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McAdam v. State Nat'l Ins. Co., Inc.

United States District Court, S.D. California

June 19, 2014

ROBERT McADAM, Plaintiff,
v.
STATE NATIONAL INSURANCE COMPANY, INC. and DOES 1 through 25, inclusive, Defendants

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For Robert McAdam, Plaintiff: Anna F Roppo, Annette Colleen Clark, William Patrick Keith, LEAD ATTORNEYS, Duckor Spradling Metzger & Wynne, San Diego, CA.

For State National Insurance Company, Inc., Defendant: Joan M. Borzcik, LEAD ATTORNEY, Gordon & Rees LLP, San Diego, CA; Matthew C Elstein, LEAD ATTORNEY, Musick Peeler & Garrett LLP, San Diego, CA.

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ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

BARRY TED MOSKOWITZ, Chief United States District Judge.

Defendant State National Insurance Company, Inc. (" State National" ) seeks summary judgment as to all claims. The Court held a summary judgment hearing on May 20, 2014. For the reasons set forth herein, as well as those stated at the hearing, the Court DENIES the motion.

I. BACKGROUND

This case arises from a " Hull and Machinery/Protection and Indemnity" insurance policy issued by State National to Plaintiff Robert McAdam (" Plaintiff" or " McAdam" ) for the term May 5, 2011 to May 5, 2012 (No. TUV221275-00). The policy was issued on May 9, 2011, and was subsequently amended via endorsements. (Def.'s Ex. 12.) As of September 22, 2011 the policy insured, inter alia, two vessels: Jessica M and Shirley B. (Def.'s Ex. 12 at SNIC 0032 (Endorsement no. 5.)) It did not cover operations south of the California/Mexico

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border until endorsement no. 14 became effective on December 21, 2011. (Def.'s Ex. 12 at SNIC 0040.)

Robert McAdam does not own the vessels, as alleged in the Complaint. (Compl. ¶ 9.) Rather, he is the managing member of McAdam's Fish LLC. (McAdam Decl. ¶ 5.) For purposes of limiting liability, McAdam's Fish owns its vessels through eight wholly owned subsidiaries, each of which owns a fishing vessel. (Opp'n 1.) The Jessica M is owned by subsidiary Charca Fish III LLC and the Shirley B is owned by subsidiary Charca Fish IV LLC. (McAdam Decl. ¶ 7.)

McAdam's Fish bought the vessels in 2011, when they were shrimp trawlers. They were then stripped and converted into tuna boats at an Alabama shipyard. (McAdam Decl. ¶ 10-13; Def.'s Ex. 13 at 88:15-22.) In September or October 2011, Plaintiff contacted insurance broker Sharon Edmondson seeking coverage for the Shirley B and Jessica M (originally named the Alyona M and the Svetlana M ). (Decl. of Sharon Edmondson (" Edmondson Decl." ) ¶ 12.) Endorsement no. 5 to the policy, effective September 22, 2011, provided $460,000 and $474,000 in hull and machinery coverage, respectively, with a $10,000 deductible. (Def.'s Ex. 12 a SNIC 0032.) Master Marine, Inc. completed conversions on the boats in mid December 2011. (McAdam Decl. ¶ 13.) On December 21, 2011, the hull coverage for each vessel was increased to $800,000 by endorsement nos. 8 and 9, which also provide $500,000 in protection and indemnity coverage, and coverage for a crew of five salaried at $425 per month for five months. (Def.'s Ex. 12 at SNIC 0035-36.) After they underwent stability tests, McAdam sent the vessels to the South Pacific to fish. (McAdam Decl. ¶ 14.)

On February 24, 2012, the Shirley B's rudder snapped off while the vessel was fishing near New Zealand. The Jessica M traveled some seventy miles to provide assistance, and towed the Shirley B to port in Tauranga, New Zealand. State National or its agent directed the Shirley B to a repair yard, and both ships were repaired in New Zealand. While towing the Shirley B, the crew of the Jessica M allegedly reported that her steering became " loose" and " sloppy." (Def.'s Ex. 68, SNIC 0153-54.) Plaintiff sought reimbursement for repairs under the policy. State National retained Optimum Claims Services, Inc. (" Optimum" ) for claims adjustment purposes and hired marine surveyor Arnold & Arnold (" A& A" ) to inspect the vessels. (State National is a " program" underwriting firm that does not do claims adjustment itself.) Of the approximately $163,000 claimed for repairs to the Shirley B, State National paid $126,875.07. The claim concerning the Jessica M was denied in May 2012.

On June 4, 2012, Plaintiff filed this lawsuit, asserting the following causes of action: (1) breach of insurance contract; (2) breach of the implied covenant of good faith and fair dealing; (3) injunctive relief and restitution pursuant to Cal. Bus. & Prof. Code § § 17200, et seq. ; and (4) declaratory relief. The Court dismissed the third cause of action. (Doc. 9.) State National now seeks judgment as to each remaining claim.

II. LEGAL STANDARD

Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure if the moving party demonstrates the absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A fact is material when, under the governing substantive law, it could affect the outcome of the case.

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Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 919 (9th Cir. 2001). A dispute is genuine if a reasonable jury could return a verdict for the nonmoving party. Anderson, 477 U.S. at 248.

A party seeking summary judgment always bears the initial burden of establishing the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. The moving party can satisfy this burden in two ways: (1) by presenting evidence that negates an essential element of the nonmoving party's case; or (2) by demonstrating that the nonmoving party failed to establish an essential element of the nonmoving party's case on which the nonmoving party bears the burden of proving at trial. Id. at 322-23. " Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment." T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987).

Once the moving party establishes the absence of genuine issues of material fact, the burden shifts to the nonmoving party to set forth facts showing that a genuine issue of disputed fact remains. Celotex, 477 U.S. at 324; In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010). The nonmoving party cannot oppose a properly supported summary judgment motion by " rest[ing] on mere allegations or denials of his pleadings." Anderson, 477 U.S. at 256. When ruling on a summary judgment motion, the court must view all inferences drawn from the underlying facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

III. APPLICABLE LAW

A marine insurance contract is interpreted in accordance with the law of the state in which it was formed unless there is a controlling federal rule on point, or unless there is a reason to create a federal rule. Wilburn Boat Co. v. Fireman's Fund Insur. Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955); Ingersoll-Rand Fin. Corp. v. Employers Ins. of Wausau, 771 F.2d 910 (5th Cir. 1985). See also Ghotra v. Bandila Shipping, Inc., 113 F.3d 1050, 1054 (9th Cir. 1997). Following this rule, except where there is an " entrenched federal precedent," state substantive insurance law governs marine insurance disputes. See, e.g., Certain Underwriters at Lloyds, London v. Inlet Fisheries, Inc., 518 F.3d 645 (9th Cir. 2008). Here, absent an established federal rule or need to create one, California law applies. See generally Cal. Ins. Code Part 1 (Fire and Marine Ins.); Abbey Co., LLC v. Lexington Ins. Co., 289 Fed.Appx. 161, 163-164 (9th Cir. 2008) (" Insurance policies are contracts, and " [t]he words of a contract are to be understood in their ordinary and popular sense." (quoting Cal. Civ. Code § 1644.)); Bennett v. State Farm Mutual Auto. Ins. Co., 731 F.3d 584 (6th Cir. 2013).

IV. DISCUSSION

A breach of contract claim under California law requires the plaintiff to establish four elements: (1) the existence of a contract; (2) plaintiff's performance or excuse for nonperformance of the contract; (3) defendant's breach of the contract; and (4) damages resulting from defendant's breach of the contract. Troyk v. Farmers Group, Inc., 171 Cal.App.4th 1305, 1352, 90 Cal.Rptr.3d 589 (2009). State National raises several challenges to Plaintiff's breach of contract claim, as well as his tortious bad faith claim.

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A. Plaintiff's Standing as the ...


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