2012-00125029-CU-MC

Liberty Mutual Insurance Co vs. Alliance Mechanical Corp

Nature of Proceeding: Motion for Summary Adjudication

Filed By: Garcia, Kaysie D.

Plaintiff Liberty Mutual Insurance Co. (“Plaintiff” or “Liberty Mutual”) moves for
summary adjudication on its claims against the following Defendants: CA Straight Line
Masonry, Inc. (“CA Straight Line”), Earth Shapers, Inc. (“Earth Shapers”), Innerstate
Construction Equipment, Inc. (“Innerstate”), AP Contracting, Inc. (“AP”), Sosa Granite
& Marble, Inc. (“Sosa”), DPS Plastering, Inc. (“DPS”), XL Plastering, Inc. (“XL”), Micon
Engineering, Inc. (“Micon”), LJR Construction Co., Inc. (“LJR”), and Daaron Yester
Construction Inc. (“Daaron Yester”). On April 23, 2014, Plaintiff filed a Withdrawal of Motion for Summary Adjudication as to
Sosa and LJR. Accordingly, Plaintiff’s motion is directed to CA Straight Line, Earth
Shapers, Innerstate, AP, DPS, XL, Micon, and Daaron Yester (collectively, the “MSA
Defendants”).

Plaintiff’s motion for summary adjudication is UNOPPOSED and GRANTED.

Plaintiff’s complaint alleges five causes of action, but Plaintiff seeks summary
adjudication as to three causes of action: its first cause of action for statutory indemnity
under Civil Code § 2847, its second cause of action under Labor Code § 3701.5, and
its fifth cause for declaratory relief as against the MSA Defendants. (Pl.’s Notice of
Motion at 2.)

In this case, Plaintiff alleges that the MSA Defendants were all members of the
Contractor Access Program of California (“CAP”), a self-insured group made up of
California contractors. By joining CAP, members were able to satisfy their obligation
under California law to provide workers’ compensation insurance for their employees.
In exchange, CAP members agreed to be jointly and severally liable for each others’
workers’ compensation claims arising during each member’s period of CAP
membership. The California Department of Industrial Relations (“DIR”) required CAP
to obtain a surety bond to ensure that CAP members would not default on their (and
each others’) workers’ compensation obligations. Plaintiff Liberty Mutual issued Surety
Bond No. 019017502 (“Surety Bond”) for this purpose. Liberty Mutual listed CAP and
its then-members as the bond principals and set the penal sum at $2,157,819, and
thereafter increased the penal sum as new members joined CAP and became
additional named principals. By 2009, the number of CAP members grew to 252, and
the penal sum increased to $15,702,796. On November 18, 2012, the DIR declared
CAP in default and ordered Liberty Mutual to forfeit the entire penal sum of the Surety
Bond to Plaintiff California Self-Insurers’ Security Fund (“Security Fund”) to be used for
the payment and administration of the CAP members’ workers’ compensation claims.
Liberty Mutual paid the $14,702,796 to the Security Fund. (See generally, Compl. at
21-31; Pl.’s Ps & As at 3-12.)

Plaintiff’s Separate Statement of Undisputed Material Facts (“SSUMF”) includes the
following: Upon joining CAP, each CAP member was required to execute an Indemnity
Agreement and Power of Attorney, wherein it agreed to be jointly and severally liable
for the workers’ compensation liabilities of all other CAP members arising from
“occurrences” during each CAP member’s period of membership. (SSUMF Nos. 2, 4.)
The DIR ordered Liberty Mutual to turn over the full penal sum amount, or
$15,702,796, to the Security Fund to be used for the payment and administration of
the CAP members’ (including the MSA Defendants’) self-insured workers’
compensation claims. (SSUMF Nos. 11-12.) The MSA Defendants were named
principals on the Surety Bond Riders. (SSUMF No. 9.) The MSA Defendants have
refused to reimburse Liberty Mutual for their respective workers’ compensation
liabilities during their respective periods of membership in CAP. (SSUMF No. 24.)
Plaintiff has calculated the joint and several liability of each MSA Defendant based
upon its period of membership in CAP. (SSUMF Nos. 25-80.) Plaintiff has also
incurred costs and expenses in connection with forfeiting the penal sum under the
Surety Bond, and the requested reimbursement of such fees does not include
attorneys’ fees/costs incurred in the instant action, which Plaintiff represents will be
sought in a post-judgment motion. (SSUMF No. 81; Pl.’s Ps & As at 2 n.1.) First Cause of Action (Statutory Indemnity Under Civil Code § 2847)

Summary adjudication of the first cause of action for statutory indemnity under Civil
Code § 2847 is GRANTED.

Civil Code § 2847 provides: “If a surety satisfies the principal obligation, or any part
thereof, whether with or without legal proceedings, the principal is bound to reimburse
what he has disbursed, including necessary costs and expenses; but the surety has no
claim for reimbursement against other persons, though they may have been benefited
by his act, except as prescribed by the next section.”

Plaintiff has identified evidence supporting each of the required elements for this
indemnity: the MSA Defendants, as CAP members and named principals on the
Surety Bond, had an obligation to DIR, and Plaintiff satisfied the MSA Defendants’
obligation and now seeks reimbursement from the MSA Defendants for their
individually-assessed joint and several liability. (SSUF Nos. 2, 4, 9, 11-12, 24, 25-80,
81.) Plaintiff’s showing is sufficient to shift to the MSA Defendants the burden of
demonstrating the existence of a triable issue of material fact. (Aguilar v. Atlantic
Richfield Co. (2001) 25 Cal.4th 826, 849.) As no opposition has been filed and no
disputes of material fact have been shown, the MSA Defendants cannot meet their
burden, and Plaintiff is entitled to judgment as a matter of law.

Second Cause of Action (Statutory Indemnity Under Civil Code § 2847)

Summary adjudication of the second cause of action for statutory indemnity under
Labor Code § 3701.5 is GRANTED.

Labor Code § 3701.5 provides that “[i]f the [DIR] determines that a private self-insured
employer has failed to pay workers’ compensation as required by this division, the
security deposit shall be utilized to administer and pay the employer’s compensation
obligations. (Labor Code § 3701.5(a).) It also provides that “[i]f the [DIR] determines
the security deposit has not been immediately made available for the payment of
compensation, the [DIR] shall determine the method of payment and claims
administration as appropriate, which may include, but is not limited to, payment by a
surety that issued the bond . . . .” (Id. § 3701.5(b).) It also provides that “[u]pon the
assumption of obligations by [Security Fund] pursuant to the [DIR’s] determination,
[Security Fund] shall have a right to immediate possession of any posted security and
the custodian, surety, or issuer of any irrevocable letter of credit shall turn over the
security to the fund . . . .” (Id. § 3701.5(c).) It also provides that “Payment by a surety
constitutes full release of the surety’s liability under the bond to the extent of that
payment, and entitles the surety to full reimbursement by the principal or his or her
estate. Full reimbursement includes necessary attorney fees and other costs and
expenses, without prior claim or proceedings on the part of the injured employee or
other beneficiaries.” (Id. § 3701.5(d) (emphasis added).)

Plaintiff has identified evidence supporting each of the required elements for this
indemnity: the MSA Defendants were CAP members and named principals on the
Surety Bond and had an obligation to the DIR, the DIR determined that CAP had
defaulted on its obligations under the Labor Code and ordered CAP to forfeit assets to
be used in the payment and administration of workers’ compensation claims; and
Plaintiff satisfied the MSA Defendants’ obligation and now seeks reimbursement from the MSA Defendants for their individually-assessed joint and several liability. (SSUF
Nos. 2, 4, 9, 10-12, 24-81.) Plaintiff’s showing is sufficient to shift to the MSA
Defendants the burden of demonstrating the existence of a triable issue of material
fact. (Aguilar, supra, 25 Cal.4th at 849.) As no opposition has been filed and no
disputes of material fact have been shown, the MSA Defendants cannot meet their
burden, and Plaintiff is entitled to judgment as a matter of law.

Fifth Cause of Action (Declaratory Relief)

Summary adjudication is GRANTED as to the declaratory relief cause of action.

The fifth cause of action for declaratory relief is derived from the first and second
causes of action, and succeeds with them. An actual controversy exists between
Plaintiff and the MSA Defendants regarding Plaintiff’s entitlement to reimbursement
under the Surety Bond (Code Civ. Proc. § 1060 (declaratory relief)), and Plaintiff has
identified evidence showing that it is entitled to such reimbursement. (SSUF Nos. 2, 4,
9, 10-12, 24-81.) Plaintiff’s showing is sufficient to shift to the MSA Defendants the
burden of demonstrating the existence of a triable issue of material fact. (Aguilar,
supra, 25 Cal.4th at 849.) As no opposition has been filed and no disputes of material
fact have been shown, the MSA Defendants cannot meet their burden, and Plaintiff is
entitled to judgment as a matter of law.

Conclusion
Accordingly, Plaintiff’s motion for summary adjudication is GRANTED in its entirety as
to the MSA Defendants. Based on the evidence before the Court, Plaintiff is entitled to
be reimbursed by the MSA Defendants for liability on the first and second causes of
action in an amount not to exceed $8,891,199, and with the individually-assessed joint
and several liability amounts as follows: $8,891,199 as to CA Straight Line; $8,891,199
as to Earth Shapers; $8,891,199 as to Innerstate; $8,891,199 as to AP; $7,166,378 as
to DPS; $8,891,199 as to XL; $8,891,199 as to Micon; and $8,891,199 as to Daaron
Yester. Plaintiff is also entitled to be reimbursed by the MSA Defendants, jointly and
severally, for the $675,319.62 in fees and costs they incurred as expenses under Civil
Code § 2847 and Labor Code § 3701.5(d) in connection with satisfying the MSA
Defendants’ obligation.

Plaintiff is directed to prepare an order for the Court’s signature pursuant to Code of
Civil Procedure § 437c(g) and California Rule of Court 3.1312.