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Miller Marital Deduction Trust v. Zurich American Insurance Co.

California Court of Appeals, First District, Third Division

October 21, 2019

MILLER MARITAL DEDUCTION TRUST et al., Plaintiffs and Respondents,
v.
ZURICH AMERICAN INSURANCE COMPANY, Defendant and Appellant.

          San Francisco County Superior Court, No. CGC18564521 Hon. Richard B. Ulmer Trial Judge:

          Paladin Law Group, Bret A. Stone and Brian R. Paget for Plaintiffs and Respondents.

          Sinnott, Puebla, Champagne & Curet, Blaise S. Curet for Defendant and Appellant.

          PETROU, J.

         In this insurance coverage action, defendant Zurich American Insurance Company (Zurich) appeals from a June 22, 2018 order denying its special motion to strike the complaint pursuant to Code of Civil Procedure [1] section 425.16 as a strategic lawsuit against public participation (anti-SLAPP motion). We affirm.

         FACTUAL AND PROCEDURAL BACKGROUND

         The operative facts are taken from the complaint filed by plaintiffs Miller Marital Deduction Trust, by and through its trustees Helen Miller and James Morris (Miller Marital Trust) and Helen Miller, an individual (hereinafter also collectively referred to as “Millers”), and the declarations and exhibits submitted in connection with Zurich's anti-SLAPP motion.

         A. Underlying Federal Action

         The Miller Marital Trust is the successor owner of certain real property previously owned by spouses Jack Miller (now deceased) and Helen Miller, and then owned by the Miller Family Trust. According to the Millers, the property is held in the Miller Marital Trust and is owned by Helen Miller and James Morris as trustees of that trust. Helen Miller, individually, does not own any interest in the property.

         In August 2016, the Millers commenced an action in federal court against various previous owners including the Estate of Jack Miller, Deceased [2] (hereinafter referred to as the Miller Estate) and previous lessees including Mary DuBois (DuBois). The operative pleading, the first amended complaint filed in September 2017, sought redress for past environmental contamination that originated from a dry cleaning business that was in operation on the property from approximately 1956 to 1985. According to the Millers, releases of dry cleaning solvent from the business had polluted the property and that pollution had migrated, and was continuing to migrate, off the property, creating a growing plume of contamination. By their action, the Millers sought to avoid or minimize their alleged liability associated with certain directives issued by the California Regional Water Quality Control Board related to the environmental contamination on the property.

         DuBois filed a counterclaim against the Millers, alleging they had intentionally and negligently caused and contributed to the sudden and accidental releases of dry cleaning solvent into the property. The counterclaim sought contribution under the common law and the Comprehensive Environmental Response, Compensation & Liability Act (42 U.S.C. § 9613) and damages for nuisance.

         In their federal action, the Millers were represented by Bret Stone of the Paladin Law Group ® LLP. Zurich determined it had a duty to appear and defend the named defendant the Miller Estate under insurance policies issued from 1977 to 1984. To that end, Zurich retained counsel to represent the Miller Estate.

         The Millers tendered the Dubois counterclaim for defense to Zurich on the theory that they were additional insureds under the Zurich insurance policies issued to the Miller Estate. Zurich agreed to represent and defend the Millers against the DuBois counterclaim subject to an extensive reservation of rights. The Millers asked Zurich to allow the Paladin Law Group ® LLP to represent them because of Zurich's reservations of rights as well as its appointment of separate counsel to defend the Miller Estate, an adverse party to the Millers, which situation the Millers alleged created conflicts of interest requiring the appointment of independent (Cumis [3]) counsel. Zurich refused the Millers' request and refused to pay Cumis counsel fees. Instead, Zurich retained an attorney (hereinafter referred to as panel counsel) to represent Helen Miller individually and as trustee of the Miller Marital Trust; Zurich did not appoint counsel to represent James Morris, the other trustee of the Miller Marital Trust.

         B. Current State Action

         In February 2018, while the federal action was pending, the Millers commenced this lawsuit against Zurich.[4] The Millers did not name any attorney as a defendant. Their complaint alleged, in pertinent part, that Zurich was in breach of its contractual duties under its insurance policies by refusing to pay for independent Cumis counsel to represent the Millers in defending against the DuBois counterclaim; refusing to pay reasonable and necessary site investigation, regulatory oversight, attorney fees, and other defense costs; and failing to deal in good faith with the Millers. The Millers alleged that “the Cumis issue, defense costs issue, and bad faith issue, ” needed to be resolved as soon as possible to ensure they were not prejudiced in their defense of the DuBois counterclaim “and to ensure that they receive what they are entitled to: an immediate and complete defense... by competent and conflict-free counsel.”

         The complaint alleged two causes of action: breach of the contractual duty to defend and breach of the implied covenant of good faith and fair dealing. As to the cause of action for breach of the implied covenant of good faith and fair dealing, the complaint alleged, under the heading “NATURE OF THE ACTION, ” as follows:

         “8. [Zurich's] refusal to pay for Cumis counsel and refusal to timely pay reasonable and necessary defense costs were unreasonable and without proper cause and, therefore, constitute breaches of [its] implied covenant of good faith and fair dealing, i.e., ‘bad faith.'

         “9. [Zurich] also committed bad faith by improperly allowing counsel - counsel that [it] had retained to defend one of the [Millers'] adversaries in the [federal] [a]ction - to communicate with and advise the [Millers'] claims handlers and to exert influence and control over the ...


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