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Progressive West Insurance Co. v. Dallo

February 14, 2008


The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court

(Doc. No. 17, 18, 23, 26)


Presently before the Court is Plaintiff's motion to dismiss Defendants' counterclaims. For the reasons set forth below, the Court GRANTS Plaintiff's motion.


A. Factual Background

On June 28, 2006, Jonathan Dallo, adult son of Mona and Michael Dallo, while driving a BMW vehicle, was involved in a motor vehicle accident in which Jodi Burnett was killed. (Counterclaimants' Counterclaims Complaint ("Counter-Complaint") ¶ 11.) Burnett's husband and family pursued compensation, filing a lawsuit in San Diego Superior Court ("Burnett Lawsuit") which asserted claims against Jonathan Dallo, Michael Dallo, Mona Dallo, and Dallo & Co., Inc., (collectively "Dallo Family").*fn1 (See Counter-Complaint ¶ 12.)

At the time of the accident, Michael Dallo had in force with Plaintiff Progressive West Insurance Co. ("Progressive") a policy of automobile insurance ("the Policy"). The Policy provided $500,000 in personal injury liability coverage. (See Counter-Complaint ¶ 10.) The Counter-Complaint makes no specific reference to the Policy's provisions nor does it make any allegation that the BMW driven by Jonathan Dallo on the night of the accident is covered by the express terms of the policy.

Michael Dallo, Mona Dallo, and Dallo & Co., Inc.'s ("Counterclaimants'") Counter-Complaint alleges that after tendering claims related to the Burnett Lawsuit to Progressive-a claim "clearly covered by the policy"-Progressive initially denied coverage. (Counter-Complaint ¶ ¶ 13, 40.) The Counter-Complaint goes on to allege Progressive eventually agreed to defend the Dallo Family after the Dallo Family retained counsel to represent them and counsel re-tendered the claims to Progressive with additional information. (Counter-Complaint ¶ 14.) The Counter-Complaint further alleges that while agreeing to undertake defense obligations, Progressive reserved its rights to recoup its defense costs and any indemnity payment based on its position that Jonathan Dallo's use of the BMW vehicle was not covered by the Policy and despite numerous requests by Counterclaimants that Progressive tender its policy limits without a reservation. (Counter-Complaint ¶¶ 14, 21.)

The Counter-Complaint alleges that despite Progressive's agreement to provide a defense for Jonathan Dallo and Counterclaimants and its retention of a lawyer for the Dallo Family, Progressive never actually undertook Counterclaimants' defense since a conflict of interest between Jonathan Dallo and Counterclaimants precluded joint representation. The Counter-Complaint acknowledges separate counsel was eventually secured for Jonathan Dallo on the one hand and Counterclaimants on the other. However, and without specifically identifying the counsel to which it is referring, the Counter-Complaint alleges "counsel never took over the defense in a substantive way." (Counter-Complaint ¶ 23.) Further, again without specifying the counsel being referenced, the Counter-Complaint alleges counsel provided by Progressive was not independent, as required by the circumstances. (See Counter-Complaint ¶ 23.)

The Counter-Complaint goes on to allege Progressive offered its policy limits to the Burnett Lawsuit plaintiffs pursuant to its reservation of rights without first conferring with Counterclaimants about the best way to approach the defense of the case or waiting for a policy limits demand. (Counter-Complaint ¶ 16.)

After a second mediation between the Dallo Family, the Burnett Lawsuit plaintiffs and the Dallo Family's insurers, the Burnett Lawsuit settled. The Counter-Complaint alleges Counterclaimants explicitly abandoned all coverage under the Progressive policy and used their own funds along with funds from another insurer to settle all claims asserted against them in the Burnett Lawsuit. (Counter-Complaint ¶ 25.) The Counter-Complaint further asserts Progressive was informed of Counterclaimants' abandonment of coverage and that, thereafter, plaintiffs in the Burnett Lawsuit made a policy limits offer to Progressive to settle their claims against Jonathan Dallo only, which Progressive accepted. (Counter-Complaint ¶ 26.) Pursuant to the settlement agreement, Progressive paid its $500,000 policy limits on behalf of Jonathan Dallo only, while Counterclaimants paid $250,000 of their own funds on their own behalf. (Counter-Complaint ¶ 33-34).

B. Procedural Background

On July 16, 2007, Progressive filed its First Amended Complaint ("FAC"), asking for (1) a declaration that the Policy does not cover claims arising out of the accident in the Burnett Lawsuit; (2) a judgment for reimbursement from the Dallo Family of defense costs incurred during Progressive's defense of the Burnett Lawsuit; and (3) a judgment for reimbursement of the $500,000 paid to the Burnetts Lawsuit plaintiffs as part of the settlement agreement. (Doc. No. 6.) On August 8, 2007, Counterclaimants filed a motion to dismiss, arguing Progressive's FAC fails to state a claim because it fails to allege Progressive paid policy benefits on behalf of Counterclaimants*fn2 and that Progressive fails to allege it fulfilled the prerequisites for obtaining reimbursement outlined by the California Supreme Court in Blue Ridge Ins. Co. v. Jacobson, 25 Cal. App. 4th 489 (2001). In an October 30, 2007 Order, this Court rejected Counterclaimants' argument and denied the motion. (Doc. No. 14.)

On November 9, 2007, Counterclaimants filed counterclaims against Progressive, asking for a declaration regarding the rights and duties under the Policy and asserting causes of action for (1) breach of contract, (2) bad faith, and (3) ...

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