Free Reply to Opposition - District Court of California - California

Case 3:07-cv-05064-WHA

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1 SEDGWICK, DETERT, MORAN & ARNOLD LLP BRUCE D. CELEBREZZE Bar No. 102181 2 [email protected] ROBERT N. BERG Bar No. 099319 3 [email protected] DEAN J. MCELROY Bar No. 213132 4 [email protected] One Market Plaza 5 Steuart Tower, 8th Floor San Francisco, California 94105 6 Telephone: (415) 781-7900 Facsimile: (415) 781-2635 7 Attorneys for Defendant 8 NATIONAL FIRE INSURANCE COMPANY OF HARTFORD 9 10 11 12 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA CASE NO. 07-05064 WHA MED

13 FREDERICK MEISWINKEL, INC., a California corporation 14 Plaintiff, 15 v. 16 NATIONAL FIRE INSURANCE 17 COMPANY OF HARTFORD, 18 19 20 21 Defendants.

MEMORANDUM OF POINTS AND AUTHORITIES IN REPLY TO OPPOSITION TO MOTION TO STAY PROCEEDINGS Date: Time: Courtroom: Judge: March 27, 2008 8:00 a.m. 9 William H. Alsup

Defendant National Fire Insurance Company of Hartford ("National") files the following

22 reply to Frederick Meiswinkel, Inc.'s ("FMI") opposition to National's motion to stay. 23 24 I. INTRODUCTION Plaintiff FMI's opposition to National's motion to stay this proceeding is based almost

25 exclusively on allegations of bad conduct. Essentially, FMI states that National acted 26 improperly, and thus the bad faith case should be allowed to proceed. The "Argument" section 27 of FMI's opposition brief is one page in length, was filed very late, and states no opposition that 28 substantively rebuts the position set forth by National in its moving papers. 1
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1 2

II.

ARGUMENT

As noted in National's moving papers, the tort of breach of the implied covenant of good

3 faith and fair dealing, similar to all torts, is completed only if plaintiff can prove damages. 4 Specifically, the California Supreme Court has stated that the tort of breach of the implied 5 covenant is not actionable unless plaintiff can prove the conduct "causes financial loss to the 6 insured". Gourley v. State Farm Mut. Auto Ins. Co., 53 Cal.3d 121, 129, 3 Cal.Rptr. 2d 666, 822 7 P.2d 374 (1991). With respect to a claim involving breach of the duty to defend, an insured 8 cannot state a claim for damage if at least one insurer is providing a defense to that insured. 9 Ceresino v. Fire Ins. Exchange, 215 Cal.App.3d 814, 823, 264 Cal.Rptr. 230 (1989); Horace 10 Mann Ins. Co. v. Barbara B., 61 Cal.App.4th 158, 164, 71 Cal.Rptr. 350 (1998); Ringler Assoc. 11 v. Maryland Cas. Co., 80 Cal.App.4th 165, 1187, 96 Cal.Rptr. 2d 136 (2000). FMI did not even 12 attempt to rebut this point, raised by National in its moving papers, when FMI filed its 13 opposition. 14 Here, after National agreed to participate in the defense of FMI in the underlying case,

15 plaintiff's counsel, Peter Schultz, even assisted National in making arrangements for National to 16 contact Zurich American Insurance Company, the other insurer now sharing in the defense of 17 FMI and the underlying suit. Attached hereto as Exhibit 1 to the Declaration of Robert Berg is a 18 true and correct copy of an e-mail received by Robert Berg, National's counsel, from Peter 19 Schulz, counsel for FMI, which was sent to allow National an opportunity to make arrangements 20 with Zurich to pay fees for the defense of FMI in the underlying case. Thus, the fees that were 21 paid, were paid by Zurich, not FMI. FMI has no damages. 22 In FMI's opposition brief, there was no evidence offered showing that FMI itself has paid

23 any defense fees. The only fees discussed would be fees incurred to obtain coverage for FMI 24 from National. These fees cannot be recovered from National, except in a bad faith cause of 25 action, after a prerequisite showing of bad faith; and, even then, only fees incurred by coverage 26 counsel to obtain amounts owed under the insurance policy would be recoverable. See, Brandt 27 v. Superior Court 37 Cal.3d 813, 817, 210 Cal.Rptr. 211, 693 P.2d 746 (1985). Thus, the fees 28 discussed by FMI in its opposition brief are not defense fees in the underlying case, but Brandt 2
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1 fees; i.e., damages which FMI seeks in the current case and which may be recoverable only upon 2 a prerequisite showing of bad faith. 3 Thus, currently there are no contractual financial losses upon which FMI could base a

4 claim for bad faith. All defense fees owed under the contract have been paid by some insurer. 5 Theoretically, at some point in time in the future, FMI could make a claim for bad faith if there 6 is, at some later date, a reasonable settlement opportunity which the insurers refuse to accept, 7 which involves covered damages and which results in a judgment that the insurers refuse to pay. 8 For now, however, as noted in the moving papers, FMI is receiving a full defense from

9 the two insurers. Thus, as noted in National's moving papers, there is no current cognizable 10 cause of action for bad faith under California law. Although FMI contends that National is liable 11 for bad faith for allegedly not providing a full and complete defense, FMI has not demonstrated 12 that it has been damaged by National's alleged wrongful conduct in this regard. The insured is 13 receiving a full defense, and the insurers are entitled to continue in that litigation. The California 14 Supreme Court has stated that when an insurer is participating in the insured's defense: 15 16 17 18 [U]ntil a judgment in excess of Maryland's policy has been entered against VLP, or VLP otherwise has suffered some actual injury as a result of the alleged breach of the covenant of good faith and fair dealing,

19 there can be no finding of any damage as respects to the insured. Hamilton v. Maryland Cas. 20 Co., 27 Cal.4th 718, 727, 117 Cal.Rptr. 2d 318, 41 P.3d 128 (2002). 21 Based on the above, there is absolutely no basis upon which this case should proceed. As

22 noted in the moving papers, the California Supreme Court and several appellate courts, have 23 determined that a declaratory relief action should be stayed when the facts necessary to insurance 24 coverage will be litigated in the underlying case. This is necessary to eliminate the risk of 25 inconsistent factual determinations. Moreover, if there are two active cases in which facts can be 26 litigated, it is the underlying case that must move forward first. See, Montrose Chemical Corp. 27 v. Superior Court, 6 Cal.4th 287, 301, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (1993); California 28 Insurance Guaranty Assoc. v. Superior Court, 231 Cal.App.3d 1617, 1627, 283 Cal.Rptr. 104 3
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1 (1991); and General of America Ins. Co. v. Lilly, 258 Cal.App.2d 465, 471, 65 Cal.Rptr. 750 2 (1968). 3 In the present matter, as noted, the insured, FMI, is receiving a full defense. There may,

4 as noted earlier, at some point in time in the future, be some allegation of a failure to indemnify. 5 This issue has clearly not occurred yet. However, even if it were to occur, it would be based 6 exclusively on a set of facts which must be determined in the underlying case. The underlying 7 case will determine if FMI has any legal liability and, if so, what the liability is for. In other 8 words, what type of damages, if any, were caused by FMI in the underlying case. These facts 9 must be the subject of adjudication in the underlying case. Once determined, the details of that 10 factual adjudication would then later be applied in the coverage case to determine what amount, 11 if any, would be owed as indemnity payments by the insurers on behalf of FMI. There simply is 12 no current controversy upon which to proceed in this current bad faith litigation. 13 14 III. CONCLUSION

For the reasons set forth herein and in the moving papers, National's motion to stay

15 proceedings in this coverage suit should be granted, and this coverage suit should be stayed until 16 the underlying action resolves. 17 18 DATED: March 13, 2008 19 20 21 22 23 24 25 26 27 28 4
CASE NO. 07-05064 WHA MED

SEDGWICK, DETERT, MORAN & ARNOLD LLP

By:

/s/ Robert N. Berg BRUCE D. CELEBREZZE ROBERT N. BERG DEAN J. MCELROY Attorneys for Defendant NATIONAL FIRE INSURANCE COMPANY OF HARTFORD

SF/1492434v1

MEMORANDUM OF POINTS AND AUTHORITIES IN REPLY TO OPPOSITION TO MOTION TO STAY