• Federal Administrative Adjudicative Proceeding Qualified as 'Suit' Where Policy Did Not Define Term
  • January 5, 2011
  • Law Firm: McCormick Barstow Sheppard Wayte Carruth LLP - Fresno Office
  • Ameron International Corp. v. Insurance Co. of the State of Penn. (Cal. 2010) 2010 Cal. LEXIS 11679.

    BACKGROUND FACTS
    Kiewit contracted with the United States for the fabrication and installation of concrete siphons. Kiewit subcontracted the manufacture of the siphons to Ameron. Defects were subsequently discovered in the siphons requiring their replacement. The United States Department of the Interior’s Bureau of Reclamation issued two final decisions finding Kiewit responsible for the defects and seeking damages from Kiewit and Ameron. Kiewit and Ameron challenged the decision of the Bureau before the former United States Department of Interior Board of Contract Appeals (IBCA). Ameron provided timely notice to its insurers.

    The IBCA proceeding lasted twenty-two (22) days and concluded when the parties reached a settlement. One of Ameron’s insurers, INA, offered to pay $750,000 towards the settlement. However, Ameron rejected this amount as being insufficient. The remaining insurers failed to defend or indemnify Ameron. Ameron subsequently sued its insurers alleging breach of contract, bad faith and other causes of action. The Superior Court granted the insurers’ demurrer and dismissed the complaint, relying on the California Supreme Court’s decision in Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857. The Court of Appeal partially reversed the trial court judgment and awarded defense and coverage costs under policies which defined the term “suit” as a “civil proceeding.” However, those policies which did not define the term “suit” were found to have no coverage.

    The California Supreme Court granted review to determine whether Foster-Gardner would apply to preclude an obligation to defend or indemnify an administrative law proceeding before the IBCA.

    THE COURT’S RULING
    The California Supreme Court reversed the Court of Appeal, finding that even those policies that did not define the term “suit” applied to the proceeding before the IBCA. In so holding, the Court noted that the role of the administrative law judge in an IBCA proceeding is comparable to that of a trial judge. Furthermore, the IBCA complaint requirements distinguished the present case from Foster-Gardner. Under the IBCA procedure, the contractor appealing from an adverse decision must file a complaint “setting forth simple, concise, and direct statements of each claim, alleging the basis for the appropriate reference to contract provisions for each claim, and the dollar amount claimed.” (43 C.F.R. § 4.107(a) (2009).) And although it is the contractor that initiates the proceeding, the purpose is to resolve a claim against the contractor. Therefore, the Court noted that the contractor is in the position of the defendant and that the complaint filed by the contractor and the government’s answer to the complaint serve the purpose of informing an insurer of the kind of dispute that is being tendered for coverage. The Court concluded that an IBCA proceeding gives a contractor his or her “day in court” and that a reasonable policyholder would view such a procedure as qualifying as a “suit.” The Court concluded “it is reasonable for all parties to a liability insurance policy that does not define the term ‘suit’ to expect a federal adjudicative administrative agency board proceeding to trigger the defense and indemnity provisions in the policy.”

    THE EFFECT OF THE COURT’S RULING
    This decision establishes that the California Supreme Court will not broadly apply the holding in Foster-Gardner to all adjudicative proceedings outside of the “court” context, but will instead analyze each particular case to determine if the proceeding is comparable to a “trial.”