Free Statement - District Court of Arizona - Arizona

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Wayne Gill, Esq., (FL Bar 114953) Walton Lantaff Schroeder & Carson 1700 Palm Beach Lakes Blvd., 7th Floor West Palm Beach, FL 33401 Tel: 561/689-6700 Fax: 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 [email protected]; [email protected] Attorneys for Defendants 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, vs. Lumbermens Mutual Casualty Company, Defendants. CASE NO.: CIV-04-0662-PHX-DGC (Maricopa County Superior Court Cause No. CV 2004-002438) DEFENDANT/COUNTER-PLAINTIFF'S RESPONSE IN OPPOSITION TO PLAINTIFFS'/COUNTERDEFENDANTS' STATEMENT OF FACTS IN SUPPORT OF PLAINTIFFS'/ COUNTER-DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND DEFENDANT/COUNTER-PLAINTIFF'S SEPARATE STATEMENT OF FACTS IN SUPPORT OF DEFENDANT'S/ COUNTER-PLAINTIFF'S LEGAL MEMORANDUM IN RESPONSE TO PLAINTIFFS'/COUNTERDEFENDANTS' MOTION FOR SUMMARY JUDGMENT (Oral Argument Requested)

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Pursuant to Rule 56.1 of the Local Rules of Practice of the United States District Court for the District of Arizona, defendant/counter-plaintiff, LUMBERMENS

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Document 118

Filed 11/21/2005

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MUTUAL CASUALTY COMPANY ("LMC"), by and through undersigned counsel, hereby submits the following response to plaintiffs'/counter-defendants' statement of facts in support of plaintiffs'/counter-defendants' motion for summary judgment (hereafter "DSOF"). This statement of facts ("DSOF") is supported by the exhibits which are attached to the statement of facts ("SOF") attached to defendant/counterplaintiff's motion for summary judgment that was filed on September 30, 2005, and by the attached exhibits. DEFENDANT'S/COUNTER-PLAINTIFF'S RESPONSE TO PLAINTIFFS'/COUNTER-DEFENDANTS' STATEMENT OF FACTS. 1. 2. 3. 4. Plaintiffs' statement of fact #1 is admitted. Plaintiffs' statement of fact #2 is admitted. Plaintiffs' statement of fact #3 is admitted. Plaintiffs' statement of fact #4 is admitted in part and denied in part as

inaccurate, incomplete and misleading. RX99's insuring agreement does not state that it provides coverage "in excess of the coverage provided by the scheduled underlying insurance policies" as alleged by plaintiffs. However, defendant admits plaintiffs'

statement of fact #4 to the extent that RX99 provides such coverage pursuant to its following form endorsement. 5. 6. 7. Plaintiffs' statement of fact #5 is admitted. Plaintiffs' statement of fact #6 is admitted. It denies each allegation contained in plaintiffs' statement of fact #7

except it admits that for the policy period April 1, 1999 through March 3, 2000, Republic Western insured U-Haul pursuant to Republic Western's Commercial Umbrella Liability policy No. RU99 (the "RU99 policy"), admits that sai d policy is a commercial umbrella liability insurance policy that contains a $6,000,000 occurrence limit, and admits that the policy lists the RG99 policy and the RX99 policy as scheduled

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underlying insurance policies. Defendant further specifically denies the allegation that the RU99 policy is a policy "providing coverage up to its policy limit of $6,000,000 each occurrence in excess of the coverage provided by the scheduled underlying insurance policy. . ." In support of said denial, defendant says that RU99's insuring agreement does not state that it provides coverage "in excess of the coverage provided by the scheduled underlying insurance policies" as alleged by plaintiffs. Instead,

RU99's insuring agreement states: "To indemnify the insured for the underlying net loss in excess of the applicable underlying (or retained limit) hereinafter stated." (Emphasis supplied.) 8. Plaintiffs' statement of fact #8 is denied. Plaintiffs' allegation that "The

RU99 policy obligates RWIC to pay the 'ultimate net loss' in excess of the policy limits available under the applicable underlying policies" is denied because RU99's insuring agreement does not state that it provides coverage "in excess of the coverage provided by the scheduled underlying insurance policies" a alleged by plaintiffs. Instead, it's s insuring agreement states: "To indemnify the insured for the underlying net loss in excess of the applicable underlying (or retained limit) hereinafter stated. (Emphasis supplied.) Plaintiffs' alleged definition of "ultimate net loss" is denied because

plaintiffs' quotation from RU99's definition of ultimate net loss is incomplete and misleading. The complete definition states: "Ultimate Net Loss" means the total of the following sums with respect to each occurrence. (1) all sums which the insured or any carrier as his insurer or both become legally obligated to pay as damages whether by reason of adjudication or settlement because of personal injury property damage or advertising occurrences to which this policy applies and all expenses incurred by the insured in the investigation, negotiation, settlement, and defense of any claim or suit seeking such damages excluding only the salaries of the insured's regular employees provided ultimate net loss shall not include any

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(2)

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damage or expense because of liability excluded by this policy (including endorsements forming a part hereof). This policy shall not apply to defense, investigation, settlement, or legal expenses covered by underlying insurance. (SOF 38.) 9. Plaintiffs' statement of fact #9 is denied including, but not limited to, the

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various legal conclusions contained therein because RU99's definition of "ultimate net
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loss" does not state that it "includes LAE," does not include all expenses of defense, and
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does not list any type of defense costs as being included in the definition except "all
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expenses incurred by the insured. . ." As to why RU99 is not a defense within limits
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policy, and why the defense costs that Republic Western pays directly (e.g., all of the
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defense costs that are the subject of this action) are not included in RU99's definition of
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"ultimate net loss" and do not reduce RU99's liability limit, defendant adopts and
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reavers its summary judgment motion previously filed herein and its response to
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plaintiffs' summary judgment motion.
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Also, plaintiffs' citation to page 80 of the

deposition of defendant's 30(b)(6) witness John Knoebel does not support the plaintiffs' aforesaid conclusory allegations.
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The only thing Knoebel said at page 80 of his

deposition was: "This policy is constructed in a form very similar to the RX policy. It too uses the underlying net loss wording, which has been defined to include expenses
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incurred by the insured in defending/investigating claims. It does not have a sche dule
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of underlying insurance which does list both the RG and RX policy." (See Transcript of
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Deposition of John Knoebel, Exhibit #7, attached to plaintiffs' Statement of Facts.)
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10.
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Defendant denies plaintiffs' statement of fact #10 except it admits that for

the policy period April 1, 1999 through March 31, 2000, defendant/counter-plaintiff Lumbermens Mutual Casualty Company ("LMC") insured U-Haul pursuant to
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Commercial Excess Liability Policy No. 9SR120037-01 (the "1999 LMC policy"), admits that said policy is a commercial excess liability insurance policy that provides

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excess coverage to U-Haul subject to the policy's terms, conditions, and limitations, admits that the policy contains a $13,000,000 occurrence limit, and admits that the policy lists the RU99 policy as the "Designated Underlying Policy." Defendant

specifically denies plaintiffs' description of LMC's limits for the April 1, 1999 through March 31, 2000 policy period as being incomplete and inaccurate because it fails to acknowledge that the policy provides a $13,000,000 occurrence limit in excess of $7,000,000 and a products-completed operations annual aggregate limit of $13,000,000. (See Transcript of Deposition of Douglas M. Bell, dated January 13, 2005, attached to SOF as Exhibit 1, p. 12, 1.21 - p. 13, 1.2; LMC Policy 9SR 120-037-00, attached to LMC's summary judgment motion as Exhibit 8.) 11. Plaintiffs' statement of fact #11 is denied because it is an incomplete quote

and is therefore inaccurate and misleading. The complete quote of the sentence in question, as set forth in the said "Schedule of Underlying Insurance" states: Except when stated to apply otherwise, this policy is subject to all of the terms, conditions, insuring agreements, definitions, and exclusions (hereafter called provisions) of the "Designated Underlying Policy," but in no event shall this policy be subject to the provisions of the "Designated Underlying Policy" with respect to the premium, the "Policy Period," the renewal or extension agreement (if any), the amount or Limits of Liability or any other provision of the "Designated Underlying Policy" that may be inconsistent with this policy. 12. Defendant denies plaintiffs' statement of fact #12 because it is an

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incomplete quote of said endorsement, except it admits that the quoted words are
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contained in said endorsement.
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13.
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Plaintiffs' statement of facts #13 is denied pursuant to all of the legal

arguments contained in defendant's summary judgment motion and in its legal memorandum in opposition to plaintiffs' summary judgment motion. Also, plaintiffs'
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citation to page 103 of the deposition of LMC's corporate representative John Knoebel does not support plaintiffs' alleged statement of fact #13 because it does not correctly

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state what Mr. Knoebel said. His actual statement at page 103 was: "Our policy will respond after $7,000,000 of damages and defense, which has been paid by the insured, has been spent in the underlying policies." (See Transcript of Deposition of John Knoebel, Exhibit 9, p. 103, ll. 1-3 attached to plaintiffs' Statement of Facts.) 14. 15. 16. 17. Plaintiffs' statement of fact #14 is admitted. Plaintiffs' statement of fact #15 is admitted. Plaintiffs' statement of fact #16 is admitted. Plaintiffs' statement of fact #17 is admitted in part and denied in part as

inaccurate, incomplete and misleading. RX99's insuring agreement does not state that it provides coverage "in excess of the coverage provided by the scheduled underlying insurance policies" as alleged by plaintiffs. However, defendant admits plaintiffs'

statement of fact #17 to the extent that RX99 provides such coverage pursuant to its following form endorsement 18. 19. 20. Plaintiffs' statement of fact #18 is admitted. Plaintiffs' statement of fact #19 is admitted. It denies each allegation contained in plaintiffs' statement of fact #20

except it admits that for the policy period April 1, 1999 through March 3, 2000, Republic Western insured U-Haul pursuant to Republic Western's Commercial Umbrella Liability policy No. RU99 (the "RU99 policy"), admits that said policy is a commercial umbrella liability insurance policy that contains a $6,000,000 occurrence limit, and admits that the policy lists the RG99 policy and the RX99 policy as scheduled underlying insurance policies. Defendant further specifically denies the allegation that the RU99 policy is a policy "providing coverage up to its policy limit of $6,000,000 each occurrence in excess of the coverage provided by the scheduled underlying insurance policy. . ." In support of said denial, defendant says that RU99's insuring agreement does not state that it provides coverage "in excess of the coverage provided

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by the scheduled underlying insurance policies" as alleged by plaintiffs.

Instead,

RU99's insuring agreement states: "To indemnify the insured for the underlying net loss in excess of the applicable underlying (or retained limit) hereinafter stated." (Emphasis supplied.) 21. Plaintiffs' statement of fact #21 is denied. Plaintiffs' allegation that "The

RU99 policy obligates RWIC to pay the 'ultimate net loss' in excess of the policy limits available under the applicable underlying policies" is denied because RU99's insuring agreement does not state that it provides coverage "in excess of the coverage provided by the scheduled underlying insurance policies" as alleged by plaintiffs. Instead, it's insuring agreement states: "To indemnify the insured for the underlying net loss in excess of the applicable underlying (or retained limit) hereinafter stated. (Emphasis supplied.) Plaintiffs' alleged definition of "ultimate net loss" is denied because

plaintiffs' quotation from RU99's definition of ultimate net loss is incomplete and misleading. The complete definition states: "Ultimate Net Loss" means the total of the following sums with respect to each occurrence. (1) all sums which the insured or any carrier as his insurer or both become legally obligated to pay as damages whether by reason of adjudication or settlement because of personal injury property damage or advertising occurrences to which this policy applies and all expenses incurred by the insured in the investigation, negotiation, settlement, and defense of any claim or suit seeking such damages excluding only the salaries of the insured's regular employees provided ultimate net loss shall not include any damage or expense because of liability excluded by this policy (including endorsements forming a part hereof).

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(2)
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This policy shall not apply to defense, investigation, settlement, or legal expenses covered by underlying insurance. (SOF ¶ 38.) 22. Plaintiffs' statement of fact #22 is denied including, but not limited to, the

various legal conclusions contained therein because RU99's definition of "ultimate net

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loss" does not state that it "includes LAE," does not include all expenses of defense, and does not list any type of defense costs as being included in the definition except "all expenses incurred by the insured. . ." As to why RU99 is not a defense within limits policy, and why the defense costs that Republic Western pays directly (e.g., all of the defense costs that are the subject of this action) are not included in RU99's definition of "ultimate net loss" and do not reduce RU99's liability limit, defendant adopts and reavers its summary judgment motion previously filed herein and its response to plaintiffs' summary judgment motion. Also, plaintiffs' citation to page 80 and to page 117 of the deposition of defendant's 30(b)(6) witness John Knoebel does not support the plaintiffs' aforesaid conclusory allegations. All that Mr. Knoebel said at page 117 is that defense costs are included in RUMM's definition of ultimate net loss to the extent that they are paid by the insured. (See Transcript of Deposition of John Knoebel, Exhibit #15, p. 117, ll. 4-7; p. 117, ll. 15-19 attached to plaintiffs' Statement of Facts) 23. Defendant denies plaintiffs' statement of fact #23 except it admits that for

the policy period April 1, 1999 through March 31, 2000, defendant/counter-plaintiff Lumbermens Mutual Casualty Company ("LMC") insured U-Haul pursuant to Commercial Excess Liability Policy No. 9SR120037-01 (the "1999 LMC policy"), admits that said policy is a commercial excess liability insurance policy that provides excess coverage to U-Haul subject to the policy's terms, conditions, and limitations, admits that the policy contains a $13,000,000 occurrence limit, and admits that the policy lists the RU99 policy as the "Designated Underlying Policy." Defendant

specifically denies plaintiffs' description of LMC's limits for the April 1, 1999 through March 31, 2000 policy period as being incomplete and inaccurate because it fails to acknowledge that the policy provides a $13,000,000 occurrence limit in excess of $7,000,000 and a products-completed operations annual aggregate limit of $13,000,000. (See Transcript of Deposition of Douglas M. Bell, dated January 13, 2005, attached to

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SOF as Exhibit 1, p. 12, 1.21 - p. 13, 1.2; LMC Policy 9SR 120-037-00, attached to LMC's summary judgment motion as Exhibit 8.) 24. Plaintiffs' statement of fact #24 is denied because it is an incomplete quote

and is therefore inaccurate and misleading. The complete quote of the sentence in question, as set forth in the said "Schedule of Underlying Insurance" states: Except when stated to apply otherwise, this policy is subject to all of the terms, conditions, insuring agreements, definitions, and exclusions (hereafter called provisions) of the "Designated Underlying Policy," but in no event shall this policy be subject to the provisions of the "Designated Underlying Policy" with respect to the premium, the "Policy Period," the renewal or extension agreement (if any), the amount or Limits of Liability or any other provision of the "Designated Underlying Policy" that may be inconsistent with this policy. 25. Defendant denies plaintiffs' statement of fact #25 because it is an

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incomplete quote of said endorsement, except it admits that the quoted words are
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contained in said endorsement.
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26.
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Plaintiffs' statement of facts #26 is denied pursuant to all of the legal

arguments contained in defendant's summary judgment motion and in its legal memorandum in opposition to plaintiffs' summary judgment motion. Also, plaintiffs'
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citation to page 103 of the deposition of LMC's corporate representative John Knoebel
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does not support plaintiffs' alleged statement of fact #26 because it does not correctly
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state what Mr. Knoebel said. His actual statement at page 103 was: "Our policy will
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respond after $7,000,000 of damages and defense, which has been paid by the insured,
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has been spent in the underlying policies." (See Transcript of Deposition of John
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Knoebel, Exhibit 9, p. 103, ll. 1-3 attached to plaintiffs' Statement of Facts.)
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27.
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Defendant denies plaintiffs' statement of fact #27 including, but not

limited to, the legal conclusion stated therein. Mr. Bell did not start with Republic Western until November 2000 (See Transcript of Douglas Bell, Exhibit 17, p. 16, l. 24 p. 17, l. 2 attached to plaintiffs' Statement of Facts.) Mr. Amoroso did not start at

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Republic Western until July 2000 and had no involvement in the underwriting process leading u to the issuance of the policies for the 1999 and 2000 policy years. (See p Transcript of Deposition of Richard Amoroso, Exhibit 18, p. 41, ll. 5-11, attached to plaintiffs' Statement of Facts.) Therefore, the citations to the depositions of Bell and Amoroso do not support plaintiffs' alleged statement of fact #27. This is because, since they were not employed by Republic Western until after the policies were issued, they have no knowledge or admissible testimony as to whether U-Haul or Republic Western had any such alleged intention or expectations prior to the issuance of the Republic Western and LMC policies for the 1999 and 2000 policy years. They do not even claim any such prior knowledge. Also, as discussed in defendant's response to plaintiffs' summary judgment, any expectations of Republic Western as to what would be the extent of coverage provided by LMC is not relevant because there is no contractual privity between Republic Western and LMC. Additionally, as discussed in defendant's legal memorandum in response to plaintiffs' summary judgment motion, any expectations of U-Haul as to what would be the extent of LMC's coverage is not relevant as between U-Haul and LMC because the unrebutted evidence is that the negotiations for the purchase and issuance of the LMC policies took place only between U-Haul's agent AON and LMC and that even if U-Haul had any such expectations, none were communicated to LMC. Also, for the reasons discussed in defendant's response to plaintiffs' summary judgment motion, plaintiffs are not entitled to invoke the doctrine of reasonable expectations for the additional reason that there is no evidence that LMC made a promise to plaintiffs that induced plaintiffs to purchase and agree to the contents of LMC's policies. For further reasons as to why defendant denies plaintiffs' statement of fact #27, defendant refers to all of the legal arguments contained in its summary

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judgment motion and in its legal memorandum in response to plaintiffs' summary judgment motion. 28. Defendant d enies plaintiffs' statement of fact #28. The cited deposition

testimony does not support the alleged statement of fact because it refers to an application for the prior policy year of 4/1/98-99 and therefore does not pertain to the policy years that are the subject of this action (i.e., 4/1/99-00 and 4/1/00-01). The cited testimony also fails to support the alleged statement of fact because the testimony is only in regard to the checking off of the space on the 1998 application regarding defense costs being in or outside the aggregate limit, and does not include any discussion regarding defense costs being within or outside the occurrence limit. (See Transcript of Deposition of Ron McCarty, pp. 28-32, attached as Exhibit 3 to LMC's response to plaintiffs' summary judgment motion .) 29. 30. Plaintiffs' statement of fact #29 is admitted. Plaintiffs' statement of fact #30 is admitted. ________________________________________ Defendant denies each enumerated paragraphs of plaintiffs' Statement of Facts to the extent not expressly admitted herein. DEFENDANT'S SEPARATE STATEMENT OF FACTS I. THE POLICIES 31. Republic Western Insurance Company ("Republic Western") issued three

liability policies to AMERCO/U-Haul for the 4/1/99-00 policy period: "Commercial Liability Policy" RG99; "Commercial Excess Liability Policy" RX99; and "Commercial Umbrella Liability Policy" RU99. (See Transcript of Deposition of Douglas M. Bell, dated January 13, 2005, attached to "SOF" as Exhibit 1, p. 10, 1. 8 - p. 11, 1. 8; Republic Western Ins. Co. Policy RG99, attached to "SOF" as Exhibit 2; Republic

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Western Ins. Co. Policy RX99, attached to "SOF" as Exhibit 3; and Republic Western Ins. Co. Policy RU99, attached to "SOF" as Exhibit 4.) 32. Republic Western policy RG99 provides a $250,000 occurrence limit in

excess of the insured's $25,000 self-insured retention, and a $250,000 annual aggregate limit because of "bodily injury" and "property damage" included within the Products and Completed Operations Hazard. Republic Western policy RX99 provides a

$750,000 occurrence limit in excess of $250,000, and a $750,000 annual aggregate limit because of "bodily injury" and "property damage" included within the products hazard. Republic Western policy RU99 provides a $6,000,000 occurrence limit in excess of $1,000,000, and a $12,000,000 annual aggregate limit because of "bodily injury" and "property damage" included within the products hazard. 33. Republic Western policies RG99, RX99, and RU99, were renewed for the

4/1/00-01 policy period as policy numbers RGMM, RXMM, and RUMM. (See Exhibit 1, p. 11, 11. 9-24; Republic Western Ins. Co. Policy RGMM, attached to "SOF" as Exhibit 5; Republic Western Ins. Co. Policy RXMM, attached to "SOF" as Exhibit 6; and Republic Western Ins. Co. Policy RUMM, attached to "SOF" as Exhibit 7.) 34. For the 4/1/00-01 policy year, the liability limits of Republic Western's

RG policy remained the same, the occurrence and aggregate limits of Republic Western's RX policy were each increased to $1,750,000, the occurrence limit of Republic Western's RU policy was decreased to $5,000,000, and the RU policy's aggregate limit remained the same. (See Exhibits 5, 6, 7 attached to "SOF"). 35. Lumbermens Mutual Casualty Company ("LMC") policy number

9SR120037-01 was issued to AMERCO/U-Haul for the policy period 4/1/99-00. LMC policy number 9SR120037-02 was issued to AMERCO/U-Haul for the policy period 4/1/00-01. For each of the aforesaid two policy periods the LMC policy provides a $13,000,000 occurrence limit in excess of $7,000,000, and a products-completed

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operations annual aggregate limit of $13,000,000. (See Exhibit 1 attached to "SOF", p. 12, 1. 21 - p. 13, 1. 2; LMC Policy 9SR 120-037-00, attached to "SOF" as Exhibit 8; and LMC Policy 9SR 120-037-01, attached to "SOF" as Exhibit 9.) 36. provisions: SUPPLEMENTARY PAYMENTS We will pay, with respect to any claim or "suit" we defend: 1. All expenses we incur. The Republic Western RG policies include the following relevant

These payments will reduce the limit of insurance. LIMITS OF INSURANCE

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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. PRODUCTS AGGREGATE ENDORSEMENT (Endorsement 5) 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. 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. 37. provisions: Item 3. Limit of Liability -- as Insuring Agreement VI (A) (B) Coverage I(a) or I(b) or I(c) or all combined with respect to each occurrence $ Limit in the aggregate for each annual period where applicable $ 1,750,000 Per Endorsement #4 The Republic Western RX policies include the following relevant

FOLLOWING FORM (Endorsement 3) - 13 Document 118 - Filed 11/21/2005
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It is hereby agreed that this policy follows form of the scheduled underlying policies and does not extend, add, or otherwise modify coverages provided in the underlying policies. This endorsement modifies Section II, III and IV under insuring agreements. PRODUCTS AGGREGATE (Endorsement 4) 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 hazard shall not exceed $7,750,000 "aggregate" in any one policy year for Products which are sold by AMERCO or its subsidiaries. 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. It is understood and agreed that this policy attaches excess of aggregate limits of $250,000 for the products hazard 38. The Republic Western RU policies include the following relevant

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provisions:
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INSURING AGREEMENTS
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COVERAGE. To indemnify the insured for the ultimate net loss in excess of the applicable underlying (or retained) limit hereinafter stated, which the insured shall become obligated to pay by reason of the liability imposed upon the insured by law or assumed by the insured under contract. (a) PERSONAL INJURY LIABILITY. For damages, including damages for care and loss of services, because of personal injury, including death at any time resulting there from, sustained by any person or persons.

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to which this insurance applies under Coverages (a), (b), and (c) above, caused by an occurrence. . . II. Defense, Settlement, Supplementary Payments. With respect to any occurrence not covered by the underlying policies listed in Schedule A hereof or any other underlying insurance collectible by the insured, but covered by the terms and conditions of this policy except for the amount of retained limit specified in item 3(C) of the declarations, the company shall. (a) Defend any suit against the insured alleging such injury or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company

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may make such investigation, reputation and settlement of any claim or suit as it deems expedient. (b) Pay all premiums on bonds to release attachments for an amount not in excess of the applicable limit of liability of this policy, all premiums on appeal bonds required in any such defended suit, but without any obligation to apply for or furnish any such bonds. Pay all expenses incurred by the company, all costs taxed against the insured on any such defended suit and all interest accruing after entry of judgment until the company has paid or tendered or deposited in court such part of such judgment as does not exceed the limit of the company's liability thereon. Reimburse the insured for all reasonable expenses, other than loss of earnings in excess of $50 per day, incurred at the company's request, and the amounts so incurred, except settlement of claims and suits, are payable by the company in addition to the applicable limit of liability of this policy.

(c)
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(d)

In jurisdictions where the company may be prevented by law or otherwise from carrying out this agreement, the company shall pay any expense incurred with its written consent in accordance with this agreement. The insured shall promptly reimburse the company (excepting Defense Costs) for any amount of ultimate net loss paid on behalf of the insured within the retained limit specified in item 3(C) of the declarations. IV. Other Definitions. When Used In This Policy (Including Endorsements Forming a Part Hereof). (b) "Ultimate Net Loss" means the total of the following sums with respect to each occurrence. all sums which the insured or any carrier as his insurer or both become legally obligated to pay as damages whether by reason of adjudication or settlement because of personal injury property damage or advertising occurrences to which this policy applies and all expenses incurred by the insured in the investigation, negotiation, settlement, and defense of any claim or suit seeking such damages excluding only the salaries of the insured's regular employees provided ultimate net loss shall not include any damage or expense because of liability excluded by this policy (including endorsements forming a part hereof).

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(1)

(2)
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This policy shall not apply to defense, investigation, settlement, or legal expenses covered by underlying insurance. VI. Limits. With respect to coverage (a), (b) or (c) or any combination thereof, the company's liability shall be only for the ultimate net loss in excess of the insured's underlying or retained limit which shall be: (a) Underlying Limit -- the total of the applicable limits of the underlying policies listed in Schedule A thereof, and the applicable limits of any other underlying insurance collectible by the insured; or In the event of the reduction or exhaustion of the aggregate limits of liability of the underlying policies listed in Schedule A by reason of losses paid thereunder, this policy, subject to the above limitations. (1) in the event of reduction shall pay the excess of the reduced underlying limits, or (2) in the event of exhaustion shall continue in force as underlying insurance. The inclusion or addition hereunder of more than one insured shall not operate to increase the company's limit of liability. "Bodily injury" means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time. "Property damage" means: a. b. Physical injury to tangible property, including all resulting loss of use of that property; or Loss of use of tangible property that is not physically injured.

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39.

The LMC policies contain the following relevant provisions: SECTION I - INSURING AGREEMENTS A. COVERAGE 1. We will pay on behalf of the "Insured" that part of "Loss" covered by this insurance in excess of the limits of liability of the "Underlying Insurance" as set forth in the Schedule of Underlying Insurance but only up to an amount not exceeding our Limits of Liability as set forth in Item 4. of the Declarations, provided the "Insured Event" takes place during our "Policy Period." Except when stated to apply otherwise, this policy is subject to all of the terms, conditions, insuring agreements, definitions, and exclusions (hereinafter called "provisions") of the "Designated Underlying Policy"' but in no event shall this policy be subject to the provisions of the "Designated Underlying Policy" with respect to the premium, the "Policy - 16 Document 118 - Filed 11/21/2005
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2.

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Period," the renewal or extension agreement (if any), the amount or limits of liability or any other provision of the "Designated Underlying Policy" that may be inconsistent with this policy. B. LIMITS OF LIABILITY 4. Subject to subparagraph 3. of this paragraph B. LIMITS OF LIABILITY, the Limit of Liability set forth in Item 4. of the Declarations as the Products Completed Operations Aggregate Limit of Liability is the most we will pay for "Loss" under this policy under the products completed operations hazard, as defined in the "Designated Underlying Policy." Subject to subparagraphs 3., 4. and 5. of this paragraph B. LIMITS OF LIABILITY: a. If the limits of liability of the "Underlying Insurance" have been reduced, by payments of "Loss" for "Insured Events" which take place during our "Policy Period," then this policy will drop down to become immediately excess of the reduced underlying limits of liability, provided all "Underlying Insurance" applies to "Loss" and also drops down; or

6.
10 11 12 13 14 15 16 17

SECTION IV - DEFINITIONS A. When used in this policy, including endorsements forming a part hereof: 4. "Loss" means those sums actually paid in the settlement or satisfaction of a claim which the "Insured" is legally obligated to pay as damages because of injury or damage after making proper deductions for all recoveries and salvage. "Loss" includes defense and supplementary expense payments if such payments are included within the limits of liability of any respective "Underlying Insurance," by the terms of that policy. "Loss" may be established by adjudication, arbitration to which the "Insured" must submit or does submit with our consent, or compromise settlement to which we have previously agreed in writing.

18 19 20 21 22 23

SCHEDULE OF UNDERLYING INSURANCE -- EXCESS
24 25 26

Except when stated to apply otherwise, this policy is subject to all of the terms, conditions, insuring agreements, definitions, and exclusions (hereafter called provisions) of the "Designated Underlying Policy," but in no event shall this policy be subject to the provisions of the "Designated Underlying Policy" with respect to the premium, the "Policy Period," the - 17 Document 118 - Filed 11/21/2005
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renewal or extension agreement (if any), the amount or Limits of Liability or any other provision of the "Designated Underlying Policy" that may be inconsistent with this policy. The Schedule of Underlying Insurance is completed as follows: Designated Underlying Policy Insurer: REPUBLIC WESTERN INSURANCE COMPANY Policy Number: RU00 Policy Term: From 04/01/2000 To 04/01/2001 Limits: $**6,000,000 Each Occurrence Nil Aggregate (where applicable) $*13,000,000 Products/Completed Operations Aggregate Products Sold only, excess of primary COMMERCIAL EXCESS FOLLOWING FORM

10

A.
11 12

This policy follows the exact terms and conditions of the Republic Western Insurance Company, Insurance Company policy number RU00, except with respect to: 1. The Limits of Liability of this policy shall be $13,000,000 Each Occurrence, $13,000,000 Aggregate (where applicable), $13,000,000 Products/Completed Operations Aggregate, in excess of limits shown in the Schedule of Underlying Insurance; The Premium of this policy shall be $145,000; and Any coverage modification endorsement attached to this policy.

13 14 15

2.
16

3.
17 18 19 20

B.

All preprinted terms and conditions of form CE 71 00 (Ed. 04 97) are deleted to the extent that they are inconsistent with the terms and conditions of Republic Western Insurance Company, Insurance Company policy numbers RU00. Nothing contained in this endorsement shall obligate us to provide a duty to defend or investigate any claim or suit before the Underlying Insurance Limits shown in the Schedule of Underlying Insurance, are exhausted by payment of judgments, claims or settlements.

C.
21 22 23 24 25 26

All other terms and conditions of this policy remain unchanged. CE 79 12 (Ed. 05 98) COMMERCIAL EXCESS CHANGE ENDORSEMENT CHANGES: - 18 Document 118 - Filed 11/21/2005
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CE 7904 (ED. 05 98) SCHEDULE OF UNDERLYING INSURANCE IS AMENDED TO READ AS FOLLOWS: Designated Underlying Policy: Insurer: Policy No.: Limits: REPUBLIC WESTERN INSURANCE COMPANY RUMM $5,000,000 Each Occurrence $12,000,000 Aggregate Products only in excess of underlying limits/self-insured retention of: $2,000,000 Each Occurrence $1,750,000 Aggregate Products sold only.

CE 7914 (ED. 05 98) COMMERCIAL EXCESS -- LIMITS OF LIABILITY IS AMENDED TO READ AS FOLLOWS: Each Occurrence General Aggregate Products/Completed Operations Aggregate Excess of $13,000,000 $13,000,000 $13,000,000

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Each Occurrence Aggregate Products sold only Excess of primary. II.

$5,000,000 $12,000,000

ALL OF THE NEGOTIATIONS FOR THE ISSUANCE OF LMC'S POLICIES TOOK PLACE BETWEEN LMC AND U-HAUL'S AGENT AON RISK MANAGEMENT SERVICES OF ARIZONA ("AON") 40. AON had been the AMERCO organization's appointed broker for a long

time prior to 1999, and up to January 2003 when Mr. Bell replaced AON with another broker. (See Exhibit 1 attached to "SOF," p. 99, 1. 8 - p. 100, 1. 16.) 41. AON was U-Haul's broker. (See Transcript of Deposition of Ronald

McCarty dated February 15, 2005, Exhibit 11 attached to "SOF," p. 24, 1. 23 - p. 25, 1. 2.) 42. There was an engagement between AON and U -Haul by which AON (See

would provide broker services to U-Haul in exchange for compensation.

Transcript of Deposition of Michael Mizrachi dated January 12, 2005, Exhibit 10 attached to "SOF," p. 12, ll. 18-25.)

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43.

Exhibit 14 (attached to "SOF") is Mizrachi's March 2, 1998 letter to U-

Haul which states: "Further to our telephone conversation this afternoon, we represent AMERCO as its insurance brokers for the procurement of property and casualty insurance." (See Exhibit 10 attached to "SOF," p. 79, 1. 22 - p. 80, 1. 11.) 44. Ms. Sandoval was an account manager the entire time she worked at

AON. (See Transcript of Deposition of Mae Sandoval, as Exhibit 13 attached to "SOF," p. 10, ll. 4-7.) 45. As account manager, Ms. Sandoval assisted the account executive in

preparing the proposals and specifications, and in marketing. (See Exhibit 13 attached to "SOF," p. 10, ll. 8-21.) 46. U-Haul was Ms. Sandoval's account from 1989 until when she left AON.

(See Exhibit 13 attached to "SOF," p. 10, 1. 22 - p. 11, l. 4.) 47. The person at AON who was responsible for maintaining the business

relationship between AON and U-Haul was Mike Mizrachi. (See Exhibit 13 attached to "SOF," p. 12, ll. 9-14.) 48. Mizrachi is an account executive. Ms. Sandoval worked with him at AON

for eight or nine years. (See Exhibit 13 attached to "SOF," p. 11, ll. 13-17.) 49. All coverages, other than Republic Western's policies, were placed

through AON. (See Exhibit 11 attached to "SOF," p. 25, l. 21 - p. 26, l. 7.) 50. The process, and the standard procedure, is that AON applies to the

market with applications for U-Haul. (See Exhibit 11 attached to "SOF," p. 29, l. 21 - p. 30, l. 4.) 51. AON supplied the application to insurers to review for acceptability and

pricing. (See Exhibit 11 attached to "SOF," p. 31, ll. 7-12.) 52. AON's practice before each renewal was to prepare renewal specifications

to be sent to numerous underwriters at insurance companies. Included in the renewal

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specifications would be an Acord application, which is a standard application in the industry, any binder book, and all the attachments that the underwriter would need in order to give AON a quotation. (See Exhibit 13 attached to "SOF," p. 18, ll. 9-18.) 53. Exhibit 15 (attached to "SOF") is an Acord application. It looks like

every one that Ms. Sandoval has ever done. (See Exhibit 13 attached to "SOF," p. 29, ll. 6-12.) 54. Ms. Sandoval believes she was the person who completed Exhibit 15

(attached to "SOF"). (See Exhibit 13 attached to "SOF," p. 31, ll. 24-25.) 55. As account manager, Ms. Sandoval is the person who would have

completed Exhibit 15 (attached to "SOF"). (See Exhibit 13 attached to "SOF," p. 30, ll. 2-5.) 56. Exhibit 18 (attached to "SOF") dated 3/30/99 is a memo from Ms.

Sandoval to Steve Tibbs of Kemper in regard to the renewal period beginning 4/1/99. The first paragraph of the memo states: "Effective 4/1/99, please renew the above policy in accordance with your quote dated 3/4/99. The terms and conditions as expiring. . ." (Emphasis supplied.) (See Exhibit 13 attached to "SOF," p. 53, l. 24 - p. 54, l. 13.) 57. Exhibit 19 (attached to "SOF") is the umbrella section of the Acord

application dated 1/19/19. (See Exhibit 13 attached to "SOF," p. 40, l. 24 - p. 41, l. 4.) 58. Ms. Sandoval assumes she completed Exhibit 19 (attached to "SOF")

because it would have been her function to do that. (See Exhibit 13 attached to "SOF", p. 41, l. 23 - p. 42, l. 1.) 59. The applications, such as Exhibit 19 (attached to "SOF"), were sent to the

various carriers to obtain a quote "for an excess liability policy." (See Exhibit 13 attached to "SOF," p. 48, ll. 2-7.)

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60.

Exhibit 20 (attached to "SOF") is the 2/26/99 letter from Mr. Mizrachi to

Kemper which said: "Please find enclosed our underwriting specifications for your review." These underwriting specifications consisted of ". . . the applications and all the various documents we used to obtain a renewal quote." (See Exhibit 13 attached to "SOF," p. 50, l. 25 - p. 51, l. 9.) 61. Exhibit 21 (attached to "SOF") is the Liability Specifications for

AMERCO/U-Haul for 1999/2000. (See Exhibit 13 attached to "SOF," p. 68, ll. 13-17.) 62. Ms. Sandoval's office sent Exhibit 21 (attached to "SOF") to all the

carriers from whom they wanted a quote for excess liability coverage. (See Exhibit 13 attached to "SOF," p. 69, ll. 2-16.) 63. Ms. Sandoval believes Kemper/LMC received a copy of Exhibit 21

(attached to "SOF") "because they gave us a quote, and they would not have done it without these specifications." (See Exhibit 13 attached to "SOF," p. 70, ll. 9-13.) 64. Exhibit 22 (attached to "SOF") is the umbrella application section on

Bates page #2872, dated 1/14/00. (See Exhibit 13 attached to "SOF," p. 83, 1. 25 - p. 84, l. 14.) 65. Exhibit 23 (attached to "SOF") is the liability specifications for 2000,

which contains a copy of Republic Western policy RU98. (See Exhibit 13 attached to "SOF," p. 93, ll. 2-5.) 66. Exhibit 23 (attached to "SOF") was sent to all carriers from whom AON

wanted a quote. (See Exhibit 13 attached to "SOF," p. 93, ll. 19-20.) 67. Republic Western was one of Mr. Mizrachi's accounts "insofar as it was

part of the overall U-Haul account. (See Exhibit 10 attached to "SOF," p. 11, ll. 14-17.) 68. In seeking procurement of coverage above Republic Western's policies,

AON would forward "exposure information." (See Exhibit 10 attached to "SOF," p. 32, ll. 2-5.)

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69.

Exhibit 21 (attached to "SOF") is the liability specifications for

1999/2000. (See Exhibit 10 attached to "SOF," p. 57, ll. 19-24.) 70. LMC issues their policies to AON because AON placed the business with

LMC. (See Exhibit 10 attached to "SOF," p. 85, ll. 18-19.) 71. In seeking procurement of higher level coverages and/or reinsurance, Mr.

Mizrachi would forward exposure information to those insurance companies. (See Exhibit 10 attached to "SOF," p. 32, ll. 2-5.) 72. It was AON's customary practice to send renewal specifications to

prospective insurance companies because it contains the types of information that prospective companies are looking for in regard to whether to make a decision to offer coverage. (See Exhibit 10 attached to "SOF," p. 58, l. 15 - p. 59, l. 2.) 73. Steve Tibbs worked for Kemper from August 1997 to February or March

2003. (See Transcript of Deposition of Stephen Tibbs, dated January 22, 2005, attached to "SOF" as Exhibit 27, p. 11, ll. 24-25.) 74. Mr. Tibbs' job at Kemper was head of excess casualty for the West Coast.

(See Exhibit 27 attached to "SOF," p. 12, ll. 9-11.) 75. LMC would rely on the information given to it by the broker. LMC

would prefer to have copies of the underlying policies. But often some of those policies would be issued subsequent to LMC binding on the contract. So often, there are many times that those policies would not come to LMC. (See Exhibit 27 attached to "SOF," p. 24, l. 19 - p. 25, l. 13.) 76. The quote from LMC would go to the broker who would then present the

quote to the insured. (See Exhibit 27 attached to "SOF," p. 28, ll. 5-9.) 77. LMC would rely on what the broker told it, or what was given to it by the

broker. (See Exhibit 27 attached to "SOF," p. 32, ll. 21-22.)

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1 2 3 4 5 6 7 8 9 10

78.

LMC's receipt of specifications in the letter that covers the specifications,

is prior to the issuance by Lumbermens of any quote or binder. (See Exhibit 27 attached to "SOF," ll. 21-24.) 79. Exhibit 26 (attached to "SOF") is AON's liability specifications for the

1999/2000 policy year. It is certainly something that was submitted to LMC. (See Exhibit 27 attached to "SOF," p. 90, ll. 4-12.) III. PROMISES MADE BY AON TO LMC INDUCED LMC TO EXPECT THAT LMC WOULD OWE NO COVERAGE BEFORE $7,000,000 HAD BEEN PAID FOR INDEMNITY ONLY (I.E., THAT LMC WOULD OWE NO PART OF THE FIRST $7,000,000 OF ANY SETTLEMENT OR JUDGMENT), AND LMC WOULD NOT HAVE ISSUED ITS POLICIES TO U-HAUL BUT FOR SUCH PROMISES. 80. The checking off of defense costs in the 1/16/99 application (Exhibit 26

11

attached to "SOF") means to Tibbs "that defense is outside the limits." (See Exhibit 27
12

attached to "SOF," p. 80, l. 20 - p. 81, l. 1.)
13

81.
14 15

LMC would rely on the information given to it by the broker. LMC

would prefer to have copies of the underlying policies. But often some of those policies would be issued subsequent to LMC binding on the contract. So often, there are many
16

times that those policies would not come to LMC. (See Exhibit 27 attached to "SOF,"
17

p. 24, l. 19 - p. 25, l. 13.)
18

82.
19 20

LMC would rely on what the broker told it, or what was given to it by the

broker. (See Exhibit 27 attached to "SOF," p. 32, ll. 21-22.) 83.
21 22

LMC's receipt of specifications in the letter that covers the specifications,

is prior to the issuance by Lumbermens of any quote or binder. (See Exhibit 27 attached to "SOF," p. 78, ll. 21-24.)
23

84.
24 25 26

LMC's underwriting summary would have been based on these

specifications. (See Exhibit 27 attached to "SOF," p. 77, l. 23 - p. 79, l. 7.)

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85.

Exhibit 26 (attached to "SOF") is AON's liability specifications for the

1999/2000 policy year. It is certainly something that was submitted to LMC. (See Exhibit 27 attached to "SOF," p. 90, ll. 4-12.) 86. The reason LMC priced the policy and the reason LMC issued its policy

was that, based on discussions with LMC's underwriter and Mr. Mizrachi, LMC was to be defense outside the limits underneath it. (See Exhibit 27 attached to "SOF," p. 91, ll. 5-12.) 87. The whole reason LMC attached to the contract "was because expenses

were to be outside the limit." (See Exhibit 27 attached to "SOF," p. 102, l. 21 - p. 103, l. 6.) 88. Based on his conversations with AON, and applications received from

AON, it was Mr. Tibbs' understanding that the policy underneath the LMC policy was defense outside the limits. (See Exhibit 27 attached to "SOF," p. 103, ll. 15-18.) 89. Mr. Tibbs has no recollection of ever having any discussions with anyone

at any time concerning the definition of ultimate net loss in the RUMM policy "because we were told consistently through AON that expenses were outside the limit." (See Exhibit 27 attached to "SOF," p. 111, l. 19 - p. 112, l. 3.) 90. LMC was told at all relevant times that the policies it was attaching over

had defense outside, so that therefore LMC would be recognizing policies that were not eroded by defense. (See Exhibit 27 attached to "SOF," p. 112, ll. 16-22.) 91. The reason LMC's binder that was included in LMC's March 28, 2000

letter to AON deleted any reference to not applying until $7,000,000 in underlying indemnity has been paid was that AON "stated since defense was outside, anyway, there is no need to put that on." (See Exhibit 27 attached to "SOF," p. 113, ll. 4-21, p. 114, ll. 3-10.)

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92.

LMC relied on the broker's word because the initial applications were

regularly not signed. (See Exhibit 27 attached to "SOF," p. 125, ll. 18-25.) 93. Mr. Tibbs recalls that LMC was told by AON that the defense in the

underlying Republic Western policies was outside the limit. (See Exhibit 27 attached to "SOF," p. 143, l. 20 - p. 144, l.2.) 94. Each year that LMC issued its policy to U-Haul, it was explained to LMC

by AON that the Lumbermens policy is triggered only after the RU policy pays its limits in indemnity. (See Exhibit 27 attached to "SOF," p. 147, ll. 10-16.) 95. See Exhibit 26 attached to "SOF." It is the 1999 liability specifications.

Bates #15514 within Exhibit 26 is Accord umbrella application section dated January 16, 1999. The check off of the word "unlimited" on line 3 regarding "defense costs" is consistent with what AON told LMC about the underlying policies being defense outside limits. (See Exhibit 27 attached to "SOF," p. 157, ll. 4-19.) 96. If an LMC underwriter found that the underlying policy was defense

inside limit, LMC would put a stop to the whole process because it really only wrote defense inside the limit at some very high attachment point such as $100 million or greater. (See Exhibit 27 attached to "SOF," p. 160, l. 10 - p. 161, l. 4.) 97. If anyone from U-Haul, or acting on behalf of U-Haul, had told Mr. Tibbs

that U-Haul would ever contend that the Republic Western policy was defense within limits, then Mr. Tibbs never would have issued the quote because LMC did not wr ite excess policies where the underlying had defense inside the limit. (See Exhibit 27 attached to "SOF," p. 161, ll. 5-17.) 98. LMC's underwriters relied on what the broker [AON] told them. (See

Exhibit 27 attached to "SOF," p. 175, l. 25 - p. 176, l. 9.) IV. U-HAUL, PRIOR TO THE NELSON AND FERNANDEZ ACCIDENTS, NEVER NOTIFIED AON AS TO WHETHER U-HAUL EXPECTED REPUBLIC WESTERN'S RU POLICIES TO BE DEFENSE INSIDE LIMITS, OR AS TO WHETHER U-HAUL EXPECTED LMC TO HAVE - 26 Document 118 - Filed 11/21/2005
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1 2 3 4

ANY OBLIGATION TO PAY BEFORE $7,000,000 HAD BEEN PAID FOR INDEMNITY ONLY. 99. During the years that Ms. Sandoval was handling the U-Haul account, no

one from U-Haul ever told her whether they wanted any of Republic Western's policies to be defense inside limits. (See Exhibit 13 attached to "SOF," p. 109, ll. 1-5.)
5

100. Ms. Sandoval had no discussions with anyone at Republic Western about
6

whether defense costs would be inside or outside policy limits. (See Exhibit 13 attached
7

to "SOF," p. 112, l. 15 - p. 113, 1. 5.)
8

101. Mr. Mizrachi does not recall anyone from AM ERCO, U-Haul, or
9

Republic Western telling him that Republic Western's aggregate limits were to be
10

reduced by the amount of payment of defense costs. (See Exhibit 10 attached to "SOF,"
11

p. 102, ll. 13-18.)
12

102. No one from U-Haul ever told Ms. Sandoval whether they wanted LMC
13

to drop down and attach at a lower level if Republic Western pays defense costs. (See
14

13 attached to "SOF," p. 109, ll. 1-5.)
15

103. Mr. Mizrachi does not recall anyone Republic Western or U-Haul ever
16

telling him that they wanted Republic Western's payment of defense costs to require
17

LMC to pay before $7,000,000 indemnity had been paid. (See Exhibit 10 attached to
18

"SOF," p. 101, ll. 13-20.)
19

104. Mr. Mizrachi does not recall anyone from AMERCO, U-Haul, or
20

Republic Western ever telling him that Republic Western's aggregate limits were to be
21

reduced by the amount of payment of defense costs. (See Exhibit 10 attached to "SOF,"
22

p. 102, ll. 13-18.)
23

105. Mr. Mizrachi does not recall anyone from AMERCO, Republic Western,
24 25 26

or U-Haul ever telling him that they wanted the coverage layer above $7,000,000 to

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drop down by the amount of defense costs paid by Republic Western. (See Exhibit 10 attached to "SOF," p. 98, ll. 8-14.) V. U-HAUL'S AGENT AON EXPECTED THAT THE LIABILITY LIMITS OF REPUBLIC WESTERN'S RU POLICIES WOULD NOT BE REDUCED BY THE PAYMENT OF DEFENSE COSTS (LAE), AND THAT LMC WOULD HAVE NO OBLIGATION TO PAY BEFORE $7,000,000 HAD BEEN PAID FOR INDEMNITY ONLY. 106. Mr. Mizrachi has no recollection of seeing anything inside the RU policy for either 1999 or 2000, that he thought was a defense within limits provision. (See Exhibit 10 attached to "SOF," p. 97, ll. 7-12.) 107. It is Mr. Mizrachi's recollection that when he placed the LMC policies for April 1, 1999 to April 1, 2000, his "recollection was that the RU policy had defense in addition to the limit, but that beneath the RU policy, defense was inside the limit. (See Exhibit 10 attached to "SOF," p. 98, ll. 12-20.) 108. It was Mr. Mizrachi's "understanding of how the program was intended to work, which is that the RX and below was effectively retained in-house, and the intention was therefore to include defense costs within the retained amount to effectively minimize the retained limit. With that, the first reinsured layer or risk transfer layer would be the RU, the intention was for defense costs to be in addition to the limit, because the risk was transferred." (See Exhibit 10 attached to "SOF," p. 93, l. 24 - p. 94, l. 12.) (Emphasis supplied.) 109. Exhibit 19 (attached to "SOF") is the umbrella section of the Acord application dated 1/19/19. (See Exhibit 13 attached to "SOF," p. 40, l. 24 - p. 41, l. 4.) 110. Ms. Sandoval assumes she completed Exhibit 19 (attached to "SOF") because it would have been her function to do that. (See Exhibit 13 attached to "SOF," p. 41, l. 23 - p. 42, l. 1.)

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111. The placement of the "X" on Exhibit 19 (attached to "SOF") next to the word "unlimited" on the line regarding defense costs means the defense costs were outside the policy limits. (See Exhibit 13 attached to "SOF," p. 45, l. 2 - p. 46, l. 14.) 112. The checking off of defense costs as being "unlimited" in the applications sent to carriers "was because we would want the defense outside the limit." Exhibit 13 attached to "SOF," p. 48, l. 16 - p. 49, l. 2. ) 113. Exhibit 20 (attached to "SOF") is the 2/26/99 letter from Mr. Mizrachi to Kemper which said: "Please find enclosed our underwriting specifications for your review." These underwriting specifications consisted of ". . . the applications and all the various documents we used to obtain a renewal quote." (See Exhibit 13 attached to "SOF," p. 50, l. 25 - p. 51, l. 9.) 114. Exhibit 21 (attached to "SOF") is the Liability Specifications for AMERCO/U-Haul for 1999/2000. (See Exhibit 13 attached to "SOF," p. 68, ll. 13-17.) 115. Ms. Sandoval's office sent Exhibit 21 (attached to "SOF") to all the carriers from whom they wanted a quote for excess liability coverage. (See Exhibit 13 attached to "SOF," p. 69, ll. 2-16.) 116. Where Exhibit 19 (attached to "SOF") has defense costs checked off as being unlimited, that is saying that "the underlying coverage has defense costs that are uncapped." (See Exhibit 10 attached to "SOF," p. 48, l. 23 - p. 49, l. 20.) 117. Exhibit 21 (attached to "SOF") is the liability specifications for 1999/2000. (See Exhibit 10 attached to "SOF," p. 57, ll. 19-24.) 118. The purpose of Exhibit 21 (attached to "SOF") was to outline the exposure and the terms by which coverage is requested for renewal. (See Exhibit 10 attached to "SOF," p. 57, l. 19 - p. 58, l. 6.) (See

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119. Mizrachi wrote on Exhibit 24 (attached to "SOF") that RU is "defense O/S" by which he meant "defense outside limits." (See Exhibit 10 attached to "SOF," p. 113, ll. 5-13.) 120. Mizrachi says Exhibit 24 (attached to "SOF") indicates that RU does not drop down because defense costs are included in the lower Republic Western policies. (See Exhibit 10 attached to "SOF," p. 114, ll. 7-25.) 121. The check off on Exhibit 19 (attached to "SOF") (Accord application for 1999/2000) as to underlying defense costs being "unlimited," means there is underlying coverage that has defense costs that are not capped. (See Exhibit 10 attached to "SOF," p. 49, ll. 13-20.) 122. When Mr. Mizrachi placed the LMC policies for April 1, 1999 and April 1, 2000, his recollection "was that the RU policy had defense in addition to the limit, but that beneath the RU policy, defense was inside the limit." (See Exhibit 10 attached to "SOF," p. 93, ll. 12-23.) 123. It is Mr. Mizrachi's understanding that the LMC policies for the 1999/2000 and 2000/2001 policy years would not attach until $7,000,000 underlying coverage had been paid. Mr. Mizrachi's understanding of this was based upon his understanding of the underlying structure. (See Exhibit 10 attached to "SOF," p. 97, ll. 13-25.) 124. Mr. Mizrachi has no recollection of seeing anything inside the RU policy, for either year, that he thought was a defense within limits provision. (See Exhibit 10 attached to "SOF," p. 97, ll. 7-12.) 125. Mr. Mizrachi does not recall anyone from AMERCO, Republic Western, or U-Haul ever telling him that they wanted the cove rage layer above $7,000,000 to drop down by the amount of defense costs paid by Republic Western. (See Exhibit 10 attached to "SOF," p. 98, ll. 8-14.)

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126. The only way the LMC policy would drop down would be in the event of exhaustion of underlying aggregates. (See Exhibit 10 attached to "SOF," p. 131, l. 9 - p. 132, l. 17.) DATED this 21st day of November, 2005. WALTON LANTAFF SCHROEDER & CARSON LLP Wayne T. Gill, Esq. Southtrust Center 1700 Palm Beach Lakes Blvd., #700 West Palm Beach, FL 33401 KUNZ PLITT HYLAND DEMLONG KLEIFIELD Steven Plitt, Esq. Daniel Maldonado, Esq. 3838 N. Central Ave., Suite 1500 Phoenix, AZ 85012-1902 By: s/Daniel Maldonado ___________________________ Daniel Maldonado, Esq.

Attorneys for Defendant/Counter-Plaintiff
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Filed electronically this 21st day of November, 2005, and copies electronically served/mailed to: Gerald Gaffaney, Esq. David J. Ouimette, Esq. Attorneys for Plaintiff Mariscal, Weeks, McIntyre & Friedlander, P.A. 2901 North Central, Suite 200 Phoenix, AZ 85012 Tel: 602/285-5000 Fax: 602/285-5100 Bruce Friedman, Esq. Mark S. Fragner, Esq. Attorneys for Plaintiff Rubin, Fiorella & Friedman, LLP 292 Madison Avenue New York, NY 10017 Tel: 212/953-2381 Fax: 212/953-2462 _s/Joye Gilsinger____________

Case 2:04-cv-00662-DGC

- 31 Document 118 - Filed 11/21/2005

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