1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 NORTHERN DISTRICT OF CALIFORNIA 8

9

10 HOUSTON CASUALTY COMPANY, 11 Plaintiff, No. C 18-06147 WHA

12 v.

13 NATIONAL UNION FIRE INSURANCE ORDER RE MOTION FOR COMPANY OF PITTSBURGH, PA, et al., SUMMARY JUDGMENT, 14 ADMINISTRATIVE MOTION TO Defendants. FILE UNDER SEAL, AND 15 VACATING HEARING

16 INTRODUCTION 17 In this insurance action, this order finds that the primary carrier breached its duty of good 18 faith and fair dealing by refusing to settle within policy limits or so a reasonable jury could 19 find based on this record. 20 STATEMENT 21 Defendant National Union Fire Insurance Company of Pittsburgh, Pennsylvania, was the 22 primary insurer for Anderson Hay & Grain, an exporter of hay and straw products. Plaintiff 23 Houston Casualty Company had the excess. National Union’s primary policy had a general 24 aggregate limit of $10 million, an each-occurrence limit of one million dollars, and an each- 25 location aggregate sub-limit of two million dollars, effective May 2014 to May 2015. In July 26 2014, Bartolo Flores collapsed while delivering alfalfa to the premises of Anderson Hay. He 27 filed suit in Los Angeles Superior Court. National Union appointed Acker & Whipple as 1 In August 2016, Acker & Whipple evaluated the potential verdict of the case to be 2 $250,000 to $300,000 with a settlement range of $30,000 to $40,000 (Opp. Exh. D). In early 3 December 2016, Acker & Whipple informed National Union that the case could potentially be 4 settled for $50,000. Ray Adams, a representative for National Union, authorized the offer, 5 which Flores rejected. In late December 2016, Acker & Whipple provided National Union 6 with a pre-trial report that estimated the potential verdict of the case to be between $325,000 to 7 $400,000 before certain deductions, with judgment against Anderson Hay between $165,000 to 8 $200,000 (Br. Exh. 15–17). All of these amounts fell below the one million dollar policy limit. 9 In March 2017, however, Acker & Whipple informed Houston Casualty of the potential 10 for exposure in excess of the primary limits. It still estimated the potential verdict of the case 11 to be at most between $325,000 to $400,000 (Opp. Exh. D). At that time, Acker & Whipple 12 recommended making an offer of settlement to Flores of up to $100,000. The parties attended 13 mediation on March 27. By the end of the mediation, Flores made an offer of three million 14 dollars. Acker & Whipple told National Union, however, that “even if liability were clear, [it] 15 would not be worth more than $1 million.” The mediator stated the “full value of the 16 plaintiff’s case is 6 figures and not 7 figures. $500K might be full value,” and made a proposal 17 of $950,0000. Acker & Whipple advised that that amount was “too high” (Br. Exh. 18, 21, 22, 18 25, 28). 19 On July 28, Acker & Whipple took the deposition of Jennie McNulty, Flores’s economic 20 expert. Based thereon, an Acker & Whipple email dated July 31 stated it estimated the verdict 21 range “will be as high as $3.2 million . . . At this time, we believe an offer to meet the 22 mediator’s proposal of $950,000 would be appropriate.” The parties disagree as to whether 23 this belief was ever communicated to National Union, but as a previous order has already 24 found, a reasonable jury could find that it either was communicated or that the information 25 contained therein was communicated verbally (Dkt. No. 86). 26 On August 2, Acker & Whipple sent an email to National Union stating the probable 27 verdict range would be between $325,000 and $400,000 (Br. Exh. 27). On August 3, a phone 1 National Union. Ray Adams, at his deposition, did not recollect the substance of the call (so 2 the July 31 email may particular evidentiary force as to what was said) (Opp. Exh. D). That 3 same day, National Union made an offer of $200,000 to Flores. On or before August 8, Flores 4 made a counteroffer of $900,000. National Union maintained its offer of $200,000. On 5 August 16, Flores reduced his demand to $675,000. National Union maintained its offer of 6 $200,000 (Br. Exh. 28, 39). 7 In July 2018, a few weeks before trial, Acker & Whipple sent National Union a pre-trial 8 report that estimated the verdict range to be between $200,000 and $300,000 with a 25% 9 chance of a defense verdict (id. at Exh. 36). Flores reduced his offer to $600,000 at this point, 10 which National Union rejected (Opp. Exh. O). 11 Trial began on August 13. On August 15, Flores made an offer of $300,000. National 12 Union rejected the offer and maintained that it would not go above $225,000. On August 22, 13 the jury returned a verdict against Anderson Hay for $3.5 million (Br. Exh. 39, 41, 46). 14 Standing in the shoes of Anderson Hay, Houston Casualty asserts National Union 15 unreasonably refused to settle the underlying action within its policy limits and accordingly 16 alleges the following claims for relief: (1) equitable subrogation, (2) unjust enrichment, and (3) 17 declaratory relief (Compl. ¶¶ 24–49). Defendants now move for summary judgment as to all 18 claims. This order follows full briefing. Pursuant to our local civil rule 7-1(b), this order finds 19 plaintiff’s motion suitable for submission without oral argument and hereby VACATES the 20 December 26 hearing. 21 ANALYSIS 22 1. MOTION FOR SUMMARY JUDGMENT. 23 California insurance law controls here. California law provides that that an excess carrier 24 may maintain an action against a primary carrier for wrongful refusal to settle on the theory of 25 equitable subrogation or unjust enrichment. Nw. Mut. Ins. Co. v. Farmer’s Ins. Grp.,

App. 3d 1031 (Ct. App. 1978). Because “the insured would have been able to recover from the 27 primary carrier for a judgment in excess of policy limits caused by the carrier’s wrongful 1 stands in the shoes of the insured and should be permitted to assert all claims against the 2 primary carrier which the insured himself could have asserted.” Commercial Union Assurance 3 Companies v. Safeway Stores, Inc.,

(1980). 4 An excess insurer may hold a primary insurer liable for a judgment in excess of the 5 policy limit when the insurer has breached its implied covenant of good faith and fair dealing 6 by unreasonably refusing to accept a settlement offer. Commercial Union Assurance, 26 7 Cal.3d at 1040. An insurer breaches its duty of good faith when it refuses to settle when there 8 is an offer that is both within the policy limits and reasonable. An offer of settlement within 9 policy limits is reasonable when there is a substantial likelihood that a jury verdict will be 10 beyond those limits. Highlands Ins. Co. v. Continental Cas. Co.,

(9th Cir. 11 1995). The amended California Civil Jury Instructions does not change this standard as 12 plaintiffs contend. Although CACI 2234 does not state there needs to be a “substantial 13 likelihood” the jury verdict will be beyond the policy limits, the case law and the “directions 14 for use” all refer to the “substantial likelihood” standard. 15 The main issue then is whether there is a genuine dispute of material fact that National 16 Union refused to settle for less than one million dollars, its policy limit, when there was a 17 substantial likelihood the jury verdict would be greater than the limit. First, following the 18 mediation in March, the mediator made a proposal of $950,000, an amount within National 19 Union’s policy limits. True, it is possible plaintiff would not have accepted the mediator’s 20 proposal, but plaintiff in fact proposed settlement amounts of even lesser amounts as time went 21 on. The mediator’s proposal provided an opportunity of settlement within policy limits which 22 National Union spurned. 23 Second, on July 31, a pretrial Acker & Whipple email estimated the verdict to be up to 24 $3.2 million. Although at other times during the life of the underlying action Acker & 25 Whipple larded the record to National Union with lower estimates of the verdict, it does not 26 change the fact that the $3.2 million verdict estimate was made while the mediator’s offer 27 within limits was pending. Although National Union and Acker & Whipple insist the email 1 never reached National Union, a jury could reasonably find otherwise or find that the 2 information therein was verbally communicated as set forth in prior orders. 3 Defendants’ motion for summary judgment as to all claims is DENIED. The December 26 4 hearing is VACATED. 5 2. ADMINISTRATIVE MOTION TO SEAL. 6 Plaintiff has filed an administrative motion to seal the following documents: (1) portions 7 of the deposition transcript of Stephen Acker, (2) portions of the deposition transcript of Leslie 8 Anne Burnet, and (3) portions of plaintiffs opposition to defendants’ motion for summary 9 judgment. The portions of these documents all refer to the July 31 email in question. For the 10 reasons stated in the order denying reconsideration (Dkt. No. 86), the motion to seal is 11 DENIED. The documents shall be filed publicly on the docket by JANUARY 14 AT NOON unless a 12 appellate relief is forthcoming before that date.

v 14 IT IS SO ORDERED.

15

16 Dated: December 18, 2019. & = 17 = Z 18 WILLIAM ALSUP 19 UNITED STATES DISTRICT JUDGE 20 21 22 23 24 25 26 27 28