Opinion
Case No. CV 22-3010 PA (MARx)
04-07-2023
VOYAGER INDEMNITY INSURANCE COMPANY v. ZALMAN N., INC., et al.
Christina Roberto, Isaac Walrath, Patrick Michael Laurence, Raymond J. Tittmann, Tittmann Weix LLP, Los Angeles, CA, for Voyager Indemnity Insurance Company. Paul D. Bojic, Law Office of Paul D. Bojic, Indian Wells, CA, for Zalman N., Inc., et al.
Christina Roberto, Isaac Walrath, Patrick Michael Laurence, Raymond J. Tittmann, Tittmann Weix LLP, Los Angeles, CA, for Voyager Indemnity Insurance Company. Paul D. Bojic, Law Office of Paul D. Bojic, Indian Wells, CA, for Zalman N., Inc., et al. Proceedings: IN CHAMBERS COURT ORDER PERCY ANDERSON, UNITED STATES DISTRICT JUDGE
Before the Court is a Motion for Summary Judgment filed by plaintiff Voyager Indemnity Insurance Company ("Voyager") (Docket No. 31). 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 10, 2023, is vacated, and the matter taken off calendar.
I. Factual and Procedural Background
Voyager commenced this action seeking a declaration that it does not owe insurance coverage to defendants Zalman Nemtzov ("Nemtzov") and Zalman N., Inc. (collectively "Defendants" or "Zalman") as additional insureds under an insurance policy Voyager issued to MRB Construction, Inc. ("MRB"). Zalman was retained in 2017 by Jennifer Josephs ("Josephs") to serve as a general contractor on a residential building project in Santa Monica, California. MRB worked on the project as a framing subcontractor. Isac Hernandez ("Hernandez") was injured while working at the construction project in 2019. Hernandez filed an action against Joseph that is pending in Los Angeles Superior Court (the "underlying action"). Joseph, in turn, filed a cross-complaint for indemnity against Zalman, MRB, and others.
Voyager states that Hernandez was injured on February 21, 2019. In some filings, including Zalman's Opposition to Voyager's Statement of Undisputed Facts, Zalman appears to agree that Hernandez was injured on that date. (See Zalman's Opposition to Statement of Undisputed Facts ¶ 20.) However, in other documents, including Zalman's Answer and Counterclaim and in his Declaration filed in Opposition to Voyager's Motion for Summary Judgment, Zalman states that Hernandez was injured on March 21, 2019.
The underlying complaint filed by Hernandez alleges that he was injured on February 21, 2019.
MRB obtained a commercial liability policy from Voyager with a coverage period from October 15, 2018, to October 15, 2019 (the "Policy"). The Policy includes a "notice" explaining that it is issued "by an insurer that is not licensed by the State of California. These companies are called 'nonadmitted' or 'surplus line' insurers." The Policy's declarations page identifies MRB Construction, Inc. as the "Named Insured." The Policy states: "Throughout this policy the words 'you' and 'your' refer to the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy." The Policy also explains that the "word 'insured' means any person or organization qualifying as such under Section II Who Is An Insured." That provision provides that for a corporation like MRB, an "insured" includes not just the Named Insured, but also provides that "Your 'executive officers' and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as stockholders."
The Policy includes a "blanket" additional insured endorsement, which amends Section II of the Policy:
A. Section II Who Is An Insured is amended to include as an additional insured any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability for "bodily injury", "property damage" or "personal and advertising injury" caused, in whole or in part, by:
1. Your acts or omissions; or
2. The acts or omissions of those acting on your behalf;
in the performance of your ongoing operations for the additional insured. However, the insurance afforded to such additional insured:
1. Only applies to the extent permitted by law; and
2. Will not be broader than that which you are required by the contract or agreement to provide for such additional insured.
A person's or organization's status as an additional insured under this endorsement ends when your operations for that additional insured are completed.
On March 6, 2019, Jamie Bingham of Wood Gutmann & Bogart Insurance Brokers ("Wood Gutmann"), produced a Certificate of Liability Insurance showing MRB as the insured and Zalman as the Certificate Holder ("Certificate"). At the top of the Certificate, the following language appears in enlarged, boldfaced, and capitalized letters:
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND, OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.The Certificate also states: "IMPORTANT: If the Certificate Holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed . . . . A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s)." Wood Gutmann was MRB's insurance broker. Voyager's agent for the Policy was Amwins Group, LLC ("Amwins"). Neither Amwins nor Voyager issued an endorsement adding Zalman as an additional insured.
In its Motion for Summary Judgment, Voyager contends that the Certificate does not afford him coverage because there is no evidence that Voyager or its agent Amwins ever endorsed the Policy to add Zalman as an additional insured, and under both California law and by its own terms, the Certificate provides no coverage. Voyager additionally asserts that Zalman cannot be considered an additional insured under the Policy's additional insured endorsement because there is no written contract between MRB and Zalman evidencing an agreement that Zalman be added as an additional insured on MRB's Policy. Zalman's Opposition, however, attaches a copy of a signed subcontract between Zalman and MRB that contains an "Exhibit D Insurance Addendum to Construction Agreement" with a provision stating:
All Subcontractors and other Participants shall maintain in effect during the entire period of the Work on the Project a policy of general liability insurance with a licensed insurance company that insures the Subcontractor/Service Provider for claims of "bodily injury" or "property damage" arising out of the Subcontractor's Work. Such insurance shall name the Contractor as an Additional Insured.In a deposition taken in the underlying litigation, MRB's principal denied the existence of a contract, and Zalman had never provided a copy of the subcontract in discovery or at his own deposition in the underlying litigation despite being asked to produce any agreements between Zalman and MRB.
Voyager's Motion for Summary Judgment attached a proposal from MRB to Zalman and an email from MRB to Zalman dated November 8, 2018, where MRB states: "Check it out I'll call you in a bit to see where can we meet to sign it and go from there . . . ." This appears to be a reference to MRB's proposal, not to the MRB Subcontract. MRB's proposal did not include a provision requiring it to add Zalman as an additional insured to MRB's insurance policy.
In its Reply, Voyager sought the exclusion of the subcontract between Zalman and MRB (the "MRB Subcontract") under Federal Rule of Civil Procedure 37(c)(1) because Zalman had never produced it in discovery in this action, including Zalman's Rule 26(a) initial disclosures and despite Voyager having propounded discovery that required Zalman to produce the MRB Subcontract. Specifically, on November 17, 2022, Voyager served Zalman with interrogatories and requests for production of documents. In its interrogatories, Voyager asked Zalman to identify "all documents which you contend make you an additional insured under the policy." Zalman's response to that interrogatory, served on January 3, 2023, identified only the Policy and Certificate. Voyager's requests for production of documents, also served on November 17, 2022, included a request stating:
If you contend you are an additional insured under the policy, all contracts, agreements, and communications between you and MRB Construction, Inc. ("MRB") that supports this contention.Zalman's response to this request for production of documents stated: "Responding Party attaches hereto all documents in Responding Party's possession, custody and control in response to this Request for Production." The MRB Subcontract was not attached to the document production.
After receiving Voyager's Reply, which included Voyager's argument seeking to have the Court decline to consider the MRB Subcontract pursuant to Rule 37(c)(1) because Zalman's failure to provide that information was not "substantially justified or harmless," the Court provided Zalman with an opportunity to provide a response to Voyager's Rule 37(c)(1) arguments and "any necessary supporting evidence." The Court warned Zalman that the "[f]ailure to file an adequate response" would result in the exclusion of the MRB Subcontract pursuant to Rule 37(c)(1) and the sustaining of Voyager's evidentiary objection to the Court's consideration of the MRB Subcontract. Zalman's additional response did not dispute that Zalman failed to provide the MRB Subcontract in initial disclosures or discovery responses. Instead, Zalman submitted a declaration from Zalman's attorney, that stated: "On Sunday, March 26 [sic], 2023, after months of digging through boxes, Zalman Nemtzov contacted me an[d] informed me that he had found the Subcontract Agreement between Zalman and MRB." Voyager filed an evidentiary objection to Zalman's attorneys' statements about what Nemtzov had told him because those statements are inadmissible hearsay. (See Docket No. 41.)
Because Zalman's Opposition was filed on March 20, 2023, the Declaration's reference to March 26, 2023, is an error. Counsel's Declaration also included a copy of an email from Zalman's counsel to Voyager's counsel on March 21, 2023, that states: "For the last many months, my client has been searching for the signed agreement and on Sunday evening (March 19, 2021 [sic]) located the same in storage boxes." The Court assumes that Zalman's position is that Nemtzov claims to have discovered the MRB Subcontract on March 19, 2023.
II. Legal Standard
FRCP 56(c) 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. 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), cert denied, 493 U.S. 809, 110 S. Ct. 51, 107 L. Ed. 2d 20 (1989) (emphasis in original, citation omitted).
The substantive law governing a claim or defense determines whether a fact is material. T.W. Elec. Serv., Inc. v. Pacific 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] . . . ." California 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 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.
III. Analysis
A. Certificate of Insurance
The Certificate upon which Zalman relies for coverage specifically states that it "confers no rights upon the certificate holder" and "does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder." The Certificate also explains that for the certificate holder to be an additional insured, "the policy(ies) must be endorsed . . . . A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s)." The plain language of the Certificate, which provides no support for Zalman's claim to coverage, is consistent with California law. See Cal. Ins. Code § 384(a). "A certificate of insurance is merely evidence that a policy has been issued. It is not a contract between the insurer and the certificate holder." Empire Fire & Marine Ins. Co. v. Bell, 55 Cal. App. 4th 1410, 1423 n.25, 64 Cal. Rptr. 2d 749, 757 n.25 (1997) (citations omitted). The Certificate, by itself, does not provide coverage for Zalman.
Nor is there any evidence that Voyager or Amwins, Voyager's authorized agent, ever endorsed the Policy to add Zalman as an additional insured, as required by the plain language of the Certificate. Instead, the only evidence is that the Certificate was issued by Wood Gutmann, which was MRB's insurance broker. California "Insurance Code sections 31 and 33, respectively, provide an insurance agent acts on behalf of an insurer, while an insurance broker transacts insurance 'with, but not on behalf of, an insurer.' Thus, a broker in securing a policy for a client 'acts only as agent for the [in]sured.' " Carlton v. St. Paul Mercury Ins. Co., 30 Cal. App. 4th 1450, 1457, 36 Cal. Rptr. 2d 229, 232 (1994) (quoting Maloney v. Rhode Island Ins. Co., 115 Cal. App. 2d 238, 244, 251 P.2d 1027, 1031 (1953)); see also Certain Underwriters at Lloyd's of London v. Am. Safety Ins. Servs., Inc., 702 F. Supp. 2d 1169, 1172-73 (C.D. Cal. 2010) (concluding that a subcontractor's insurance broker had no actual or apparent authority to bind the subcontractor's insurer to cover a general contractor as an additional insured).
For these reasons, the Court concludes that the Certificate creates no duty for Voyager to defend or indemnify Zalman in the underlying litigation.
B. Additional Insured Endorsement
Under the Policy's blanket additional insured endorsement, the definition of an insured "is amended to include as an additional insured any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy." Had Zalman timely disclosed the MRB Subcontract, the Court would have concluded, at a minimum, that Voyager is not entitled to summary judgment because there would be a triable issue of fact as to whether Zalman was an additional insured under the Policy and therefore entitled to coverage for the claims asserted in the underlying action.
Voyager, however, seeks to have the evidence of the MRB Subcontract excluded from consideration under Rule 37(c)(1)'s sanction for the failure to disclose required information. Rule 37(c)(1) provides: "If a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at trial, unless the failure was substantially justified or is harmless." This is a "self-executing" and "automatic" sanction. See Fed. R. Civ. P. 37 advisory committee note (1993 amendments). The Ninth Circuit gives "particularly wide latitude to the district court's discretion to issue sanctions under Rule 37(c)(1)." Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001). "The party facing sanctions bears the burden of proving that its failure to disclose the required information was substantially justified or is harmless." R&R Sails, Inc. v. Ins. Co. of Penn., 673 F.3d 1240, 1246 (9th Cir. 2012).
There are a number of non-exclusive factors for determining whether the failure to provide a required disclosure is substantially justified or is harmless: (1) prejudice or surprise to the party against whom the evidence is offered; (2) the ability of that party to cure the prejudice; (3) the likelihood of disruption of the trial; and (4) bad faith or willfulness involved in not timely disclosing the evidence. See Lanard Toys Ltd. v. Novelty, Inc., 375 F. App'x 705, 713 (9th Cir. 2010). Where imposition of a Rule 37(c)(1) sanction amounts "to dismissal of a claim, the district court [is] required to consider whether the claimed noncompliance involved willfulness, fault, or bad faith, and also to consider the availability of lesser sanctions." R&R Sails, Inc., 673 F.3d at 1247. For purposes of the harmlessness analysis, the Ninth Circuit has explained that if a party is allowed to disregard the deadlines for its discovery obligations:
[T]he rest of the schedule laid out by the court months in advance, and understood by the parties, would have to have been altered as well. Disruption to the schedule of the court and other parties in that manner is not harmless. Courts set such schedules to permit the court and the parties to deal with cases in a thorough and orderly manner, and they must be allowed to enforce them, unless there are good reasons not to.Wong v. Regents of Univ. of Cal., 410 F.3d 1052, 1062 (9th Cir. 2005).
According to Voyager, and not disputed by Zalman, Zalman made no initial disclosures as required by Rule 26(a)(1). Nor did Zalman provide the MRB Subcontract in response to discovery requests that required its production. Zalman served those discovery responses nearly three months before finally producing the MRB Subcontract in support of the Opposition to Voyager's Motion for Summary Judgment. Zalman did not explain the late discovery of the MRB Subcontract in either the Opposition or the Declaration filed by Nemtzov in support of the Opposition. After Voyager invoked Rule 37(c)(1), and objected to the Court's consideration of the MRB Subcontract, the Court provided Zalman with an opportunity to make the required showing under Rule 37(c)(1) to establish that the late disclosure was substantially justified and harmless. Zalman's supplemental response, in which Zalman's counsel states that his client contacted him the day before the Opposition was due and reported that, "after months of digging through boxes," Nemtzov had located the MRB Subcontract.
As an initial matter, the Court sustains Voyager's hearsay objection to Zalman's counsel's Declaration. Accordingly, there is no admissible evidence providing substantial justification for Zalman's failure to produce the MRB Subcontract as required under Rules 26(a) and (e). Even if the Court were to consider Zalman's counsel's Declaration, the facts provided in it fail to meet Zalman's burden to establish that the failure to produce the MRB Subcontract when the Federal Rules of Civil Procedure required it was substantially justified. Zalman has known during the pendency of not just this action, but also throughout the litigation of the underlying action and Zalman's prior efforts to obtain insurance coverage from Voyager as an additional insured under MRB's Policy, that the MRB Subcontract was a critical piece of evidence. Zalman's counsel's Declaration provides no explanation for why Zalman did not discover the MRB Contract until the day before the filing of the Opposition to Voyager's Motion for Summary Judgment. There is no description of how many boxes of documents Zalman possesses, when, exactly, Nemtzov began the search, how much time the search took, the care with which it was conducted, or any explanation for why Zalman was unable to find the MRB Subcontract earlier. The only conclusion the Court can reach, even with the benefit of Zalman's counsel's inadmissible hearsay statements, is that Zalman was entirely at fault for the failure to discover and produce the MRB Subcontract when required to do so, and that the failure persisted for approximately six months after Zalman's initial disclosures should have been produced and three months after Zalman's incomplete and inaccurate responses to the discovery requests propounded by Voyager.
The Court issued its Civil Trial Scheduling Order on October 10, 2022. The Court set a discovery cutoff date of April 3, 2023, and a motion cutoff date of April 10, 2023. Voyager acted promptly, on November 17, 2022, by propounding the interrogatory and document requests requiring disclosure of the MRB Subcontract. The Court cannot determine from Zalman's response if Zalman made any search prior to serving responses to the discovery requests on January 3, 2023. Nor did those responses indicate that a search for additional documents was ongoing or that the production was in any way incomplete. By belatedly disclosing the MRB Subcontract on March 20, 2023, just two weeks prior to the discovery cutoff date, Zalman has deprived Voyager of the opportunity to conduct discovery concerning the authenticity of the MRB Subcontract through deposition of Nemtzov and MRB's principal (who has testified under oath in the underlying litigation that there was no contract between Zalman and MRB). Voyager has also incurred expenses related to the preparation of its Motion for Summary Judgment based on what Zalman now contends is an incomplete understanding of the facts. Under these circumstances, the Court concludes that Zalman's belated disclosure of the MRB Subcontract was not harmless.
This date was consistent with the date requested by the parties in their Rule 26(f) Joint Report.
Because the Court recognizes that the exclusion of the MRB Subcontract as a Rule 37(c)(1) sanction is case dispositive, the Court has considered the imposition of lesser sanctions. However, any lesser sanction would require significant modification to the Court's Civil Trial Scheduling Order on which Voyager has relied and force Voyager to incur significant additional expenses caused by Zalman's failure to comply with discovery obligations. Nor would a lesser sanction than exclusion of the MRB Subcontract sufficiently promote adherence to the Federal Rules of Civil Procedure on which all parties and courts rely for the efficient management of cases. Zalman has fallen far short of providing a substantial justification for the failure to comply with discovery obligations. That failure appears to have been entirely within Zalman's control, and no party other than Zalman is at fault for Zalman's failure to obtain and produce the MRB Subcontract. The Court therefore concludes, pursuant to Rule 37(c)(1), that Zalman "is not allowed to use" the MRB Subcontract "to supply evidence on" Voyager's Motion for Summary Judgment. Fed. R. Civ. P. 37(c)(1).
Without evidence of a written contract between MRB and Zalman requiring MRB to add Zalman as an additional insured on MRB's insurance policy, the Court concludes that Zalman is not an "additional insured" under the policy issued by Voyager. Voyager therefore is entitled to summary judgment on its claim for declaratory relief that it has no duty to defend or indemnify Zalman against the claims asserted in the underlying action.
C. Zalman's Counterclaim
Voyager's Motion for Summary Judgment also sought judgment on the Counterclaim asserted against it by Zalman. Rather than oppose summary judgment on the Counterclaim, Zalman filed, on March 15, 2023, a Notice of Voluntary Dismissal of the Counterclaims. Although the title of the docket entry states that the dismissal was without prejudice, the Notice of Voluntary Dismissal itself does not state if the dismissal was with or without prejudice, and purports to be filed pursuant to Federal Rule of Civil Procedure 41(a) or (c). Because Voyager filed an Answer to the Counterclaim, Zalman could not dismiss the Counterclaim without prejudice under Rule 41(a)(1)(A)(i) or 41(c). Instead, dismissal could only occur "by court order, on terms that the court considers proper." Fed. R. Civ. P. 41(a)(2). Here, Zalman attempted to dismiss the Counterclaim rather than respond to Voyager's Motion for Summary Judgment, which sought judgment in Voyager's favor on the Counterclaim. In these circumstances, the Court exercises its discretion under Rule 41(a)(2) and dismisses Zalman's Counterclaim with prejudice. See Hargis v. Foster, 312 F.3d 404, 412 (9th Cir. 2002) (affirming district court's order granting voluntary dismissal with prejudice).
Conclusion
For all of the foregoing reasons, the Court concludes that Zalman is not an additional insured under the insurance policy Voyager issued to MRB. As a result, Voyager is entitled to summary judgment on its claim for declaratory relief. The Court additionally dismisses Zalman's Counterclaim with prejudice. The Court will issue a Judgment consistent with this Minute Order.
IT IS SO ORDERED.