The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court
ORDER DENYING DEFENDANTS' MOTION TO DISMISS (Doc. No. 8, 10, 11)
Presently before the Court is Michael Dallo, Mona Dallo, & Dallo & Co., Inc.'s ("Defendant's") motion to dismiss. For the reasons set forth below, the Court DENIES Defendant's motion.
On June 28, 2006, Jonathan Dallo, adult son of Mona and Michael Dallo and an employee of Dallo & Co. Inc., was involved in a motor vehicle accident in which Jodi Burnett was killed. (FAC ¶ 11.) Burnett's husband and children pursued compensation, filing a lawsuit in San Diego Superior Court ("Burnett Lawsuit"). The Burnett Lawsuit, filed on October 11, 2006, alleged that Jonathan Dallo was driving a 2003 BMW 745 ("the BMW") at approximately 100 miles per hour, that he caused a fatal collision with Jodi Burnett, and that Jonathan Dallo, Michael Dallo, Mona Dallo, and Dallo & Co., Inc., (collectively "Dallo Family")*fn1 were legally responsible for the death of the decedent and all damages flowing therefrom. (See FAC ¶ 33, Ex. 13).
At the time of the accident, Michael Dallo had in force with Progressive West Insurance Co. ("Plaintiff") a policy of automobile insurance ("the Policy"). The Policy listed Michael Dallo as the named insured and Michael Dallo, Mona Dallo, and Jonathan Dallo as drivers and household residents. (FAC ¶ 8.) While the Policy did not explicitly cover the BMW involved in the accident, the Dallo Family insisted that because the actual owner of the vehicle was Dallo & Co., Inc., Jonathan Dallo was "a relative using a non-owned vehicle with the expressed or implied permission of the owner of the vehicle" and thus an "insured person" under the Policy. (FAC ¶ 34, Ex. 14.) In addition to requesting coverage for Jonathan Dallo, the Dallo Family also requested that Plaintiff defend and indemnify Michael and Mona Dallo for the negligent entrustment claims raised in the Burnett Lawsuit.
Three weeks after the Burnett Lawsuit was filed, on or about November 1, 2006, the attorney for the Dallo Family, Dick Semerdjian, asked Plaintiff to defend and indemnify the Dallo Family and also that it "immediately offer the policy limits to protect its insureds and settle this claim." (FAC ¶ 34, Ex. 14.) Later, on November 27, 2006, Semerdjian, responding to an inquiry from Plaintiff, advised that he would be representing defendants Michael Dallo, Mona Dallo, and Dallo & Co., Inc., and that another attorney, Ronson Shamoun, would be representing Jonathan Dallo. (FAC ¶ 36, Ex. 16.)
Plaintiff disputed coverage but agreed to provide a defense with a reservation of rights to recover its indemnity payments. (FAC ¶ 37.) On or about December 6, 2006, Plaintiff sent a reservation of rights letter to Defendants (i.e. Michael Dallo, Mona Dallo, and Dallo & Co., Inc.) care of attorney Semerdjian. (FAC ¶ 38, Ex. 17.) The letter restated Plaintiff's coverage position, but advised that a defense would be provided subject to a reservation of rights. The letter informed Defendants that Plaintiff intended to file "a Declaratory Relief Action on the coverage issue and seek reimbursement of attorney's fees and any indemnity funds disbursed pursuant to Blue Ridge Insurance Co. v. Jacobsen (2001) 25 Cal.4th 489." The letter noted that the defense of the Burnett Lawsuit would be assigned to the San Diego law firm of Winet, Patrick & Weaver (the "Winet firm"), and that Plaintiff would be contacting the Burnett's law firm to tender the full limits of the Policy. The letter closed with the statement "you have the right to consult with an attorney such as Mr. Semerdjian or any other of your own choosing, at your own expense, with respect to the issues raised in this letter." (FAC ¶ 38, Ex. 17.) On or about the same date, Plaintiff sent a similar letter to Jonathan Dallo, care of attorney Shamoun. (FAC ¶ 38, Ex. 18.)
On December 8, 2006, attorney Semerdjian wrote a letter to Plaintiff suggesting that all parties, including Uniguard, the commercial liability insurer of defendant Dallo & Co., Inc., attend a mediation. The letter indicated that Plaintiff should send someone with authority to deal with coverage issues and someone who could address potential professional negligence claims for which Plaintiff may be liable. (FAC ¶ 40, Ex. 19.) On January 9, 2007, a mediation session was held with all the relevant parties, including Plaintiff. (FAC ¶ 42.) At the mediation, both Plaintiff and Unigard Insurance Company offered the limits of coverage of their respective policies. However, the Burnett Lawsuit did not resolve on that date. (FAC ¶ 42.)
Following the first mediation session, on January 12, 2007, Defendants' attorney Semerdjian again sent a letter to Plaintiff requesting Plaintiff offer its full policy limits and also asking Plaintiff to do so without a reservation of rights. (FAC ¶ 43.) Semerdjian advised that, in his view, Plaintiff's reservation of the right to seek reimbursement under Blue Ridge Insurance Co. v. Jacobsen was "an act of bad faith." The letter concluded with the statement that:
[T]he potential disastrous outcome of this case can still be avoided if Progressive recognizes its liability now and steps to the plate and tender [sic] its full coverage without a Blue Ridge reservation. Time is of the essence.
We expect Progressive will act in its insureds' best interest and resolve this case immediately to avoid an excess personal verdict against the insureds." (FAC ¶ 43, Ex. 21.) On January 19, 2007, Plaintiff replied, advising that while it would continue to offer its full policy limit in an effort to settle the Burnett Lawsuit, it would continue to defend the underlying lawsuit under a reservation of rights, including a right to seek reimbursement. Semerdjian responded by reiterating Defendants' demand that Plaintiff defend and settle the suit without such a reservation in subsequent letters on January 29, 2007, and February 13, 2007. (FAC ¶ ¶ 42, 46, 47.)
On March 13, 2007, a second mediation session took place. At that mediation, the Burnett Lawsuit resolved for $1,750,000. The First Amended Complaint ("FAC") in this case alleges that Plaintiff agreed to pay its full policy limits under the policy subject to a reservation of rights. (FAC ¶ 52.) On or around the same date, the Dallo Family signed a release and settlement agreement with the claimants in the Burnett Lawsuit. The release, attached as an exhibit to the FAC contained the following terms:
Consideration. RELEASEES agree to pay RELEASORS ONE MILLION, SEVEN HUNDRED FIFTY THOUSAND DOLLARS AND NO/100 ...