Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_04-cv-00662/USCOURTS-azd-2_04-cv-00662-2/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

U-Haul International, Inc., et al, 

Plaintiffs, 

vs.

Lumbermens Mutual Casualty Company, 

Defendant/Counter-Claimant.

_________________________________

Lumbermens Mutual Casualty Company,

Defendant/Counter-Claimant,

vs.

U-Haul International, Inc., et al,

Counter-Defendants.

_________________________________

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No. CV 04-0662 PHX-DGC

ORDER

The Court held a bench trial in this matter on March 7, 2007. The parties submitted

substantial deposition testimony and numerous written exhibits, and Plaintiffs/CounterDefendants U-Haul International, Inc. and Republic Western Insurance Company

(collectively, “U-Haul”) presented the live testimony of Thomas Matush. The parties also

made extended oral arguments. The Court has carefully considered the evidence and

arguments submitted by the parties. For the reasons explained below, the Court will enter

judgment in favor of U-Haul. 

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1

From April 1, 1999 to March 31, 2000, Policy No. RG99 (“RG99") provided primary

coverage in excess of a self-insured retention of $25,000, up to a limit of $250,000 per

occurrence. The second, Policy No. RX99 (“RX99"), provided excess coverage up to a limit

of $750,000 per occurrence. The third, Policy No. RU99 (“RU99"), provided excess

coverage up to a limit of $6,000,000 per occurrence. The fourth, Lumbermens Policy No.

9SR 120037-01, provided excess coverage up to a limit of $13,000,000 per occurrence.

From April 1, 2000 to March 31, 2001, U-Haul’s coverage scheme consisted of four almost

identical policies. Republic Western Policy No. RGMM replaced RG99, Republic Western

Policy No. RXMM replaced RX99, Republic Western Policy No. RUXX replaced RU99, and

Lumbermens Policy No. 9SR 120037-02 replaced 9SR 120037-01. 

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I. Background.

A. U-Haul’s Coverage Scheme. 

U-Haul intended to be covered by a comprehensive insurance scheme consisting of

separate, individual insurance policies, or “layers.” Dkt. #110; see Employers Ins. Co. of

Wausau v. Century Indem. Co., 443 F.3d 573, 574 n.1 (7th Cir. 2006) (explaining the concept

of layered coverage); AMHS Ins. Co. v. Mut. Ins. Co. of Ariz., 258 F.3d 1090, 1093 (9th Cir.

2001) (same); Am. Family Mut. Ins. Co. v. Cont’l Cas. Co., 23 P.3d 664, 666 (Ariz. Ct. App.

2001) (same). 

During the relevant coverage periods – April 1, 1999 to March 31, 2000, and April 1,

2000 to March 31, 2001 – U-Haul was protected by four layers. Dkt. ##110, 111; see Dkt.

#110, App. A. The first three policies, issued by Republic Western Insurance Company

(separately, “Republic Western”), provided primary and excess coverage up to a total limit

of $7,000,000 per occurrence in excess of a $25,000 self-insured retention. The fourth

policy, purchased from Defendant/Counter-Plaintiff Lumbermens Mutual Casualty Company

(“LMC”), provided excess coverage up to a limit of $13,000,000 per occurrence. In other

words, the LMC policy did not attach until the $7,000,000 total coverage provided by the

underlying Republic Western policies was exhausted.1

B. U-Haul’s Settlements.

U-Haul settled the “Nelson claim,” which arose out of an automobile accident, for the

sum of $7,500,000. U-Haul settled the “Fernandez claim,” which also arose out of an

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automobile accident, for $8,000,000. U-Haul settled the “Martinez claim,” the details of

which have not been provided to the Court, for $7,000,000. The parties do not dispute the

dates of these settlements or the insurance policies they implicate. As the settlement amounts

were at or above the $7,000,000 coverage limit of the Republic Western policies, all four

layers of U-Haul’s coverage were implicated. 

C. The Parties’ Dispute.

U-Haul and LMC disagree on whether the payment of indemnity and loss adjustment

expenses (“LAE”) – generally, legal fees incurred in the investigation, negotiation, or

defense of a claim – or the payment of indemnity alone (1) exhausts the $7,000,000 total

limit of the Republic Western policies and (2) may trigger the coverage of the LMC policy.

U-Haul contends that payments of both indemnity and LAE are included in a determination

of whether the $7,000,000 limit has been reached, and that “LMC’s coverage applies excess

of the underlying [Republic Western] policies’ $7 million in combined limits of liability with

respect to an occurrence, regardless of whether those occurrence limits have been reduced

or eroded by indemnity payments or by LAE payments.” Dkt. #110 at 1-2. LMC argues that

the $7,000,000 limit is reached by payments of indemnity alone, and that LMC’s coverage

“does not attach until a total of $7,000,000 in indemnity payments has been paid” by the

underlying Republic Western policies. Dkt. #91 at 50. 

The Court previously ruled in favor of U-Haul on this issue, holding that the RU99

and RUXX policies (collectively, the “RU policies”) may be exhausted by payments of

indemnity and LAE. Dkt. #124. (LMC does not dispute that the RG and RX policies may

be exhausted by indemnity and LAE.) Through additional briefing and rulings, the Court

disposed of all but two remaining issues: (1) whether U-Haul should be equitably estopped

from claiming that the RU policies may be exhausted by LAE, and (2) the prevailing party’s

damages. These issues were addressed during the bench trial. In the pages that follow, the

Court will set forth its findings of fact and conclusions of law on the equitable estoppel

defense and damages. The Court will also address a few motions made in connection with

the trial.

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II. Equitable Estoppel.

A. Arizona Law.

The parties agree that Arizona law governs this case. In Arizona, “[t]he elements of

estoppel are ‘conduct by which one . . . induces another to believe . . . in certain material

facts, which inducement results in acts in reliance thereon, justifiably taken, which cause

injury[.]’” Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 682 P.2d 388, 399

(Ariz. 1984) (quoting Sahlin v. American Casualty Company of Reading, 436 P.2d 606, 608

(Ariz. 1968)).

Arizona courts hold that a party may not justifiably rely on a belief or representation

when the party has ready access to controverting facts. The Arizona Supreme Court has held,

for example, that an insured “could not have justifiably believed that he was covered by the

policy in question because exact knowledge of the expiration date was readily available to

him.” Sahlin, 436 P.2d at 608. The Arizona Supreme Court provided this explanation:

“Means of knowledge and knowledge itself are, in legal effect, the same thing

where there is enough to put a party on inquiry. Knowledge which one has or

ought to have under the circumstances is imputed to him[.] In other words,

whatever fairly puts a person on inquiry is sufficient notice where the means

of knowledge are at hand; and if he omits to inquire, he is then chargeable with

all the facts which, by a proper inquiry, he might have ascertained. A person

has no right to shut his eyes or his ears to avoid information and then say that

he had no notice; he does wrong not to heed the ‘signs and signals’ seen by

him.”

Id. (quoting Hagin v. Fireman’s Fund Ins. Co., 353 P.2d 1029, 1032 (Ariz. 1960)). 

LMC bears the burden of proving the affirmative defense of equitable estoppel. As

LMC acknowledged in its trial brief, Arizona law requires that the defense be established by

“clear and satisfactory” evidence. Dkt. #146 at 3; Peterson Construction, Inc. v. Arizona

State Carpenters Health and Welfare Trust Fund, 880 P.2d 694, 701 n.6 (Ariz. Ct. App.

1994); Facit-Addo, Inc. v. Davis Financial Corp., 653 P.2d 356, 360 (Ariz. Ct. App. 1982);

Desert Vista Apartments, Inc. v. O’Malley Lumber Co., 436 P.2d 479, 481 (Ariz. 1968). 

B. Findings of Fact.

On the basis of the evidence submitted by the parties, the Court makes the following

findings of fact. These findings lead the Court to conclude that LMC has not established the

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2

 LMC contends that AON was acting as U-Haul’s agent in procuring the insurance, a fact

U-Haul disputes. The Court need not resolve this issue because it concludes that LMC was

not justified in relying on AON’s representations even if AON was acting as U-Haul’s agent.

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affirmative defense of equitable estoppel by clear and satisfactory evidence.

1. LMC first issued excess insurance above a U-Haul RU policy in 1998.

The only signed application for the 1998 insurance specifically stated that the policies

underlying the LMC policy would be defense “within aggregate limits.” Ex. 2. This

representation means that the limits of the underlying insurance policies could be reached

both by indemnity payments and by defense payments – LAE. LMC disputes that it ever

received a copy of this application, and has provided the Court with a different 1998

application representing that defense cost coverage by the underlying policies was

“unlimited,” meaning that such costs would not be counted in reaching policy limits.

Ex. 100. The contradiction between these two 1998 applications is typical of the evidence

in this case. Although much evidence seems to support LMC’s argument that it was told that

the underlying policies would not count defense costs in reaching their aggregate limits, other

evidence suggests precisely the opposite. The Court nonetheless finds, for reasons explained

below, that the true nature of the RU policies was readily available to LMC – that it was

known or should have been known – and that LMC therefore has not proved by clear and

satisfactory evidence that it justifiably relied on representations made by U-Haul’s alleged

agent, AON Risk Services, Inc. (“AON”).2

 

2. On February 26, 1998, LMC provided a “Quote” to AON setting forth

the terms on which LMC would provide excess coverage to U-Haul. Ex. 103. Section 8 of

the Quote stated that the underlying U-Haul insurance would be “(Defense in addition to

limit)*.” This phrase reflected LMC’s apparent requirement that defense costs, or LAE, not

be included within the aggregate limits of the underlying insurance. The asterisk that

followed this phrase referred the reader to a footnote at the end of Section 8 that was even

more explicit: “Our form will not respond until such time as the indemnity portion of a loss

exceeds the underlying or self-insured limit.” Ex. 3 at 2 (emphasis in original). 

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3

LMC contends that the language of the RU policy would not have put it on notice of this

fact because the policy is not clear and the Court’s interpretation was novel. The Court does

not agree. The Court’s reading of the policy was consistent with its plain language.

Dkt. #124. At a minimum, reading the policy would have put LMC on notice that LAE

might well be counted in reaching RU policy limits. 

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3. On March 30, 1998, LMC issued a “Binder” that set forth its insurance

commitment to U-Haul. The form of the Binder was virtually identical to LMC’s Quote,

with one notable exception. Section 8 no longer contained the language “(Defense in

addition to limit)*.” Curiously, the asterisked footnote remained, but it did not refer back to

any particular portion of the Binder. Ex. 5. The omission of the language “(Defense in

addition to limit)*” was carried forward in two amended Binders dated April 1 and 7, 1998,

so it does not appear to have been inadvertent. Exs. 107, 108. The deletion of the clear

statement that had been contained in the Quote suggests that LMC’s requirement for the

underlying policies had changed.

4. The 1998 Binders issued by LMC contained two additional significant

provisions. First, the Binders specifically stated that they would follow the form of the

underlying RU policy. Thus, rather than issuing its own insurance policy, LMC adopted the

form of the RU policy, which, as the Court has concluded, did not exclude LAE from policy

limits. Dkt. #124. See Exs. 105, 107, 108. In addition, the 1998 Binders specifically stated

that U-Haul was to provide LMC with a copy of the underlying RU policy within 90 days.

This presumably was so that LMC could review the RU policy and ensure that it was

consistent with LMC’s requirements. Had LMC reviewed the RU policy, it would have seen,

as the Court did, that the policy included LAE in the aggregate insurance limits. Dkt. #124.3

 5. On January 16, 1999, AON applied to LMC for an additional year’s

coverage for U-Haul. The 1999 insurance application specifically stated that the underlying

policies’ coverage of defense costs was to be “unlimited.” Ex. 123. This statement supports

LMC’s assertion that it was told that defense costs would fall outside of underlying policy

limits. Significantly, however, the insurance application included a complete copy of the

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There were a few exceptions to this statement, but they are not relevant to this case. Id. 

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1998 RU policy, and the application made clear that LMC was being asked to cover the same

policy for 1999. Id. The enclosed 1998 policy included the same “ultimate net loss”

provision that was contained in the 1999 and 2000 policies – provisions the Court has found

to clearly include defense costs within aggregate limits. As Arizona law holds, “whatever

fairly puts a person on inquiry is sufficient notice where the means of knowledge are at hand;

and if he omits to inquire, he is then chargeable with all the facts which, by a proper inquiry,

he might have ascertained.” Sahlin, 436 P.2d at 608. 

6. In response to the 1999 application, LMC issued its 1999 policy. Again,

LMC did not issue its own insurance terms, but instead adopted the form of the underlying

RU policy. Indeed, LMC’s policy contained this language: “This policy follows the exact

terms and conditions of the Republic Western Insurance Company . . . policy number

RU99[.]” Ex. 15. (emphasis in original).4

 By this language, LMC adopted the exact terms

and conditions of the RU policy, including the provision providing that LAE was included

within policy limits. Dkt. #124. LMC knew by this act that it would be bound by the

language of the RU policy, a fact which provided all the more reason for LMC to review the

1998 RU policy carefully.

7. Copies of the RU99 policy were sent to LMC on May 25 and

July 23, 1999. Exs. 24, 25. Thus, by July of 1999, LMC had received copies of the RU

policy on at least four different occasions – within 90 days of issuing the 1998 Binder, as part

of the 1999 application, and in May and July of 1999. LMC had ample opportunity to review

and understand the terms of the underlying insurance it was adopting. 

8. Stephen Tibbs, who was in charge of excess casualty insurance for the

West Coast for LMC, testified that underwriters at LMC would review underlying insurance

policies when they were received. Tibbs Dep., dated January 22, 2005, at 36, 102.

9. On January 14, 2000, AON applied to LMC for a continuation of UHaul’s coverage. Ex. 8. The application did not include any representation concerning the

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nature of the underlying insurance. The application did include, however, a copy of the

RU99 policy. This was at least the fifth time LMC had received a copy of the RU policy. 

10. On March 28, 2000 LMC issued a Binder for the 2000-2001 policies.

As with previous years, the Binder stated that it was following the form of the underlying RU

policy and required that a copy of the RU policy be provided within 90 days. 

11. Counsel for LMC admitted during trial that the RX and RG policies

underlying the LMC coverage are defense within limits policies. Thus, LMC admits that its

insurance policies covered at least two layers of defense within limits policies. This

admission belies any suggestion by LMC that it believed it was providing excess coverage

for underlying “defense outside of limits” policies. Moreover, if LMC understood that the

RX and RG policies were defense within limits, then it certainly had reason to suspect that

the RU policy would be the same. 

12. In summary, the Court finds that LMC either knew or should have

known that the RU policies were defense within limits policies. The Court finds that LMC

did not justifiably rely on representations by AON to the contrary. LMC received the RU

policies on at least five separate occasions, perhaps more. LMC’s underwriting practice was

to read the policies. LMC’s 1998 Binders suggest that LMC knowingly deleted a phrase

which made clear that the underlying coverage was to be defense outside of limits. The

Court finds that LMC has failed to prove by clear and satisfactory evidence that it justifiably

relied on representations by AON that the underlying policies were defense outside of limits

coverages. 

C. Conclusions of Law.

1. Because LMC has failed to prove that it justifiably relied on

representations from AON that the underlying insurance was defense outside of limits, LMC

has failed to establish an essential element of its equitable estoppel defense. The Court

accordingly concludes that LMC is not entitled to prevail on the defense of equitable

estoppel.

/ / /

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III. Damages.

A. The Admissibility of U-Haul Business Records.

During the trial, the Court and parties spent a considerable amount of time addressing

the admissibility of Exhibits 28, 29, and 30. These exhibits represent computer generated

summaries of payments made by Republic Western with respect to the Fernandez, Nelson,

and Martinez claims. Thomas Matush, Republic Western’s Assistant Vice President of

Claims, testified that the data reflected in the exhibits are kept in the ordinary course of

Republic Western’s business, are placed in Republic Western’s computers on the same day

as the payments they reflect, and are placed in the computers by persons with knowledge of

the payments. Mr. Matush further testified that the payments are made on the basis of

invoices received and retained in the ordinary course of Republic Western’s business, and

are paid with checks generated in the ordinary course of that business. Mr. Matush generated

Exhibits 28, 29, and 30 by querying Republic Western’s computer. In response to his

queries, the computer printed out the payment information reflected in the exhibits.

LMC objected to the admissibility of the exhibits as hearsay. LMC also asserted that

the exhibits were summaries of evidence not admissible under Federal Rule of Evidence

1006 because LMC had not been provided with supporting documentation – the checks and

invoices related to the payments reflected in the exhibits. After hearing extensive arguments

on these issues and breaking for 30 minutes to review relevant case law, the Court overruled

LMC’s objections.

Exhibits 28, 29, and 30 qualify as business records of Republic Western under

Rule 803(6). The documents represent data compilations concerning events at Republic

Western (payments); the data compilations were made at or near the time of those events by

a person with knowledge; the data compilations were kept in the course of Republic

Western’s regularly conducted business activity; and it was the regular practice of Republic

Western to make the data compilations. All of these facts were established by the testimony

of a qualified witness, Mr. Matush. 

“The term ‘data compilation’ ensures the admissibility of records not kept in

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conventional written form, including electronic computer storage. Printouts of data that have

been stored in a computer may be admissible business records as long as the data were input

and used pursuant to a business duty in accordance with regular business practice.” 5 Jack

B. Weinstein and Margaret A. Berger, Weinstein’s Federal Evidence § 803.08[3] (2d ed.

2006) (footnotes omitted). “A business record may include data stored electronically on

computers and later printed out for presentation in court, so long as the original computer

data compilation was prepared pursuant to a business duty in accordance with regular

business practice.” Potamkin Cadillac Corp. v. B.R.I. Coverage Corp., 38 F.3d 627, 632 (2d

Cir. 1994) (quotations omitted); see also United States v. Fujii, 301 F.3d 535, 539 (7th Cir.

2002) (computer records compiled and presented in computer printouts prepared specifically

for trial were admissible under Rule 803(6) even though the printouts themselves were not

kept in the ordinary course of business, because underlying records were compiled and

maintained in the ordinary course of business and other elements of foundation under Rule

803(6) were satisfied).

LMC’s objection under Rule 1006 is unfounded because Exhibits 28, 29, and 30 are

not summaries of other evidence. Rather, they are business records of Republic Western.

The fact that the business records summarize information within Republic Western’s

computers does not bring them within the scope of Rule 1006. Business records often

constitute summaries of information maintained in the regular course of a business. Rather,

the exhibits constitute writings within the meaning of Rule 1001 and photocopies of those

writings are admissible under Rule 1003. 

B. Findings of Fact.

1. The Court finds that U-Haul is entitled to recover $220,260.60 in

damages for the Nelson settlement. LMC’s counsel stated at the March 7, 2007 trial that

LMC did not disagree with this damages calculation if the Court admitted Exhibits 28, 29,

and 30. The Court further finds that LMC is entitled to interest of $123,773.55 on this

amount for reasons stated on the record by U-Haul’s counsel during the trial.

/ / /

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2. The Court finds that U-Haul is entitled to $1,241,925.54 in damages for

the Fernandez settlement. The Court agrees with the damages calculation explained by UHaul’s counsel during the March 7, 2007 trial. The Court finds that U-Haul is entitled to

recover $372,576.00 in interest on this amount for the reasons explained by U-Haul’s counsel

during trial. 

C. Conclusions of Law.

The Court concludes that U-Haul and Republic Western are entitled to judgment

against LMC in the total amount of $1,958,535.69. The Court will enter judgment in this

amount through a separate document pursuant to Rule 58 of the Federal Rules of Civil

Procedure.

IV. Other Matters.

A. For reasons stated on the record, the Court granted LMC’s Motion to Exclude

Douglas M. Bell’s additional testimony. Dkt. #151. 

B. LMC argued at the close of U-Haul’s evidence that U-Haul had failed to prove

damages. The Court does not agree. U-Haul presented evidence of damages as set forth

above. Because U-Haul is the insured under the LMC policies, the Court finds that U-Haul

proved it was entitled to recover these sums.

C. LMC made a number of arguments at the close of U-Haul’s testimony that

were not preserved in the parties’ final pretrial order. These include an argument that a

business and auto policy was never exhausted, that the “defense, settlement, and

supplemental payments” provision of the RU policies shows that the policies were not

exhausted, and arguments regarding Texas and Florida statutes. The Court’s Order Setting

Trial specifically stated that “legal arguments” not “identified in the [final pretrial order]

shall not be available at trial, except to prevent manifest injustice.” Dkt. #149. LMC made

no showing of manifest injustice. The Court therefore will not address these new arguments.

D. LMC argued that U-Haul made no showing that the defense costs incurred in

the Martinez, Fernandez, and Nelson matters are reasonable. The Court disagrees. Mr.

Matush testified that the Republic Western personnel who made payments in these matters

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were obligated to evaluate invoices and determine their reasonableness. LMC presented no

evidence to suggest that the payments set forth in Exhibits 28, 29, and 30 were unreasonable.

E. U-Haul stated its desire to recover attorneys’ fees in this matter. U-Haul shall

file an application for attorneys’ fees on or before April 6, 2007. The application will

include all materials required by LRCiv. 54.2. U-Haul shall not delay the filing of a

memorandum in support of its fee application as suggested by LRCiv 54.2(b)(2), but shall

file all materials on April 6, 2007. LMC shall file a response in opposition by April 27,

2007. U-Haul shall file a reply on or before May 11, 2007.

DATED this 14th day of March, 2007.

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