Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_12-cv-02742/USCOURTS-casd-3_12-cv-02742-1/pdf.json

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

---

– 1 – 12-cv-2742 BAS (KSC)

1 

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

MILLENNIUM LABORATORIES, 

INC.,

Plaintiff,

Case No. 12-cv-2742 BAS (KSC)

ORDER

(1) DENYING DARWIN’S 

MOTION FOR 

RECONSIDERATION 

(DOC. 146)

(2) DENYING DARWIN’S 

SUPPLEMENTAL 

MOTION FOR 

RECONSIDERATION 

(DOC. 153)

v.

DARWIN SELECT INSURANCE 

CO.,

Defendant.

On May 13, 2014, the court granted Plaintiff Millennium Laboratories, Inc.’s 

motion for summary judgment. Doc. 112. The court found that “the Ameritox third 

amended complaint and the Calloway counterclaim create a ‘potential for coverage’ 

under the terms of the policy.” Order Grant Summ. J. 9:20–22.

On June 9, 2014, Defendant filed a Motion for Clarification and/or 

Reconsideration of the court’s order granting Plaintiff’s summary judgment motion. 

Doc. 146. Defendant stated the “motion does not seek to reargue issues that were 

clearly decided by the Order.” Def.’s Mot. Recons. 2:5–6. Instead, Defendant seeks 

clarification as to whether (1) the court considered extrinsic evidence beyond that 

Case 3:12-cv-02742-BAS-KSC Document 211 Filed 07/01/14 Page 1 of 5
– 2 – 12-cv-2742 BAS (KSC)

1 

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

tendered to Defendant, and (2) whether consideration of that evidence was in clear 

error.

Defendant does not cite to a statutory or precedential basis for its motion 

directly. However, Carroll v. Nakatani, 342 F.3d 934 (9th Cir. 2003), cited in their 

motion as the applicable legal standard, concerns motions for reconsideration raised 

under Federal Rules of Civil Procedure Rule 59(e). Def.’s Mot. Recons. 3:9–20. 

Thus, Defendant’s so-called “motion for clarification and/or reconsideration” will be 

treated as a motion to alter or amend judgment under Rule 59(e).

The Court considered this motion on the papers submitted and without oral 

argument. See Civ. L.R. 7.1(d.1). For the following reasons, the Court DENIES 

Defendants’ motion. Doc. 146.

I. LEGAL STANDARD

Once judgment has been entered, reconsideration may be sought by filing a 

motion under either Federal Rule of Civil Procedure 59(e) (motion to alter or amend 

a judgment) or Federal Rule of Civil Procedure 60(b) (motion for relief from 

judgment). See Hinton v. Pac. Enter., 5 F.3d 391, 395 (9th Cir. 1993).

“Although Rule 59(e) permits a district court to reconsider and amend a 

previous order, the rule offers an extraordinary remedy, to be used sparingly in the 

interests of finality and conservation of judicial resources.” Kona Enters., Inc. v. 

Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000) (internal quotation marks 

omitted). “Indeed, a motion for reconsideration should not be granted, absent highly 

unusual circumstances, unless the district court is presented with newly discovered 

evidence, committed clear error, or if there is an intervening change in the 

controlling law.” Id. (quoting 389 Orange St. Partners v. Arnold, 179 F.3d 656, 665 

(9th Cir. 1999)) (internal quotation marks omitted). Further, a motion for 

reconsideration may not be used to raise arguments or present evidence for the first 

time when they could reasonably have been raised earlier in the litigation. Id. It 

Case 3:12-cv-02742-BAS-KSC Document 211 Filed 07/01/14 Page 2 of 5
– 3 – 12-cv-2742 BAS (KSC)

1 

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

does not give parties a “second bite at the apple.” See id. Finally, “after thoughts” 

or “shifting of ground” do not constitute an appropriate basis for reconsideration. 

Ausmus v. Lexington Ins. Co., No. 08-CV-2342-L, 2009 WL 2058549, at *2 (S.D. 

Cal. July 15, 2009).

II. DISCUSSION

Defendant seeks clarification as to the basis for the court’s finding that the 

Ameritox Third Amended Complaint and the Calloway counterclaim created a 

“potential for coverage” such that its duty to defend Plaintiff was triggered. As the 

court noted in its order, “‘the insured need only show that the underlying claim may 

fall within policy coverage; the insurer must prove it cannot.’ Montrose Chem.

[Corp. v. Superior Court,] 6 Cal. 4th [287,] 300 [(1993)].” Order Grant Summ. J. 

9:23–24. The court unambiguously applies this legal standard only to the complaint 

and the counterclaim themselves. In relevant part, the court stated:

When Millennium Labs tendered its claim for coverage of the Ameritox

action under the policy, it included the text of ¶ 28, stating that 

“Millennium’s actions have evidenced its intent to do harm to 

Ameritox in the marketplace at any cost, and Millennium has instructed 

its sales reps to do the same.” (Doc No. 73-4, Ex. 20, sealed.) When 

Millennium Labs tendered its claim for coverage of the Calloway 

action, it included Calloway’s allegation that Millennium “engaged in a 

concerted plan to ‘attack’ Calloway. . . through its marketing efforts” as 

well as Calloway’s discovery responses mentioning the PowerPoint 

presentation as a basis for the counterclaim. (See Doc No. 73-4, Ex. 21, 

sealed; see also Doc. No. 75-10, Fowler Decl. Ex. D, Calloway

Answer, at 18.) Based on this information, Darwin could have 

determined that the underlying actions fell within the policy’s coverage 

of claims based on disparagement of an organization’s goods, product 

or services. Accordingly, the Court concludes that Millennium Labs 

has satisfied its burden to “show that the underlying claim may fall 

within policy coverage.” Montrose Chem. [Corp. v. Superior Court,]

6 Cal. 4th [287,] 300 [(1993)].

Order Grant Summ. J. 9:25–10:10.

Case 3:12-cv-02742-BAS-KSC Document 211 Filed 07/01/14 Page 3 of 5
– 4 – 12-cv-2742 BAS (KSC)

1 

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Insofar as any clarification is required, the court later and separately addressed the

extrinsic evidence—and therefore implicitly isolated it from the rationale for the 

court’s decision. 

The extrinsic evidence is, however, relevant in two ways. First, the legal 

standard for “potential for coverage” requires an insurer to prove the facts giving 

rise to the duty cannot possibly give rise to a coverable claim. In light of the 

extrinsic evidence, it would be impossible for Defendant to meet this burden, as all 

material elements for a disparagement claim are met here. Defendant contends this 

evidence was not available at the time of tender; Defendant is wrong. All the 

underlying acts giving rise to potential disparagement liability had already been 

perpetrated before Plaintiff tendered the claim to Defendant. This leads directly to 

the second relevant aspect of the extrinsic evidence.

Defendant’s failure to discover the extrinsic evidence highlighted in the 

court’s order may expose Defendant to tort liability. Defendant has a duty to 

perform a reasonably diligent inquiry into extrinsic evidence available at the time of 

tender. A line of California case law finds an implied covenant of good faith and 

fair dealing between insurers and insured that is breached when an insurer denies 

payments to its insured without thoroughly investigating the claim. See Egan v. 

Mutual of Omaha Ins. Co., 24 Cal.3d 809, 817–19 (1979) (denying disability 

payments to its insured without thorough investigation breaches covenant of good 

faith and fair dealing). In fact, it is unreasonable for an insurer to deny payments to 

an insured without thoroughly investigating the foundation for its denial. Id. This 

doctrine is naturally extended to an insurer’s denial of its duty to defend. See Eigner 

v. Worthington, 57 Cal.App.4th 188, 195 (1997)1. The court, when it highlighted 

 

1

“The risk that an insurer takes when it denies coverage without investigation is that the insured 

may later be able to prove that a reasonable investigation would have uncovered evidence to 

establish coverage or a potential for coverage. In that case, the insurer will be liable for the costs 

of defense already incurred by the insured [citation] and could also be exposed to tort liability. 

[Citation.]”

Case 3:12-cv-02742-BAS-KSC Document 211 Filed 07/01/14 Page 4 of 5
– 5 – 12-cv-2742 BAS (KSC)

1 

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

the extrinsic evidence arguably available if Defendant had undertaken a reasonable 

investigation, was merely implicitly opining that Defendant may have exposed itself 

to additional liability.

Under Hartford Casualty Ins. Co. v. Swift Distribution, Inc., S207172, 2014 

WL 2609753 (Cal. June 12, 2014) (“Swift”), the court could have taken such 

extrinsic evidence into consideration because it was available at the time of tender, 

if defendant had undertaken reasonable discovery.

2

All the underlying facts were available and may have been uncovered during a 

reasonable investigation. It is illogical to permit an insurer to hide its head in the 

sand and deny its duties because of its own failure to investigate. “Hear no evil, see 

no evil, speak no evil” is no defense for shirking a cognizable duty.

The remaining arguments put forth by Defendant in its motion are either not 

directly relevant to the Court reaching its conclusion, arguments that were raised 

before, or new arguments that could have reasonably been raised earlier. See Kona 

Enters., 229 F.3d at 890; Engleson, 972 F.2d at 1044; Ausmus, 2009 WL 2058549, 

at *2. Therefore, the Court need not address those arguments. See id.

III. CONCLUSION & ORDER

Because Defendant fails to demonstrate entitlement to reconsideration, the 

Court DENIES its motion. Doc. 146.

DATED: July 1, 2014

 

2

 “‘But the duty also exists where extrinsic facts known to the insurer suggest that the claim may 

be covered.’ [Citation.] This includes all facts, both disputed and undisputed, that the insurer 

knows or ‘becomes aware of’ from any source [citation] ‘if not “at the inception of the third party 

lawsuit,” then “at the time of tender”’ [Citation.].

Case 3:12-cv-02742-BAS-KSC Document 211 Filed 07/01/14 Page 5 of 5