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Hartford Casualty Insurance Co. v. American Dairy and Food Consulting Laboratories

September 27, 2010

HARTFORD CASUALTY INSURANCE COMPANY, PLAINTIFF,
v.
AMERICAN DAIRY AND FOOD CONSULTING LABORATORIES, INC., DEFENDANTS.



The opinion of the court was delivered by: Oliver W. Wanger United States District Judge

PLAINTIFF'S MOTION FOR MEMORANDUM DECISION REGARDING RECONSIDERATION (Doc. 75)

I. INTRODUCTION

Plaintiff Hartford Casualty Insurance Company ("Plaintiff") proceeds with an action for declaratory judgment against American Dairy and Food Consulting Laboratories, Inc., ("Defendant").

On December 11, 2009, Plaintiff filed a motion to disqualify Defendant's counsel, James Wilkins ("Wilkins"), on the grounds that Wilkins previously represented Plaintiff and is therefor prohibited by California's Rules of Professional Conduct from representing Defendant. (Doc. 21).

Defendant filed opposition to Plaintiff's motion to disqualify Wilkins on February 19, 2010. (Doc. 30). Plaintiff filed a reply on April 12, 2010. (Doc. 46).

The Magistrate Judge conducted a hearing on Plaintiff's motion to disqualify on June 4, 2010. (Doc. 57). On June 17, 2010, the parties were served with the Magistrate Judge's order denying Plaintiff's motion. (Doc. 60).

Plaintiff filed the instant motion for reconsideration of the Magistrate Judge's order on June 1, 2010. (Doc. 75). Defendant filed opposition to Plaintiff's motion for reconsideration on July 12, 2010. (Doc. 80). Plaintiff filed a reply to Defendant's opposition on September 13, 2010. (Doc. 82).

II. FACTUAL BACKGROUND

A. Plaintiff's Claim for Declaratory Relief

In March 2007, Defendant acquired properties located at 240 State Highway 140 and 220 Third Street in Gustine, California ("Property"). (Complaint at 2). Defendant applied for a policy of insurance with Plaintiff on or about May, 2007. (Complaint at 2). Effective May 23, 2007 through May 23, 2008, Defendant was the named insured on a policy ("Policy") issued by Plaintiff. (Complaint at 2). The Policy insured Defendants for direct physical loss to the Property, subject to various terms, conditions, limitations, and exclusions. (Complaint at 2). At the time Plaintiff issued the Policy to Defendant, Plaintiff was informed and believed, based on express and implied representations made by Defendant, that the Property was actively used by Defendant for the manufacturing and processing of dairy products. (Complaint at 2).

On or about May 28, 2009, Defendant filed a claim with Plaintiff for a vandalism and theft loss that occurred at the Property on May 14, 2008 ("Claim"). (Complaint at 2). Plaintiff conducted an investigation of the Claim under a full reservation of rights. (Complaint at 2).

According to the complaint, after taking the depositions of several of Defendant's officers, Plaintiff learned that the Property was never operated or otherwise occupied by Defendant. (Complaint at 3). Plaintiff denied coverage for the loss that occurred on May 14, 2008 based on a vacancy provision within the Policy (Complaint at 4-5).

The complaint seeks a declaration that (1) the Policy does not cover Defendant's claim due to the vacancy exclusion provided in the Policy; and (2) Plaintiff may rescind the policy based on material misrepresentations Defendant made intentionally in the application for the policy and in presenting the Claim.

B. Defendant's Counter-Claim

Defendant asserts a counter-claim alleging breach of contract, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, fraud, and reformation. Defendant contends it relied on the expertise of Plaintiff's authorized and appointed agents Renaissance Insurance Group, LLC ("Renaissance") and J. Helzer ("Helzer") in obtaining the Policy. (Doc. 23 at 2). Defendant alleges that Helzer and Renaissance understood the nature and extent of Defendant's operations at the Property. (Doc. 23 at 3). Defendant states that Helzer assured Defendant that the policy he was procuring would provide immediate, full, and complete coverage of the Property notwithstanding the fact that actual operations at the Property would be delayed for a period of months pending efforts to obtain necessary permits and completion of renovation efforts. (Doc. 23 at 3). Defendant also contends that on April 9, 2009, Plaintiff conducted an inspection of the Property and raised no potential coverage problems based on the condition of the Property. (Doc. 23 at 6). Defendant alleges that it expected and relied on Plaintiff to raise any coverage concerns based on the April 9 inspection. (Doc. 23 at 6.).

On April 21, 2008, Plaintiff gave Defendant notice that a renewal policy would be canceled effective July 12, 2008 due to the fact that the Property was vacant. (Doc. 23 at 7). The notice did not suggest that the vacancy issue would in any way impair or impact the coverage that would be in effect on the Property through July 12, 2008. (Doc. 23 at 7). Helzer assured Defendant that the Property would be fully insured through July 12, 2008.

C. Wilkins' Past Representation of Plaintiff

From 1985 to 1995, while employed at the law firm McCormick, Barstow, Sheppard, Wayte, & Carruth LLP ("McCormick"), Wilkins provided legal services to Plaintiff. By 1988, Wilkins was directly involved in handling legal matters for Plaintiff and directly communicated with Plaintiff's personnel. (Shingleton Dec. at 18). Wilkins provided legal services to Plaintiff in approximately twenty cases.

Plaintiff's motion to disqualify Wilkins identifies four cases which Plaintiff contends are substantially similar to the instant action between Plaintiff and Defendant. In connection with a claim referenced by Plaintiff as the "'087" claim, Wilkins provided an opinion to Plaintiff regarding Plaintiff's liability under an insurance policy for acts of theft and/or vandalism to an insured's agricultural equipment. Wilkins reviewed Plaintiff's file, spoke with the adjuster assigned to the '087 claim regarding witness statements, and spoke with the ...


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