Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-01238/USCOURTS-cand-4_04-cv-01238-4/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

NOEL HOLLAND,

Plaintiff,

v.

WESTPORT INSURANCE CORPORATION,

CLAIMS MANAGEMENT SERVICES, INC., and

DOES 1-4,

Defendants.

 /

No. C 04-1238 CW

ORDER GRANTING

DEFENDANTS' MOTION

FOR SUMMARY JUDGMENT

AND DENYING

DEFENDANTS' MOTION

TO MODIFY THE

ARBITRATOR'S AWARD

Defendants Westport Insurance Corporation and Claims

Management Services, Inc. (CMS) move for summary judgment and to

modify the arbitrator's award. Plaintiff Noel Holland opposes the

motions. The matters were heard on May 3, 2007. Having considered

all of the papers filed by the parties, the evidence cited therein

and oral argument on the motions, the Court grants Defendants'

motion for summary judgment and denies their motion to modify the

arbitrator's award. 

BACKGROUND

As stated in the Court's earlier orders, this case arises out

of a February 20, 2003 auto collision in which Holland was driving

a van insured by Westport under a policy obtained by Daytop

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Westport had paid $5,000 directly to the physical therapist

treating Holland.

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Village, Inc. In October, 2003, Holland settled a claim against

Allstate, the insurer of the third party driver who caused the

accident, for the policy limit of $25,000. Holland alleges that

Westport owes him additional compensation pursuant to the provision

of the insurance policy in which Westport promises to "pay all sums

the 'insured' is legally entitled to recover as compensatory

damages from the owner or driver of an 'uninsured motor vehicle.'" 

First Amended Complaint (FAC) ¶ 12. This provision is mandated by

California Insurance Code § 11580.2.

Holland first informed Westport of the accident in February,

2003. On October 23, 2003, after receiving the $25,000 settlement

from Allstate, his attorney sent a letter to CMS, Westport's third

party administrator, stating that he was filing an under-insured

motorist claim for $1 million, the policy limit. Addy Declaration,

Exhibit 17. CMS responded, requesting that Holland's attorney have

Allstate contact it regarding subrogation so that it could initiate

the under-insured motorist claim. Addy Declaration, Exhibit 18. 

On November 10, 2003, after receiving information from

Allstate, CMS wrote again to Holland's attorney, indicating its

belief that Westport was entitled to $5,000 in subrogation1 and

requesting "an open ended extension" to review the $1 million

demand. Addy Declaration, Exhibit 19. Holland's attorney

responded by stating that Holland would bring suit for bad faith

against Westport unless it acceded to his demand before November

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2This date was based on Holland's attorney's assertion that

the under-insured motorist claim had been received by CMS on

October 14, 2003 and that California law requires a final decision

on a claim within forty days. 

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24, 2003.2

 Addy Declaration, Exhibit 20. 

On November 24, 2003, CMS responded, stating that it sought

the extension because the parties still had not resolved whether

Westport was entitled to subrogation. Addy Declaration, Exhibit

22. Further, CMS pointed out that the medical receipts submitted

by Holland totaled $12,030.21. Id. Because Holland had collected

$25,000 from Allstate and the $5,000 physical therapy payment from

Westport, CMS refused Holland's demand. Id. Nonetheless, CMS

continued to investigate the claim. 

On the same date that CMS denied the demand for $1 million,

Westport offered to waive its right to subrogation and to give

Holland an additional $5,000 to settle the claim. Addy

Declaration, Exhibit 23. Its letter noted that Holland had been in

another car accident on March 14, 2003, and that the only medical

care he received after the accident at issue and before the second

accident was during the initial trip to the emergency room. Id.

Defendants state that Holland has not responded to the letter. 

Westport also continued to investigate Holland's claim,

arranging for independent medical evaluations with an orthopedist,

an internist and a psychiatrist. Addy Declaration, Exhibit 25. 

Defendants state that Holland attended his appointment with the

orthopedist, but failed to keep the other two appointments. 

Holland contends that this is false and that Defendants rescheduled

the other two appointments without informing him of the change. 

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Even if this is true, Holland provides no evidence that he

attempted to reschedule those appointments. 

Holland filed this action on February 20, 2004, alleging that

Defendants failed properly to investigate his claim, to communicate

with him about the status of his claim, and to pay the claim. The

FAC asserts four causes of action: (1) breach of contract against

Westport; (2) breach of the covenant of good faith and fair dealing

against Westport and CMS; (3) intentional infliction of emotional

distress against Westport and CMS; and (4) negligent infliction of

emotional distress against Westport and CMS. 

CMS and Westport moved to dismiss the FAC. On June 21, 2004,

the Court dismissed Holland's bad faith claim against CMS, but

otherwise denied Defendants' motion. The Court also found that the

parties were required first to arbitrate the benefit amount dispute

pursuant to Insurance Code § 11580.2(f). Rather than dismiss the

case, the Court exercised its discretion to stay Holland's other

claims while Holland pursued arbitration. Holland attempted to

appeal the Court's order. After the appeal was denied, the matter

proceeded to arbitration. 

On July 27, 2006, the arbitrator awarded $39,100.71 to Holland

but found that Allstate had already paid him $20,000. Therefore,

the arbitrator found Westport liable for $19,100.71. 

On August 9, 2006, Holland filed notice that he intended to

proceed with the claims remaining in the FAC for bad faith and

intentional and negligent infliction of emotional distress. 

Defendants have answered and now move for summary judgment. 

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LEGAL STANDARD

Summary judgment is properly granted when no genuine and

disputed issues of material fact remain, and when, viewing the

evidence most favorably to the non-moving party, the movant is

clearly entitled to prevail as a matter of law. Fed. R. Civ. P.

56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986);

Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir.

1987).

The moving party bears the burden of showing that there is no

material factual dispute. Therefore, the court must regard as true

the opposing party's evidence, if supported by affidavits or other

evidentiary material. Celotex, 477 U.S. at 324; Eisenberg, 815

F.2d at 1289. The court must draw all reasonable inferences in

favor of the party against whom summary judgment is sought. 

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

587 (1986); Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d

1551, 1558 (9th Cir. 1991). 

Material facts which would preclude entry of summary judgment

are those which, under applicable substantive law, may affect the

outcome of the case. The substantive law will identify which facts

are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986).

Where the moving party does not bear the burden of proof on an

issue at trial, the moving party may discharge its burden of

production by either of two methods. Nissan Fire & Marine Ins.

Co., Ltd., v. Fritz Cos., Inc., 210 F.3d 1099, 1106 (9th Cir.

2000). 

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The moving party may produce evidence negating an

essential element of the nonmoving party’s case, or,

after suitable discovery, the moving party may show that

the nonmoving party does not have enough evidence of an

essential element of its claim or defense to carry its

ultimate burden of persuasion at trial. 

Id. 

If the moving party discharges its burden by showing an

absence of evidence to support an essential element of a claim or

defense, it is not required to produce evidence showing the absence

of a material fact on such issues, or to support its motion with

evidence negating the non-moving party's claim. Id.; see also

Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 885 (1990); Bhan v.

NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991). If the

moving party shows an absence of evidence to support the non-moving

party's case, the burden then shifts to the non-moving party to

produce "specific evidence, through affidavits or admissible

discovery material, to show that the dispute exists." Bhan, 929

F.2d at 1409. 

If the moving party discharges its burden by negating an

essential element of the non-moving party’s claim or defense, it

must produce affirmative evidence of such negation. Nissan, 210

F.3d at 1105. If the moving party produces such evidence, the

burden then shifts to the non-moving party to produce specific

evidence to show that a dispute of material fact exists. Id.

If the moving party does not meet its initial burden of

production by either method, the non-moving party is under no

obligation to offer any evidence in support of its opposition. Id.

This is true even though the non-moving party bears the ultimate

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burden of persuasion at trial. Id. at 1107.

Where the moving party bears the burden of proof on an issue

at trial, it must, in order to discharge its burden of showing that

no genuine issue of material fact remains, make a prima facie

showing in support of its position on that issue. UA Local 343 v.

Nor-Cal Plumbing, Inc., 48 F.3d 1465, 1471 (9th Cir. 1994). That

is, the moving party must present evidence that, if uncontroverted

at trial, would entitle it to prevail on that issue. Id.; see also

Int’l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1264-65 (5th

Cir. 1991). Once it has done so, the non-moving party must set

forth specific facts controverting the moving party's prima facie

case. UA Local 343, 48 F.3d at 1471. The non-moving party's

"burden of contradicting [the moving party's] evidence is not

negligible." Id. This standard does not change merely because

resolution of the relevant issue is "highly fact specific." Id.

DISCUSSION

I. Bad Faith

Westport moves for summary judgment on Holland's claim for

breach of the implied covenant of good faith and fair dealing,

arguing that Plaintiff cannot establish that it unreasonably

withheld policy benefits. 

A covenant of good faith and fair dealing is implied in every

insurance contract. Egan v. Mutual of Omaha Insurance Co., 24 Cal.

3d 809, 818 (1979), cert. denied, 445 U.S. 912 (1980); see also,

Gourley v. State Farm Mutual Auto. Insurance Co., 53 Cal. 3d 121,

127 (1991). "An insurer, like any other party to a contract, owes

a general duty of good faith and fair dealing. . . . There are at

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3In his opposition, Holland suggests that the $1 million

demand was merely a starting point for negotiations, which "was

subject to reduction based on medical evidence produced by

Defendants which they failed to investigate and produce." 

Plaintiff's Opposition at 13. However, he produces no evidence to

support this assertion. Further, although insurance companies have

a duty to investigate claims, they do not bear the burden of

producing medical evidence.

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least two separate requirements to establish breach of the implied

covenant: (1) benefits due under the policy must have been

withheld; and (2) the reason for withholding benefits must have

been unreasonable or without proper cause." Love v. Fire Ins.

Exch., 221 Cal. App. 3d 1136, 1147, 1152 (1990). 

Under California law, "The mistaken or erroneous withholding

of policy benefits, if reasonable or if based on a legitimate

dispute as to the insurer's liability under California law, does

not expose the insurer to bad faith liability." Chateau Chamberay

Homeowners Ass'n v. Assoc. Int'l Ins. Co., 90 Cal. App. 4th 335,

346 (2001) (internal quotation omitted). Further, even if an

arbitrator later awards a greater amount than the insurer offered,

the amount of that award in comparison to the amount demanded by

the insured can establish a lack of bad faith as a matter of law. 

See Rappaport-Scott v. Interinsurance Exch. of the Auto. Club, 146

Cal. App. 4th 831, 839 (2007). 

Here, the arbitrator valued Holland's loss at $39,000, which

it then offset by $20,000 for the settlement with the third party's

insurance company. The $19,000 liability the arbitrator attributed

to Westport was significantly less than the $1 million Holland

demanded.3

 This difference is far greater than the difference

between the arbitrator's finding of $63,000 in actual losses and

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the insured's claim of $346,732.34 in losses that the RappaportScott court held "demonstrates, as a matter of law, that a genuine

dispute existed as to the amount payable on the claim." Id. at 839

(emphasis in original). Holland's attempt to distinguish

Rappaport-Scott by stating that "there were no issues of lack of

serious medical investigation" in that case is both unconvincing

and factually inaccurate. Plaintiff's Opposition at 13. The

Rappaport-Scott court does not provide any information regarding

the underlying dispute leading up to arbitration and does not rely

on those facts to reach its holding. Further, as stated in the

Court's earlier orders, Holland's assertion that Westport failed

adequately to investigate his claim before denying it is

inaccurate. Westport denied Holland's demand for $1 million,

offered to settle the claim for $10,000 and continued to

investigate his claim up until the date he filed this case.

The Court finds that there was a legitimate dispute as to the

extent of Westport's liability. Therefore, the Court grants

Westport's motion for summary judgment on the bad faith claim. 

II. Intentional Infliction of Emotional Distress

Defendants also move for summary judgment on Holland's claim

for intentional infliction of emotional distress (IIED) because

Plaintiff cannot establish extreme or outrageous conduct. 

The elements of a cause of action for IIED are: (1) extreme

and outrageous conduct (2) intended to cause or done in reckless

disregard for causing (3) severe emotional distress and, (4) actual 

and proximate causation. See Cervantez v. J.C. Penney Co., Inc.,

24 Cal. 3d 579, 593 (1979). The conduct must be so extreme as to

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"exceed all bounds of that usually tolerated in a civilized

community," id., and the distress so severe "that no reasonable

[person] in a civilized society should be expected to endure it." 

Fletcher v. Western Nat. Life Ins. Co., 10 Cal. App. 3d 376, 397

(1970). 

Defendants' denial of Plaintiff's $1 million demand is not

outrageous conduct. "The good faith denial of insurance benefits

does not amount to extreme conduct that exceeds all bounds of

civility." Paulson v. State Farm Mut. Auto. Ins. Co., 867 F. Supp.

911, 919 (C.D. Cal. 1994), citing Ricard v. Pacific Indemnity Co.,

132 Cal. App. 3d 886, 894-95 (1982); Beckham v. Safeco Ins. Co. of

America, 691 F.2d 898, 904 (9th Cir. 1982). Further, as Defendants

point out, Holland has provided no evidence of any emotional

distress caused by the denial of his demand. The Court grants

Defendants' motion for summary judgment on the IIED claim. 

III. Negligent Infliction of Emotional Distress

Finally, Defendants move for summary judgment on Holland's

negligent infliction of emotion distress claim (NIED). Under

California law, NIED "is not an independent tort, but the tort of

negligence. The traditional elements of duty, breach of duty,

causation, and damages apply." Burgess v. Superior Court, 2 Cal.

4th 1064, 1072 (1992). Further, California courts have held,

"Damages for emotional suffering are allowed when the tortfeasor's 

conduct, although negligent as a matter of law, contains elements 

of intentional malfeasance or bad faith." Quezada v. Hart, 67 Cal.

App. 3d 754, 761 (1977). As stated above, the Court finds no

evidence to create a triable issue of fact regarding bad faith. 

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Further, as stated above, Holland has not provided any evidence of

emotional distress. Therefore, the Court grants Defendants' motion

for summary judgment on the NIED claim. 

IV. Motion to Amend the Arbitration Award

Defendants also move to amend the arbitration award to clarify

the award's statement that "Allstate Insurance Company has paid

Plaintiff $20,000 toward these damages, for which Westport is

entitled to a credit." Defendants seek to clarify why Westport is

entitled to this credit by adding language explaining that Holland

settled with Allstate for $25,000, that Allstate paid $20,000 to

Holland and $5,000 in medical pay subrogation to Westport, and

therefore, that Westport was entitled to a $20,000 credit toward

the damages awarded in arbitration. Because Defendants concede

that the arbitration award as currently drafted is not incorrect,

the Court denies Defendants' motion to amend the award.

CONCLUSION

For the foregoing reasons, the Court GRANTS Defendants' motion

for summary judgment and DENIES their motion to amend the

arbitration award (Docket No. 134). Judgment shall enter

accordingly. Each party shall bear its own costs. 

IT IS SO ORDERED.

 5/17/07

Dated: ________________________ 

CLAUDIA WILKEN

United States District Judge

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