Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_07-cv-00537/USCOURTS-caed-1_07-cv-00537-16/pdf.json

Nature of Suit Code: 120
Nature of Suit: Marine Contract Actions
Cause of Action: 28:1442 Petition for Removal- Breach of Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

DAIRY AMERICA, INC., CASE NO. CV F 07-0537 LJO SMS

Plaintiff, DECISION ON DEFENDANT ARTHUR J.

GALLAGHER, INC.’S SUMMARY

vs. JUDGMENT MOTION

(Doc. 146.)

NEW YORK MARINE AND GENERAL

INSURANCE COMPANY, et. al,

Defendants.

 /

INTRODUCTION

Defendant insurance broker Arthur J. Gallagher, Inc. (“Gallagher”) seeks summary judgment,

in absence of necessary elements, on plaintiff Dairy America, Inc.’s (“Dairy America’s”) negligent

misrepresentation, negligence and breach of oral contract claims arising from DairyAmerica’s uninsured

cargo loss. DairyAmerica responds that Gallagher fails to negate elements of its claims given existence

of triable issues of material fact whether Gallagher misrepresented the scope of policy coverage which

Gallagher obtained for Dairy America. This Court considered Gallagher’s summary judgment motion

on the record and VACATES the April 14, 2010 hearing, pursuant to Local Rule 230(g). For the 1

This Court carefully reviewed and considered all arguments, points and authorities, declarations, testimony,

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statements of undisputed facts and responses thereto, objections and other papers filed by the parties. Omission of reference

to an argument, document, objection or paper is not to be construed to the effect that this Court did not consider the argument,

document, objection or paper. This Court thoroughly reviewed, considered and applied the evidence it deemed admissible,

material and appropriate for summary judgment. This Court does not rule on objections in a summary judgment context.

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reasons discussed below, this Court GRANTS Gallagher summary judgment.

BACKGROUND

The Parties

Dairy America, a Fresno corporation, markets and sells powder milk products for shipment

throughout the United States and foreign countries.

Gallagher has been Dairy America’s commercial insurance broker since 1999.

Former defendant New York Marine and General Insurance Company (“NY Marine”) is a cargo

insurer. Former defendant Crump Insurance Services dba Southern Marine & Aviation Underwriters,

Inc. (“Southern Marine”), is NY Marine’s managing general agent and authorized underwriter to assess

risks and bind NY Marine for ocean cargo insurance.

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Defendant Hartford Casualty Insurance Company (“Hartford”) issued to Dairy America a

property choice policy (“Hartford policy”) and denied DairyAmerica’s claim under the Hartford policy.

Obtaining Ocean Cargo Insurance

Beginning in 2000, Gallagher approached DairyAmerica to obtain ocean cargo insurance in that

Dairy America increased overseas shipments. In her declaration, Dairy America Comptroller Jean

McAbee (“Ms. McAbee”) states that in 2004, she discussed with then Gallagher Account Executive 3

Ellen Jolley (“Ms. Jolley”) “Dairy America’s desire to obtain an insurance policy that would cover all 4

of Dairy America’s shipments regardless of whether the shipments were in transit or in storage. Ellen

Jolley advised me that an Ocean Cargo/Stock Throughput policy would cover all of Dairy America’s

shipments.” 

In October 2004, Ms. McAbee sent Gallagher a letter to express interest to obtain an ocean

cargo/stock throughput policy. In her November 19, 2004 letter to Ms. McAbee, Ms. Jolley stated: “I

This Court granted NY Marine and Southern Marine granted summary judgment on Dairy America’s sole

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breach of insurance contract claim against them. Dairy America appealed the summary judgment decision.

Ms. McAbee has been Gallagher’s “primary” contact on insurance matters.

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Ms. Jolley currently is a Gallagher Account Executive and Area Assistant Vice President.

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am pleased to present our Stock Throughput policy which would cover your stock (powdered milk, etc)

in warehouses, land transit and overseas cargo. . . . The policybeing proposed offers verybroad coverage

and one I think you should consider due to the amount of product you are storing monthly and the

amount going overseas.”

With her December 7, 2004 letter to Ms. Jolley and Gallagher Producer, Account Executive and

Team Leader Dennis Olsen (“Mr. Olsen”), Ms. McAbee noted:

We are currently moving increasing amounts by vessel. Additionally, we have had

opportunities to buy, hold and resell powder. Thus, the current discussion Ellen and I

have had regarding some type of global insurance coverage.

. . .

My initial thought is to consider coverage for all product regardless of whether it

transfers title at the plant, at the border, over the rail, or at a destination. 

In 2005, Dairy America decided to obtain an ocean cargo/stock throughput policy for the first

time. DairyAmerica claims it was “unfamiliar” with such insurance and relied on Gallagher “to explain

the limitations and exclusions of such coverage.” Ms. McAbee declares: “I requested from Gallagher,

and understood Iwas purchasing, an insurance policyto cover all its [DairyAmerica’s] products whether

shipped prior to the inception of the policy or after, wherever they were located and whether in transit

or in storage.” 

Gallagher notes that Dairy America originally intended the ocean cargo coverage to commence

on October 1, 2005 when other Dairy America policies expired but that Ms. Jolley convinced Dairy

America to commence coverage earlier. On August 11, 2005 after negotiation with Gallagher, Southern

Marine for NY Marine issued to Dairy America a binder (“binder”) for an ocean cargo policy. On

August 23, 2005, the NY Marine ocean cargo policy (“NY Marine policy”) issued to DairyAmerica and

was sent directly to Gallagher. Dairy America paid a $150,000 annual premium for the NY Marine

policy. 

Discussions As To Coverage For Goods In Transit

As to discussions with Gallagher, Ms. McAbee declares:

At no time did anyone at Gallagher inform me that the Ocean Cargo/Stock

Throughput policy would only covershipments that were made after the inception of the

policy and that any shipments that had been made by Dairy America prior to the

inception of the policy would not be covered. In fact, Gallagher, through Ms. Jolley and

Mr. Olsen, represented to me that the Stock Throughput policy would cover all of Dairy

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America’s product, which to my understanding included product in transit at the time of

the policy’s inception.

. . .

Neither Ellen Jolley, nor anyone else from Gallagher explained to me that the

insurance coverage Dairy America was purchasing was limited to shipments that

commenced after the effective date of coverage. I thought that on the effective date, all

shipments whether in transit or in storage were covered.

In their declarations, Mr. Olsen and Ms. Jolley each state: “At no point did Jean McAbee, or any

other representative of Dairy America tell me that Dairy America wanted an insurance policy to cover

shipments which originated before the policy’s commencement date.” In her deposition, Ms. Jolley

noted that, prior to the binder’s inception, she did not have discussions with Ms. McAbee regarding

goods already in transit or if they were covered. Ms. Jolley understood that shipments leaving Dairy

America’s factory or storage facilities prior to the NY Marine policy’s August 11, 2005 inception would

not be covered by the NY Marine policy and that Dairy America had separate coverage for goods in

transit prior to August 11, 2005. 

Hurricane Katrina Loss

Dairy America assembled several dozen loads of milk powder for shipment to Havana, Cuba. 

The loads were to be consolidated at a warehouse in Gulfport, Mississippi and sent to their final

destination.

On August 29, 2005, 59 loads of the milk powderlocated in the Gulfport, Mississippi warehouse

and awaiting shipment were destroyed by Hurricane Katrina. The 59 loads comprised 36 loads that had

been shipped after the August 11, 2005 NY Marine policy inception and 23 loads shipped prior to

August 11, 2005. 

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Dairy America lacked knowledge that its milk powder was stored in the warehouse at the time

of Hurricane Katrina. Ms. McAbee testified:

I had no knowledge that I had Gulfport that was stored – I had no knowledge –

well, I had product going to lots of ports. I had no knowledge that there was product in

Gulfport that might have been in a warehouse that I might have been needing to cover

as inventory because it would have been considered not transit.

Dairy America provided bills of lading to indicate that 23 loads of non-fat powder milk began transit prior

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to August 11, 2005. At the time of the loss, Dairy had received from Gallagher the binder but not the NY Marine policy.

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Gallagher, for Dairy America, presented a claim to Southern Marine for the 59 lost loads. NY

Marine’s investigation concluded that 23 loads were not covered in that the loads’ transit preceded the

NY Marine policy’s inception. NY Marine paid Dairy America $1,511,360 for 36 loads which began

transit after the NY Marine policy’s inception. Dairy America’s claim for the 23 pre-NY Marine policy

inception loads is $971,980.

Based on Ms. Jolley’s deposition testimony, Dairy America attributes to Ms. Jolley her

understanding that Dairy American requested coverage for pre-NY Marine policy inception shipments:

Q. . . . Did you understand Jean’s request for coverage to be all-inclusive, shipments

originating preinception of the policy, so that once the policy started, it covered

all her product regardless of whether or not it was in transit or in store?

A. I could only assume that was her intent.

Gallagher takes the position that had it not arranged for the NY Marine policy in August 2005,

none of Dairy America’s loss would have been covered. Ms. McAbee claims that had she known that

the 23 pre-NY Marine policy inception loads were not covered by the NY Marine policy, she “would

have determined exactlywhat product was at risk that was not covered” and “either requested additional

coverage from” NY Marine or Southern Marine or “if necessary, would have looked for other insurers

to obtain insurance coverage for that product.”

Dairy America’s Expert Opinion

As to insurance broker standard of care, Dairy America offers the declaration of Donald Way

(“Mr. Way”), a property casualty underwriter, associate in risk management, and insurance consultant

with more than 40 years experience. Mr. Way explains that the NY Marine policy “is an ocean marine

open cargo policy” which “only covers shipments commencing within the term of the policy” and

“covers only shipments originating during the coverage term, regardless of when the loss occurred. This

type of limitation is found only in marine policies.”

Mr. Way analogizes an ocean marine open cargo policy to a “claims made policy” which “covers

occurrences that are claimed within the policy term, no matter the date of the occurrence” unlike an

occurrence policy “which covers losses which occur during the term of the policy.”

Mr. Way opines that:

1. “A reasonable marine insurance broker would have explained the uniqueness of the

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ocean marine open cargo policy to Dairy America because such a term is contrary to the

expectations of clients”;

2. “Any reasonable insurance broker in industry custom and practice, in order to meet the

standard of care, explains to his client the difference between a Claims-Made policy and

an Occurrence policywhen selling a Claims-Made policy. Similarly, the standard of care

requires an explanation of policy limitations when selling an ocean marine open cargo

policy”;

3. “Gallagher knew or should have known DairyAmerica’s business practices by2005, and

should have asked the necessary questions to obtain the requested insurance coverage”;

and

4. “It is possible to obtain coverage under an ocean marine open cargo policy for shipments

originating prior to the inception date of the policy. A broker would have to inform the

underwriter to obtain coverage and provide supplemental information, and perhaps agree

to an additional premium. Gallagher failed to do this.” 

Dairy America’s Claims Against Gallagher

Dairy America proceeds on its third amended complaint (“TAC”) to allege against Gallagher

negligent misrepresentation, professional negligence and breach of oral contract claims. The TAC

alleges that Gallagher:

1. “[E]ncouraged Plaintiff to obtain additional insurance coverage over and above that

coverage provided by the Hartford Policy by recommending that Plaintiff purchase an

ocean cargo/stock throughput insurance policy”;

2. “[R]ecommended the additional coverage to protect Plaintiff’s shipments from risk of

loss which might exceed the coverage limits of its existing Hartford insurance policy”;

3. “[K]new the risks involved in Plaintiff’s business including Plaintiff’s concerns

regarding coverage, and that all product be covered, including product currently in transit

at the time of the request”; and

4. “[A]greed to obtain the requested insurance for Plaintiff.”

The TAC alleges that Dairy America “expressed to Defendant Gallagher that it wanted the

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additional coverage for all its shipments” and “relied on Defendant Gallagher’s knowledge and

sophistication to obtain coverage adequate for Plaintiff’s shipments of milk products.” (Italics in

original.)

The TAC’s (second) negligent misrepresentation claim alleges that “Gallagher misrepresented

to Plaintiff that it would procure additional coverage for all of Plaintiff [sic] shipments of powdered

milk.” The TAC’s (third) professional negligence claim alleges that Gallagher breached its duty of care

“by failing to obtain coverage for all of Plaintiff’s shipments, namely, for shipments of mik product

already in transit at the inception of coverage and/or failing to explain to Plaintiff that the policy

obtained excluded such risks.” The TAC’s (fourth) breach of oral contract claim alleges that in July or

August 2005, Dairy America and Gallagher “entered into an oral contract wherein Defendant Gallagher

agreed to procure additional insurance for Plaintiff, specifically, a marine cargo/stock throughput policy

covering all of Plaintiff’s shipments.” The claimfurther allegesthat Gallagher breached the oral contract 

in that it “failed to procure additional insurance which covered Plaintiff for risk of loss of goods in

transit at the inception of the policy, and failed to explain to Plaintiff that such coverage was lacking

from the policy procured by it.”

Dairy America seeks to recover $971,980 for the lost 23 loads.

DISCUSSION

Summary Judgment Motion Standards

Gallagher seeks summary judgment in the absence of “underlying support” for DairyAmerica’s

claims which Gallagher characterizes are “founded on the same set of facts, separately couched in

different theories.” Gallagher seeks summary judgment in that:

1. Gallagher lacked “a duty to recommend or provide additional insurance to cover the

entire Hurricane Katrina loss”;

2. Gallagher breached no duty in that it “secured all insurance coverage possible”; and

3. No contract existed between Dairy America and Gallagher, “only a request by Dairy

America and an agreement by Gallagher to do it’s [sic] best to arrange for the most

comprehensive coverage for which Dairy America was willing to pay.”

Dairy America responds that existence of triable issues of material fact defeats summary

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judgment in that Dairy America “requested that all of its product be covered as of the policy inception”

and that Gallagher failed “to procure insurance coverage Dairy America requested” and misrepresented

to Dairy America that “insurance coverage existed” and that the “policy would cover all of its product,

regardless of whether the product was in transit or storage.” Dairy America challenges Gallagher’s

denial of an oral contract in that “[u]nderstanding by both parties of definite terms of the agreement are

[sic] all that is needed.” Dairy America accuses Gallagher of “trying to hide its negligence in procuring

an inadequate policy behind a veil of ignorance.”

F.R.Civ.P. 56(b) permits a “party against whom relief is sought” to seek “summary judgment on

all or part of the claim.” “A district court may dispose of a particular claim or defense by summary

judgment when one of the parties is entitled to judgment as a matter of law on that claim or defense.”

Beal Bank, SSB v. Pittorino, 177 F.3d 65, 68 (1 Cir. 1999). st

Summary judgment is appropriate when there exists no genuine issue as to any material fact and

the moving party is entitled to judgment as a matter of law. F.R.Civ.P. 56(c); Matsushita Elec. Indus.

v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986); T.W. Elec. Serv., Inc. v. Pacific

Elec. Contractors Ass’n, 809 F.2d 626, 630 (9 Cir. 1987). The purpose of summary judgment is to th

“pierce the pleadings and assess the proof in order to see whether there is a genuine need for trial.” 

Matsushita Elec., 475 U.S. at 586, n. 11, 106 S.Ct. 1348; International Union of Bricklayers v. Martin

Jaska, Inc., 752 F.2d 1401, 1405 (9 Cir. 1985). th

On summary judgment, a court must decide whether there is a “genuine issue as to any material

fact,” not weigh the evidence or determine the truth of contested matters. F.R.Civ.P. 56(c); Covey v.

Hollydale Mobilehome Estates, 116 F.3d 830, 834 (9 Cir. 1997); see Adickes v. S.H. Kress & Co., 398 th

U.S. 144, 157, 90 S.Ct. 1598 (1970); Poller v. Columbia Broadcast System, 368 U.S. 464, 467, 82 S.Ct.

486 (1962); Loehr v. Ventura County Community College Dist., 743 F.2d 1310, 1313 (9 Cir. 1984). th

The evidence of the party opposing summary judgment is to be believed and all reasonable inferences

that may be drawn from the facts before the court must be drawn in favor of the opposing party. 

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505 (1986); Matsushita, 475 U.S. at 587,

106 S.Ct. 1348. The inquiry is “whether the evidence presents a sufficient disagreement to require

submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” 

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Anderson, 477 U.S. at 251-252, 106 S.Ct. 2505.

To carry its burden of production on summary judgment, a moving party “must either produce

evidence negating an essential element of the nonmoving party’s claim or defense or show that the

nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of

persuasion at trial.” Nissan Fire & Marine Ins. Co. v. Fritz Companies, Inc., 210 F.3d 1099, 1102 (9th

Cir. 2000); see High Tech Gays v. Defense Indus. Sec. Clearance Office, 895 F.2d 563, 574 (9 Cir. th

1990). “[T]o carry its ultimate burden of persuasion on the motion, the moving party must persuade the

court that there is no genuine issue of material fact.” Nissan Fire, 210 F.3d at 1102; see High Tech

Gays, 895 F.2d at 574. “As to materiality, the substantive law will identify which facts are material. 

Only disputes over facts that might affect the outcome of the suit under the governing law will properly

preclude the entry of summary judgment.” Anderson, 477 U.S. at 248, 106 S.Ct. 2505. 

“If a moving party fails to carry its initial burden of production, the nonmoving party has no

obligation to produce anything, even if the nonmoving party would have the ultimate burden of

persuasion at trial.” Nissan Fire, 210 F.3d at 1102-1103; see Adickes, 398 U.S. at 160, 90 S.Ct. 1598. 

“If, however, a moving party carries its burden of production, the nonmoving party must produce

evidence to support its claim or defense.” Nissan Fire, 210 F.3d at 1103; see High Tech Gays, 895 F.2d

at 574. “If the nonmoving party fails to produce enough evidence to create a genuine issue of material

fact, the moving party wins the motion for summary judgment.” Nissan Fire, 210 F.3d at 1103; see

Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548 (1986) (“Rule 56(c) mandates the entry of

summaryjudgment, after adequate time for discoveryand upon motion, against a partywho fails to make

the 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.”) 

“But if the nonmoving party produces enough evidence to create a genuine issue of material fact,

the nonmoving party defeats the motion.” Nissan Fire, 210 F.3d at 1103; see Celotex, 477 U.S. at 322,

106 S.Ct. 2548. “The amount of evidence necessary to raise a genuine issue of material fact is enough

‘to require a jury or judge to resolve the parties’ differing versions of the truth at trial.’” Aydin Corp.

v. Loral Corp., 718 F.2d 897, 902 (quoting First Nat’l Bank v. Cities Service Co., 391 U.S. 253, 288-

289, 88 S.Ct. 1575, 1592 (1968)). “The mere existence of a scintilla of evidence in support of the

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plaintiff’s position will be insufficient.” Anderson, 477 U.S. at 252, 106 S.Ct. 2505.

As discussed below, there is an absence of evidence on elements of Dairy America’s claims to

entitle Gallagher to summary judgment.

Professional Negligence

Gallagher identifies the “core allegation” that it “either agreed to provide ‘additional coverage

for all’ of Dairy America’s product, or had a legal duty to assure such ‘additional coverage.’” Gallagher

contends that “existence and breach of a duty is the foundation upon which the entirety of the Dairy

America claim exists.” Gallagher concludes that it breached no duty to Dairy America as Dairy

America’s insurance broker.

Dairy America responds that Gallagher owed “a duty to procure full coverage for all of Dairy

America’s product” and that triable issues of material fact exist as to that duty.

Existence Of Duty

“The elements of a cause of action in tort for professional negligence are: (1) the duty of the

professional to use such skill, prudence, and diligence as other members of his profession commonly

possess and exercise; (2) a breach of that duty; (3) a proximate causal connection between the negligent

conduct and the resulting injury; and (4) actual loss or damage resulting from the professional's

negligence.” Budd v. Nixen, 6 Cal.3d 195, 200, 491 P.2d 433 (1971).

“The existence of a duty of care owed by a defendant to a plaintiff is a prerequisite to establishing

a claim for negligence.” Nymark v. Heart Fed. Savings & Loan Assn., 231 Cal.App.3d 1089, 1095, 283

Cal.Rptr. 53 (1991). “The existence of a duty of care toward an interest of another worthy of legal

protection is the essential prerequisite to a negligence cause of action, determined as a matter of law by

the court.” Software Design & Application, Ltd. v. Hoefer & Arnett, Inc., 49 Cal.App.4th 472, 478, 56

Cal.Rptr.2d 756 (1996) (citing Bily v. Arthur Young & Co., 3 Cal.4th 370, 397, 11 Cal.Rptr.2d 51

(1992)). “The existence of a legal duty to use reasonable care in a particular factual situation is a

question of law for the court to decide.” Vasquez v. Residential Investments, Inc., 118 Cal.App.4th 269,

278, 12 Cal.Rptr.3d 846 (2004) (citation omitted).

Broker Duties

An insurance agent or broker “assumes only those duties found in any agency relationship such

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as ‘reasonable care, diligence, and judgment in procuring the insurance requested byan insured.’” Paper

Savers, Inc. v. Nacsa, 51 Cal.App.4th 1090, 1095, 59 Cal.Rptr.2d 547 (1996). An insurance broker

“generally has no duty to volunteer that an insured should obtain different or additional insurance

coverage.” Roberts v. Assurance Co. of America, 163 Cal.App.4th 1398, 1403-1404, 78 Cal.Rptr.3d 361

(2008); see Paper Savers, 51 Cal.App.4th at 1096, 59 Cal.Rptr.2d 547 (“an agent has no duty to advise

the insured on specific insurance matters”). “The rule changes, however, when – but only when – one

of the following three things happens: (a) the agent misrepresents the nature, extent or scope of the

coverage being offered or provided . . ., (b) there is a request or inquiry by the insured for a particular

type or extent of coverage . . ., or (c) the agent assumes an additional duty by either express agreement

or by ‘holding himself out’ as having expertise in a given field of insurance being sought bythe insured.” 

Fitzpatrick v. Hayes, 57 Cal.App.4th 916, 927, 67 Cal.Rptr.2d 445 (1997); Paper Savers, 51

Cal.App.4th at 1096, 59 Cal.Rptr.2d 547 (“special duty may be created by express agreement or by the

agent holding himself out to be more than an ‘ordinary agent’”). 

Nonetheless, the “general duty of reasonable care which an insurance [broker] owes his client

does not include the obligation to procure a policy affording the client complete liability protection.” 

Jones v. Grewe, 189 Cal.App.3d 950, 956, 234 Cal.Rptr. 717 (1987) (“complaint did not allege the

existence of an express agreement creating a broader agency relationship in which [insurance agents]

were to advise, suggest and procure for [insureds] liability insurance in an amount sufficient to protect

[insureds'] personal assets and satisfy any judgment against [insureds] arising out of the [insureds’]

negligent acts”). “The mere allegation in a complaint, as in this case, that an insured has purchased

insurance from an insurance agent for several years and followed his advice on certain insurance matters

is insufficient to imply the existence of a greater duty. Such reliance is not at all uncommon when an

insured has done business with an insurance agency over a period of time.” Jones, 189 Cal.App.3d at

956, 234 Cal.Rptr. 717. In addition, “existence of a broader agency relationship warranting the

imposition of a greater duty” cannot be “reasonably inferred from the complaint's allegation that

[insurance agents] had assured [insureds] of the adequacy of their liability coverage.” Jones, 189

Cal.App.3d at 956, 234 Cal.Rptr. 717. 

“It is the insured's responsibility to advise the agent of the insurance he wants, including the

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limits of the policy to be issued. . . . Ordinarily, the person seeking liability insurance knows better than

the insurance agent the extent of his personal assets, and the premium he can afford or is willing to pay.”

Jones, 189 Cal.App.3d at 956, 234 Cal.Rptr. 717. “In the absence of an express agreement to ensure

adequate coverage or a holding out by the agent to assume greater duties otherwise implied in the agency

relationship, the onus is thus squarely on the insured to inform the agent of the insurance he requires.” 

Paper Savers, 51 Cal.App.4th at 1096, 59 Cal.Rptr.2d 547.

Insured’s Request For Coverage

Gallagher argues that it did not breach even an “enhanced duty” in that:

1. Dairy America did not “specifically” ask Gallagher to secure a policy covering goods

already in transit;

2. Neither Southern Marine would underwrite nor NY Marine would insure goods in transit

prior to NY Marine policy inception; and 6

3. Neither Dairy America nor Gallagher knew how many loads were in transit prior to NY

Marine policy inception.

Gallagher concludes that it breached no duty by “failure to insure the milk in transit prior to the policy

date because such task was impossible – given the information provided byDairyAmerica and Fossler’s

criteria to underwrite a policy.” 

Dairy America responds that Gallagher “owed it an enhanced duty of care” in that “Dairy

America expressly requested marine ocean insurance that covered its powdered milk product located

anywhere in the world, whether in storage or in transit.” Dairy America holds Gallagher to a duty “to

obtain insurance to serve Dairy America’s express needs” in that “Dairy America made a request for a

specific extent of coverage.”

Gallagher points to the deposition testimony of Southern Marine Senior Vice President Andrew Fossler

6

(“Mr. Fossler”):

Q. . . . Assuming that a broker had goods in transit that – that he determined was not

covered, assuming that that was the situation, from your end, how would you handle that

if it was asked of you, look, I’ve got goods in transit here and I need them covered and

we’d like it – we’d like you guys to pick that up? How would you handle that from your

end?

A. First and foremost, I’d say we would not do it.

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Dairy America’s initial challenge to summary judgment on its professional negligence claim is

that it made a request or inquiry “for a particular type or extent of insurance.” Fitzpatrick, 57

Cal.App.4th at 927. As such, an issue arises whether Dairy America, more specifically, Ms. McAbee,

requested or inquired of coverage for goods in transit at the NY Marine policy’s August 11, 2005

inception. Dairy America offers no precise evidence on this issue. According to her declaration, Ms.

McAbee in 2004 discussed with Ms. Jolley “Dairy America’s desire to obtain an insurance policy that

would cover all of Dairy America’s shipments regardless of whether the shipments were in transit or in

storage.” Such a vague reference to a discussion of desire months prior to policy inception does not

support a request for coverage of goods in transit at policy inception. Dairy America relies on Ms.

Jolley’s assumption of Ms. McAbee’s intent to cover “her product regardless of whether or not it was

in transit or in store.” Ms. Jolley’s assumption does not translate to Dairy America’s request/inquiry as

to coverage for goods in transit at policy inception. 

In addition, Ms. McAbee’s December 7, 2004 letter fails to substantiate a request for coverage

of goods in transit at policy inception. Ms. McAbee’s December 7, 2004 letter expresses only her

“initial thought . . . to consider coverage for all product” months prior to NY Marine policy inception. 

The letter expresses no more than a concept, not a request for specific coverage. Dairy America points

to no specific evidence that Ms. McAbee or anyone else from Dairy America requested coverage for or

inquired about coverage for goods in transit prior to NY Marine policy inception.

Ms.McAbee broadlydeclares that she “requested coverage from Gallagher, and understood Iwas

purchasing, an insurance policy to cover all its products whether shipped prior to the inception of the

policy or after, wherever they were located and whether in transit or in storage.” However, Dairy

America fails to identify such request. There is no writing to support such a broad request. Ms. McAbee

does not identify a particular discussion with Ms. Jolley or Mr. Olsen where she made such request. 

Dairy America fails to substantiate that such a request was made near the time of policy inception. The

record reveals only discussions in 2004, no less than eight months prior to NY Marine policy inception. 

Ms. McAbee offers no more than a gross generalization without supporting facts. A specific request for

pre-policy inception coverage is negated in that Ms. Jolley did not know what goods were in transit at

inception of the NY Marine policy.

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Dairy America fails to raise factual issues that Gallagher owed an enhanced duty based on Dairy

America’s request or inquiry as to coverage for goods in transit prior to NY Marine policy inception.

Misrepresentation Of Coverage

DairyAmerica argues that Gallagher owed it an enhanced dutyin that “Gallagher misrepresented

to Dairy America that the stock throughout policy it procured for Dairy America covered all of Dairy

America’s powdered milk product located everywhere in the world.”

Gallagher responds that “[t]here are simply no admissible facts to support a misrepresentation

by Gallagher.”

DairyAmerica points to no specific evidence of Gallagher’s representation of coverage for goods

in transit prior to NY Marine policy inception. Ms. McAbee declares that “Ms. Jolley and Mr. Olsen,

represented to me that the Stock Throughput policy would cover all of Dairy America’s product, which

to my understanding included product in transit at the time of the policy’s inception.” Ms. McAbee fails

to identify the particular representation by Ms. Jolley and Mr. Olsen. Ms. McAbee’s declaration

contradicts her deposition testimony in that she did not know of product in the Gulfport warehouse. 

Neither DairyAmerica nor Ms. McAbee are able to claim that Gallagher misrepresented that the 23 preNY Marine policy inception loads were covered. Neither Dairy America nor Gallagher knew that the

23 loads were in transit. 

Ms. McAbee’s “understanding” of coverage for “product in transit at the time of the policy’s

inception” does not constituteGallagher’smisrepresentation of coverage for the loads. Ms. Jolleydenies

discussion regarding goods already in transit or if they were covered. Moreover, Gallagher did obtain

a policy which covered Dairy America’s goods in transit – after inception of the NY policy. Dairy

America fails to raise factual issues that Gallagher misrepresented the nature, extent or scope of

coverage.

Procuring Proper Coverage

In an apparent backing away from enhanced duties, DairyAmerica points to Mr. Way’s opinions

to argue that Gallagher breached its duty “to procure proper insurance coverage.” Dairy America faults

Gallagher’s failure “to set forth sufficient evidence that precludes the possibility that Dairy America

could have provided any required information to obtain coverage with New York Marine and Southern

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Marine, or that no other insurer would have provided coverage for shipments in transit on the policy

inception date.” Dairy America holds Gallagher “to obtain ocean marine insurance for shipments

originating prior to the inception date of the policy.” 

DairyAmerica appears to equate “proper insurance coverage” with coverage for goods in transit

at the NY Marine policy’s inception and to contend that Gallagher was required to obtain a “stand alone”

NY Marine or other policy for goods in transit at the NY Marine policy’s inception. Notwithstanding

Mr. Way, Dairy America points to no authority for the extraordinary duties it seeks to impose on

Gallagher. As a reminder, an insurance broker “generally has no duty to volunteer that an insured should

obtain different or additional insurance coverage.” Roberts, 163 Cal.App.4th at 1403-1404, 78

Cal.Rptr.3d 361. The evidence suggests that DairyAmerica relied on the Hartford policy to cover goods

in transit prior to inception of the NY Marine policy. Ms. McAbee’s December 7, 2004 letter to

Gallagher notes: 

My understanding of current coverage in relation to NFDM product is as follows: 

Commerical Package with Hartford – 

Covers any inventory we may have on a monthly reportable basis . . . 

Includes $450,000 transit coverage per claim to insure product traveling with the US for

which DA arranged the freight causing title to transfer at the destination, not FOB the

plant. 

Dairy America offers nothing to substantiate the availability of coverage it claims Gallagher

should have obtained and relies on Mr. Way’s speculation that “[i]t is possible to obtain coverage under

an ocean marien open cargo policy for shipments originating prior to the inception date of the policy.” 

Mr. Way does not identify such coverage or potential insurers or underwriters. The evidence reveals that

NY Marine would not provide such coverage in that when the issue was put before Southern Marine’s

Mr. Fossler, he responded “First and foremost, I’d say we would not do it.” Mr. Way’s vague criticisms

fail to raise genuine issues of material fact that Gallagher breached a duty to procure proper insurance,

especially given that without its efforts, Dairy America would have had no coverage for the 36 loads in

transit after NY Marine policy inception.

Dairy America fails to raise sufficient factual issues to defeat summary judgment on its

professional negligence claim.

/ / /

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Negligent Misrepresentation

Gallagher argues that Dairy America’s negligent misrepresentation claim is an “alternative

means” to allege Gallagher’s enhanced duty, the premise for all of Dairy America’s claims. Gallagher

appears to argue that professional negligence claimsubsumes the negligent misrepresentation and breach

of oral contract claims. 

DairyAmerica responds that Gallagher offers “no competent evidence to demonstrate that Dairy

America cannot meet any element of the claim.”

The elements of a negligent misrepresentation claim are: (1) a misrepresentation, (2) with no

reasonable ground to believe it to be true, (3) with the intent to induce another's reliance on the

misrepresentation, (4) justifiable reliance, and (5) resulting damage. Conroy v. Regents of University

of Cal., 45 Cal.4th 1244, 1256, 203 P.3d 1127 (2009).

Dairy America relies on the same points it made to attempt to avoid summary judgment on its

professional negligence claim. As noted above, no evidence raises sufficient factual issues that

Gallagher misrepresented that the 23 pre-NY Marine policy inception loads were covered in that neither

Dairy America nor Gallagher knew that the 23 loads were in transit. Despite Dairy America’s claim,

there is no evidence that Gallagher represented that the NY Marine policy “would cover all of Dairy

America’s product.” Gallagher’s forwarding the binder to Dairy America does not constitute

Gallagher’s representation of coverage given that the binder originated with Southern Marine. There

is no evidence that Gallagher drafted the binder. Dairy America’s criticisms with the binder are

attributable to NY Marine and Southern Marine and have been addressed in summary judgment in their

favor. Dairy America fails to raise sufficient factual questions as to elements of its negligent

misrepresentation claim. 

Breach Of Oral Contract

Gallagher argues that its communications with Dairy America did not give rise to an agreement

to support Dairy America’s breach of oral contract claim in that discussions between or among Ms.

McAbee, Ms. Jolley and Mr. Olsen typify those “that take place between any agent and its client and are

never considered contractual.” Gallagher relies on Ms. McAbee’s testimony that she does not recall

reference to a “contract” during her discussions with Gallagher and that Ms. McAbee asked Gallagher

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to use “best efforts” to secure coverage. Gallagher points to Ms. McAbee’s additional testimony:

Q. So all of your discussions with Ellen [Jolley] and Dennis [Olsen] were for

the purpose of getting enough information on your side, that is in terms

of what you thought you were getting and what you were paying, so that

you could make a business decision as you had done before; correct?

A. Correct.

Moreover, as Gallagher notes, Ms. Jolley and Mr. Olsen each declare that “[a]t no time . . . was

there ever an agreement, written or oral, that Gallagher would secure total or complete insurance

coverage for Dairy America products” or “a representation . . . that Gallagher could or would provide

full coverage to Dairy America for its products everywhere in the world.”

Dairy America disputes that Gallagher makes a “sufficient factual showing that an oral contract

does not exist between it and DairyAmerica.” DairyAmerica claims formation of an oral contract based

on its specific request “that Gallagher procure insurance coverage for all of its products,” premium

payment, and Gallagher’s procurement of “an insurance policy that it believed covered DairyAmerica’s

request.” Dairy America argues that an oral contract arose in that all “material terms are definitely

understood by both sides.” Khajavi v. Feather River Medical Group, 84 Cal.App.4th 32, 61, 100

Cal.Rptr.2d 627 (2000) (“Negotiations can result in a binding oral contract ‘when all of the terms are

definitely understood . . .”).

Similar to its misrepresentation of coverage claim, Dairy America points to no evidence of

Gallagher’s oral agreement to procure coverage for goods in transit prior to NY Marine policyinception. 

Ms. McAbee declares that she understood there would be coverage for “product in transit at the time of

the policy’s inception.” However, Gallagher could not have agreed to procure coverage for the 23 preNY Marine policy in transit loads given that Ms. McAbee testified that she did not know of the product

in the Gulfport warehouse. Ms. McAbee’s understanding does not translate into a bilateral agreement

to secure coverage for goods in transit prior to inception of the NY Marine policy. The evidence reveals

Gallagher’s agreement to procure the NY Marine policy, not to guarantee coverage to the extent claimed

by Dairy America. Dairy America fails to raise sufficient factual issues to preclude summary judgment

on its breach of oral contract claim.

/ / /

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CONCLUSION AND ORDER

In sum, Dairy America fails to raise sufficient factual issues that it requested ocean cargo

coverage other than or in addition to that which Gallagher obtained. Dairy America pinpoints no

specific, timely request for coverage for goods in transit at policy inception. At most, Dairy America

points to initial conceptual discussions for coverage it sought. The record reveals that based on

discussions with Ms. McAbee, Gallagher obtained available coverage to fit Dairy America’s needs and

desires, taking into context the dealings between Dairy America and Gallagher since 2000 regarding

coverage for DairyAmerica’s overseas shipments . There is no evidence that DairyAmerica specifically

asked for coverage for the 23 pre-NY Marine policy inception loads or whether the loads were covered. 

The record reveals there could be no such specific request or inquiry given that Ms. McAbee did not

know the location of the loads. Gallagher obtained a policy which covered goods in transit at policy

inception. As such, this Court:

1. GRANTS Gallagher summary judgment; and

2. DIRECTS the clerk to enterjudgment in favor of defendant Arthur J. Gallagher, Inc. and

against plaintiff Dairy America, Inc. in that there is no just reason to delay to enter such

judgment given Dairy America’s claims against Gallagher and Gallagher’s alleged

liability are clear and distinct from claims against and liability of other defendants. See

F.R.Civ.P. 54(b).

This Court cautions Dairy America not to seek reconsideration based on Dairy America’s

disagreement with this decision and/or evidentiary and legal points which it has made or was able to

make. See 28 U.S.C. § 1927; Dahl v. City of Huntington Beach, 84 F.3d 363, 367 (9 Cir. 1996); th

Wages v. Internal Revenue Service, 915 F.2d 1230, 1235 (9 Cir.), cert. denied, 489 U.S. 1096, 111 th

S.Ct. 986 (1991); Erickson v. Newmar Corp. 87 F.3d 298, 303 (9 Cir. 1996). This Court has th

thoroughly reviewed and analyzed the record and legal authorities to support its decision. This Court

reminds Dairy America that reconsideration “is not a vehicle for relitigating old issues, presenting the

case under new theories, securing a rehearing on the merits, or otherwise taking a ‘second bite at the

apple.’” See Sequa Corp. v. GBJ Corp., 156 F.3d 136, 144 (2 Cir. 1998). “A party seeking nd

reconsideration must show more than a disagreement with the Court's decision, and recapitulation of the

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cases and arguments considered by the court before rendering its original decision fails to carry the

moving party's burden.” United States v. Westlands Water Dist., 134 F.Supp.2d 1111, 1131 (E.D. Cal.

2001) (internal citations omitted). 

IT IS SO ORDERED.

Dated: April 1, 2010 /s/ Lawrence J. O'Neill 

66h44d UNITED STATES DISTRICT JUDGE

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