Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-01276/USCOURTS-cand-3_06-cv-01276-6/pdf.json

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

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

FRANK GHIGLIONE and RODGERS

TRUCKING, 

Plaintiffs,

 v.

DISCOVER PROPERTY AND CASUALTY

COMPANY, DISCOVER MANAGERS, INC.,

and DOES 1 through 10, inclusive,

Defendants. 

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No. C-06-1276 SC

ORDER GRANTING

DEFENDANTS' MOTION

FOR SUMMARY JUDGMENT

I. INTRODUCTION

Plaintiffs Frank Ghiglione and Rodgers Trucking

("Plaintiffs") brought this action against Discover Property and

Casualty Company et al. ("Discover" or "Defendants") alleging

breach of contract and breach of the covenant of good faith and

fair dealing based on Discover's conduct during its defense of

Rodgers Trucking in a prior lawsuit. See Complaint, Ex. A. 

Presently before the Court is Defendants' Motion for Summary

Judgment. For the reasons stated herein, the Court hereby GRANTS

Defendants' Motion for Summary Judgment. The Court also AWARDS

Defendants' costs, subject to the Court's approval of Defendants'

offer of proof to be submitted within 30 days of this order.

II. BACKGROUND

In 2003, Rodgers Trucking was insured by Defendant Discover

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Property and Casualty Company under a $1 million automobile

liability policy. On May 9, 2003, a Rodgers Trucking vehicle

struck Mr. Eliseo Soria ("Soria") while he was riding a bicycle. 

The police report stated that the truck driver caused the

collision. See Tarkoff Decl., Ex. M. Soria suffered significant

injuries and subsequently sued Rodgers Trucking in state court,

claiming several million dollars in damages.

After the accident, the insurance broker for Rodgers Trucking

reported the accident to Don Bullock at The Murata Group, the

third-party administrator ("TPA") for the claim. The TPA hired

Arenas Claims Consulting to investigate the accident. Arenas

conducted a scene investigation on May 16, 2003 and produced a

written report on May 27, 2003. See Tarkoff Decl., Ex. C, Bullock

Depo., 17-18. The TPA also retained Lenore Defiesta as defense

counsel in anticipation of Soria filing a lawsuit. See id. at 23-

24, 28-29. While investigating the claim, Discover authorized the

hiring of multiple experts to analyze the accident and approved

over $150,000 in defense costs. See id. at 34, 54. 

Defendants made several attempts to settle the case. On July

9, 2004, Defendants sent Soria three structured settlement

proposals prepared by the Bridge Settlement Corporation. See

Korte Decl., Ex. 3. Soria rejected the offers. See Bullock

Decl., ¶ 4. In addition, the parties engaged in multiple

mediation sessions before four different mediators. See Tarkoff

Decl., Ex. A, Korte Depo., 22, 29, 32, 49. During the settlement

negotiations Soria never made a demand at or below the policy

limits. See id. at 58-59. Each of the mediators suggested that

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Rodgers Trucking would have to make a monetary contribution to

facilitate settlement because the insurance policy was not large

enough to constitute a sufficient payment to Soria. See id. at

100-101. 

Subsequently, when it appeared likely that the case would go

to trial, Defendants authorized the hiring of an additional

attorney, Kevin Cholakian, to be the lead trial attorney. See id.

at 111. Mr. Korte, the attorney for Rodgers Trucking, was

satisfied that the new attorney provided adequate representation. 

See id.

Immediately prior to trial, the parties settled the Soria

case for $1.2 million. Defendants agreed to pay $1 million, the

full value of the insurance policy, and Rodgers Trucking agreed to

pay the remaining balance of $200,000.00. See Tarkoff Decl., Ex.

B, Ghiglione Depo., 22; Korte Decl., Ex. 12. At deposition, Frank

Ghiglione agreed that when considering the final settlement

proposal he was not pressured by Discover or its attorneys. See

Ghiglione Depo., 32-33. Ghiglione made the decision to settle

after discussing the matter with Mr. Korte. See id. at 51.

 

III. LEGAL STANDARD

Summary judgment is appropriate only "if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact." Celotex Corp. v. Catrett,

477 U.S. 317, 322 (1986). A genuine issue of fact exists when the

non-moving party produces evidence on which a reasonable trier of

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fact could find in its favor viewing the record as a whole in

light of the evidentiary burden the law places on that party. 

See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252-56 (1986). 

Summary judgment is therefore appropriate against a party "who

fails to make a showing sufficient to establish the existence of

an element essential to the party's case, and on which that party

will bear the burden of proof at trial." Celotex, 477 U.S. at

322-23. The more implausible the claim or defense asserted by the

opposing party, the more persuasive its evidence must be to avoid

summary judgment, see Matsushita Electric Industrial Co. v. Zenith

Radio Corp., 475 U.S. 574, 587 (1986), but "[t]he evidence of the

non-moving party is to be believed, and all justifiable inferences

are to be drawn in its favor." Anderson, 477 U.S. at 255.

Defendants removed this case to federal court under 28 U.S.C.

§ 1441(b). Accordingly, this Court must apply California

substantive law to Plaintiffs' claims. See Erie RR v. Tompkins,

304 U.S. 64, 78 (1938). 

IV. DISCUSSION

A. Defendants' Duties as Insurer

The parties agree that Discover had a general duty to defend

Rodgers Trucking against Soria's claims. Upon learning of a

potential claim against the policyholder, "the insurer has a duty

to defend the insured in any action brought against the insured

seeking damages for any covered claim." Buss v. Superior Court,

939 P.2d 766, 773 (1997). The duty to defend "entails the

rendering of service, viz., the mounting and funding of a defense

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. . . in order to avoid or at least minimize liability." Id. The

general duty to defend includes the obligation to defend the

action immediately and in its entirety. See id. at 775. 

In addition, the insurer has a number of specific

responsibilities:

(1) to make immediate inquiry into the facts of any serious

accident as soon as practicable after its occurrence; (2) on

the filing of suit against its assured to employ competent

counsel to represent the assured and to provide counsel with

adequate funds to conduct the defense of the suit; (3) to

keep abreast of the progress and status of the litigation in

order that it may act intelligently and in good faith on

settlement offers.

Merritt v. Reserve Insurance Co., 110 Cal. Rptr. 511, 527 (Cal.

Ct. App. 1973). Defendants agree that they had the duty to

inquire immediately into the facts of the case, hire competent

counsel, provide counsel with adequate funding, and keep abreast

of the progress of the litigation. The Court finds that

Defendants fulfilled each of their duties.

Defendants satisfied the duty of immediate inquiry by taking

prompt action upon learning of the accident. The Soria accident

occurred on Friday, May 9, 2003. See Tarkoff Decl., Ex. M. On

Monday, May 12, Ron Mathews, the insurance broker for Rodgers

Trucking, reported the accident to the TPA who immediately hired

Arenas Claims Consulting to investigate the accident. See id.,

Ex. I. Arenas performed a full investigation of the scene and

produced a report on May 27, 2003. See id., Ex. C. By quickly

contacting and hiring the investigators, Defendants met their duty

to make immediate inquiry into the facts of the Soria accident.

Defendants also satisfied the duty to hire competent counsel. 

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Before Soria filed his personal injury claim, the TPA retained

Lenore Defiesta as defense counsel for Rodgers Trucking. See id.,

Ex. C at 24, 28-29. The TPA had worked with Defiesta on prior

insurance defense matters. See id., Ex. C. at 24. In other

cases, Defiesta served as defense counsel in five jury trials,

four of which involved personal injury claims. See Korte Decl.,

Ex. 13. Based upon this information and the other documents

attached to the Korte Declaration, the Court finds that Lenore

Defiesta was competent counsel for the Soria case. Moreover,

Defendants authorized the hiring of Kevin Cholakian as an

additional trial attorney when the case appeared headed to trial. 

See Korte Depo. at 111. Even Plaintiffs' personal counsel, Mr.

Korte, agreed that Cholakian was capable of adequately

representing Rodgers Trucking. See id. 

Defendants also provided adequate funding to the

investigators and defense attorneys. While defending Rodgers

Trucking, Discover authorized expenses for investigation and

litigation that exceeded $150,000. See Tarkoff Decl., Ex. C at

54. Based on the recommendation of counsel, the TPA and

Discover's claim representative authorized the retention of

multiple defense experts. See id. at 34. Both Plaintiff

Ghiglione and Mr. Korte confirmed that every recommendation they

made regarding defense activity was approved by Defendants. See

Korte Depo. at 61-62; Ghiglione Depo. at 76. In light of

Discover's approval of all requested and relevant expenses,

Defendants satisfied their duty to provide counsel with adequate

funds to defend the Soria suit.

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Defendants also satisfied their duty to keep sufficiently

abreast of the progress of the litigation. The TPA and

Defendants' attorneys continued to refine their understanding of

the case through additional investigation and participation in

numerous mediation sessions. See Korte Decl., Ex. 8; Korte Depo.

at 22, 29, 32, 49. Indeed, approaching trial, attorney Cholakian

produced a comprehensive Pre-Trial Report which summarized the

facts of the case and analyzed the potential outcomes. See

Tarkoff Decl., Ex. E. Thus, Defendants acted in good faith and

satisfied their duty to remain informed of the progress of the

litigation.

Plaintiffs assert that Defendants failed to meet their duty

to employ competent counsel. Plaintiffs' primary complaints

center around the timing of defense counsel's decision to reveal

the $1 million policy limit to Soria in the hopes of settling the

case. Plaintiffs claim that this "placed stars in the eyes of the

injured party and fear in the plaintiff" despite the fact that the

limits of insurance coverage are discoverable under California

law. Opp'n, 6; see Cal. Civ. Proc. Code § 2017.210. Though

Plaintiffs disagree with some of defense counsel's strategic

decisions and the timing of certain disclosures, they have not

shown that Defendants should be liable for any alleged mistakes. 

California courts have stated that insurance companies are

not liable for the potential missteps of retained counsel. "We do

not accept the claim that vicarious liability falls on one who

retains independent trial counsel to conduct litigation on behalf

of a third party when retained counsel has conducted the

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litigation negligently." Merritt, 110 Cal. Rptr. at 526. Thus,

even assuming that defense counsel was negligent, Discover would

not be liable for the conduct of Defiesta or Cholakian.

In our view independent counsel retained to conduct

litigation in the courts act in the capacity of independent

contractors, responsible for the results of their conduct and

not subject to the control and direction of their employer

over the details and manner of their performance. 

Id. Moreover, even the retained attorneys are not legally

responsible for good faith mistakes.

In view of the complexity of the law and the circumstances

which call for difficult choices among possible courses of

action, the attorney cannot be held legally responsible for

an honest and reasonable mistake of law or an unfortunate

selection of remedy or other procedural step. 

Banerian v. O'Malley, 116 Cal. Rptr. 919, 925 (Cal. Ct. App.

1974). In light of the relevant precedent, the Court finds that

Defendants are not liable for the alleged mistakes described by

Plaintiffs. During the course of the investigation and

litigation, defense counsel acted competently and in good faith. 

Though Plaintiffs' counsel might have tried the case differently,

the conduct of defense counsel does not give rise to liability.

B. Plaintiffs' Cumis Claim

Plaintiffs assert that their personal counsel, Mr. Korte

should have been retained by Defendants as cumis, or independent

counsel. Under California law, the duty to appoint independent

counsel materializes when a conflict of interest arises between

the insurer and insured. See Cal. Civ. Code § 2860(a). However,

"[n]o conflict of interest shall be deemed to exist . . . solely

because an insured is sued for an amount in excess of the

insurance policy limits." Cal. Civ. Code § 2860(b). Thus, the

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fact that Rodgers Trucking was sued for an amount greater than the

$1 million liability policy does not, in itself, give rise to a

duty to appoint independent counsel. "A mere possibility of an

unspecified conflict does not require independent counsel. The

conflict must be significant, not merely theoretical, actual, not

merely potential." Dynamic Concepts, Inc. v. Truck Insurance

Exchange, 71 Cal. Rptr. 2d 882, 887 (Cal. Ct. App. 1998). During

litigation of the Soria case, no conflict of interest arose

between Rodgers Trucking and Discover. At all times, Soria's

demands exceeded the $1 million limit on Rodgers Trucking's

liability policy. As such, "it was to the advantage of both

appellant and respondent to minimize appellant's underlying

liability." Blanchard v. State Farm Fire & Casualty Co., 2 Cal.

Rptr. 2d 884, 887 (Cal. Ct. App. 1991). On the eve of trial, when

Soria proposed to settle the case for $1.2 million and Plaintiffs

were willing to contribute the $200,000.00 over the policy limits,

Discover willingly agreed to pay the full amount of the policy. 

In the relevant precedent, proper claims for appointment of

independent counsel or bad faith involve the insurer's refusal to

settle. See J.B. Aguerre, Inc. v. American Guarantee and

Liability Insurance Co., 68 Cal. Rptr. 2d 837, 841 (Cal. Ct. App.

1997). Where, as here, the insurer readily agreed to pay the full

amount of the liability policy in order to settle the case, a

conflict of interest did not arise and Defendants were not

obligated to appoint Mr. Korte as independent counsel.

C. Plaintiffs' Decision to Settle 

Plaintiffs' final contention is that Defendants breached the

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covenant of good faith and fair dealing by coercing Plaintiffs

into settling the case and contributing $200,000.00. To prove

this claim, Plaintiffs must show that Defendants were

"unreasonably coercing an insured to contribute to a settlement

fund." Id. at 842. Contrary to Plaintiffs' assertions, the

record contains no evidence of coercion. In their depositions,

both Mr. Ghiglione and Mr. Korte stated that they discussed

settling the case without any input or pressure from Discover or

defense counsel Defiesta and Cholakian. See Korte Depo. at 52-53;

Ghiglione Depo. at 31-33. The settlement discussions between

Ghiglione, Korte, and Soria's attorney occurred on a Sunday, two

days after the case was assigned to trial and without input from

defense counsel. See Korte Depo. at 41; Korte Decl., Ex. 12. Mr.

Ghiglione testified that he made the decision to settle in order

to eliminate the risk that Rodgers Trucking would be found liable

for a higher amount at trial. See Ghiglione Depo. at 66. Mr.

Ghiglione's decision to contribute $200,000.00 to the settlement

came after Defendants made diligent efforts to settle the case

within the $1 million policy limit, but found this impossible in

light of Soria's demands. See id. at 80. Mr. Korte testified

that Soria never made a settlement demand of less than $1 million

and all the neutral mediators opined that a contribution from

Rodgers Trucking would be necessary for settlement. See Korte

Depo. at 58, 100-01. The testimony of Ghiglione and Korte

indicates that Defendants never coerced Plaintiffs into settling

or making a contribution to the case. As a result, Plaintiffs'

claims that Defendants unreasonably coerced a settlement fail as a

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matter of law. 

V. CONCLUSION

For the reasons described herein, the Court GRANTS

Defendants' Motion for Summary Judgment. The Court also AWARDS

Defendants' costs, subject to the Court's review and approval of

Defendants' offer of proof to be submitted within 30 days of this

order.

IT IS SO ORDERED.

Dated: March 29, 2007

 

UNITED STATES DISTRICT JUDGE

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