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Law Offices
CHILD & MARTON LLP
Bradford T. Child, State Bar No. 96350
btchild@childmarton.com
1055 West 7th Street, Suite 3300
Los Angeles, California 90017
Telephone No.: (213) 627-3113 Facsimile No.: (213) 623-9237
Attorneys for Plaintiffs, THE PRINT LAB, INC.,
a California corporation, STACI STEWART,
TOMMY GELINAS AND JUAN FLORES
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
THE PRINT LAB, INC., a California
corporation, STACI STEWART, TOMMY
GELINAS and JUAN FLORES,
Plaintiff,
vs.
SCOTTSDALE INSURANCE
COMPANY, a corporation;
NATIONWIDE INSURANCE
COMPANY, TRUCK INSURANCE
EXCHANGE and DOES 1 through 25,
Inclusive,
Defendants.
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Case No. 2:17-cv-05148 GW (Ex)
[Assigned for all Purposes to Hon. George
Wu, Courtroom 9D, 9th Floor]
PLAINTIFFS’ OPPOSITION TO
SCOTTSDALE’S [SECOND] MOTION
FOR SUMMARY JUDGMENT
Date: March 4, 2019
Time: 8:30 a.m.
Courtroom: 9D, 9th Fl.
TO ALL PARTIES AND THEIR COUNSEL OF RECORD:
Plaintiffs, The Print Lab, Inc., a California corporation, (“Print Lab”) Staci Stewart,
Tommy Gelinas and Juan Flores, (collectively “Plaintiffs”) will and hereby submit the
following Opposition to Scottsdale’s [Second] Motion for Summary Judgment.
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This Opposition is made and based on the grounds that Scottsdale’s motion I based
on incorrect facts and law. The Opposition is based on the Declaration of Bradford T. Child,
the Disputed Material Facts and Conclusions of Law, these Points and Authorities, and on
such other evidence may be presented at time of hearing.
DATED: February 11, 2019 CHILD & MARTON LLP
By:
________________________________________
Bradford T. Child
Attorneys for Plaintiffs, The Print Lab, Inc., a
California Corporation, Staci Stewart, Tommy
Gelinas and Juan Flores
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TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES............................................................................................... i
MEMORANDUM OF POINTS AND AUTHORITIES ......................................... 1
I. SCOTTSDALE ABANDONED ITS INSUREDS AND COST
THEM $170,000 IN BRANDT FEES ............................................................ 1
II. PLAINTIFFS INCURRED LEWITT HACKMAN’S
BRANDT FEES THAT HAVE BEEN PRODUCED
IN DISCOVERY ......................................................................................... 3
III. PLAINTIFFS INCURRED CHILD & MARTON’S BRANDT FEE
THAT WERE ALSO PRODUCED IN DISCOVERY ................................. 4
IV. SCOTTSDALE NEVER VOLUNTARILY OFFERED TO REVERSE
ITS DECISION TO ABANDON IT INSUREDS………………………….5
V. THERE IS SUBSTANTIAL EVIDENCE OF SCOTTSDALE’S
UNREASONABLE WITHHOLDING OF BENEFITS……………………6
VI. SCOTTSDALE FAILED TO INVESTIGATE THE CLAIM……………..9
VII. CONCLUSION ........................................................................................... 15
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TABLE OF AUTHORITIES
Cases
Aydin Corp. v. First State Insurance Co. (1998)
18 Cal.4th 1183, 1188…………………………………………………………..………..14
Brandt v. Superior Court (1985)
37 Cal.3d 813, 817 ………………………………………………………………6
Buss v. Superior Court (1997)
16 Cal. 4th 35……….…………………….……………………………………….5
Campbell v. Superior Court (1996)
44 Cal. App. 4th 1308, 1319-21………..…………………………………………6
CNA Cas. of Cal. v. Seaboard Sur. Co. (1986)
176 Cal. App. 3d 598, 610 n.6…………………………………………………14
Egan v. Mutual of Omaha Ins. Co. (1979)
24 Cal. 3d 809, 818–19, 620 P.2d 141, 145 ....................................................................... 7
Griffin Dewatering Corp. v. N. Ins. Co. of New York (2009)
176 Cal. App. 4th 172, 181, 97 Cal. Rptr. 3d 568, 574 .......................................... 7
Jordan v. Allstate Ins. Co. (2007), as modified on denial of reh’g (Apr. 20, 2007)
148 Cal. App. 4th 1062, 1072, 56 Cal. Rptr. 3d 312, 318 ...................................... 9
KB Home v. St. Paul Mercury Ins. Co. (S.D. Fla. 2008)
621 F. Supp. 2d 1271, 1277-78 ............................................................................. 11
Morris v. Paul Revere Life Ins. Co. (2003)
109 Cal. App. 4th 966, 973, 135 Cal. Rptr. 2d 718, 723 ........................................ 7
Neal v. Farmers Ins. Exch. (1978)
21 Cal. 3d 910, 921 n.5 ........................................................................................... 7
Prichard v. Liberty Mut. Ins. Co. (2000)
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84 Cal. App.4th 890, 903 ....................................................................................... 14
Safeco Ins. Co. of Am. v. Parks (2009)
170 Cal. App. 4th 992, 1008, 88 Cal. Rptr. 3d 730, 743 ..................................... 13
Shade Foods, Inc. v. Innov. Prods. Sales & Mktg., Inc. (2000)
78 Cal. App. 4th 847, 881 ........................................................................................ 6
Scottsdale Ins. Co. v. MV Transp. (2005)
36 Cal. 4th 643, 654, 115 P.3d 460, 466 .................................................................. 6
Wal- brook Ins. Co. v. Liberty Mut. Ins. Co. (1992)
5 Cal. App. 4th 1445, 1455, 7 Cal. Rptr. 2d 513, 518 .............................................. 7
West Beach Development Co., L.L.C. v. Royal Indem. Co. (S.D. Ala., Sep 19, 2000)
2000 WL 1367994, at *7 .......................................................................................... 13
White v. Western Title Ins. Co. (1985)
40 Cal. 3d 870 .......................................................................................................... 7
Wilson v. 21st Century Ins. Co. (2007), as modified (Dec. 19, 2007)
42 Cal. 4th 713, 726, 171 P.3d 1082, 1091 ............................................................... 7
Statutes
Cal. Code Regs. Tit. 10
§2695.7(d)…………………………………………………………………….………..9
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MEMORANDUM OF POINTS AN AUTHORITIES
I.
SCOTTSDALE ABANDONED ITS INSUREDS AND COST THEM $170,000 IN
BRANDT FEES
Eighteen months after accepting the plaintiffs’ defense of the Rodriguez lawsuit (a
garden variety employment lawsuit), Scottsdale Insurance Company (“Scottsdale”) suddenly
and unilaterally decided to abandon its insureds. On October 5, 2016, plaintiffs received a
letter stating that Scottsdale was abandoning its defense of plaintiffs, that no defense or
indemnity would be provided, and that plaintiffs should find its own counsel to defend the
Rodriguez. Dkt. 30-1 SSUF#14.
Plaintiffs then had to defend the Rodriguez case, while at the same time hiring
attorneys, first the Lewitt Hackman firm, and then Child & Marton to contest Scottsdale’s
abandonment. Lewitt Hackman engaged in a letter writing campaign that was unsuccessful
although it did cost plaintiffs $12,332.90. See Child Decl. ¶ 7; Exhibits 1-4. Plaintiffs then
signed an hourly fee agreement with Child & Marton [Child Decl. ¶ 8; Exhibit 5] who
proceeded to battle with Scottsdale’s denials and delays for nearly two years before Child
and Marton earned a favorable and proper coverage decision from this court and thereafter,
Scottsdale agreed to pay plaintiffs’ defense fees and indemnity at a mediation in November
of 2018. Child & Marton’s bill, produced in discovery to Scottdale, was $186,000,
$159,308.77 of which was incurred to obtain the contract benefits Scottsdale finally paid in
November - December of 2018. See Child Decl. ¶ 9; Exhibits 2-4.
Child & Marton’s motion for summary adjudication was heard on May 31, 2018. This
court determined in its ruling on May 31, 2018 that Scottsdale breached its duty to defend
by unilaterally terminating its defense of the plaintiffs based on the assertion that its
exclusion of coverage for interrelated wrongful acts relieved them of the duty to defend:
“In sum, the claims in the Rodriguez Lawsuit and the Pantoja Lawsuit
are not related under the Interrelated Wrongful Acts Exclusion, in that they do
not share “a common nexus any fact, circumstance, situation, event, transaction,
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cause or series of facts, circumstances, situations, events, transactions or
causes.” DMSJ Appendix Ex. A at 17. The Court recognizes that the many near-
identically worded allegations in both the Rodriguez Complaint and the Pantoja
Complaint are not the same in light of the more than two-year gap in each
allegation’s occurrence. It also recognizes the many uniquely worded factual
allegations making up the Rodriguez Lawsuit. Therefore, the Interrelated
Wrongful Acts Exclusion does not exclude coverage of the Rodriguez
Lawsuit.” Dkt. 46, p. 19.
* * *
“Here, there are unique factual assertions made, and even the allegations
that are copied and pasted verbatim from the Pantoja Complaint to the
Rodriguez Complaint are inherently unique as well because they necessarily
occurred at significantly different times. The Court therefore finds that the Prior
and Pending Litigation Exclusion does not apply for similar reasons to the
sections above.” Dkt. 46, p. 20.
Scottsdale now attempts to persuade this court that the plaintiffs have no bad faith
claim against Scottdale because it paid for plaintiffs’ defense and indemnity, over two years
after abandoning it insureds and after plaintiffs incurred $170,000 in legal fees to force
Scottsdale to honor the terms of its insurance policy. However, as stated by the California
Supreme Court, “we have long recognized that an implied covenant of good faith and fair
dealing exists to assure prompt payment of claims made by the insured.”
Gourley v. State Farm Mut. Auto. Ins. Co. (1991) 53 Cal.3d 121, 127.
In Scottsdale’s current motion, Scottsdale attempts to mislead the court into believing
that Scottsdale “voluntarily” offered to reverse their decision to abandon their insureds and
therefore, plaintiffs have suffered to damages or Brandt fees as a result of Scottsdale’s
abandonment.
As set forth below, Scottsdale fought for two-years “kicking and screaming” that it
was entitled to abandon its insureds, and only after this court’s May 31, 2018 ruling put a
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“boot on their neck” did Scottsdale reluctantly, in November of 2018, agree to pay for the
defense and indemnity of its insureds. Scottsdale has nevertheless refused to pay their
insureds’ attorney’s fees expended to force Scottsdale to abide by the terms of their own
policy (Brandt fees). In this factually and legally erroneous motion Scottsdale tries to
convince the court that Scottsdale’s insureds should be stuck with the legal cost of
Scottsdale’s wrongful denial of defense and indemnity. The law is otherwise.
II.
PLAINTIFFS INCURRED LEWITT HACKMAN’S BRANDT FEES THAT HAVE
BEEN PRODUCED IN DISCOVERY
Plaintiffs initially hired the Lewitt Hackman law firm to persuade Scottsdale that they
were wrong to abandon the defense of the Rodriguez action. Lewitt’s letters and long briefs
on insurance coverage law in an effort to persuade Scottsdale or their error in abandoning
their insureds were to no avail. On February 22, 2018, plaintiffs produced to Scottsdale’s
counsel redacted copies of the Lewitt Hackman bills, showing that Plaintiff had incurred
approximately $12,000 in legal bills from the Lewitt Hackman firm and that more than
$9,000 remained outstanding. Child Decl. ¶ 7; Exhibit 1.
On January 4, 2018, plaintiff’s responded to Scottsdale’s Interrogatory No. 17
concerning plaintiffs’ damage claim by stating that in addition to contract damages, plaintiffs
had suffered “Emotional Distress: To be determined by the jury” and that plaintiffs had also
incurred “Attorney’s Fees: approximately $100,000 and continuing.” Child Decl. ¶ 7. The
attorney fee figure at that time (before summary judgment motions) included Lewitt
Hackman’s and Child & Marton’s fees. Child Decl. ¶ 7; Exhibit 2. Then, on December 8,
2018, in plaintiffs’ Supplemental Response to Scottsdale’s Request to Produce (Child Decl.
¶ 7; Exhibit 3), plaintiffs produced to Scottsdale’s attorney’s an unredacted copy of Lewitt
Hackman’s bills (and Child & Marton’s billing statements) showing $12,332.90 in Lewitt
Hackman’s attorneys’ fees and costs that was being claimed as part of the Brandt fees owed
to plaintiffs. Child Decl. ¶ 7. On February 11, 2019, plaintiffs served on Scottsdale’s
attorneys Plaintiffs’ Supplemental Response to Special Interrogatory No. 17 stating that
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Plaintiffs’ claim for Brandt fees was “Brandt Fees: $159,308.77, plus $12,332.90 and
prejudgment interest thereon” Child Decl. ¶ 7; Exhibit 4.
III.
PLAINTIFFS INCURRED CHILD & MARTON’S BRANDT FEES THAT WERE
ALSO PRODUCED IN DISCOVERY
On March 27, 2017, all the Plaintiffs, Print Lab, Staci Stewart, Tommy Gelinas and
Juan Flores signed the Fee Agreement hiring Child & Marton to file the lawsuit against
Scottdale for their abandonment of the plaintiffs’ defense and indemnity. Child Decl. ¶ 8;
Exhibit 5. Each of the plaintiffs is liable for Child & Marton’s fees and the fees have not
been paid. Scottsdale’s contention that the plaintiffs other than Print Lab have not incurred
Brandt fees in simply wrong. All plaintiffs are liable for Child & Marton’s fees.
In November of 2018, Scottsdale finally agreed to pay plaintiffs’ defense and
indemnity in the Rodriguez case thus ending the continuing accumulation of Brandt Fees.
Thereafter, on December 8, 2018, in plaintiffs’ Supplemental Response to Scottsdale’s
Request to Produce (Exhibit 3), I produced to Scottsdale’s attorney’s an unredacted copy of
Child & Marton’s billing statements totaling in excess of $186,000. Child Decl. ¶ 8; Exhibit
3. Attorneys for Scottsdale complained that plaintiffs had not deducted billing items from
the statements that are unrelated to the efforts of Child & Marton to seek contract benefits.
Plaintiffs thereafter deducted approximately $20,000 of fees that did not relate to obtaining
contract benefits for the plaintiffs. Child Decl. ¶ 9. On February 11, 2019, plaintiffs served
on Scottsdale’s attorneys Plaintiffs’ Supplemental Response to Special Interrogatory No. 17
showing that the $186,000 Child & Marton bill was reduced to $159,308.77 that related to
seeking contract benefits and therefore were part of plaintiffs’ Brandt fee claim. Child Decl.
¶ 9; Exhibit 4. Plaintiffs’ response was “Brandt Fees: $159,308.77, plus $12,332.90 and
prejudgment interest thereon” (Exhibit 4).
/ / /
/ / /
/ / /
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IV.
SCOTTSDALE NEVER VOLUNTARILY OFFERED TO REVERSE ITS
DECISION TO ABANDON IT INSUREDS
Scottsdale’s motion claims that on March 26, 2018 Scottsdale graciously offered pay
defense costs in the Rodriguez case. 4. Print Lab desperately needs the insurance protection
that Nationwide promised.
Missing from Scottsdale’s motion is the fact that Scottsdale’s March 26, 2018 offer
had a catch. It was really only an offer to temporarily advance the defense fees. Scottsdale
included in the “offer” a full reservation of the right to be reimbursed 100% of the defense
fees if the court (at the May 31, 2018 hearing) accepted Scottsdale’s claim that it had no duty
to defend plaintiffs. As stated by Scottsdale in the letter, its “offer” was:
“subject to Scottsdale’s reservation of rights to have the court declare that the
Rodriguez Action is not covered by the Policy and that Scottdale is entitled to
be reimbursed for the fees and costs paid in defense of the Rodriguez Action
pursuant to Buss v. Superior Court, 16 Cal.4th 35 (1977).” Scottsdale’s Exhibit
B.
Also missing from Scottsdale’s motion is why they were so “generous” in March of
2018 to offer to pay defense fees in the Rodriguez case, subject to their claimed right to
reimbursement of all such fees from plaintiffs.
The reality is that on February 28, 2018, plaintiffs filed their [winning] motion for
summary adjudication of Scottsdale’s duty to defend plaintiffs and abandonment of plaintiffs
in bad faith. Dkt. 30.
Further, on March 8, 2018, plaintiffs’ counsel informed attorneys for Scottsdale that
because of their abandonment of their insureds, Scottsdale had left themselves exposed to
the plaintiffs stipulating to a $1-2 million-dollar judgment and assigning their rights to
indemnity to the plaintiff in the Rodriguez case. Child Decl. ¶ 14. The March 8, 2018 email
chain describes the negotiations that would have resulted in a multimillion-dollar liability to
Scottsdale. Child Decl. ¶ 14; Exhibit 5.
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In other words, Scottsdale’s revocable “offer” on March 26, 2018 was nothing more
than an attempt to try to forestall a stipulated judgment and assignment of rights that would
have cost Scottsdale a small fortune. In this case, Scottsdale has never voluntarily done the
right thing for its insureds, who it views as adversaries.
V.
THERE IS SUBSTANTIAL EVIDENCE OF SCOTTSDALE’S UNREASONABLE
WITHHOLDING OF BENEFITS
Bad faith is the unreasonable withholding of policy benefits. The “implied covenant
of good faith and fair dealing exists to assure prompt payment of claims made by the
insured.” Gourley v. State Farm Mut. Auto. Ins. Co. (1991) 53 Cal.3d 121, 127. “When an
insurer’s tortious conduct reasonably compels the insured to retain an attorney to obtain the
benefits due under a policy, it follows that the insurer should be liable in a tort action for that
expense. The attorney’s fees are an economic loss—damages—proximately caused by the
tort.” (Brandt v. Superior Court (1985) 37 Cal.3d 813, 817.
The fact that Scottsdale’s wrongful denial of coverage forced its insureds to hire
counsel who after two years obtained a court order of coverage (that Scottsdale eventually
complied with in November of 2018) does not dilute the fact that Scottsdale unreasonably
withheld the benefits for over two-years and only paid what it owed when it was forced by
plaintiffs’ counsel to do so.
An insurer must defend its policyholder against any claim that creates a potential for
indemnity under the policy. Scottsdale Ins. Co. v. MV Transp., 36 Cal. 4th 643, 654, 115
P.3d 460, 466 (2005). The duty to defend is determined in the first instance by a comparison
of the allegations in the complaint against the insured and the terms of the policy. Id. at 654.
Extrinsic facts known to the insurer may also present a duty to defend, if they would give
rise to potentially covered liability. Id. at 654.
Where an insurer acts unreasonably or without proper cause, its decision to deny
coverage and its refusal to acknowledge its defense obligations constitute a breach of the
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implied covenant of good faith and fair dealing. See Shade Foods, Inc. v. Innov. Prods.
Sales & Mktg., Inc., 78 Cal. App. 4th 847, 881 (2000); see also Campbell v. Superior Court,
44 Cal. App. 4th 1308, 1319-21 (1996). Thus, an unreasonable coverage position, in and of
itself, exposes an insurer to bad faith liability. Id. The insured need not show that the insurer
acted maliciously or immorally. Neal v. Farmers Ins. Exch., 21 Cal. 3d 910, 921 n.5 (1978).
The reasonableness determination requires the use of an objective standard. Morris v.
Paul Revere Life Ins. Co., 109 Cal. App. 4th 966, 973, 135 Cal. Rptr. 2d 718, 723 (2003). A
carrier’s conduct will likely be found unreasonable in the bad-faith context if it (1) “unfairly
frustrates the agreed common purposes and disappoints” the insured’s “reasonable
expectations,” Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 726, 171 P.3d 1082,
1091(2007), as modified (Dec. 19, 2007). The “totality of the circumstances” surrounding
the insurer’s conduct—the context in which the carrier denied coverage—is relevant. Wal-
brook Ins. Co. v. Liberty Mut. Ins. Co., 5 Cal. App. 4th 1445, 1455, 7 Cal. Rptr. 2d 513, 518
(1992); Wilson, 42 Cal. 4th at 723, 171 P.3d at 1091. For example, the scope of the parties’
interactions is relevant to whether the offending carrier acted unreasonably in refusing to
defend the insured. Griffin Dewatering Corp. v. N. Ins. Co. of New York, 176 Cal. App. 4th
172, 181, 97 Cal. Rptr. 3d 568, 574 (2009), as modified on denial of reh’g (Aug. 28, 2009)
Implied into every insurance contract is a covenant of good faith and fair dealing,
which requires the carrier to act reasonably and “give at least as much consideration” to the
insured’s interests as it does to its own. Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809,
818–19, 620 P.2d 141, 145 (1979). Scottsdale simply didn’t consider facts that it considered
adverse to its goal of terminating the defense of its insured. Plaintiffs’ coverage counsel sent
Scottsdale a 13-page letter explaining the factual differences in the Rodriguez action and the
case law supporting coverage and Scottsdale’s duty to defend. The Court and counsel have
repeatedly pointed out to Scottsdale, that the Pantoja and Rodriguez employees were not
employed at the same time such that the acts complained of in Pantoja were necessarily
different acts than those complained of by Rodriguez. Further, Court and counsel have
explained to Scottsdale that the essential allegations made by Edgar Rodriguez, that he was
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harassed over his refusal to train a co-employee, that he was injured moving paint barrels,
and that his hernia injury was not accommodated, that his tires were slashed, and that he was
terminated for making a worker’s compensation claim were not allegations in Pantoja.
Scottsdale simply doesn’t hear what it doesn’t want to hear, that Scottsdale has a duty
to defend the plaintiffs. Scottsdale’s duty of good faith to insureds continues into this case,
White v. Western Title Ins. Co. (1985) 40 Cal. 3d 870. Yet Scottsdale simply refuses to give
equal consideration to the interests of its insureds. Scottsdale gives no consideration to the
fact that their insured is a “mom and pop,” T-shirt printing business that has no recourses to
pay to defend employment lawsuits other than the employment liability insurance they
purchased from Scottsdale. Scottsdale’s only consideration continues to be its hope that it
might be able to shed its defense responsibility.
A carrier’s conduct breaches the covenant of good faith and fair dealing where it (1)
“unfairly frustrates the agreed common purposes and disappoints” the insured’s “reasonable
expectations,” Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 726, 171 P.3d 1082,
1091(2007), as modified (Dec. 19, 2007). Few insureds have been more surprised, frustrated
and disappointed than plaintiffs when in mid-litigation, Scottsdale told them that “effective
the date this letter” their defense was being terminated and they were on their own. The
defense that plaintiffs bought paid for was untimely ripped out from under them. It was
unfair. As the court has determined, their unilateral termination of their duty to defend was
unsupported by the facts and unsupported by case law. But Scottsdale revoked plaintiffs’
defense anyway. Undoubtably, Scottsdale figured, “what is the down side?”
The downside has to be that the insureds are made whole. The only way that happens
is if the court finds a breach of the covenant. Otherwise, plaintiffs get their defense reinstated,
but end up with a pile of legal bills for the pleasure of forcing Scottsdale into court to have
a judge order them to do what they should have done all along, defend their insureds. Without
a finding of breach of the covenant, the legal bills incurred to patrol Scottsdale’s conduct
completely frustrate the plaintiffs’ purpose in buying insurance to cover the cost of
employment litigation.
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VI.
SCOTTSDALE FAILED TO INVESTIGATE THE CLAIM
Implied into every insurance contract is a covenant of good faith and fair dealing,
which requires the carrier to act reasonably and “give at least as much consideration” to the
insured’s interests as it does to its own. Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809,
818–19, 620 P.2d 141, 145 (1979). Among other duties, the covenant imposes on the carrier
a duty to investigate its policyholder’s insurance claim thoroughly, including all possible
bases that might support coverage—even those facts and theories that the insured has not
advanced. Id. at 818–19, 620 P.2d at 145; Jordan v. Allstate Ins. Co., 148 Cal. App. 4th 1062,
1072, 56 Cal. Rptr. 3d 312, 318 (2007), as modified on denial of reh’g (Apr. 20, 2007).
The Fair Claims Settlement Practices Act requires “[e]very insurer shall conduct and
diligently pursue a thorough, fair and objective investigation….” Cal. Code Regs. Tit. 10, §
2695.7(d).
Here, Scottsdale did no such thing. Upon receipt of the Rodriguez complaint,
Scottsdale quickly terminated their defense of plaintiffs based on the claim the Pantoja
complaint (drafted by the same plaintiff’s attorney) contained much of the same pleading
language. On October 5, 2016, Scottsdale issued its denial letter relying on its assumption
that the Pantoja and Rodriguez cases were both based on interrelated wrongful acts, “a
common nexus any fact, circumstance, situation, event, transaction, cause or series of facts,
circumstances, situations, events, transactions or causes.”
Note that there is nothing in Scottsdale’s definition that relieves Scottsdale of
coverage if there are only allegations of interrelated wrongful acts. The exclusion applies
where two actions are based on “common facts,” not common allegations. By Scottsdale’s
own chosen policy language, there must actually be common facts supporting the wrongful
acts. So, what did Scottsdale’s “thorough investigation” do to confirm (1) that the acts pled
in Pantoja were established to have occurred, and (2) that those acts were the basis for the
Rodriguez action? The answer is, “nada.”
/ / /
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Scottsdale didn’t ask to see the discovery in the Pantoja case and didn’t ask the
plaintiffs whether there was any factual basis to the case. Plaintiff Staci Stewart volunteered
that the allegations in the Pantoja case were entirely fabricated when she applied for
insurance with Scottsdale, but Scottsdale never asked plaintiffs about the facts of the Pantoja
case. Dkt. 30-2, p. 3-4. Instead, Scottsdale terminated plaintiffs defense without any
investigation into whether there were any facts developed in Pantoja that gave rise to the
Rodriguez case.
If Scottsdale had investigated, or even just asked plaintiffs about the Pantoja case,
Scottsdale would have learned that there were no common facts or nexus between Pantoja
and Rodriguez. There is no mention in Scottsdale’s October 5, 2016 denial letter that Pantoja
and Gonzalez weren’t employed at the same time as Rodriguez. As stated in Scottsdale’s
denial letter:
“The Rodriguez Complaint and the Pantoja/Gonzalez Complaint involve
the same Wrongful Acts and/or Interrelated Wrongful Acts and are deemed a
single Claim first made on January 23, 2013…. Given that the Claim was made
prior to the Policy incepting, there is no coverage for the Rodriguez
Complaint….”
Scottsdale’s investigation was so incomplete that Scottsdale terminated plaintiffs’
defense before they were made aware of the fact that any “wrongful acts” alleged in the
Pantoja complaint would have occurred years before Edgar Rodriguez’s first day of
employment. first learned that the employees in Pantoja weren’t employed at the same time
as wasn’t interested in investigating that. The absence of any common acts in the two cases
in not an insignificant oversight in Scottsdale’s nonexistent investigation. As noted by the
Court in its ruling:
“The distance between these timeframes is what makes even the verbatim
allegations in the complaints not in actuality identical under the Policy. Id. Even
though both complaints contain some verbatim allegations about what Plaintiffs
might have said or done, the actions occurred at different times to different
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people and are distinct in light of this fact. Instructive in this regard is KB Home
v. St. Paul Mercury Ins. Co., 621 F. Supp. 2d 1271, 1277-78 (S.D. Fla. 2008),
aff’d sub nom. KB Home v. The Travelers Ins. Co., 339 F. App’x 910 (11th Cir.
2009). There, the district court applied California law to a similar coverage
policy and noted that in the relatedness inquiry, it was relevant that one
employment discrimination plaintiff began work the exact month the other
employment discrimination plaintiff left the same company. The court
emphasized the “significant differences in the time frame of the alleged
discrimination,” holding the claims unrelated and therefore covered under the
policy. Id. at 1278. This case presents a similar situation.” Dkt. 46, p.18.
If Scottsdale had conducted a thorough investigation, it would have learned that the
“acts” upon which it relied in terminating plaintiffs defense as soon as possible, did not
actually happen. As set forth in the Decl. of Staci Stewart (Dkt 30-2, p. 3-4), if asked, she
would have told Scottsdale before they terminated her defense that investigation, it would
have learned that:
“The true facts were that the allegations of the Pantoja/Gonzalez
complaint were groundless. I [Staci Stewart] determined the hours of
employees, and I am the only person with the authority to hire or fire
employees, not Juan Flores. I did not terminate nor threaten to terminate Victor
Pantoja or Norma Gonzalez. I explained what really happened with Victor
Pantoja’s and Norma Gonzalez’s employment in my verified interrogatory
responses in the Pantoja/Gonzalez case: “[Pantoja and Gonzalez] disappeared
from the workplace for long periods during work hours, stopped showing up to
work when called, and stopped returning calls for work when available.
Accordingly, The Print Lab understood that [Pantoja and Gonzalez] voluntarily
ended their relationship with the company.” My interrogatory responses are
submitted herewith as Exhibit “B.” I am at the Print Lab shop virtually every
day. I would see Victor Pantoja and Norma Gonzalez regularly when they
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worked at Print Lab. Neither Victor nor Norma made any complaints to me that
they were harassed or mistreated in any way. Juan Flores works with his wife
in the Print Lab shop. The allegations do not fit with what I observed of Juan
Flores behavior and I observe what takes place in the shop on a daily basis. He
emphatically denied that he had a sexual relationship with Norma Gonzalez,
and he denied that he solicited gay sex from Victor Pantoja. He denied that he
harassed Victor Pantoja or Norma Gonzalez. I never observed any such
behavior and such behavior was never reported to me. Throughout the litigation
of the Pantoja/Gonzalez matter, Print Lab, Tommy Gelinas, Juan Flores and I
steadfastly denied the allegations made in the complaint. I told Truck that I
wanted to take the Pantoja/Gonzalez case to trial to establish the falsity of the
allegations. Ultimately, however, Truck controlled the litigation and Truck
decided to settle the case rather than incur the expense of a trial.” Dkt. 30-2, p.
3-4.
In other words, the “common facts” that Scottsdale relied on to support its contention
that Pantoja involved the same “wrongful acts” as Rodriguez, were not “facts” at all.
Scottsdale conducted no investigation to determine if there were any common facts. If S
Scottsdale had looked at the sworn discovery responses in Pantoja before terminating
plaintiffs’ defense, Scottsdale would have learned that the “termination” in Pantoja actually
occurred as follows:
“Plaintiff disappeared from the workplace for long periods of time during
work hours, stopped showing up to work when called, and stopped returning
calls for work when available. Accordingly, The Print Lab understood that
Plaintiff voluntarily ended Plaintiff’s relationship with the Company.” Dkt. 30-
5, p. 8-9.
Any competent investigation by Scottsdale would have also determined that the
allegations of the Rodriguez complaint were baseless. Dkt. 30-2, p.8. At the time of tender,
Staci Stewart informed Scottsdale that “nothing happened to this employee [Edgar
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Rodriguez] and all he is trying to do is get money. It is a trend in the industry.” Dkt. 30-2,
p.6. Scottsdale did nothing to investigate their insured’s notice of a false claim. This notice
of a false claim should have triggered Scottsdale’s duty to defend because Scottsdale
specifically promised in its policy, without limitation, that it would defend the insured from
a false claim.
“It shall be the duty of the Insurer and not the Insureds to defend any
Claim. Such duty shall exist even if any of the allegations are groundless, false
or fraudulent.” Dkt. 30-7, p.21.
As set forth above, Scottsdale conducted no meaningful investigation of the claim in
violation of its legal duty, and in breach of the covenant of good faith and fair dealing. A
cursory investigation would have disclosed that there was no “common nexus of facts”
linking the Pantoja and Rodriguez actions because (1) they weren’t employed at the same
time, (2) there were no “facts” in the Pantoja case that could be a common nexus with
anything, and (3) there were groundless, false and fraudulent allegation in the Rodriguez
complaint. Scottsdale’s hypothetical investigation, that it didn’t conduct, needed only to
discover potential coverage to determine its duty to defend.
When a carrier fails to conduct an investigation that would have found facts supporting
the possibility of coverage triggering the duty to defend, the carrier is imputed with this
knowledge. Safeco Ins. Co. of Am. v. Parks, 170 Cal. App. 4th 992, 1008, 88 Cal. Rptr. 3d
730, 743 (2009); West Beach Development Co., L.L.C. v. Royal Indem. Co., 2000 WL
1367994, at *7 (S.D. Ala., Sep 19, 2000).
“Where an insurer denies coverage, but a reasonable investigation would have
disclosed facts showing the claim was covered, the insurer’s failure to investigate breaches
its implied covenant.” Parks, 170 Cal. App. 4th at 1008, 88 Cal. Rptr. 3d at 743 (emphasis
in original). Accord Jordan, 148 Cal. App. 4th at 1074,
Clearly, Scottsdale was not looking to see if there was any way they could find a basis
to provide their insureds with a defense. Instead, Scottsdale as looking for a way out of
defending their insureds. They had a possible argument to use an arcane exclusion that would
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be difficult for their insureds to understand and rebut that maybe they could they decided to
try to leverage an argument had an argument that The breach of the covenant of good faith
and fair dealing has not met its burden to conclusively prove that its “Interrelated Wrongful
Acts” exclusion precludes any possibility of coverage for any allegation in the Rodriguez
complaint. Aydin Corp. v. First State Insurance Co. (1998) 18 Cal.4th 1183, 1188. (“the
burden is on the insurer to prove the claim is specifically excluded.”)
Finally, Nationwide didn’t simply wrongfully deny a defense when the claim was
tendered. Nationwide accepted the defense tender and then made the self-serving decision
to abandon its insureds in mid-litigation. Then, having made its unreasonable and self-
serving decision, Nationwide did not seek declaratory relief from the court regarding its
defense obligation.1 Instead, in the middle of the litigation of the Rodriguez action,
Nationwide issued a letter informing its insureds that Plaintiffs were on their own and should
make their own arrangements to defend themselves.
Given Nationwide’s desire to deny coverage for those claims it thought were
“related,” reasonable claims handling practice dictated that Nationwide accept plaintiff’s
tender and reserve the right to deny indemnity and to seek reimbursement for the defense of
excluded claims, a “Buss reservation of rights.” See, Buss v. Superior Court, 16 Cal. 4th 35,
49 (1997). The California Supreme Court has carefully created a broad duty to defend for
the purpose of protecting insureds from the devastating effect of being abandoned by their
insurer in their time of need. Nationwide has boldly defied California law and is threatening
1 See, Prichard v. Liberty Mut. Ins. Co., 84 Cal. App.4th 890, 903 (2000) (in mixed action,
insurer could be required to continue defending until action is final, even after close of
evidence in trial of underlying action, where it is “still possible that [insurer] might have had
some indemnification liability”). Even where a court grants a declaration in favor of the
insurer, the insurer may not withdraw until the declaratory relief action is considered “final”
under the applicable law. CNA Cas. of Cal. v. Seaboard Sur. Co., 176 Cal. App. 3d 598, 610
n.6 (1986) (declaratory relief action was final on conclusion of appeal).
/ / /
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to put its insured out of business by refusing to accept the defense obligation that Plaintiffs
paid Nationwide to provide when it purchased the policy.
VII.
CONCLUSION
Based on the foregoing, Plaintiffs respectfully request that the Court deny Scottsdale’s
Motion for Summary Judgment or Partial Summary Judgment.
DATED: February 11, 2019 CHILD & MARTON LLP
By:
________________________________________
Bradford T. Child
Attorneys for Plaintiffs, The Print Lab, Inc.,
a California Corporation, Staci Stewart,
Tommy Gelinas And Juan Flores
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PROOF OF SERVICE
I am employed in the aforesaid county, State of California; I am over the age of 18
years and not a party of the within action; my business address is 1055 West 7th Street, 33rd
Floor Penthouse, Los Angeles, California 90017-2795.
On February 11, 2019, I served the foregoing document described as:
PLAINTIFFS’ OPPOSITION TO SCOTTSDALE’S [SECOND] MOTION FOR
SUMMARY JUDGMENT
on the interested parties in this action by: placing / X_/ a true copy /__/ the original of the
document(s) listed above in a sealed envelope with postage thereon fully prepaid, in the
United States mail at Los Angeles, California, addressed set forth below:
Valerie D. Rojas, Esq.
Michael V. Ruocco, Esq.
COZEN O’CONNOR
601 S. Figueroa St., Ste. 3700
Los Angeles, CA 90017-5556
Telephone No.: (213) 892-7900
Facsimile No.: (213) 892-7999
Email: vrojas@cozen.com
mruocco@cozen.com
Attorneys for Defendant,
SCOTTSDALE INSURANCE
COMPANY
[ ] FACSIMILE - By transmitting such document(s) to facsimile machine number ( )
___-____. I certify that the report generated by facsimile machine number (213) 623-9237
confirms said transmission was completed and that all pages were received.
[ ] MAIL - I am “readily familiar” with the firm’s practice of collection and processing
correspondence for mailing. Under that practice it would be deposited with the U.S. postal
service that same day with postage thereon fully prepaid at Los Angeles, California in the
ordinary course of business. I am aware that on motion of the party served, service is
presumed invalid if postal cancellation date or postage meter date is more than one day after
date of deposit for mailing in affidavit.
[✔] ELECTRONIC MAIL - I hereby certify that I electronically transmitted the attached
document(s) to the Clerk’s Office using the CM/ECF System for filing and transmittal of a
Notice of Electronic Filing to the above-listed CM/ECF registrants.
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[ ] BY OVERNIGHT MAIL SERVICE: (VIA FEDERAL EXPRESS) I caused such
envelope to be delivered to the offices of the addressee(s). Said envelope was deposited in
or with a facility regularly maintained by Federal Express with delivery fees paid or
provided for.
[ ] STATE - I declare under penalty of perjury under the laws of the State of
California that the above is true and correct.
[✔] FEDERAL - I declare under penalty of perjury that the foregoing is true and correct,
and that I am employed in the office of a member of the bar of this court at whose direction
the service was made.
Executed on this 11th day of February, 2019, at Los Angeles, California.
/S/ EMMA AREVALO
Emma Arevalo
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