Free Reply in Support of Motion - District Court of Arizona - Arizona

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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) BESS KUNZ, A Professional Corporation 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.; U-Haul Company Of Pennsylvania; U-Haul Company Of Florida; and Republic Western Insurance Company, Plaintiffs/Counter-Defendants, vs. Lumbermens Mutual Casualty Company, Defendant/Counter-Plaintiff, CASE NO.: CIV-04-0662-PHX-DGC (Maricopa County Superior Court Cause No. CV 2004-002438) DEFENDANT/COUNTERPLAINTIFF'S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION FOR RECONSIDERATION AND CLARIFICATION AS REQUIRED BY ORDER DATED AUGUST 25, 2006 ORAL ARGUMENT REQUESTED ARGUMENT I. The Products-Completed Operations Aggregate Limits Contained In Republic Western Policies RGMM And RXMM Are Not Reduced By Republic Western's Payment of Defense Costs. The RGMM policy's occurrence limit and its products-completed operations

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aggregate limit are different types of limits that are defined and controlled by different policy provisions. The first sentence of RGMM's insuring agreement states that: "We will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies." (Exhibit #1, Bates 01525) The amount and terms of the policy's per "occurrence" limit is set forth in the policy's endorsement number 4 entitled "LIMITS OF INSURANCE." (Exhibit #1, Bates 01547, Endorsement 4) The first sentence of the endorsement states that the limit of insurance for any one "occurrence is $250,000." This is the only policy limit that provides a source of funds to pay damages for "bodily injury" or "property damage." RGMM's endorsement number 4 further states that: "The Limit of Insurance stated herein is the Company's total limit of liability for all damages including legal fees, court costs, interest and other allocated loss expenses arising out of the same occurrence, regardless of the number of claims or claimants." (Emphasis supplied.) This inclusion of defense costs is expressly limited to "the Limit of Insurance stated herein." The only limit of insurance stated in this endorsement is the $250,000 Therefore, this endorsement provides no support for plaintiffs'

occurrence limit.

contention that Republic Western's defense costs reduce RGMM's and RXMM's products-completed operations aggregate limits. (Exhibits #1 and #2, respectively). RGMM's products-completed operations aggregate limit is defined by endorsement number 5 entitled "Products Aggregate Endorsement." (Exhibit #1, Bates 01548, Endorsement #5). That endorsement states: Subject to the limit of each "occurrence" or each "accident," the total liability of the Company for all damages because of "bodily injury" and "property damage" included within the Products and Completed Operations hazard shall not exceed $250,000 "aggregate" in any one policy year for Products which are sold by AMERCO or its subsidiaries.

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This aggregate limit does not apply to vehicles (either trucks or trailers) or other property owned by AMERCO or its subsidiaries rented or leased to U-Haul customers. An aggregate limit, unlike an occurrence limit, provides no source of funding

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and does not obligate the insurer to make payments under any coverage. Instead, an
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aggregate limit reduces and/or eliminates what the insurer would otherwise owe under
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the policy's per-occurrence limit. The extent of any such reduction is dependent upon
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the wording (i.e., scope) of the aggregate limit in question.
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RGMM's products-completed operations aggregate endorsement is narrower
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than RGMM's occurrence limit in several important respects. First, the endorsement
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requires that the damages to which the aggregate limit applies be "damages because of
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'bodily injury' and 'property damage' included within the Products and Completed
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Operations Hazard . . ." The term "damages" does not include defense costs unless
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specifically defined to include defense costs. International Ins. Co. v. Imperial Cas. &
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Indem. Co., 1992 WL 547721 (C.D. Cal. 1992); see also, Weber v. Indemnity Ins. Co.
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of North America, 345 F.Supp.2d 1139 (D. Haw. 2004). However, the RGMM policy's definition of "bodily injury" and "property damage" does not include defense costs. (Exhibit #1, Bates 01535, 01539). Second, the endorsement further requires that these damages be ". . .for Products which are sold by AMERCO or its subsidiaries." Third, the endorsement states that it does not apply to certain described vehicles or property. Notably lacking in the endorsement is any mention of defense costs paid by Republic Western. Therefore, Republic Western's payment of defense costs does not reduce the products aggregate limits contained in RGMM and RXMM. Contrary to plaintiffs' assertion, LMC's admission of paragraphs 16 and 19 of plaintiffs' Statement of facts (See Plaintiff's Statement of Facts, Docket Entry #110, p. 4) does not constitute an admission that Republic Western's defense costs reduce RGMM's and RXMM's products aggregate limits. This is because paragraphs 16 and
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19 of plaintiffs' Statement of Facts do not allege that Republic Western's payment of defense costs erode RGMM's and RXMM's products aggregate limit. Instead, those paragraphs allege only that RGMM and RXMM are "defense within limits policies," and define the term "defense within limits" to mean "i.e., the payment of LAE reduces or erodes the policies' limit of liability available to pay the principal amount of a settlement or judgment." As discussed above, it is only RGMM's and RXMM's

occurrence limits that provide money with which to pay a settlement or judgment. Therefore, LMC's admission of paragraphs 16 and 19 of plaintiffs' Statement of Facts is not an admission that RGMM's and RXMM's products-completed operations aggregate limit is reduced by Republic Western's payment of defense costs. Instead, it is only an admission that RGMM's and RXMM's occurrence limits are reduced by defense costs. This is consistent with the position taken in LMC's summary judgment papers that the products-completed operations aggregate limits contained in Republic Western's RGMM and RXMM policies are not reduced by Republic Western's payment of defense costs. II. LMC is Entitled to Summary Judgment in Its Favor on Its Affirmative Defense of Estoppel, or Alternatively, To A Trial on the Estoppel Defense if The Court Finds that there are Unresolved Questions of Fact Remaining as To The Estoppel Defense. LMC's affirmative defense of equitable estoppel is LMC's 19th affirmative defense (See Defendant's Second Amended Answer, Docket Entry #25, p. 48). Plaintiffs' memorandum does not deny that AON made this representation to LMC as alleged in LMC's 19th affirmative defense, or that AON was acting as U-Haul's agent when AON made this representation. Instead, the only arguments made by plaintiffs in opposition to LMC's estoppel defense are: (1) plaintiffs' contention that "This defense is a reiteration of LMC's 'reasonable expectations' argument, which the court rejected in the June 12th Order"; and (2) that LMC's reliance on representations of U-Haul's agent

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AON was not justifiable. These arguments fail because they are not supported by the facts and applicable law. A. LMC's Estoppel Defense Is Not A "Reiteration" Of LMC's "Reasonable Expectations" Argument. The Arizona doctrine of "reasonable expectations" provides that a court may refuse to enforce the terms of an unambiguous standardized insurance policy if the terms contradict the insured's reasonable expectations. Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 682 P.2d 388 (Ariz. 1984). In Darner, the court approved the use of the separate doctrine of equitable estoppel as a remedy with which to protect an insured's reasonable expectations. However, the equitable estoppel

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defense pre-existed the reasonable expectations doctrine and is not dependent on
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whether the reasonable expectations doctrine applies, or is even involved. See, Heltzel
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v. Mecham Pontiac, 730 P.2d 235 (Ariz. 1989) (Car buyer asserted equitable estoppel
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defense against the car dealer's enforcement of purchase contract). In Heltzel, the
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Arizona Supreme Court stated that: "The essential elements of equitable estoppel are 1)
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conduct by which one induces another to believe in certain material facts; and 2) the
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inducement results in acts in justifiable reliance thereon; and 3) the resulting acts cause
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injury."
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The court's June 12, 2006 order (Docket Entry #125), in rejecting LMC's
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reasonable expectations argument, did not do so on the merits. Instead, the court
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rejected LMC's reasonable expectations argument on the ground that, in the court's
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view, the reasonable expectations doctrine protects only the reasonable expectations of the insured and therefore can only be asserted by the insured. Even if the court had ruled on the merits of LMC's reasonable expectations argument, this would not have constituted a ruling on LMC's equitable estoppel defense. This is because the doctrine of reasonable expectations and the defense of

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equitable estoppel are distinct legal theories, even though the two doctrines may be based on similar facts. Therefore, plaintiffs' "reiteration" argument fails and cannot bar LMC's equitable estoppel defense. B. LMC's Reliance On U-Haul's Broker Was Justifiable As A Matter Of Law, Or Alternatively, It Is For The Trier Of Fact To Determine Whether Said Reliance Was Justifiable Under The Circumstances. AON was U-Haul's broker (Exhibit #3, McCarty Deposition, p. 24, l. 23 ­ p. 25, l. 2). LMC relied on what the broker AON told it, or what it received from the broker. (Exhibit #4, Tibbs Deposition, p. 32, ll. 21-22) AON, at all relevant times, told LMC that the underlying Republic Western policies that would be beneath LMC's policy, were defense outside limits and would not be reduced by defense costs. (Exhibit #4, Tibbs Deposition, p. 112, ll. 16-22). The application for 4/1/99-00, which AON submitted to LMC, checked off that under the underlying policies' (i.e., under Republic Western's policies) defense costs are "unlimited" which means defense outside the limit. (Exhibit #5, Sandoval Deposition, p. 45, l. 2 ­ p. 46, l. 14). AON confirmed that no Republic Western policies for the policy periods 4/1/99-00 and 4/1/00-01 were sent to LMC except for the Republic Western RU policies. (Exhibit #6, Mizrachi Deposition, p. 83, ll. 17-25) (Exhibit #5, Sandoval Deposition, p. 96, ll. 17-22). The reason LMC decided to issue its policy, and the basis on which LMC calculated its premium, was that AON's representative Mr. Mizrachi told LMC that coverage would be outside the limits. (Exhibit #4, Tibbs Deposition, p. 103, ll. 15-18). Plaintiffs make the self-serving, and unsupported, allegation that "As a sophisticated insurer, it was incumbent upon LMC to review the RU policies and the underlying RG and RX policies to ascertain the scope and extent of the coverage underlying the LMC policies." Based on the above undisputed evidence, including the fact that LMC never received copies of Republic Western's RG and RX policies (which

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are the only policies that state that defense costs are paid out of the occurrence limit), and the fact that the RU policy contains no provision stating that defense is inside the limits or that defense costs reduce the limits, the court should find that LMC's reliance on U-Haul's agent's representation that all of the underlying Republic Western policies were defense in addition to limits was justifiable as a matter of law. Alternatively, LMC submits that if the court, as in Darner, supra, finds that there is a question of fact as to the issue of justifiable reliance, then that issue should be resolved at trial by the trier of fact. In Darner, supra, the court left it up to the trier of fact "to determine whether, under the circumstances" the insured had a duty to read its policy. CONCLUSION Based on the foregoing, it is respectfully requested that this court rule that: (1) LAE paid by Republic Western does not reduce the annual products-

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completed operations aggregate limits of the RGMM and RXMM policies.
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(2)
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LMC is entitled to summary judgment in its favor regarding its

affirmative defense of equitable estoppel or, alternatively, the disputed issue of justifiable reliance should be resolved at trial by the trier of fact. DATED this 8th day of September, 2006. WALTON LANTAFF SCHROEDER & CARSON LLP Wayne Gill, Esq. 1700 Palm Beach Lakes Boulevard, 7th Floor West Palm Beach, Florida 33401 KUNZ PLITT HYLAND DEMLONG & KLEIFIELD, P.C. By: s/Daniel Maldonado Steven Plitt Daniel Maldonado 3838 N. Central Avenue, Suite 1500

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Phoenix, AZ 85012-1902 Attorneys for Defendant/CounterPlaintiff ORIGINAL electronically filed with the USDC this 8th day September, 2006, and a Copy delivered to Judge Campbell; ... and a COPY of the foregoing electronically served/mailed this 8th day of September, 2006 to: Gerald Gaffaney, Esq. David J. Ouimette, Esq. MARISCAL, WEEKS, MCINTYRE & FRIEDLANDER, P.A. 2901 North Central, Suite 200 Phoenix, AZ 85012 Attorneys for Plaintiff Bruce Friedman, Esq. Mark S. Fragner, Esq. RUBIN, FIORELLA & FRIEDMAN, LLP 292 Madison Avenue, 11th Floor New York, NY 10017 Attorneys for Plaintiff s/Adriana Garcia

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