FOR THE NORTHERN DISTRICT OF CALIFORNIA
EUREKA SOUTHERN RAILROAD No. 1-86-1979
JERRY E. GREGG, Trustee,
v. A.P. No. 91-1055
HOME INSURANCE OF ILLINOIS,
UNITED SHORTLINE, INC.
ASSURANCE SERVICES, N.A.,
THE CANTON AGENCY, INC.,
Memorandum of Decision
Debtor Eureka Southern Railroad Co. filed its petition for relief under the railroad
reorganization proceedings in 1986. At all relevant times, it was an operating railroad under
the supervision and control of Jerry E. Gregg, the trustee appointed pursuant to section 1163
of the Bankruptcy Code.
In 1990, Gregg sought to renew the railroad's liability insurance. He called on its broker,
cross-defendant Canton Agency, to find it a policy. Canton could not place the risk, so it turned
to another broker, Alexander & Alexander, which in turn contacted defendant and
cross-claimant United Shortline, Inc. ("USI"), also an insurance broker, to place the risk. On
June 15, 1990, USI issued a binder, or temporary insurance contract, certifying that the Home
Insurance Co. of Illinois would insure Eureka Southern for one month. On July 13, 1990, USI
issued a certificate of insurance stating that the Home Insurance Co. would insure Eureka
Southern from June 15, 1990 until June 15, 1991.
USI did not actually submit its request to Home for a policy covering Eureka Southern until
June 19, 1990. After several exchanges of information and various requests, Home Insurance
finally declined to cover Eureka Southern on July 5, 1990. USI never informed anyone that
there was no insurance coverage.
On August 28, 1990, Eureka Southern suffered a derailment and consequent financial loss.
It filed a claim with Home through its brokers; on October 12, 1990, USI informed Eureka
Southern by letter that Home had denied coverage. Gregg filed suit on behalf of the railroad
against Home Insurance and USI. USI filed a counterclaim and the cross-claim against Canton
here at issue. USI seeks indemnity or contribution from Canton for the settlement it has
reached with Eureka Southern.
Now before the court is Canton's motion for summary judgment. USI has responded by
arguing that there are disputed issues of fact, that the motion is premature, and that Canton
should be sanctioned for bringing it. The court finds each and every argument raised by USI
to be spurious and meritless. For the reasons stated below, it will grant Canton's motion in full
and deny the request for sanctions.
USI's argument that this motion is premature is without doubt the most disingenuous the
court has ever heard. Trial of this matter was originally set for September 14, 1992. On motion
of Canton, the cross-claim was severed and ordered to be tried separately. USI vehemently
fought to go to trial with Canton, and as late as August 21, 1992, was seeking reconsideration
of the court's order. For it to argue now that it needs more time for discovery is yet another
example of the pettifoggery which has typified USI's litigation conduct since this case began.
There is no material issue of fact as to the matters recited in the introduction above. It is
beyond dispute that USI misrepresented that there was insurance coverage to both Canton and
Gregg, and did not tell either that there never truly was any coverage. Given this clear
wrongdoing, there is no way it can recover on an indemnity theory. Indemnity is only available
to a party who, without active fault on his part
, has been compelled by reason of the negligence
of another to pay damages for which he is only secondarily liable. 5 Witkin, Summary of
(9th Ed.), Torts, section 89. All of the active wrongdoing in this case was done
by USI. If Canton had been found liable to the railroad, it could have sought indemnity from
USI because USI was the primary wrongdoer. USI has no right whatsoever to indemnity from
USI has no right of contribution against Canton because they are not joint defendants. 5
Witkin, Summary of California Law
(9th Ed.), Torts, section 85. Even if the statute did not
apply, contribution is an equitable remedy not available to one guilty of active, primary
negligence or active wrongdoing. Ramirez v. Redevelopment Agency
, 4 Cal.App.3d 397, 401
(1970). In any event, the argument presupposes a causal connection between the alleged
negligence of Canton and the railroad's damages or USI's liability which is entirely absent.
IV. Assignment of Rights from Eureka Southern
USI argues that as part of its settlement with Eureka Southern it obtained an assignment of
Eureka Southern's rights against Canton. If this is so, it is meaningless. As noted above, USI
was the primary wrongdoer. Canton clearly has a right of indemnity against USI for anything
it might be found to owe to Eureka Southern.
There is no triable issue of fact. USI was the sole cause of Eureka Southern's losses. Even
if the court were to find that anything raised in USI's papers could be considered negligence on
the part of Canton, and even if the court could find some sort of causal relationship between
such negligence and the damages, the primary wrongdoing was on USI's part and there would
still be no right to indemnity or contribution, nor would an assignment of Eureka Southern's
rights against Canton entitle USI to recover anything from Canton. Accordingly, Canton's
motion for summary judgment will be granted and USI's cross-claim against it will be
dismissed, with prejudice. Canton shall recover its costs of suit. Needless to say, USI's request
for sanctions will be denied.
Counsel for Canton shall submit a form of order granting its motion and an appropriate form
Dated: January 26, 1993 _______________________