The opinion of the court was delivered by: Gary S. Austin United States Magistrate Judge
ORDER REGARDING CEDAR SOL WARREN'S MOTION TO BE
SUBSTITUTED AS A PLAINTIFF IN THIS MATTER
RELEVANT FACTUAL AND PROCEDURAL BACKGROUND
The complaint alleges that on March 13, 2000, Cedar Sol Warren was driving to work when he spilled his coffee, and became distracted. Warren swerved into oncoming traffic, striking the vehicle being driven by Plaintiff Robert Dorroh. As a result of the accident, Robert Dorroh was rendered a paraplegic.
At the time of the accident, Warren was covered under an insurance policy purchased by his father, James Warren, and issued by Defendant Deerbrook Insurance Company.
Because Robert Dorroh was on his way to work at the time of the accident, he made a claim for workers' compensation benefits. That claim was denied by his employer and its insurer, Superior National Insurance Co. No benefits were paid by the workers' compensation insurance carrier until after a trial was held before the California Worker's Compensation Appeals Board ("WCAB"). On June 13, 2003, the WCAB issued an award finding Robert Dorroh was entitled to benefits. Thereafter, Superior National began paying benefits to, and on behalf of, Robert Dorroh for the injuries he suffered. Prior to that date, Superior National had not furnished medical treatment, nor paid benefits on behalf of the claim.
Also as a result of the accident, Robert and Barbara Dorroh made a claim against Warren's insurer, Deerbrook. They sought payment of the $15,000 policy limit in exchange for a release of all claims against Deerbrook's insured, Warren. At the time of the demand, Deerbrook was aware that its insured - Cedar Sol Warren - was entirely at fault for the accident, and that Robert Dorroh had suffered in excess of $300,000 in medical bills.
In September 2000, before the settlement between the Dorrohs and Warren could be finalized however, Deerbrook received notice from Superior National advising it of a lien in an "unknown amount." In actuality, Superior National had not paid any money as a result of a dispute as to the compensability of the workers' compensation claim. Faced with the lien notice, Deerbrook advised Dorrohs' counsel (the Carcione firm) of the lien. Mr. Carcione refused to accept a joint payee settlement check (naming the Dorrohs & Superior National) and demanded that Deerbrook make the check payable to the Dorrohs only. Attorney Carcione contended that Deerbrook could ignore the lien notice because the workers' compensation carrier had "denied" the claim and no monies had been paid.
On January 31, 2001, Mr. Carcione made his final demand that Deerbrook ignore the lien notice and settle the Dorrohs' claim for the policy limits. Deerbrook chose not to disregard the lien notice, and refused to make the settlement check payable to the Dorrohs only. Accordingly, Mr. Carcione refused to settle the matter.
After the parties were unable to settle, the Dorrohs filed suit against Warren in Tuolumne County Superior Court. In August 2006, the Dorrohs' counsel proposed that Warren assign his claim to the Dorrohs, and that Warren and Deerbrook stipulate to a judgment against Warren. The Dorrohs proposed they would agree not to execute the judgment against Warren, and instead would file a bad faith case only against Deerbrook, thus avoiding the need for a trial between the Dorrohs and Warren, and limiting Warren's liability. Deerbrook rejected this offer. Prior to the trial, Warren alleges that Deerbrook's attorney recommended that he file for bankruptcy. He did so. Close in time, a $16 million judgment was entered against Warren in the Tuolumne County Superior Court action. The Dorrohs are now pursuing a bad faith claim against Deerbrook as Warren's assignees. In that regard, the Dorrohs contend that Deerbrook acted in bad faith by (1) refusing to ignore the workers' compensation lien, (2) by refusing to issue a settlement draft in the Dorrohs' name only, and (3) by refusing to stipulate to their proposed judgment. The Dorrohs contend that Deerbrook's refusals have resulted in Warren's bankruptcy.
On July 30, 2012, Cedar Sol Warren filed his Notice of Motion and Motion to be Substituted as a Plaintiff in this Matter. He set the matter to be heard before District Judge Anthony W. Ishii on August 27, 2012. (Doc. 69.) By minute order dated July 31, 2012, the motion was re-set to be heard before the undersigned on September 7, 2012, at 9:30 a.m. in Courtroom 10. (Docs. 70 & 71.)
On August 24, 2012, Defendant Deerbrook Insurance Company filed its opposition to Warren's motion, accompanied by its request for judicial notice. (Doc. 74.) On August 31, 2012, Warren filed his reply to the opposition. (Doc. 77; see also 79 [errata re exhibits].) On September 4, 2012, Deerbrook filed a supplemental opposition. (Doc. 78.)
On September 6, 2012, pursuant to Local Rule 230(g), this Court vacated the hearing date on the motion and took the matter under submission for written findings. (Doc. 80.)