Free Reply to Response to Motion - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Wayne Gill, Esq. (Fla Bar. No. 114953) WALTON LANTAFF SCHROEDER & CARSON LLP 1700 Palm Beach Lakes Boulevard, 7th Floor West Palm Beach, Florida 33401 Telephone: (561) 689-6700 Facsimile: (561) 689-2647 Steven Plitt, Esq. (State Bar No. 007481) Daniel Maldonado, Esq. (State Bar No. 018483) KUNZ PLITT HYLAND DEMLONG & KLEIFIELD 3838 North Central Avenue, Suite 1500 Phoenix, Arizona 85012-1092 Telephone: (602) 331-4600 Facsimile: (602) 331-8600 Attorneys for Defendant/Counter-Plaintiff IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA U-Haul International, Inc., et al Plaintiffs/Counter-Defendants, vs. Lumbermens Mutual Casualty Company, Defendant, Counter-Plaintiff. (Assigned to the Honorable David G. Campbell) No. CIV 04-0662 PHX DGC LMC'S CONSOLIDATED REPLY IN SUPPORT OF ITS POST TRIAL MOTION

Lumbermens Mutual Casualty Company ("LMC"), by its undersigned counsel and for its reply in further support of its motion to amend the court's Order (Doc. #162, for amendment of the judgment (Doc. #166), and for a new trial under, states as follows:

23 24 25 26

I.

LUMBERMENS IS ENTITLED TO JUDGMENT AGAINST U-HAUL In its post-trial motions, LMC requested amendments and additional findings of

fact as to U-Haul International, Inc.'s ("U-Haul") claim for breach of contract and other
Document 186 Filed 04/23/2007 Page 1 of 15

Case 2:04-cv-00662-DGC

1 2 3

relief against LMC.

U-Haul has the burden of coming forward with evidence

supporting each element of its claim for relief, including damages. "In an action based on breach of contract, the plaintiff has the burden of proving the existence for contract,

4 5 6 7 8

breach of the contract, and resulting damages." Chartone, Inc. v. Bernini 207Ariz162, 83P3d 1103 (Ct.App. 2004). In this case, U-Haul presented no evidence on damages, and thus LMC is entitled to judgment against U-Haul. U-Haul cannot rely on sums allegedly paid by Republic to support its own claim. Emerald Bay Community Assn. v.

9 10 11 12 13

Golden Eagle Ins. Corp. 130 Cal.App.4th 1078, 1092 (2005) (insured suffered no damages where all costs were paid by another insurer); Ringler Associates, Inc. v. Maryland Casualty Co., 80 Cal.App.4th 1165, 1187, 96 Cal.Rptr.2d 136 (2000) (same); Ludwig Music House, Inc. v. State Farm, 108 Ill.App.2d 27, 246 N.E.2d 473 (1969).

14 15 16 17 18 19 20 21

In its response, U-Haul does not cite any evidence that it introduced at trial on damages because there is no evidence. This Court held a trial on damages, and U-Haul, despite having the burden of proof to supply evidence to support its claim for damages, simply failed to do so. Therefore, LMC is entitled to judgment against U-Haul. II. THIS COURT SHOULD MAKE ADDITIONAL FINDINGS OF FACTS REGARDING PLAINTIFFS' REPRESENTATIONS AS TO AGENCY. Rule 52(b) of the Federal Rules of Civil Procedure specifically permits this Court

22 23 24 25 26

to make additional findings and to amend the judgment. In its motion, LMC requested additional findings of facts, including that Aon was the agent of plaintiffs, and that plaintiffs through their agent, represented to LMC that defense costs did not reduce the

Case 2:04-cv-00662-DGC

Document 186 - Filed 04/23/2007 -2

Page 2 of 15

1 2 3

underlying coverage limits, and that LMC's reliance on the representations was detrimental to LMC. In response, plaintiffs do not dispute the factual basis for these contentions, rather it is plaintiffs' contention that "whether Aon was acting as U-Haul's

4 5 6 7 8

agent procuring insurance is moot and irrelevant." Plaintiffs cite no trial evidence showing that Aon was not acting as plaintiffs' agents in making the representations that were made to LMC. Plaintiffs do not explain why Aon's agency and Aon's

representations are "moot and irrelevant." These issues were squarely presented in the
9 10 11 12 13

joint pre-trial order, and in which plaintiffs did not assert that these issues were moot and irrelevant. LMC has alleged an affirmative defense of estoppel which "means that a party is prevented by its own acts, or by the authorized acts of its agent, proclaiming a right to the detriment of another party who is reasonably entitled to reply on such

14 15 16 17 18 19 20 21 22 23 24 25 26

conduct and has acted accordingly." Pioneer Roofing Co. v. Mardian Construction Co., 152 Ariz. 455, 733 P2d 652 (App. 1986). (See proposed final pre-trial order, issue No. 32). Plaintiffs conceded that this is a correct statement of the law and did not argue that the issue of agency or representation was "moot or irrelevant." Under Rule 52(b) this Court is empowered to make additional findings as to the scope of agency and the representations that plaintiffs' agent made to LMC. Plaintiffs' contention that this issue is "moot and irrelevant" is nothing short of a concession as to these issues, and consequently, this Court should make the additional findings as such are necessary to permit meaningful appellate review.1
1

Plaintiffs' arguments regarding "parol evidence" are a red herring. The estoppel defense is Document 186 - Filed 04/23/2007 -3 Page 3 of 15

Case 2:04-cv-00662-DGC

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

III. THE COURT SHOULD AMEND THE FINDINGS REGARDING THE FINDING OF NO JUSTIFIABLE RELIANCE.

OF

FACT

Under F.R.C.P Rule 52, this Court should grant LMC's motion to amend its March 14, 2007 order, for the reasons discussed in detail below. A. There Is No Evidence U-Haul Sent A Handwritten Application to LMC. Plaintiffs contend that U-Haul's handwritten 1998 application (Ex. 2) was a "representation" to LMC that the policies beneath LMC's policy were defense "within aggregate limits." (Order, p. 5, ll. 2-6). Plaintiffs presented no evidence that the handwritten insurance application was sent to LMC. Plaintiffs are the proponent of Exhibit 2, and they bear the burden of proving that it was relevant to an issue before the Court. Therefore, to show that LMC relied on that application, the plaintiffs must show that the handwritten application was sent to LMC. There is no evidence to show that the handwritten application was sent to LMC: plaintiffs' witness testified that he could not recall sending it to AON (not LMC), but assumed it. Plaintiffs produced no

17 18 19 20 21

evidence of mailing to AON, let alone to LMC. The undisputed testimony from the plaintiffs' agent, Aon, is that Aon did not send Exhibit 2 to LMC, rather the application actually sent to LMC stated that defense costs were in addition to limits. Tr. Ex. 100. There is no evidence anyone sent the handwritten application to LMC, and so

22 23 24 25 26

plaintiffs are reduced to baseless insults that "one would not want to rely on LMC to be so forthright as to produce documents . . . there has been no explanation adduced as to

not dependent upon contract interpretation, but is rather based upon the representation that plaintiffs' agents made to LMC during the underwriting of the LMC policies. Document 186 - Filed 04/23/2007 -4 Page 4 of 15

Case 2:04-cv-00662-DGC

1 2 3

why this is the only application missing from LMC's file." Plaintiffs did not even prove it was sent to AON, let alone to LMC. It was not in LMC's file because there is no proof that plaintiffs sent it to LMC. This Court should accordingly amend its findings to

4 5 6 7 8

state that LMC never received that handwritten application. B. LMC's Binders Were Consistent With Aon's Representations. This Court found in its order that LMC's 1998 binders contained an "even more explicit" statement that "our form will nor respond until such time as the indemnity

9 10 11 12 13

portion of a loss exceeds the underlying or self-insured limit." However, this Court found that the deletion of the phrase "defense in addition to limit" . . . "suggest that LMC's requirement for the underlying coverage had changed." However, because the "more explicit" statement was in every LMC binder, this shows that LMC's position

14 15 16 17 18 19 20 21 22 23 24 25 26

had not changed.

In response, plaintiffs assert that the LMC policy contained a

following form endorsement. This does not at all support the contention that LMC's requirements for the underlying changed. LMC reasonably relied on Aon's

representation that the Republic coverage attaching the below the RU policy, (including the RA, RG and RX policies) were defense in addition to limits. Cf., Parkerson v. Federal Home Life Ins. Co., 797 F. Supp. 1308 (E.D. Va. 1992)("Insurer is entitled to receive truthful and full representations from prospective insureds."); First Tennessee Bank Nat'l Ass'n v. U.S. Fidelity & Guar. Co., 829 S.W.2d 144, 149 (Tenn. Ct. App. 1991)("the insured has the duty to make a fair disclosure of all information material to the risk involved."). Consequently, because the evidence does not support the assertion

Case 2:04-cv-00662-DGC

Document 186 - Filed 04/23/2007 -5

Page 5 of 15

1 2 3

that LMC's requirements had changed, this Court should grant LMC's post-trial motions. C. LMC Reasonably Relied On Plaintiffs' Representations. This Court stated "had LMC reviewed the RU policy, it would have seen, as the Court did, that the policy included LAE in the aggregate insurance limit." However, the RU policy does not expressly state that it includes LAE in the aggregate insurance limits. Moreover, this Court has ruled only on the RU policy's definition of "ultimate

4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

net loss," and has not addressed other portions of the RU policies that demonstrate that the Republic policies were defense in addition to limits, including the following: · The schedule of underlying policies included the RA policies, which provided minimum indemnity limits to comply with mandatory insurance laws; · The schedule of underlying insurance in the RU policies, listing the RA, RG and RX policies, did not state that those policies were defense within limits policies; · The RU policies do not apply to defense costs covered by underlying insurance; · Under Coverage II of the RU policies the insured's expenses are "payable by the company [Republic] in addition to the applicable limit of liability." Each of these facts is fully consistent with Aon's representations that the underlying policies were defense in addition to limits. Consequently, because the RU policies contain language that is consistent with Aon's representations, LMC respectfully requests that this Court amend its findings and find that LMC's reliance was reasonable.

Case 2:04-cv-00662-DGC

Document 186 - Filed 04/23/2007 -6

Page 6 of 15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

D. LMC Did Not Admit That It Knew The RG and RX Policies Were Defense Within Limits. In its order, this Court suggested that LMC's counsel admitted that the RX and RG policies underlying LMC's coverage were defense within limits policies. (Order, p. 8, ll. 6-12). However, the issue is whether LMC knew or had reason to know that the RG and RX policies were defense within limits during the time that LMC was underwriting its policies; what may have been learned after this suit was filed is immaterial. Plaintiffs presented no evidence that LMC knew before issuing its policies that the RX and RG policies were defense within limits. Aon told LMC that those policies were defense in addition to limits. Moreover, the information that AON sent to LMC each year, the "Liability Specifications" did not include copies of the RG or RX policies. (Exs. 20, 123) Because LMC understood that defense costs were in addition to limits under the RG policy, the issue of whether the RU policy was defense within limits was irrelevant because the RU policy does not apply to defense costs covered by

17 18 19 20 21

the underlying policies. Therefore, if the RG policies were as represented (defense in addition to limits), those policies' duty to defend was unlimited, and defense costs would never exhaust the limits under any policies attaching below the LMC policies. In response, plaintiffs do not rely on trial evidence showing that LMC knew

22 23 24 25 26

during the underwriting process that the RA, RX and RG policies were defense within limits policies. Rather, the plaintiffs rely upon Exhibit 120. Plaintiffs' reliance on this document is very telling for numerous reasons. First, that document is headed "Nelson-

Case 2:04-cv-00662-DGC

Document 186 - Filed 04/23/2007 -7

Page 7 of 15

1 2 3

Trailer" and is not an underwriting document, it is an AON claim document relating to the Nelson lawsuit. Second, Exhibit 120 states that the RU policy was "defense O-S", i.e "defense outside limits." Third, that chart refers to the RA policy, which was a

4 5 6 7 8

policy issued to comply with mandatory insurance requirements, and which is not a defense within limits policies. Thus, LMC's reliance upon Aon's representation was reasonable, and this Court should grant LMC's post-trial motions. III. LMC's Request For Amendment And Additional Finding As To Damages. A. Republic Western Failed To Prove Its Claim for Damages.

9 10 11 12 13

The only evidence that Republic submitted in support of its claim for damages were Exhibits 28, 29 and 30. This Court admitted those exhibits, finding that an exception to the hearsay doctrine applies, because the Court found that those exhibits

14 15 16 17 18 19 20 21 22 23 24 25 26

were business records. LMC respectfully suggests that this Court erred in admitting these documents for two separate but equally compelling reasons. First, while these documents were perhaps the type of documents that could be considered "business records," it is undisputed that Exhibits 28, 29 and 30 were not documents generated in the ordinary course of business. Republic's witness admitted that these documents were generated for this litigation, as they were drafted in connection with answering discovery. Moreover, Rule 803(6) of the Federal Rules of Evidence specifically states that a document would not be considered a "record of regularly conducted activity" where "the method or circumstances of preparation indicate lack of trustworthiness." Litigation is not a regularly conducted business activity. In Judge Jerome Frank's

Case 2:04-cv-00662-DGC

Document 186 - Filed 04/23/2007 -8

Page 8 of 15

1 2 3

words, documents prepared specifically for use in litigation are "dripping with motivations to misrepresent." Hoffman v. Palmer, 129 F.2d 976, 991 (2nd Cir. 1942). The circumstances of preparation of the three exhibits indicate lack of trustworthiness

4 5 6 7 8

because they were prepared for this lawsuit. Second, the Exhibits are subject to Rule 1006 because they are summaries. Consequently, Republic had a duty to have made available for examination or copying the documents that these summaries purport to summarize. In this case, the underlying

9 10 11 12 13

documents were not admissible because Republic did not disclose them under Rule 26, did not produce them in discovery, they were not listed on the pre-trial report, and Republic never made them available for inspection. Thus, these summaries should not have been admitted into evidence.

14 15 16 17 18 19 20 21 22 23 24 25 26

In a telling demonstration of the lack of merits of its arguments, Republic argues that LMC did not file a motion to compel. There is no duty to file a motion to compel, there is only a duty to comply with discovery. The Federal Rules of Civil Procedure impose upon a responding party the duty to timely comply with reasonable discovery requests. Pursuant to F.R.Civ.P. 26(a)(1), plaintiffs had a duty to automatically disclose non-privileged documentation supporting the computation of their damages claim (e.g., the invoices on which Matush's summaries were supposedly based), and to supplement those responses under F.R.Civ.P. 26(e). Since the duty to make the required disclosures under Rule 26(a) is automatic, it exists regardless of whether a request for production has been filed. F.R.Civ.P. 37(c) "gives teeth" to the disclosure requirements of Federal

Case 2:04-cv-00662-DGC

Document 186 - Filed 04/23/2007 -9

Page 9 of 15

1 2 3

Rule 26(a) "by forbidding the use at trial of any information required to be disclosed by Rule 26(a) that is not properly disclosed." Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101 (9th Cir. 2001). Consequently, because Republic failed to

4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
2

produce invoices and any other evidence of the reasonableness or relatedness of the attorney fees it claims as damages, this Court should grant LMC's post-trial motions. B. The Expenses Claimed Are Unreasonable And Not Related To This Action. Review of the summaries prepared for this litigation (Exs. 28-30), shows that

Republic is seeking reimbursement from LMC for Republic's internal expenses and other items that are unrelated to the defense of the underlying lawsuits. First, there are numerous entries for Republic "expenses." Republic cites no basis to explain what those expenses were for, nor why Republic charged them against the policy limit.2 Second, the summaries are replete with reference to intra-company transfers between two sister companies, U-Haul and Republic. Republic claims that it is a business and not a "charity." However, this arguments rings hollow when one takes into account the fact that Republic is paying its sister company, U-Haul. Third, even those short summaries create significant questions, including the fact that plaintiffs' Arizona counsel in this coverage case was paid thousands of dollars in connection with the Nelson case, a case that was pending in Florida. The implication is clear, that payment to Arizona coverage counsel had nothing to do with the defense of

26

Republic also seeks payment of U-Haul's SIR ($24,982.91) for Fernandez. The SIR is payable in addition to the Republic policies for every claim, and for which LMC is not liable. Document 186 - Filed 04/23/2007 - 10 Page 10 of 15

Case 2:04-cv-00662-DGC

1 2 3

the Florida litigation, and in any event, Republic certainly has failed to sustain its burden of proof as to the reasonableness or relatedness of any of those fees. Notably, Republic cites no case law supporting its contention that it need not

4 5 6 7 8 9 10 11 12 13

introduce the invoices and checks to document its claim. While Republic argues that the cases cited by LMC are "inapposite," Republic's attempt to distinguish those cases fails even after a cursory glance. Republic argues that the case Atlantic Permit FS&L v. American Casualty, 839 F2d 212 (4th Cir. 1988) does not apply because the attorney fee claim in that case "comprised an element of its damages." This argument is meritless because this Court specifically ordered a trial "on damages" on Republic's claim for damages that were only attorney fees and expenses. Thus, Republic has wholly failed to meet its burden of proof because the documents directly relevant to the issue of

14 15 16 17 18 19 20 21 22 23 24 25 26

reasonableness and relatedness were not produced and not introduced into evidence. C. Republic Policies RGMM's RXMM's Combined Occurrence Limits Totaling $2,000,000 Were Fully Available For The Fernandez Settlement.

Plaintiffs do not deny that they presented no evidence at trial to show the extent to which, if at all, there was any reduction or exhaustion of the RGMM and RXMM policies' aggregate limits prior to the Fernandez settlement.3 Therefore, these policies' occurrence limits totaling $2,000,000 were fully available to fund the Fernandez Proof of the extent of reduction or exhaustion of underlying limits is part of plaintiffs' burden of proof on damages because that determines the amount of total coverage owed by Republic which needs to be determined in order for Republic to prove its alleged over-payment of any part of the Nelson and Fernandez settlements and for which it seeks damages in this action.
Document 186 - Filed 04/23/2007 - 11 Page 11 of 15
3

Case 2:04-cv-00662-DGC

1 2 3

settlement. Thus, Republic underpaid its share of the Fernandez settlement by at least $958,033.27, for which Republic owes reimbursement to LMC regardless of whether LMC prevails on its estoppel defense.

4 5 6 7 8

IV.

REPUBLIC IS NOT ENTITLED TO PRE-JUDGMENT INTEREST. Republic concedes "examples of unliquidated claims listed included attorneys

fees, punitive damages, and the reasonable value of landlord improvements." (Response at p. 20, ll. 18-20). Thus, the claim for attorney fees is not liquidated

9 10 11 12 13

because, to date, Republic has never produced the invoices. To the time of trial, all that LMC had was Republic's argument regarding what Republic claimed to have paid. If Republic wishes to argue that the sums were liquidated before that date, Republic should have produced its attorney fee invoices, checks and other proof of payment.

14 15 16 17 18 19 20 21 22 23 24 25 26

Having failed to do so, it is in no position to argue that the payment was liquidated. In the alternative, LMC showed in its post-trial motion that Republic's claim for pre-judgment interest was erroneous, and it actually should have been $64,811 which is the pre-judgment interest on the $220,260 judgment award. Republic argues that it is entitled to interest on the $126,221 payment that LMC made on April 8, 2004, before this lawsuit was filed. That $126,221 payment was not and could never be part of the judgment. Republic is not entitled to pre-judgment interest on sums paid before the litigation commenced, and sums for which it did not sue LMC. Accordingly, this Court should find that the sums were not liquidated, or alternatively reduce the award of prejudgment interest.

Case 2:04-cv-00662-DGC

Document 186 - Filed 04/23/2007 - 12

Page 12 of 15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

V. LMC IS ENTITLED TO A NEW TRIAL BECAUSE REPUBLIC HAS FAILED TO PROVE THE EXHAUSTION OF ALL UNDELRYING POLICIES. This Court should grant LMC's post-trial motions because it is an element of Republic's case that it has exhausted all other available insurance coverage attaching below the level of the LMC policy. Am. Family Mut. Ins. Co. v. Continental Cas. Co., 200 Ariz. 119, 121, 23 P.3d 664 (Ct. App.2001). There is no dispute that the schedule of underlying insurance in the RU policies included the RA policies. (See Plaintiffs' exhibit 13, p. 01580). This is not properly characterized as a "legal argument" but is rather a factual issue on which Republic bears the burden of proof. Because Republic cannot and did not prove the exhaustion of the RA policies, it cannot prove that it satisfied all conditions to coverage under the LMC excess policy, and therefore LMC is entitled to judgment against the Plaintiffs, or alternatively, new trial. Republic's witness on damages testified that both Nelson and Fernandez dealt with "tow dollies" which are automobile trailers, and thus both claims are auto claims

17 18 19 20 21

covered under the RA policies. Furthermore, it is clear that Republic has directly placed the RA policies at issue in arguing that trial exhibit 120 "shows that the only policies which underlie the LMC policy are the RG, RX and RU policies." As already noted, that document specifically references the RA policies, as do the schedule of underlying

22 23 24 25 26

insurance in the RU policies. The trial evidence also shows that other "tow dolly" claims are covered under RA policies. In Exhibit 20, the following "tow dolly claims" reference payments made under RA policies: see pp. 3853 "lessee alleges defective tow-

Case 2:04-cv-00662-DGC

Document 186 - Filed 04/23/2007 - 13

Page 13 of 15

1 2 3

dolly"; p. 3857 "tow dolly detached and hit claimant"; p. 3859 "lessee hooked up TD to DC on dealer lot"; p. 3860 "UH TD started fishtailing. . ." Republic has failed to prove an element of its case-in-chief, namely, that all underlying policies were exhausted.

4 5 6 7 8

Therefore, because Republic has not satisfied its burden of proof, LMC is entitled to judgment. CONCLUSION For all the reasons set forth in LMC's original Motion and Memorandum in

9 10 11 12 13

Support of Its Motion for Amended and Additional Findings, Motion for Amended Judgment, and Motion for New Trial, and for all the reasons set forth herein, LMC respectfully requests that this Court enter an order granting LMC's Post-Trial Motions, and for such other and further relief as the Court deems just and appropriate under the

14 15 16 17 18 19 20 21 22 23 24 25 26

evidence and circumstances.

DATED this 23rd day of April, 2007.

WALTON LANTAFF SCHROEDER & CARSON LLP Wayne T. Gill, Esq. Southtrust Center 1700 Palm Beach Lakes Blvd., #700 West Palm Beach, FL 33401

Case 2:04-cv-00662-DGC

Document 186 - Filed 04/23/2007 - 14

Page 14 of 15

1 2 3 4 5 6 7 8

KUNZ PLITT HYLAND DEMLONG & KLEIFIELD

By: s/ Daniel Maldonado Steven Plitt, Esq. Daniel Maldonado, Esq. 3838 N. Central Ave., Suite 1500 Phoenix, AZ 85012-1902 Attorneys for Defendant/Counter-Plaintiff

CERTIFICATE OF SERVICE
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Filed electronically this 23rd day of April, 2007 and copies electronically served/mailed to: Gerald Gaffaney, No. 003789 David J. Ouimette, No. 006423 Attorneys for Plaintiffs/Counter-Defendants Mariscal, Weeks, McIntyre & Friedlander, P.A. 2901 North Central, Suite 200 Phoenix, AZ 85012 Tel: 602/285-5000 Fax: 602/285-5100 Bruce Friedman, (admitted pro hac vice) Mark S. Fragner, (admitted pro hac vice) Attorneys for Plaintiffs/Counter-Defendants Rubin, Fiorella & Friedman, LLP 292 Madison Avenue New York, NY 10017 Tel: 212/953-2381 Fax: 212/953-2462 s/ Tracey Griswold

Case 2:04-cv-00662-DGC

Document 186 - Filed 04/23/2007 - 15

Page 15 of 15