Opinion
Case No. CV 22-6041 PA (JEMx)
05-29-2023
Sonia GARCIA, et al. v. GEICO CASUALTY COMPANY
Robert T. Simon, Simon Law Group LLP, Hermosa, CA, Benjamin I. Siminou, Jonna D. Lothyan, Singleton Schreiber LLP, San Diego, CA, Justin R. Heim, Law Offices of Justin Heim APC, Seal Beach, CA, Travis Eugene Davis, Simon Law Group, Hermosa Beach, CA, for Sonia Garcia, et al. Jared Kyle LeBeau, Jocelyn Whiteley, John T. Brooks, Sheppard Mullin Richter and Hampton LLP, San Diego, CA, for GEICO Casualty Company.
Robert T. Simon, Simon Law Group LLP, Hermosa, CA, Benjamin I. Siminou, Jonna D. Lothyan, Singleton Schreiber LLP, San Diego, CA, Justin R. Heim, Law Offices of Justin Heim APC, Seal Beach, CA, Travis Eugene Davis, Simon Law Group, Hermosa Beach, CA, for Sonia Garcia, et al. Jared Kyle LeBeau, Jocelyn Whiteley, John T. Brooks, Sheppard Mullin Richter and Hampton LLP, San Diego, CA, for GEICO Casualty Company. Proceedings: IN CHAMBERS - COURT ORDER PERCY ANDERSON, UNITED STATES DISTRICT JUDGE
Before the Court is a Motion for Summary Judgment filed by defendant GEICO Casualty Company ("GEICO"). (Docket Nos. 21, 21-1.) Plaintiffs Sonia Mena Garcia and Juan Valencia (collectively, "Plaintiffs") filed an Opposition (Docket No. 22-1), and GEICO filed a Reply (Docket No. 25.) Pursuant to Rule 78 of the Federal Rules of Civil Procedure and Local Rule 7-15, the Court finds that this matter is appropriate for decision without oral argument. The hearing calendared for April 24, 2023, was vacated, and the matter taken off calendar.
I. Background
GEICO's insured Luis Herrera struck and killed Arnold Mena while driving a car owned by his father-in-law, Ramiro Hernandez. GEICO first learned of the accident a year and half later when an attorney hired by Hernandez's insurer, Anchor General, advised GEICO that both Herrera and Hernandez had been sued by Plaintiffs. GEICO immediately began an investigation to determine what coverage, if any, was available for Hernandez and Herrera under GEICO's policy.
Anchor General denied Hernandez coverage due to an exclusion.
GEICO's investigation revealed that in addition to Herrera, Hernandez potentially qualified as an insured because Hernandez appeared to be a resident-relative of Herrera and Herrera used Hernandez's car with Hernandez's permission. GEICO decided to provide coverage to both Herrera and Hernandez and within days of receiving the claim offered its $15,000 plicy limit to settle Plaintiffs' claims.
Two months later, Plaintiffs' attorneys advised GEICO that they would accept the policy limits but would release only Herrera, not Hernandez. GEICO was given a weekend to respond. Because GEICO could not conclusively eliminate that Hernandez qualified as an insured, it refused Plaintiffs' demand continued to offer its $15,000 policy limit in exchange for a release for both Hernandez and Herrera. Plaintiffs refused to release Hernandez.
In October 2019, GEICO learned that Anchor General had paid its policy limit to settle Plaintiffs' claims against Hernandez even though it had initially denied coverage.
In December 2021, Plaintiffs proceeded to trial against Herrera and obtained a $6 million judgment. Herrera assigned his rights against GEICO. Plaintiffs seek to recover the excess judgment on the theory that GEICO breached its contract of insurance with Herrera and the implied covenant of good faith and fair dealing by insisting on a release for both Herrera and Hernandez in exchange payment of its policy limits.
GEICO paid Plaintiffs its $15,000 policy limits in December of 2022.
II. Evidentiary Objections
GEICO raises several evidentiary objections (Docket Nos. 25-1, 25-2), contending that certain portions of the following evidentiary materials are inadmissible: (1) Plaintiffs' expert report (Docket No. 22-19), (2) Herrera's initial responses to requests for admission in the wrongful death action (Docket No. 22-17), and (3) Anchor General's investigation report containing a summary of interviews with Hernandez' daughters (Docket No. 22-11). The Court does not rely on either Herrera's discovery responses or Anchor General's investigation report in this Order. Therefore, GEICO's objections to those evidentiary materials are overruled as moot. See Am. Guard Servs., Inc. v. First Mercury Ins. Co., No. CV 15-9259 PA (PJWX), 2017 WL 6039975, at *6 n.5 (C.D. Cal. Apr. 14, 2017), aff'd, 741 F. App'x 407 (9th Cir. 2018).
With respect to Plaintiffs' expert report, GEICO objects to pages 5, 11, and 12 of the report for two reasons. First, GEICO attacks the admissibility of the evidence's current form, objecting on the basis that Plaintiffs' expert "lacks personal knowledge regarding what GEICO did or did not do during the handling of the underlying claim" and "regarding what did or did not happen during the underlying claim." (See, e.g., Docket No. 25-2 at pp. 2, 6.) However, on summary judgment, a court can consider evidence which may be presented in an admissible form at trial, even if not presented in an admissible form at the motion for summary judgment stage. See Burch v. Regents of Univ. of Cal., 433 F. Supp. 2d 1110, 1119-20 (E.D. Cal. 2006). Here, the evidence may be presented in an admissible form at trial. GEICO's objections to Plaintiffs' expert report for lack of personal knowledge are overruled.
Second, GEICO objects to Plaintiffs' expert report on the basis that the expert improperly opines on ultimate issues of law, such as whether GEICO conducted a reasonable investigation of the claim. (See, e.g., Docket No. 25-2 at pp. 4, 6.) However, experts may opine on the "reasonableness of an insurer's claims handling." See King v. GEICO Indem. Co., 712 F. App'x 649, 651 (9th Cir. 2017). "[C]ourts generally hold that an insurance claims handling expert in a bad faith case may testify as to whether the insurer's conduct was reasonable based on industry practices and norms." Madrigal v. Allstate Indem. Co., No. CV 14-4242 SS, 2015 WL 12746232, at *4 (C.D. Cal. Oct. 29, 2015), clarified on denial of reconsideration, No. CV 14-4242 SS, 2015 WL 12748277 (C.D. Cal. Nov. 5, 2015). GEICO's objections to Plaintiffs' expert's opinions regarding the reasonableness of GEICO's conduct are overruled.
III. Legal Standard
Federal Rule of Civil Procedure 56 authorizes summary judgment if no genuine issue exists regarding any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a), (c). The moving party must show an absence of an issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L.Ed. 2d 265 (1986). Once the moving party does so, the non-moving party must go beyond the pleadings and designate specific facts showing a genuine issue for trial. Id. at 324, 106 S. Ct. 2548. The court does "not weigh the evidence or determine the truth of the matter, but only determines whether there is a genuine issue for trial." Balint v. Carson City, 180 F.3d 1047, 1054 (9th Cir. 1999). A " 'scintilla of evidence,' or evidence that is 'merely colorable' or 'not significantly probative,' " does not present a genuine issue of material fact. United Steelworkers of Am. v. Phelps Dodge Corp., 865 F.2d 1539, 1542 (9th Cir. 1989), cert denied, 493 U.S. 809, 110 S. Ct. 51, 107 L.Ed. 2d 20 (1989) (citation omitted).
The substantive law governing a claim or defense determines whether a fact is material. T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 631-32 (9th Cir. 1987). The court must view the inferences drawn from the facts "in the light most favorable to the nonmoving party." Id. at 631 (citation omitted). Thus, reasonable doubts about the existence of a factual issue should be resolved against the moving party. Id. at 630-31. However, when the non-moving party's claims are factually "implausible, that party must come forward with more persuasive evidence than would otherwise be [required] . . . ." Cal. Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987), cert denied, 484 U.S. 1006, 108 S. Ct. 698, 98 L.Ed. 2d 650 (1988) (citation and emphasis omitted). "No longer can it be argued that any disagreement about a material issue of fact precludes the use of summary judgment." Id. "[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp., 477 U.S. at 322, 106 S. Ct. at 2552.
IV. Analysis
In their Complaint, Plaintiffs allege that GEICO breached the implied covenant of good faith and fair dealing by "unreasonably failing" to accept Plaintiffs' settlement demand, conduct a reasonable investigation, and inform Herrera of Plaintiffs' settlement offer. (Docket No. 1-1 ¶ 26.) Plaintiffs also allege that GEICO breach the terms of the Policy when it "failed to accept a reasonable settlement offer within policy limits, failed to indemnify [ ] Herrera against the entire judgment, and failed to protect [ ] Herrera from execution of the entire amount of the judgment." (Id. ¶ 31.) GEICO moves for summary judgment on the basis that Plaintiffs' claims fail as a matter of law.
The Complaint lists additional bases for Plaintiffs' breach of the implied covenant of good faith and fair dealing claim, but those additional allegations are duplicative of, or stem from, the allegations that GEICO failed to conduct a reasonable investigation and failed to accept Plaintiffs' settlement demand. (See Docket No. 1-1 ¶ 26 (i.e., allegations that GEICO breached the covenant by "unreasonably imposing conditions on settlement" and "unreasonably failing to protect Herrera from execution of the judgment").)
A. Breach of the Implied Covenant of Good Faith and Fair Dealing
GEICO contends that it did not breach the implied covenant of good faith and fair dealing because it could not, in good faith, accept a demand for policy limits that released only one of its insureds. GEICO also asserts that it did not have a duty to communicate Plaintiffs' settlement demand because it was not a settlement demand that GEICO could accept in good faith. Finally, GEICO contends that its investigation of Plaintiffs' claim was reasonable under the circumstances because it had no duty to continue searching for reasons to deny coverage.
1. Plaintiffs' Settlement Demand
In California, an insurer breaches the implied covenant of good faith and fair dealing when it unreasonably refuses to accept a settlement offer within policy limits. Commercial Union Assur. Cos. v. Safeway Stores, Inc., 26 Cal.3d 912, 916-17, 164 Cal.Rptr. 709, 610 P.2d 1038 (1980); see Pinto v. Farmers Ins. Exch., 61 Cal.App.5th 676, 687, 276 Cal.Rptr.3d 13 (2021) ("To hold an insurer liable for bad faith in failing to settle a third party claim, the evidence must establish that the failure to settle was unreasonable."). However, no breach occurs if an insurer refuses to accept a settlement offer that does not release all of its potentially liable insureds because an insurer "cannot favor the interests of one insured over the other." Lehto v. Allstate Ins. Co., 31 Cal.App.4th 60, 72, 36 Cal.Rptr.2d 814 (1994).
"[A]n insurer has a duty to defend an insured if it becomes aware of, or if [a] third party lawsuit pleads, facts giving rise to the potential for coverage under the insuring agreement." Waller, 11 Cal.4th at 19, 44 Cal.Rptr.2d 370, 900 P.2d 619 (internal quotations omitted); see Am. States Ins. Co. v. Progressive Cas. Ins. Co., 180 Cal.App.4th 18, 25, 102 Cal.Rptr.3d 591 (2009) ("A liability insurer must defend its insured whenever it ascertains facts that give rise to the potential of liability under the policy."); Atl. Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017, 1033-34, 123 Cal.Rptr.2d 256 (2002). "The insurer's duty to defend the 'insured' includes both the named insured(s) and anyone else included in the policy's definition of 'insured.' " Am. States Ins. Co., 180 Cal.App.4th at 26, 102 Cal.Rptr.3d 591 (internal quotations omitted).
Prior to receiving Plaintiffs' settlement demand, GEICO had determined that Hernandez was an "insured" under the Policy because Hernandez was Herrera's relative, resided with Herrera (at least part-time), and had given Herrera permission to use his vehicle while Herrera's vehicle was inoperable. (Docket No. 21-3, Ex. A (defining an "insured" with regard to a "temporary substitute auto" as a "relative" that "resides in your household"; and defining a "temporary substitute auto" as a vehicle "not owned by you, temporarily used with the permission of the owner" as a substitute vehicle while the "owned auto" is "withdrawn from normal use").) There was also a potential of liability for Hernandez given Plaintiffs' allegations in the wrongful death complaint. For these reasons, GEICO properly extended coverage to Hernandez. See Amato v. Mercury Cas. Co., 18 Cal.App.4th 1784, 1790, 23 Cal.Rptr.2d 73 (1993) ("[T]he duty to defend may exist even where coverage is questionable and ultimately found lacking, and any doubt must be resolved in favor of the insured.") (citations omitted).
GEICO's decision to provide coverage for Hernandez was further supported by facts unearthed during discovery in the wrongful death action (i.e., Herrera's deposition testimony that his vehicle had a flat tire, that Hernandez had given him permission to drive the vehicle, and Hernandez' deposition testimony that he resided, at least part-time, with Herrera). (Docket No. 21-4, Exs. G, H.) Cf. Atl. Mut. Ins. Co., 100 Cal.App.4th at 1034, 123 Cal.Rptr.2d 256 ("Once [the] possibility of coverage has been raised . . . then the insurer may defeat such claim of coverage by extrinsic evidence, but only where such evidence presents undisputed facts which conclusively eliminate a potential for liability.") (internal quotations omitted).
GEICO cites to Harp v. Converium Ins. (N. Am.), Inc., 593 F. App'x 686 (9th Cir. 2015), to support its argument that GEICO did not breach the implied covenant of faith and fair dealing when it did not accept Plaintiffs' settlement demand. In Harp, a third-party claimant's settlement demand for policy limits excluded a party that was a potential insured ("Mesa") at the time the demand was made. Id. at 687. The policy stated that an "insured" included "[a]nyone liable for the conduct of an insured" and the plaintiffs' underlying suit contended that Mesa was vicariously liable for the named insured's conduct. Id. The Circuit explained that "[a]n insurer 'must defend its insured whenever it ascertains facts that give rise to the potential of liability under the policy.' " Id. (quoting Am. States Ins. Co., 180 Cal.App.4th at 25, 102 Cal.Rptr.3d 591). Therefore, the Circuit held that the insurer "properly viewed Mesa as an insured party and could not have accepted [the plaintiff's] policy-limits settlement offer excluding Mesa without breaching the implied covenant of good faith and fair dealing." Id.
Like Mesa in Harp, Hernandez was a potential insured with the potential for liability at the time that Plaintiffs made their settlement demand. GEICO could not, in good faith, accept Plaintiffs' demand to release only Herrera. Therefore, GEICO did not breach the implied covenant of good faith and fair dealing when it did not accept Plaintiffs' settlement demand.
2. Communication of the Settlement Demand
An insurer may also be liable for breach of the implied covenant of good faith and fair dealing if it fails to communicate a settlement offer to its insured and that failure prevents the insured from settling the claim within policy limits. See Hedayati v. Interinsurance Exch. of the Auto. Club, 67 Cal.App.5th 833, 845, 283 Cal.Rptr.3d 199 (2021), reh'g denied (Sept. 8, 2021), review denied (Nov. 17, 2021); see also Cont'l Cas. Co. v. United States Fid. & Guar. Co., 516 F.Supp. 384, 388-89 (N.D. Cal. 1981) (under California law, insurer breached the implied covenant of good faith and fair dealing by failing to inform insured of offer in excess of policy limits in order to afford insured opportunity to contribute to settlement).
Here, GEICO could not, in good faith, accept Plaintiffs' settlement demand because doing so would have meant placing the interest of one insured above the other. See Lehto, 31 Cal.App.4th at 72, 36 Cal.Rptr.2d 814. The fact that GEICO did not inform Herrera of a settlement offer that GEICO could not, in good faith, accept does not support Plaintiffs' bad faith claim. Moreover, Plaintiffs imposition of short time frame for GEICO to accept the settlement demand when coupled with Herrera's incarceration also do not support a finding of bad faith. Thus, as matter of law, GEICO did not breach the implied covenant of good faith and fair dealing when it did not inform Herrera of Plaintiffs' settlement demand.
3. GEICO's Investigation
An insurer may breach the implied covenant of good faith and fair dealing by failing to conduct a reasonable investigation of a claim. See Betts v. Allstate Ins. Co., 154 Cal.App.3d 688, 707, 201 Cal.Rptr. 528 (1984). "When investigating a claim, an insurance company has a duty to diligently search for evidence which supports its insured's claim. If it seeks to discover only the evidence that defeats the claim[,] it holds its own interest above that of its insured." Mariscal v. Old Republic Life Ins. Co., 42 Cal.App.4th 1617, 1620, 1623, 50 Cal.Rptr.2d 224 (1996); see Wilson v. 21st Century Ins. Co., 42 Cal.4th 713, 721, 171 P.3d 1082, 68 Cal.Rptr.3d 746 (2007) ("The insurer may not just focus on those facts which justify denial of the claim.") (internal quotations omitted); Tomaselli v. Transamerica Ins. Co., 25 Cal.App.4th 1269, 1281, 31 Cal.Rptr.2d 433 (1994) ("searching for ways to avoid paying the claim" breaches the implied covenant of good faith and fair dealing). Additionally, there is no ongoing duty for an insurer to find a reason to deny coverage when it has already decided to provide coverage. See Travelers Cas. & Sur. Co. v. Emps. Ins. of Wausau, 130 Cal.App.4th 99, 110, 29 Cal.Rptr.3d 609 (2005).
Here, GEICO learned facts that supported its decision to extend coverage to Hernandez. GEICO's investigation and resulting decision to provide coverage were reasonable, especially given Anchor General's initial denial of coverage. To conclude otherwise would discourage insurers from extending coverage, and thereby contravene the law establishing an insurer's duty to provide coverage where there is a potential of liability. See California State Auto. Ass'n Inter-Ins. Bureau v. Progressive Cas. Ins. Co., No. C 11-1747 MEJ, 2012 WL 1438835, at *6 (N.D. Cal. Apr. 25, 2012) ("From a policy perspective . . . courts want to encourage insurers to provide coverage for their insureds."). And to the extent Plaintiffs contend that GEICO breached the implied covenant of good faith and fair dealing by not continuing to search for a reason to deny coverage to Hernandez, no such duty exists. Rather, doing so could be considered an act of bad faith. Thus, as a matter of law, GEICO's investigation of Plaintiffs' claim did not breach the implied covenant of good faith and fair dealing.
GEICO is entitled to summary judgment on Plaintiffs' claim for breach of the implied covenant of good faith and fair dealing.
In support of their Opposition, Plaintiffs filed an expert report in which their expert witness opines that GEICO acted "unreasonably" in its handling of the claim. (Docket No. 22-19.) However, the expert's opinions concerning additional investigatory steps GEICO could have taken do not create a triable issue of fact. Additionally, the expert's legal conclusion that GEICO acted unreasonably is unavailing where the Court has determined, as a matter of law, that GEICO acted reasonably because: GEICO's investigation resulted in it extending coverage to Hernandez; GEICO could not, in good faith, accept Plaintiffs' settlement demand; and, after providing coverage, GEICO had no duty to continue searching for reasons to deny coverage.
B. Breach of Contract
GEICO contends that it did not breach the terms of the Policy when it did not accept Plaintiffs' settlement demand because the demand was not a "within-limits" offer. An insurer is generally not liable for breach of contract where it has paid the policy limits. See Paulson v. State Farm Mut. Auto. Ins. Co., 867 F. Supp. 911, 917 (C.D. Cal. 1994) (applying California law and explaining that plaintiff's breach of contract claim was "not viable" where insurer had paid the limits of liability under plaintiff's policy). Here, Plaintiffs' settlement demand was not a within-limits demand because it offered to release only Herrera, thereby exhausting the policy limits and leaving Plaintiffs' claims against Hernandez pending. And to the extent Plaintiffs allege that GEICO breached the Policy when it did not indemnify Herrera against the entire amount of the $6 million judgment, the Policy does not require GEICO to do so. (See Docket No. 21-3, Ex. A at p. 19 ("Limit of Liability" provision).) Rather, the Policy only requires GEICO to indemnify its insured(s) up to the $15,000 policy limits, which GEICO paid in December of 2022. Thus, GEICO did not, as a matter of law, breach the Policy by not accepting Plaintiffs' settlement demand, or by not indemnifying Herrera against the entire judgment amount. GEICO is entitled to summary judgment on Plaintiffs' breach of contract claim. C. Brandt Fees
Plaintiffs' Complaint seeks attorneys' fees pursuant to Brandt v. Superior Ct., 37 Cal.3d 813, 693 P.2d 796, 210 Cal.Rptr. 211 (1985). Plaintiffs contend that GEICO did not pay the $15,000 policy limits until December 9, 2022, more than four months after Plaintiffs commenced this action. In a tort action for wrongful denial of policy benefits, an insured can recover as tort damages the attorneys' fees incurred to obtain policy benefits that were wrongfully denied ("Brandt fees"). See Brandt, 37 Cal.3d at 819-20, 210 Cal.Rptr. 211, 693 P.2d 796. However, "attorney[s'] fees expended to obtain damages exceeding the policy limit[s] or to recover other types of damages are not recoverable as Brandt fees." Essex Ins. Co. v. Five Star Dye House, Inc., 38 Cal.4th 1252, 1258, 137 P.3d 192, 45 Cal.Rptr.3d 362 (2006). Based on the parties' briefing, GEICO has not met its burden to establish, as a matter of law, that Plaintiffs incurred no attorneys' fees to obtain the policy limits. The Court is therefore unable to determine, at least on this record, that GEICO is not liable for Brandt fees.
Should plaintiffs be entitled to Brandt fees, they are limited to the amounts, if any, that were actually incurred to obtain the payment of the policy limits.
Conclusion
For the foregoing reasons, the Court grants GEICO Partial Summary Judgment. The only remaining issue before the Court is Plaintiffs' entitlement to attorney's fees, if any, for obtaining payment of the policy limits.
IT IS SO ORDERED.