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Sierra Pacific Industries v. American States Insurance Company

July 15, 2011

SIERRA PACIFIC INDUSTRIES,
PLAINTIFF,
v.
AMERICAN STATES INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge

MEMORANDUM AND ORDER

Through this action, Plaintiff Sierra Pacific Industries ("Plaintiff") seeks redress from Defendant American States Insurance Company ("Defendant") based on Defendant's alleged breach of contract and the bad faith breach of contract. Plaintiff also seeks declaratory relief pursuant to 28 U.S.C. § 2201(a). Presently before the Court is Defendant's Motion to Dismiss Plaintiff's First Amended Complaint for failure to state a claim upon which relief may be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6).*fn1

Defendant's Motion was filed on April 25, 2011. (ECF No. 14.) Plaintiff filed a timely opposition to Defendant's Motion on May 26, 2011 (ECF No. 15), to which Defendant filed a timely reply (ECF No. 17). For the reasons set forth below, Defendant's Motion to Dismiss is denied.*fn2

BACKGROUND*fn3

This action arises from Defendant's alleged breach of its contractual duty to defend Plaintiff in multiple ongoing lawsuits. In 2007, Plaintiff entered into a timber harvest contract with multiple private landowners in Plumas County ("the Landowners"). Under the terms of Plaintiff's timber harvest contract with the Landowners, Plaintiff agreed to defend, indemnify and hold harmless the Landowners from and against any and all claims arising from the timber harvest operations on the Landowner's property.

Plaintiff then subcontracted the timber harvest operations to Howell's Forest Harvesting ("Howell"). Under the terms of Plaintiff's contract with Howell, Howell agreed to defend and indemnify Plaintiff from all liability and damages arising out of the timber harvest.

Accordingly, Howell's commercial general liability insurance policy, issued by Defendant, named Plaintiff as an additional insured. That insurance policy had aggregate limits of $1,000,000. It did not, however, cover liability and damages arising from Plaintiff's independent negligence.

On September 3, 2007, the Moonlight Fire ignited in Plumas County. As a result of the fire, seven lawsuits were brought against Plaintiff by public and private entities, including the United States and the State of California, for damages stemming from the fire. Together, these suits ("the Moonlight Fire Cases") seek one billion dollars in aggregate claims. Several of these suits allege that Plaintiff's independent negligence caused the Moonlight Fire. Specifically, the United States alleges that Plaintiff needed to have an independent monitor on site to help guard against fire hazards.

Prior to September 22, 2009, Plaintiff notified Defendant of these lawsuits. On September 22, 2009, Plaintiff tendered its defense to Defendant. In the State of California's action against Plaintiff, Plaintiff's responsive pleadings were due on October 4, 2009. If Plaintiff failed to appear before October 4, 2009, a default judgment could have been entered against Plaintiff.

Defendant failed to acknowledge Plaintiff's tender of defense within fifteen days, and also failed to acknowledge the tender of defense before the date Plaintiff's responsive pleadings were due. Because Defendant did not assign Plaintiff defense counsel before this date, Plaintiff was forced to hire counsel to appear and protect its interests.

When Defendant did belatedly acknowledge Plaintiff's tender, Defendant failed to advise Plaintiff of the coverage provided to Plaintiff under the insurance policy. Furthermore, Defendant refused to investigate the qualifications necessary to assign competent defense counsel in the cases against Plaintiff, and instead sought to transfer defense of the Moonlight Fire Cases to inexpensive panel counsel with no experience litigating a complex wildfire case. The counsel selected by Defendant was ill-equipped to handle cases of such magnitude, and had no experience doing so. Defendant conceded to Plaintiff that its proposed counsel would be retained because of counsel's inexpensive hourly fee ($150.00 per hour).

Ultimately, Defendant agreed to contribute towards the cost of Plaintiff's chosen defense counsel at an hourly fee consistent with what it would have paid its own retained counsel. However, Defendant has refused to pay Plaintiff's chosen counsel for over a year, and has refused to respond to further communications requesting that Defendant acknowledge Plaintiff's chosen counsel. Defendant has further declined to Plaintiff's tender of defense as to claims against the Landowners.

STANDARD

On a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. ...


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