Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_13-cv-02060/USCOURTS-cand-5_13-cv-02060-17/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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 JOINT PRE-TRIAL CONFERENCE STATEMENT; 

CASE NO. 5:13-CV-02060-BLF 

FOLGER LEVIN LLP

Roger B. Mead (CSB No. 093251, rmead@folgerlevin.com) 

199 Fremont Street, 20th Floor 

San Francisco, CA 94105 

Telephone: 415.625.1050 

Facsimile: 415.625.1091 

FENTON & KELLER 

Mark A. Cameron (CSB No. 111370, mcameron@fentonkeller.com)

2801 Monterey-Salinas Highway 

Post Office Box 791 

Monterey, CA 93942-0791 

Telephone: 831.373.1241 

Facsimile: 831.373.7219 

Attorneys for Plaintiffs Robert Feduniak and Maureen Feduniak 

HENNELLY & GROSSFELD LLP 

Paul T. Martin (CSB No. 155367, pmartin@hgla.com)

Ronald K. Giller (CSB No. 142733, rgiller@hgla.com)

Sheila Wirkus Pendergast (CSB No. 251562, spendergast@hgla.com)

4640 Admiralty Way, Suite 850 

Marina del Rey, CA 90292 

Telephone: 310.305.2100 

Facsimile: 310.305.2116 

Attorneys for Defendant Old Republic National Title Insurance Company 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN JOSE DIVISION 

ROBERT FEDUNIAK AND MAUREEN 

FEDUNIAK, 

Plaintiff, 

v. 

OLD REPUBLIC NATIONAL TITLE 

INSURANCE COMPANY, et al., 

Defendants. 

Case No. 5:13-cv-02060-BLF 

JOINT PRE-TRIAL CONFERENCE 

STATEMENT 

In accordance with the Court’s April 10, 2014 Standing Order Re Final Pretrial 

Conference – Jury Trial, the parties respectfully submit this Joint Pretrial Statement and Order. 

ORDER A'237ING

AS MODIFIED BY

THE COURT

Case 5:13-cv-02060-BLF Document 194 Filed 07/01/15 Page 1 of 22
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-2- JOINT PRE-TRIAL CONFERENCE STATEMENT; 

CASE NO. 5:13-CV-02060-BLF 

I. The Action 

A. The Parties: 

Plaintiffs: Robert Feduniak and Maureen Feduniak, individuals who reside in Las Vegas, 

Nevada. 

Defendant: Old Republic National Title Insurance Company, a corporation organized 

under the laws of the State of Minnesota with its principal place of business in Minnesota. 

B. Substance of the Action: 

This case arises out of a policy of title insurance (the “Policy”) issued by Defendant Old 

Republic National Title Insurance Company to Plaintiffs Robert and Maureen Feduniak in 

connection with the Plaintiffs’ purchase, in late 2000, of a residential property on 17-Mile Drive 

in Pebble Beach, California (the “Property”), for $13 million. Subsequent to their purchase of the 

Property, in August 2001, the Plaintiffs learned that the Property was encumbered with a 

conservation easement (the “Easement”) and that the development on the Property violated the 

Easement. The Policy did not exempt the Easement from coverage. 

Plaintiffs’ First Amended Complaint asserts three causes of action. 

1. First Cause of Action. 

The First Cause of Action seeks recovery of the difference between the value of the 

Property “as insured” (that is, the value of the Property if it were not encumbered by the 

Easement) and the value of the Property as encumbered by the Easement (“Diminution in Value 

Compensation”). Defendant does not dispute that it is obligated to pay Plaintiffs Diminution in 

Value Compensation, but asserts that its prior payments to Plaintiffs totaling $1.5 million reflect 

the full difference between the value of the Property “as insured” and the value of the Property as 

encumbered by the Easement as of August 2001, which was when Plaintiffs discovered the 

Easement. Accordingly, the only element of the claim to be tried is the amount of the Diminution 

in Value Compensation. 

2. Second Cause of Action. 

a. Plaintiffs’ Position. 

Plaintiffs’ Second Cause of Action asserts a claim under Section 4(b) of the Policy and 

Case 5:13-cv-02060-BLF Document 194 Filed 07/01/15 Page 2 of 22
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-3- JOINT PRE-TRIAL CONFERENCE STATEMENT; 

CASE NO. 5:13-CV-02060-BLF 

seeks recovery of approximately $1 million in expenses that the Plaintiffs incurred as a result of 

efforts to mitigate the effects of the Easement on the value of the Property, including expenses 

incurred defending litigation brought against the Plaintiffs by the California Coastal Commission. 

As set forth in the Court’s Order Granting in Part & Denying in Part Defendant’s Motion for 

Summary Judgment and in its Order Denying Defendant’s Motion to Dismiss, the elements of 

such a claim are proof (a) that Old Republic made an “election under § 4(b) to support submission 

of an alternative mitigation plan;” (b) that “such further election under § 4(b) and the Feduniaks’ 

conduct in pursuit of such election, [caused] the Coastal Commission’s lawsuit;” and (c) that 

Plaintiffs were thereby harmed. See Order Granting in Part & Denying in Part Defendant’s 

Motion for Summary Judgment at 15-16 (identifying elements); Order Denying Motion to 

Dismiss at 4 (same). 

b. Defendant’s Position. 

Defendant’s position is that according to Plaintiffs’ second claim for relief in their first 

amended complaint, Plaintiffs seek reimbursement of costs incurred in defending the action that 

the Coastal Commission commenced against Plaintiffs (the “Coastal Commission Action”). 

According to Plaintiffs’ pleading, Plaintiffs claim that under Section 4(b) of the Policy, Defendant 

approved and supported the submission of two alternative restoration plans and that as a 

consequence, the Coastal Commission commenced the Coastal Commission Action. (First Am. 

Compl. ¶¶ 27-30.) 

Based on Plaintiffs’ allegations, Defendant does not agree that Plaintiffs’ second claim for 

relief seeks recovery (or, as a matter of law, could seek recovery) of expenses “incurred as a 

result of efforts to mitigate the effects of the Easement on the value of the Property” or that 

Plaintiffs could recover all such expenses based on a determination that “the mitigation efforts 

were undertaken with the approval and support of Defendant pursuant to Section 4(b) of the 

Policy.” Nothing in Section 4(b) or any other provision of the Policy permits an insured to incur 

expenses and to seek reimbursement of those expenses from Defendant. The policy provides for 

the payment of diminution in value caused by a defect, lien or encumbrance on title and for the 

payment of attorney’s fees and expenses incurred in defense of the title. 

Case 5:13-cv-02060-BLF Document 194 Filed 07/01/15 Page 3 of 22
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-4- JOINT PRE-TRIAL CONFERENCE STATEMENT; 

CASE NO. 5:13-CV-02060-BLF 

The elements of a claim for breach of contract are: 

1. The Plaintiffs and Defendant entered into a contract; 

 2. The Plaintiffs did all, or substantially all, of the significant things that the 

contract required them to do; 

 3. All conditions required by the contract for Defendant's performance had 

occurred; 

 4. Defendant failed to do something that the contract required it to do; 

 5. The Plaintiffs were harmed by that breach. 

 Defendant’s position is that Defendant has no obligation under the Policy to pay for 

Plaintiffs’ defense of the Coastal Commission Action, and should not be liable for a breach of the 

Policy based on Plaintiffs’ allegations. As the Court has ruled, the Coastal Commission Action 

did not allege a claim adverse to the Feduniaks’ title. Accordingly, the Policy does not obligate 

Old Republic to reimburse the Feduniaks for the cost of defending that case. Contrary to the 

Feduniaks’ allegations, Section 4(b) merely requires Defendant to act without delay when it takes 

action to establish title as insured or to prevent or reduce loss or damage to an insured. It does not 

require Defendant to defend or settle actions against an insured that are not covered by Section 

4(a) the Policy. Indeed, Section 4(b) does not impose any duty to defend at all—the only duty to 

defend appears in Section 4(a).1 

Even if Defendant could be liable for breaching the Policy by approving and supporting 

Plaintiffs’ submission of an alternative mitigation plan, Defendant did not make an election under 

Section 4(b) of the Policy. Accordingly, Defendant’s obligation to act diligently did not arise. 

Plaintiffs admit that it was their choice to submit alternative mitigation plans, and it was their 

actions and their own attorneys’ actions that caused the Coastal Commission to sue them. After 

the Coastal Commission gave Plaintiffs a deadline to comply with its orders, Plaintiffs chose to 

submit two alternative plans and to continue maintaining the golf course. Defendant did not 

 

1

 The Court has already granted Defendant’s motion for summary judgment that Defendant had 

no duty to defend the Coastal Commission Action because it alleged post-policy conduct by 

Plaintiffs and did not allege a claim adverse to their title. 

Case 5:13-cv-02060-BLF Document 194 Filed 07/01/15 Page 4 of 22
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-5- JOINT PRE-TRIAL CONFERENCE STATEMENT; 

CASE NO. 5:13-CV-02060-BLF 

pursue this course of action. This was Plaintiffs’ plan and they carried it out. Defendant did not 

submit the plans or interface with the Coastal Commission in any way. Plaintiffs did not seek 

input from Defendant, they did not involve Defendant in the process, nor did they keep Defendant 

informed of the status of their efforts to comply with the Coastal Commission’s Orders or to 

obtain approval of an alternative mitigation proposal. If anyone’s conduct caused the Coastal 

Commission to file suit against the Feduniaks for violation of the orders, it was the Feduniaks 

themselves and their attorneys. 

Moreover, even if Defendant had made an election under Section 4(b) of the Policy, 

Defendant is not responsible for Plaintiffs’ damages because the submission of the alternative 

restoration plan did not cause Plaintiffs any damages. In the Coastal Commission Action, the 

Coastal Commission alleged that Plaintiffs continued to water and mow the lawn in violation of 

the orders. The Coastal Commission alleged that Plaintiffs did not submit any plan that complied 

with the orders. The case did not turn on the alternative mitigation proposal. The Feduniaks 

prevailed in the trial of that case because they proved to the court that their original restoration 

plan complied with the restoration order. Defendant did not do anything to cause the Coastal 

Commission to sue Plaintiffs. Even under plaintiffs’ interpretation of Section 4(b) of the Policy, 

Old Republic has no liability for the defense of that case. 

In addition to disproving the elements of Plaintiffs’ second claim for relief, Defendant will 

rely on the following defenses that are included in Defendant’s answer to the first amended 

complaint: failure to state a claim upon which relief may be granted, insured’s conduct, 

contributory and comparative fault of others, performance excused, post-policy conduct, 

economic loss rule, speculative damages and no title defect. 

3. Third Cause of Action. 

a. Plaintiffs’ Position. 

Plaintiffs’ Third Cause of Action seeks damages for breach of the covenant of good faith 

and fair dealing. Plaintiffs allege that when the Coastal Commission commenced litigation 

against the Plaintiffs as a result of the efforts to mitigate the effects of the Easement on the value 

of the Property, seeking civil fines and penalties in excess of $25 million, Defendant abandoned 

Case 5:13-cv-02060-BLF Document 194 Filed 07/01/15 Page 5 of 22
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-6- JOINT PRE-TRIAL CONFERENCE STATEMENT; 

CASE NO. 5:13-CV-02060-BLF 

Plaintiffs, denying any involvement in or responsibility for the mitigation efforts and their 

consequences. The elements of the claim are that (1) Plaintiffs were insured under an insurance 

policy with Defendant; (2) that pursuant to Section 4(b) of the Policy Defendant supported and 

approved efforts to mitigate the effects of the Easement on the value of the Property; (3) that 

Defendant abandoned Plaintiffs following the filing of the Coastal Commission lawsuit; (4) 

Plaintiffs were harmed; and (5) Defendant’s conduct was a substantial factor in causing Plaintiffs’ 

harm. See Order on Summary Judgment at 18. 

b. Defendants’ Position 

Defendant’s position is that Plaintiffs’ third claim for relief in their first amended 

complaint is that Defendant breached the implied covenant of good faith and fair dealing because 

Defendant “declined to participate in efforts to settle the Commission Lawsuit or to pay any of 

the costs associated with the lawsuit, deliberately abandoning the Plaintiffs when the strategy to 

pursue alternative mitigation” led the Commission to sue plaintiffs. (First Amended Complaint 

¶¶ 18, 20.) 

Based on Plaintiffs’ allegations, Defendant does not agree that Plaintiffs’ third claim for 

relief could as a matter of law support recovery of damages for a breach of the implied covenant 

of good faith and fair dealing based on Defendant’s “den[ial] [of] any involvement in or 

responsibility for the mitigation efforts and their consequences.” Defendant further denies that it 

can be liable for a breach of the implied covenant of good faith and fair dealing based on the 

elements cited by Plaintiffs, specifically including that under “Section 4(b) of the Policy 

Defendant supported and approved efforts to mitigate the effects of the Easement on the value of 

the Property.” 

The elements of a claim for breach of the covenant of good faith and fair dealing are: 

 1. That the Feduniaks suffered a loss covered under an insurance policy with 

Old Republic; 

 2. That Old Republic was notified of the loss; 

 3. That Old Republic, unreasonably or without proper cause, failed to pay 

policy benefits; 

Case 5:13-cv-02060-BLF Document 194 Filed 07/01/15 Page 6 of 22
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-7- JOINT PRE-TRIAL CONFERENCE STATEMENT; 

CASE NO. 5:13-CV-02060-BLF 

 4. That the Feduniaks were harmed; and 

 5. That Old Republic’s failure to pay policy benefits was a substantial factor 

in causing the Feduniaks’ harm. 

 Defendant contends that the Coastal Commission Action was not a covered claim because 

it alleged conduct on the part of the Feduniaks. A claim for bad faith cannot be maintained unless 

policy benefits are due to the insured. Where an insurer does not deny benefits due under the 

policy, it cannot be liable for breach of the implied covenant of good faith and fair dealing. 

Moreover, a claim for breach of the implied covenant of good faith and fair dealing involves 

something more than a breach of the contract or mistaken judgment. There must be proof the 

insurer failed or refused to discharge its contractual duties not because of an honest mistake, bad 

judgment, or negligence, but rather by a conscious and deliberate act, which unfairly frustrates 

the agreed common purposes and disappoints the reasonable expectations of the other party 

thereby depriving that party of the benefits of the agreement. It must be shown that the insurer 

acted unreasonably or without proper cause. 

Defendant contends that Plaintiffs are not entitled to any Policy benefits under Section 

4(b) of the Policy. Section 4(b) simply requires Defendant to be diligent if it exercises its right to 

establish title as insured or reduce loss or damage to the insured. Defendant did not take any act. 

The Plaintiffs acted and were required to act in order to comply with the Coastal Commission’s 

orders. Plaintiffs cannot prove any lack of diligence by Defendant caused the Coastal 

Commission to seek fines and penalties from Plaintiffs. Because Plaintiffs cannot recover for 

breach of the Policy, they cannot recover for breach of the covenant of good faith and fair 

dealing. 

 Even if Section 4(b) could be construed as providing Policy benefits to Plaintiffs, which it 

cannot, Defendant cannot be liable for a breach of the covenant of good faith and fair dealing by 

denying the tender of defense of the Coastal Commission Action. Defendant did not invoke 

Section 4(b) and was not responsible for causing the Coastal Commission to sue the Plaintiffs. 

Plaintiffs caused the action to be commenced based on their own failure to stop mowing the lawn 

and failure to submit a remediation plan that was acceptable to the Coastal Commission. 

Case 5:13-cv-02060-BLF Document 194 Filed 07/01/15 Page 7 of 22
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-8- JOINT PRE-TRIAL CONFERENCE STATEMENT; 

CASE NO. 5:13-CV-02060-BLF 

 Because Defendant had no obligation to defend Plaintiffs in the Coastal Commission 

Action, Plaintiffs’ allegation that Old Republic “deliberately abandoned” them so that they were 

“compelled to defend” themselves cannot provide a basis for a bad faith claim. Plaintiffs were 

not entitled to a defense of the Coastal Commission Action under the Policy. Accordingly, 

Plaintiffs have no cause of action against Defendant for breach of the implied covenant of good 

faith and fair dealing for denying the defense. 

Moreover, even if Plaintiffs somehow could establish at trial that they were entitled to a 

Policy benefit of a defense of the Coastal Commission Action under Section 4(b) despite the 

absence of any such language in that policy provision, Old Republic acted reasonably and with 

proper cause when it denied the tender of defense. Old Republic’s denial was based on Section 

4(a) of the Policy. The Coastal Commission Action alleged conduct on the part of the Feduniaks 

in violation of the orders and not a claim adverse to their title. Section 4(b) of the Policy contains 

no term that requires Old Republic to reimburse Plaintiffs’ legal expenses, or participate in 

settlement discussions in a case where Old Republic has no duty to defend. Indeed, the express 

terms of the Policy state the opposite: Old Republic will not pay these types of expenses in the 

defense or settlement of claims not covered by the Policy.2 Given that Plaintiffs’ request for 

reimbursement is contrary to an express Policy term, and there is no authority that supports 

Plaintiffs’ interpretation of the Policy, Defendant’s refusal to pay such costs was reasonable. 

In addition to disproving the elements of Plaintiffs’ third claim for relief, Defendant will 

rely on the following defenses that are included in Defendant’s answer to the first amended 

complaint: failure to state a claim upon which relief may be granted, insured’s conduct, 

performance excused, post-policy conduct, no title defect, speculative damages and genuine 

 

2

 Policy § 4(a) [“The Company shall have the right to select counsel of its choice (subject to the 

right of the insured to object for reasonable cause) to represent the insured as to those stated cause 

of action [insured against by this policy] and shall not be liable for and will not pay the fees of 

any other counsel. The Company will not pay any fees, costs or expense incurred by an insured in 

the defense of those causes of action which allege matters not insured against by this policy”]; § 

8(c) [“The Company shall not be liable for loss or damage to any insured for liability voluntarily 

assumed by the insured in settling any claim or suit without the prior written consent of the 

Company”]. 

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-9- JOINT PRE-TRIAL CONFERENCE STATEMENT; 

CASE NO. 5:13-CV-02060-BLF 

dispute doctrine. 

C. Relief Sought: 

1. First Cause of Action. 

a. Plaintiffs’ Position. 

On their First Cause of Action, Plaintiffs expect to seek recovery of an additional 

$5 million from Defendant as Diminution in Value Damages (Plaintiffs will present evidence that 

the Diminution in Value Damages total approximately $6.5 million, so they will seek recovery of 

that amount less the $1.5 million already paid by Defendant). However, this assumes that the 

Plaintiffs are successful in their current efforts to resolve issues relating to the scope of the 

Easement with the Del Monte Forest Conservancy and Monterey County; if not, Plaintiffs’ 

estimated Diminution in Value Damages will be $10 million, and the additional damages they 

will seek to recover will be $8.5 million. 

b. Defendant’s Position. 

Defendant contends that Plaintiffs are not entitled to any additional diminution in value 

compensation because Defendant has already paid the $1.5 million amount to Plaintiffs to which 

they are entitled. Defendant contends that the diminution in value analysis of Plaintiffs’ expert 

witness, Terry Lloyd, is flawed and should not be admissible under FRE 702. Defendant 

contends that it is irrelevant whether improvements on the Property encroach on the Easement 

because the Policy does not provide coverage for encroachments. The Policy only provides 

coverage for loss caused by defects, liens and encumbrances on title. Other title insurance 

policies provide coverage for loss caused by encroachments, but not the CLTA Standard 

Coverage Policy purchased by the Feduniaks. 

2. Second Cause of Action. 

a. Plaintiffs’ Position. 

On their Second Cause of Action, Plaintiffs seek to recover a total of $943,322.43, 

consisting of (i) various unreimbursed expenses incurred in connection with the efforts to mitigate 

the effects of the Easement on the value of the Property ($131,861.78); (ii) legal fees and 

expenses incurred in connection with the litigation brought against the Plaintiffs by the California 

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-10- JOINT PRE-TRIAL CONFERENCE STATEMENT; 

CASE NO. 5:13-CV-02060-BLF 

Coastal Commission ($686,460.65); and (iii) the amount the Plaintiffs paid to the City of Pacific 

Grove dune enhancement project pursuant to the settlement agreement that terminated that 

litigation ($125,000). 

b. Defendant’s Position. 

Defendant contends that Plaintiffs are not entitled to recover unreimbursed expenses in 

connection with the alleged efforts to “mitigate” the effects of the Easement ($131,861.78) or the 

amount Plaintiffs paid to the City of Pacific Grove dune enhancement project ($125,000). These 

amounts have nothing to do with any breach of Section 4(b) by Defendant, which Plaintiffs allege 

renders Defendant liable for Plaintiffs’ legal fees in defending the Coastal Commission Action. 

There is no obligation on the part of Old Republic under Section 4(b) to reimburse Plaintiffs for 

any alleged efforts to mitigate the effects of the easement on the value of the Property. There is 

no obligation under Section 4(b) of the Policy to reimburse the Feduniaks for charitable donations 

they made to settle lawsuits against them based on their alleged conduct. Title insurance is not 

liability insurance. Defendant was not obligated to indemnify the Plaintiffs for any penalties if 

they were to lose the Coastal Commission Action. If for any reason Plaintiffs were entitled under 

Section 4(b) to recover legal fees in defending against the Coastal Commission Action, Defendant 

contends that Plaintiffs are not entitled to recover pre-tender defense costs. Section 4(a) limits the 

payment of attorney’s fees to those incurred post-tender. Section 4(b) does not provide for the 

reimbursement of any attorney fees. Plaintiffs certainly cannot be permitted to recover more 

under Section 4(b) than they would be entitled to under Section 4(a) if the Coastal Commission 

Action had been a covered matter. Plaintiffs did not tender the defense of the Coastal 

Commission Action until January 2012. Accordingly, Plaintiffs may not recover any fees and 

costs incurred prior to that tender. 

3. Third Cause of Action. 

a. Plaintiffs’ Position. 

On their Third Cause of Action Plaintiffs seek damages in an amount to be determined at 

trial for Defendant’s breach of the implied covenant of good faith and fair dealing, including the 

attorneys’ fees and costs incurred by Plaintiffs in defending against the Coastal Commission 

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-11- JOINT PRE-TRIAL CONFERENCE STATEMENT; 

CASE NO. 5:13-CV-02060-BLF 

lawsuit; the attorneys’ fees and costs incurred in this lawsuit to obtain policy benefits; noneconomic damages for emotional and mental stress; and punitive damages. 

b. Defendant’s Position. 

Defendant contends that that the defense costs in the Coastal Commission Action are only 

recoverable, if at all, as damages on the second claim for relief. Defendant contends that attorney 

fees are recoverable as damages in a bad faith claim only to the extent they are incurred to obtain 

policy benefits. It is incumbent on plaintiff to prove an appropriate allocation of attorney’s fees. 

Fees incurred to establish the amount of diminution in value from the easement are not 

recoverable because that part of the case is not part of the claim for breach of the covenant of 

good faith and fair dealing. The Court granted Old Republic’s motion for partial summary 

judgment on that claim on the genuine dispute doctrine. Fees incurred to establish a breach of the 

covenant of good faith and fair dealing are not recoverable as damages. Plaintiffs would only be 

entitled to recover as damages on the claim for breach of the implied covenant those attorney fees 

incurred to prove their second claim for relief. 

Emotional distress damages are only recoverable to the extent they are related to financial 

deprivation. The Feduniaks in this case testified that they were not concerned that they could not 

afford to pay their attorneys to defend them in the Coastal Commission Action. They paid their 

attorneys’ bills for over a year before they tendered the defense and continued to do so after 

Defendant rejected their tender. Any stress they experienced was a result of being sued by the 

Coastal Commission and not by a refusal of Defendant to pay for their defense. Accordingly, 

Plaintiffs are not entitled to emotional distress damages in this case. Plaintiffs are not entitled to 

punitive damages because Defendant’s decision to deny the defense of the Coastal Commission 

Action was reasonable as a matter of law. The Coastal Commission did not allege a claim against 

the Feduniaks’ title. Accordingly, the claim was not covered. There is no law that supports 

plaintiffs’ interpretation of Section 4(b) so as to impose an obligation under that provision to 

defend the Coastal Commission Action. Old Republic acted in good faith and with proper cause. 

It did not act with malice, oppression or fraud. 

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-12- JOINT PRE-TRIAL CONFERENCE STATEMENT; 

CASE NO. 5:13-CV-02060-BLF 

D. Federal Jurisdiction and Venue: 

Plaintiffs commenced this action on April 3, 2013, in the Superior Court of the State of 

California for the County of Monterey. On May 6, 2013, Defendant removed the case to the 

United States District Court for the Northern District of California. This Court has jurisdiction 

under 28 U.S.C. §§ 1332 and 1441(b). Pursuant to 28 U.S.C. § 1391(b)(2) the Northern District 

of California is a judicial district in which this action may be brought because a substantial part of 

the events or omissions giving rise to the claim occurred there. 

II. Factual Basis of the Action 

A. Undisputed Facts: 

1. On October 14, 1983 the individuals who owned the Property at that time (Bert 

Bonanno and Bonnie Bonanno, H. James Griggs and Gail I. Griggs, John Miller and Marcie L 

Miller) recorded an "Irrevocable Offer to Dedicate Open Space Easement and Declaration of 

Restrictions." A copy of the Irrevocable Offer is Exhibit 158 identified in Appendix B. 

2. On October 28, 1986 the California Coastal Commission recorded a "Certificate of 

Acceptance" certifying that Del Monte Forest Foundation, Inc. (now known as the Del Monte 

Forest Conservancy) accepted the irrevocable Offer to Dedicate recorded by the prior owners of 

the property. A copy of the Certificate of Acceptance is Exhibit 200 identified in Appendix B. 

3. In or around late 1983 Bert and Bonnie Bonanno became the sole owners of the 

Property. Thereafter they constructed improvements on the Property, consisting of a single 

family home, a garage/caretaker unit, and appurtenant decks, patios, driveway and landscaping, 

including a three-hole pitch-and-putt golf course ("Golf Course") in the front of the house. The 

Golf Course did not conform to the Easement, which limited the landscaping in the front of the 

house to native dune habitat. 

4. In November, 2000, the Plaintiffs purchased the Property from the Bonannos for 

$13 million. The Plaintiffs were unaware of the existence of the Easement or that the Property 

did not conform to the Easement. 

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CASE NO. 5:13-CV-02060-BLF 

5. In connection with their purchase of the Property, the Plaintiffs purchased title 

insurance from Defendant. A copy of the CLTA Title Insurance Policy issued by Defendant for 

the benefit of the Plaintiffs (the "Title Policy") is Exhibit 97 identified in Appendix B. 

6. The Title Policy did not list the Easement as an exception from the coverage 

provided under the Title Policy. 

7. In or about August 2001 a representative of the Del Monte Forest Foundation 

informed the Plaintiffs that their landscaping, including the Golf Course, violated the Easement 

and must be removed. 

8. The Plaintiffs timely notified Defendant of the claim asserted by the representative 

of the Del Monte Forest Foundation. 

9. In or about February 2003 the California Coastal Commission commenced an 

administrative proceeding against the Plaintiffs, and in or about July 2003 the Commission 

approved the issuance of a Cease-and-Desist Order and a Restoration Order. 

10. The Plaintiffs filed a Petition for Writ of Administrative Mandate in the Monterey 

County Superior Court seeking to prevent the Coastal Commission from enforcing the Cease-andDesist and Restoration Orders. Following trial the Monterey County Superior Court entered 

judgment estopping the Commission from enforcing the Cease and Desist and Restoration Orders 

while the Plaintiffs owned the Property. The Coastal Commission appealed and the Court of 

Appeal reversed the ruling of the trial court. In 2007 the California Supreme Court denied review 

and the decision of the Court of Appeal became final. 

11. After the Supreme Court denied review, the Coastal Commission notified 

Plaintiffs that they had until February 4, 2008 to submit a restoration plan for approval. 

12. Defendant paid the cost of restoration of the Property. 

13. Defendant has paid Plaintiffs $1.5 million as Diminution in Value Damages. 

B. Disputed Facts. 

1. Plaintiffs’ Description of the Disputed Facts: 

14. Did other improvements constructed on the Property by the Bonannos besides the 

landscaping on the Property in the front of the house (the Golf Course), conform to the Easement? 

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CASE NO. 5:13-CV-02060-BLF 

15. Did Defendant, acting pursuant to Paragraph 4(b) of the Policy, approve and 

support the Plaintiffs’ further efforts to mitigate the effects of the Easement on the value of the 

Property, including the Plaintiffs’ submission to the Coastal Commission of alternative 

restoration plans? 

16. Did Defendant, acting pursuant to Paragraph 4(b) of the Policy, pay most of the 

expenses associated with Plaintiffs’ efforts to mitigate the effects of the Easement on the value of 

the Property, including some or all of the cost of the preparation of the alternative restoration 

plans? 

17. Did Defendant, acting pursuant to Paragraph 4(b) of the Policy, agree to fund the 

off-site restoration called for under the February 19, 2008 plan? 

18. Were the efforts to mitigate the effects of the Easement on the value of the 

Property, including the Plaintiffs’ submission to the Coastal Commission of alternative 

restoration plans, a substantial factor contributing to the Coastal Commission’s pursuit of the 

Commission Lawsuit? 

19. Did Defendant deliberately abandon the Plaintiffs when the strategy to mitigate the 

effects of the Easement on the value of the Property led to the Commission’s filing of the 

Commission Lawsuit and pursuit of the Commission Lawsuit for more than $25 million in fines 

and penalties even after the revised restoration plan was approved and implemented? 

20. What is the difference between the value of the Property “as insured” and the 

value of the Property as encumbered by the Easement? 

21. What expenses did the Plaintiffs incur in connection with the efforts to mitigate the 

effects of the Easement on the value of the Property that were not paid or reimbursed by 

Defendant? 

22. What legal fees and expenses did the Plaintiffs incur in connection with the 

Commission Lawsuit? 

23. What legal fees and expenses have been incurred by the Plaintiffs to obtain policy 

benefits? 

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CASE NO. 5:13-CV-02060-BLF 

2. Defendant’s Description of the Disputed Facts: 

24. The difference in value of the Property with and without the Easement as of 

August 2001. 

25. Without conceding that Defendant can be liable for a breach of Section 4(b) of the 

Policy based on Plaintiffs’ allegations, whether Defendant invoked Section 4(b) of the Policy. 

26. Without conceding that Defendant can be liable for a breach of Section 4(b) of the 

Policy based on Plaintiffs’ allegations, whether Defendant approved and supported the 

submission of alternative mitigation plans. 

27. Without conceding that Defendant can be liable for a breach of Section 4(b) of the 

Policy based on Plaintiffs’ allegations, whether the submission of an alternative mitigation plan to 

the Coastal Commission by the Plaintiffs caused Plaintiffs damages by causing the Coastal 

Commission to commence the Coastal Commission Action. 

28. Without conceding that Defendant can be liable for a breach of Section 4(b) of the 

Policy based on Plaintiffs’ allegations, the amount of legal fees incurred in the Coastal 

Commission Action which Plaintiffs may recover if Defendant invoked Section 4(b) of the 

Policy. 

29. Without conceding that Defendant can be liable for a breach of Section 4(b) of the 

Policy based on Plaintiffs’ allegations, and assuming that Defendant invoked Section 4(b) of the 

Policy, whether Defendant was reasonable in denying the defense of the Coastal Commission 

action. 

30. The amount of damages to which Plaintiffs may be entitled to recover if Defendant 

is liable for a breach of the implied covenant of good faith and fair dealing. 

III. Disputed Legal Issues: 

A. Plaintiffs’ Position Regarding Disputed Legal Issues. 

Plaintiffs’ are not aware of any disputed legal issue that has not already been addressed 

and ruled on by the Court. The legal issues identified below by Defendant as “disputed” have 

been resolved as follows: 

1. The Court addressed and rejected Defendant’s arguments that it cannot be liable, 

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CASE NO. 5:13-CV-02060-BLF 

as a matter of law, for breach of Section 4(b) of the Policy in both (1) the November 20, 2014 

Order Granting in Part & Denying in Part Defendant’s Motion for Partial Summary Judgment 

(“Summary Judgment Order”); and (2) the February 13, 2015 Order Denying Defendant’s Motion 

to Dismiss. Plaintiffs respectfully submit the Court’s rulings on this issue were correct for the 

reasons set forth in those orders. 

2. The Court addressed and rejected Defendant’s arguments that it cannot be liable as 

a matter of law, for breach of the implied covenant of good faith and fair dealing/bad faith in its 

Summary Judgment Order, including Defendant’s position that the “genuine dispute” doctrine 

precludes liability as a matter of law. Summary Judgment Order, at 15-16. Plaintiffs respectfully 

submit that the Court’s ruling on these issues were correct for the reasons set forth in the 

Summary Judgment Order. 

B. Defendant’s Position Regarding Disputed Legal Issues. 

Defendant contends that it cannot be liable for a breach of Section 4(b) of the Policy based 

on Plaintiffs’ allegations. Section 4(b) of the Policy merely requires Defendant to act without 

delay when it seeks to establish title as insured or prevent or reduce loss or damage to an insured. 

It does not require Defendant to reimburse expenses incurred by the Plaintiffs in an effort to 

mitigate the effects of the Easement on the value of the Property. It does not require Defendant to 

defend or settle actions against an insured that are not covered by Section 4(a) the Policy. Section 

4(b) does not impose any duty to defend at all—the only duty to defend appears in Section 4(a). 

As such, Defendant contends that, as a matter of law, it cannot be liable for a breach of the Policy 

based on Plaintiffs’ alleged theory of liability. 

Defendant further contends that it cannot be liable for a breach of the implied covenant of 

good faith and fair dealing as a matter of law. The law implies in every contract, including title 

insurance contracts, a covenant of good faith and fair dealing. See White v. Western Title Ins. 

Co., 40 Cal.3d 870, 885 (1985); Stalberg v. Western Title Ins. Co., 230 Cal.App.3d 1223, 1233 

(1991); Egan v. Mutual of Omaha Ins. Co., 24 Cal.3d 809, 818 (1979). This covenant is implied 

as a supplement to the express covenants in the insurance policy to prevent the insurer from 

engaging in conduct that frustrates the insured’s rights to the benefits provided by the policy. 

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CASE NO. 5:13-CV-02060-BLF 

Waller v. Truck Ins. Exch., 11 Cal.4th 1, 36 (1995). 

 “Absent that contractual right, however, the implied covenant has nothing upon which to 

act as a supplement, and ‘should not be endowed with an existence independent of its contractual 

underpinnings.’” Id. (quoting Love v. Fire Ins. Exchange, 221 Cal.App.3d 1136, 1153 (1990)). 

The implied covenant of good faith and fair dealing “cannot impose substantive duties or limits 

on the contracting parties beyond those incorporated in the specific terms of their agreement.” 

Guz v. Bechtel National, Inc., 24 Cal.4th 317, 349 (2000). 

A claim for bad faith cannot be maintained unless policy benefits are due to the insured. 

Love v. Fire Ins. Exchange, 221 Cal.App.3d at 1153. Where the insurer did not deny benefits due 

under the policy, it cannot be liable for breach of the implied covenant of good faith and fair 

dealing. See Minich v. Allstate Ins. Co., 193 Cal.App.4th 477, 493 (2011). 

Moreover, a claim for breach of the implied covenant of good faith and fair dealing 

involves something more than a breach of the contract or mistaken judgment. Chateau 

Chamberay Homeowners Assn. v. Associated Int’l Ins. Co., 90 Cal.App.4th 335, 345 (2001). 

There must be proof the insurer failed or refused to discharge its contractual duties not because of 

an honest mistake, bad judgment, or negligence, “but rather by a conscious and deliberate act, 

which unfairly frustrates the agreed common purposes and disappoints the reasonable 

expectations of the other party thereby depriving that party of the benefits of the agreement.” Id. 

at 346 (emphasis added). It must be shown that the insurer acted unreasonably or without proper 

cause. Id. at 347. 

Section 4(b) of the Policy does not provide any benefits to the insured. It simply requires 

Defendant to be diligent if it exercises its right to establish title as insured. Here, Plaintiffs cannot 

prove any lack of diligence by Defendant caused the Coastal Commission to seek fines and 

penalties from Plaintiffs. Because Plaintiffs cannot recover for breach of the Policy, they cannot 

recover for breach of the covenant of good faith and fair dealing. See Waller, 11 Cal. 4th at 36; 

Minich v. Allstate Ins. Co., 193 Cal. App. 4th at 493. 

 Moreover, Old Republic did not act unreasonably or without proper cause. See Chateau 

Chamberay, 90 Cal. App. 4th at 347; Hergenroeder v. Travelers Property Cas. Ins. Co., 249 

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CASE NO. 5:13-CV-02060-BLF 

F.R.D. 595, 615 (E.D. Cal. 2008). Here, the Policy itself contains no term that requires 

Defendant to reimburse Plaintiffs’ legal expenses, or participate in settlement discussions in a 

case where Defendant has no duty to defend. Indeed, the express terms of the Policy state the 

opposite: Defendant will not pay these types of expenses in the defense or settlement of claims 

not covered by the Policy. Given that Plaintiffs’ request for reimbursement was contrary to an 

express policy term, Defendant’s refusal to pay such costs was reasonable and with proper cause 

as a matter of law. 

 The genuine dispute doctrine should preclude any bad faith liability. An “insurer denying 

or delaying the payment of policy benefits due to the existence of a genuine dispute with its 

insured as to the existence of coverage liability or the amount of the insured’s coverage is not 

liable in bad faith even though it might be liable for breach of contract.” Chateau Chamberay 

Homeowners Ass’n , 90 Cal. App. 4th at 347) (citation omitted). This is known as the “genuine 

dispute” or “genuine issue” doctrine, and it entitles an insurer to judgment on a bad faith cause of 

action "by establishing that its denial of coverage, even if ultimately erroneous and a breach of 

contract, was due to a genuine dispute with its insured.” Bosetti v. U.S. Life Ins. Co. in the City of 

New York, 175 Cal. App. 4th 1208, 1237 (2009) (citing Chateau Chamberay Homeowners Ass’n, 

90 Cal. App. 4th at 347). 

The reasonableness of the insurer’s position is determined against an objective, not 

subjective, standard. Bosetti, 175 Cal. App. 4th at 1237. Indeed, “[i]f the conduct of the insurer 

in denying coverage was objectively reasonable, its subjective intent is irrelevant.” Id. (citations 

omitted). When the issue of “the insurer’s objective reasonableness depends on an analysis of 

legal precedent, reasonableness is a legal issue reviewed de novo.” CalFarm Ins. Co. v. 

Krusiewicz, 131 Cal. App. 4th 273, 287 (2005). 

Here, even if it is determined that Plaintiffs’ were somehow entitled to coverage under 

Section 4(b), there was a “genuine dispute” as to coverage that is plainly apparent. There is no 

authority that holds that an insurer can be liable for defense costs under Section 4(b) where there 

is no duty to defend under Section 4(a). Plaintiffs’ theory of liability is a novel application of 

Section 4(b), which lacks legal support. 

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CASE NO. 5:13-CV-02060-BLF 

Defendant did not unreasonably withhold any policy benefits. If Section 4(b) somehow 

entitles the Feduniaks to Policy benefits, Defendant’s denial of the tender of defense on the basis 

that there was no duty to defend under Section 4(a) was objectively reasonable. CalFarm Ins. 

Co., 131 Cal. App. 4th at 291 (insurer acted objectively reasonably and was not liable for bad 

faith where “[t]he case law does not clearly resolve, one way or the other, the precise coverage 

issue presented here”); Morris v. The Paul Revere Life Ins. Co., 109 Cal. App. 4th 966, 976 

(2003) (insurer did not act unreasonably where it had “the highest courts of several jurisdictions, 

as well as two California Courts of Appeal, in its corner” concerning interpretation of policy 

language). 

IV. Estimate of Trial Time: 

The parties estimate that 70 hours will be needed to try the case, not including jury 

selection. 

V. Trial Alternatives and Options. 

A. Settlement Discussion: 

In November 2013 the parties engaged in a two day mediation before Retired Judge 

Richard Silver. The parties engaged in a second one day mediation with Judge Silver in April 

2014. At that time the parties did not yet have the report of the Plaintiffs’ expert showing the 

extent of the diminution in value of the Property caused by the Easement, nor were the parties or 

Judge Silver aware that improvements on the Property in addition to the Golf Course may violate 

the Easement. At the conclusion of the mediation Judge Silver made a “mediator’s proposal.” 

Plaintiffs rejected that proposal. 

In December 2014, after the parties learned that improvements on the Property in addition 

to the Golf Course may violate the Easement, the parties engaged in a further mediation before 

Retired Judge William Cahill. At that mediation Defendant’s representative, Cynthia Long, made 

clear to the Plaintiffs and Judge Cahill that Ms. Long had no authority to offer more than the 

amount of Judge Silver’s “mediator’s proposal” that had already been rejected by the Plaintiffs 

before they learned that uncertainty about whether existing improvements on the Property 

conform to the Easement significantly impacts the value of the Property. 

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CASE NO. 5:13-CV-02060-BLF 

Plaintiffs believe that further negotiations will be productive only if someone with greater 

authority than Ms. Long participates on behalf of Defendant. 

Defendants do not believe that any further mediation or ADR would be productive. There 

have been three separate unsuccessful mediations in this case. 

B. Amendments or Dismissals: 

The parties no not anticipate any further amendments to the pleadings or dismissals of 

parties, claims or defenses. 

C. Bifurcation or Separate Trial of Issues. 

1. Plaintiffs’ Position. 

Plaintiffs have proposed that the parties stipulate to a post-trial allocation and award of 

any attorneys’ fees and costs that may be recoverable pursuant to the third cause of action for bad 

faith, consistent with the California Supreme Court’s holding that such “a stipulation for 

postjudgment allocation and award by the trial court would normally be preferable.” Brandt v. 

Superior Court, 37 Cal. 3d 813 (1985). 

2. Defendant’s Position. 

Defendant has declined to enter into a Brandt stipulation. Defendant does not stipulate to 

have the issue of Brandt fees decided by the court after the jury trial. Unless the parties stipulate 

otherwise, the question of what fees incurred by the insured were attributable to services to obtain 

policy benefits withheld, and the value of such services, must be submitted to the jury. See 

Brandt v. Superior Court, 37 Cal.3d 813, 820 (1985). 

VI. Appendices. 

Attached hereto as Appendix A are a list for each party of all witnesses likely to be called 

at trial, including those appearing by deposition, with a short statement of the substance of each 

witness’s testimony and an estimate of the length of testimony (including direct and crossexamination) and, if the witness is an expert witness, a statement of the expert’s theories and 

conclusions and the bases therefor and the expert’s curriculum vitae and report. 

Attached hereto as Appendix B is a joint exhibit list in tabular form, with (a) a column 

identifying the exhibit number; (b) a column briefly describing the exhibit; (c) a column 

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describing the purpose for which the exhibit is offered and identifying its sponsoring witness; (d) 

a column stating any objections to the exhibit; (e) a column responding to the objections; and (f) a 

blank column for the Court’s use. 

Attached hereto as Appendix C are excerpts of interrogatory responses, responses to 

requests for admission, and deposition testimony (with specific line references identified) that 

each party intends to present at trial. 

VII. Parties’ Certification. 

The foregoing admissions having been made by the parties, and the parties having 

specified the foregoing issues of fact and law remaining to be litigated, this order shall 

supplement the pleadings and govern the course of trial of this action, unless modified to prevent 

manifest injustice. 

Dated: April 9, 2015 FOLGER LEVIN LLP

/s/ Roger B. Mead 

Roger B. Mead 

Dated: April 9, 2015 FENTON & KELLER

/s/ Mark A. Cameron 

Mark A. Cameron 

Attorneys for Plaintiffs 

Robert Feduniak and Maureen Feduniak 

Dated: April 9, 2015 HENNELLY & GROSSFELD LLP

/s/ Paul T. Martin 

Paul T. Martin 

Attorneys for Defendant 

Old Republic National Title Insurance Company 

 

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CASE NO. 5:13-CV-02060-BLF 

The Court HEREBY A'2376 the parties' Joint Pretrial Conference Statement

as modified by the Second Amended Complaint and this Court's rulings on the parties'

motions in limine and other pretrial rulings.

Dated: 7/1/2015

__________________________________

BETH LABSON FREEMAN

United States District Judge 

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