Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-01238/USCOURTS-cand-4_04-cv-01238-3/pdf.json

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

---

United States District Court

For the Northern District of California

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

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

DEFENDANT'S MOTION

TO SET ASIDE

DEFAULT, GRANTING

PLAINTIFF'S MOTION

TO CONFIRM THE

ARBITRATION AWARD

AND DENYING

PLAINTIFF'S MOTIONS

FOR JUDGMENT ON THE

PLEADINGS AND TO

DENY DEFENDANT'S

RIGHT TO EXPERT

WITNESSES 

Defendant Claims Management Services, Inc. (CMS) moves

pursuant to Federal Rule of Civil Procedure 55(c) to set aside the

default entered by the clerk on January 5, 2007, at the request of

Plaintiff Noel Holland. Holland opposes the motion and also moves

(1) for judgment on the pleadings pursuant to Federal Rule of Civil

Procedure 12(c) and (2) for an order that Defendant Westport

Insurance Company (Westport) has waived its right to have an expert

Case 4:04-cv-01238-CW Document 145 Filed 03/28/07 Page 1 of 10
United States District Court

For the Northern District of California

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

1

Holland also moves the Court to confirm the arbitration award

entered on July 27, 2006 and to enter judgment. Defendants have

filed a statement of non-opposition and proof that they have

already satisfied the arbitrator's award. The Court grants

Holland's motion to confirm the arbitration award. 

2

witness review Holland's medical records.1 Defendants CMS and

Westport oppose Holland's motions. The matters were taken under

submission on the papers. Having reviewed all of the papers

submitted by the parties, the Court grants Defendant CMS's motion

to set aside the default and denies Holland's motions for judgment

on the pleadings and to preclude Defendants from using an expert

witness.

BACKGROUND

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 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. Five

thousand dollars of that settlement was paid by Allstate to

Westport on a subrogation claim. 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 28, 2003, after receiving the $25,000 settlement

Case 4:04-cv-01238-CW Document 145 Filed 03/28/07 Page 2 of 10
United States District Court

For the Northern District of California

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

2

Westport paid $5,000 directly to the physical therapist

treating Holland.

3This 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. 

3

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 subrogation2 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 accepted his claim before November 24,

2003.3 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

21. 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 denied Holland's claim. Id. Although it denied the

demand for $1 million, there is evidence in the record that CMS

Case 4:04-cv-01238-CW Document 145 Filed 03/28/07 Page 3 of 10
United States District Court

For the Northern District of California

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 4

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 22. The 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 the initial trip to the emergency room. Id.

Defendants state that Holland has not responded to the letter. 

Westport continued to investigate Holland's claim, arranging

for independent medical evaluations with an orthopedist, an

internist and a psychiatrist. Addy Declaration, Exhibit 23. 

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. He

does not produce any evidence to support this contention.

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, or 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 second cause of action against CMS,

Case 4:04-cv-01238-CW Document 145 Filed 03/28/07 Page 4 of 10
United States District Court

For the Northern District of California

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 5

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

resolved, 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 remaining bad faith and intentional and negligent

infliction of emotional distress claims in the FAC. On October 20,

2006, counsel for Defendants filed an answer on behalf of Westport. 

On January 3, 2007, Holland filed his motions presently before the

Court and on January 4, he filed a motion for entry of default

judgment. On January 5, the clerk entered default judgment against

CMS and CMS filed the present motion to set aside the default. 

DISCUSSION

I. Motion to Set Aside Default Judgment

The Court may set aside an entry of default “for good cause

shown.” Fed. R. Civ. P. 55(c). The standards for good cause to

set aside an entry of default are the same as the standards to set

aside a default judgment pursuant to Rule 60, Chrysler Credit Corp.

v. Macino, 710 F.2d 363, 367 (7th Cir. 1983), although they should

be applied more leniently in the Rule 55 context. Meehan v. Snow,

652 F.2d 274, 276 (2d Cir. 1981). Rule 60 permits the Court to set

Case 4:04-cv-01238-CW Document 145 Filed 03/28/07 Page 5 of 10
United States District Court

For the Northern District of California

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 6

aside a default judgment for reasons of “mistake, inadvertence,

surprise, or excusable neglect,” among other reasons not relevant

here. F.R.C.P. 60(b)(1). The Ninth Circuit has directed district

courts to consider several factors when determining whether to

exercise their discretion to set aside a default judgment:

(1) the possibility of prejudice to the plaintiff,

(2) the merits of plaintiff’s substantive claim, 

(3) the sufficiency of the complaint,

(4) the sum of money at stake in the action,

(5) the possibility of a dispute concerning material facts,

(6) whether the default was due to excusable neglect,

(7) the strong policy underlying the Federal Rules of Civil

Procedure favoring decisions on the merits.

Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Default

judgments are generally disfavored. Id. at 1472. 

Defendant CMS moves to set aside the default judgment entered

against it, arguing that it failed to answer the complaint against

it because its counsel mistakenly believed that all remaining

claims had been dismissed against it. However, the Court only

dismissed the second cause of action for breach of the covenant of

good faith and fair dealing against CMS. Holland argues that the

Court should deny CMS's motion to set aside the default judgment

for three reasons. 

Holland first argues that CMS's failure to file an answer

"constitutes culpable conduct" because CMS clearly had notice of

the action against it and the decision not to file an answer was a

willful and strategic act. This argument is primarily based on

Holland's contention that Defendants' counsel's explanation for the

failure to file was not adequate. However, the Court finds that

counsel's explanation of his mistaken belief that the claims

Case 4:04-cv-01238-CW Document 145 Filed 03/28/07 Page 6 of 10
United States District Court

For the Northern District of California

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 7

against CMS had been dismissed is sufficient to meet the lenient

standard of "good cause" needed to establish that a disfavored

default judgment should be set aside. 

Holland next argues that CMS lacks a meritorious defense to

the claims against it, alleging that Defendants have admitted that

they denied his claim without investigation in violation of

California state law. However, Defendants admit only that they

"denied the demand of the policy limits of one million dollars

based on the information provided by plaintiff as an amount [that]

exceeded the reasonable value of the case based on their experience

and training." Allen Declaration ¶ 19. Further, Defendants

maintain and provide evidence that they continued to investigate

Holland's claim after denying the $1 million payment. 

Finally, Holland asserts that he will be prejudiced if CMS is

allowed to file its answer now. However, Holland primarily

reiterates his claim that CMS acted culpably in deciding not to

answer the complaint. As stated above, the Court accepts CMS's

counsel's explanation that he mistakenly believed that all claims

had been dismissed against CMS and therefore it need not answer the

complaint. Further, Holland's only suggestion of prejudice is that

allowing CMS to file an answer will delay the case and increase the

cost of litigation. It is not clear how setting aside the default

will cause either a delay in litigation or any increase in cost for

Holland above and beyond the normal cost of litigation. The claims

against CMS are the same as claims against Westport, and Holland

will have to make similar showings against them both. Further, the

Ninth Circuit has held, "To be prejudicial, the setting aside of a

Case 4:04-cv-01238-CW Document 145 Filed 03/28/07 Page 7 of 10
United States District Court

For the Northern District of California

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 8

judgment must result in greater harm than simply delaying

resolution of the case." TCI Group Life Ins. Plan v. Knoebber, 244

F.3d 691, 701 (9th Cir. 2001).

The Court finds that CMS has demonstrated that default was

entered against it because of its counsel's excusable mistake. 

Further, Holland has not demonstrated that there is any reason not

to grant the motion to set aside the default. CMS appears to have

valid defenses to Holland's claims, and his argument of prejudice

is unavailing. The Court grants CMS's motion to set aside the

default judgment. 

II. Judgment on the Pleadings

Federal Rule of Civil Procedure 12(c) provides, "After the

pleadings are closed but within such time as not to delay the

trial, any party may move for judgment on the pleadings." Judgment

on the pleadings is proper when the moving party clearly

establishes on the face of the pleadings that no material issue of

fact remains to be resolved and that it is entitled to judgment as

a matter of law. Hal Roach Studios, Inc. v. Richard Feiner & Co.,

Inc., 896 F.2d 1542, 1550 (9th Cir. 1990). In considering a motion

for judgment on the pleadings, the Court must accept the

allegations of the non-moving party as true; the allegations of the

moving party which have been denied are assumed to be false. Id.

Holland moves for judgment on the pleadings, alleging that

Defendants have admitted that CMS denied his claim for benefits

without investigation. However, as discussed above Holland

misrepresents Defendants' statements. Defendants did not admit

that they denied Holland's claim without investigation. This is a

Case 4:04-cv-01238-CW Document 145 Filed 03/28/07 Page 8 of 10
United States District Court

For the Northern District of California

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 9

material question of fact that precludes the grant of judgment on

the pleadings. See Hal Roach Studios, 896 F.2d 1542, 1550 (9th

Cir. 1990). 

III. Waiver of Right to Expert Witnesses

Finally, Holland claims that Defendants have waived their

right to have medical experts review his medical files to support

their positions in this case based on his assertion that Defendants

failed to investigate his claim before denying it. Again, this

argument is based on Holland's unsupported assertion that

Defendants denied his claim without investigation. Further,

Holland's position is not legally supportable. 

Holland relies on McLaughlin v. Connecticut General Life

Insurance Company, 565 F. Supp. 434, 452 (N.D. Cal. 1983) for his

waiver argument. McLaughlin, which interprets California law, only

found that an insurance company that denied a claim for a single

reason and did no investigation could not raise additional defenses

on summary judgment. Even if the holding in McLaughlin could

support an argument that Defendants have waived their right to

expert witnesses, the strict rule applied in that case has been

rejected by both the Ninth Circuit and the California Supreme

Court. See Intel Corp. v. Hartford Acc. & Indem. Co., 952 F.2d

1551, 1559 (9th Cir. 1991); Waller v. Truck Ins. Exchange, Inc., 11

Cal. 4th 1, 33 (1995). The Court denies Holland's motion.

CONCLUSION

For the foregoing reasons, the Court GRANTS Defendant CMS's

motion to set aside the default judgment (Docket No. 100), GRANTS

Holland's motion to confirm the arbitration award (Docket No. 107),

Case 4:04-cv-01238-CW Document 145 Filed 03/28/07 Page 9 of 10
United States District Court

For the Northern District of California

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

4

Defendants' objections to the Berenahu declarations are

DENIED as moot. The Court did not consider any improper or

inadmissible evidence. 

10

DENIES Holland's motion for judgment on the pleadings (Docket No.

92), and DENIES Holland's motion to preclude Defendants from using

an expert witness (Docket No. 87).4

Defendant CMS shall file its answer within five days of this

order and shall abide by the case management schedule previously

set.

IT IS SO ORDERED.

3/28/07

Dated: ________________________ 

CLAUDIA WILKEN

United States District Judge

Case 4:04-cv-01238-CW Document 145 Filed 03/28/07 Page 10 of 10