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Lincoln General Insurance Co. v. Ryan Mercaldo LLP

United States District Court, S.D. California

May 9, 2014

LINCOLN GENERAL INSURANCE COMPANY, Plaintiff,
v.
RYAN MERCALDO LLP, et al., Defendants.

ORDER DENYING DEFENDANTS' MOTION TO DISMISS [DOC. 9]

THOMAS J. WHELAN, District Judge.

On September 13, 2013, Plaintiff Lincoln General Insurance Company ("Lincoln General") commenced this legal-malpractice action against Defendants Ryan Mercaldo LLP, Ryan Mercaldo & Worthington LLP ("RMW"), and Brian P. Worthington. Defendants now move to dismiss Plaintiff's First Amended Complaint ("FAC") under Federal Rule of Civil Procedure 12(b)(6). Plaintiff opposes.

The Court decides the matter on the papers submitted and without oral argument. See Civ. L.R. 7.1(d.1). For the following reasons, the Court DENIES Defendants' motion to dismiss.

I. BACKGROUND

A. The Underlying Matter

On April 9, 2009, Lillian and Chris Gradillas filed a complaint for damages against Kenneth Nwadike, Jr., America Bus Line, and others in the San Francisco Superior Court ("underlying matter"). (FAC ¶ 8.) Plaintiff had issued a commercial general liability insurance policy ("CGL Policy") to America Bus Line and a business automobile insurance policy ("auto policy") to Mr. Nwadike d/b/a America Bus Line, both policy periods running from June 2007 to June 2008. (Id. ¶ 9.) Both policies "provided a duty to defend and a duty to indemnify covered claims, subject to each policy's respective terms, conditions and exclusions." (Id. ¶ 10.) "After receiving notice of the claim associated with the underlying matter and on May 27, 2009, Plaintiff agreed to defend America Bus Line and Nwadike in the underlying matter pursuant to a reservation of rights under its CGL Policy." (Id. ¶ 11.)

On May 28, 2009, Plaintiff retained Defendants to provide "professional and legal analysis on, and form an opinion regarding, its insurance coverage obligations associated with the underlying matter and issues related thereto." (FAC ¶¶ 12-15.) Consequently, on June 22, 2009, Defendants sent to Plaintiff "their professional and legal analysis and opinion regarding Lincoln General's insurance coverage obligations associated with the underlying matter[.]" (Id. ¶ 19.) Plaintiff alleges that Defendants "never requested a copy of the auto policy" and they "did not obtain, review or analyze the auto policy before providing the Coverage Opinion, " despite knowing that Plaintiff had issued both policies. (Id. ¶¶ 18, 20-23.)

On July 6, 2009, two letters were sent to America Bus Line: "the first denying coverage and referencing the auto policy, and the other withdrawing the defense of Mr. Nwadike and America Bus Line in the underlying matter." (FAC ¶ 25.) Thus, "[i]n accordance with direction from Lincoln General based on the Coverage Opinion, counsel for Mr. Nwadike and America Bus Line withdrew his representation in the underlying matter." (Id. ¶ 27.)

In August 2011, the underlying matter settled, where Mr. Nwadike stipulated to a $2.5 million judgment in favor of Lillian and Chris Gradillas. (FAC ¶ 28.) On February 6, 2012, the Gradillases voluntarily dismissed the underlying matter. (Id. ¶ 29.) Then on September 14, 2012, the Superior Court granted the Gradillases' petition to reopen the case and enter the $2.5 million stipulated judgment. (Id. ¶¶ 30-31.)

B. The Coverage Action

Lillian and Chris Gradillas filed suit against Plaintiff, seeking $2.5 million from Plaintiff as assignees and judgment creditors of the underlying matter in the San Francisco Superior Court ("coverage action"). (FAC ¶ 32.) After the coverage action was removed to federal court, the Gradillases filed a motion for partial summary judgment against Plaintiff, "alleging that the underlying claim associated with the underlying matter was covered under the Lincoln General auto policy because, inter alia, the bodily injury arose out of the use' of an auto and that the automobile in use was covered under the auto policy as a temporary substitute despite not being on its schedule of covered automobiles." (Id. ¶¶ 33-34.) On December 3, 2012, the district court granted the Gradillases' motion, finding that "Lincoln General breached its duty to defend under the auto policy." (Id. ¶ 35.)

On March 22, 2013, the district court entered final judgment of $2.5 million against Plaintiff in the coverage action. (FAC ¶ 36.) Thereafter, Plaintiff appealed to the Ninth Circuit and posted a $3.125 million supersedeas bond. (Id. ¶ 37-38.)

C. This Legal Malpractice Action

On September 13, 2013, Plaintiff commenced this legal-malpractice action against Defendants, arising from their service as coverage counsel with respect to the underlying matter. On January 28, 2014, Plaintiff amended its complaint, asserting claims for: (1) legal malpractice/professional negligence; (2) breach of fiduciary ...


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