The opinion of the court was delivered by: John A. Houston United States District Judge
ORDER DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT [DOC. # 73]
Now pending before this Court is the motion by defendants Robert E. Gallagher, Jr. ("Gallagher") and his law firm, White & Oliver ("W&O") (collectively "defendants") for summary judgment. The motion has been fully briefed by the parties and oral argument has been entertained. After a careful consideration of the pleadings and relevant exhibits submitted by the parties, the oral argument presented at the hearing, and for the reasons set forth below, this Court DENIES defendants' motion in its entirety.
This is an action for legal malpractice and breach of fiduciary duty brought by an insurer, plaintiff American Modern Home Insurance Company, Inc. ("plaintiff" or "AMIC") against defendants.
1. Factual Background*fn1
The complaint alleges defendants negligently handled the underlying personal injury action which involved AMIC's insured, Virgilio Martinez ("Martinez"), the owner of a rental home with a swimming pool that was equipped with a diving board located at 1633 Los Robles Drive in Bakersfield, California. The incident that formed the basis for the underlying action occurred when Martinez' tenant hosted a party on June 19, 2004. During that party, a guest, Neal Raymond ("Raymond") dove into the pool and broke his neck when he struck his head, rendering him a quadriplegic. Raymond subsequently retained counsel, Gregory Chudacoff, to represent him in his claim for personal injuries resulting from the diving board incident. In early September 2004, when Martinez received a letter from Chudacoff advising him of Raymond's claim, Martinez then contacted his insurance company, AMIC.
AMIC assigned adjuster Marcie Anderson ("Anderson") to handle the claim. At the direction of her supervisor, Mark Honschopp ("Honschopp"), a Casualty Technical Manager, Anderson retained Rob Bycott ("Bycott") of Cunningham & Lindsay, an independent adjusting firm, to assist in investigating the incident. Anderson was instructed by AMIC to retain Gallagher*fn2 on September 16, 2004. Gallagher agreed to be retained.
On September 23, 2004, by letter with a carbon copy sent to Anderson, Bycott confirmed Mr. Martinez' decision not to give his permission to AMIC to disclose his policy limits to Raymond's counsel, Chudacoff. Nevertheless, based on Anderson's claim that she believed she had received consent to reveal the policy limits during a telephone conversation with Mr. Martinez' wife on September 16, 2004, Anderson disclosed that Martinez' policy limits were $300,000 during a telephone conversation with Marie Dugan ("Dugan") of Chudacoff's office on October 4, 2004. There is no evidence indicating that Anderson informed Gallagher of the disclosure. On October 20, 2004, Dugan then demanded, by letter, payment of the policy limits by AMIC in order to resolve the matter. Gallagher claims he never received a copy of Dugan's October 20, 2004 letter.
Chudacoff made a second demand for the $300,000 liability policy limits by letter dated November 9, 2004 (faxed to AMIC on November 10, 2004) indicating Raymond would accept less than the full $300,000 policy limits in resolution of his claim. The demand letter stated that, if no response was received within seven days from the date of the letter, the offer to settle would be withdrawn. After speaking with Gallagher, Anderson sent a letter to Chudacoff indicating AMIC needed to conduct a "complete investigation" of Raymond's claim but did not specifically respond to the demand. Gallagher claims he received a copy of Anderson's letter on November 16, 2004,*fn3 the day Gallagher calculates the offer expired. Chudacoff informed Gallagher by letter dated February 28, 2005 (received by White & Oliver via fax on March 1, 2005) that any policy limits settlement demands were withdrawn effective immediately. Gallagher claims he never received a copy of that letter.
Raymond retained attorney Chris Angelo ("Angelo") in February 2005 to represent him in his personal injury action arising out of the June 19, 2004 diving board incident. Angelo filed suit on behalf of Raymond on July 13, 2005. AMIC substituted Peter Doody ("Doody") of Higgs, Fletcher & Mack as Martinez' counsel in place of defendants in October 2005 and retained David Evans ("Evans") of Haight, Brown & Bonesteel to advise AMIC concerning any insurance bad faith issues that may have arisen due to its handling of Raymond's claim.
In November 2005, Doody attempted to tender the $300,000 policy limits to settle Raymond's claim, which Angelo rejected as untimely by letter dated December 8, 2005. Angelo made a settlement demand of $5.5 million to AMIC in January 2006. AMIC accepted that offer in February 2006.
The instant malpractice complaint was filed on May 31, 2006. Defendants answered the complaint on June 19, 2006. Defendants' motion for summary judgment was filed on June 29, 2007, along with a request of judicial notice of certain documents. Plaintiff's opposition was filed on August 27, 2007. Defendants' reply brief was filed on August 31, 2007.*fn4 At that time, defendants also a motion to strike Anderson's declaration filed by plaintiff in support of its opposition. Plaintiff filed an opposition to the motion to strike on September 5, 2007. In addition, both parties filed ...