Metropolitan Business Management Inc et al v. Allstate Insurance Company et al, No. 2:2005cv08306 - Document 151 (C.D. Cal. 2009)

Court Description: ORDER DENYING DEFENDANT'S MOTION FOR JUDGMENT AS A MATTER OF LAW by Judge Christina A. Snyder: The Court hereby DENIES Defendant's Motion for Judgment as a Matter of Law 114 . Furthermore, the Court shall enter judgment for plaintiffs on their claim for declaratory relief. ( MD JS-6. Case Terminated ) (gk)

Download PDF

Metropolitan Business Management Inc et al v. Allstate Insurance Company et al Doc. 151 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 WESTERN DIVISION 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 METROPOLITAN BUSINESS MANAGEMENT, INC.; ET AL., ) ) ) Plaintiffs, ) ) vs. ) ) ) ALLSTATE INSURANCE COMPANY ) ) Defendant. ) ) ) ________________________________ ) I. Case No. CV 05-8306 CAS (CWx) ORDER DENYING DEFENDANT’S MOTION FOR JUDGMENT AS A MATTER OF LAW INTRODUCTION The present action arises out of an insurance coverage dispute. On October 18, 2005, plaintiffs Metropolitan Business Management, Inc. (“MBM”) and John Khaki filed the instant action against defendant Allstate Insurance Co. (“Allstate”) in Los Angeles County Superior Court alleging (1) breach of contract; (2) tortious breach of the implied covenant of good faith and fair dealing; and (3) declaratory relief. On November 23, 2005, defendant timely removed to this Court on the basis of diversity of citizenship. On May 26, 2006, this Court granted summary judgment for defendant. Plaintiffs timely appealed to the Ninth Circuit Court of Appeals. On June 11, 2008, the Ninth Dockets.Justia.com 1 Circuit reversed this Court’s grant of summary judgment and remanded the case for 2 further proceedings. 3 On January 26, 2009, this Court denied plaintiffs’ motion for summary judgment. 4 The Court denied plaintiffs’ motion as to their breach of contract claim because factual 5 disputes existed as to which policy form applied and whether plaintiffs were covered as 6 “additional insureds” or “mortgagee insureds.” The Court further denied plaintiffs’ 7 motion as to their breach of the implied covenant of good faith and fair dealing claim 8 because the Court could not conclude that plaintiffs were unequivocally entitled to 9 coverage. On March 16, 2009, the Court denied defendant’s motion for summary 10 judgment on the same grounds. 11 On July 9, 2009 the jury returned a verdict in favor of plaintiffs. The jury found 12 QUESTION NO. 1 Did Allstate Insurance Company withhold any policy benefits 13 14 owed to plaintiffs under the Allstate policy? 15 Check one: 16 X Yes 17 ____ No 18 ... 19 QUESTION NO. 3 20 Was Allstate’s withholding of policy benefits unreasonable? 21 Check one: 22 X Yes 23 ____ No 24 ... 25 QUESTION NO. 8 26 27 28 Do you find that Allstate’s conduct was malicious, oppressive or in reckless disregard of plaintiff’s rights? Check one: 2 1 X Yes 2 ____ No 3 ... 4 QUESTION NO. 9 5 Was the conduct constituting malice, oppression, or fraud 6 7 committed by one or more officers, directors, or managing agents of 8 Allstate acting on behalf of Allstate? 9 Check one: 10 X Yes 11 ____ No 12 Special Verdict Form. On July 6, 2009, defendant filed the instant motion for judgment as a matter of 13 14 law. On July 20, 2009, defendant filed a trial brief in opposition to plaintiffs’ claim for 15 declaratory relief. On July 27, 2009, plaintiffs filed a brief in support of their claim for 16 declaratory relief. Defendant’s motion and plaintiff’s claim for declaratory relief are 17 presently before the Court. 18 II. BACKGROUND 19 This lawsuit concerns defendant Allstate’s breach of an insurance policy by 20 failing to defend MBM and its sole shareholder and president, John Khaki, from a 21 lawsuit. 8/31 Tr. at 5:4-8. On October 3, 1988, MBM became the beneficiary of the 22 first trust deed on property located at 29244 Greenwater Road in Malibu, California 23 (“the Greenwater property”). 8/31 Tr. at 5:9-12. The Greenwater property was owned 24 by Dominic Annino, who entered into a contract with MBM and Khaki to provide 25 various services for him related to various properties, which included selling properties, 26 making repairs to properties and managing properties. 8/31 Tr. at 5:15-25; Ex. 1. At the 27 time the first trust deed was recorded, defendant issued the Landlords Package Policy, 28 policy No. 014112981 (“the policy”) form AU9700 to Mr. Annino, which provided 3 1 coverage for damage to the property and general liability protection from third party 2 lawsuits. 8/31 Tr. at 6:17-20; Ex. 19. At the time policy form AU9700 was issued, 3 MBM was a mortgagee of the Greenwater property. Joint Pretrial Order ¶ 6. Form AU9700 provided that “[a]ll provisions of this policy apply to . . . 4 5 mortgagees” and specifically provided coverage for misrepresentation claims brought by 6 third parties against the insureds. Ex. 19 at 15, ¶ 9; 8/31 Tr. at 6:23-25. In December 7 1997, defendant changed the policy to form AP529, but did not provide notice of this 8 change to MBM or Khaki. Policy form AP529 did not provide general liability 9 protection to mortgagees. 8/31 Tr. at 7:5-9; Ex. 75 at 17-18 (“All provision of Section I 10 of this policy apply to these mortgagees”). On May 18, 2001, Eliot and Cyndi Felman sued MBM and Khaki for fraud and 11 12 conspiracy seeking damages on the grounds that MBM had made misrepresentations 13 with respect to the amount owing on its deed of trust encumbering the Greenwater 14 property. 8/31 Tr. at 9:23-10:3; Joint Pretrial Order ¶¶ 14-15. Khaki and MBM tendered 15 the Felman suit to defendant, which defendant rejected. Joint Pretrial Order ¶¶ 18, 22. 16 Defendant’s policy was to look to the policy form that was in effect at the time of the 17 lawsuit and not investigate whether earlier policy forms applied. MBM and Khaki spent 18 $387,153.43 defending the Felman suit. 8/31 Tr. at 5:7-8; Joint Pretrial Order ¶ 19. 19 III. 20 LEGAL STANDARD Judgment as a matter of law is appropriate when “a party has been fully heard on 21 an issue during a jury trial and the court finds that a reasonable jury would not have a 22 legally sufficient evidentiary basis to find for the party on that issue. . .” Fed. R. Civ. P. 23 50(a)(1); see also Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 139, 149 24 (2000). If the court does not grant a motion for judgment as a matter of law pursuant to 25 Rule 50(a), a party may file a renewed motion for judgment as a matter of law after the 26 trial. Fed. R. Civ. P. 50(b). It is well-settled that the standard for judgment as a matter 27 of law is the same as the standard for summary judgment. Reeves, 530 U.S. at 150 28 (citing Anderson v. Liberty Lobby, Inc., 447 U.S. 242, 250-52 (1986)). 4 1 Summary judgment is appropriate where “there is no genuine issue as to any 2 material fact” and “the moving party is entitled to a judgment as a matter of law.” Fed. 3 R. Civ. P. 56(c). The moving party has the initial burden of identifying relevant portions 4 of the record that demonstrate the absence of a fact or facts necessary for one or more 5 essential elements of each cause of action upon which the moving party seeks judgment. 6 See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). 7 If the moving party has sustained its burden, the nonmoving party must then 8 identify specific facts, drawn from materials on file, that demonstrate that there is a 9 dispute as to material facts on the elements that the moving party has contested. See 10 Fed. R. Civ. P. 56(c). The nonmoving party must not simply rely on the pleadings and 11 must do more than make “conclusory allegations [in] an affidavit.” Lujan v. Nat’l 12 Wildlife Fed’n, 497 U.S. 871, 888 (1990); see also Celotex Corp., 477 U.S. at 324. 13 Summary judgment must be granted for the moving party if the nonmoving party “fails 14 to make a showing sufficient to establish the existence of an element essential to that 15 party’s case, and on which that party will bear the burden of proof at trial.” Id. at 322; 16 see also Abromson v. Am. Pac. Corp., 114 F.3d 898, 902 (9th Cir. 1997). 17 In light of the facts presented by the nonmoving party, along with any undisputed 18 facts, the Court must decide whether the moving party is entitled to judgment as a matter 19 of law. See T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass’n, 809 F.2d 626, 631 20 & n.3 (9th Cir. 1987). When deciding a motion for summary judgment, “the inferences 21 to be drawn from the underlying facts . . . must be viewed in the light most favorable to 22 the party opposing the motion.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 23 U.S. 574, 587 (1986) (citation omitted); Valley Nat’l Bank of Ariz. v. A.E. Rouse & Co., 24 121 F.3d 1332, 1335 (9th Cir. 1997); see also Berry v. Bunnell, 39 F.3d 1056, 1057 (9th 25 Cir. 1994) (articulating the same standard in the context of a directed verdict). Summary 26 judgment for the moving party is proper when a rational trier of fact would not be able to 27 find for the nonmoving party on the claims at issue. See Matsushita, 475 U.S. at 587. 28 5 In a motion for summary judgment, a court must review the record “taken as a 1 2 whole.” Matsushita, 475 U.S. at 587. Similarly, in entertaining a motion for judgment 3 as a matter of law, the court should review all of the evidence in the record. Reeves, 530 4 U.S. at 150. In so doing, however, the court must draw all reasonable inferences in favor 5 of the nonmoving party, and it may not make credibility determinations or weigh the 6 evidence. Id. (citations omitted); see also Berry, 39 F.3d at 1057. “Credibility 7 determinations, the weighing of the evidence, and the drawing of legitimate inferences 8 from the facts are jury functions, not those of a judge.” Anderson, 447 U.S. at 255. 9 Thus, although the court should review the record as a whole, it must disregard all 10 evidence favorable to the moving party that the jury is not required to believe. Reeves, 11 530 U.S. at 151 (citing 9A C. Wright & A. Miller, Federal Practice and Procedure § 12 2529 at 299 (2d ed. 1995)). In other words, the court should give credence to the 13 evidence favoring the nonmovant as well as that “evidence supporting the moving party 14 that is uncontradicted and unimpeached, at least to the extent that that evidence comes 15 from disinterested witnesses.” Reeves, 530 U.S. at 151 (citing Wright & Miller, supra, 16 at 300). 17 IV. DISCUSSION 18 A. Notice of Reduction in Coverage 19 Defendant argues that plaintiffs were not entitled to coverage under policy form 20 AU9700, which was the applicable policy form at the time of the underlying suit. Mot. 21 at 6. Defendant contends that plaintiffs were not entitled to notice of the policy form 22 change in 1997 because Cal. Ins. Code § 678, which requires notice of a reduction in 23 coverage, only applies to “named insureds” or “additional named insureds.” Id. at 7. 24 Defendant argues that the record is devoid of any evidence that plaintiffs were ever 25 named insureds or additional named insureds. Id. Defendant argues that plaintiffs 26 cannot establish that MBM was an additional named insured based on (1) a request that 27 MBM be added as an additional insured; (2) defendant’s “narrative” or “notes” taken by 28 someone in defendant’s customer service department; (3) a certificate of insurance 6 1 showing that MBM is a mortgagee; (4) a declarations page which says the policy was 2 amended on March 29, 1995; and (5) communications made in the claims process by 3 defendant’s personnel. Id. at 8. 4 Defendant argues that there is no evidence that MBM’s request to become an 5 “additional insured” was ever effectuated. Mot. at 9. Defendant further argues that the 6 request was not to add MBM as an “additional named insured,” but rather as an 7 “additional insured.” Id. Similarly, defendant argues that the “narrative” (1) is used to 8 record customer service requests and is not an actual record and (2) reflects a request to 9 add MBM as an “additional insured” and not an “additional named insured.” Id. at 10. 10 Defendant further argues that an “Evidence of Insurance” form that plaintiffs 11 received from Eid Haddad in July 2001, which references policy form AU9700, is not 12 determinative because it applies to the policy period from March 29, 1995, to December 13 11, 1995. Mot. at 10. Defendant concedes that the applicable form for this time period 14 was AU9700, but contends that the form changed to AP529 in December 1997. Id. at 15 10-11. Defendant further contends that the “Evidence Insurance” does list MBM as an 16 insured, but only as a mortgagee. 17 Moreover, defendant argues that the amended declarations page does not state 18 how the policy was amended. Mot. at 11. Defendant further argues that even assuming 19 that the policy was amended to grant plaintiffs’ request to add MBM as an “additional 20 insured,” there is no evidentiary basis for finding that MBM was an “additional named 21 insured.” Id. Additionally, defendant argues that its claims handler Susan Price, and its 22 coverage counsel, David Prager, did not “admit” that MBM was an additional named 23 insured. Id. at 12. Defendant claims that “[a]t most, their letters state that MBM was 24 added as an additional insured – not an additional named insured or named insured.” Id. 25 Defendant further argues that because the policy provision has a plain meaning, it is 26 immaterial that its agents, employees, or other representatives have misrepresented that 27 meaning. Id. (citing Chatton v. Nat’l Union Fire Ins. Co., 10 Cal. App. 4th 846, 865 28 (1992); Prudential Ins. Co. of America, Inc. v. Superior Court, 98 Cal. App. 4th 585, 603 7 1 2 (2002)). Furthermore, defendant argues that plaintiffs were not entitled to notice of the 3 policy change as mortgagees. Mot. at 14. Defendant acknowledges that a provision in 4 form AU9700 states that defendant will “give the mortgagee at least 10 days notice if 5 [defendant] cancel[s] or refuse[s] to continue or renew this policy.” Id. Defendant 6 contends, however, that this provision does not apply to the policy form change from 7 AU9700 to AP529 because the change was neither a cancellation of the policy nor a 8 refusal to renew the policy. Id. Defendant further contends that notice of a reduction in 9 coverage is governed by Cal. Ins. Code § 678(a)(1), which only requires defendant to 10 provide notice to a named insured. Def. Supp. Br. at 6. 11 Additionally, defendant argues that the policy does not place any specific 12 conditions on defendant with respect to notifying insureds regarding changes in 13 coverage. Def. Supp. Br. at 3. Defendant further argues that even if a reduction in 14 coverage is construed as failing to continue or renew, the policy only requires defendant 15 to provide notice of failure to continue or renew to insureds named on the declarations 16 page of the policy. Id. at 4. 17 Plaintiffs respond that Cal. Ins. Code § 678 does not modify contractual notice 18 requirements. Opp’n at 8. Plaintiffs argue that statutory provisions in the California 19 Insurance Code may not be read into a policy to the insured’s detriment. Id. (citing Utah 20 Prop. & Cas. Ins. Guaranty Ass’n v. United Service Auto Ass’n, 230 Cal. App. 3d 1010, 21 1017 (1991); Clarendon Nat’l Ins. Co. v. Ins. Co. of the West, 442 F. Supp. 2d 914, 929- 22 30 (E.D. Cal. 2006)). Plaintiffs contend that form AU9700 requires defendant to give 23 mortgagee insureds 10 days notice, and insureds 30 days notice, if they cancel or refuse 24 to continue or renew the policy. Id. (citing Ex. 19 at 16, ¶ 9(b)). 25 The Court concludes that plaintiffs were entitled to notice of the policy change as 26 mortgagees. Policy form AU9700 clearly provides that defendant shall “give the 27 mortgagee at least 10 days notice if we cancel or refuse to continue or renew this 28 policy.” Ex. 19 at 16, ¶ 9(b). Defendant cannot avoid this notice requirement by 8 1 claiming that the change in policy to form AP529 was not a cancellation; policy form 2 AP529 substantially reduced coverage and therefore plaintiffs were entitled to notice of 3 that change.1 Fields v. Blue Shield of California,163 Cal. App. 3d 570, 579 (1985) (“It 4 is a long-standing general principle applicable to insurance policies that an insurance 5 company is bound by a greater coverage in an earlier policy when a renewal policy is 6 issued but the insured is not notified of the specific reduction in coverage.”). Plaintiff’s 7 rights are not altered by Cal. Ins. Code § 678, which cannot be used to limit the rights of 8 an insured. Clarendon, 442 F. Supp. 2d at 930 (“Less favorable coverage provisions of a 9 statute will not be read into the policy to the insured’s detriment.”). 10 B. Coverage as Mortgagee Insureds, Property Managers or Employees 11 Defendant argues that plaintiffs are not entitled to third-party liability coverage as 12 mortgagees. Mot. at 13. Defendant contends that a mortgagee is only entitled to first- 13 party property coverage of the policy. Id. at 14. Defendant argues that mortgagees are 14 not insureds under the liability section of the policy. Defendant further argues that the 15 language in form AU9700 to the effect that “[a]ll provisions of this policy apply to 16 mortgagees” should be evaluated in light of the insured’s “objectively reasonable 17 expectations.” Def. Supp. Br. at 7. Defendant contends that it is not objectively 18 reasonable for a mortgagee to expect liability coverage under a landlord policy. Id. at 8. 19 Defendant further argues that although form AP529 includes in the definition of 20 “Insured Person” any “person or organization while acting as [the named insured’s] real 21 estate manager for the residence premises,” plaintiffs were sued in the underlying suit 22 only in their capacity as a mortgagee and lienholder of Annino, not as real estate 23 managers. Id. at 14. Similarly, defendant argues that plaintiffs are not covered as 24 Annino’s employees because plaintiffs have admitted that they were not employees of 25 Annino. Id. at 15. Defendant further argues that even if plaintiffs were Annino’s 26 27 28 1 Policy form AU9700 provides that “[a]ll provisions of this policy apply to mortgagees,” while policy form AP529 provides that “[a]ll provisions of Section I of this policy apply to these mortgagees.” 9 1 employees, they would not be entitled to coverage because the claims in the underlying 2 suit did not arise out of their actions within the course and scope of any alleged 3 employment. Id. 4 Moreover, defendant argues that plaintiffs are not entitled to coverage because the 5 underlying suit alleges that plaintiffs conspired to defraud the Felmans by making 6 intentional misrepresentations. Mot. at 17. Defendant contends that the policy does not 7 provide coverage for intentional acts. 8 Plaintiffs respond that the evidence established that they were entitled to coverage 9 as mortgagee insureds. Opp’n at 2. Plaintiffs argue that (1) they were mortgagees from 10 the inception of the policy (Pre-Trial Order ¶ 5); (2) defendant knew that they were 11 listed as mortgagee insureds in 1995 (Haddad Testimony at 10:16-18); (3) coverage X in 12 form AU9700 required defendant to defend claims based on the tort of 13 misrepresentation; (4) form AU9700 states that “[a]ll provisions of this policy apply to 14 these mortgagees; (5) defendant’s agent and coverage counsel testified that the phrase 15 “all provisions of the policy” included the provisions in coverage X of form AU9700 16 (Haddad Testimony at 27:3-28:11; Prager Testimony at 73:22-75:13); (6) form AU9700 17 required defendant to give mortgagees 10 days notice if it cancelled or refused to 18 continue or renew the policy (Ex. 19 at 16, ¶ 9(b)); (7) the evidence of insurance issued 19 each year since1988 required defendant to give notice to the mortgagees if the coverage 20 provided in form AU9700 is terminated; (8) defendant did not give plaintiffs notice that 21 it was refusing to continue coverage for misrepresentation and was reducing coverage to 22 mortgagees when it replaced form AU9700 with form AP529 (Pre-Trial Order ¶ 5); and 23 (9) the broader coverage in an earlier policy controls if the insurer fails to give notice of 24 the reduction in coverage, Allstate Ins. Co. v. Fibus, 855 F.2d 660, 663 (9th Cir. 1988). 25 Id. at 2-3. Plaintiffs contend that these facts conclusively demonstrate that they were 26 entitled to coverage as mortgagees under coverage X. Opp’n at 4. Plaintiffs argue that 27 an insurance policy is to be interpreted in its “ordinary and popular sense.” Id. at 5 28 (citing Romano v. Mercury Ins. Co., 128 Cal. App. 4th 1333, 1342 (2005)). 10 1 The Court concludes that plaintiffs were entitled to coverage under the policy as 2 mortgagee insureds. Plaintiffs were plainly listed as mortgagees from the time of the 3 inception of the policy. Pre-Trial Order ¶ 5. Furthermore, policy form AU9700 clearly 4 provides that all provisions of the policy apply to mortgagees, including coverage X, 5 which provides coverage for claims of misrepresentation. Considering the plain 6 meaning of “[a]ll provisions of this policy apply to mortgagees,” and the trial testimony 7 of defendant’s agent, the Court concludes that plaintiffs were entitled to coverage for the 8 misrepresentation claims in the underlying suit as mortgagee insureds.2 Haynes v. 9 Farmers Ins. Exch., 32 Cal. 4th 1198, 1204 (2004) (“When interpreting a policy 10 provision, we give its words their ordinary and popular sense except where they are used 11 by the parties in a technical or other special sense.”). 12 C. Plaintiffs’ Bad Faith Claim 13 Defendant argues that plaintiff’s bad faith claim fails as a matter of law because 14 defendant did not breach the insurance contract. Mot. at 17-18. Defendant further 15 argues that there was a genuine dispute as to coverage and therefore defendant cannot be 16 liable for bad faith. Id. at 18 (citing Jordan v. Allstate Ins. Co., 148 Cal. App. 4th 1062, 17 1072-73 (2007)). Defendant contends that there is no evidence that its conduct was 18 unreasonable. Id. Defendant further argues that it engaged legal counsel and made a 19 legal determination that there was no coverage under the operative policy. Id. 20 2 21 22 23 24 25 26 27 28 Defendant’s agent Eid Haddad testified that Q: And in your practice as an insurance agent, you knew that all provisions of the policy apply to a mortgagee that was listed in an endorsement such as MBM; correct, sir? A: I believe so. Q: And one of the provisions that is applicable to mortgagees is a notice provisions; isn’t that correct? A: I believe so Pl. Ex. Folio, Ex. K at 32. 11 1 The Court concludes that defendant is not entitled to judgment as a matter of law 2 on plaintiffs’ bad faith claim. Plaintiffs introduced evidence at trial that (1) defendant 3 concealed policy form AU9700 from plaintiffs; (2) defendant did not notify plaintiffs of 4 the change in policies despite the requirement in policy form AU9700; and (3) defendant 5 knew that form AU9700 existed, but did not conduct any investigation into whether that 6 form applied and continued to deny coverage. From this evidence, a reasonably jury 7 could have concluded that defendant acted in bad faith. Chase v. Blue Cross of 8 California, 42 Cal. App. 4th 1142, 1152 (1996) (holding that part of an insurer’s duty of 9 good faith and fair dealing is “the duty reasonably to inform an insured of the insured's 10 rights and obligations under the insurance policy.”). 11 D. Plaintiffs’ Claim for Declaratory Relief 12 As further discussed supra, defendant had a duty to defend the underlying lawsuit 13 under policy form AU9700, which was the policy form applicable to plaintiffs. 14 Therefore, plaintiffs are entitled to judgment on their declaratory relief claim and the 15 Court finds that (1) defendant had a duty to defend the Felman lawsuit; and (2) 16 defendant shall pay all damages caused by its refusal to defend. The Court will address 17 the issue of whether defendant shall pay the attorneys’ fees and costs incurred by 18 plaintiffs in collecting the policy benefits in a separate order. Brandt v. Superior Court, 19 37 Cal. 3d 813, 817 (1985) (“When an insurer’s tortious conduct reasonably compels the 20 insured to retain an attorney to obtain the benefits due under a policy, it follows that the 21 insurer should be liable in a tort action for that expense.”) 22 E. Plaintiffs’ Claim for Punitive Damages 23 Defendant argues that plaintiffs have failed to produce clear and convincing 24 evidence of oppression, fraud, or malice. Mot. at 20. Defendant asserts that the 25 threshold question is whether the decision that there was no duty to defend was made by 26 an officer, director or managing agent of defendant. Id. at 21. Defendant argues that 27 Susan Price, who made this decision, was merely a claims handler who did not “exercise 28 substantial independent authority and judgment in [her] corporate decision making so 12 1 that [her] decisions ultimately determine corporate policy.” Id. (quoting White v. 2 Ultramar, 21 Cal. 4th 563, 566-67 (1999)). 3 Plaintiffs respond that punitive damages are warranted because the evidence 4 proffered at trial demonstrated that defendant (1) instructed its claims analyst and 5 coverage counsel to limit their analysis to form AP529, even though Dick Ray testified 6 that he received the evidence of insurance from Haddad and knew that the applicable 7 policy form was AU9700; (2) did not diligently search for evidence which supported 8 plaintiffs’ claims and adopted an unreasonably narrow interpretation of the policy 9 language to avoid coverage; (3) refused to respond to plaintiffs’ tender of defense for 10 almost three months; (4) failed to disclose to plaintiffs all policies that could apply to 11 their tender of defense; (5) did not create or maintain guidelines for processing tenders 12 of defense and guidelines for denials of tenders; (6) had a policy of evaluating claims 13 based on the then current policy and not to investigate whether an earlier policy with 14 broader coverage was applicable for the last 21 years; and (7) concealed records from 15 plaintiffs showing they had been added as insureds in 1995. Id. at 3-4. 16 In light of the evidence produced at trial, as detailed in the preceding paragraph, 17 the Court cannot conclude that “a reasonable jury would not have a legally sufficient 18 evidentiary basis to find” that defendant’s conduct was malicious, oppressive or in 19 reckless disregard of plaintiff’s rights. Shade Foods, Inc. v. Innovative Products Sales & 20 Marketing, Inc., 78 Cal. App. 4th 847, 892 (2000) (“the jury could reasonably perceive a 21 careless disregard for the rights of its insured and an obstinate persistence in an 22 ill-advised initial position. We think that this conduct might conceivably support a 23 finding that the insurer acted ‘with a willful and conscious disregard of the rights . . . of 24 others’ within the definition of ‘malice.’”). Furthermore, the acts of claims adjusters 25 Susan Price and Dick Ray were ratified by “an officer, director, or managing agent” of 26 defendant. Cal. Civ. Code § 3294(b). On November 13, 2006, plaintiffs sent a letter to 27 defendant’s general counsel and senior vice president describing the conduct of 28 defendant’s agents in the handling of plaintiffs’ claim and requesting corrective action. 13 1 Ex. 28. Defendant’s failure to take corrective action and defense of this suit amounts to 2 ratification of its agents’ conduct. See Chodos v. Insurance Co. of North America, 126 3 Cal. App. 3d 86, 103 (1981) (“[Insurer’s] choice to respond to the summons and 4 complaint rather than settle the matter removes any doubt about ‘ratification’ of the 5 procedure utilized by [its] employees.”); see also Rogers v. United Services Auto. Assn., 6 2005 WL 1231505 at *16-17 (Cal. Ct. App. May 24, 2005). 7 V. 8 9 10 11 CONCLUSION In accordance with the foregoing, the Court hereby DENIES defendant’s motion for judgment as a matter of law. Furthermore, the Court shall enter judgment for plaintiffs on their claim for declaratory relief. 12 13 IT IS SO ORDERED 14 15 16 Dated: August 6, 2009 ________________________________ CHRISTINA A. SNYDER UNITED STATES DISTRICT JUDGE 17 18 19 20 21 22 23 24 25 26 27 28 14

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.