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Sierra Pacific Industries v. American States Insurance Company


June 21, 2012


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


Plaintiff Sierra Pacific Industries, Inc. ("SPI") instituted the present action against American States Insurance Company ("American") to determine the rights and obligations attendant to a policy of liability insurance issued by American with respect to which Sierra claims coverage as a result of the so-called Moonlight Fire which ignited on September 3, 2009 in Plumas County, California. Through the present motion, SPI seeks to stay the very action it commenced on grounds that at least one trial in the numerous actions spawned by the fire is scheduled to start shortly.

SPI argues that having to defend that action, along with responding to discovery propounded in the present coverage case, would force it to fight a so-called "two front war" that would improperly deflect its resources from being squarely directed towards prevailing in the underlying case. SPI consequently seeks a six-month stay of the instant coverage lawsuit.

For the reasons set forth below, SPI's Motion to Stay will be denied.*fn1


As a result of the aforementioned September 2007 Moonlight Fire, a total of seven lawsuits were brought against SPI by various public and private entities, including both the United States and the State of California, for damages stemming from the fire. According to SPI, those seven suits seek some one billion dollars in total aggregate claims.

Prior to the fire, SPI entered into timber harvest contracts with multiple Plumas County landowners. Under the terms of those contracts, SPI agreed to defend, indemnify and hold harmless the landowners from and against any and all claims arising from the timber harvest operations on the landowners' property. SPI then subcontracted the actual harvest operations to Howell's Forest Harvesting ("Howell").

Pursuant to Howell's contract with SPI, Howell agreed to defend and indemnify SPI from all liability and damages arising from the timber harvest. Howell accordingly obtained a policy of commercial general liability insurance from American that named Plaintiff as an additional insured. Although that policy had aggregate limits of $1,000,000, it did not cover any liability and damages arising from SPI's own independent negligence in causing or contributing to the fire.

Several of the lawsuits filed following the fire, including the action filed by the United States, contend there was indeed independent negligence on the part of SPI. The United States, for example, alleges that SPI should have had an independent monitor on site to help guard against fire hazards, and in fact had a non-delegable duty to do so. The United States also asserts theories of negligent hiring and supervision against SPI.

SPI alleges that American failed to acknowledge Plaintiff's tender of defense with respect to the lawsuits, and also failed to acknowledge that tender before the date SPI's responsive pleadings were due in the lawsuit filed on behalf of the government. Because no defense counsel had been assigned by that time, SPI claims it was forced to hire its own counsel to appear and protect its interest by avoiding a default judgment.

While American did ultimately acknowledge SPI's tender of defense, SPI claims that it proposed transferring the defense of the lawsuit away from the counsel selected by SPI and to a panel defense firm with lower rates.

SPI alleges that the firm proposed by American lacked the needed experience in defending lawsuits of the type and magnitude being asserted against SPI in the wake of the fire. Given those concerns, SPI continued to have the counsel they retained, the Downey Brand firm in Sacramento, represent their interests. American has refused to pay Downey any more than the hourly rate of American's selected defense firm, leaving SPI to shoulder the difference. SPI filed this lawsuit in order to obtain a judicial determination that American should be required to indemnify it for those additional costs.

The United States' lawsuit against SPI is presently set to go to trial before another judge of this Court on July 2, 2012. No information has been provided to this Court as to when the remaining six lawsuits, which are pending in various state courts, are scheduled to be tried. At any rate, SPI argues that its counsel in the underlying case will be forced to become involved in the preparation of discovery responses coming due in the instant coverage action, and that accordingly this action should be stayed during the pendency of the underlying lawsuits. SPI's stay request is limited, however, inasmuch as it proposes that the present action continue with respect to whether SPI is entitled to independent counsel, and with respect to the hourly rate that American should pay for SPI's defense.*fn2


The power to issue a motion to stay derives from a federal district court's power to control its docket and to ensure that cases before it are justly determined. Levya v. Certified Grocers of Cal., Ltd., 593 F.2d 857, 864 (9th Cir. 1979), cert. denied, 444 U.S. 827 (1979). Indeed, "[a] trial court may, with propriety, find it is efficient for its own docket and the fairest course for the parties to enter a stay of an action before it, pending resolution of independent proceedings which bear upon the case." Id. at 863. "This rule applies whether the separate proceedings are judicial, administrative, or arbitral in character, and does not require that the issues in such proceedings are necessarily controlling of the action before the court." Id. at 863-64. A federal district court has broad discretion in deciding whether to issue a stay. Fed. Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989). Nonetheless, "[w]here it is proposed that a pending proceeding be stayed, the competing interests which will be affected by the granting or refusal to grant a stay must be weighed." CMAX, Inc. v. Hall, 300 F.2d 265, 268 (9th Cir. 1962). "Among these competing interests are the possible damage which may result from the granting of a stay, the hardship or inequity which a party may suffer in being required to go forward, and the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law which could be expected to result from a stay." Id.


SPI argues that a stay of these proceedings is mandated by the California Supreme Court's decision in Montrose Chem. Corp. of Cal. v. Superior Court, 6 Cal. 4th 287 (1993) ("Montrose I"). As the court recognized in Montrose I, a stay of a coverage action against an insurer pending the resolution of underlying litigation "is appropriate when the coverage question turns on facts to be litigated in the underlying action." Id. at 301. If the coverage case "can be resolved without prejudice to the insured in the underlying action- by means of undisputed facts, issues of law, or factual issues unrelated to the issues in the underlying action- the declaratory relief action [seeking a coverage adjudication] need not be stayed." Great American Ins. Co. v. Superior Court, 178 Cal. App. 4th 221, 235 (2009) (citing GGIS Ins. Servs., Inc. v. Superior Court, 168 Cal. App. 4th 1493, 1505 (2009).

In determining whether a stay should be granted under this analysis, courts have looked to 1) whether there are overlapping factual issues; 2) whether the insured will be required to fight a two-front war; and 3) whether the insurer in its adverse relationship to the insured in the coverage action effectively attacks its own insured, thereby giving aid to the underlying claimant to the prejudice of the insured. See Haskel, Inc. v. Superior Ct., 33 Cal. App. 4th 963, 912 (1995).

The first and third factors delineated above are interrelated in that both turn on whether there are overlapping issues present in both cases that could work to the insured's detriment in the underlying case if adjudicated beforehand in the coverage proceeding. A stay is always required if such circumstances are indeed present. United Enterprises, Inc. v. Superior Court, 183 Cal. App. 4th 1004, 1012 (2010). If no factual overlap between the two cases exist, however, there can be no issue on which the insurer can align forces with a third party and against its insured, and consequently no stay is indicated. Great American, 178 Cal. App. 4th 221, 236.

SPI argues that a determination in the coverage case that SPI was either derivatively or independently liable could significantly impact the viability of SPI's defense in the underlying action. SPI therefore argues that the requisite overlap to justify a stay is present. American, however, points out that it is defending its insured in the underlying case with no reservation of rights. That representation on American's part means that it will provide a defense and indemnify SPI up to the applicable $1,000,000 policy limit, without regard to any potential coverage defense American could assert to the effect that negligence on the part of SPI was derivative (covered under the policy) or independent (not covered). American argues that its unqualified defense therefore negates the overlapping issue identified by SPI. The Court agrees.

The issues that the coverage action does in fact present, like the timing of SPI's defense tender, American's acceptance of that tender, and the competence of the defense counsel selected by American, have nothing to do with SPI's liability in the underlying case, and the adjudication of those issues appears to be completely separate and apart from anything to be determined in the underlying action against SPI.

While SPI also argues that the disclosure of an expert report authored by Frank Holbrook to opposing counsel in the underlying action effectively amounted to a joinder between American and SPI's adversaries in the underlying case (at the expense of SPI), there is no indication that the report's disclosure was anything other than inadvertent, and the panel counsel who made the mistaken disclosure apparently did everything possible to rectify that error once it was discovered. Significantly, too, since American's interest is aligned with SPI's in defeating all claims made against SPI (as indicated above the absence of any reservation means that American is on the hook for any liability determination as to SPI), it would make no sense for American to sabotage SPI's liability position. Moreover, and in any event, SPI has not explained how the report's disclosure constituted any actual prejudice to its position in any event.

In sum, then, neither the first or third Montrose I factors mandate in favor of a stay in the instant coverage action. That leaves only the second factor-- the potential prejudice to SPI in having to wage a two-front war with both its insurer in the coverage action and against its adversaries in the underlying liability case-- as potentially pointing in favor of staying this case. Even where no factual overlap is present, this Court has the discretion to stay an action in order to avoid the specter of such a two-front war. See United Enterprises, Inc., 183 Cal.

App. 4th at 1012. An insured can be prejudiced by having to expend resources fighting with its own insurer while at the same time attempting to defend itself against liability that its insurance was presumably supposed to cover. See Allied Prop. & Cas. Ins Co. v. Roberts, 2011 wl 2495691 AT *3 (E.D. Cal. 2011). In assessing whether a stay is indicated on this basis, the Court must look both to any potential prejudice on the insured's part as well as the prejudice to the insurer in not proceeding forward with a coverage determination. See Great American, 178 Cal. App. 4th at 236.

It cannot be overlooked that the present coverage action was instituted by SPI itself. SPI therefore complains about having to perform the routine discovery and work associated with its own case. In addition, while SPI argues that counsel is responsible for its defense in the underlying case may have to assist coverage counsel in responding to discovery propounded by American, trial in this matter is not scheduled until August 5, 2013, more than a year in the future.

That continuance, which occurred after SPI filed the instant motion, gives the parties substantially more time for pretrial preparation of this matter, including discovery. SPI has not demonstrated why measures short of an outright stay in this action would not be sufficient to protect it from any potential prejudice in preparing for trial in the underlying case, which at this point is scheduled for July 2, 2012. SPI could apply for a protective order, for example, should any particular discovery unduly interferes with its preparation for the underlying case. Downey Brand, as one of the largest firms in this area, could also presumably devote additional staff resources to assist with the discovery at issue. Finally, it also bears mention that not even SPI advocates for a total stay of this matter; as indicated above, it wants the matter to proceed as to its right to independent counsel and with respect to what hourly rate should be paid to its counsel.

American, on the other hand, points out that a stay as advocated by SPI could in fact prejudice its interests since certain coverage defenses it intends to assert by way of the coverage action (like SPI's attempt to improperly wrest control of the liability action from American in breach of the insurance contract) would necessarily be placed on hold, not only in the federal action but also in the six concurrently pending state court lawsuits as well. Given what appear to be massive defense costs involved in the defense of those actions, the potential for prejudice to American cannot be overlooked.

Although the Court recognizes that SPI, by the terms of its motion, ostensibly seeks only a six-month stay of the proceeding, if the Court were to agree with the rationale underlying its stay request the potential for yet additional stay period during the pendency of the multiple lawsuits pending against SPI would seem likely.


For all the foregoing reasons, SPI's Motion for Stay (ECF No. 40) is DENIED.


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