Opinion
Case No. 20-cv-367-WQH-AHG
2021-05-20
SKANSKA USA CIVIL WEST CALIFORNIA DISTRICT INC., Plaintiff, v. NATIONAL INTERSTATE INSURANCE COMPANY, Defendant.
Ramiro Morales, Elizabeth Bell Celniker, Morales Fierro & Reeves, Concord, CA, Patrick Quigley, Morales, Fierro & Reeves, Pleasant Hill, CA, for Plaintiff. Bruce D. Celebrezze, Matthew S. Harvey, Clyde & Co. US LLP, San Francisco, CA, for Defendant.
Ramiro Morales, Elizabeth Bell Celniker, Morales Fierro & Reeves, Concord, CA, Patrick Quigley, Morales, Fierro & Reeves, Pleasant Hill, CA, for Plaintiff.
Bruce D. Celebrezze, Matthew S. Harvey, Clyde & Co. US LLP, San Francisco, CA, for Defendant.
ORDER
HAYES, Judge:
The matters before the Court are the Motion for Partial Summary Judgment filed by Plaintiff Skanska USA Civil West California District Inc. (ECF No. 46) and the Motion for Sanctions filed by Defendant National Interstate Insurance Company (ECF No. 54).
I. BACKGROUND
On February 27, 2020, Plaintiff Skanska USA Civil West California District Inc. ("Skanska") filed a Complaint against Defendant National Interstate Insurance Company ("National Interstate"). (ECF No. 1). Skanska alleged that in 2016 it was sued in California state court and tendered the defense of the lawsuit to its insurers, National Interstate and Zurich American Insurance Company ("Zurich"). Skanska alleged that Zurich provided a defense subject to a $500,000 deductible. Skanska alleged that National Interstate failed to provide a defense and unreasonably agreed to a policy-limits settlement on behalf of other insureds. Skanska alleged that Zurich paid a settlement on behalf of Skanska and "assigned to Skanska all of [Zurich's] rights and claims against National Interstate regarding the [state court lawsuit]." (Id. ¶ 100). Skanska brought claims against National Interstate including a claim for breach of the implied covenant of good faith and fair dealing, an assigned claim for equitable indemnity, and an assigned claim for equitable contribution.
On August 19, 2020, National Interstate filed a Motion for Partial Summary Judgment on the issue that National Interstate did not breach the implied covenant of good faith and fair dealing by agreeing to a policy-limits settlement that did not include a release of the claims against Skanska. (ECF No. 15). On November 24, 2020, the Court issued an Order denying the Motion for Partial Summary Judgment. (ECF No. 31).
The parties engaged in fact discovery.
On January 8, 2021, Skanska filed an Amended Complaint against National Interstate, alleging that "all prior assignments between Skanska and Zurich have been revoked." (ECF No. 42 ¶ 6). Skanska alleges that National Interstate breached the terms of the National Interstate policies by failing to defend Skanska in the state court action from the date of the initial tender, failing to pay defense costs incurred by Skanska, and failing to indemnify Skanska. Skanska alleges that National Interstate breached the implied covenant of good faith and fair dealing by failing to reasonably investigate Skanska's claims for coverage, failing to defend Skanska in the state court action from the date of the initial tender, and agreeing to a policy-limits settlement on behalf of other insureds.
On December 14, 2020, Zurich filed a Complaint against National Interstate arising from Zurich's defense and indemnification of Skanska in the state court lawsuit. (See Zurich Am. Ins. Co. v. Nat'l Interstate Ins. Co. , 3:20-cv-02442-WQH-AHG (S.D. Cal. 2020), ECF No. 1).
Skanska brings the following claims against National Interstate: 1) request for declaratory relief—National Interstate's duty to defend since tender; 2) breach of insurance contract; and 3) breach of the implied covenant of good faith and fair dealing. On the first claim for declaratory relief, Skanska seeks "a declaration and determination that National Interstate owes or owed a duty to defend Skanska in the [state court action] since the initial tender of the original Complaint" and "a declaration and determination that National Interstate owes reimbursement to Skanska for Skanska's payments within its deductible for its defense and/or indemnity in the [state court action]." (Id. at 22). On the second claim for breach of contract, Skanska seeks damages and costs. On the third claim for breach of the implied covenant of good faith and fair dealing, Skanska seeks damages, attorneys’ fees, and costs.
On January 20, 2021, National Interstate filed an Answer to the Amended Complaint. (ECF No. 45).
On February 4, 2021, Skanska filed a Motion for Partial Summary Judgment. (ECF No. 46). Skanska moves for summary judgment "on the following issues:" 1) National Interstate "had a duty to defend Skanska in the underlying action from the date of initial tender;" 2) National Interstate "breached the implied covenant of good faith and fair dealing by failing to defend Skanska in the underlying action from the date of initial tender;" and 3) National Interstate "breached the implied covenant of good faith and fair dealing by agreeing to settle the underlying action without obtaining a release in favor of Skanska or otherwise protecting the interests of Skanska." (Id. at 1-2).
On March 1, 2021, National Interstate filed an Opposition to the Motion for Partial Summary Judgment. (ECF No. 50).
On March 5, 2021, National Interstate filed a Motion for Sanctions. (ECF No. 54). National Interstate moves for monetary sanctions against Skanska and its counsel in the amount of $84,136.50 on the grounds that Skanska and its counsel unreasonably and vexatiously multiplied the proceedings, engaged in bad faith litigation conduct, and violated Civil Local Rule 40.1 by "making affirmative misrepresentations to and concealing important information from the Court and [National Interstate]" about the "purported ‘assignment’ of Zurich's rights." (ECF No. 54-1 at 6).
On March 8, 2021, Skanska filed a Reply in support of the Motion for Partial Summary Judgment. (ECF No. 56).
On March 29, 2021, Skanska filed an Opposition to the Motion for Sanctions. (ECF No. 61). On April 5, 2021, National Interstate filed a Reply in support of the Motion for Sanctions. (ECF No. 62).
On April 22, 2021, the Court heard oral argument on the Motion for Partial Summary Judgment and the Motion for Sanctions. (ECF No. 65).
II. MOTION FOR PARTIAL SUMMARY JUDGMENT
a. Contentions
Skanska contends that National Interstate had a duty to defend Skanska in the underlying state court action from the date of the initial tender. Skanska contends that National Interstate failed to defend Skanska from the date of the initial tender in violation of the National Interstate policies. Skanska contends that the failure to defend was unreasonable and violated the implied covenant of good faith and fair dealing. Skanska contends that National Interstate further violated the implied covenant of good faith and fair dealing by agreeing to a policy-limits settlement on behalf of other insureds. Skanska contends that National Interstate's actions caused Skanska to pay $500,000 out of pocket that it cannot recover from the other insureds.
National Interstate contends that it did not have a duty to defend Skanska in the underlying state court action from the date of the initial tender. National Interstate contends that the decision to reject the initial tender was proper and reasonable under the terms of the National Interstate policies. National Interstate contends that Skanska was not harmed by the settlement and would have had to pay $500,000 out of pocket regardless of National Interstate's actions.
b. Facts
Plaintiff Skanska is a contractor that was involved in a highway reconstruction project near Sorrento Valley, California. In February 2016, Skanska hired Reeve Trucking Company ("Reeve") to transport several 100-foot I-beams from the construction site to a storage site on State Route 67 in Lakeside, California.
In the early morning of February 12, 2016, Peter Chavarin was driving a motorcycle northbound on State Route 67 when he collided with a Reeve tractor-trailer carrying the I-beams, as the tractor-trailer was making a left turn from southbound State Route 67 toward the entrance of the storage site. The tractor-trailer was driven by Reeve employee Christopher Collins. Peter Chavarin sustained severe injuries, including traumatic brain injury, coma, thoracic spine fracture, and other bone fractures.
At the time of the accident, Reeve and Collins were insured under primary and excess policies issued by Defendant National Interstate with collective policy limits of $6,000,000. The primary policy "affords coverage and a defense to an ‘insured’ for claims of bodily injury and property damage caused by an accident resulting from the ownership, maintenance, or use of a covered auto." (Pl.’s Statement of Undisputed Material Facts ("SUMF"), ECF No. 46-2 ¶ 11). The primary policy includes as an insured "[a]nyone liable for the conduct of an ‘insured’ ... but only to the extent of that liability." (Primary Policy, Ex. 15 to Celniker Decl., ECF No. 46-20 at 167).
At the time of the accident, Skanska was insured under a commercial general liability policy issued by Zurich with policy limits of $25,000,000 and a deductible that Skanska was obligated to pay toward the first $500,000 in defense expenses or indemnity payments incurred by Zurich. (See Zurich Policy, Def.’s Ex. 10, ECF No. 50-13 at 3, 46).
On April 6, 2016, Peter Chavarin and his wife filed a complaint for damages against Skanska, Reeve, Collins, and the owner of the Lakeside storage site in the San Diego Superior Court, Peter Chavarin, et al. v. Christopher Collins, et al. , Case No. 37-2016-00011241-CU-PA-CTL (San Diego Super. Ct. (2016)) (the "Chavarin Action"). The initial complaint in the Chavarin Action alleged claims against all defendants for negligence, negligence per se, and loss of consortium. The initial complaint alleged that all defendants were negligent in failing to operate the tractor-trailer in a safe manner and in failing to require and ensure that drivers delivering I-beams used the assistance of a pilot vehicle, spotters, or flagmen and used lights or other features to make the tractor, trailer, and I-beams visible to other motorists. The initial complaint alleged that all defendants "were the agents, employees, subcontractors, joint venturers, partners, officers, or directors, of each other." (Chavarin Action Compl., Ex. 1 to Pl.’s Req. for Judicial Notice ("RJN"), ECF No. 46-6 ¶ 8) .
The parties request that the Court take judicial notice of several documents filed in the underlying state court action and the related action in this Court filed by Zurich against National Interstate. (See RJNs, ECF Nos. 46-3, 50-2). Under Rule 201 of the Federal Rules of Evidence, the court may take judicial notice of "matters of public record." Lee v. City of Los Angeles , 250 F.3d 668, 689 (9th Cir. 2001). Matters of public record include court filings and pleadings in related litigation. See Reyn's Pasta Bella, LLC v. Visa USA, Inc. , 442 F.3d 741, 746 n.6 (9th Cir. 2006). The parties’ Requests for Judicial Notice are granted.
National Interstate "immediately assumed the defense of Reeve [ ] and Collins." (Def.’s Statement of Additional Material Facts ("SAMF"), ECF No. 50-1 ¶ 67). Zurich agreed to defend Skanska, subject to Skanska's obligation to meet the $500,000 deductible.
Skanska has not filed a response to National Interstate's SAMF. The Court relies on assertions in the SAMF that have evidentiary support.
On April 15, 2016, Zurich tendered the defense and indemnity of the Chavarin Action to National Interstate on behalf of Skanska. The tender letter stated, "[A]t the time of the [ ] accident Reeve was transporting I-beams on an invoice basis for Skanska. We believe that Skanska's liability, if any, arises from the negligence of Reeve or its driver. Therefore, Skanska should qualify as an insured under the National [Interstate] Policy ...." (Tender Letter, Def.’s Ex. 1, ECF No. 50-4 at 2-3).
On April 21, 2016, National Interstate denied the request to defend and indemnify Skanska in the Chavarin Action. The denial letter stated:
We do not believe that Skanska qualifies as an insured under the National Interstate policy, as we do not believe Reeve has any liability in this matter.... [T]he specific location of this delivery was selected by Skanska and Skanska elected not to use flagmen, signage or lighting to alert oncoming vehicles to the left turning activities of the oversized vehicles. Reeve's activity was solely related to transport, not to site selection, signage, flagmen and related contractor responsibilities, all of which were under the election and control of Skanska. Given the negligence of Skanska and the existence of its own primary liability insurance coverage, Reeve owes no duty of defense and indemnity to Skanska....
(Denial Letter, Ex. B to FAC, Ex. 6 to Pl.’s RJN, ECF No. 46-11 at 27).
A first amended complaint was filed in the Chavarin Action on April 28, 2016. "In response to a second tender on May 2, 2016, [National Interstate] again denied coverage to Skanska." (Pl.’s SUMF, ECF No. 46-2 ¶ 16). National Interstate denied coverage to Skanska for a third time on December 2, 2016. A second amended complaint was filed in the Chavarin Action on December 21, 2016.
"In or about February or early March 2017, [National Interstate] began discussing settlement of the Chavarins’ claims against Reeve and Collins in exchange for payment of $6,000,000"—the National Interstate policy limits. (Id. ¶ 19). National Interstate proposed settlement terms that included "releasing Skanska from vicariously liability" for the conduct of Reeve and Collins, but the Chavarins would not agree to release claims against Skanska. (Id. ¶ 20).
On May 10, 2017, National Interstate "executed a written settlement agreement with the Chavarins, Reeve, and Collins in which [National Interstate] would pay $6,000,000 to settle the Chavarins’ claims against Reeve and Collins expressly conditioned on a determination of good faith settlement." (Id. ¶ 21). "Skanska was notified of the settlement on May 12, 2017, via an email forwarding the Notice of Settlement." (Id. ¶ 27). National Interstate "applied for an order determining good faith settlement." (Id. ¶ 24).
On May 26, 2017, Zurich sent National Interstate a copy of the proposed third amended complaint in the Chavarin Action, which included a claim against Skanska for negligence based on the doctrine of peculiar risk, a theory of vicarious liability. (See Proposed Third Am. Compl., Def.’s Ex. 19, ECF No. 50-22 at 15).
On June 9, 2017, National Interstate "agreed to participate in Skanska's defense going forward on a 50-50 basis with Zurich." (Def.’s SAMF, ECF No. 50-1 ¶ 91).
On August 11, 2017, the state court entered an order finding the settlement between the Chavarins, Reeve, and Collins "to be in good faith under California Code of Civil Procedure Section 877 et seq. " (Pl.’s SUMF, ECF No. 46-2 ¶ 23).
On August 18, 2017, the third amended complaint was filed in the Chavarin Action.
In April 2018, the Chavarins agreed to settle the claims against Skanska for $2,950,000. Zurich paid the entire settlement on Skanska's behalf because Skanska satisfied the $500,000 deductible in reimbursing defense costs.
c. Legal Standard
"A party may move for summary judgment, identifying each claim or defense—or the part of each claim or defense—on which summary judgment is sought. The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A material fact is one that is relevant to an element of a claim or defense and whose existence might affect the outcome of the suit. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The materiality of a fact is determined by the substantive law governing the claim or defense. See Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; Celotex Corp. v. Catrett , 477 U.S. 317, 322-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
The moving party has the initial burden of demonstrating that summary judgment is proper. See Adickes v. S.H. Kress & Co. , 398 U.S. 144, 153, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Where the party moving for summary judgment bears the burden of proof at trial, the moving party "must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial." Houghton v. South , 965 F.2d 1532, 1536 (9th Cir. 1992).
If the moving party meets the initial burden, the burden shifts to the opposing party to show that summary judgment is not appropriate. Anderson , 477 U.S. at 256, 106 S.Ct. 2505 ; Celotex , 477 U.S. at 322, 324, 106 S.Ct. 2548. The nonmoving party cannot defeat summary judgment by demonstrating "that there is some metaphysical doubt as to the material facts." Matsushita , 475 U.S. at 586, 106 S.Ct. 1348 ; see Anderson , 477 U.S. at 252, 106 S.Ct. 2505 ("The mere existence of a scintilla of evidence in support of the [nonmoving party's] position will be insufficient."). The nonmoving party must "go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Celotex , 477 U.S. at 324, 106 S.Ct. 2548.
"In short, what is required to defeat summary judgment is simply evidence ‘such that a reasonable juror drawing all inferences in favor of the respondent could return a verdict in the respondent's favor.’ " Zetwick v. County of Yolo , 850 F.3d 436, 441 (9th Cir. 2017) (quoting Reza v. Pearce , 806 F.3d 497, 505 (9th Cir. 2015) ). The nonmoving party's evidence is to be believed, and all justifiable inferences are to be drawn in its favor. See Anderson , 477 U.S. at 256, 106 S.Ct. 2505. " ‘Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial,’ and summary judgment is appropriate." Zetwick , 850 F.3d at 441 (quoting Ricci v. DeStefano , 557 U.S. 557, 586, 129 S.Ct. 2658, 174 L.Ed.2d 490 (2009) ).
d. Duty to Defend
Skanska moves for partial summary judgment on the issue that National Interstate "had a duty to defend Skanska in the underlying action from the date of initial tender." (ECF No. 46 at 1). Skanska contends that the initial complaint and the facts known to National Interstate at the outset of the Chavarin Action "establish that Skanska was potentially liable for the conduct of Collins and Reeves" and was therefore an insured under the National Interstate policies. (ECF No. 46-1 at 13). Skanska contends that the allegations in the initial complaint and the claim notes prepared by a National Interstate adjuster indicate that there was a "potential that Skanska would be found vicariously liable under the doctrine of peculiar risk" at the time of tender. (Id. at 15, 17).
National Interstate contends that neither the initial complaint nor the facts known to National Interstate at the outset of the Chavarin Action "suggested that the Chavarins might eventually amend their complaint to assert a potentially covered claim against Skanska for vicarious liability based on the peculiar-risk doctrine." (ECF No. 50 at 15). National Interstate contends that the initial complaint did not allege that Skanska was vicariously liable for the conduct of Reeve or Collins. National Interstate contends that the facts known at the outset of the Chavarin Action—"that the accident occurred when a motorcycle collided with a large truck making a slow left turn at night—are not sufficient by themselves to establish a potential claim under [the] doctrine [of peculiar risk]." (Id. ).
Where an insurance contract imposes a duty to defend on an insurer, the insurer "owes a broad duty to defend its insured against claims that create a potential for indemnity." Montrose Chem. Corp. v. Superior Ct. , 6 Cal. 4th 287, 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (1993). "[T]he duty to defend is so broad that it only requires ‘a bare potential or possibility of coverage as the trigger of a defense duty.’ " Nat'l Union Fire Ins. Co. v. Seagate Techs., Inc. , 466 F. App'x 653, 655 (9th Cir. 2012) (quoting Montrose , 6 Cal. 4th at 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153 ).
"[T]he existence of a duty to defend turns ... upon those facts known by the insurer at the inception of a third party lawsuit." Montrose , 6 Cal. 4th at 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153 ; see Gunderson v. Fire Ins. Exch. , 37 Cal. App. 4th 1106, 1114, 44 Cal.Rptr.2d 272 (1995) (the determination of potential coverage is made "at the time of tender"). The court "compar[es] the allegations of the third party complaint with the terms of the policy." El-Com Hardware, Inc. v. Fireman's Fund Ins. Co. , 92 Cal. App. 4th 205, 212, 111 Cal.Rptr.2d 670 (2001). "[T]he duty to defend arises when the facts alleged in the underlying complaint give rise to a potentially covered claim regardless of the technical legal cause of action pleaded by the third party." Barnett v. Fireman's Fund Ins. Co. , 90 Cal. App. 4th 500, 510, 108 Cal.Rptr.2d 657 (2001).
"[F]acts extrinsic to the allegations of the complaint may give rise to a duty to defend when they reveal a possibility that the claim may be covered by the terms of the insurance policy." Gunderson , 37 Cal. App. 4th at 1113-14, 44 Cal.Rptr.2d 272. The duty to defend arises where, "under the facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be amended to state a covered liability." Scottsdale Ins. Co. v. MV Transp. , 36 Cal. 4th 643, 654, 31 Cal.Rptr.3d 147, 115 P.3d 460 (2005). "The fact that one insurer may owe a duty to provide a defense will not excuse a second insurer's failure to honor its separate and independent contractual obligation to defend." Emerald Bay Cmty. Ass'n v. Golden Eagle Ins. Corp. , 130 Cal. App. 4th 1078, 1088, 31 Cal.Rptr.3d 43 (2005) (citing Cont'l Cas. Co. v. Zurich Ins. Co. , 57 Cal. 2d 27, 37-38, 17 Cal.Rptr. 12, 366 P.2d 455 (1961) ).
"The duty to defend arises on tender of defense and continues until the underlying lawsuit is concluded or until the insurer establishes, by reference to undisputed facts, the absence of any potential for coverage." El-Com Hardware , 92 Cal. App. 4th at 213, 111 Cal.Rptr.2d 670 (citing Montrose , 6 Cal. 4th at 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153 ). However, the duty to defend does not arise "if the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage." La Jolla Beach & Tennis Club, Inc. v. Indus. Indem. Co. , 9 Cal. 4th 27, 39, 36 Cal.Rptr.2d 100, 884 P.2d 1048 (1994), as modified (Mar. 2, 1995). "[I]f, as a matter of law, neither the complaint nor the known extrinsic facts indicate any basis for potential coverage, the duty to defend does not arise in the first instance." Scottsdale Ins. , 36 Cal. 4th at 655, 31 Cal.Rptr.3d 147, 115 P.3d 460.
To prevail on a motion for summary judgment regarding the duty to defend, "the insured must prove the existence of a potential for coverage , while the insurer must establish the absence of any such potential. In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot. " Montrose , 6 Cal. 4th at 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153. "Where there is doubt as to whether the duty to defend exists, the doubt should be resolved in favor of the insured and against the insurer." Hudson Ins. Co. v. Colony Ins. Co. , 624 F.3d 1264, 1267 (9th Cir. 2010).
"Once the duty to defend attaches, the insurer is obligated to defend against all of the claims involved in the action, both covered and noncovered ...." Horace Mann Ins. Co. v. Barbara B. , 4 Cal. 4th 1076, 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792 (1993), as modified (May 13, 1993). "Imposition of an immediate duty to defend is necessary to afford the insured what it is entitled to: the full protection of a defense on its behalf." Montrose , 6 Cal. 4th at 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153 ; see Buss. v. Superior Ct. , 16 Cal. 4th 35, 49, 65 Cal.Rptr.2d 366, 939 P.2d 766 (1997) ("To defend meaningfully, the insurer must defend immediately. To defend immediately, it must defend entirely." (citation omitted)).
In this case, the primary National Interstate policy "affords coverage and a defense to an ‘insured’ for claims of bodily injury and property damage caused by an accident resulting from the ownership, maintenance, or use of a covered auto." (Pl.’s SUMF, ECF No. 46-2 ¶ 11). The Chavarin action alleges bodily injury caused by an accident resulting from the use of a covered auto. Reeve and Collins are "insureds" under the National Interstate policies. (See Def.’s SAMF, ECF No. 50-1 ¶ 57-58). The National Interstate primary policy includes as an insured "[a]nyone liable for the conduct of an ‘insured’ ... but only to the extent of that liability." (Primary Policy, Ex. 15 to Celniker Decl., ECF No. 46-20 at 167).
Generally, a company that hires an independent contractor is not vicariously liable for the negligence of the contractor or the employees of the contractor. See Bowman v. Wyatt , 186 Cal. App. 4th 286, 305, 111 Cal.Rptr.3d 787 (2010), modified & reh'g denied by 2010 Cal. App. LEXIS 1230 (Jul. 28, 2010); Castro v. State of California , 114 Cal. App. 3d 503, 509, 170 Cal.Rptr. 734 (1981). One of the exceptions to this rule is the doctrine of peculiar risk, which "allows lawsuits against those who hire contractors, if the work is ‘likely to create ... a peculiar risk of physical harm to others unless special precautions are taken.’ " SeaBright Ins. Co. v. US Airways, Inc. , 52 Cal. 4th 590, 598, 129 Cal.Rptr.3d 601, 258 P.3d 737 (2011) (alterations in original) (quoting RESTATEMENT ( SECOND ) OF TORTS § 416 ).
"A critical inquiry in determining the applicability of the doctrine of peculiar risk is whether the work for which the contractor was hired involves a risk that is peculiar to the work to be done, arising either from the nature or the location of the work and against which a reasonable person would recognize the necessity of taking special precautions." Bowman , 186 Cal. App. 4th at 306, 111 Cal.Rptr.3d 787 (quoting Privette v. Superior Ct. , 5 Cal. 4th 689, 695, 21 Cal.Rptr.2d 72, 854 P.2d 721 (1993), as modified (Sept. 16, 1993)). "The term ‘peculiar risk’ means neither a risk that is abnormal to the type of work done, nor a risk that is abnormally great; it simply means ‘a special, recognizable danger arising out of the work itself.’ " Id. (quoting Privette , 5 Cal. 4th at 695, 21 Cal.Rptr.2d 72, 854 P.2d 721 ).
In automobile accident cases involving large construction vehicles, California courts have applied the doctrine of peculiar risk where "there was a direct relationship between the accident and the ‘particular work performed.’ " Id. at 309, 111 Cal.Rptr.3d 787 (quoting A. Teichert & Son, Inc. v. Superior Ct. , 179 Cal. App. 3d 657, 661, 225 Cal.Rptr. 10 (1986) ). In American States Insurance Co. v. Progressive Casualty Insurance Co. , the self-employed driver of a tractor-trailer ran over a pedestrian while hauling dirt and driving into the only entrance to a construction site. 180 Cal. App. 4th 18, 23, 102 Cal.Rptr.3d 591 (2009). The driver and the owner of the trailer were insured by Progressive Casualty Insurance Company ("Progressive") and Wilshire Insurance Company ("Wilshire") under policies that defined as an insured "one who is vicariously liable for the conduct of a named insured." Id. at 22-23, 102 Cal.Rptr.3d 591. The California Court of Appeal determined that Progressive and Wilshire had a duty to defend the grading contractor, the general contractor, and the project developer in a suit by the pedestrian because the contractors and the project developer "were potentially liable for the [ ] accident under the vicarious liability theory of the peculiar risk doctrine." Id. at 32, 102 Cal.Rptr.3d 591. The court stated:
There is evidence ... that [the] truck-trailer access of the Project entrance involved a special risk peculiar to the work to be done, that arose out of the place where it was to be done, and against which a reasonable man would recognize the necessity of taking special precautions.
The ... trial court erred in concluding as a matter of law that the [ ] accident involved simply an ordinary dump truck accident (rather than a potential peculiar risk .... [H]ere there was evidence showing that [the] trailer (bottom-dump dirt hauler) collided with [the pedestrian] while accessing the ... Project entrance, a lone entrance which required [the driver] to execute a U-turn (driving westbound in eastbound lanes), encroach on at least two pedestrian cross walks, jump a curb, and drive across a sidewalk, all without assistance of flagmen. This evidence shows no ordinary collision.
Id. at 31, 102 Cal.Rptr.3d 591 (citations omitted); accord Castro , 114 Cal. App. 3d at 507, 512, 170 Cal.Rptr. 734 ; cf. Bowman , 186 Cal. App. 4th at 309, 111 Cal.Rptr.3d 787 (doctrine of peculiar risk did not apply where "[the] truck was unladen and [ ] had left the jobsite. [The driver] was not engaged in hauling or dumping asphalt.... [The driver's] negligence—running a stop sign—thus entailed nothing more than [the] ordinary failure to exercise due care in the operation of a motor vehicle" (fifth alteration in original)), and Teichert , 179 Cal. App. 3d at 662, 225 Cal.Rptr. 10 (doctrine of peculiar risk did not apply where a child was killed when his bicycle collided with a dump truck that was unladen, was not engaged in construction work, and was turning from a public street into a gravel plant, explaining that "[t]here was no direct relationship between the particular work performed by [the driver], i.e., hauling a truck load of asphalt, and the accident.").
In this case, the initial complaint in the Chavarin Action alleged that Peter Chavarin collided with the loaded Reeve tractor-trailer or the I-beams while Reeve employee Collins was delivering the I-beams to the Lakeside storage site on Skanska's behalf; that Reeve and Collins were the agents of Skanska; and that all defendants were negligent in failing to operate the tractor-trailer in a safe manner and in failing to require and ensure that drivers delivering I-beams used the assistance of a pilot vehicle, spotters, or flagmen and used lights or other features to make the tractor, trailer, and I-beams visible to other motorists. (See Chavarin Action Compl., Ex. 1 to Pl.’s RJN, ECF No. 46-6 ¶¶ 8-18). At the time of the initial tender on April 15, 2016, the facts known to National Interstate indicated that it was dark at the time of the accident; that the tractor-trailer had been negotiating the turn into the Lakeside storage site for approximately one minute and was blocking the northbound lanes on State Route 67; that the entrance to the storage site was partially obscured by trees and a turn in the road; and that there were no lights, signs, cones, or flagmen to make the loaded trailer or I-beams visible to other motorists. (See Claim Notes, Exs. 19-22 to Celniker Decl., ECF Nos. 46-24–46-27). The allegations in the initial complaint in the Chavarin Action and the facts known to National Interstate at the time of the initial tender indicated that Skanska was potentially "liable for the conduct of" Reeve or Collins and an insured under the National Interstate policies. (Primary Policy, Ex. 15 to Celniker Decl., ECF No. 46-20 at 167). A claim note written by a National Interstate adjuster on the date of the accident, February 12, 2016, stated, in relevant part:
Today at 11:32 am we received a report of an accident involving our insured Reeve Trucking. Our driver was pulling a 100 ft steel I-beam on a pole dolly trailer southbound on Highway 67 near Lakeside, California in San Diego County, which is considered a neutral venue. At approximately 5:30 am, in early dawn light, he was making a left hand turn into a customer's lot when the claimant motorcyclist, travelling northbound on 67 collided with the steel beam which was supported by the front and back of the pole dolly, sustaining massive injuries. According to our driver who was interviewed by defense counsel, he had been in the process of negotiating the turn for approximately one minute and the tractor and front portion of the pole dolly were in the driveway of the insured's customer when the claimant struck the beam. Both the insured and the insured driver have confirmed that there were no lights or reflective materials of any kind on the beam. This is obviously a very troubling and problematic fact, as it would have been very difficult for the claimant to see the beam at that time of day.
(Claim Note, Ex. 22 to Celniker Decl., ECF No. 46-27 at 2). A claim note written by the National Interstate adjuster on March 22, 2016, stated, in relevant part:
[The supplemental CHP report] find[s] that various reflectors and amber lights were missing on the sides of the telescoping center pole of the trailer, violating various Vehicle Code Sections and DOT regulations that apply to this type of trailer[,] ... ma[king] the trailer less visible than it otherwise should have been.
Unfortunately the driver of a car that was directly behind the MC stated she could not see the trailer until the last moment and had to brake hard in order to bring her vehicle to a stop abt 15 ft short of the trailer. She was very angry that there were no flagmen or special lights to make the trailer more visible. She said that the area of the trailer across her lane appeared to be just blackness.
...
There was a gentleman at [the Lakeside storage site] that was directing traffic inside the gate. It is presently unclear whether that was a [Lakeside storage site] or Skanska employee. There are good reasons to believe that his operation should have involved a flagman and warning signs and cones, as well as better lighting. The pltf can make good argument for the need for a flagman, including that there was a turn in the road just before this driveway, that it was very dark, that the driveway and the cab were hidden by trees from approaching vehicles, and that the driveway necessarily took extra time to negotiate, placing the trailer across the road for an extended period of time. The entity (Skanska??) responsible for choosing this location and this access to the [Lakeside storage site] property, as well as not electing to use lights, signs, cones or flagmen will more than likely bear a large share of liability in this case.
(Claim Note, Ex. 20 to Celniker Decl., ECF No. 46-25 at 2). A claim note written by the National Interstate adjuster on March 29, 2016, stated, in relevant part:
Skanska selected this particular location for delivery. The location was directly past a bend in the highway and was partially obstructed by trees and bushes, making it a more dangerous location for this type of load, especially w/o flagmen.
...
DC includes an email chain between Reeve and Skanska including instructions on delivery of these loads to [the Lakeside storage site].
(Claim Note, Ex. 19 to Celniker Decl., ECF No. 46-24 at 2).
On April 6, 2016, Peter Chavarin and his wife filed the initial complaint in the Chavarin Action against Skanska, Reeve, Collins, and the owner of the Lakeside storage site. The initial complaint alleged that on February 12, 2016, at approximately 5:50 a.m., Peter Chavarin "was northbound on State Route 67 in Lakeside, California." (Chavarin Action Compl., Ex. 1 to Pl.’s RJN, ECF No. 46-6 ¶ 9). The initial complaint alleged that Collins, while acting within the course and scope of his employment for Reeve, was turning left to deliver an I-beam "on behalf of Skanska pursuant to a contract with Skanska." (Id. ¶ 10). The initial complaint alleged that "[w]hen Collins turned left to deliver the I-beam on behalf of Skanska ..., a collision occurred between the truck-trailer being driven and/or I-beam being delivered by defendant Collins and plaintiff Peter Chavarin," causing severe injury to Peter Chavarin. (Id. ¶ 11). The initial complaint alleged:
Defendants, and each of them, were negligent and breached the [ ] duties of reasonable care, among other, by failing to (a) drive and operate defendant Reeve's truck-trailer in a safe manner ..., (b) supervise and provide its drivers, including defendant Collins, with assistance, including a pilot vehicle, spotters, flag men, and others, and equipment, including a truck and trailer, with lights and other features making the truck, trailer, and I-beams visible to other motorists, (c) supervise, require, and ensure that companies and drivers delivering I-beams on its behalf, including defendant Reeve and defendant Collins, utilize, use, and have assistance, including a pilot vehicle, spotters, flag men, and others, and equipment, including a truck, trailer, and I-beams, with lights and other features making the truck, trailer, and I-beams visible to other motorists, and to provide and/or make available those services and devices to companies and drivers delivering I-beams on its behalf, and (d) supervise and provide companies and drivers making deliveries, including defendant Reeve and defendant Collins, with supervision and assistance, including spotters, flag men, and others, in a manner not likely to cause collisions with drivers of other vehicles and injury to anyone, including persons such as plaintiff Peter Chavarin.
(Id. ¶ 18). The initial complaint alleged:
[E]ach of the defendants ... were the agents, employees, subcontractors, joint venturers, partners, officers, or directors, of each other, and in doing the things herein mentioned were acting within the course and scope of such agency or employment and of their authority as such agents, employees, subcontractors, joint venturers, partners, officers, or directors, of each other, and with the consent, knowledge, authorization, permission, and ratification of their co-defendants, and each of them.
(Id. ¶ 8).
On April 15, 2016, Zurich tendered the defense and indemnity of the Chavarin Action to National Interstate on Skanska's behalf. On April 21, 2016, National Interstate denied the request to defend and indemnify Skanska in the Chavarin Action on the grounds that Skanska does not qualify as an insured under the National Interstate policies. The denial letter stated, in relevant part:
We do not believe that Skanska qualifies as an insured under the National Interstate
policy, as we do not believe Reeve has any liability in this matter.... [T]he specific location of this delivery was selected by Skanska and Skanska elected not to use flagmen, signage or lighting to alert oncoming vehicles to the left turning activities of the oversized vehicles. Reeve's activity was solely related to transport, not to site selection, signage, flagmen and related contractor responsibilities, all of which were under the election and control of Skanska. Given the negligence of Skanska and the existence of its own primary liability insurance coverage, Reeve owes no duty of defense and indemnity to Skanska ....
(Denial Letter, Ex. B to FAC, Ex. 6 to Pl.’s RJN, ECF No. 46-11 at 27).
Skanska has come forward with evidence that it was potentially "liable for the conduct of" Reeve or Collins and an insured under the National Interstate policies based on the facts alleged, reasonably inferable, or otherwise known to National Interstate at the outset of the Chavarin Action. Primary Policy, Ex. 15 to Celniker Decl., ECF No. 46-20 at 167; see Scottsdale Ins. , 36 Cal. 4th at 654, 31 Cal.Rptr.3d 147, 115 P.3d 460. The facts known to National Interstate indicated that Reeve or Collins could be liable for negligence, including for failing to operate the tractor-trailer in a safe manner and failing to use or provide assistance and lighting to make the I-beams and tractor-trailer visible to motorists. The facts known to National Interstate indicated that there was a potential that special precautions should have been taken given the nature of the work of transporting I-beams or the location of the Lakeside storage site. The allegations in the initial complaint and the facts known to National Interstate at the outset of the Chavarin Action indicated at least "a bare potential or possibility" that Skanska would share liability for the negligence of Reeve or Collins and was an insured. Nat'l Union Fire Ins. , 466 F. App'x at 655 (quoting Montrose , 6 Cal. 4th at 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153 ). Viewing the facts in the light most favorable to National Interstate, Skanska has proven the existence of a potential for coverage. "[T]he record taken as a whole could not lead a rational trier of fact to find" that there was no potential for coverage on the date of the initial tender. Zetwick , 850 F.3d at 441 (quoting Ricci , 557 U.S. at 586, 129 S.Ct. 2658 ). The Court concludes that National Interstate had a duty to defend Skanska in the Chavarin Action from the date of the initial tender on April 15, 2016. Skanska is entitled to summary judgment on the issue that National Interstate "had a duty to defend Skanska in the underlying action from the date of initial tender." (ECF No. 46 at 1).
e. Implied Covenant of Good Faith & Fair Dealing
Skanska moves for partial summary judgment on the issue that National Interstate "breached the implied covenant of good faith and fair dealing." (ECF No. 46 at 1-2). Skanska contends that it was unreasonable for National Interstate not to defend Skanska in the Chavarin Action from the date of the initial tender. Skanska contends that National Interstate improperly placed the interests of other insureds before the interests of Skanska in agreeing to a policy-limits settlement on behalf of Reeve and Collins that did not release potential vicarious liability claims against Skanska. Skanska contends that the settlement bankrolled the case against Skanska, forced Skanska to incur additional out of pocket costs, and eliminated Skanska's ability to seek indemnity from Reeve or Collins.
National Interstate contends that it reasonably determined that it had no duty to defend Skanska in the Chavarin Action from the date of the initial tender. National Interstate contends that Skanska did not suffer damages from the policy-limits settlement, because Zurich paid the entire $2,950,000 settlement on the claims against Skanska. National Interstate contends that Skanska would have had to pay the $500,000 deductible regardless of National Interstate's actions.
"[There] is an implied covenant of good faith and fair dealing in every contract [including insurance policies] that neither party will do anything which will injure the right of the other to receive the benefits of the agreement." Gruenberg v. Aetna Ins. Co. , 9 Cal. 3d 566, 573, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973) (alterations in original) (quoting Comunale v. Traders & Gen. Ins. Co. , 50 Cal. 2d 654, 658, 328 P.2d 198 (1958) ). To establish a breach of the implied covenant of good faith and fair dealing, the plaintiff must show that the insurer withheld policy benefits, and the reason for withholding was unreasonable or without proper cause. See Love v. Fire Ins. Exch. , 221 Cal. App. 3d 1136, 1151, 271 Cal.Rptr. 246 (1990).
"[A]n insurer must investigate claims thoroughly [and] [ ] may not deny coverage based on either unduly restrictive policy interpretation or standards known to be improper." Id. at 1148, 271 Cal.Rptr. 246. An insurer acts unreasonably if "the insurer ignores evidence available to it which supports the claim. The insurer may not just focus on those facts which justify denial of the claim." Wilson v. 21st Century Ins. Co. , 42 Cal. 4th 713, 721, 68 Cal.Rptr.3d 746, 171 P.3d 1082 (2007), as modified (Dec. 19, 2007). "[I]f an insurer unreasonably fails to defend, it has breached the implied covenant of good faith and fair dealing." Campbell v. Superior Ct. , 44 Cal. App. 4th 1308, 1319, 52 Cal.Rptr.2d 385 (1996).
"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) (citing Strauss v. Farmers Ins. Exch. , 26 Cal. App. 4th 1017, 1021, 31 Cal.Rptr.2d 811 (1994) ), as modified (Jan. 13, 1994). "[A]n insurer can breach its duty to its insureds by disbursing the policy proceeds to the insureds’ claimant without first obtaining a release of the insureds." Id. (citing Strauss , 26 Cal. App. 4th at 1021, 31 Cal.Rptr.2d 811 ). An insurer that accepts an offer releasing all claims against one insured but leaving another insured "bereft of coverage ... breache[s] [the] implied covenant of good faith and fair dealing." Strauss , 26 Cal. App. 4th at 1021-22, 31 Cal.Rptr.2d 811 ; see Harp v. Converium Ins. (N. Am.), Inc. , 593 F. App'x 686, 687 (9th Cir. 2015) (the insurer "could not have accepted [the] policy-limits settlement offer excluding [one insured] without breaching the implied covenant of good faith and fair dealing"). "[T]he insurer is authorized to settle lawsuits, not to pay unilaterally the policy limits to a plaintiff. [ ] [I]t is generally recognized that such an unconditional payment, which has the effect of bankrolling a plaintiff's case against the insured, is not made in good faith." State Farm Mut. Auto. Ins. Co. v. Crane , 217 Cal. App. 3d 1127, 1136, 266 Cal.Rptr. 422 (1990).
"[A]n insurer's bad judgment or negligence is insufficient to establish bad faith; instead, the insurer must engage in a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement." Nieto v. Blue Shield of Cal. Life & Health Ins. Co. , 181 Cal. App. 4th 60, 86, 103 Cal.Rptr.3d 906 (2010) (quoting Chateau Chamberay Homeowners Ass'n. v. Associated Int'l Ins. Co. , 90 Cal. App. 4th 335, 346, 108 Cal.Rptr.2d 776 (2001), as modified on denial of reh'g (July 30, 2001)). "The ultimate test is whether the insurer's conduct was reasonable." Id. (citing Chateau Chamberay , 90 Cal. App. 4th at 346, 108 Cal.Rptr.2d 776 ). "While the reasonableness of an insurer's claims-handling conduct is ordinarily a question of fact, it becomes a question of law where the evidence is undisputed and only one reasonable inference can be drawn from the evidence." Chateau Chamberay , 90 Cal. App. 4th at 346, 108 Cal.Rptr.2d 776 (citing Paulfrey v. Blue Chip Stamps , 150 Cal. App. 3d 187, 196, 197 Cal.Rptr. 501 (1983) ).
In this case, the undisputed facts show that National Interstate had a duty to defend Skanska in the Chavarin Action from the date of the initial tender on April 15, 2016. On the date of the initial tender, the facts known to National Interstate indicated that Reeve or Collins could be liable for negligence, including for failing to operate the tractor-trailer in a safe manner and failing to use or provide assistance and lighting to make the I-beams and tractor-trailer visible to motorists. (See Chavarin Action Compl., Ex. 1 to Pl.’s RJN, ECF No. 46-6 ¶¶ 8-18; Claim Notes, Exs. 19-22 to Celniker Decl., ECF Nos. 46-24–46-27). The initial complaint in the Chavarin Action alleged that Peter Chavarin collided with the loaded Reeve tractor-trailer or the I-beams while Reeve employee Collins was delivering the I-beams to the Lakeside storage site on Skanska's behalf; that Reeve and Collins were the agents of Skanska; and that all defendants were negligent for the same conduct. (See Chavarin Action Compl., Ex. 1 to Pl.’s RJN, ECF No. 46-6 ¶¶ 8-18). The facts known to National Interstate indicated that it was dark at the time of the accident; that the tractor-trailer had been negotiating the turn into the Lakeside storage site for approximately one minute and was blocking the northbound lanes on State Route 67; that the entrance to the storage site was partially obscured by trees and a turn in the road; and that there were no lights, signs, cones, or flagmen to make the loaded trailer or I-beams visible to other motorists. (See Claim Notes, Exs. 19-22 to Celniker Decl., ECF Nos. 46-24–46-27). Despite the allegations in the initial complaint and the facts known to National Interstate, on April 21, 2016, National Interstate denied the initial tender of the defense and indemnification of Skanska in the Chavarin Action, stating, "We do not believe that Skanska qualifies as an insured under the National Interstate policy, as we do not believe Reeve has any liability in this matter." (Denial Letter, Ex. B to FAC, Ex. 6 to Pl.’s RJN, ECF No. 46-11 at 27).
A first amended complaint was filed in the Chavarin Action on April 28, 2016. "In response to a second tender on May 2, 2016, [National Interstate] again denied coverage to Skanska." (Pl.’s SUMF, ECF No. 46-2 ¶ 16). In November 2016, National Interstate began discussing settlement on behalf of Reeve and Collins. (See Claim Note, Ex. 26 to Celniker Decl., ECF No. 46-31 at 2 (National Interstate adjuster wrote on November 7, 2016, "Would plaintiff be amenable to resolving with us and moving this along with litigation against other parties, using our settlement to fund?")).
National Interstate denied coverage to Skanska for a third time on December 2, 2016. A second amended complaint was filed in the Chavarin Action on December 21, 2016. National Interstate continued to discuss settlement on behalf of Reeve and Collins. (See Claim Notes, Exs. 24-25 to Celniker Decl., ECF Nos. 46-29–46-30 (National Interstate adjuster wrote on January 13, 2017, "File a good faith settlement at the PL and get out of this. Riding for awhile will result in enormous expenses;" and "I recommend approaching plaintiff counsel and offering our $6M policy limit in exchange for a full release of our insured.... A settlement at this stage also shuts off the soaring defense costs we are incurring")).
In February or March 2017, National Interstate began negotiating with the Chavarins and their attorney a "settlement of the Chavarins’ claims against Reeve and Collins in exchange for payment of $6,000,000." (Pl.’s SUMF, ECF No. 46-2 ¶ 19). Although National Interstate denied that Skanska qualified as an insured, National Interstate attempted to obtain a settlement that included a release of claims against Skanska based on vicarious liability.
The attorney for the Chavarins states in a Declaration that on March 6, 2017, he told the attorney for Reeve and Collins that the Chavarins "would not agree to include in settlement for the [National Interstate policy] limits of $6,000,000 a release of any claims that [the Chavarins] had against Skanska." (Petze Decl., ECF No. 50-42 at 66 ¶ 13). The attorney states that coverage counsel for National Interstate proposed that the settlement agreement include a release of the claims against Skanska or a "covenant not to assert" claims against Skanska. (Id. at 67 ¶ 19). The attorney states that coverage counsel for National Interstate also proposed a global mediation that would include Skanska. (Id. at 69 ¶ 25). The attorney states that he ultimately told coverage counsel for National Interstate that the Chavarins "would not agree to any such release or covenant" and "were not willing to give up any claims or potential claims ... against Skanska." (Id. at 68 ¶ 24). The attorney states that the Chavarins "were not interested in participating in a global mediation." (Id. at 69 ¶ 25). The attorney states:
There is nothing that [the attorneys] or [National Interstate] could have said or done that would have convinced the Chavarins and me to release anything other than the Chavarins’ claims against Reeve Trucking and Collins in exchange for the $6,000,000 limits of the [National Interstate] policies. We were convinced that the claims against those two defendants alone were worth more than $6,000,000 and that the claims against Skanska had a separate settlement value.
(Id. at 70 ¶ 31).
On May 10, 2017, National Interstate "executed a written settlement agreement with the Chavarins, Reeve, and Collins in which [National Interstate] would pay $6,000,000 to settle the Chavarins’ claims against Reeve and Collins expressly conditioned on a determination of good faith settlement." (Pl.’s SUMF, ECF No. 46-2 ¶ 21).
Counsel of record for Skanska states in a Declaration:
[A]s of the time of [National Interstate's] signature on the May 10, 2017 settlement agreement settling only the claims against Reeve Trucking Company, Inc. and Collins, Skanska had paid approximately $150,000.00 for its defense in the Chavarin action and approximately $350,000.00 remained for Skanska to pay under its obligation under the Zurich American Insurance Company policy to pay the first $500,000.00 of loss and expense.
(Celniker Decl., ECF No. 18-2 ¶ 9; see Ex. F to Celniker Decl., ECF No. 18-8).
"At no time during the negotiations for this settlement did [National Interstate] reach out to Skanska to coordinate efforts to settle any of the claims against Skanska." (Pl.’s SUMF, ECF No. 46-2 ¶ 26). "Skanska was notified of the settlement on May 12, 2017, via an email forwarding the Notice of Settlement." (Id. ¶ 27). National Interstate "applied for an order determining good faith settlement." (Id. ¶ 24). National Interstate "made no attempt to negotiate terms of a settlement which would have left Skanska's rights to equitable indemnity intact." (Id. ¶ 47).
On May 26, 2017, Zurich sent National Interstate a copy of the proposed third amended complaint in the Chavarin Action, which included a claim against Skanska for "Negligence" based on "Peculiar Risk." (Chavarin Action Proposed Third Am. Compl., Def.’s Ex. 19, ECF No. 50-22 at 15). On June 9, 2017, National Interstate "agreed to participate in Skanska's defense going forward on a 50-50 basis with Zurich." (Def.’s SAMF, ECF No. 50-1 ¶ 91).
On August 11, 2017, the state court entered an order finding the settlement between the Chavarins, Reeve, and Collins "to be in good faith under California Code of Civil Procedure Section 877 et seq. " (Pl.’s SUMF, ECF No. 46-2 ¶ 23).
On August 18, 2017, the third amended complaint was filed in the Chavarin Action. In April 2018, the Chavarins agreed to settle the claims against Skanska for $2,950,000. Zurich paid the entire settlement on Skanska's behalf because Skanska satisfied the $500,000 deductible in reimbursing defense costs.
Skanska has come forward with evidence that National Interstate's claims-handling conduct was unreasonable. The undisputed facts show that the allegations in the initial complaint and the facts known to National Interstate at the outset of the Chavarin Action indicated that there was a potential that Skanska would share liability for the negligence of Reeve or Collins and was an insured. National Interstate rejected the initial tender despite its knowledge of the facts and circumstances of the accident and the allegations in the Chavarin Action complaint. National Interstate unreasonably denied coverage three times, on April 21, 2016, in early May 2016, and on December 2, 2016. Yet in early 2017, National Interstate attempted to negotiate a settlement on Skanska's behalf. National Interstate agreed to a policy-limits settlement on behalf of two of its insureds, which allowed the case against Skanska to move forward. National Interstate's actions required Skanska to continue to fund its defense in the Chavarin Action and barred Skanska's right to seek indemnification from Reeve or Collins for any of the $500,000 that Skanska paid out of pocket. See Fullerton Redev. Agency v. S. Cal. Gas Co. , 183 Cal. App. 4th 428, 432, 107 Cal.Rptr.3d 396 (2010) ("A settlement made in good faith under sections 877 and 877.6 [of the California Civil Code] bars claims against the settling defendant for contribution or indemnity by other joint tortfeasors, including claims for total indemnity, partial indemnity and implied contractual indemnity." (quoting Willdan v. Sialic Contractors Corp. , 158 Cal. App. 4th 47, 54, 69 Cal.Rptr.3d 633 (2007) )).
Viewing the facts in the light most favorable to National Interstate, no reasonable jury could conclude that National Interstate's failure to provide a defense in the Chavarin Action from the date of the initial tender was reasonable. Viewing the facts in the light most favorable to National Interstate, no reasonable jury could conclude that it was reasonable for National Interstate to agree to a policy-limits settlement on behalf of two of its insureds, leaving Skanska with an outstanding deductible and cutting off any potential indemnification from Reeve or Collins. The Court concludes that the "only [ ] reasonable inference [that] can be drawn from the evidence" is that National Interstate's claims-handling conduct was unreasonable. Chateau Chamberay , 90 Cal. App. 4th at 346, 108 Cal.Rptr.2d 776 (citing Paulfrey , 150 Cal. App. 3d at 196, 197 Cal.Rptr. 501 ). Skanska is entitled to summary judgment on the issue that National Interstate "breached the implied covenant of good faith and fair dealing." (ECF No. 46 at 1-2).
III. MOTION FOR SANCTIONS
National Interstate moves for an award of monetary sanctions in the amount of $83,136.50 against Skanska and its attorneys of record, Morales, Fierro & Reeves, "based on 28 U.S.C. § 1927, the Court's inherent powers, and Local Civil Rule 83.1." (ECF No. 54-1 at 5). National Interstate contends that Skanska and its attorneys made misrepresentations and concealed important information about the purported assignment of Zurich's rights. National Interstate contends that there was never a valid assignment between Zurich and Skanska. National Interstate contends Skanska never had standing to bring a claim for breach of the implied covenant of good faith and fair dealing based on National Interstate's settlement of the claims against Reeve and Collins. National Interstate contends that it has incurred $83,136.50 in attorneys’ fees to bring a Motion for Partial Summary Judgment and to respond to Skanska's Motion for Partial Summary Judgment on the claim for breach of the implied covenant of good faith and fair dealing with respect to the settlement.
National Interstate requests that the Court take judicial notice of several documents filed in this case and related actions. (RJN, ECF No. 54-2). Judicial notice of the requested documents is unnecessary for this Order. The Request for Judicial Notice is denied. See Asvesta v. Petroutsas , 580 F.3d 1000, 1010 n.12 (9th Cir. 2009) (denying request for judicial notice where judicial notice would be "unnecessary").
Skanska contends that there was a valid assignment, and Skanska and its attorneys did not engage in any bad faith conduct. Skanska contends that the sanctions requested for the costs National Interstate incurred in filing a Motion for Partial Summary Judgment and responding to Skanska's Motion for Partial Summary Judgment are "not causally connected in any way to the question of whether the prior assignment of Zurich's claim was or was not valid." (ECF No. 61 at 22). Skanska contends that it has always had its own claim for breach of the implied covenant of good faith and fair dealing with respect to the settlement of the claims against Reeve and Collins. Skanska contends that regardless of any assignment, National Interstate "would still have to address the issue of its bad faith in connection with the Reeve/Collins settlement." (Id. at 21).
"[A] court may assess attorney's fees when a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons ...." Chambers v. NASCO, Inc. , 501 U.S. 32, 45, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) (citing Alyeska Pipeline Serv. Co. v. Wilderness Soc'y , 421 U.S. 240, 258-59, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975) ; Hutto v. Finney , 437 U.S. 678, 689, 98 S.Ct. 2565, 57 L.Ed.2d 522 (1978) ). In the Ninth Circuit, "conduct must constitute or be tantamount to bad faith" for inherent power sanctions to be imposed. Fink v. Gomez , 239 F.3d 989, 993 (9th Cir. 2001). Bad faith includes a "broad range of willful improper conduct." Id. at 992.
28 U.S.C. § 1927 provides that "[a]ny attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct." 28 U.S.C. § 1927. Sanctions under § 1927 require "a finding of recklessness or bad faith." Gomez v. Vernon , 255 F.3d 1118, 1134-35 (9th Cir. 2001) (citing 28 U.S.C. § 1927 ). Local Rule 83.1 provides that "[f]ailure of counsel or of any party to comply with these rules, with the Federal Rules of Civil or Criminal Procedure, or with any order of the court may be grounds for imposition by the court of any and all sanctions authorized by statute or rule or within the inherent power of the court." CivLR 83.1(a).
Sanctions "must bear a financial nexus to the excess proceedings [and] may not exceed the costs, expenses, and attorneys’ fees reasonably incurred because of [the sanctionable] conduct." Norelus v. Denny's, Inc. , 628 F.3d 1270, 1297 (11th Cir. 2010) (quoting Peterson v. BMI Refractories , 124 F.3d 1386, 1396 (11th Cir. 1997) ). Whether to award sanctions is within the Court's discretion. See W. Coast Theater Corp. v. City of Portland , 897 F.2d 1519, 1528 (9th Cir. 1990).
In this case, the Court has determined that Skanska is entitled to summary judgment on the issue that National Interstate breached the implied covenant of good faith and fair dealing, based in part on National Interstate's agreement to a policy-limits settlement of the claims against Reeve and Collins. Skanska has a valid claim against National Interstate based on the settlement, irrespective of any assignment. The attorneys’ fees incurred by National Interstate in responding to the claim for breach of the implied covenant of good faith and fair dealing were not "incurred because of [the allegedly sanctionable] conduct" related to the assignment of Zurich's rights. Norelus , 628 F.3d at 1297. The Motion for Sanctions is denied.
IV. CONCLUSION
IT IS HEREBY ORDERED that the Motion for Partial Summary Judgment filed by Plaintiff Skanska USA Civil West California District Inc. (ECF No. 46) is granted.
IT IS FURTHER ORDERED that the Motion for Sanctions filed by Defendant National Interstate Insurance Company (ECF No. 54) is denied.