LUCY H. KOH, United States District Judge.
Plaintiff First Mercury Insurance Company ("Plaintiff" or "First Mercury") brings this action against Defendant Great Divide Insurance Company ("Defendant" or "Great Divide"). Before the Court are Defendant's Motion for Summary Judgment, ECF No. 36 ("Great Divide Mot."), and Plaintiff's Motion for Summary Judgment, ECF No. 37 ("First Mercury Mot."). Having considered the submissions of the parties, the relevant law, and the record in this case, the Court DENIES Defendant's Motion for Summary Judgment, STRIKES Plaintiff's second cause of action for breach of the implied covenant of good faith and fair dealing, and DENIES as moot Plaintiff's request for attorney's fees under that cause of action. The Court otherwise GRANTS Plaintiff's Motion for Summary Judgment.
This case is a dispute between Plaintiff and Defendant regarding the insurers' respective duties to defend an underlying state court action ("underlying action" or "state court action") brought by Amish Patel and Kiran Patel (collectively, the "Underlying Plaintiffs") against Elite Show Services Inc. ("Elite"), the San Francisco Forty Niners Football Company, the San Francisco Forty Niners Limited, the San Francisco Forty Niners II LLC, the San Francisco Forty Niners Foundation, the Forty Niners Stadium LLC, the Forty Niners Stadium Management Company, LLC, the Forty Niners SC Stadium Company LLC (collectively, the "Forty Niner Defendants"), the City of Santa Clara, and the Santa Clara Stadium Authority (collectively, the "Santa Clara Defendants"). ECF No. 33, First Amended Complaint ("FAC") ¶¶ 16-19. The Court refers to all of the defendants in the state court action collectively as the "Underlying Defendants."
First Mercury issued a primary commercial general liability policy to Elite effective September 21, 2014 to September 21, 2015. ECF No. 37-4, Joint Stipulation of Undisputed Facts in Support of Cross-Motions for Summary Judgment ("Stipulated Facts") at 2; FAC Ex. A. First Mercury's insurance policy with Elite additionally covers as an additional insured "[a]ny person or organization as required by written contract or agreement." FAC Ex. A. Additional insureds are covered under the First Mercury policy as follows:
Id.
Great Divide issued a primary commercial general liability policy to the Forty Niner Defendants effective March 1, 2014 to March 1, 2015. Stipulated Facts at 2; FAC Ex. B. Great Divide's insurance policy with the Forty Niner Defendants additionally insures "persons or organizations that the insured agrees to indemnify by contract, any township, municipality, county, state policy, [sic] sheriff or other law enforcement department, and any manager or lessor of the insured's premises." FAC Ex. B. This provision causes Defendant's policy with the Forty Niners Defendants to also cover the Santa Clara Defendants.
Elite and the Forty Niners Stadium Management entered a service agreement on April 1, 2014. Stipulated Facts at 3; FAC Ex. C ("Service Agreement"). In the Service Agreement, Elite agreed to provide security services at the Forty Niners football stadium in Santa Clara "subject to the reasonable prior approval of Stadium Manager [that is, the Forty Niners Stadium Management]." Service Agreement ¶ 2.D. The Service Agreement provided that "Stadium Manager shall have the sole discretion to determine appropriate staffing numbers for each role at each event." Service Agreement at 39.
Additionally, the Service Agreement provided that Elite "shall indemnify and hold harmless the Authority [that is, the Santa Clara Defendants], Stadium Manager and the Additional Indemnitees ... from and against all losses, costs, suits, actions, claims, damages, amounts paid in settlement, liabilities, costs and expenses, including reasonable attorneys' fees (collectively, "Losses"), resulting to, imposed upon, asserted against or incurred by any of them ... in connection with or arising out of (i) any breach by [Elite] under this Agreement, (ii) any activity, inactivity, work or thing done or permitted by [Elite] or its employees, agents or contractors in or upon the Stadium or Related Areas, including the performance of the Services, or (iii) any injury or damage to any person or to the property of any Person caused by an action or omission of [Elite] or its employees, agents or contractors." Service Agreement ¶ 12.
The Service Agreement further required Elite to carry commercial general liability insurance that, inter alia, (1) is "primary and non-contributing with respect to any policies carried by client" and (2) covers the Forty Niners Stadium Authority, Santa Clara Stadium Authority, Forty Niners SC Stadium Company LLC, and Forty Niners Football Company LLC as additional insureds. Service Agreement ¶ 13.
On October 5, 2014, the Underlying Plaintiffs attended a football game at the Forty Niners football stadium in Santa Clara. The Underlying Plaintiffs allegedly were injured "during a purported physical altercation with Dario Rebollero and Amador Rebollero" while waiting in line to use the restroom at the stadium. ECF No. 15-3 ("Underlying Complaint").
The complaint in the underlying action states two causes of action. See Underlying Complaint. The first cause of action is a claim for negligence brought against the Forty Niner Defendants and Elite. Among the allegations in the claim are allegations that the Forty Niner Defendants "negligently selected, hired, supervised, evaluated, and retained unfit and inadequate security services" and that Elite "negligently provided security services" at the Forty Niners stadium. Id. ¶¶ 17-18.
The second cause of action is a claim for dangerous condition of public property brought against the Santa Clara Defendants. This claim includes allegations that the Santa Clara Defendants created an unreasonable risk of harm through "[t]he lack of an adequate number of urinal and toilet facilities in the tailgating portions of the Red, Blue and Green parking lots and immediately inside the stadium at Gate A where crowds and long lines foreseeably created frustration, anxiety and confrontation." Id. ¶ 24. The second cause of action also includes allegations that the Santa Clara Defendants created a dangerous condition of public property by failing to "reasonably screen patrons upon entry to said stadium, to surveil patrons for signs of violent tendencies and/or gang affiliations, to inspect, patrol and surveil restrooms as a way of deterring violence, and to quickly respond to, and mitigate, violent behavior." Id. ¶ 23.
First Mercury accepted the defense of the lawsuit on behalf of all Underlying Defendants under a full reservation of rights. Stipulated Facts at 3; ECF No. 37-2, Declaration of Glenn Kirkness ("Kirkness Decl.") ¶ 6.
On April 21, 2016, First Mercury filed the instant lawsuit against Great Divide. See Compl. First Mercury sought a declaratory judgment that Great Divide (1) had a duty to defend in the state court action that requires Great Divide to share the defense costs with First Mercury, (2) had a duty to participate in settlement discussions in good faith with respect to the state court action, and (3) had a duty to share in indemnity with First Mercury in the state court action. Id. ¶¶ 26-41.
Great Divide filed a motion to dismiss or stay the instant action on June 2, 2016. ECF No. 15. First Mercury filed a response on June 16, 2016. ECF No. 17. Great Divide replied on June 23, 2016. ECF No. 18. On August 29, 2016, the Court denied Defendant's motion to dismiss as to Plaintiff's claim that Defendant must share the defense costs of the underlying action with First Mercury. ECF No. 26 ("Prior Order"). The Court granted without prejudice Defendant's motion to dismiss as to Plaintiff's claims that Defendant had a duty to participate in settlement discussions in the underlying action and to share indemnity because the claims were not ripe. Id. The Court also denied Defendant's motion for stay. Id.
On November 16, 2016, Plaintiff filed the FAC. ECF No. 33 (FAC). In the FAC, Plaintiff seeks (1) a declaration that Defendant has a duty to defend in the underlying action and must share defense costs with Plaintiff, and (2) a declaration that Defendant has breached the implied covenant of good faith and fair dealing by
On December 12, 2016, Plaintiff and Defendant filed cross-motions for summary judgment. ECF No. 36 ("Great Divide Mot."); ECF No. 37 ("First Mercury Mot."). On January 24, 2017, Plaintiff and Defendant each filed oppositions to the other's motion for summary judgment. ECF No. 43 ("First Mercury Opp'n"); ECF No. 44 ("Great Divide Opp'n"). The parties did not file replies.
Summary judgment is proper where the pleadings, discovery and affidavits demonstrate that there is "no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). Material facts are those which may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Id.
The party moving for summary judgment bears the initial burden of identifying those portions of the pleadings, discovery and affidavits which demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where the moving party will have the burden of proof on an issue at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. However, on an issue for which the opposing party will have the burden of proof at trial, the moving party need only point out "that there is an absence of evidence to support the nonmoving party's case." Id. at 325, 106 S.Ct. 2548.
Once the moving party meets its initial burden, the nonmoving party must go beyond the pleadings and, by its own affidavits or discovery, "set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). The court is only concerned with disputes over material facts and "factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. It is not the task of the court to scour the record in search of a genuine issue of triable fact. Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996). The nonmoving party has the burden of identifying, with reasonable particularity, the evidence that precludes summary judgment. Id. If the nonmoving party fails to make this showing, "the moving party is entitled to judgment as a matter of law." Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548.
At the summary judgment stage, the court must view the evidence in the light most favorable to the nonmoving party: if evidence produced by the moving party conflicts with evidence produced by the nonmoving party, the judge must assume the truth of the evidence set forth by the nonmoving party with respect to that fact. See Leslie v. Grupo ICA, 198 F.3d 1152, 1158 (9th Cir. 1999).
"In determining the law of the state for purposes of diversity, a federal court is bound by the decisions of the highest state court." Albano v. Shea Homes Ltd. P'ship, 634 F.3d 524, 530 (9th Cir. 2011). If the state's highest court has not decided an issue, it is the responsibility of the federal courts sitting in diversity to predict "how the state high court would resolve it." Id.; Air-Sea Forwarders, Inc. v. Air Asia Co., Ltd., 880 F.2d 176, 186 (9th Cir. 1989) (internal quotation marks omitted). In the absence of clear authority,
The parties' cross-motions for summary judgment address three main issues: (1) Plaintiff's first claim for a declaration that Defendant has a duty to defend in the underlying action, (2) Plaintiff's second claim that Defendant has breached the implied covenant of good faith and fair dealing by refusing to defend the underlying action, and (3) whether a stay is appropriate. Defendant also raises evidentiary objections in its opposition to Plaintiff's motion for summary judgment. The Court addresses each issue in turn.
As in this Court's prior order on Defendant's motion to dismiss, the parties dispute whether Defendant owes a duty to defend the Forty Niner Defendants and the Santa Clara Defendants in the underlying action. Defendant moves for summary judgment on Plaintiff's duty to defend claim on the grounds that (1) no such duty to defend ever arose, and (2) Plaintiff's policy's "primary and non-contributing" language prevents Defendant from contributing to defense costs in the state court action. In Plaintiff's cross-motion for summary judgment, Plaintiff moves for summary judgment on Plaintiff's duty to defend claim and also requests that the Court determine that the defense costs should be split by equal shares. The Court first addresses whether Defendant has a duty to defend, then addresses whether the "primary and non-contributing provision" prevents any payment from being made, and finally addresses the appropriate apportionment of funds between the parties for defense costs.
Under California law, an insurer has a duty to defend its insureds in a lawsuit if "some of the claims are at least potentially covered" by the insurance policy. Buss v. Superior Court, 16 Cal.4th 35, 47-48, 65 Cal.Rptr.2d 366, 939 P.2d 766 (1997). An "insurer's duty to defend is broader than its duty to indemnify" and the duty to defend "arises as soon as tender is made." Id. at 46, 65 Cal.Rptr.2d 366, 939 P.2d 766. Thus, for a duty to defend to arise, at least some of the claims in the state court action must be potentially covered by Defendant's insurance policy.
This Court's prior order on Defendant's motion to dismiss held that the claims in the state court action were potentially covered. This Court primarily relied on Maryland Casualty Co. v. Nationwide Mutual Insurance Co., 81 Cal.App.4th 1082, 1089-90, 97 Cal.Rptr.2d 374 (2000). In Maryland, the California Court of Appeal held that where an additional insured policy "applies only to the extent that [the additional insured] is held liable for [the named insured's] acts or omissions arising out of and in the course of operations performed for [the additional insured,]" that "additional insured provision create[s] limited vicarious liability coverage for the additional insured." Maryland, 81 Cal.App.4th at 1089-90, 97 Cal.Rptr.2d 374. The California Court of Appeal concluded that where the underlying action involved both "a potential [that the additional insured] would be vicariously liable for [the named insured's] alleged negligence" and "a potential [that the additional insured] would be liable for its own negligence," the insurance
The Court held in its prior order on Defendant's motion to dismiss that "Maryland governs the instant case." Prior Order at 9. Plaintiff's insurance policy covers the additional insureds, the Forty Niner Defendants and the Santa Clara Defendants, only for liability "caused, in whole or in part, by: 1. [Elite's] acts or omissions; or 2. The acts or omissions of those acting on [Elite's] behalf." FAC Ex. A. Likewise, the governing Service Agreement required Elite to indemnify the other Forty Niner Defendants and the Santa Clara Defendants for liabilities only "in connection with or arising out of (i) any breach by [Elite] under this Agreement, (ii) any activity, inactivity, work or thing done or permitted by [Elite] or its employees, agents or contractors in or upon the Stadium or Related Areas, including the performance of the Services, or (iii) any injury or damage to any person or to the property of any Person caused by an action or omission of [Elite] or its employees, agents or contractors." Service Agreement ¶ 22.
As in Maryland, the language in the governing contracts does not make Elite broadly responsible for all liabilities incurred by the Forty Niner Defendants and the Santa Clara Defendants, but instead makes Elite responsible only for those liabilities traceable at least in part to the acts or omissions of Elite or those acting on Elite's behalf. See Maryland, 81 Cal. App.4th at 1089-90, 97 Cal.Rptr.2d 374; Am. States Ins. Co. v. Ins. Co. of the State of Penn., 173 F.Supp.3d 982, 988 (E.D. Cal. 2016) (relying on Maryland to hold that "the `only to the extent [the named insured] is held liable' language in Plaintiff's policy limits coverage solely to [the additional insured's] liability for [the named insured's] conduct").
Furthermore, as in Maryland, there is a potential that the underlying state court action in the instant case would lead to liability for the Forty Niner Defendants or the Santa Clara Defendants but not for Elite. In this Court's prior order on Defendant's motion to dismiss, this Court noted an example of allegations in the Underlying Complaint that solely pertain to the Santa Clara Defendants. Specifically, the second cause of action in the state court complaint alleges in part that the Santa Clara Defendants created an unreasonable risk of harm through "[t]he lack of an adequate number of urinal and toilet facilities in the tailgating portions of the Red, Blue and Green parking lots and immediately inside the stadium at Gate A where crowds and long lines foreseeably created frustration, anxiety and confrontation." Underlying Complaint ¶ 24. This allegation is not traceable in whole or in part to Elite, which was hired to perform only security services at the Forty Niners Stadium on the date of the incident at issue in the state court action.
Defendant argues that there is no potential that Defendant will have a duty to indemnify because the second cause of action also contains allegations that the Santa Clara Defendants created a dangerous condition of public property by failing to "reasonably screen patrons upon entry to said stadium, to surveil patrons for signs of violent tendencies and/or gang affiliations, to inspect, patrol and surveil restrooms as a way of deterring violence, and to quickly respond to, and mitigate, violent behavior." Id. ¶ 23. Elite was in charge of providing some of the "screening services" and the security in the Forty Niners Stadium. This provision indicates the possibility that Elite will be found to have caused the harm at issue in the second cause of action, which would thus trigger Plaintiff's additional insured vicarious liability policy. However, just because Elite potentially caused the harm at issue does not eliminate the above-described potential that the Santa Clara Defendants will be held liable based only on the inadequate number of bathrooms, which would require Defendant, rather than Plaintiff, to indemnify the Santa Clara Defendants.
Therefore, because the claims in the state court action are potentially covered by Defendant, Defendant has a duty to defend in the state court action. See Maryland, 81 Cal.App.4th at 1089-90, 97 Cal.Rptr.2d 374; Buss, 16 Cal.4th at 47-48, 65 Cal.Rptr.2d 366, 939 P.2d 766.
Defendant argues that even if Defendant had a duty to defend in the state court action, the language of Plaintiff's policy requires Plaintiff to pay all of the defense costs for the state court action. Plaintiff's policy contains the following provision:
FAC Ex. A at 73. Defendant particularly focuses on the provision's statement that Plaintiff's policy is "primary and non-contributing when and to the extent as required by [a written contract signed by both parties]."
As with Plaintiff's duty to defend, this Court's prior order on Defendant's motion to dismiss and Maryland are dispositive. In Defendant's prior motion to dismiss, Defendant argued that "all of the claims in the state court action allege harms caused at least in part by Elite's provision of security services at the Forty Niners Stadium, such that Elite's insurance policy with Plaintiff is primary and non-contributing as to Defendant." Prior Order at 8. In response, Plaintiff argued that "the claims in the state court action ... are at least potentially covered by Defendant's policy with the Forty Niner Defendants but not by Plaintiff's policy with Elite." Id. at 8-9. As noted above, the Court held that Maryland governs the instant case and that Defendant has a duty to defend because liability could potentially be imposed on the Santa Clara Defendants that would be covered by Defendant's policy, but not Plaintiff's policy with Elite.
Based on this analysis, the Court rejected Defendant's contention that the "primary and non-contributing" language in Plaintiff's policy eliminates Defendant's duty to defend. Indeed, the Court stated that "Maryland governs the instant case." Prior Order at 9. In Maryland, the additional insured policy at issue stated that all other policies were excess to the additional insured policy, which made the additional insured policy "primary" to other applicable policies. Maryland, 81 Cal.App.4th at 1090-91, 97 Cal.Rptr.2d 374. Regardless, the Maryland court held that the additional insured policy was only primary to other policies that covered the vicarious liability of the additional insured and not for policies covering the additional insured's own liability. Id.
Thus, under Maryland, the "primary and non-contributing" language does not apply to defense costs for allegations seeking recovery for the Forty Niner Defendants' and the Santa Clara Defendants' own liability rather than their vicarious liability for Elite's actions. The state court action involves claims against at least the Santa Clara Defendants for their own, rather than Elite's, negligence. Thus, under Maryland, Plaintiff's policy's "primary and non-contributing" language does not excuse Defendant from contributing to defense costs.
Plaintiff's motion additionally requests a determination of whether Plaintiff and Defendant should split the defense costs in the underlying action by equal shares. The Court notes that the Maryland court, after finding that the additional insured policy and the policy covering the additional insured's own liability were liable for defense costs, remanded the case to the trial court "to allocate defense costs." Id. at 1093, 97 Cal.Rptr.2d 374. The Maryland court noted that "the proper allocation of costs is within a trial court's broad discretion," and that "the ultimate goal of equitable contribution must be `to accomplish substantial justice by equalizing the common burden shared by coinsurers, and to prevent one insurer from profiting at the expense of others." Id. at 1093-94, 97 Cal.Rptr.2d 374.
In Residence Mutual Insurance Co. v. Travelers Indemnity Co. of Connecticut, 26 F.Supp.3d 965 (C.D. Cal. 2014), a district court in the Central District of California discussed and applied on summary judgment the method that should be used to apportion indemnity and defense costs between two liable insurers. Id. at 977. The Residence court noted specifically as to defense costs that "a trial court has discretion to select a method of allocating
Weighing these factors, the Court finds that an equal shares method of allocation applies. First, the provisions of the policies indicate that the parties will contribute by equal shares. As noted above, the First Mercury policy contains the following provision:
FAC Ex. A at 73. Defendant's policy contains a "Method of Sharing" provision that states that "[i]f all of the other insurance permits contribution by equal shares, we will follow this method also." FAC Ex. B at 12.
Here, Plaintiff's policy states that it will provide contribution by equal shares so long as a written contract does not require the policy to be "primary and non-contributory" as to the other policies. The Court held above that Plaintiff's policy is not primary and non-contributory as to Defendant's policy. Thus, Plaintiff's policy provides for contribution by equal shares. FAC Ex. A at 73. Similarly, Defendant's policy states that Defendant would provide contribution by equal shares if the other policies at issue also provide contribution by equal shares. FAC Ex. B at 12. Therefore, both policies provide for contribution by equal shares. See Residence, 26 F.Supp.3d at 978 (finding equal shares apportionment appropriate where one policy specified an equal shares apportionment and the other policy was silent).
Moreover, the nature of the underlying claim and the relationships of the parties do not make equal sharing inequitable. The first cause of action is brought against the Forty Niner Defendants and Elite for Elite's actions as security provider at the Forty Niners Stadium. Underlying Complaint ¶¶ 17-18 (alleging Elite's negligence and the Forty Niner Defendants' negligence in hiring Elite). Therefore, because these allegations are based on Elite's actions, Plaintiff may be responsible for indemnification under the first cause of action. However, as discussed above, the second cause of action is brought against the Santa Clara Defendants for the Santa Clara Defendants' own actions in (1) failing to provide sufficient bathrooms, and (2) failing to properly screen and oversee individuals. To the extent these allegations are solely traceable to the Santa Clara Defendants' own actions, Defendant would have a duty to indemnify the Santa Clara Defendants. However, because Elite provided some screening services at the Forty Niners Stadium, Elite may have played some role in the Santa Clara Defendants' alleged failure to properly screen individuals, which would trigger Plaintiff's policy.
Overall, when the Court considers the underlying claim, the relationship of the insureds to the insurers, and the language of the parties' policies, the Court finds that contribution by equal shares for defense costs is most appropriate. Although Defendant argues that it would be inappropriate to resolve the issue of the apportionment of defense costs on summary judgment, the Court notes that Defendant points to no triable issue of material fact. Here, the parties' potential liability, and thus duty to pay defense costs, do not depend on the resolution of the state court action or of any questions of fact raised by Defendant. Moreover, the cases Defendant cites for the principle that it "defies logic" to apportion "costs" on summary judgment are inapposite as those cases involved apportionment of indemnification costs and not apportionment of defense costs. See Ameripride Servs., Inc. v. Valley Indus. Servs., Inc., 2016 WL 3753267, at *10 (E.D. Cal. July 13, 2016) (finding that evidence at trial in underlying action could alter the Court's determination). Accordingly, the Court finds that equal sharing of defense costs is appropriate.
Therefore, with respect to Plaintiff's claim seeking a declaration that Defendant owes a duty to defend, the Court GRANTS Plaintiff's motion for summary judgment and DENIES Defendant's motion for summary judgment. The Court also GRANTS Plaintiff's motion for summary judgment to the extent it seeks an equal allocation of defense costs between Plaintiff and Defendant.
In Plaintiff's FAC, Plaintiff seeks a declaration that Defendant breached the implied covenant of good faith and fair dealing for failing to contribute to the defense in the state court action after this Court found a duty to defend in its prior order on Defendant's motion to dismiss. In their respective motions, Plaintiff and Defendant both move for summary judgment on Plaintiff's claim for breach of the implied covenant of good faith and fair dealing.
As an initial matter, this cause of action is procedurally improper. The original complaint contained three causes of action. First, Plaintiff sought a declaration that Defendant has a duty to defend the state court action. ECF No. 1. Second, Plaintiff sought a declaration that Defendant breached the implied covenant of good faith and fair dealing because Defendant refused to participate in settlement discussions. Id. Third, Plaintiff sought a declaration that Defendant owed a duty to indemnify Plaintiff. Id. On August 29, 2016, the Court denied Defendant's motion to dismiss as to Plaintiff's first cause of action, but granted a motion to dismiss the second and third causes of action without prejudice because the issues of a good faith duty to settle and indemnification were not yet ripe. Prior Order at 11.
In the FAC, filed on November 16, 2016, Plaintiff added a second cause of action for breach of the implied covenant of good faith and fair dealing, not based on a theory of good faith duty to settle, but based on Defendant's perceived failure to comply with the Court's order on Defendant's first motion to dismiss. FAC ¶ 43-47. This is an entirely different cause of action from the good faith duty to settle cause of action that the Court dismissed without prejudice.
Here, the time to file a motion to amend pleadings or add parties passed on October 7, 2016. ECF No. 25 (Case Management Order). Plaintiff has provided no indication that the cause of action was added pursuant to Defendant's consent, and Plaintiff has not sought leave of court or attempted to satisfy the good cause standard found in Federal Rule of Civil Procedure 16(b)(4). Therefore, the Court STRIKES Plaintiff's second cause of action for breach of the implied covenant of good faith and fair dealing from the FAC.
However, even if the Court were to address Plaintiff's claim for breach of the implied covenant of good faith and fair dealing, the claim would fail. Plaintiff brings this cause of action under an "equitable subrogation" theory. "Equitable subrogation allows an insurer that paid coverage or defense costs to be placed in the insured's position to pursue a full recovery from another insurer who was primarily responsible for the loss." Maryland, 81 Cal.App.4th at 1088-89, 97 Cal.Rptr.2d 374. To succeed on an equitable subrogation theory, Plaintiff must satisfy the following elements:
Transcon. Ins. Co. v. Ins. Co. of State of Pennsylvania, 148 Cal.App.4th 1296, 1305, 56 Cal.Rptr.3d 491 (2007) (quoting Fireman's Fund Ins. Co. v. Maryland Cas. Co., 65 Cal.App.4th 1279, 1292, 77 Cal.Rptr.2d 296 (1998)). The second element of the above test requires that the "claimed loss [be] one for which [Plaintiff] was not primarily liable." Id. "The aim of equitable subrogation is to place the burden for a loss on the party ultimately liable or responsible for it and by whom it should have been discharged, and to relieve entirely the insurer or surety who indemnified the loss and who in equity was not primarily liable therefor." Fireman's Fund, 65 Cal.App.4th at 1296, 77 Cal.Rptr.2d 296; see also Maryland, 81 Cal. App.4th at 1090, 97 Cal.Rptr.2d 374 ("[T]he equitable subrogation doctrine is inapplicable because each insurer remains primarily responsible for the defense.").
Here, unlike the plaintiff in Transcontinental, there is no allegation, let alone any evidence, that Plaintiff was not "primarily liable"
Additionally, because Plaintiff's cause of action for breach of the implied covenant of good faith and fair dealing fails, the Court DENIES as moot Plaintiff's request for attorney's fees under this cause of action.
In a single footnote, Defendant "renews [the] stay request" Defendant made in connection with its prior motion to dismiss. Great Divide Mot. at 2 n.6. District courts have broad "discretion to dismiss [or stay] a federal declaratory judgment action when `the questions in controversy ... can better be settled in' a
In this Court's prior order in the instant case, the Court found that the three Brillhart factors weighed against a stay. First, this case did not involve a needless determination of state law issues because "the declaratory judgment claim requires application of settled principles of state law and `the issues concerning insurance coverage are not particularly complex or novel.'" Prior Order at 13 (quoting Travelers Indem. Co. v. Madonna, 914 F.2d 1364, 1371 (9th Cir. 1990)). Second, this case did not arise from forum shopping because "[t]here [was] no indication in the instant case that Plaintiff seeks to avoid any adverse ruling in state court." Id. Third, this case was not duplicative of issues in state court because "Defendant's duty to defend is triggered not by the determination of whether Defendant is in fact liable in whole or in part for any resulting judgment or settlement in the state court action, but only by whether the state court action could potentially result in at least partial liability for Defendant." Id. at 13-14.
In Defendant's renewed request for a stay, Defendant argues that a stay is warranted because "the coverage issue here is now logically related to issues of consequence in the underlying Patel action." Id. Defendant bases its argument on the fact that the Service Agreement contains an "express indemnity" provision in which Elite agreed to indemnify the Forty Niner Defendants and the Santa Clara Defendants "for liability arising from the acts or omissions of Elite." Id.; see also FAC ¶ 28. According to Defendant, in the state court action, the Forty Niner Defendants and the Santa Clara Defendants have filed cross-claims against Elite for express indemnity. The express indemnity provision states that Elite will indemnify the Forty Niner Defendants and the Santa Clara Defendants for "any activity, inactivity, work or thing done or permitted by [Elite] or its employees, agents or contractors." Service Agreement ¶ 12. Therefore, if those cross-claims are completely successful, it will show that all of their liability "ar[ose] from the acts or omissions of Elite," which would mean that Plaintiff's additional insured policy, rather than Defendant's policy, would provide coverage. FAC ¶ 28.
However, the existence of these cross-claims does not alter the Brillhart determination in this Court's prior order. While
However, Defendant is incorrect. Defendant has a duty to defend so long as there is a potential that Defendant will have a duty to indemnify. See Buss, 16 Cal.4th at 47, 65 Cal.Rptr.2d 366, 939 P.2d 766 (holding that an insurer has a duty to defend its insureds in a lawsuit if "some of the claims are at least potentially covered" by the insurance policy). A determination in the state court action that the liability at issue in this case arose from the acts or omissions of Elite would determine whether Defendant has a duty to indemnify the Forty Niner Defendants and the Santa Clara Defendants. However, whether or not Defendant eventually is found to have duty to indemnify, there is currently a potential that Defendant will have such a duty to indemnify, which triggers Defendant's duty to defend under Buss. Thus, the existence of the cross-claims in the state court action does not alter the result in the instant case.
Therefore, Defendant's new argument does not alter the Court's prior determination that the Brillhart factors weigh against a stay. Accordingly, the Court DENIES Defendant's renewed request for a stay.
In Defendant's opposition to Plaintiff's motion for summary judgment, Defendant makes a number of evidentiary objections. The Court addresses each in turn.
First, Defendant requests that the Court strike paragraphs 2 through 5 of the declaration of Raymond Tittman ("Tittman Decl."), ECF No. 37-1, on the bases that they are (a) inappropriate statements about mediation, (b) the truth of the statements is disputed, and (c) the statements are not relevant. In paragraphs 2 to 5 of the Tittman Declaration, Tittman states that after the Court's prior order on Defendant's motion to dismiss that he, counsel for Plaintiff, proposed entering a "final, appealable judgment based on the Court's Order" that could then be appealed, and that Defendant rejected this offer. Tittman Decl. ¶¶ 2-5. The Court addresses each of Defendant's grounds for objection in turn.
(a) As to Defendant's argument that the statements are inappropriate statements about mediation, Defendant provides no basis for this objection. Although pursuant to ADR Civil Local Rule 6-12(a), statements made in the course of mediation are confidential, the statements in the Tittman Declaration concern proposals made outside the context of mediation, not during the mediation itself.
(b) Defendant's objection that the statements are not true is not a basis to strike those statements. Indeed, on a motion for summary judgment, the entire point is for both sides to present evidence of facts whose truth the other party may dispute.
(c) Defendant's objection as to relevance also fails. Relevant evidence means evidence having "any tendency" to make the existence of any "fact [that] is of consequence" to the determination of the action more probable or less probable than it would be without the evidence. Fed. R. Evid. 401. Plaintiff's claim for breach of the implied covenant of good faith and fair dealing is based on Defendant's continued refusal to contribute to the defense of the underlying action and the increased costs
Second, Defendant objects to paragraph 6 of the Tittman Declaration, which contains a statement of the fees and costs spent in prosecuting the instant case, as not being relevant. As discussed above, the fees and costs from this action are relevant because they show the potential damages for Defendant's alleged breach of the implied covenant of good faith and fair dealing due to Defendant's failure to contribute to the defense in the underlying action. Accordingly, the Court OVERRULES Defendant's objection to paragraph 6 of the Tittman Declaration.
Third, Defendant objects to paragraphs 8 and 10 of the declaration of Glenn Kirkness, see Kirkness Decl. ¶¶ 8, 10, on the bases that the paragraphs are argumentative, contain legal conclusions, and are irrelevant. Under Civil Local Rule 7-5(b), "[a]n affidavit or declaration[ ] may contain only facts ... and must avoid conclusions and argument." Paragraph 8 of the Kirkness Declaration indicates that Kirkness sent a letter to Defendant that demanded that Defendant participate in the "defense of the underlying action," which Kirkness said was "consistent with the Court's Order." Kirkness Decl. ¶ 8. The statement that participation in the defense in the underlying action is "consistent with the Court's Order" is a legal conclusion. Therefore, the Court SUSTAINS Defendant's objection solely as to that phrase. The rest of paragraph 8 contains only a statement that Kirkness sent a letter to Defendant that demanded that Defendant participate in the defense of the underlying action, which, as discussed above, is relevant to Plaintiff's claim for breach of the implied covenant of good faith and fair dealing. Accordingly, the Court OVERRULES Defendant's objection to the remainder of paragraph 8.
Paragraph 10 of the Kirkness Declaration states "Despite the Court's Order, Great Divide has not contributed to the defense of the Underlying Action of any of the Underlying Defendants or reimburse[d] First Mercury for its defense costs. I have received no communication or explanation from Great Divide as to why it is not complying with the Court's August 29 Order." Kirkness Decl. ¶ 10. The Court agrees with Defendant that this paragraph is argumentative and contains legal conclusions concerning this Court's prior order. Accordingly, the Court SUSTAINS Defendant's objection.
Finally, Defendant objects to Plaintiff's request for judicial notice and its accompanying exhibits, ECF No. 37-3, on the ground that the exhibits were not properly authenticated by declaration or affidavit. Pursuant to Civil Local Rule 7-5(a), "[f]actual contentions made in support of or in opposition to any motion must be supported by an affidavit or declaration and by appropriate references to the record." Moreover, under Federal Rule of Civil Procedure 56(c)(4), "[a]n affidavit or declaration used to support or oppose a motion must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated." Here, Plaintiff's request for judicial notice is not supported by an affidavit or declaration. Therefore, the Court SUSTAINS Defendant's objection to the request for judicial notice and its accompanying exhibits.
For the foregoing reasons, the Court DENIES Defendant's Motion for Summary Judgment, STRIKES Plaintiff's second cause of action for breach of the implied covenant of good faith and fair dealing, and DENIES as moot Plaintiff's request for attorney's fees under that cause of action. The Court otherwise GRANTS Plaintiff's Motion for Summary Judgment.
