Free Response to Motion - 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 TO PLAINTIFFS'/ COUNTER-DEFENDANTS' MOTION FOR SUMMARY JUDGMENT (Oral Argument Requested)

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Defendant/Counter-Plaintiff Lumbermens Mutual Casualty Company ("LMC"), by and through its undersigned counsel and pursuant to Fed.R.Civ.P. 56, hereby files its Response to Plaintiffs'/Counter-Defendants' Motion for Summary Judgment.1 ... ...
This response is supported by the attached memorandum of points and authorities, exhibits and excerpts of insurance policies listed in defendant's Statement of Undisputed Material Facts in support of its Motion for Summary Judgment ("SOF"), defendant's attached Statement of

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MEMORANDUM OF POINTS AND AUTHORITIES I. PREFACE Plaintiffs' motion is based on the false premise that the definition of "ultimate net loss" contained in Republic Western's third layer policies, the "RU policies," should be interpreted as including defense costs paid directly by Republic Western even though the definition refers only to "expenses incurred by the insured." Plaintiffs' premise is false because it is contrary to the express wording and provisions of the RU policies' "ultimate net loss" definitions, is contrary to an Arizona federal case which rejected such interpretation of a similar ultimate net loss definition in order to avoid conflict with other policy provisions, is contrary to LMC's reasonable expectations, and because based on the facts of this case and applicable law, LMC's coverage does not drop down to apply on account of Republic Western's payment of defense costs. As a result, LMC is entitled to be reimbursed by plaintiffs for LMC's overpayment of what it owed to the Nelson and Fernandez settlements. therefore be denied. II. PRELIMINARY STATEMENT Plaintiffs' summary judgment motion should

It is LMC's position that, based on the facts of this case including, but not limited to, the wording of the LMC policy and Republic Western's policies, and promises made to LMC by U-Haul's agent: (1) the entire first $7,000,000 of the Nelson settlement was owed by Republic Western and/or U-Haul; and (2) none of the Fernandez settlement was owed by LMC (due to prior exhaustion of LMC's product-completed operations aggregate), or, alternatively, that the first $7,000,000 of the Fernandez settlement was owed by Republic Western and/or U-Haul. ...

Facts in response to plaintiffs' Motion for Summary Judgment ("DSOF"), and the court's entire file.

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III. LEGAL ARGUMENT A. The RU Policies' Definition Of "Ultimate Net Loss" Specifies That The Only Type Of Defense Costs Included Within The Definition Are "All Expenses Incurred By The Insured." Therefore The Definition Must Be Construed As Not Including Defenses Costs Paid By Republic Western. The defense costs for which plaintiffs seek reimbursement from LMC were paid

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entirely by Republic Western. (See SOF Exhibits 34, 35, 36) U-Haul is therefore not
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the real party in interest as to any of the claims asserted against LMC, and U-Haul's
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requested summary judgment should be denied for this reason alone.
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Plaintiffs'

summary judgment motion is premised on plaintiffs' argument that the court should construe the RU99 and RUMM policies' (the "RU policies") definition of "ultimate net
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loss" to include attorney's fees and other defense costs paid by Republic Western in
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regard to the Nelson and Fernandez claims even though the only type of defense costs
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included in the definition of "ultimate net loss" is "all expenses incurred by the insured."
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(See SOF Exhibits 4, 7; See SOF ¶ 38.) The four cases cited by plaintiffs are not
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applicable because none of them interpreted the phrase "all expenses incurred by the
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insured" (or any equivalent phrase) and therefore none of them made any such holding.
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Coleman Co. v. California Union Ins. Co., 960 F.2d 1529 (10th Cir. 1992),
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applied Kansas law to an underlying policy's definition of "ultimate net loss" which,
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unlike the definition contained in Republic Western's RU policies, included "All sums
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which the insured or any carrier as his insured or both (emphasis supplied) become
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legally obligated to pay. . ." instead of including only those "expenses incurred by the
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insured." Therefore, Coleman did not involve any issue as to whether the underlying
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policy's definition of "ultimate net loss" included defense costs paid directly by that
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insurer. The court observed that the underlying policy ". . . clearly provided that
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defense costs are to be included in the policy limits" and held that the excess policy's following form endorsement thereby made the policy a defense inside limits policy.

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Coleman is therefore further distinguished on the ground that Republic Western's RU policies do not contain a following form endorsement. In the absence of a following form endorsement, it is immaterial that the Republic Western policies beneath the RU policies (i.e., Republic Western's RG and RX policies) contain provisions that make them defense within limits type policies. (See SOF Exhibits 2, 3, 4, 5, 6, 7; See SOF ¶ 36, 37, 38.) Helfand v. National Union Fire Ins. Co. of Pittsburg, P.A., (Cal. Rptr. 2d 295, App. 1992), involved a definition of "loss" that expressly included defense costs. But, unlike the RU policies' definition of "underlying net loss," it did not refer only to "expenses incurred by the insured." Instead, the definition referred without limitation to "expenses incurred in the defense of . . ." Therefore, Helfand, unlike the present case, did not involve a dispute as to whether the policy's definition of "loss" included defense costs paid directly by the insurer. Helfand is further distinguished because the policy in question stated that ". . . costs, charges, expenses and settlements shall be payable up to the Limit of Liability." (i.e., that defense costs paid by the insurer under the wording of that provision reduced the policy limit.) Helfand is therefore distinguished and not applicable. Board of Commissioners of the Port of New Orleans v. MV Rachelle Guidry, 425 F.Supp. 661 (E.D. La. 1977), did not involve, and the court expressed no opinion as to whether defense costs paid directly by an insurer would hypothetically be considered as having been "incurred by the insured." Instead, the court merely enforced: (1) a policy provision which specifically required the insurance company to reimburse the insured for any defense costs the insured incurs with the insurance company's approval; and (2) a policy provision which specifically provided that any such reimbursement would reduce the policy limit. Board of Commissioners is therefore distinguished and not applicable.

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In Planet Ins. Co. v. Mead Reinsurance Corp., 789 F.2d 668 (9th Cir. 1986), the defense costs described in Mead's definition of "ultimate net loss" were not limited, as in Republic Western's RU policies, to "expenses incurred by the insured." Therefore, the court in Planet did not address, and made no ruling as to whether defense costs paid directly by the insurer would hypothetically come within the term "all expenses incurred by the insured" if Mead's definition of "ultimate net loss" had used that term. As to indemnity, RU's ultimate loss definition expressly includes all sums which either the insured, or the insured's carrier become legally obligated to pay. But, as to expenses of defense, RU's ultimate loss definition expressly includes only ". . . Expenses incurred by the insured." Therefore, the definition must be construed as not including defense costs paid by Republic Western. Paragraph (1) of the RU policies' definition of ultimate net loss refers to money paid for indemnity. It expressly states: "all sums which the insured or any carrier as his insurer or both become legally obligated to pay as damages . . . " Republic Western could have, but did not, include similar language in paragraph (2) of the RU policies' definition of ultimate net loss so as to expressly include all costs of defense expenses regardless of whether they are incurred by the insured or paid by Republic Western. Republic Western should be bound by the policy language it drafted which specifically restricts defense costs within the definition of ultimate net loss to "all expenses incurred by the insured." As the Ninth Circuit held in Planet, "If an insurer desires to limit its liability under a policy, it should employ language which clearly and distinctly communicates to the insured the nature of the limitation." Citing Sparks v. Republic National Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127, 1132, cert. den. 459 U.S. 1070, 103 S.Ct. 490, 74 L.Ed. 2d 632 (1982). ... ...

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B.

In Order To Not Create Conflict Between The RU Policies' Definition Of "Ultimate Net Loss" And The Policies' Defense, Settlement, And Supplementary Payments Provision, Arizona Law Requires That The Policies' Definition Of "Ultimate Net Loss" Be Construed To Not Include Defense Costs Directly Paid By Republic Western. The controlling case is Planet, supra, which applied Arizona law. Mead's

insuring agreement stated: "The company will indemnify the insured for ultimate net loss in excess of the retained limit. . ." The first clause (1) of Mead's definition of underlying net loss defined ultimate net loss to include: "The sum actually paid or payable in cash in the settlement or satisfaction of losses for which the insured is liable either by adjudication or compromise. . ." Clause (2) of Mead's definition of underlying net loss stated: "And includes attorney's fees, court costs and interest on any judgment or award. . ." Clause (3) of Mead's definition of ultimate net loss stated: "But excludes all loss adjustment expenses and all salaries of employees and office expenses of the insured, the 'company' or any underlying insurer so incurred." In Planet the court, in deciding whether to interpret the policy's definition of ultimate net loss as excluding defense costs, adopted what it called the "hierarchical" approach. The court held, as a matter of law, that the listing of certain types of defense costs in the second and third clauses of the definition cannot be construed to make the policy a defense inside limits policy because to do so "could deplete or eradicate the coverage (i.e., coverage for indemnity) contemplated by the first clause." Another reason given by the court in Planet for refusing to construe the policy's definition of ultimate net loss as providing for defense inside limits is that otherwise the insurer's ability to make the payments required of it under the policy's separate section entitled "Defense, Settlement and Supplementary Payments" would be impaired because the availability of defense funds would then be capped by the policy limit. The court explained that "Nothing in [the Defense, Settlement and Supplementary Payments] section purports to confine the amount of legal expenses to the limit placed on ultimate

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net loss." The Ninth Circuit's decision in Planet complies with Arizona law holding that an insurance policy "must be read as a whole in order to give a reasonable and harmonious effect to all its provisions." Sparks, supra. Pursuant to Planet, the RU policies' definition of ultimate net loss must be construed to not include defense costs paid by Republic Western because otherwise the policy's ultimate net loss definition would conflict with the RU policies' Defense, Settlement and Supplementary Payments provision. C. Application Of LMC's Following Form Endorsement To The Last Sentence Of The RU Policies' Ultimate Net Loss Definition Prohibits Republic Western From Escaping Its Non-Delegable Duty To Continue Paying Defense Costs Under The R Policies Regardless Of Whether The Court U Interprets Republic Western's Ultimate Net Loss Definition To Include Defense Costs Paid Directly By Republic Western. Therefore, The RU Policies Are Defense In Addition To Limits Policies. The last part of the RU policies' ultimate net loss definition states: "This policy shall not apply to defense, investigation, settlement or legal expenses covered by underlying insurance." (See SOF Exhibits 4, 7; See SOF ¶ 38.) The Minnesota

Supreme Court has construed this type of provision as prohibiting a primary carrier, whose duty to defend has not been extinguished, from compelling an excess carrier to reimburse defense costs even when the excess carrier's definition of ultimate net loss (unlike the RU policies' definition) specifically includes the type of defense costs for which reimbursement is sought. The Home Ins. Co. v. National Union Fire Ins. Co. of Pittsburg, 658 N.W. 2d 522 (Minn. 2003). The ruling in Home makes sense because otherwise a carrier with the continuing duty to defend (here Republic Western under its RU policies) would have no motive to incur only reasonable defense costs since it would plan to look to the next higher layer of coverage (here LMC) to reimburse it in full for such costs regardless of whether the costs were unnecessary and/or exceeded a reasonable amount. This would make

Republic Western's defense of U-Haul under Republic Western's RU policies nothing

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more than a sham or pretense because Republic Western's payment of defense costs would then be only a temporary payment instead of a permanent payment. For each of the reasons previously discussed, the RU policies' limit is not reduced by Republic Western's payment of defense costs. Therefore, this court should adopt Home and hold that Republic Western cannot indirectly escape from or shirk its non-delegable duty to defend by compelling LMC to reimburse Republic Western's defense costs. D. Application Of Arizona's Reasonable Expectation Doctrine To The Facts Of This Case Requires That The Court Deem Republic Western's RU Polici es To Be Defense In Addition To Limits Policies. The reasonable expectations doctrine applies to all the terms of the boilerplate part of an insurance policy, regardless of whether the term is ambiguous or nonambiguous. Gordinier v. Aetna Cas. & Sur. Co., 154 Ariz. 266, 742 P.2d 277 (1987). As to the boilerplate part of an insurance policy, the Arizona Supreme Court has adopted Section 211 of the Restatement Second of Contracts entitled "Standardized Agreements." Subparagraph (3) states that: "Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement." Darner Motor Sales v. Universal Underwriters, 140 Ariz. 383, 682 P.2d 388 (1984). The reasonable expectations doctrine takes into consideration only those reasonable expectations that were induced by the making of a promise. Darner, pgs. 389-394. Examples of cases specifically citing Darner's requirement of inducement by the making of a promise include: Van Sickle v. Farmer's Ins. Co., 153 Ariz. 533, 738 P.2d 1140 (Ariz. App. 1987); Mason v. State Farm Mut. Auto. Ins. Co., 148 Ariz. 271, 714 P.2d 441 (Ariz. App. 1986) ("The expectations to be realized must be those that have been induced by the making of a promise.") (Court's emphasis.) There is no evidence that LMC made a promise to U-Haul that induced U-Haul to purchase and accept LMC's policy as issued.

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A court is to use an objective test in determining whether a party's expectations are reasonable. State Farm Mutual Auto. Ins. Co. v. Bogart, 149 Ariz. 145, 717 P.2d 449 (1986); Gordinier. A party's reasonable expectation may, depending on the

circumstances, be based on the silence of the other party's agent. U.S. Fire Ins. Co. v. Gentile, 147 Ariz. 589, 712 P.2d 436 (Ariz. App. 1985). The reasonable expectations doctrine also protects the reasonable expectations of the insurer. Gilbreath v. St. Paul Life and Marine Ins. Co., 141 Ariz. 92, 685 P.2d 729 (1984). In Gilbreath, the court considered the "dominant purpose" of the insurance policy from both the insured's and the insurer's perspective. The reasonable expectations doctrine is not applicable as between two insurers who are not in privity with each other. State Farm Mut. Auto. Ins. Co. v. Fireman Fund Ins. Co., 149 Ariz. 230, 717 P. 2d 909 (Ariz. App. 1985); Bogart. Any expectations of Republic Western regarding whether there could ever be an uninsured gap in coverage between any of Republic Western's policies and/or between Republic Western's RU policies and LMC's policies due to defense costs having eroded the limits of Republic Western's RG and RX policies are not relevant because there was no privity of contract between Republic Western and LMC. (See SOF Exhibits 2, 3, 4, 5, 6, 7, 8, 9.) Plaintiffs' summary judgment motion presents no evidence of Republic

Western's expectations as to the scope of Republic Western's and LMC's 1999 and 2000 policies, prior to the issuance of those policies. Plaintiffs cite to Bell's deposition and Amoroso's deposition. But, neither Bell nor Amoroso started with Republic Western prior to the issuance of the 1999 and 2000 Republic Western and LMC policies. (See Exhibit 1 attached hereto, Deposition Testimony of Douglas Bell, p. 16, l. 24 - p. 17, l. 2; See Exhibit 2 attached hereto, Deposition Testimony of Richard Amoroso, p. 41, ll. 5-17.) They, therefore, have no personal knowledge of any expectations of Republic Western prior to the issuance of those policies. Thus, their cited testimony is

inadmissible speculation. (See SOF Exhibit 27.) The citation at page 7 of plaintiffs'

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motion to the testimony of Republic Western's former employee Ronald McCarty is not relevant to the policies that are the subject of this litigation because he was referring to an application for a prior policy year (1998-1999) and was not even discussing whether prior to the issuance of the 1999 and 2000 RU policies he had any expectation as to whether defense costs would be contained within the RU policies' occurrence limit. (See Defendant's SOF Exhibit 28.) The undisputed evidence is that AON acted as U-Haul's agent for the procuring of LMC's policies (See SOF Exhibits 1, 10, 11, 14) and that all of the negotiations leading up to the issuance of LMC's policies were conducted exclusively between AON (in its capacity as U-Haul's authorized agent) and LMC. (See SOF Exhibits 10, 13, 27.) Therefore, for the purpose of applying the reasonable expectations doctrine to LMC's policies, the only expectations regarding LMC's policies that are relevant to plaintiffs' summary judgment motion are the expectations that AON (in its capacity as U-Haul's agent) and LMC expressed to each other prior to the issuance of the subject LMC policies because only AON and LMC were involved in negotiations for the issuance of LMC's policies to U-Haul. (See Exhibit 3 attached hereto, Deposition Testimony of Ronald McCarty, p. 44, l. 24 - p. 45, l. 8.; See SOF Exhibit 12, Deposition Testimony of Holly Reed, p. 107, ll. 3-6.) The unrebutted evidence shows that it was AON's and LMC's mutual expectation that Republic Western's RU policies would be defense in addition to limits type policies, and that LMC's coverage would not apply before an amount equal to the combined limits of Republic Western's policies (i.e., $7,000,000) had been paid for indemnity only. (See SOF Exhibits 10, 27.) It is also unrebutted that LMC based these expectations on what it had been told by AON, and on the documentation received by AON including, but not limited to, applications prepared by AON which checked off a space stating that defense costs would be "unlimited" (i.e., would not reduce policy

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limits). (See SOF Exhibit 27.) The unrebutted testimony of LMC's underwriter Stephen F. T ibbs confirms that LMC would not have issued its policies to U-Haul but for UHaul having made the aforesaid representations and promises to LMC. (See SOF Exhibit 27.) It is clear that the dominant purpose of the transaction between U-Haul's agent AON and LMC was for LMC to provide coverage for U-Haul that would not apply before an amount equal to Republic Western's combined stated limits (i.e., $7,000,000 had been paid) for indemnity. Therefore, pursuant to Arizona's reasonable expectations doctrine, LMC's coverage cannot apply to the Nelson or Fernandez settlements before an amount equal to Republic Western's combined stated limits (i.e., $7,000,000) been paid for indemnity, regardless of whether the court construes the RU policies' definition of ultimate net loss to include defense costs paid directly by Republic Western. E. The RU Policies Do Not Drop Down To Attach Before An Amount Equal To The Combined Limits Of Republic Western's RG and RX Policies (i.e., $7,000,000) Has Been Paid For Indemnity Only. Arizona does not require an insurance policy's attachment point to drop down due to reduction or exhaustion of underlying limits. In Maricopa County v. Federal Ins. Co., 157 Ariz. 308, 757 P.2d 112 (App. 1988), the court said there is no "statute, public policy, regulation, or constitutional mandate requiring the excess carrier to drop down," and that to require a drop down in coverage would "defeat the reasonable expectations of the parties" because "an insured pays a reduced premium to the excess carrier expressly because that carrier will be obligated to pay a claim only after a certain amount has been paid by the primary carrier." Comparison of the $145,000 premium charged for the 4/1/00-01 LMC policy's $13,000,000 limit (See SOF Exhibit 9) and the $7,610,864 premium for RUMM's $5,000,000 limit (See SOF Exhibit 7) is an example of this. The premiums for these policies are listed on the policies' declarations pages.

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The RU policies' insuring agreement requires Republic Western "to indemnify the insured for the ultimate net loss in excess of the applicable underlying (or retained limit)2 above hereafter stated." (See DSOF ¶ 38.) The phrase "applicable underlying limit," when used in an excess policy's insuring agreement refers to the liability coverage limit stated in the schedule of underlying insurance, and not to any reduction of those limits. Vickodil v. Lexington Ins. Co., 587 N.E. 2d 777 (Mass. 1992). This is consistent with the fact that, although the RU policies' aggregate limit contains a drop down provision, they do not contain a drop down provision regarding application of their occurrence limit. Therefore, as a matter of law, Republic Western's RU policies and LMC's policies are not required to drop down to apply immediately in excess of any reduced underlying limits (except to the extent any such limits have been reduced by the payment of indemnity only). F. Republic Western's Direct Payment Of Defense Costs Does Not Cause LMC's Policy To Drop Down Before An Amount Equal To Republic Western's Combined Stated Policy Limits (I.E., $7,000,000) Has Been Paid For Indemnity Only. Subsection B6(a) entitled "Limits of Liability" (See DSOF, ¶ 39) states:

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Subparagraph 6(a) thereunder states:
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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; . . . The calculation of LMC's attachment point is a matter of LMC's "limits of

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liability." See, Metropolitan Leasing v. Pacific Employers Ins. Co., 633 N.E. 2d 434
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(Mass. Ct. App. 1994). Therefore, LMC's aforesaid paragraph 6(a) comes within the
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exception contained in LMC's following form endorsement for the ". . . amount or limits
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of liability."

The RU policies do not contain a retained limit.

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Pursuant to the aforesaid paragraph 6(a), LMC's policy does not drop down on account of Republic Western's payment of defense costs because such payments do not constitute "loss" as defined by LMC's policy. Republic Western's payment of defense costs does not constitute "loss" as defined by LMC's policy because such payments do not reduce the RU p olicy limit. Therefore, pursuant to said paragraph 6(a), LMC's policy does not drop down except on account of any prior indemnity payments for other claims arising out of the same occurrence. Another reason LMC's policy does not attach before an amount equal to the combined stated limits of the Republic Western policies ($7,000,000) has been paid for indemnity only is that LMC's insuring agreement does not cover any defense costs paid by Republic Western. The insuring agreement in each of LMC's policies states in relevant part that: "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' . . . " (See DSOF, ¶ 39) LMC's definition of "Loss" does not include defense expenses except ". . . Defense and supplementary expense payments if such payments are included within the limits of liability of any respective 'underlying insurance.'" (See DSOF, ¶ 39) (The LMC policies identify the Republic Western RU policy as the designated "underlying insurance.") (See DSOF, ¶ 39) But, for each of the reasons previously discussed, the RU policies' payment of defense costs are not included within the RU policies' limits of liability. They are, therefore, not covered by LMC's insuring agreement. G. The Testimony Of LMC's Witnesses And 30(B)(6) Witness Supports Denial Of Plaintiffs' Summary Judgment Motion. Plaintiffs' preliminary statement, without any citation to the record and without

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giving any names, alleges that "LMC's witnesses" admitted that "RWIC's policies are
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defense within limits policies and that these policies are eroded by the payment of covered defense and indemnity; and that LMC's policies attach after the exhaustion of

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Republic Western's policies by virtue of the payment of covered defense and indemnity." LMC's witnesses did not state that Republic Western's policies are defense within limits policies or that Republic Western's payment of defense costs would cause LMC's policies to drop down and attach at a lower monetary level. What LMC's 30(b)(6) witness said was that: "Our policy will respond after $7,000,000 of damages, and defense which has been paid by the insured, has been paid in the underlying policies." (See Knoebel deposition, Exhibit 9, p. 103, ll. 1-3 attached to plaintiffs' Statement of Facts.) H. The Part Of Plaintiffs' Summary Judgment Motion Pertaining To The Fernandez Settlement Should Be Denied For The Additional Reason That LMC's Products-Completed Operations Aggregate Limit Was Exhausted Prior To The Fernandez Settlement. The Martinez and Fernandez accidents occurred during the 4/1/00-01 policy

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year. (See SOF, Exhibit 32). The Martinez lawsuit was settled prior to the Fernandez
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lawsuit. (See SOF, Exhibit 32). Paragraph 2 of LMC's answer to the Second Amended
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Complaint pleads that LMC's "policy is subject to the terms, conditions, and limitations
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contained therein."
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One of the terms, conditions and limitations of LMC's 4/1/00-01

policy is LMC's $13,000,000 products-completed operations aggregate limit for the 4/1/00-01 policy. (See SOF Exhibit 9; DSOF ¶ 39.) LMC's $13,000,000 payment to the
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Martinez settlement exhausted LMC's products-completed operations aggregate limit
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and left LMC with no coverage available for the subsequent Fernandez settlement.
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Therefore, all claims asserted by plaintiffs against LMC for partial reimbursement of
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plaintiffs' contribution to the Fernandez settlement are barred.
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I.
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Republic Western's Direct Payment Of Defense Costs Does Not Reduce Or Exhaust The Products-Completed Operations Limit Contained In Republic Western's RU Policies. Count III of plaintiffs' complaint alleges that, as to the Fernandez case, Republic

Western's RG and RX policies' products-completed operations aggregate limits were

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exhausted by the previous settlement of the Martinez claim. But, plaintiffs' summary judgment motion does not argue that the products-completed operations aggregate limits of the RG and RX policies were exhausted prior to the Fernandez settlement. Plaintiffs have thereby abandoned their claim against LMC for partial reimbursement of Republic Western's contribution to the Fernandez settlement to the extent the claim asserted in Count III of the complaint is based on alleged exhaustion of the RG and RX policies' products-completed operations aggregate limits. LMC nevertheless submits the

following rebuttal in an abundance of caution in the event the court rules that plaintiffs have not abandoned their allegation of aggregate reduction. Republic Western's payment of defense costs under its RG and RX policies does not reduce or exhaust these policies' aggregate limits because payment of defense costs is not damages because of "bodily injury" or "property damage" as required by the RG and RX policies' aggregate endorsements. (See SOF Exhibits 2, 3, 6; See DSOF ¶ 36, 37.) A further reason why Republic Western's payment of defense costs under its RG and RX policies does not trigger the drop down provision contained in the RU policies' Section VI is because said drop down provision says it is subject to "the above limitations." One of those "above limitations" is that the liability in question be only as to "ultimate net loss." However, for the reasons previously stated, the RU policies' definition of ultimate net loss does not include Republic Western's direct payment of defense costs. J. Plaintiffs' Summary Judgment Motion Should Also Be Denied Because Plaintiffs Owe Reimbursement To LMC For LMC's Overpayments. LMC is entitled to reimbursement from plaintiffs because LMC's contributions to

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the Nelson and Fernandez settlements exceeded what LMC owed. (See Exhibit 4 attached hereto, Chart of Settlement Payments.)

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K.

LMC's Affirmative Defense Of Estoppel Constitutes An Independent Reason Why Plaintiffs' Summary Judgment Motion Should Be Denied. The aforesaid promises and conduct of U-Haul's agent AON, which was

previously discussed in this response memorandum, as providing the basis for LMC's reasonable expectation that its policy would provide no coverage for an occurrence until
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an amount equal to the combined stated liability limits of Republic Western's three
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policies (i.e., $7,000,000) had been paid for indemnity only, also bars all of plaintiffs'
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claims pursuant to LMC's affirmative defense of estoppel. Heltzel v. Mecham Pontiac,
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152 Ariz. 58, 730 P. 2d 235 (1987).
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CONCLUSION
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WHEREFORE, defendant/counter-plaintiff LMC respectfully requests that this
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court deny plaintiffs'/counter-defendants' motion for summary judgment and enter
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summary judgment in LMC's favor as requested in LMC's motion for summary
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judgment. Lumbermens Mutual Casualty Company further requests the court retain
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jurisdiction to award LMC pre-judgment interest, post-judgment interest, taxable costs,
15

and attorney's fees incurred herein pursuant to A.R.S. § 12-341.01(A) and for such
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additional, alternative, injunctive, supplemental, and for such other further relief as the
17

court deems just and proper.
18

...
19

...
20

...
21

...
22

...
23

...
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... ...

Case 2:04-cv-00662-DGC

- 16 Document 117 - Filed 11/21/2005

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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____________

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Case 2:04-cv-00662-DGC

- 17 Document 117 - Filed 11/21/2005

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