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McDaniel v. GEICO General Insurance Co.

United States District Court, E.D. California

September 24, 2014

AMY J. McDANIEL, Plaintiff
v.
GEICO GENERAL INSURANCE COMPANY, and DOES 1-100 inclusive, Defendants

Page 1245

For Amy J McDaniel, Amy J. McDaniel, individually and as Assignee of the Estate of Edward Murotani, Decedant, Plaintiff: Steve W. Nichols, Thomas A. Brill, LEAD ATTORNEYS, Law Offices Of Young & Nichols, Bakersfield, CA.

For GEICO General Insurance Company, Defendant: Charles D. May, Gene B. Sharaga, LEAD ATTORNEYS, Tharpe & Howell, LLP, Sherman Oaks, CA; Mark W. Hansen, Law Office Of Mark W. Hansen, San Diego, CA.

Page 1246

ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT (Doc. Nos. 28, 29)

Anthony W. Ishii, SENIOR UNITED STATES DISTRICT JUDGE.

This is an insurance dispute between Plaintiff Amy McDaniel (" McDaniel" ) and GEICO General Insurance Co. (" GEICO" ). McDaniel is the assignee of a bad faith failure to settle claim against GEICO. Both parties bring cross-motions for summary judgment. For the reasons that follow, GEICO's motion will be denied and McDaniel's motion will be granted.

FACTUAL BACKGROUND[1]

In 2008, Edward Murotani (" Murotani" ) was diagnosed with diabetes. See PUF 1. On June 11, 2008, Murotani purchased an automobile insurance policy (" the Policy" ) for his Nissan Altima from GEICO. See

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JUF 1. The Policy was in effect on October 25, 2008, and provided bodily injury liability limits of $100,000 per person and $200,000 per occurrence. JUF 2.

On October 25, 2008, Murotani was driving his Altima when he became confused and light-headed. See PUF 2. Murotani continued to drive even though he knew he was likely having a diabetic episode.[2] See id. Murotani had prior episodes of low blood sugar, so he recognized those feelings. See PUF 4. Eventually, Murotani drove his Altima onto the wrong side of a divided highway against the flow of on-coming traffic, and came to a stop after hitting a sign post. JUF 3; see PUF 5. At one point, Murotani hit something and his car began to smoke. PUF 6. Murotani eventually was helped out of his smoking car. See id. Murotani essentially admitted in his deposition that the accident was his fault since his car ended up on the wrong side of the road after he continued driving when he knew he was having a diabetic episode. See PUF 7. A fire started in Murotani's Altima, and created a large smoke field that obscured on-coming drivers' views of the accident scene. JUF 4. McDaniel's husband, Steven McDaniel, had stopped and gotten out of his vehicle to try to pet out the fire. JUF 5. As Steven McDaniel tried to put the flames out from Murotani's car, another driver went into the smoke and crashed into Murotani's car, which caused Murotani's car to fatally push into Steven McDaniel. See PUF 8.

On January 23, 2009, a liability claim file was opened by GEICO to handle the claims relating to Murotani's October 25, 2008, accident. See JUF 6.

On March 3, 2009, McDaniel filed a wrongful death suit against Murotani and others in Kern County Superior Court. JUF 7. On April 22, 2009, GEICO referred the handling of the lawsuit to attorney Michael Griott (" Griott" ), who was a GEICO employee.[3] See JUF 8; Griott Dec. ¶ 2. The GEICO claims person assigned to handle the McDaniel wrongful death lawsuit against Murotani was Aldin Buenaventura (" Buenaventura" ), and the claim was given a claim number. See JUF 9. GEICO provided a defense to Murotani through Griott. JUF 10.

On March 4, 2009, Buenaventura made a log entry that discussed information and facts known about the October 25 accident and a plan for future action. See Plaintiff's Ex. 4; PUF 9. In relevant part, the log entry states: " insureds losing control of his vehicle appear to be clear liability," and " I will place the insured on notice of the potential excess exposure of bodily injury." PUF's 9, 10.

On March 5, 2009, GEICO advised Murotani that every effort to settle all claims within policy limits would be made. See PUF 11.

On May 6, 2009, Loyd Asuncion (a co-defendant in McDaniel's wrongful death suit) served special interrogatories on McDaniel.[4] See PUF 13. In many instances, Asuncion's interrogatories sought the same information as that sought by Murotani in his special interrogatories to McDaniel. See id

On May 19, 2009, Griott provided GEICO with the liability information necessary

Page 1248

to determine fault. PUF 15. The report discusses Murotani's previous diabetic episodes while driving, establishing Murotani's knowledge of the danger. See id. Griott advised the GEICO claims department that Murotani caused the series of collisions when Murotani suffered a diabetic episode, that the collisions culminated in the death of Steven McDaniel, and that this was a " case for settlement." See id.

On July 1, 2009, McDaniel provided verified answers in response to Loyd Asuncion's interrogatories. See Plaintiff's Ex. 15; see also PUF 30. McDaniel served a copy of these responses on all counsel, including Griott. See PUF 31; McDaniel Ex. 15. As part of her responses, McDaniel indicated that Steven McDaniel's income was between $60,000 and $75,000 per year. See PUF 32. McDaniel also responded that she had been married to Steven McDaniel for 30 years. See Plaintiff's Ex. 15; see also PUF 33.

On August 7, 2009, McDaniel's attorney Steve Nichols (" Nichols" ) wrote a letter to Griott in which he demanded settlement for the Policy's $100,000 limit, and set a deadline of 15 days from the date of the letter for acceptance. See JUF 11. The demand letter mistakenly referred to GEICO's insured as having run over Steven McDaniel, and was incorrect in that regard. Id

On August 10, 2009, Nichols hand delivered the August 7 letter to Griott while they were both in attendance at a deposition. See Griott Dec. ¶ 4. Nichols agreed in a conversation with Griott to extend the deadline for acceptance of plaintiff's $100,000 settlement demand to a new date of 10 days following McDaniel's service of responses to discovery that had previously been served by Murotani. JUF 12. As of August 10, 2009, the only pending discovery that had previously been served by Murotani upon McDaniel was a set of special interrogatories. JUF 13.

On August 11, 2009, an e-mail from Griott's law firm was sent to Buenaventura informing him of the August 7 policy limits demand letter. See GEICO Ex. 4. The e-mail indicated that a copy of the policy limits letter would be faxed to Buenaventura. See id

On August 12, 2009, Buenaventura spoke with Nichols's assistant about the error in the August 7 letter. DUF 13.A.

On August 13, 2009, Nichols sent a corrected letter to Griott indicating that McDaniel was demanding the policy limits, but correctly referring to Murotani as the one who was driving the wrong way on the freeway. JUF 14. This letter indicated that a response was due " within 15 days of the date of this letter." See PUF 29.

On August 27, 2009 at a deposition, Nichols hand-delivered McDaniel's interrogatory responses to Griott. JUF 15; Griott Dec. ¶ 8. The interrogatory responses did not include a " Verification" signed under oath by McDaniel. JUF 16. The interrogatory responses included a sheet of paper that said, " Verification to Follow." JUF 17. Griott summarized the interrogatory responses as indicating that Steven McDaniel had been married for 30 years, was making about $60,000 per year, was in excellent health, and was not under the care of any doctors at the time of death. See Plaintiff's Ex. 16.

On September 1, 2009, Griott's assistant, Lynda Page, sent an e-mail with an attached letter from Griott to Buenaventura. See JUF 18. The e-mail described the attachment as " our depo summaries of Edward Murotani and Co-Defendant, Lloyd Asuncion." See DUF 18.C. In the attached letter, Griott provided summaries of the recent depositions of Murotani and Lloyd Asuncion and stated at the end of

Page 1249

the letter that he had received McDaniel's discovery responses and that the responses to the insurance policy limit demand of $100,000 was due on September 11, 2009. See JUF 18; see also PUF 34.[5] In bold and underlined text, the letter states that the time to respond to McDaniel's demand would run as of September 11, 2009. See PUF 34. Griott had not noticed that the interrogatory responses served by Nichols did not contain a verification under oath signed by McDaniel. DUF 18.A. Griott's letter also states that, " We will be held in liability on this matter. This case has a minimal value of at least $500,000." PUF 35. Buenaventura had already had a phone conversation with Griott in which Griott had briefly summarized key points of two recent depositions. DUF 18.D. Buenaventura declares that, as a result of the phone conversation, Buenaventura did not read any portion of Griott's September 1 letter, including the statements at the very end about Griott's receipt of discovery responses from McDaniel or Griott's belief that the deadline for accepting the policy limits demand would run on September 11, 2009. See id.; Buenaventura Dec. ¶ 16. Buenaventura did not realize that any interrogatory answers had been received, whether verified or unverified, and therefore was not aware that a 10-day deadline for acceptance of McDaniel's $100,000 offer had begun to run. DUF 18.E. Buenaventura noted on his September 4, 2009, log entry that McDaniel's attorney had granted an extension of the policy limits offer " until 10 days following responses to discovery," and that " the discovery responses are overdue." DUF 18.F.

On September 9, 2009, Buenaventura had a phone call with Nichols on the topic of settlement. DUF 18.G. After the call, Buenaventura continued to believe that McDaniel's discovery responses were overdue and that the policy limits offer was still open. See id. Buenaventura noted in his case log: " I received call from P-atty Office; *[spoke with] Steve Nichols*; P-atty admits sending wrong demand letter to our office. I explained that we are looking to determine the total amount exposures for this loss. Our office has not been presented with any responses to our requests to produce documentation. Once we have the information we will then be able to process and evaluate all claim. P-atty [understands]." Id. Buenaventura's reference to " responses to our requests to produce documentation" was his way of referring to whatever discovery responses were due from McDaniel. DUF 18.H.

On September 10, 2009, Buenaventura scheduled an appointment with his supervisor and manager to begin the process of seeking authority to settle for the $100,000 policy limits, instead of continuing to wait for discovery responses and be subject to a short 10-day acceptance deadline. See DUF 18.I; Buenaventura Dec. ¶ 21.

On September 18, 2009, Buenaventura met with his supervisor and manager regarding the policy limits offer. See DUF 18.J. After the meeting, Buenaventura's manager, David Fetchina, made a case log entry noting that he had discussed the case with Buenaventura and his supervisor, Denise Lundgren, and agreed with the recommendation to tender the $100,000 policy limit for McDaniel's wrongful death claim. See id. Immediately after the meeting, Buenaventura called Griott and

Page 1250

Nichols and left voice mail messages for them indicating that he had reviewed McDaniel's policy limits demand and would have a response by the first part of the following week. DUF 18.K. Buenaventura received no return call from Nichols in response to the September 18 message. See DUF 18.L. Also, Buenaventura did not read Griott's September 1 letter until September 18, 2009, but did not read the portion of the letter relating to the time limit for McDaniel's policy limits demand. See PUF 36; Buenaventura Depo. 64:15-67:10.

Authority from Mike Stup of GEICO's home office legal department (who was a level above David Fachina) was needed in order for GEICO to pay the $100,000 policy limits. See DUF 18.M. David Fachina's case log entry for September 18 was e-mailed to Mike Stup. See DUF 18.N.

On September 21, 2009, Stup responded with his own case log entry, in which he agreed generally with the proposed per person $100,000 settlement, but expressed concern over having enough money under the $200,000 per accident limit to settle all claims, due to a possible " Dillon v. Legg" bystander claim by McDaniel for having witnessed the death of her husband. See DUF 18.O. Stup wrote: " I have no problem extending the single limit to the estate but want to make sure that we have adequate funds for the remaining claims including Mrs. McDaniel." Id. Accordingly, the final step before GEICO could agree to pay the $100,000 demand was to confirm that any " Dillon v. Legg" claim would be included in the release. See DUF 18.P. Between September 24 and October 1, Buenaventura obtained confirmation through communications with Griott's assistant and the supervising attorney in Griott's office. See id.

On October 1, 2009, Buenaventura e-mailed Mike Stup and advised that he received a message from defense indicating they had confirmed the $100,000 demand was for " all McDaniels." DUF 18.Q. Buenaventura then recommended accepting the offer " inclusive of all liens." See id. Stup responded 22 minutes later, " OK to proceed as suggested." DUF 18.R. At 5:13 p.m. on October 1, 2009, Buenaventura called and spoke with Griott, advised him that GEICO would pay $100,000 to settle the claims of the McDaniels and that he (Buenaventura) would call Nichols to find out if a single check or multiple checks were needed. See DUF 18.S.

On October 1, 2009, Buenaventura telephoned Nichols and offered, for the first time, to settle all of the McDaniel family claims for the Policy's policy limits of $100,000.00. See JUF 19. During the October 1, 2009, phone conversation, Nichols declined GEICO's offer to settle the claims against Murotani for $100,000 and took the position that GEICO's acceptance deadline had previously passed. JUF 20. McDaniel contends that the deadline for acceptance of her policy limits offer was September 6, 2009, which her attorneys calculated as the date that is 10 days after Nichols hand-served McDaniel's unverified responses to Murotani's interrogatories. See JUF 21.

On October 2, 2009, Buenaventura sent a letter to Nichols in which he said: " This letter will confirm our telephone conversation yesterday. Our office has agreed to tender the per person policy limit of $100,000 to settle the claims of your clients, the McDaniel family. Your office is unwilling to accept the offer to resolve the matter." JUF 22. The same day, Nichols wrote to Buenaventura indicating that the policy limits offer made in the August 7 letter was not accepted by GEICO within the time specified so that the policy was open to excess judgment. PUF 38.

Page 1251

On October 7, 2009, Buenaventura's supervisor, Denise Lindgren, spoke with Griott, who informed her that the interrogatory responses served by Nichols, were not verified and that Griott viewed them as incomplete and insufficient to cause the acceptance deadline to run on McDaniel's $100,000 settlement offer. JUF 23. By October 7, Griott had come to realize that the interrogatory answers were not verified, and he considered them to be incomplete, and thus insufficient to trigger the 10-day settlement deadline. DUF 18.B. McDaniel never signed a verification under oath as part of her answers to Murotani's interrogatories. See DUF 23.A.

Murotani died on March 12, 2010. JUF 24. At the time of his death, Murotani had a JP Morgan Chase Bank account worth $10,112.00. PUF 39.[6]

By August 12, 2010, McDaniel's attorneys had opened a probate case for the Estate of Edward Murotani (" the Estate" ), had obtained a court order appointing Paulette Wren (a secretary in Nichols's law firm) as the administrator of the Estate, had filed a claim against the estate on behalf of McDaniel, and obtained a rejection of the claim.[7] See JUF 25. However, no assets of Murotani as of the date of his death ever came into the possession or control of Paulette Wren as administrator of the Estate. DUF 31.

On August 12, 2010, McDaniel amended her complaint in the Kern County Superior Court case by naming the Estate, through administrator Paulette Wren, as a new defendant in place of the deceased Murotani. See JUF 26.

On August 13, 2010, Leland Murotani (" Leland" ), the brother of Murotani, signed a " Small Estate Declaration" for Chase Bank regarding Murotani's account. See DUF 33. Leland claimed the money in the Chase account and stated he was successor to his brother. See id. The same day, Chase wrote a cashier's check to Leland in the amount of $9,994.24, which represented all funds in the Chase account, leaving a zero balance. See DUF 34.

On December 17, 2010, in the probate case regarding the Estate, McDaniel's attorneys filed an Inventory and Appraisal, marked as " Final." JUF 29. This document listed estate assets totaling $10,112.00 described as: " Item 1 -- 'JP Morgan Chase Bank Account . . . balance of $10,112.00." See id.

On August 16, 2011, a judgment was filed in the Kern County Superior Court case in favor of McDaniel and against the Estate for $3,067,741.00. JUF 27. In this Court, McDaniel sues GEICO as an assignee of the rights and claims of the Estate against GEICO. See JUF 28.

On November 14, 2011, in the probate case regarding the Estate, McDaniel's attorneys filed an Inventory and Appraisal marked as " Supplemental." See JUF 30. This document listed estate assets totaling $52,000.00 described as: " Item 1 -- 'Miscellaneous home furniture and furnishings and electronic equipment,'" with an alleged value of $2,500; and " Item 2 -- 'Various Annuities and Life Insurance Policies with American Funds Service Company, the Hartford Life Insurance and Pacific

Page 1252

Life Insurance Company,'" with an alleged value of $50,000.00. See id.

Murotani had purchased the Pacific Life annuity in 1995. See DUF 35. As part of the application to purchase the annuity, Murotani designated his brothers Leland and Ronald Murotani (" Ronald" ), and his sister Susan Koulos, as the primary beneficiaries. See DUF 36. The first statement following Murotani's death showed a variable annuity contract with a value of $37,961.08 and a death benefit of $41,439.18 (as of March 31, 2010). See DUF 37. In July 2010, Ronald and Susan Koulos submitted claimant statements to Pacific Life for shares in Murotani's annuity. See DUF's 38, 41. On July 20, 2010, Pacific Life issued checks to Ronald and Susan Koulos. See DUF's 39, 42. The gross amount of each of Ronald and Susan Koulos's respective shares was $13,813.06. See DUF's 40, 43. In January 2012, Leland filed a claimant statement with Pacific Life for a share in Murotani's annuity. See DUF 44. On February 1, 2012, Pacific Life issued a check to Leland. See DUF 45. The gross amount was $16,340.92. See DUF 46.

SUMMARY JUDGMENT FRAMEWORK

Cross motions for summary judgment are evaluated separately under the same standards that apply to single summary judgment motions. See Pintos v. Pacific Creditors Ass'n, 565 F.3d 1106, 1111 (9th Cir. 2009); ACLU v. City of Las Vegas, 466 F.3d 784, 790 (9th Cir. 2006). Summary judgment is appropriate when it is demonstrated that there exists no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Fortyune v. American Multi-Cinema, Inc., 364 F.3d 1075, 1080 (9th Cir. 2004). The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying the portions of the declarations (if any), pleadings, and discovery that demonstrate an absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). A fact is " material" if it might affect the outcome of the suit under the governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); United States v. Kapp, 564 F.3d 1103, 1114 (9th Cir. 2009). A dispute is " genuine" as to a material fact if there is sufficient evidence for a reasonable jury to return a verdict for the non-moving party. Anderson, 477 U.S. at 248; Freecycle Sunnyvale v. Freecycle Network, 626 F.3d 509, 514 (9th Cir. 2010).

Where the moving party will have the burden of proof on an issue at trial, the movant must affirmatively demonstrate that no reasonable trier of fact could find other than for the movant. Soremekun, 509 F.3d at 984. Where the non-moving party will have the burden of proof on an issue at trial, the movant may prevail by presenting evidence that negates an essential element of the non-moving party's claim or by merely pointing out that there is an absence of evidence to support an essential element of the non-moving party's claim. See James River Ins. Co. v. Herbert Schenk, P.C., 523 F.3d 915, 923 (9th Cir. 2008); Soremekun, 509 F.3d at 984. If a moving party fails to carry its burden of production, then " the non-moving party has no obligation to produce anything, even if the non-moving party would have the ultimate burden of persuasion." Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1105-06 (9th Cir. 2000). If

Page 1253

the moving party meets its initial burden, the burden then shifts to the opposing party to establish that a genuine issue as to any material fact actually exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Nissan Fire, 210 F.3d at 1103. The opposing party cannot " 'rest upon the mere allegations or denials of [its] pleading' but must instead produce evidence that 'sets forth specific facts showing that there is a genuine issue for trial.'" Estate of Tucker v. Interscope Records, 515 F.3d 1019, 1030 (9th Cir. 2008).

The opposing party's evidence is to be believed, and all justifiable inferences that may be drawn from the facts placed before the court must be drawn in favor of the opposing party. See Anderson, 477 U.S. at 255; Matsushita, 475 U.S. at 587; Narayan v. EGL, Inc., 616 F.3d 895, 899 (9th Cir. 2010). While a " justifiable inference" need not be the most likely or the most persuasive inference, a " justifiable inference" must be rational or reasonable. See Narayan, 616 F.3d at 899. Inferences are not drawn out of the air, and it is the opposing party's obligation to produce a factual predicate from which the inference may be drawn. See Sanders v. City of Fresno, 551 F.Supp.2d 1149, 1163 (E.D. Cal. 2008); UMG Recordings, Inc. v. Sinnott, 300 F.Supp.2d 993, 997 (E.D. Cal. 2004). " A genuine issue of material fact does not spring into being simply because a litigant claims that one exists or promises to produce admissible evidence at trial." Del Carmen Guadalupe v. Agosto, 299 F.3d 15, 23 (1st Cir. 2002); see Bryant v. Adventist Health System/West, 289 F.3d 1162, 1167 (9th Cir. 2002). Further, a " motion for summary judgment may not be defeated . . . by evidence that is 'merely colorable' or 'is not significantly probative.'" Anderson, 477 U.S. at 249-50; Hardage v. CBS Broad. Inc., 427 F.3d 1177, 1183 (9th Cir. 2006). If the nonmoving party fails to produce evidence sufficient to create a genuine issue of material fact, the moving party is entitled to summary judgment. Nissan Fire, 210 F.3d at 1103.

CROSS MOTIONS

Plaintiff's Arguments

McDaniel argues that she is entitled to summary judgment because GEICO engaged in bad faith by breaching its duty to accept a reasonable settlement offer. In California, the test is whether a prudent insurer without policy limits would have accepted the settlement offer. When the insurer fails to accept a reasonable offer when liability and coverage is clear, then the insurer will be liable for any excess judgment. Here, as early as August 7, 2009, a policy limits offer to settle was made to GEICO. By that time, GEICO knew from its knowledge of Steven McDaniel, Murotani, and the facts of the case that the value of McDaniel's claim was well in excess of $100,000. Instead of accepting McDaniel's offer, GEICO let the offer lapse. Not until October 1, 2009, did GEICO attempt to settle the matter for the policy limits, by which time the offer had expired. Although GEICO claims that it was concerned about other claims being made against the $200,000 per incident limit, Buenaventura admitted that between August 7 and October 1, 2009, he learned nothing new about other potential claims that permitted him to make the $100,000 offer on October 1.

McDaniel argues that it is irrelevant whether her August 27, 2009 discovery responses to GEICO were verified. Griott took the position that the clock was running on the offer when he was ...


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