. The VA includes a provision that required Yokohama to cover Costco and its
affiliated companies as “additional insureds” under Yokohama’s general liability
insurance policy.
       Costco also decided to sell a Costco-branded tire, and entered into discussions
with Yokohama to manufacture that product. After a year-long negotiation, the two
companies executed a “Private Label Agreement” (the PLA) in September 1995 whereby
Yokohama agreed to manufacture a line of tires carrying Costco’s “Kirkland Signature”
trademark.

                                              2
       The PLA includes an indemnity provision that obligated Yokohama to hold
Costco harmless from liability and expense arising from a claim or suit against Costco
based on defective design, workmanship, or materials in Yokohama-manufactured
products. The indemnity provision stated that it “shall survive termination of this
Agreement.” In addition, the PLA obligated Yokohama to maintain insurance naming
Costco as an additional insured party and to protect Costco from any liability described in
the PLA’s indemnity provision. The PLA, however, places a limit on Yokohama’s
obligation to provide insurance, stating that the obligation exists “[s]o long as
[Yokohama] agrees to sell or sells any Product to [Costco].” The PLA also contains
specific termination and notice provisions. Neither the VA nor the PLA references the
other, and both contain an integration clause.
       In order to ensure the contractual insurance requirements were met for all of its
active vendors, Costco retained an outside service, Insurance Data Services (IDS), to
verify vendors’ compliance. IDS was tasked with obtaining a current certificate of
insurance reflecting the required vendor insurance coverage from all of Costco’s “active”
vendors. If a current certificate were not on file, IDS would send the vendor a
“deficiency letter” requesting a certificate and noting Costco’s insurance requirements.
On the reverse side of the letters sent by IDS was a space where the vendor could indicate
if it were no longer doing business with Costco, in which case IDS would “make them
inactive in our system” and no additional letters would be sent. Costco’s buyers would
also update vendor lists to reflect their status as “active” or “inactive”; this, however, did
not happen frequently.


       Costco stops selling Yokohama tires
       Less than a year after executing the PLA, Costco executives traveled to
Yokohama’s headquarters in Southern California to inform Yokohama of Costco’s
decision to stop selling all Yokohama-manufactured tires. Yokohama’s executive vice
president who attended the meeting testified that Costco made it very clear that it was

                                              3
giving “official notice” that it was “discontinuing all business” with Yokohama, and that
its decision was final. During the meeting, one of the Costco executives hand-delivered a
letter dated June 24, 1996, (the June 1996 Letter) addressed to Yokohama’s president and
chief executive officer. The June 1996 Letter stated: “It comes with great difficulty that
I must inform you that PriceCostco will be discontinuing Yokohama as one of its
vendors. This decision is based upon our need to leverage our volume with fewer
suppliers and to improve our product mix to remain competitive. [¶] The attached
schedule outlines our phase-out plan. Our intention is to afford Yokohama Tire 12
months to prepare for this change.”


       Yokohama’s 2001 Insurance Policy and the Related Product Liability Litigation
       Approximately five years later, in early 2001, Yokohama’s insurance broker,
AON Risk Services, Inc. (AON), procured for Yokohama a new commercial general
liability insurance policy issued by Tokio Marine USA, effective January 1, 2001,
through January 1, 2002 (the Policy). Lisa Christensen was Tokio Marine USA’s
underwriter for the policy. Tokio Marine USA had not previously insured Yokohama’s
U.S.-made products.
       The Policy obtained by Yokohama from Tokio Marine was structured so that it
could cover additional persons or entities as insured parties. Specifically, the Policy
incorporated a number of endorsements,1 including form CG 20 15 11 88 “Additional
Insured –Vendors,” a general liability endorsement. This “blanket endorsement” made
the process of adding (or deleting) additional insured parties less cumbersome. Instead of
requiring Tokio Marine to list additional insured parties or to issue individual
endorsements naming each vendor as an “additional insured,” the blanket endorsement




1
      As discussed post at page 14, an endorsement is an amendment to the policy that
modifies the basic insuring forms of the policy.
                                             4
provided insurance coverage to all vendors of tires “where required by contract,” that is,
where Yokohama had a contractual obligation to provide insurance to the vendor.2
       IDS, the insurance compliance firm retained by Costco, had continued to send
Yokohama deficiency letters requesting current certificates of insurance even after
Costco ceased selling Yokohama tires in 1997. Yokohama’s practice was to forward
these letters to its insurance broker AON, and AON would then prepare and deliver to
Costco certificates of insurance naming Costco as an additional insured. Although no
representative of AON testified at trial, its files were entered into evidence. These files
demonstrated that the AON-issued certificates of insurance naming Yokohama’s vendors
were often accompanied by an individual vendor endorsement in the vendor’s name. The
individual and blanket vendor endorsements were identical (even the form number, CG
20 15), except that the “WHERE REQUIRED BY CONTRACT” restriction of the
blanket endorsement did not appear on the individual endorsements. Neither AON nor
Tokio Marine had access to Yokohama’s vendor contracts. Thus, AON sent the
individual endorsements accompanying the certificates of insurance to vendors without
verifying that they were required by a valid, existing contract with Yokohama.
       In early 2001, IDS (on behalf of Costco) and AON (on behalf of Yokohama)
exchanged correspondence regarding the status of Yokohama’s insurance policy. That is
to say, IDS sent letters soliciting an updated certificate of insurance and AON followed
up with IDS to determine what additional information Costco required in order to deem
Yokohama in compliance with any insurance obligations. AON ultimately forwarded to
Costco a certificate of insurance evidencing Tokio Marine’s issuance of the Policy, and


2
       The blanket endorsement states that the Section II Policy provision, “WHO IS AN
INSURED,” “is amended to include as an insured any person or organization (referred to
below as vendor) shown in the Schedule, but only with respect to ‘bodily injury’ or
‘property damage’ arising out of ‘your products’ shown in the Schedule which are
distributed or sold in the regular course of the vendor’s business, . . .” The referenced
Schedule identifies the additional insured vendor as any “Person or Organization
(Vendor): [¶] WHERE REQUIRED BY CONTRACT,” and identifies “Your Products”
as “TIRES.”
                                               5
an individual vendor endorsement which named Costco as an additional insured under the
Policy (the Costco Endorsement). The Costco Endorsement sent by AON did not include
the “Where Required by Contract” language in the blanket endorsement.
       Also in early 2001, a Costco customer named Jack Daer (Daer) took his Ford
Explorer to a Costco in Arizona to be serviced; Daer had previously purchased a set of
Kirkland Signature tires manufactured by Yokohama for the Explorer. Five weeks later,
the left rear tire on the Explorer failed, causing Daer to lose control. The vehicle rolled
over, and Daer sustained catastrophic injuries.
       Daer sued Yokohama, Costco, and others in Arizona state court. He alleged a
product liability claim against Yokohama for tire defects, a derivative product liability
claim against Costco as seller of a defective tire, and negligence claims against Costco
for selling him the wrong size and type of tire for his vehicle and for negligence in its
post-sale servicing of the tire. Costco tendered defense of the action to Tokio Marine,
claiming it was an additional insured under the Yokohama Policy. Tokio Marine rejected
the tender. Consequently, Costco’s own insurance carrier, Kemper Insurance Company,
defended Costco in the Daer lawsuit, which settled in July 2005.


       The judgment appealed from
       After a five-day bench trial during which 15 witnesses testified and well over 100
exhibits were admitted into evidence, the court issued a 29-page Statement of Decision.
The superior court determined, among other things, that at the time Daer sued Costco,
Yokohama was not contractually obligated to provide vendors insurance coverage to
Costco, and the Costco Endorsement individually naming Costco as an additional insured
did not create coverage. The court entered judgment for Tokio Marine.


                                       DISCUSSION
       On appeal, Costco contends that it had insurance under the “blanket endorsement”
to the Tokio Marine policy in 2001 because Costco still had a contractual relationship

                                              6
with Yokohama at that time; according to Costco, the trial court incorrectly concluded
that the VA and PLA had been terminated prior to Daer’s lawsuit. Costco also argues
that it was covered under the Costco Endorsement to the Policy and that the trial court
erred when it concluded that AON was not Tokio Marine’s actual or ostensible agent for
purposes of issuing the Costco Endorsement. Costco further argues that the trial court
improperly refused to give dispositive effect to one of Tokio Marine’s responses to a
Request for Admission propounded by Costco. As a consequence, Costco argues the
court mistakenly concluded Tokio Marine was not obligated to defend Costco in the Daer
lawsuit. We consider each of these contentions of error.


       A. Substantial evidence supports the trial court’s finding that Costco was not
covered under the Policy’s blanket endorsement
       Where “‘extrinsic evidence has been properly admitted as an aid to the
interpretation of a contract and the evidence conflicts, a reasonable construction of the
agreement by the trial court which is supported by substantial evidence will be upheld.’
[Citation.] ‘Substantial evidence’ is evidence of ponderable legal significance, evidence
that is reasonable, credible and of solid value. [Citations.] . . . [¶] The ultimate test is
whether it is reasonable for a trier of fact to make the ruling in question in light of the
whole record. [Citation.]” (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634,
651-652; see also Crawford v. Southern Pac. Co. (1935) 3 Cal.2d 427, 429 [“[W]hen a
verdict is attacked as being unsupported, the power of the appellate court begins and ends
with a determination as to whether there is any substantial evidence, contradicted or
uncontradicted, which will support the conclusion reached by the [factfinder]”].) It is
Costco’s burden, as the party asserting coverage, to prove that it is an insured. (Evid.
Code, § 500; see Aydin Corp. v. First State Ins. Co. (1998) 18 Cal.4th 1183, 1188; 2
Windt, Insurance Claims and Disputes (6th ed. 2015) § 9:1, Burden of proof.)




                                               7
              1.     Costco Terminated the PLA and VA before the Daer Lawsuit3
       As already noted , the Policy’s blanket vendor endorsement provided that all of
Yokohama’s vendors were additional insureds so long as their vendor agreements
required Yokohama to provide such coverage. Costco argues both contracts remained in
effect because the June 1996 Letter “did not constitute a ‘clear and unambiguous’ notice
that either the VA or the PLA [was] ‘terminated’ and did not comply with the PLA’s
‘Notice’ provision.” The trial court rejected Costco’s termination argument, finding that
at the time Costco tendered the Daer litigation to Tokio Marine, “there was no longer a
contractual relationship between Costco and Yokohama” because the June 1996 Letter
had worked to terminate that relationship long before. Ample evidence before the court
supports this finding.
       Most significant, the June 1996 Letter itself states that “PriceCostco will be
discontinuing Yokohama as one of its vendors,” and it attached a schedule with a 12-
month phase-out of the Yokohama-manufactured tires. James MacMaster, who attended
the meeting at which Costco delivered the June 1996 Letter, understood that Costco’s
decision to end its relationship with Yokohama was irreversible, and that a competitor of
Yokohama’s had offered Costco $28 million in incentives to cease doing business with
Yokohama. The decision by Costco executives to fly to California to deliver the June
1996 letter in person—and to include significant expressions of regret in the letter
announcing their decision to cease selling Yokohama-manufactured tires (“It comes with
great difficulty that I must inform you . . .”)— reinforces the trial court’s finding that
Costco’s intent was to terminate all aspects of its business relationship with Yokohama
and that Yokohama understood the letter to do just that.


3
       Pursuant to the choice of law provisions of both the PLA and the VA, we construe
these contracts under Washington law. The parties analyze the remainder of the issues on
appeal under California law, and neither party suggests that Washington law applies to
any issue before us other than the interpretation of the PLA and the VA. We therefore
apply California law to resolve the additional issues on appeal. (See Garamendi v.
Mission Ins. Co. (2005) 131 Cal.App.4th 30, 41.)
                                              8
       Yokohama’s behavior after receiving the June 1996 letter is also consistent with
the understanding that the parties’ contractual relationship was coming to an end.
Correspondence dated September 16, 1997, from Yokohama’s National Sales Manager to
Costco described how much Costco-branded inventory remained in Yokohama’s
warehouses and confirmed that Yokohama “should have the inventory cleared by the
October 31, cutoff date” set forth in the June 1996 Letter. All sales of Yokohama tires
ceased by the end of 1997.
       Costco nevertheless argues it did not intend to terminate the VA and the PLA by
pointing to the deposition testimony of its own employees in this litigation who claimed
that Costco was indefinitely “‘discontinuing’ Yokohama as a vendor.” Of course,
Costco’s subjective intent is no more dispositive of the issue than would be Yokohama’s.
(Grant County Port District No. 9 v. Washington Tire Corp. (2015) 187 Wash.App. 222,
233 [“Courts interpret what was written rather than intended to be written”].) Thus,
Costco’s reliance on the deposition testimony of its own employees to support its
argument does not defeat the substantial evidence in the record that supports the trial
court’s finding. (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 630 [“It is not
our task to weigh conflicts and disputes in the evidence; that is the province of the trier of
fact”].) More important, Costco concedes that “[a] termination notice’s actual content
determines its effectiveness, not its subjective intent.” Here we agree with the trial court
that the actual content of the June 1996 Letter notified Yokohama the agreements
between the parties would be terminated; “discontinue” is a perfectly good synonym for
“terminate.” (Webster’s 3d New Internat. Dict. (1981) p. 646 [“discontinue” means “to
break off: give up: terminate”]; Merriam Webster’s Collegiate Dict. (10th ed. 1995)
p. 331 [“1. to break the continuity of: cease to operate, administer, use, produce or take 2.
to abandon or terminate by legal discontinuance”].) Costco’s reliance on the absence of




                                              9
the specific word “terminate” in the June 1996 Letter is therefore unpersuasive.4
       Costco also asserts that the June 1996 Letter did not comply with the PLA’s notice
provision, and thus could not terminate the PLA, because it was not addressed to
Yokohama’s outside counsel and because it may not have been delivered in a sealed
envelope. This contention has no merit. The purpose of a notice provision of the type
here is to ensure that the appropriate party actually receives the notice. Costco suggests
no other purpose, and we can fathom none. In this case, the notice was hand delivered to
Yokohama at a meeting attended by Yokohama Executive Vice President James
MacMaster. Under the circumstances, the purpose of the notice provision was satisfied
and Yokohama has never contended that it did not receive effective notice of termination
of the PLA. (Reynolds Metals Co. v. Electric Smith Constr. & Equipment Co. (1971)
4 Wash.App. 695, 700 [a party to a contract may waive a provision meant for his
benefit]; see also Wesley N. Taylor Co. v. Russell (1961) 194 Cal.App.2d 816, 828.)


              2. Yokohama’s insurance obligations ceased upon termination
       Costco next argues that even if substantial evidence supports the trial court’s
finding that the PLA and the VA terminated before the Daer litigation, the court erred in
concluding that Yokohama’s insurance obligations under those agreements did not
continue in force following the agreements’ termination. To the contrary, substantial
evidence supports the trial court’s conclusion that neither the PLA nor the VA required
Yokohama to provide insurance coverage for Daer’s 2001 product liability claim.
       Under fundamental rules of contract interpretation, “the intent of the parties[]
controls; such intent must be gathered from the contract as a whole; the intent and


4
        Had Costco instead chosen a word that does not denote a definite end, such as
“suspend,” its argument would have greater appeal. Further, if, as Costco maintains, it
was its intention to stop doing business with Yokohama without terminating the PLA, it
was incumbent upon Costco to make that unusually nuanced distinction clear. Having
failed to do so, it deprived Yokohama of an opportunity to terminate the PLA pursuant to
the notice provisions of that agreement.
                                             10
construction afforded the provision and the whole of the contract must be reasonable so
as to carry out, rather than defeat, the purpose of the overall undertaking; and where the
language used is unambiguous an ambiguity will not be read into the contract. . . . ”
(Jones v. Strom Const. Co., Inc. (1974) 84 Wash.2d 518, 520.) “The contracting parties’
intent is determined by construing the terms of the contract as a whole, in light of the
circumstances under which it is made.” (Postlewait Const., Inc. v. Great American Ins.
Companies (1986) 106 Wash.2d 96, 99-100). “We must construe a contract to give
meaning to every term.” (Diamond B Constructors, Inc. v. Granite Falls School Dist.
(2003) 117 Wash.App. 157, 165.) Where there are no disputed material facts, the
contract will be construed by the court as a matter of law. (Postlewait Const., Inc. v.
Great American Ins. Companies, supra, at p. 100.) In the words of the Washington
Supreme Court, “‘the allocation of risk and the determination of potential future liability
is [to be] based on what the parties bargained for in the contract. We hold parties to their
contracts.’” (Alejandre v. Bull (2007) 159 Wash.2d 674, 686, quoting Berschauer/
Phillips Const. Co. v. Seattle School Dist. No. 1 (1994) 124 Wash.2d 816, 826.)
       Paragraph 10.6 of the PLA states that Yokohama’s indemnity obligations “shall
survive termination of the Agreement.” The PLA does not state, however, that
Yokohama’s insurance obligations likewise continue after termination of the agreement.
Rather, paragraph 11, entitled “Insurance,” requires Yokohama to “keep in force . . . the
insurance coverage specified in Attachment D.” Attachment D, in turn, provides that
“[Yokohama] will provide Certificates of Insurance at all times naming [Costco and its
affiliated companies] as an ‘Additional Insured’. . . ” but only “[s]o long as [Yokohama]
agrees to sell or sells any product to [Costco.]” As the trial court found, Yokohama
ceased selling tires to Costco in 1997, well before the Daer litigation and the insurance
tender to Tokio Marine in 2001.
       Costco concedes that the phrase “so long as supplier agrees to sell or sells any
product to Costco” in Attachment D might be read to support Yokohama’s contention
that its insurance obligation terminated upon cessation of sales to Costco. But the

                                             11
company argues the phrase “must be read together with the remaining language of the
same sentence obligating Yokohama to procure insurance ‘at all times’ ‘protecting’ both
Yokohama and Costco from liability for ‘defective design, workmanship or materials’ in
any tire.” We agree the sentence must be read in its entirety, but that does not help
Costco. The inclusion of the words “at all times” does not mean that Yokohama was
obligated to maintain insurance coverage for some longer period or in perpetuity. Rather,
it simply means Yokohama was required to maintain continuous coverage throughout the
relevant time period, namely, for “so long as [Yokohama] agrees to sell or sells any
product to Costco.”
       The separate indemnity provision in the PLA supports, not undermines, the
conclusion that Yokohama’s obligation to provide insurance ceased when it stopped
selling tires to Costco. The parties’ inclusion of the phrase “shall survive the termination
of this agreement” in the indemnity provision establishes that they knew how to
unambiguously provide for the continuation of contractual obligations post-termination,
when that was their intent. Consequently, their failure to require Yokohama to continue
to provide insurance after the termination of the PLA cannot be deemed a mutual
oversight. There are simply no grounds for us ignore the actual language—“so long as
[Yokohama] agrees to sell or sells any Product to [Costco]”—that specifically limits
Yokohama’s obligation to provide insurance coverage. (Diamond B Constructors, Inc. v.
Granite Falls School Dist., supra, 117 Wash.App. 157, 165 [“We must construe a
contract to give meaning to every term”].)
       We likewise reject any suggestion that the longevity of Yokohama’s insurance
obligation under the PLA is ambiguous. Costco cites no authority for the proposition that
the useful life of a product like a tire renders ambiguous the straightforward language “so
long as supplier agrees to sell or sells any Product.” “[A]mbiguity will not be read into a
contract where it can reasonably be avoided. . . . ” (McGary v. Westlake Investors (1983)
99 Wash.2d 280, 285.) Thus, the contract means what it says: “So long as [Yokohama]
agrees to sell or sells any product to [Costco], [Yokohama] will provide Certificates of

                                             12
Insurance at all times naming [Costco and its affiliated companies] as an ‘Additional
Insured’. . . . ” And Yokohama did not agree to sell or sell any product to Costco in 2001
when Daer suffered injuries in a car accident.
       Costco also contends that Yokohama was required to provide insurance coverage
under the VA because that contract, unlike the PLA, did not restrict Yokohama’s
insurance obligation to only those times when it was actively selling tires to Costco. As
noted already, however, the tire at issue in the Daer action was a Kirkland Signature tire
manufactured and sold pursuant to the terms of the PLA, which contained an integration
clause: “This Agreement shall constitute the entire Agreement between the parties with
regard to those matters addressed herein.” Because the sale of the tire at issue in the Daer
litigation was governed solely by the terms of the PLA, Costco’s argument relying on the
VA fails.


       B. Substantial evidence supports the trial court’s finding that Costco was not an
additional insured by reason of AON’s issuance of an individual vendor endorsement
       Even if it was not an insured party under the blanket endorsement, Costco claims
it was an additional insured because AON issued an individual vendor endorsement that
specifically named Costco as an additional insured for the 2001 policy year. The trial
court found that the insurer, Tokio Marine, was not bound by this “Costco Endorsement”
because AON was “only Yokohama’s broker,” “did not act as an actual agent for Tokio
Marine,” and “was not the ostensible agent of Tokio Marine.” The evidence presented at
trial provides sufficient support for these factual findings.
       Our analysis of Costco’s argument requires an understanding of certain terms
referred to by the parties, as well as the evidence presented at trial concerning the parties’
business interactions. We therefore discuss both.
       “A ‘certificate of insurance’ is a document issued by an insurer or an authorized
agent evidencing the existence of insurance.” (See Croskey et al., Cal. Practice Guide:
Insurance Litigation (The Rutter Group 2015) § 3:70.) It is “often required in

                                              13
transactions between the insured and third persons.” (Id. at § 3:70.1.) For example, a
certificate of insurance may be used to show that one party is an “additional insured
under the other’s insurance policy.” (Id. at § 3:70.3.) Insurance Code section 384
requires a certificate of insurance provided as evidence of insurance (in lieu of an actual
copy of the policy) to include language to the following effect: “This certificate or
verification of insurance is not an insurance policy and does not amend, extend or alter
the coverage afforded by the policies listed herein. Notwithstanding any requirement,
term, or condition of any contract or other document with respect to which this certificate
or verification of insurance may be issued or may pertain, the insurance afforded by the
policies described herein is subject to all of the terms, exclusions and conditions of such
policies.” (Ins. Code, § 384, subd. (a).)
       Insurance Code section 10274 defines “endorsement” to mean “any amendment,
change, limitation, alteration or restriction of the printed text of a policy by a rider upon a
separate piece of paper made a part of such policy.” Unlike a certificate of insurance,
“[a]n endorsement modifies the basic insuring forms of the policy and is an integral part
of the policy. . . . An endorsement can expand or restrict the coverage otherwise
provided by the policy. If there is any conflict between an endorsement and body of a
policy, the endorsement controls. . . . ” (Frontier Oil Corp. v. RLI Ins. Co. (2007) 153
Cal.App.4th 1436.)
        An insurance broker is “a person who, for compensation and on behalf of another
person, transacts insurance . . . with, but not on behalf of, an insurer.” (Ins. Code, § 33,
emphasis added.) An insurance agent, by contrast, is a person authorized, by and on
behalf of an insurer, to sell insurance on behalf of an insurance company. (American
Way Cellular, Inc. v. Travelers Property Casualty Co. of America (2013) 216
Cal.App.4th 1040, 1052 [insurance agents must be licensed by the commissioner of
insurance and must be authorized by an insurance carrier to transact business, evidenced
by the filing of a notice of agency appointment].) Thus, while an insurance agent
represents the insurer in transacting business with the general public, and has the

                                              14
authority to bind the insurer on coverage, a broker generally has no such authority.
(Douglas v. Fidelity National Ins. Co. (2014) 229 Cal.App.4th 392, 410-411.)
        A person’s status as an agent or broker, however, is not solely determined by the
labels used, but also by his or her conduct. (Maloney v. Rhode Island Ins. Co. (1953) 115
Cal.App.2d 238, 245 [“The actual relationship is determined by what the parties do and
say, not by the name they are called”].) “An insurer, as a principal, may be vicariously
liable for the [acts] of its agent if the insurer directed or authorized the agent to perform
the . . . acts, or if it ratifies acts it did not originally authorize.” (Desai v. Farmers Ins.
Exchange (1996) 47 Cal.App.4th 1110, 1118.)
       It is undisputed that AON was Yokohama’s insurance broker. Costco contends,
however, that AON was also acting as the actual agent of Tokio Marine and could
therefore bind the insurer when it provided Costco with the Costco Endorsement in
January 2001. Costco argues in the alternative that AON was Tokio Marine’s ostensible
agent. Costco asserts that the trial court’s finding that AON was not an agent of Tokio
Marine (actual or ostensible) was unsupported by the evidence.


       General principles of agency
       “An agent is one who represents another, called the principal, in dealings with
third persons. Such representation is called agency.” (Civ. Code, § 2295.) “An agency
is either actual or ostensible.” (Civ. Code, § 2298.) “An agency is actual when the agent
is really employed by the principal.” (Civ. Code, § 2299.) “An agency is ostensible
when the principal intentionally, or by want of ordinary care, causes a third person to
believe another to be his agent who is not really employed by him.” (Civ. Code, § 2300.)
Thus, ostensible agency is a form of vicarious liability. (J.L. v. Children’s Institute, Inc.
(2009) 177 Cal.App.4th 388, 403.)
       “Agency is generally a question of fact. [Citations.] Where conflicting evidence
of agency is presented, we review the trial court’s determinations for substantial
evidence. [Citation.]” (Van’t Rood v. County of Santa Clara (2003) 113 Cal.App.4th

                                                15
549, 571 (Van’t Rood).) “When the essential facts are not in conflict and the evidence is
susceptible to a single inference, the agency determination is a matter of law for the
court. [Citation.]” (Emery v. Visa Internat. Service Assn. (2002) 95 Cal.App.4th 952,
960.) Here, while all the facts may not be in dispute, many of the inferences to be drawn
from them are. Consequently, we review the trial court’s conclusions regarding the
agency relationship between AON and Tokio Marine for substantial evidence.


       Actual agency
       Actual or true “‘“[a]gency is the relationship which results from the manifestation
of consent by one person to another that the other shall act on his behalf and subject to his
control, and consent by the other so to act.” [Citation.] “The principal must in some
manner indicate that the agent is to act for him, and the agent must act or agree to act on
his behalf and subject to his control.” [Citation.]’ (Edwards v. Freeman (1949) 34
Cal.2d 589, 592, quoting Restatement, Agency, § 1.) Thus, the ‘formation of an agency
relationship is a bilateral matter. Words or conduct by both principal and agent are
necessary to create the relationship. . . . ’ [Citation.]” (Van’t Rood, supra, 113
Cal.App.4th at p. 571.)
       “Actual agency typically arises by express agreement. (See 2 Witkin, Summary of
Cal. Law (9th ed. 1987) Agency & Employment, § 36, pp. 49-50; see also, e.g., Naify v.
Pacific Indemnity Co. (1938) 11 Cal.2d 5 [actual agency must rest on agreement or
consent].)” (Van’t Rood, supra, 113 Cal.App.4th at p. 571.) An actual agency
relationship may also be created informally so long as there is conduct by each party
manifesting acceptance of a relationship whereby one of them is to perform work for the
other under the latter’s direction. (Malloy v. Fong (1951) 37 Cal.2d 356, 372.) “Absent
mutual consent, therefore, there can be no agency.” (Rental Housing Owners Assn. of
Southern Alameda County, Inc. v. City of Hayward (2011) 200 Cal.App.4th 81, 91.)
       Actual agency may also be created when the principal, in the absence of a prior
agreement with the agent, ratifies the agent’s conduct by accepting its benefits. (Civ.

                                             16
Code, § 2307; see 3 Witkin, Summary of Cal. Law (10th ed. 2005) Agency &
Employment, § 95, p. 142.) “Ratification is possible only when the person whose
unauthorized act is to be accepted purported to act as agent for the ratifying party.”
(Ibid.)
          Costco acknowledges that Tokio Marine and AON did not expressly agree to a
principal-agent relationship, but claims that their conduct manifested their intention to
create an actual agency. This conduct, according to Costco, consisted of Tokio Marine
“allowing” AON to issue certificates of insurance and individual vendor endorsements as
evidence of insurance. However, this evidence fails to establish the requisite meeting of
the minds between Tokio Marine and AON, an essential element of actual agency.
(Van’t Rood, supra, 113 Cal.App.4th at p. 571 [actual agency must rest on agreement or
consent].)
          Tokio Marine’s underwriter, Lisa Christensen, testified that pursuant to a “running
understanding” she had with AON, she routinely received from AON copies of
certificates of insurance together with individualized vendor endorsements that AON had
issued to Yokohama’s customers. She did not object to the absence of the words “where
required by contract” on these individual endorsements, explaining: “The reason why we
issue a blanket vendor endorsement with the wording, ‘where required by written
contract’ is to allow the broker, not—and the client not to have to give us an exhaustive
list of everybody that they have a contractual relationship with to provide this coverage.
The broker is then allowed, if the other organization requires it, to issue a piece of paper
evidencing additional insured vendor or [sic] coverage. So I did not object to it. It’s
merely evidence of insurance that the broker was allowed to provide.” The factual issue
presented for the trial court’s resolution was whether Tokio Marine’s inaction upon
receipt of AON-issued individual vendor endorsements manifested the parties’
acceptance of an actual agency relationship.
          Substantial evidence supports the trial court’s finding that such an intention was
neither manifested by Tokio Marine nor accepted by AON. The certificates and

                                               17
endorsements that AON routinely sent out as Yokohama’s broker were not issued at
Tokio Marine’s insistence or for its benefit, but at Yokohama’s request in order to satisfy
its vendors that it was in compliance with applicable insurance requirements. Thus,
Tokio Marine was neither asked nor required to act at all. Furthermore, there is no
evidence that AON understood Tokio Marine’s acquiescence in AON’s provision of
evidence of insurance to Yokohama’s vendors to be a request that AON act on Tokio
Marine’s behalf for that purpose. Rather, the only evidence concerning AON’s intentions
with respect to its preparation of certificates of insurance and vendor endorsements was
Lisa Christensen’s testimony on the “running understanding” between herself and AON.
That understanding was that AON was merely providing evidence of insurance on behalf
of its client Yokohama, based on its own knowledge as the producer of the Policy. The
record reveals no understanding, sufficient to disturb the trial court’s conclusion to the
contrary, that AON was given authority to modify insurance policies on Tokio Marine’s
behalf.
          Costco’s additional theory of actual agency based on Tokio Marine’s alleged
ratification of AON’s actions is likewise unsupported by the evidence. Agency by
ratification contains two components: the agent must purport to represent the principal,
and the principal must ratify and benefit from the agent’s actions. (See 3 Witkin,
Summary of Cal. Law, supra, Agency & Employment, § 95, p. 142 and cases cited
therein.) As explained above, evidence in the record concerning AON’s intentions when
preparing the certificates and endorsement is sufficient to establish that it was merely
providing evidence of insurance, and not creating new coverage under the Policy. Thus,
there is no evidence that, in issuing these documents to Costco, AON purported to act as
Tokio Marine’s agent to create coverage. (See Emery v. Visa Internat. Service Assn.,
supra, 95 Cal.App.4th at pp. 961-962 [no ratification of an agency relationship shown by
Visa’s failure to stop foreign merchants from using the Visa logo].) In addition, Costco
failed to identify any benefit accruing to Tokio Marine based on AON’s conduct. It
therefore failed to establish an actual agency by ratification.

                                              18
       Costco also argues that by permitting AON to provide evidence of insurance on
the insurer’s behalf, Tokio Marine made AON its agent for that limited purpose. That is,
even if Tokio Marine did not authorize AON to modify the Policy through the issuance of
an individual vendor endorsement, its consent to AON’s issuance of evidence of
insurance cloaked AON with the apparent authority to modify the Policy. “‘If a principal
by his acts has led others to believe that he has conferred this authority upon his agent, he
cannot be heard to assert, as against third persons who have relied thereon in good faith,
that he did not intend to confer such power.’ (Safeway Stores v. King Lumber Co.
[(1941)] 45 Cal.App.2d 17, 22.)” (Thompson v. Occidental Life Ins. Co. (1973) 9 Cal.3d
904, 914.) Costco concludes that because it reasonably believed that AON possessed the
authority to modify the Policy by issuing an individual endorsement, the insurer is
“bound by the act as having ratified it by implication.” (StreetScenes v. ITC
Entertainment Group, Inc. (2002) 103 Cal.App.4th 233, 242.) In order to prevail on this
theory, Costco was required to prove that, although AON acted in excess of any grant of
actual authority from Tokio Marine, Costco justifiably relied on AON’s apparent
authority. (Yanchor v. Kagan (1971) 22 Cal.App.3d 544, 549.) As we explain in our
discussion of ostensible agency below, the trial court’s finding to the contrary is
supported by substantial evidence.


       Ostensible Agency
       The elements of ostensible agency are well-established: “Before recovery can be
had against the principal for the acts of an ostensible agent, three requirements must be
met: The person dealing with an agent must do so with a reasonable belief in the agent’s
authority, such belief must be generated by some act or neglect by the principal sought to
be charged and the person relying on the agent’s apparent authority must not be negligent
in holding that belief. [Citations.] Ostensible agency cannot be established by the
representations or conduct of the purported agent; the statement or acts of the principal
must be such as to cause the belief the agency exists. [Citations.] ‘“Liability of the

                                             19
principal for the acts of an ostensible agent rests on the doctrine of ‘estoppel,’ the
essential elements of which are representations by the principal, justifiable reliance by a
third party, and change of position from such reliance resulting in injury. [Citation.]”
[Citation.]’ [Citation.]” (J.L. v. Children’s Institute, Inc., supra, 177 Cal.App.4th at pp.
403-404; accord, Associated Creditors’ Agency v. Davis (1975) 13 Cal.3d 374, 399.)
Because the doctrine of ostensible agency imposes vicarious liability on the purported
principal based on the third party’s reasonable belief in the agent’s authority, the critical
facts for our purposes are those known to and relied on by Costco at the time it received
the Costco Endorsement. (Goldman v. SunBridge Healthcare, LLC (2013) 220
Cal.App.4th 1160, 1173 [“Agency . . . ‘can be founded on ostensible authority, that is,
some intentional conduct or neglect on the part of the alleged principal creating a belief
in the minds of third persons that an agency exists, and a reasonable reliance thereon by
such third persons’”], emphasis added.)
       The record supports the trial court’s conclusion that Costco did not establish the
elements of ostensible agency. Costco does not satisfy the first requirement of ostensible
agency because it fails to cite evidence that when dealing with AON, it had a reasonable
belief that AON was acting as Tokio Marine’s agent. Indeed, Costco offers no rationale
that would explain why Costco would so conclude. Costco knew that AON was
Yokohama’s broker. Yokohama, not Tokio Marine, agreed in the PLA to provide
evidence of insurance. Costco, through IDS, asked Yokohama—not Tokio Marine or its
underwriter—to provide evidence of insurance. The record is devoid of evidence that
Tokio Marine made any representation to Costco, by word or deed, regarding AON’s
authority to act on Tokio Marine’s behalf. Thus, Costco’s claimed belief in AON’s
authority to act as an agent was not attributable to any act or neglect of Tokio Marine. To
be sure, Costco claims to have relied on Tokio Marine’s “neglect” in “allowing” AON to
issue individual vendor endorsements to prove ostensible agency. There is no evidence
in the record, however, that Costco was aware of the “running understanding” between
AON and Tokio Marine, i.e., AON’s practice of forwarding copies of certificates of

                                              20
insurance and endorsements to Lisa Christensen. In the absence of such evidence, Costco
did not establish that Tokio Marine caused it to reasonably believe that AON was
authorized to create coverage via the Costco Endorsement on Tokio Marine’s behalf.
       Costco also failed to establish the elements of justifiable reliance. When IDS sent
the deficiency letters to Yokohama, it did not request or require Tokio Marine to issue an
individual vendor endorsement to the Policy; rather, it stated, “Please have your
Insurance agent mail a new Certificate of Insurance.” Had AON simply done as
instructed, Yokohama would have been in compliance with the terms of the (then-
terminated) PLA, under which Yokohama agreed “to provide [Costco] with Certificates
of Insurance evidencing the insurance coverage specified in Attachment D hereto.”
Instead, AON included with the certificate of insurance an individual vendor
endorsement naming Costco. The evidence entitled the trial court to conclude that all
parties involved (Costco through its agent IDS, Yokohama through its agent AON, and
Tokio Marine) understood the Costco Endorsement forwarded to IDS in response to its
deficiency letters to be nothing more nor less than evidence of the blanket vendors
endorsement attached to the Policy. Costco does not identify any actions or evidence
demonstrating it believed that it had obtained coverage which it did not already possess
under the blanket endorsement when IDS filed the individual endorsement with
Yokohama’s insurance records.
       Costco also fails to explain what it would have done differently had it known that
AON was not acting on Tokio Marine’s behalf in issuing the Costco Endorsement, and




                                            21
thus fails to prove it justifiably relied on AON as an ostensible agent of the insurer.5 By
its own admission, Costco believed in 2001, and still believes today, that it had coverage
under the blanket vendors endorsement; thus, it had no need of an individual
endorsement. Indeed, the evidence presented at trial established no reason or justification
for issuing Costco or any other vendor an individual endorsement that was not
duplicative of the coverage provided by the blanket endorsement. Thus, if Costco were
entitled to coverage under the blanket endorsement, the individual endorsement would be
unnecessary; conversely, if Costco were not entitled to coverage under the blanket
endorsement because there was no contract requiring it, then Costco had no contractual
right to, and therefore no reasonable expectation of, coverage under an individual
endorsement. In sum, substantial evidence supports the trial court’s finding that AON
was not Tokio Marine’s ostensible agent.
       Our holding on the question of actual and apparent authority is necessarily
confined to the facts presented here. By concluding that substantial evidence supports the
trial court’s conclusion that Yokohama’s insurance broker lacked actual or apparent
authority to issue the Costco Endorsement on behalf of Tokio Marine, we need not and
do not decide that an additional insured cannot justifiably rely under any circumstance on
an endorsement received from an insurance broker that modifies coverage. Rather, we
simply conclude Costco failed to establish that AON was acting as Tokio Marine’s agent


5
       Costco asserts that, had it not received the Costco Endorsement from AON, it
would have changed Yokohama’s status to “inactive,” thereby reducing the fee it paid to
IDS for tracking Yokohama’s insurance compliance. This claim, even if true, does not
establish that it justifiably relied on AON’s issuance of the Costco Endorsement to its
detriment. To make such a showing, Costco must prove that it would have acted to avoid
the harm it suffered—the lack of a valid individual vendor endorsement—by reason of
AON appearing to act as Tokio Marine’s agent. Of course, the obvious way to avoid the
detriment of lack of insurance is to procure alternate insurance under a different policy.
Costco did not argue, much less prove, it would have obtained alternate insurance to
protect itself from prospective claims had it known when it received the Costco
Endorsement that it would not be covered as an additional insured vendor under the
Policy.
                                              22
in extending coverage via the Costco Endorsement because the record does not show the
parties believed, at the time the endorsement was forwarded to Costco, that it amended
the Policy to create coverage which was not already in place by reason of the blanket
endorsement.


       C. The trial court did not err in ruling that Tokio Marine’s response to a request
for admission is not dispositive of the issue of coverage
       Costco maintains that Tokio Marine’s admission that the Costco Endorsement was
“part of” the Policy necessarily means Costco was covered under the Policy. From this
proposition, Costco concludes that the trial court erred in failing to give dispositive effect
to the admission, arguing the trial court “essentially found that the admission was non-
binding simply because it was incorrect and did not ‘accurately reflect[] the truth.’ (CT-
IV 7280).”
       We review the trial court’s determination of the legal effect to be given to Tokio
Marine’s responses to a request for admission for an abuse of discretion. (Milton v.
Montgomery Ward & Co., Inc. (1973) 33 Cal.App.3d 133, 138.) “In applying the abuse
of discretion standard of review, it is not the role of the appellate court to substitute its
own view as to the proper decision. [Citation.] The trial court’s discretion, however, ‘is
not unlimited and must be exercised in conformity with the spirit of the law and in a
manner to subserve and not to impede or defeat the ends of substantial justice.
[Citations.]’ (Elston v. City of Turlock (1985) 38 Cal.3d 227, 233, internal quotation
marks omitted.)” (Parkview Villas Ass’n, Inc. v. State Farm Fire and Cas. Co. (2005)
133 Cal.App.4th 1197, 1208.) “Under that standard, there is no abuse of discretion
requiring reversal if there exists a reasonable or fairly debatable justification under the
law for the trial court’s decision or, alternatively stated, if that decision falls within the
permissible range of options set by the applicable legal criteria. [Citations.]” (Cahill v.
San Diego Gas & Elec. Co. (2011) 194 Cal.App.4th 939, 957.)



                                               23
       Costco propounded requests for admission which asked Tokio Marine to admit the
genuineness of certain documents, including the Costco Endorsement. A different
request for admission asked Tokio Marine to admit the truthfulness of a number of
propositions including, in RFA 8, “That the ADDITIONAL INSURED – VENDORS
ENDORSMENT is part of the TOKIO MARINE PRIMARY POLICY.” Tokio Marine
responded to that request as follows: “Tokio Marine – U.S. Branch admits that the
ADDITIONAL INSURED – VENDORS ENDORSMENT Form CG 20 15 11 88 (1986,
1988) is part of the TOKIO MARINE PRIMARY POLICY.”
       Prior to trial, Costco filed a motion in limine “to exclude evidence that the
ADDITIONAL INSURED – VENDORS ENDORSEMENT naming Costco is not ‘part
of’ the primary policy and was due to ‘mistake.’” In that motion, Costco argued that
Tokio Marine should be bound by its admission, and that any contrary evidence should
be excluded. Tokio Marine opposed the motion, calling it an improper motion for
summary adjudication of Tokio Marine’s defense of mutual mistake of fact. Tokio
Marine argued that its steadfast insistence that the Costco Endorsement did not afford
Costco coverage for the Daer litigation, as evidenced in answers to other requests for
admission issued concurrently with the response to RFA 8, belied the contention that the
admission conclusively established the issue of coverage. The trial court denied Costco’s
motion, stating “it’s clear that the court has discretion to determine what the effect of this
admission is. And it’s to do so in light of all the evidence that is presented in the case.”
       At the conclusion of the trial, after hearing all of the evidence presented, the trial
court determined that Costco was not an additional insured under the Policy. In its
statement of decision, the court stated, “Plaintiff makes much of one of defendant’s
responses to a request for admission. The trial court retains broad discretion to determine
the effect of a party’s admission. The court may determine whether it accurately reflects
the truth in light of other evidence in the case. (Fredericks v. Filbert Co. (1987) 189
Cal.App.3d 272, 278.) The court has considered the discovery response in the context of



                                              24
all the evidence presented, including the other discovery responses contained in the same
set [of] requests, and does not find the response is dispositive as plaintiff argues.”
       “A matter admitted in response to a request for admission is conclusively
established against the party making the admission, unless the court has permitted
amendment or withdrawal of the admission. (Code Civ. Proc., § 2033, subd. (n).)”
(Valerio v. Andrew Youngquist Construction (2002) 103 Cal.App.4th 1264, 1272.)
“Although admissions are dispositive in most cases, a trial court retains discretion to
determine their scope and effect.” (Fredericks v. Filbert Co., supra, 189 Cal.App.3d at
p. 277.) In addition, “[t]rial courts have the discretion to consider parol evidence that
explains an admission.” (Monroy v. City of Los Angeles (2008) 164 Cal.App.4th 248,
260.) “[A]fter a matter is deemed admitted, the scope and effect of the admission must
be determined by the trial court. The trial court has broad discretion in determining the
admissibility and relevance of evidence. [Citations.]” (Milton v. Montgomery Ward &
Co., Inc., supra, 33 Cal.App.3d at p. 138.)
       Applying the foregoing principles to the circumstances of this case, we find no
abuse of discretion in the trial court’s ruling. First, the trial court recognized that it had
discretion to determine the scope and effect of the admission, and thus chose to defer its
ruling so that it could hear the evidence and thereafter decide the scope and effect that the
admission should be given. That ruling was a proper exercise of the court’s discretion
under Fredericks v. Filbert Co. The trial court determined, on a full evidentiary record,
that Costco was not an additional insured under the Policy, and thus was not entitled to a
defense of Daer’s claims, a finding supported by substantial evidence. Granting Costco
the relief it seeks would run afoul of the court’s admonition in Fredericks v. Filbert that
“the court’s discretion to determine the admissibility and relevance of evidence [ensures]
that a trial accurately reflects events rather than distorts them.” (Id. at p. 278.)
Moreover, a reversal of the trial court’s ruling on the effect to be given to the admission,
would not serve the primary purpose of requests for admission: “to set at rest triable



                                               25
issues so that they will not have to be tried.” (Brooks v. American Broadcasting Co.
(1986) 179 Cal.App.3rd 500, 509.)
       Finally, Costco identifies as the prejudice flowing from the trial court’s faulty
ruling that “the court [] consider[ed] and rel[ied] upon inadmissible evidence[6] to
erroneously conclude that the ‘Costco’ endorsement was both not a ‘part of’ and was not
an enforceable ‘modification’ of the Primary Policy.” However, the California
Constitution prohibits the reversal of a judgment based on the improper admission of
evidence “unless, after an examination of the entire cause, including the evidence, the
court shall be of the opinion that the error complained of has resulted in a miscarriage of
justice.” (Cal. Const., art. VI, § 13.) We do not so conclude, and we are therefore
precluded from reversing the judgment based on the trial court’s refusal to rule that Tokio
Marine’s response to RFA 8 was dispositive of the issue of Costco’s coverage under the
Policy.


       D. Costco’s additional arguments on appeal
       Because we determine that the record supports the trial court’s conclusion that
Costco was not an additional insured under the Policy, the court properly entered
judgment in favor of Tokio Marine. Consequently, we have no occasion to consider
Costco’s additional arguments on appeal.




6
      By “inadmissible evidence” Costco apparently means evidence that would have
been excluded had the trial court granted the motion in limine.
                                            26
                                   DISPOSITION
     The judgment is affirmed. Tokio Marine is to recover its costs of appeal.


             NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS


                                       BAKER, J.


We concur:




     TURNER, P. J.



     KRIEGLER, J.




                                         27
