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Douglas Harp and Leading Edge Trucking, Inc v. Converium Insurance (North America) Inc. Later Known As Finial

January 22, 2013

DOUGLAS HARP AND LEADING EDGE TRUCKING, INC., PLAINTIFFS,
v.
CONVERIUM INSURANCE (NORTH AMERICA) INC. LATER KNOWN AS FINIAL INSURANCE COMPANY NOW KNOWN AS ALLIED WORLD REINSURANCE COMPANY AND DOES 2--100, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Hon. Otis D. Wright, II United States District Judge

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [32]

I.INTRODUCTION

Defendant Converium Insurance (North America) Inc.*fn1 moves for summary judgment on Plaintiffs' First Amended Complaint alleging breach of an insurance contract and of the implied covenant of good faith and fair dealing. Converium's Motion requires the Court to resolve a single issue: Does an insurer have an obligation to accept a policy-limit settlement demand that releases only two of three insureds, where the third insured faces potential vicarious liability for the released insureds?

The Court's answer is no. Having carefully considered the arguments advanced in support of and in opposition to Converium's Motion, the Court finds this matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; L.R. 7-15. The January 28, 2013 hearing on this matter is therefore VACATED, and no appearances are necessary. For the reasons discussed below, the Court GRANTS Converium's Motion.

II.FACTUAL BACKGROUND

On March 18, 2005, Plaintiff Douglas Harp sued, among others, Leading Edge Trucking Company, George Armitage, and Mesa Contracting Corporation for substantial injuries he sustained in a late 2003 workplace incident (the "Harp suit"). (SUF 4, 5.) The incident occurred at a construction job site under Mesa's supervision. Harp's injuries were the result of Armitage's driving a large dump truck owned by Leading Edge into the vehicle Harp occupied. (SUF 4.) Harp alleged in the Harp complaint that Leading Edge and Mesa were vicariously liable for Armitage's conduct. After paying worker's compensation benefits to Harp, Harp's worker's compensation insurer (St. Paul Fire & Marine Insurance Company) intervened in the Harp suit to recover the benefits it paid Harp. (SUF 12.)

At the time of the accident, Leading Edge was covered by a commercial-lines policy through Converium with a $750,000-per-accident limit. (SUF 1.) The Converium policy defined an "insured" as, among other things, "Anyone liable for the conduct of an 'insured' described above [including Leading Edge and Armitage] but only to the extent of that liability." (Stip. Ex. A, at 19.) Also at this time, Mesa had a separate liability insurance policy through Peerless Insurance Company with a $1,000,000-per-accident limit. (SUF 11.)

Leading Edge tendered the Harp suit to Converium, and Converium retained counsel to defend Leading Edge. (SUF 13.) Converium also provided defense to Armitage subject to a reservation of rights. (SUF 14.) Prior to trial in the Harp suit, Harp and St. Paul offered to settle the matter for the $750,000 limit of the Converium Policy. (SUF 16.) This demand included releases for Leading Edge, Armitage, and "their employees, agents, principals[, etc.]," but it expressly stated that the demand did not include a release for Mesa. (Id.)

On October 18, 2007, counsel for Converium attempted to obtain a release of any claim against Mesa under the Converium policy with respect to Harp and St. Paul's contentions in the Harp suit that Mesa was vicariously liable for Armitage's conduct. (SUF 17.) Ultimately he was unable to obtain the release. (Id.)

On October 19 and November 1, 2007, counsel for Converium wrote to Harp's counsel to assert his belief that Mesa qualified as an insured under the Converium policy because it could be held vicariously liable for Leading Edge's and Armitage's actions. (SUF 18.) Converium's counsel explained that it therefore could not accept Harp and St. Paul's demand absent a release for Mesa because California law precludes an insurer from accepting a policy-limit demand where the claimant would release only some, but not all, of the insurer's insureds. (Id.) Harp and St. Paul never ultimately offered to include a release for Mesa in their policy-limit demand. (SUF 19.)

In mid 2008, following trial in the Harp suit, Leading edge suffered an adverse verdict and judgment in the amount of $1,528,500-more than double the Converium policy limit. (SUF 20, 21.) In addition, the jury found that Mesa was not Armitage's employer at the time of the accident and that Armitage was not acting within the course and scope of his employment with Mesa at the time of the accident. (SUF 21, 22.)

On February 20, 2009, Armitage argued on appeal that Mesa was in fact vicariously liable for Leading Edge's conduct. (SUF 24.) In April 2009, Mesa tendered its defense in the Harp suit to Converium for the first time, and Converium agreed to defend Mesa under the Converium policy subject to a reservation of rights. The Harp suit judgment was affirmed in March 2010, and in April 2010 Converium paid the policy limit on behalf of Leading Edge in partial satisfaction of the Harp judgment.

Leading Edge subsequently assigned its rights under the Converium Policy to Harp. (SUF 32.) Harp and Leading Edge then filed this action as co-Plaintiffs alleging claims for (1) breach of the implied covenant of good faith and fair dealing; (2) breach of contract; and (3) declaratory relief, all relating to Converium's failure to accept Harp and St. Paul's policy-limit demand in the Harp suit. Converium now moves for summary judgment arguing that it ...


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