Opinion
Case No.: CV 20-03318-CJC(JEMx)
12-11-2020
NEW YORK MARINE AND GENERAL INSURANCE COMPANY, Plaintiff, v. Robert WHERRY, Defendant. Fancy Content, Inc., Real Party in Interest.
Christian D. Jinkerson, James P. Wagoner, Nicholas H. Rasmussen, McCormick Barstow Sheppard Wayte and Carruth LLP, Fresno, CA, for Plaintiff. Bradley A. Snyder, Ryan Jeffrey Snyder, Law Offices of Brad Snyder, John Francis Salisbury, Tobin Lucks LLP, Woodland Hills, CA, for Defendant.
Christian D. Jinkerson, James P. Wagoner, Nicholas H. Rasmussen, McCormick Barstow Sheppard Wayte and Carruth LLP, Fresno, CA, for Plaintiff.
Bradley A. Snyder, Ryan Jeffrey Snyder, Law Offices of Brad Snyder, John Francis Salisbury, Tobin Lucks LLP, Woodland Hills, CA, for Defendant.
ORDER DENYING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT [Dkt. 36]
CORMAC J. CARNEY, UNITED STATES DISTRICT JUDGE
I. INTRODUCTION & BACKGROUND
Plaintiff New York Marine and General Insurance Company brings this insurance coverage action against Defendant Robert Wherry ("Wherry") and Fancy Content, Inc. ("Fancy Content"), the real party in interest. (Dkt. 1 [Complaint, hereinafter "Compl."].)
Wherry is the sole officer and shareholder of Fancy Content. (Dkt. 37-1 [Statement of Genuine Disputes, hereinafter "SGD"] ¶ 4.) Plaintiff issued a "Business Auto" insurance policy and a "Commercial Umbrella Policy" to Fancy Content for the policy period of April 21, 2015 to April 21, 2016. (Id. ¶¶ 7, 9.) Wherry, driving an automobile owned by him and his wife, was involved in a motor vehicle accident with Jeffrey Werner. (Id. ¶ 16.) On August 26, 2016, Werner filed a personal injury lawsuit (the "Underlying Action") against Wherry and Fancy Content in Los Angeles County Superior Court. (Id. ¶¶ 18–20.) Fancy Content tendered the action to Plaintiff as Fancy Content's insurer. (Id. ¶ 21.)
Plaintiff filed the instant action asserting three causes of action for declaratory relief: (1) that Wherry is not a covered "insured" under the Business Auto policy, (2) that Wherry is not a covered "insured" under the Umbrella Policy, and (3) that Plaintiff is subrogated to and has a right of action against Wherry for costs to defend Fancy Content and for any amounts it must pay to indemnify Fancy Content on any settlement or judgment in the Underlying Action. (Compl. at 8–11.)
Now before the Court is Wherry's motion for partial summary judgment on Plaintiff's third cause of action for declaratory relief that it may pursue subrogation against Wherry. (Dkt. 36 [hereinafter, "Mot."].) For the following reasons, Wherry's motion for partial summary judgment is DENIED.
Having read and considered the papers presented by the parties, the Court finds this matter appropriate for disposition without a hearing. See Fed. R. Civ. P. 78 ; Local Rule 7-15. Accordingly, the hearing set for December 21, 2020, at 1:30 p.m. is hereby vacated and off calendar.
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II. LEGAL STANDARD
The Court may grant summary judgment on "each claim or defense—or the part of each claim or defense—on which summary judgment is sought." Fed. R. Civ. P. 56(a). Summary judgment is proper where the pleadings, the discovery and disclosure materials on file, and any affidavits show that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Id. ; see also Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The party seeking summary judgment bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex , 477 U.S. at 325, 106 S.Ct. 2548. A factual issue is "genuine" when there is sufficient evidence such that a reasonable trier of fact could resolve the issue in the nonmovant's favor. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is "material" when its resolution might affect the outcome of the suit under the governing law, and is determined by looking to the substantive law. Id.
Where, as here, the nonmovant will have the burden of proof on an issue at trial, the moving party may discharge its burden of production by either (1) negating an essential element of the opposing party's claim or defense, Adickes v. S.H. Kress & Co. , 398 U.S. 144, 158–60, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970), or (2) showing that there is an absence of evidence to support the nonmoving party's case, Celotex Corp. , 477 U.S. at 325, 106 S.Ct. 2548. Once this burden is met, the party resisting the motion must set forth, by affidavit, or as otherwise provided under Rule 56, "specific facts showing that there is a genuine issue for trial." Anderson , 477 U.S. at 256, 106 S.Ct. 2505. A party opposing summary judgment must support its assertion that a material fact is genuinely disputed by (i) citing to materials in the record, (ii) showing the moving party's materials are inadequate to establish an absence of genuine dispute, or (iii) showing that the moving party lacks admissible evidence to support its factual position. Fed. R. Civ. P. 56(c)(1)(A)–(B). The opposing party may also object to the material cited by the movant on the basis that it "cannot be presented in a form that would be admissible in evidence." Fed. R. Civ. P. 56(c)(2). But the opposing party must show more than the "mere existence of a scintilla of evidence"; rather, "there must be evidence on which the jury could reasonably find for the [opposing party]." Anderson , 477 U.S. at 252, 106 S.Ct. 2505.
In considering a motion for summary judgment, the court must examine all the evidence in the light most favorable to the nonmoving party, and draw all justifiable inferences in its favor. Id. ; T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n , 809 F.2d 626, 630–31 (9th Cir. 1987). The court does not make credibility determinations, nor does it weigh conflicting evidence. Eastman Kodak Co. v. Image Tech. Servs., Inc. , 504 U.S. 451, 456, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992). But conclusory and speculative testimony in affidavits and moving papers is insufficient to raise triable issues of fact and defeat summary judgment. Thornhill Publ'g Co. v. GTE Corp. , 594 F.2d 730, 738 (9th Cir. 1979).
III. DISCUSSION
"In the case of insurance, subrogation takes the form of an insurer's right to be put in the position of the insured in order to pursue recovery from third parties legally responsible to the insured for a loss which the insurer has both insured and paid." Fire Ins. Exch. v. Hammond , 83 Cal. App. 4th 313, 317, 99 Cal.Rptr.2d 596 (2000). This right, however, is constrained in the employer-employee context.
"California law requires an employer to indemnify an employee (1) ‘for all that the employee necessarily expends or loses in direct consequence of the discharge of his duties, or (2) for expenses incurred because of the employee's ‘obedience to the directions of his employer, even though unlawful,’ unless the employee believed, at the time he followed the directions, that the directions were unlawful." O'Hara v. Teamsters Union Local No. 856 , 151 F.3d 1152, 1157 (9th Cir. 1998) (quoting Cal. Labor Code § 2802 ); see also Jacobus v. Krambo Corp. , 78 Cal. App. 4th 1096, 1101, 93 Cal.Rptr.2d 425 (2000) ("[A]n employer is vicariously liable for risks broadly incidental to the enterprise undertaken by the employer—that is, for an employee's conduct that, in the context of the employer's enterprise, is ‘not so unusual or startling that it would seem unfair to include the loss resulting from it among other costs of the employer's business.’ "). However, an "employee who is guilty of a culpable degree of negligence is liable to his employer for the damage thereby caused to the employer," Cal. Labor Code § 2865, when the employee's negligent acts were not authorized by the employer. O'Hara , 151 F.3d at 1160. In other words, an employer—or in this case a subrogated insurer—may pursue claims against a negligent employee only when the employee's acts were unauthorized or not within the scope of his employment. Based on the record before the Court, it cannot conclude on summary judgment that subrogation is precluded because there are genuine issues of fact regarding whether Wherry's driving at the time of the accident was authorized and was within the scope of his employment. (See SGD ¶ 25.)
Wherry also argues that Plaintiff may never pursue subrogation against him because it is precluded under the doctrine of "superior equities" and that Wherry should be considered an "implied co-insured" under the policies. (Mot. at 4–5.) "Under the doctrine of superior equities, although an insurer might have a subrogation interest in the insured's claim against the party that caused the loss, it cannot enforce its subrogation rights unless it has equities superior to those of the wrongdoer." W. Heritage Ins. Co. v. Frances Todd, Inc. , 33 Cal. App. 5th 976, 991, 245 Cal.Rptr.3d 552 (2019) (quotation marks and citation omitted).
Wherry cites several insurer-tenant cases where a housing unit was damaged in a fire caused by the tenant's negligence, the fire insurer paid the loss, and the insurer then sued the tenant for the loss. See Parsons Mfg. Corp. v. Sup. Ct. , 156 Cal App. 3d 1151, 203 Cal.Rptr. 419 (1984) ; Liberty Mut. Fire Ins. v. Auto Spring Supply Co. , 59 Cal. App. 3d 860, 131 Cal.Rptr. 211 (1976). These cases represent a general rule that in California courts, "a lessee is not responsible for negligently caused fire damages where the lessor and lessee intended the lessor's fire policy to be for their mutual benefit." W. Heritage Ins. Co. , 33 Cal. App. 5th at 985, 245 Cal.Rptr.3d 552. The courts considered the language of the leases governing the lessor-lessee relationship and found that these agreements contemplated that the lessor would procure fire insurance for the premises, bear the responsibility for fire losses, and the lessee could reasonably expect that the insurance would be for its benefit as well as the lessor's. See Auto Spring , 59 Cal. App. 3d at 865, 131 Cal.Rptr. 211 ; Parsons , 156 Cal. App. 3d at 1155, 1162–63, 203 Cal.Rptr. 419.
Here, there is nothing in either the Business Auto Policy or the Commercial Umbrella Policy which suggests Wherry could reasonably expect either policy to be for his benefit as well as that of Fancy Content. Wherry argues, nevertheless, that he should be "deemed an implied co-insured" as a matter of law because "Wherry is 100% owner of Fancy Content, it was his money that would otherwise be reaped as profit that was used to purchase insurance," and, thus, "[i]t would be most inequitable to hold Wherry responsible for the very insurance he purchased." (Mot. at 7.) The Court disagrees.
Though Wherry is the sole-shareholder of Fancy Content, it is the company that paid for the insurance, not him. Fancy Content is the named insured on both policies, (SGD ¶¶ 7–9), and as an S-corporation, (id. ¶ 6), is a separate legal entity from Wherry, see Sonora Diamond Corp. v. Sup. Ct. , 83 Cal. App. 4th 523, 538, 99 Cal.Rptr.2d 824 (2000). Under Wherry's logic, any shareholder of a corporation "paid" for the corporation's insurance and could be deemed an "implied co-insured" regardless of the policy's language. This defies common sense and the principles of corporate and insurance law. See Pac. Exp. Packers v. Chubb/Pac. Indem. Group , 57 Cal. App. 3d 186, 194, 129 Cal.Rptr. 86 (1976) ("the limitation in the provisions of the [insurance] policy must be respected"); Republic Indem. Co. v. Schofield , 47 Cal. App. 4th 220, 226, 54 Cal.Rptr.2d 637 (1996) ("The fact a corporation is named as the insured does not mean that the corporation's officers, directors and employees are automatically additional insureds under the policy.").
While it may be true that "Wherry would never authorize his business to sue himself for indemnity," (Mot. at 16), he has failed to establish that—as a matter of law—Plaintiff is prohibited from stepping into the shoes of Fancy Content and pursuing its claims against an employee who committed unauthorized tortious acts outside the scope of employment.
IV. CONCLUSION
For the foregoing reasons, Wherry's motion for partial summary judgment is DENIED .