Cross v. National Union Fire Insurance Co. of Pittsburgh, PA

          ORDER

         Two related motions are before the court. First, respondent National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) moves to dismiss petitioners' petition to compel arbitration. Mot. to Dismiss, ECF No. 6-1. Relatedly, petitioners Timothy and Lesly Cross move to compel arbitration of the underlying coverage dispute involving National Union. Mot. to Compel, ECF No. 7-1. For the following reasons, National Union's motion to dismiss is GRANTED, petitioners' motion to compel is DENIED, and this matter is dismissed without leave to amend.

         I. BACKGROUND

         A. Factual and Procedural History

         This matter involves an insurance dispute emanating from a September 30, 2015 automobile accident involving petitioner Timothy Cross and a third party, Laurel Bane. Opp'n to Mot. to Dismiss, ECF No. 16, at 2.^[1] At the time of the collision, Mr. Cross was driving a vehicle owned by his employer Hilbers Construction. Because of this, the underinsured motorist policy National Union issued to Hilbers Construction applies to Mr. Cross's involvement in the collision. Opp'n to Mot. to Dismiss at 3 n.2. Petitioners ultimately settled with Ms. Bane's insurer, USAA, for the $50, 000 policy limit; however, the events giving rise to petitioners' acceptance of the settlement offer inform the arbitration dispute here. Id. at 2-5; Mot. to Dismiss at 3.

         Prior to settlement, petitioners engaged in protracted litigation in Sacramento County Superior Court against Bane, and consequently USAA as her insurer, for her alleged failure to timely tender policy limits. Opp'n to Mot. to Dismiss at 3; Mot. to Dismiss at 2; Not. of Removal, Ex. 6, ECF No. 1-3. Petitioners contend their commencement of the state court suit rendered the USAA policy “open, ” thus making USAA responsible for any jury verdict levied against Bane. Opp'n to Mot. to Dismiss at 3. On July 25, 2016, USAA, through counsel, offered to settle the matter for the $50, 000 policy limit; petitioners refused the offer. Id.

         On October 5, 2016, USAA made a second policy-limit offer to petitioners. Id. On October 10, 2016, with the second USAA offer outstanding, petitioners' counsel informed American International Group (“AIG”) claims representative Marie Lynne Lezeau of the pending offer. Id. AIG Claims, Inc. is the claims administrator for respondent National Union, who insured the Hilbers Construction vehicle Mr. Cross drove during the accident. Mot. to Dismiss at 3; Not. of Removal, Ex. D, ECF No. 1-4, Murphy Decl. ¶ 7, Ex. 5. Over the course of their communications, petitioners' counsel asked Lezeau to “please provide . . . the limits on the UM/UIM^[2] policy.” Opp'n to Mot. to Dismiss at 3; Roussas Decl. ¶ 6, Ex. E, ECF No. 16-6, at ¶ 003. Lezeau responded: “This is a $1M policy.” Opp'n to Mot. to Dismiss at 3; Roussas Decl. ¶ 6, Ex. E at ¶ 003. Additionally, petitioners' counsel inquired if “AIG [intended to] assert[] any type of exclusions, ” because petitioners wanted to “make sure that if Tim accepts the offer of policy limits that he is not stepping into a coverage mess.” Opp'n to Mot. to Dismiss at 4; Roussas Decl. ¶ 6, Ex. E at ¶ 002-3. To that, Lezeau replied, “I don't believe that we are but I will discuss with our inhouse sounsel [sic].” Opp'n to Mot. to Dismiss at 4; Roussas Decl. ¶ 6, Ex. E at ¶ 002.

         On November 17, 2016, in further communication with Lezeau, petitioners' counsel wrote:

[W]e have a trial setting conference on December 5, and I would rather not dedicate the resources to this if there are no impediments to my settling with the defendant for policy limits and proceeding under the UIM coverage in the Hilbers' auto policy. Please do advise whether AIG is asserting any exclusive remedy/coverage defenses. From my understanding it will not.

Opp'n to Mot. to Dismiss at 4; Roussas Decl., Ex. E at ¶ 001. Then, on November 22, 2016, petitioners' counsel sent the following, repeating his request and understanding:

Please advise if there are any coverage defenses that your company is asserting to an underinsured motorist claim by Tim. If we do not hear to the contrary from your company in the next 14 days we will accept Laurel Bane's offer of policy limits in consideration for a release as a settlement and proceed with the underinsured motorist claim under Hilber's [sic] automobile policy.

Opp'n to Mot. to Dismiss at 4; Roussas Decl., Ex. E at ¶ 001.

         Petitioners contend this series of communications led them to accept Bane's $50, 000 policy-limit settlement, believing they “could recover their losses against the ‘$1M policy' issued by National Union without having to first secure a jury verdict against Ms. Bane and then pursue a bad faith case against USAA for failing to timely tender its policy limits.” Opp'n to Mot. to Dismiss at 5.

         On December 10, 2018, petitioners tendered a demand letter to National Union under the “$1, 000, 000.00 Underinsured Motorist Limits applicable to AIG policy number 657-92-27 issued to Hilbers, Inc. for the benefit of its former employee Tim Cross . . . .” Murphy Decl. ¶ 5, Ex. 3. On January 21, 2019, National Union sent the following response:

[N]o Underinsured motorist coverage is available to your client for this accident.

The tortfeasor had limits [sic] $50, 000.00, which have been tendered. The tortfeasor limit is more than the $30, 000 Underinsured Motorist limit for the Policy. Accordingly, the claim does not involve an “uninsured motor vehicle” as defined by the Policy. Thus, there is no uninsured/underinsured motorist coverage available for your client, and we must decline any request for benefits under Uninsured/Underinsured Motorist coverage.

Murphy Decl. ¶ 7, Ex. 5.

         On March 6, 2019, in response to National Union's rejection letter, petitioners filed a petition to compel arbitration in Placer County Superior Court. Not. of Removal, ECF No. 1-1, Ex. A. On May 3, 2019, National Union timely removed the matter to this court.^[3] Not. of Removal, ECF No. 1. On May 21, 2019, National Union moved to dismiss the underlying petition to compel arbitration arguing, inter alia, the dispute over uninsured motorist coverage is not arbitrable under the terms of the policy. Mot. to Dismiss at 4-7. Petitioners oppose the motion, Opp'n to Mot. to Dismiss, and National Union has replied, Resp't's Reply, ECF No. 18. On June 11, 2019, petitioners moved to compel arbitration, largely replicating the underlying petition filed in Placer County Superior Court. Mot. to Compel. National Union has opposed, Opp'n to Mot. to Compel, ECF No. 8, and petitioners have replied, Pet'rs' Reply, ECF No. 17. On August 23, 2019, the court heard oral argument on the motion. Counsel John Roussas appeared on behalf of petitioners and counsel Rebecca Weinreich appeared on behalf of respondent National Union.

         B. The Policy The National Union Business Auto policy, policy number 657-92-27, issued to Hilbers, Inc. for the ...