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Sahadi v. Liberty Mutual Insurance

United States District Court, N.D. California, San Jose Division

September 16, 2019

FRED SAHADI, Plaintiff,



         Plaintiff Fred Sahadi (“Plaintiff”) brings the instant suit against Liberty Mutual Insurance, Liberty Mutual Fire Insurance Company, and Liberty Guard Insurance Company (collectively, “Defendants”). Liberty Mutual Fire Insurance Company asserts that Liberty Mutual Insurance and Liberty Guard Insurance Company have never existed and do not exist, and that the two entities were thus improperly sued by Plaintiff. See ECF No. 48. Only Liberty Mutual Fire Insurance Company (“Liberty”) filed the instant motion for summary judgment. ECF No. 37 (“Mot”). Having considered the submissions of the parties, the relevant law, and the record in this case, the Court GRANTS Liberty's motion for summary judgment.

         I. BACKGROUND

         A. Factual Background

         Plaintiff was covered by an insurance policy (the “Policy”) issued by Liberty that provided underinsured motorist coverage with a limit of $500, 000. See ECF No. 43, Ex. A. at 11. The Policy dictated that Liberty would pay compensatory damages to Plaintiff if Plaintiff suffered bodily injury caused by an underinsured motorist. See Id. at 36. The Policy contained a provision that required Plaintiff to cooperate with Liberty “in the investigation, settlement or defense of any claim or suit.” Id. at 35. The insurance policy outlined various other requirements for Plaintiff to meet as a condition of coverage, such as the requirement that Plaintiff authorize Liberty to obtain medical reports and other records pertinent to a claim. See Id. The Policy also contained a provision allowing either Plaintiff or Liberty to demand binding arbitration to assess Plaintiff's entitlement to underinsured motorist coverage as well as the amount of policy benefits owed to Plaintiff. See Id. at 38-39.

         On January 19, 2015, while the Policy was in effect, Plaintiff was rear-ended by another vehicle and pushed into a stopped vehicle ahead of him. ECF No. 1-1, Ex. A (“Compl.”) ¶¶ 6, 7. Plaintiff declined medical attention and chose to leave the scene, but Plaintiff eventually began to experience pain that Plaintiff attributed to the accident. See Id. ¶ 9. Plaintiff consequently pursued a claim against the driver who rear-ended him. See Id. ¶ 10. Geico, the other driver's insurer, paid its policy limit of $15, 000 to Plaintiff on June 10, 2015. Id.

         At some point before May 21, 2015, Plaintiff retained an attorney named Todd Davis to represent him in connection with Plaintiff's insurance claim. See ECF No. 39-6 (“Boos Decl.”) Ex. A at 44:15-17. On June 8, 2015, Davis contacted Liberty. ECF No. 41 (“Schwartz Decl.”) ¶ 5. Davis informed Liberty that his office had been retained to represent Plaintiff in connection with personal injuries Plaintiff sustained in the accident. Id. A Liberty property adjuster then contacted Plaintiff, and Plaintiff informed the Liberty property adjuster that Plaintiff intended to use the Policy's underinsured motorist bodily injury coverage to pay for back surgery that Plaintiff needed. Id. ¶ 6. On July 6, 2015, Mathieu Schwartz, a Liberty underinsured motorist adjuster, was assigned to Plaintiff's claim. Id. ¶ 7. Over the following months, Schwartz sent numerous letters to Davis that went unanswered. Id. ¶ 19. Indeed, Schwartz sent letters dated July 6, 2015, August 21, 2015, September 10, 2015, October 5, 2015, and November 2015, and made various phone calls in an attempt to reach Davis over this same period, but Davis never responded. See Id. ¶¶ 11-13, 16-20.

         On January 11, 2016, Davis contacted Schwartz and informed Schwartz that Plaintiff had retained the Shea & Shea law firm to handle the matter, and Davis explained that Davis was no longer involved. Id. ¶ 21. Plaintiff testified that Plaintiff retained the Shea & Shea attorneys “well before December 30th, ” 2015, see Boos Decl. Ex. A at 75:14-15, and that Plaintiff believed that Plaintiff retained the Shea & Shea attorneys at some point in “October” 2015, see Id. at 76:10-11. Plaintiff then executed a fixed contingency fee agreement with the Shea & Shea law firm on January 22, 2016, awarding the firm either 33% or 40% of Plaintiff's net recovery from Liberty, depending on the timing of recovery. See Id. at Ex. 15.

         Davis testified that Davis had represented Plaintiff in connection with the Policy claim until the Shea & Shea law firm was hired. See Id. Ex. B at 53:14-17. On January 22, 2016, Plaintiff executed a fixed contingency fee agreement with the Shea & Shea law firm awarding the firm either 33% or 40% of Plaintiff's net recovery from Liberty, depending on the timing of recovery. See Id. Ex. A at Ex. 15.

         On February 9, 2016, Mark O'Connor, an attorney with Shea & Shea, sent Schwartz a letter indicating that O'Connor represented Plaintiff. Schwartz Decl. ¶ 22. Schwartz responded that same day by sending a letter to O'Connor that requested information concerning Plaintiff's insurance claim, such as a medical authorization form and medical records. Id. ¶ 23 Ex. K. On March 18, 2016, Schwartz received a letter from O'Connor that indicated that Plaintiff's medical records were voluminous and that O'Connor would send them to Schwartz during the following week. Id. ¶ 24, Ex. L. O'Connor also said that O'Connor would include a settlement demand and a formal demand for arbitration pursuant to the Policy. Id.

         On April 13, 2016, Schwartz had not heard from O'Connor, so Schwartz called O'Connor's office and left a message once again requesting the information. Id. ¶ 25.

         On April 14, 2016, Schwartz received a letter from O'Connor, alongside 4, 600 pages of documents. Id. ¶ 26. O'Connor's letter demanded the full remaining $485, 000 underinsured motorist policy limit available under the Policy. Id. ¶ 27 Ex. M. O'Connor's letter indicated that this offer would expire on May 12, 2016. Id. O'Connor's letter also demanded arbitration, which triggered the Policy's arbitration provision and initiated arbitration proceedings. Id.; ECF No. 39-5 (“Nelch Decl.”) ¶¶ 3, 4.

         Schwartz retained a nurse to review the medical records. Id. ¶ 28. The nurse reported that the records were voluminous and requested additional time to review them and to prepare a report for Schwartz. Id. ¶ 29. Schwartz called O'Connor on April 29, 2016 and requested an extension until June 10, 2016 to review the material and respond to the demand. Id. ¶ 30. O'Connor granted Liberty an extension until May 27, 2016 to respond. Compl. ¶ 15.

         On May 24, 2016, Schwartz finished his review of the nurse's report. Schwartz Decl. ¶ 35. On May 25, 2016, Schwartz contacted O'Connor, and Schwartz explained that Liberty could neither accept nor reject the $485, 000 offer. Id. ¶ 36. Schwartz believed that the surgery that formed the basis of Plaintiff's claim might have been necessitated by a preexisting medical condition, and not the automobile accident. Id. ¶ 35. On May 25, 2016, Schwartz also requested additional information from Plaintiff, including medical records relating to a neurosurgeon to whom Plaintiff was referred in 2005 (a decade before Plaintiff was rear-ended on January 19, 2015), previous imaging of Plaintiff's neck and back, and all records from another one of Plaintiff's doctors. Id. ¶ 36, Ex. Q.

         On June 15, 2016, Schwartz received a letter from O'Connor that provided some of the information Schwartz requested. Id. ¶ 38, Ex. S. The letter indicated that the imaging records would be forthcoming. Id. The letter also asserted that Plaintiff never saw a neurosurgeon in 2005. Id. Schwartz replied on the following day, and noted that the medical records Schwartz had previously received seemed to indicate that Plaintiff was in fact referred to a neurosurgeon in 2005. Id. ¶ 39, Ex. T. Schwartz also requested photographs and repair estimates for other vehicles involved in the accident, alongside a signed medical authorization so that Liberty could obtain medical records on its own. Id.

         On June 21, 2016, Schwartz received the imaging materials that Schwartz had requested, and Schwartz retained a doctor to review the materials. Id. ¶ 40, Ex. U.

         On June 23, 2016, Shea & Shea made an offer of judgment in the ongoing arbitration proceedings for $485, 000. Id. ¶ 41, Ex. V. This offer of judgment was followed by a letter sent to Schwartz by a Shea & Shea attorney, which indicated that the attorney had reviewed the medical records and understood why Schwartz believed that Plaintiff had seen a neurosurgeon in 2005. Id. ¶ 42, Ex. W. Nevertheless, the Shea & Shea attorney asserted that there was “no evidence in [her] possession” that supported the conclusion that Plaintiff ever saw a neurosurgeon in 2005. Id. The Shea & Shea attorney also indicated that a medical authorization would be forthcoming. Id. Schwartz received a signed medical authorization on June 24, 2016, alongside various vehicle photographs that Schwartz had requested. Id. ¶ 44, Ex. X. However, the medical authorization was limited to only two doctors and therefore did not permit Liberty to review medical records from before the accident. Id. ¶ 44.

         On July 7, 2016, Schwartz received a written report from the doctor Schwartz enlisted to review Plaintiff's imaging records. Id. ¶ 45. This report indicated that the imaging records did not show any changes caused by the accident. Id. Thus, on July 11, 2016, Schwartz sent O'Connor a letter that indicated that Liberty could still neither accept nor reject the $485, 000 offer. Id. ¶ 47, Ex. Z.

         At the end of July 2016, Schwartz left Liberty for another job, id. ¶ 49, and Plaintiff's file was transferred to Scott Crump, another Liberty adjuster, for processing. ECF No. 43 (“Crump Decl.”) ¶ 6. While the matter continued in arbitration, Crump reviewed the file and agreed that Liberty could not accept the $485, 000 offer because of questions about the impact of preexisting conditions on Plaintiff's claimed symptoms. Id. ¶ 7.

         At some point in early November, around November 7, 2016, Crump contacted O'Connor. ECF No. 45-1 (“O'Connor Decl.”) ¶ 19. Crump asked whether Plaintiff would accept an award below the $485, 000 policy limit. Id. O'Connor replied that O'Connor lacked authority to reduce the demand amount, but O'Connor offered to convey any concrete offers to Plaintiff. Id. Crump indicated that an offer would be forthcoming. Id.

         As arbitration proceeded, the parties exchanged discovery requests, and Liberty retained a neurosurgeon to assist in its evaluation of Plaintiff's claim. Nelch Decl. ¶¶ 6, 9. In the meantime, on January 12, 2017, O'Connor sent a letter proposing an arbitrator and making a settlement demand of $750, 000. Id. ¶ 10. Several weeks later, Crump participated in a conference call with the neurosurgeon Liberty had retained, in which the neurosurgeon opined on Plaintiff's case. Id.

         Between January 30, 2017 and February 7, 2017, Liberty's arbitration attorney took Plaintiff's deposition. Id. ¶ 12. On January 31, 2017, Liberty's arbitration attorney also requested that the parties participate in mediation, which Liberty offered to finance. Id. ¶ 13, Ex. I. O'Connor rejected this request and asserted that Liberty should “pay the remaining policy limits.” Id. ¶ 14, Ex. J. O'Connor imposed a deadline of February 8, 2017 for payment. Id.

         On February 8, 2017, Crump completed a written evaluation of Plaintiff's claim and a request for settlement authority. Crump Decl. ¶ 21. Crump concluded that the claim had a valuation range of $348, 754.01 to $490, 225.69. Id. Crump believed that the opinions of the doctors that Liberty consulted suggested a claim value at the lower end of the range, but Crump also believed that Plaintiff had appeared credible and sympathetic at his deposition. Id. Accordingly, Crump requested authority to offer settlement up to the Policy's full $485, 000 limit. Id. Because this amount exceeded Crump's authority, Crump participated in a conference call with several supervisors. Id. ¶ 22. Crump's supervisors approved Crump's request to settle up to the policy limit. Id. Later in the same day, on February 8, 2017, Crump spoke to O'Connor and the two agreed on a settlement of the full $485, 000 policy limit. Id. ¶ 23. Liberty proceeded to pay the full $485, 000 policy limit to Plaintiff. Id.

         On February 16, 2017, Plaintiff notified his excess insurer of Liberty's settlement. ECF No. 45-1 (“O'Connor Decl.”) ¶ 27. Over the following months, the excess insurer took Plaintiff's deposition on two different occasions. Id. ¶ 29. Over a year later, on April 30, 2018, Plaintiff's excess insurer paid Plaintiff an additional $618, 750 award upon the completion of mediation. Id. ¶ 30. In the course of these proceedings, the excess insurer expressed many of the same concerns Liberty had expressed, namely whether Plaintiff's symptoms were caused by the accident or Plaintiff's preexisting conditions. Id. ¶ 29.

         B. Procedural History

         On May 25, 2018, Plaintiff filed an action in the Superior Court of California for Santa Clara County. ECF No. 1 ¶ 1. The complaint alleged claims for the breach of the covenant of good faith and fair dealing, fraud, and breach of California Insurance Code § 790.03. Compl. ¶¶ 46-69. The complaint named the following entities as defendants: Liberty Mutual Fire Insurance Company (“Liberty”); Liberty Mutual Insurance Company; Matthieu Schwartz; and Scott Crump. Id. ΒΆ 1. The complaint also named as defendants the two allegedly ...

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