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General Insurance Company of America, A v. John C. Harper

March 28, 2013


The opinion of the court was delivered by: Honorable Larry Alan Burns United States District Judge


Plaintiff General Insurance Company of America ("General") brought this action for declaratory relief, seeking a declaration that damages awarded in a particular state-court judgment are not covered under the terms of a policy (the "Policy") issued to Westland Insurance Brokers, Inc. ("Westland"), and that General has no obligation to satisfy that judgment. John Harper, in his answer, included a counterclaim demanding that payment be made under the Policy for failure to defend, and seeking damages for breach of contract and breach of the implied covenant of fair dealing. Although there were other parties to this action when it was filed, they have since been dismissed, leaving General and Harper as the only two parties.

General moved for summary judgment or, in the alternative, for partial summary judgment, on its claims as raised in the complaint, and on Harper's claims as raised in the counterclaim.

General principally argues that it canceled the Policy, and the claim was not presented to it within the time required under the Policy's terms. In the alternative, it argues that even if its interpretation is incorrect, the mistake was reasonable so the covenant of good faith and fair dealing was not violated and punitive damages are inappropriate. Legal Standards

The Court is sitting in diversity, so it applies federal procedural law, but state substantive law See Zamani v. Carnes, 491 F.3d 990, 995 (9th Cir. 2007); Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). Here, that means the Court applies California substantive law as handed down by the California Supreme Court. See Trishan Air, Inc. v. Fed. Ins. Co., 635 F.3d 422, 427 (9th Cir. 2011). If there is no California Supreme Court decision to govern the decision, the Court will attempt to predict how the highest state court would decide the issue. Id.

Summary judgment is appropriate where "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). It is the moving party's burden to show there is no factual issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party meets its burden, the burden shifts to the non-moving party to show there is a genuine issue for trial. Id. at 331. The Court may grant summary judgment as to some material facts. Fed. R. Civ. P. 56(g).

The Court considers the record as a whole and draws all reasonable inferences in the light most favorable to the non-moving party. Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 531 (9th Cir. 2000). The Court does not make credibility determinations or weigh conflicting evidence. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Rather, the Court determines whether the record "presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251--52.

In ruling on a motion for summary judgment, the Court considers only facts that would be admissible in evidence. See Fed. R. Civ. P. 56(e); Rosa v. Taser Int'l, Inc., 684 F.3d 941, 948 (9th Cir. 2012). A party may object as to the admissibility of evidence presented. Fed. R. Civ. P. 56(c)(2). A party cannot resist summary judgment by relying on mere allegations or denials of the moving party's evidence. Anderson, 477 U.S. at 248.

Construction of an agreement, such as a contractual insurance policy, is a question of law for the Court. Trishan, 635 F.3d at 426. When a contract is not ambiguous, summary judgment may be based on the Court's interpretation of the clear and unambiguous contractual provisions. Travelers Cas. & Sur. Co. v. Am. Int'l Surplus Lines Ins. Co., 465 F. Supp. 2d 1005, 1012 (S.D.Cal., 2006). Ambiguities, however, are construed in favor of the insured, to protect the insured's reasonable expectation of coverage. Producers Dairy Delivery Co. v. Sentry Ins. Co., 41 Cal.3d 903, 912 (1986); Forecast Homes, Inc. v. Steadfast Ins. Co., 181 Cal. App. 4th 1466, 1475 (Cal. App. 4 Dist. 2010).

Factual Background

The following facts are undisputed or uncontroverted, except where noted. Harper was a licensed insurance agent and broker, and worked as an independent contractor for Westland. Harper's contract with Westland required that it maintain professional liability insurance that covered Harper. Westland purchased the Policy, effective April 1, 2008, which included coverage for errors and omissions.

In October of 2008, while the Policy was in effect, Westland ceased operations in the wake of financial misconduct by its operator, James Sim. Harper learned that not only was Westland closing down, but it had also committed wrongful acts against him, including breach of its obligations to him regarding management of funds in accounts for Harper's and Harper's clients' benefit, failure to disclose account deficiencies to him, and failing to make premium payments on the Policy as required by Harper's contract with Westland.

Out of concern for his liability, Harper sought legal assistance, and also left Westland around October 24, 2008. General then received a notice canceling the Policy effective November 3, but offering Westland an option to purchase extended tail coverage.

The notice also reminded Westland to consult the "claims-made" provision of the Policy, which provided that General would pay only claims arising during the Policy's effective period and reported to General in ...

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