Henkels and McCoy, Inc. v. United Specialty Insurance Company

Opinion

Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 1 of 26 Page ID #:1087

1 'O' 2 3 4 5 6 7 10 11 CV 21-07210-RSWL-RAO x 12 HENKELS AND McCOY, Inc. et al., ORDER re: Plaintiff’s 13 Motion for Partial Summary Plaintiff, 14 Judgment [21] v. 15 COMPANY, 17 Defendants. 18 19 20 Plaintiff Henkels and McCoy, Inc. (“Plaintiff”) 21 initiated this Action against Defendant United Specialty 22 Insurance Company (“Defendant”) for breach of contract, 23 declaratory relief, and breach of the duty of good faith 24 and fair dealing. Compl., ECF No. 1. Currently before 25 the Court is Plaintiff’s Motion for Partial Summary 26 Judgment [21] (the “Motion”). In the Motion, Plaintiff 27 requests the Court determine as a matter of law four 28 issues: 1) as of September 8, 2017, Defendant owed 1 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 2 of 26 Page ID #:1088

1 Plaintiff a duty to defend in an underlying personal

2 injury action; 2) Defendant still owed Plaintiff a duty

3 to defend at the time of a May 14, 2021 settlement in 4 the personal injury action; 3) Defendant breached its 5 insurance contract by not defending Plaintiff; and 4) 6 Defendant’s breach of the insurance contract was a 7 breach of its duty of good faith and fair dealing. 8 Having reviewed all papers submitted pertaining to this 9 Motion, the Court NOW FINDS AND RULES AS FOLLOWS: the 10 Court GRANTS Plaintiff’s Motion for Partial Summary 11 Judgment. 13 A. Factual Background 14 1. The Underlying Personal Injury Action 15 In a prior action in 2017, Jeremy M. Stage and 16 Dennis Garr (“Stage plaintiffs”) filed a complaint 17 against Southern California Edison Company (“SCE”) for 18 contributing to Stage plaintiffs’ injuries in a car 19 accident. See generally Pl.’s Req. for Judicial Notice 20 (“Pl.’s RJN”), Ex. B-1, ECF No. 21-2. Stage plaintiffs’ 21 accident occurred late at night at the intersection of 22 Walnut Grove and Broadway in the City of San Gabriel. 23 Id. The Stage plaintiffs’ complaint alleged in part 24 that the injury occurred due to a lack of powered 25 traffic control signals, powered streetlights, set up 26 cones, blockage, signage, and warnings at the 27 intersection. Id. 28 SCE hired Plaintiff to perform electrical power 2 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 3 of 26 Page ID #:1089

1 pole replacement near where the Stage plaintiffs’

2 accident occurred and on the day the accident occurred.

3 See generally Pl.’s RJN, Ex. B-3. SCE filed a cross- 4 complaint against Plaintiff in the Stage plaintiffs’ 5 lawsuit. Id. Plaintiff then filed a cross-complaint 6 against California Traffic Control Services (“CTC”) 7 alleging that CTC partly caused Stage plaintiffs’ 8 injuries. See generally Pl.’s RJN, Ex. B-2.1 9 2. CTC’s Contract with Plaintiff 10 Plaintiff hired CTC through a master subcontract 11 agreement (the “MSA”) to perform traffic control service 12 in connection with the power pole replacement project. 13 Pl.’s Statement of Uncontroverted Facts (“Pl.’s SUF”) 14 No. 1, ECF No. 21-3. 15 The MSA required CTC to obtain an insurance policy 16 that named Plaintiff as an additional insured. Id. No. 17 3. CTC bought an insurance policy from Defendant. Id. 18 No. 4. Plaintiff was identified as an additional 19 insured in the policy. Id. No. 6. On the condition 20 that CTC was partly at fault, Defendant agreed to pay 21 the sums Plaintiff became legally obligated to pay and 22 to defend Plaintiff from a suit seeking bodily injury 23 damages. See generally Morales Decl., Ex. G, ECF No. 24 21-4. Noticeably, Plaintiff is only insured under the 25 policy with respect to bodily injuries caused in whole 26

27 1 CTC was later substituted into the action in place of “DOE 2 defendant.” Pl.’s SUF No. 12. 28

3 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 4 of 26 Page ID #:1090

1 or in part by CTC in the performance of CTC’s ongoing

2 operations for Plaintiff. Pl.’s SUF No. 6. Defendant

3 agreed to insure Plaintiff on a primary and non- 4 contributory basis. Id. No. 8. 5 3. Superior Court Orders and Negotiated Payment 6 In a 2020 order, a superior court stated that the 7 traffic control services that CTC provided on the night 8 of the Stage plaintiffs’ accident were subject to the 9 MSA terms. Id. No. 2. The 2020 order also stated that 10 CTC did not owe Plaintiff a defense as of the September 11 2017 tender because Plaintiff dismissed and then filed a 12 new cross-complaint against CTC after the tender 13 occurred. See generally Pl.’s RJN, Ex. B-5. After the 14 2020 order, CTC negotiated payment of Plaintiff’s 15 defense fees in accordance with the scope of the 16 superior court’s order. Def’s Statement of 17 Uncontroverted Facts (“Def’s SUF”) No. 25, ECF No. 22-1. 18 4. Plaintiff’s First Tender to Defendant 19 On September 8, 2017, tender was made to Defendant 20 for the defense and indemnity of Plaintiff. Pl.’s SUF 21 No. 17. Plaintiff’s tender was Defendant’s first notice 22 of the Stage plaintiffs’ lawsuit. Def’s SUF No. 7. 23 Around fifty days after the tender, Defendant denied 24 that it owed benefits to Plaintiff under the insurance 25 policy. Pl.’s SUF No. 18. Defendant had a copy of the 26 Stage plaintiffs’ complaint prior to denying Plaintiff 27 insurance benefits. Id. No. 19. Before denying 28 Plaintiff insurance benefits, Defendant also had a copy 4 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 5 of 26 Page ID #:1091

1 of SCE’s cross-complaint against Plaintiff and

2 Plaintiff’s cross-complaint against CTC. Id. Nos. 20-

3 21. 4 5. Defendant’s Claim Investigation 5 During its investigation of Plaintiff’s tender, 6 Defendant considered that CTC may have been hired to 7 perform temporary traffic controls at the Stage 8 plaintiffs’ accident intersection. Id. No. 22. 9 Defendant also considered an email from a CTC employee 10 stating that CTC worked about 200 feet north of the 11 accident intersection. Id. No. 23. Defendant also 12 considered a file note stating that the “Insd did work 13 in intersection . . . Clmts filed suit and GC has now 14 filed 3rd party against the insured.” Id. No. 24. 15 Defendant also considered a file note which read that 16 the “facts are not clear” and that further information 17 was needed to discover if CTC was at all responsible for 18 the Stage plaintiffs’ accident. Id. No. 25. Defendant 19 also considered a CTC accident report, that may have 20 shown that CTC worked 1,000 feet from the accident 21 intersection and was not working during Stage 22 plaintiffs’ accident. See generally Morales Decl., Ex. 23 N. Lastly, Defendant considered a statement from CTC’s 24 operation manager that CTC had provided temporary 25 traffic controls at the accident intersection. See 26 generally Morales Decl., Ex. L. 27 6. Defendant’s Denial of Coverage 28 Defendant responded to Plaintiff’s tender by 5 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 6 of 26 Page ID #:1092

1 denying it owed Plaintiff coverage, asserting that CTC

2 was not determined to be negligent, and asserting that

3 CTC worked in a limited manner and far away from where 4 Stage plaintiffs’ accident occurred. Pl.’s SUF No. 27. 5 About four months after Defendant refused to defend 6 Plaintiff, Plaintiff dismissed its cross-complaint 7 against CTC. See generally Def’s Req. for Judicial 8 Notice (“Def’s RJN”), Ex. 1, ECF No. 22-3. In 2019, 9 Plaintiff filed a new cross-complaint against CTC. 10 Def’s SUF No. 17. 11 7. Plaintiff’s Second Tender 12 On May 22, 2019, Plaintiff again tendered defense 13 and indemnity to Defendant and cited witness testimony. 14 Pl.’s SUF No. 28. The witness testimony Plaintiff cited 15 to asserted that CTC had the authority to modify the 16 traffic control plan in effect on the night of the 17 accident. Id. The testimony further included a traffic 18 safety expert that asserted that CTC’s scope of work 19 included the accident intersection. Id. After 20 consulting with the California Manual on Uniform Traffic 21 Control Devices, the expert also asserted that CTC fell 22 below the standard of care at the worksite. Id. 23 Defendant had copies in its files of the witness 24 testimony at the time of the 2019 tender. Id. No. 29. 25 Defendant never responded to Plaintiff’s 2019 tender. 26 Id. No. 30. 27 8. CTC’s Duty to Defend 28 In 2019, CTC filed a motion in the Stage 6 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 7 of 26 Page ID #:1093

1 plaintiffs’ action that as a matter of law CTC did not

2 owe or breach a duty of care. Id. No. 31. The superior

3 court denied CTC’s motion and determined that evidence 4 established a dispute of whether CTC’s scope of work 5 included the accident intersection. Id. No. 32. In the 6 superior court’s 2020 order, the court granted a motion 7 for summary adjudication that CTC had a duty to defend 8 Plaintiff based on the potential that CTC’s scope of 9 traffic control work included the accident intersection. 10 Id. No. 34. Defendant was informed of the superior 11 court’s order no later than December 7, 2020. Id. No. 12 36. Defendant knew of the superior court’s 2020 order 13 and did not provide policy benefits to Plaintiff. Id. 14 No. 38. In 2021, Plaintiff demanded that Defendant pay 15 Plaintiff’s $1,000,000 policy limit to protect Plaintiff 16 against a judgment in the Stage plaintiffs’ lawsuit. 17 Id. No. 40. 18 9. Plaintiff’s Settlement with Stage plaintiffs 19 Plaintiff settled with the Stage plaintiffs in 20 exchange for Plaintiff paying them $1,670,000. Id. No. 21 42. Plaintiff had an insurance policy with Zurich that 22 offered $2,000,000 with a $2,000,000 deductible. See 23 Draper Decl. at 134-138, Ex. V, ECF No. 21-5. In total 24 in the Stage plaintiffs’ litigation, Plaintiff has paid 25 $1,996,542.46 for its defense and indemnity. See Draper 26 Decl. at 226, 234, Ex. Y. 27 B. Procedural Background 28 On September 8, 2021, Plaintiff filed its Complaint 7 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 8 of 26 Page ID #:1094

1 [1]. On September 2, 2022, Plaintiff filed the instant

2 Motion [21]. On September 13, 2022, Defendant opposed

3 [22]. On September 20, 2022, Plaintiff replied [23]. 5 A. Legal Standard 6 1. Summary Judgment 7 Federal Rule of Civil Procedure 56(a) states that a 8 “court shall grant summary judgment” when “the movant 9 shows that there is no genuine dispute as to any 10 material fact and the movant is entitled to judgment as 11 a matter of law.” A fact is “material” for purposes of 12 summary judgment if it might affect the outcome of the 13 suit, and a “genuine” issue exists if the evidence is 14 such that a reasonable fact-finder could return a 15 verdict for the nonmovant. Anderson v. Liberty Lobby, 16 Inc., 477 U.S. 242, 248 (1986). The evidence, and any 17 inferences based on underlying facts, must be viewed in 18 the light most favorable to the nonmovant. Twentieth 19 Century-Fox Film Corp. v. MCA, Inc., 715 F.2d 1327, 20 1328-29 (9th Cir. 1983). In ruling on a motion for 21 summary judgment, the court’s function is not to weigh 22 the evidence, but only to determine if a genuine issue 23 of material fact exists. Anderson, 477 U.S. at 255. 24 Where the nonmovant bears the burden of proof at 25 trial, the movant need only prove that there is no 26 evidence to support the nonmovant’s case. In re Oracle 27 Corp. Secs. Litig., 627 F.3d 376, 387 (9th Cir. 2010). 28 If the movant satisfies this burden, the burden then 8 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 9 of 26 Page ID #:1095

1 shifts to the nonmovant to produce admissible evidence

2 showing a triable issue of fact. Id.; Nissan Fire &

3 Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102-03 4 (9th Cir. 2000); see also Cleveland v. Policy Mgmt. Sys. 5 Corp., 526 U.S. 795, 805–06 (1999) (quoting Celotex 6 Corp. v. Catrett, 477 U.S. 317, 322 (1986)). 7 2. Partial Summary Judgment 8 Federal Rule of Civil Procedure 56 authorizes 9 courts to grant partial summary judgment to limit the 10 issues to be tried in a case. State Farm Fire & Cas. 11 Co. v. Geary, 699 F. Supp. 756, 759 (N.D. Cal. 1987) 12 (citing Lies v. Farrell Lines, Inc., 641 F.2d 765, 769 13 n.3 (9th Cir. 1981)); see, e.g., White v. Lee, 227 F.3d 14 1214, 1240 (9th Cir. 2000) (“[A] court may award a 15 partial summary judgment that decides only [the] issue 16 [of liability].”). Absent special circumstances, 17 partial summary judgment is not appealable prior to the 18 entry of a final judgment because such orders do not 19 dispose of all claims or end the litigation on the 20 merits. Williamson v. UNUM Life Ins. Co. of Am., 160 21 F.3d 1247, 1250 (9th Cir. 1998)(citations omitted). 22 B. Analysis 23 Plaintiff moves for partial summary judgment on 24 four issues: 1) as of September 8, 2017, Defendant owed 25 a duty to defend Plaintiff in an underlying personal 26 injury action; 2) Defendant still owed Plaintiff a duty 27 to defend at the time of a May 14, 2021 settlement in 28 the personal injury action; 3) Defendant breached its 9 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 10 of 26 Page ID #:1096

1 insurance contract by not defending Plaintiff; and 4)

2 Defendant’s breach of the insurance contract was a

3 breach of its duty of good faith and fair dealing. Mot. 4 at 1:1-10. Before reaching the merits of the instant 5 Motion, the Court first addresses Plaintiff’s and 6 Defendant’s requests for judicial notice and evidentiary 7 objections. 8 1. Preliminary Matters 9 a. Requests for Judicial Notice 10 i. Plaintiff’s RJN 11 Plaintiff asks the Court to judicially notice six 12 documents filed in the Stage plaintiffs’ lawsuit: (1) an 13 amendment to the Stage plaintiffs’ complaint filed in a 14 Superior Court for the County of Los Angeles; (2) the 15 Stage plaintiffs’ complaint filed in a Superior Court 16 for the County of Los Angeles; (3) Plaintiff’s cross- 17 complaint against CTC filed in a Superior Court for the 18 County of Los Angeles; (4) SCE’s cross-complaint filed 19 in a Superior Court for the County of Los Angeles; (5) 20 an order filed in a Superior Court for the County of Los 21 Angeles; and (6) another order filed in a Superior Court 22 for the County of Los Angeles. See generally Pl.’s RJN. 23 A district court may take judicial notice under Rule 201 24 of “undisputed matters of public record . . . including 25 documents on file in federal or state courts.” Harris 26 v. Cnty. of Orange, 682 F.3d 1126, 1131-32 (9th Cir. 27 2012). Here, the documents Plaintiff request the Court 28 judicially notice are on file with federal or state 10 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 11 of 26 Page ID #:1097

1 courts, and the documents have a direct relation to the

2 matters at issue in this case because each of the

3 documents were filed in the underlying Stage plaintiffs’ 4 action upon which this case is premised. See United 5 States ex rel. Robinson Rancheria Citizens Council v. 6 Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992) 7 (citations omitted) (“[W]e may take notice of 8 proceedings in other courts, both within and without the 9 federal judicial system, if those proceedings have a 10 direct relation to matters at issue.”). Furthermore, 11 Defendant does not oppose Plaintiff’s requests for 12 judicial notice. See generally Opp’n. As such, the 13 Court GRANTS Plaintiff’s six requests for judicial 14 notice. 15 ii. Defendant’s RJN 16 Defendant requests the Court judicially notice 17 two documents filed in the Stage plaintiffs’ lawsuit: 18 (1) Plaintiff’s request to dismiss CTC from the Stage 19 plaintiffs’ lawsuit in 2018; and (2) Plaintiff’s request 20 to dismiss CTC from the Stage plaintiffs’ lawsuit in 21 2022. See generally Def’s RJN. Here, both documents 22 Defendant request the Court judicially notice are on 23 file with federal or state courts, and the documents 24 have a direct relation to the matters at issue in this 25 case because each of the documents was filed in the 26 underlying Stage plaintiffs’ action upon which this case 27 is premised. See United States ex rel. Robinson 28 Rancheria Citizens Council, 971 F.2d 248. Furthermore, 11 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 12 of 26 Page ID #:1098

1 Plaintiff does not oppose Defendant’s requests for

2 judicial notice. See generally Reply. As such, the

3 Court GRANTS Defendant’s two requests for judicial 4 notice. 5 b. Evidentiary Objections 6 Plaintiff objects to an excerpt of Defendant’s 7 Ryan Declaration. See Pl.’s Evid. Objs., ECF No. 23-3. 8 Defendant objects to four excerpts of Plaintiff’s Draper 9 Declaration. See Def’s Evid. Objs., ECF No. 22-2. The 10 Court has considered the admissibility of the evidence 11 and has not considered facts that are irrelevant or that 12 could not be in a form that would be admissible at 13 trial. See Norse v. City of Santa Cruz, 629 F.3d 966, 14 973 (9th Cir. 2010). The Court does not rely on these 15 excerpts in its analysis, and thus the Court DENIES as 16 MOOT Plaintiffs’ evidentiary objection as well as DENIES 17 as MOOT Defendant’s evidentiary objections. 18 2. Plaintiff’s Motion for Summary Judgment 19 When parties sign a duty to defend insurance 20 contract, an “insurer owes a broad duty to defend its 21 insured against claims that create a potential for 22 indemnity.” Montrose Chem. Corp. v. Super. Ct., 6 Cal. 23 4th 287, 295 (1993). The “duty to defend is so broad 24 that it only requires 'a bare potential or possibility 25 of coverage as the trigger of a defense duty.'" Nat'l 26 Union Fire Ins. Co. v. Seagate Techs., Inc., 466 F. 27 App'x 653, 655 (9th Cir. 2012) (quoting Montrose, 6 Cal. 28 4th at 300). 12 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 13 of 26 Page ID #:1099

1 Here, Defendant’s insurance policy with Plaintiff

2 provides that: “We will pay those sums that the insured

3 becomes legally obligated to pay as damages because of 4 ‘bodily injury’ or ‘property damage’ to which this 5 insurance applies. We will have the right and duty to 6 defend the insured against ‘any suit’ seeking those 7 damages.” Morales Decl., Ex. G at 81. The insurance 8 applied to “bodily injury” only if the injury was caused 9 by an “occurrence” that took place in the “coverage 10 territory” and the injury occurred during the policy 11 period. Id. Plaintiff was identified as insured under 12 the policy with respect to bodily injuries caused in 13 whole or in part by CTC in the performance of CTC’s 14 ongoing operations for Plaintiff. Pl.’s SUF No. 6. 15 Plaintiff is asserting in this Action that Defendant 16 owed Plaintiff a duty to defend when Plaintiff was a 17 defendant in the Stage plaintiffs’ action. See Mot. at 18 1:28-2:7. 19 Here, it is undisputed that the Stage plaintiffs’ 20 injuries would constitute “bodily injury” and that the 21 injuries occurred during the policy period. Id. at 22 2:12-13; see Opp’n at 4:5-17. The parties dispute 23 whether the “occurrence” in this case involves acts or 24 omissions of CTC and a breach of CTC’s duty of care. 25 See generally Mot.; Opp’n. Plaintiff is entitled to a 26 defense, in part based off whether CTC was responsible 27 for the Stage plaintiffs’ injuries. See generally 28 Morales Decl., Ex. G, ECF No. 21-4. Given the policy 13 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 14 of 26 Page ID #:1100

1 language, Defendant’s defense duty is triggered if at

2 the time of the 2017 tender there was a bare potential

3 or possibility of coverage. See Montrose, 6 Cal. 4th at 4 300. Coverage is determined by an inspection of the 5 claims in the Stage plaintiffs’ action and the outside 6 facts Defendant knows at the time of tender. See El-Com 7 Hardware v. Fireman's Fund Ins. Co., 92 Cal. App. 4th 8 205, 212 (2001). 9 The duty to defend exists based upon facts “known 10 by the insurer at the inception of a third party 11 lawsuit.” Montrose, 6 Cal. 4th at 295; see Gunderson v. 12 Fire Ins. Exch., 37 Cal. App. 4th 1106, 1114 (1995) 13 (holding that potential coverage is determined “at the 14 time of tender”). The court determines the duty to 15 defend by “comparing the allegations of the third party 16 complaint with the terms of the policy.” El-Com 17 Hardware, 92 Cal. App. 4th at 212. Facts the insurer 18 knows outside the complaint “at the inception of the 19 third party lawsuit may also give rise to a duty to 20 defend when they reveal a possibility the policy may 21 cover the claim.” Id. Extrinsic facts known to the 22 insurer can on their own generate a duty to defend. Id. 23 at 213. 24 At the time of the first tender, Defendant had a 25 copy of the Stage plaintiffs’ complaint as well as a 26 cross-complaint filed against CTC. Pl.’s SUF Nos. 19- 27 21. The Stage plaintiffs’ complaint had added Plaintiff 28 as a DOE defendant and asserted that all the defendants 14 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 15 of 26 Page ID #:1101

1 in the action were liable due in part to the accident

2 intersection lacking “cones, blockage, signage, or

3 warnings to drivers.” Pl.’s RJN, Ex. B-1. CTC was 4 hired to provide traffic control on the night of the 5 accident, and it was unclear the scope of CTC’s 6 worksite. See generally Morales Decl., Exs. M-N. 7 Plaintiff asserted in its tender that CTC was working at 8 the “subject property” referenced in the Stage 9 plaintiffs’ complaint. See generally Morales Decl., Ex. 10 I. The above is part, but not all the information 11 Defendant had at the time of tender showing a 12 possibility that CTC was partly responsible for the 13 Stage plaintiffs’ accident. See Pulte Home Corp. v. Am. 14 Safety Indem. Co., 14 Cal. App. 5th 1086, 1124 (2017) 15 (holding that a lower court is allowed to draw 16 reasonable conclusions based on the evidence that an 17 insurer was primarily looking out for its own interests 18 rather than the interests of its additional insureds). 19 There is a duty to defend when facts reveal a 20 possibility that the claim may be covered by the terms 21 of the insurance policy. Gunderson, 37 Cal. App. 4th at 22 1113-14. Even if the precise causes of action pled by 23 the third party complaint fall outside the policy 24 coverage, the duty to defend still exists if the 25 complaint could be fairly and reasonably amended to 26 state a covered liability claim. Scottsdale Ins. Co. v. 27 MV Transp., 36 Cal. 4th 643, 654 (2005). 28 15 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 16 of 26 Page ID #:1102

1 At the time of the September 2017 tender, Defendant was

2 aware that: (1) CTC may have been hired to perform

3 temporary traffic controls at the Stage plaintiffs’ 4 accident intersection; (2) a CTC employee stated that 5 CTC worked about 200 feet north of the accident 6 intersection; (3) a file note stated that the “Insd did 7 work in intersection . . . Clmts filed suit and GC has 8 now filed 3rd party against the insured;” (4) another 9 file note read that the “facts are not clear” and that 10 Defendant could not rule out CTC’s liability; and (5) a 11 CTC’s operation manager made a statement that CTC had 12 provided temporary traffic controls at the accident 13 intersection. See Pl.’s SUF Nos 22-25; Morales Decl., 14 Ex. L. Given that Defendant knew that CTC was providing 15 traffic control near or at the accident intersection, 16 and that the Stage plaintiffs’ complaint alleged a lack 17 of traffic control as a reason for the accident, 18 Defendant could not rule out the possibility that CTC 19 was partly responsible for the Stage plaintiffs’ 20 accident. 21 The duty to defend does not arise if both the 22 third-party complaint and extrinsic facts cannot 23 indicate any basis for potential coverage. Scottsdale 24 Ins., 36 Cal. 4th at 655. To prevail on a motion for 25 summary judgment, the “insured must prove the existence 26 of a potential for coverage, while the insurer must 27 establish the absence of any such potential.” Montrose, 28 6 Cal. 4th at 300. “In other words, the insured need 16 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 17 of 26 Page ID #:1103

1 only show that the underlying claim may fall within

2 policy coverage; the insurer must prove it cannot.” Id.

3 When “there is doubt as to whether the duty to defend 4 exists, the doubt should be resolved in favor of the 5 insured and against the insurer.” Hudson Ins. Co. v. 6 Colony Ins. Co., 624 F.3d 1264, 1267 (9th Cir. 2010). 7 Defendant argues that it considered a CTC 8 accident report which possibly showed that CTC worked 9 1,000 feet from the accident intersection and was not 10 working during Stage plaintiffs’ accident. See 11 generally Morales Decl., Ex. N. Defendant further 12 argues that CTC was not named in the Stage plaintiffs’ 13 complaint at the time of the original 2017 tender. 14 Pl.’s RJN, Ex. B-1. However, neither of these facts 15 create a genuine dispute of whether Defendant owed a 16 duty to defend Plaintiff. To create a genuine dispute 17 regarding the duty to defend, a reasonable jury must be 18 able to find based off the facts and law that Defendant 19 eliminated all possibility of coverage. In other words, 20 Defendant must show that CTC could not have been even 21 partly at fault for the Stage plaintiffs’ accident. 22 Even though arguably certain facts weaken the potential 23 for coverage, other facts support the potential for 24 coverage such as CTC work zone and the allegations in 25 the Stage plaintiffs’ complaint. See Mirpad, LLC v. 26 Cal. Ins. Guarantee Ass'n, 132 Cal. App. 4th 1058, 1068 27 (2005) (“If coverage depends on an unresolved dispute 28 over a factual question, the very existence of that 17 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 18 of 26 Page ID #:1104

1 dispute would establish a possibility of coverage and

2 thus a duty to defend.”). Here, the conflicting facts

3 of CTC’s scope of work support a finding of coverage and 4 thus a duty to defend.2 5 a. As of September 8, 2017, Defendant 6 Owed a Duty to Defend Plaintiff in the 7 Stage Plaintiffs’ Action 8 The allegations in the initial Stage plaintiffs’ 9 complaint and the facts known to Defendant during the 10 initial tender in September 2017, indicated at least "a 11 bare potential or possibility" that Plaintiff was an 12 insured because CTC was liable for the Stage plaintiffs’ 13 accident. Montrose, 6 Cal. 4th at 300. Viewing the 14 facts in the light most favorable to Defendant, 15 Plaintiff has proven the existence of a potential for 16 coverage. "[T]he record taken as a whole could not lead 17 a rational trier of fact to find" that there was no 18 potential for coverage on the date of the initial 19 tender. Ricci v. DeStefano, 557 U.S. 557, 586 (2009). 20 The Court concludes that Plaintiff is entitled to 21 summary judgment on the issue that Defendant had a duty 22

23 2 Defendant further argues that a 2020 superior court order stated that CTC did not owe Plaintiff a defense as of the 24 September 2017 tender because Plaintiff dismissed and then filed 25 a new cross-complaint against CTC. See generally Pl.’s RJN, Ex. B-5. Plaintiff’s dismissal of its cross-complaint occurred after 26 Plaintiff had tendered to CTC. Pl.’s SUF No. 17. Furthermore, Plaintiff’s tender and dismissal of its cross-complaint against 27 CTC is not a dismissal of its request for defense as to Defendant. Plaintiff never withdrew its September 2017 tender of 28 defense to Defendant. See generally Opp’n. 18 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 19 of 26 Page ID #:1105

1 to defend Plaintiff in the Stage plaintiffs’ action from

2 the date of the initial tender on September 8, 2017.

3 b. As of the May 14, 2021 Settlement, 4 Defendant Owed a Duty to Defend 5 Plaintiff in the Stage Plaintiffs’ 6 Action3 7 The duty to defend extends until the underlying 8 lawsuit concludes or until the insurer establishes the 9 absence of any potential for coverage. El-Com Hardware, 10 92 Cal. App. 4th at 213. An insured entitled to a duty 11 to defend is entitled to an immediate full protection of 12 defense on its behalf. Montrose, 6 Cal. 4th at 295; see 13 Buss v. Super Ct., 16 Cal. 4th 35, 49 (1997) (“To defend 14 meaningfully, the insurer must defend immediately. To 15 defend immediately, it must defend entirely.” (citation 16 omitted)). 17 Defendant gained more information regarding CTC’s 18 potential liability up until the time of the Stage 19 plaintiffs’ settlement in May 2021. See generally Pl.’s 20 RJN, Ex. B-4; Morales Decl., Ex. P; Pl.’s RJN, Ex. B-5. 21 For example, Defendant was aware of two court orders 22 regarding CTC’s fault in the Stage plaintiffs’ lawsuit. 23 The first order regarded a motion for summary 24 adjudication, in which the court denied a motion by CTC 25 because CTC could not eliminate the possibility of its 26 3 Given that both the first and second issue involve an 27 insurance company’s duty to defend an insured, the same laws regarding the duty to defend as discussed for the Motion’s first 28 issue apply to the Motion’s second issue. 19 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 20 of 26 Page ID #:1106

1 fault in the Stage plaintiffs’ action. Pl.’s RJN, Ex.

2 B-4. The superior court’s second order held that CTC

3 owed a duty to defend Plaintiff based off the MSA 4 contract, because CTC could not eliminate its potential 5 for fault in the Stage plaintiffs’ action. Pl.’s RJN, 6 Ex. B-5. Given that CTC’s potential for fault or 7 liability triggers Defendant’s duty to defend Plaintiff, 8 the two superior court orders give the Defendant more 9 extrinsic facts outside the Stage plaintiffs’ complaint 10 that would trigger a duty to defend Plaintiff.4 11 Most importantly, given that Defendant’s duty to 12 defend was triggered at the 2017 tender and nothing 13 excused its duty, Defendant’s duty to defend was still 14 active at the time of the May 14, 2021 settlement. 15 Throughout the lawsuit, Defendant was aware there was a 16 possibility that CTC was at fault for the Stage 17 plaintiffs’ accident. Therefore, the Court concludes 18 that Plaintiff is entitled to summary judgment on the 19 issue that Defendant had a duty to defend Plaintiff in 20 the Stage plaintiffs’ lawsuit as of the May 14, 2021 21 settlement. 22 c. Defendant Breached Its Insurance Contract 23 by Not Defending Plaintiff 24 A refusal to defend may simply be a breach of the 25

26 4 After Plaintiff’s first tender, CTC was added as a DOE defendant in the Stage plaintiffs’ lawsuit. Pl.’s RJN, Ex. A. 27 Defendant offered assistance and defense to CTC in the Stage plaintiffs’ lawsuit, which increased Defendant’s knowledge of 28 CTC’s potential fault. Ryan Decl. ¶ 5., ECF No. 22-6. 20 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 21 of 26 Page ID #:1107

1 insurance contract. Cont'l Cas. Co. v. Royal Ins. Co.,

2 219 Cal. App. 3d 111, 124 n.6 (1990). Even though one

3 insurer may owe a duty to defend, a second insurer is 4 not excused from honoring its separate and independent 5 contractual obligation to defend the insured. Emerald 6 Bay Cmty. Ass'n v. Golden Eagle Ins. Corp., 130 Cal. 7 App. 4th 1078, 1088 (2005). “Breach of an insurer's 8 duty to defend violates a contractual obligation and, 9 where unreasonable, also violates the covenant of good 10 faith and fair dealing, for which tort remedies are 11 appropriate.” Amato v. Mercury Cas. Co., 53 Cal. App. 12 4th 825, 831 (1997). 13 While Plaintiff tendered defense to Defendant 14 multiple times in the Stage plaintiffs’ lawsuit, 15 Defendant either denied, ignored, or failed to fully 16 comply with Plaintiff’s tenders. Pl.’s SUF Nos. 17, 28, 17 40. When a duty to defend is triggered, a complete and 18 full defense must be given to the insured. See Risely 19 v. Interinsurance Exch. of the Auto. Club, 183 Cal. App. 20 4th 196, 210 (2010). Regardless of Plaintiff’s 21 insurance coverage with Zurich, Defendant agreed to 22 insure Plaintiff on a primary and non-contributory 23 basis. Pl.’s SUF No. 8. Therefore, Defendant could not 24 deny Plaintiff coverage even if Plaintiff had other 25 insurance. In 2021, Plaintiff demanded that Defendant 26 pay Plaintiff’s $1,000,000 policy limit to protect 27 Plaintiff against a judgment in the Stage plaintiffs’ 28 lawsuit. Id. No. 40. Defendant rejected Plaintiff’s 21 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 22 of 26 Page ID #:1108

1 demand, and Plaintiff paid $1,996,542.46 for its defense

2 and indemnity. See Draper Decl. at 226, 234, Ex. Y.

3 Given that after Plaintiff’s multiple tenders Defendant 4 has not offered a full defense to Plaintiff, Defendant 5 has breached its duty to defend.5 6 Given that Defendant’s duty to defend Plaintiff 7 arose in 2017 after Plaintiff tendered defense to 8 Defendant, Defendant has breached its obligations to 9 Plaintiff by not defending Plaintiff in the Stage 10 plaintiffs’ lawsuit. Therefore, the Court concludes 11 that Plaintiff is entitled to summary judgment on the 12 issue that Defendant breached the insurance contract by 13 improperly denying Plaintiff benefits. 14 d. Defendant’s Breach of the Insurance 15 Contract Was a Breach of Its Duty of 16 Good Faith and Fair Dealing 17 There is an implied covenant of good faith and 18 fair dealing in every insurance policy contract that 19 “neither party will do anything which will injure the

20 5 Defendant argues that it had defended Plaintiff by 21 defending CTC in the Stage plaintiff’s action. Opp’n at 7:9-12. However, Plaintiff is an additional insured, and a defense to CTC 22 does not satisfy a defense obligation owed to Plaintiff. “An ‘additional insured’ endorsement creates a contractual obligation 23 that is entirely separate and apart from any indemnification obligation that may exist in an underlying construction 24 contract.” Am. Cas. Co. v. Gen. Star Indem. Co., 125 Cal. App. 25 4th 1510, 1527-28 (2005). “Absent explicit contrary language . . . enforcement of the coverage promise under the ‘additional 26 insured’ clause will not be precluded by the absence of a contractual indemnification obligation.” Id. Therefore, CTC 27 negotiated payment of Plaintiff’s defense fees in accordance with the scope of the superior court’s 2020 order does not satisfy 28 Defendant’s defense duty to Plaintiff. Def’s SUF No. 25. 22 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 23 of 26 Page ID #:1109

1 right of the other to receive the benefits of the

2 agreement.” Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566,

3 573 (1973). To establish a breach of the implied 4 covenant of good faith and fair dealing, the plaintiff 5 must show that the insurer withheld policy benefits 6 unreasonably and without proper cause. Love v. Fire 7 Ins. Exch., 221 Cal. App. 3d 1136, 1151 (1990). 8 The insurer has a duty to investigate the 9 tendered claims thoroughly and cannot deny coverage 10 based on unduly restrictive policy interpretations. Id. 11 at 1148. The insurer cannot ignore evidence which 12 supports the claim and focus solely on those facts which 13 justify the denial of the claim. Wilson v. 21st Century 14 Ins. Co., 42 Cal. 4th 713, 721 (2007). An insurer has 15 breached the covenant of good faith and fair dealing if 16 it unreasonably fails to defend. Campbell v. Superior 17 Court, 44 Cal. App. 4th 1308, 1319 (1996). 18 The insurer cannot favor one insured’s interests 19 over another. Lehto v. Allstate Ins. Co., 31 Cal. App. 20 4th 60, 72 (1994). An insurer settling in favor of an 21 insured and leaving another insured without coverage, 22 breaches the duty of good faith and fair dealing. 23 Strauss v. Farmers Ins. Exch., 26 Cal. App. 4th 1017, 24 1021 (1994). 25 To breach the duty of good faith and fair 26 dealing, the insurer must engage in conduct beyond 27 negligence, rising to the level of a conscious and 28 deliberate act which frustrates the agreed upon purpose 23 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 24 of 26 Page ID #:1110

1 of the contract. Nieto v. Blue Shield of Cal. Life &

2 Health Ins. Co., 181 Cal. App. 4th 60, 86 (2010). The

3 ultimate test of bad faith is seeing whether the 4 insurer’s refusal to pay benefits was unreasonable. 5 Chateau Chamberay Homeowners Ass'n v. Associated 6 Internat. Ins. Co., 90 Cal. App. 4th 335, 346 (2001). 7 “While the reasonableness of an insurer's claims- 8 handling conduct is ordinarily a question of fact, it 9 becomes a question of law where the evidence is 10 undisputed and only one reasonable inference can be 11 drawn from the evidence.” Id. 12 Here, the undisputed facts show that Defendant 13 had a duty to defend Plaintiff in the Stage plaintiffs’ 14 lawsuit. The facts alleged in the complaint and facts 15 known to Defendant at the time of the first tender 16 showed that CTC could be liable for the Stage 17 plaintiffs’ accident. The initial Stage plaintiffs’ 18 complaint alleged that the accident was caused in part 19 by a lack of warnings, signage, cones, and blockage. 20 CTC oversaw traffic control, which would include the 21 things mentioned above. Pl.’s RJN, Ex. B-1. 22 By the time of the May 14, 2021 settlement, 23 Defendant was aware of two court orders which could not 24 eliminate CTC’s duty to defend Plaintiff or liability in 25 the Stage plaintiffs’ lawsuit. These orders are strong 26 evidence that CTC was potentially at fault and that 27 Defendant could not eliminate the potential for 28 coverage. Given Defendant’s lack of participation in 24 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 25 of 26 Page ID #:1111

1 Plaintiff’s defense, Defendant has breached its duty of

2 good faith and fair dealing. Defendant rejected the

3 repeated tenders despite its knowledge of the facts and 4 circumstances of the Stage plaintiffs’ accident and the 5 orders of the superior court. 6 Viewing the facts in the light most favorable to 7 Defendant, no reasonable jury could conclude that 8 Defendant’s failure to provide a defense in the Stage 9 plaintiffs’ action was reasonable. The only reasonable 10 inference that can be drawn from the evidence is that 11 Defendant’s conduct was unreasonable. See Skanska 12 United States Civil W. Cal. Dist. v. Nat'l Interstate 13 Ins. Co., 551 F. Supp. 3d 1010, 1030-31 (S.D. Cal. 2021) 14 (granting an insured’s motion for partial summary 15 judgment and finding that an insurance company’s failure 16 to defend an additional insured was unreasonable and a 17 breach of its covenant of good faith and fair dealing). 18 Therefore, the Court concludes that Plaintiff is 19 entitled to summary judgment on the issue that 20 Defendant’s breach of the insurance contract was 21 unreasonable and a breach of Defendant’s duty of good 22 faith and fair dealing. 24 Based on the foregoing, because there are no 25 disputes of fact concerning Defendant’s duty to defend, 26 Defendant’s breach of the insurance contract, and 27 Defendant’s breach of the duty of good faith and fair 28 dealing, partial summary judgment is proper. Therefore, 25 Case 2:21-cv-07210-RSWL-RAO Document 27 Filed 11/14/22 Page 26 of 26 Page ID #:1112

1 the Court GRANTS Plaintiff’s Motion for Partial Summary

2 Judgment.

3 5 6 DATED: November 14, 2022 /s/Ronald S.W. Lew ______ HONORABLE RONALD S.W. LEW 7 Senior U.S. District Judge 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 26