Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-01059/USCOURTS-caed-2_04-cv-01059-0/pdf.json

Parties Involved:
National Union Fire Insurance Company
Defendant
Pacific Coast Building Products, Inc
Plaintiff

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

PACIFIC COAST BUILDING PRODUCTS, 

INC.,

NO. CIV. S-04-1059 LKK/KJM

Plaintiff,

v. O R D E R

NATIONAL UNION FIRE INSURANCE

COMPANY,

Defendant.

 /

Plaintiff, Pacific Coast Building Products (“Pacific”),

alleges that defendant insurance company, National Union Fire

Insurance Co. (“National”), failed to fulfill its obligations as

insurer under two different policies when a cross-complaint was

filed against it by a former employee, Morgan A. Chivers

("Chivers"). On January 14, 2005, the court sua sponte granted

summary judgment for Pacific on the duty to defend issue, finding

that National had a duty to defend Pacific. The court denied all

other motions. Pending before the court is National’s motion for

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reconsideration seeking clarification/reconsideration of two

discrete issues:

1. Whether the April 25, 2002 directed verdict on Chivers’

cross-complaint ended any duty to defend; and

2. Whether the higher evidentiary standard and burden of 

 proof necessary to recover punitive damages precludes any

recovery by plaintiff of punitive damages, even if there is

a triable issue as to “bad faith.”

National also seeks certification for interlocutory appeal under

28 U.S.C. § 1292(b) of the four issues decided by this court in the

January 14, 2005.

I.

ANALYSIS

A. MOTION TO RECONSIDER/CLARIFICATION

1. When the Duty to Defend Ends

In the January 14, 2005 Order, this court ruled that

National’s duty to defend does not end until the duty has been

terminated by court order or until the underlying lawsuit is

concluded. National moved for summary judgment on this issue,

requesting that this court rule that National could have no

obligation to Pacific for any fees or costs incurred after Chivers’

March 27, 2002 dismissal of the NIED and IIED causes of action.

This court, however, held that:

[b]ecause the potential claims in the Chivers case arose

from extrinsic facts and from allegations not

exclusively contained in the stated causes of action,

the dismissal of the NIED and IIED claims has no bearing

on whether National continued to we a duty to defend. 

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See Order at 21.

It is undisputed that on April 25, 2002, Pacific was granted

a directed verdict on Chivers’ fraud/negligent misrepresentation

causes of action. In this motion for 

reconsideration/clarification, National asserts that the court

based its duty to defend decision on the single allegation by

Chivers contained in the complaint (that Chivers “has been damages

[sic] in his reputation by the allegations that he misappropriated

trade secrets.”). They argue that this single allegation was

contained in the two misrepresentation claims, and that after the

directed verdict was granted in Pacific’s favor on these two

claims, there was no longer a duty to defend. Def.’s Br. at 6. 

I cannot agree.

As explained in the January 14, 2005 Order, the insurer’s duty

to defend continues “until the underlying lawsuit is concluded 

. . . or until it has been shown that there is no potential for

coverage.” See Montrose Chemical Corp. v. Superior Court,

6 Cal.4th 287, 295 (1993). The record makes clear that the

potential for a duty to defend arose from allegations not only

contained in the complaint, but from additional allegations

contained in deposition summaries provided to National on November

16, 2000 and December 7, 2000. See Order at 13-15. Thus, a

potential for coverage remained despite this directed verdict. As

Pacific points out, the directed verdict on Chiver’s fraud claims

did not prevent him from amending his cross-complaint in the

underlying action to add other claims which may be covered under

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1 Pacific was ultimately successful in persuading the court

to not let the slander of title claim go to the jury (in a motion

for reconsideration).

2 Some courts have even held that the potential for a duty

to defend persists until the time for an appeal from the judgment

in an underlying action had passed. See Prichard v. Liberty Mut.

Inc. Co., 84 Cal.App.4th 890, 903-904 (2000)(holding that “the

potential for indemnification liability continued into the appeal

period”).

3 In so holding, the court recognizes the “genuine dispute

doctrine” as set forth in Guebara v. Allstate Ins. Co., 237 F.3d

987, 992 (9th Cir. 2001). In Guebara, the Ninth Circuit held that

“[i]n order to establish bad faith, or breach of the implied

covenant of good faith and fair dealing under California law, a

plaintiff must show (1) benefits due under the policy were

withheld, and (2) the reason for withholding benefits was

unreasonable or without proper cause.” Id. at 992 (citation

omitted). The Ninth Circuit made clear that “the key to a bad

faith claim is whether denial of a claim was reasonable,” a

question that turns on a myriad of facts which can only be

determined on a case-by-case basis. Plaintiff asserts that

defendant misrepresented the facts and the law when handling its

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the policy between the parties. National’s contention that its

duty to defend ended after the April 25, 2002 directed verdict is

belied by the fact that, on that same date, Chivers moved to amend

his complaint to add a claim for “slander of title,” a claim that

would have likely been covered by the insurance policy.1 See Pl.’s

Exh. A. In sum, there remained a potential for a duty to defend

on National’s part as of April 25, 2002, National’s motion to

reconsider on this issue is DENIED.2

2. Ruling on Bad Faith and Punitive Damages

On January 14, 2005, this court denied summary judgment as to

both sides on the issue of bad faith because it was determined that

whether denial of the claim was reasonable, the key to the bad

faith claim, is a question for the jury.3 This court also held

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claim while defendant argues that their handling and investigation

of the claim was entirely reasonable. While the Ninth Circuit also

explained that a bad faith claim could be dismissed on a summary

judgment motion if the defendant demonstrates that there was a

“genuine dispute as to coverage,” id., the court refrains from

dismissing the bad faith claim because a jury may reasonably find

that defendant’s alleged misrepresentation of the law and of the

facts warrants bad faith. The question of “reasonableness” will

inevitably engender disparate results because each case will have

disparate facts. The wide and diverse experience of juries then

may well be preferred to reliance on the insulated experience of

the court in deciding this issue. 

4 Under California law, a plaintiff may recover punitive

damages if he proves “by clear and convincing evidence that the

defendant has been guilty of oppression, fraud, or malice.” Cal.

Civ. Code § 3294(a).

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that because whether Pacific is entitled to punitive damages is

dependent on this bad faith question, summary judgment would also

be denied as to both sides on the question of punitive damages.4

National requests reconsideration, pointing out that the trial

courts are required to apply a higher standard of “clear and

convincing evidence” on motions for summary judgment in assessing

whether a plaintiff has raised a triable issue on whether the

insurer acted with “oppression, fraud, or malice,” warranting the

award of punitive damages. In other words, National contends that

there is a heightened burden of proof which must be met to recover

punitive damages, and thus, a determination on bad faith “does not

automatically suffice to establish “oppression, fraud, or malice”

under section 3294(c).

National’s point is well-taken. The court recognizes that

punitive damages are available “if in addition to proving a breach

of implied covenant of good faith and fair dealing . . . the

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5 The court notes that “[d]eterminations related to

assessment of punitive damages have traditionally been left to the

discretion of the jury.” Amadeo v. Principal Mutual Life Ins. Co.,

290 F.3d 1152, 1165 (9th Cir. 2002)(citation omitted). 

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insured proves by clear and convincing evidence that the insurance

company itself engaged in conduct that is oppressive, fraudulent,

or malicious.” Amadeo v. Principal Mutual Life Ins. Co., 290 F.3d

1152, 1164 (9th Cir. 2002)(citing PPG Indus. v. Transamerica Ins.

Co., 20 Cal.4th 310 (1999)). By denying summary judgment as to

both sides on the punitive damages question and stating that such

a question “depended on” the bad faith issue, the court did not

mean to say that, as a general matter, establishing bad faith

suffices to establish “oppression, fraud, or malice” as required

for the award of punitive damages. Rather, the court denied

summary judgment on the punitive damages issue as to both sides

because punitive damages could not be addressed until it was

established that National had committed bad faith in not defending

Chivers’ law suit against Pacific.5 Because the bad faith issue

cannot be addressed at this time, as noted above, National’s motion

for reconsideration as to the court’s ruling on punitive damages

is DENIED.

B. INTERLOCUTORY APPEAL UNDER 28 U.S.C. SECTION 1292(b)

Because the January 14, 2005 Order addresses only liability,

the order is not final, and thus a 28 U.S.C. § 1292(b) motion is

appropriate. Section 1292(b) provides:

When a district judge, in making a civil action an order

not otherwise appealable under this section, shall be of

the opinion that such order involves a controlling

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question of law as to which there is substantial ground

for difference of opinion and that an immediate appeal

from the order may materially advance the ultimate

termination of the litigation, he shall so state in

writing in such order.

National seeks certification for interlocutory appeal under 28

U.S.C. § 1292(b) of the four issues decided by this court in the

January 14, 2005:

1. Whether National had a duty to defend plaintiff against

Chivers’ cross complaint;

2. Whether that duty was terminated by the April 25, 2002

directed verdict;

3. Whether there was a triable issue as to whether National

had acted in “bad faith,” specifically the

“reasonableness” of its conduct.”; and

4. Whether because there was a triable issue as to “bad

faith,” there was also a triable issue as to punitive

damages.

National argues that there is a substantial ground for

difference of opinion as to the order’s rulings on each of them.

Def.’s Br. at 16. National maintains that certification of such

controlling questions is appropriate “in the interests avoiding a

wasteful and unnecessary trial.” Id. at 15. 

The basic standard for certifying an interlocutory appeal was

set by the Ninth Circuit in the case of United States Rubber

Company v. Wright, 359 F.2d 784 (9th Cir. 1966), which held 28

U.S.C. § 1292(b) is to be used "only in extraordinary cases where

decision of an interlocutory appeal might avoid protracted and

expensive litigation." Id. at 785 (emphasis supplied). This

standard is based on Congressional legislative history, including

the report of the Committee on Appeals from Interlocutory Orders

of the District Courts, submitted to the Judicial Conference of the

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United States under date of September 23, 1953: "It is not thought

that district judges would grant the certificate in ordinary

litigation which could otherwise be promptly disposed of." S.Rep.

No. 2434, 85th Cong. 2nd Sess., 1958 U.S.Code Cong. & Ad. News, pp.

5255, 5260. 

The matter at bar is not extraordinary, but does appear to

present a controlling question of law as to which there is

substantial ground for difference of opinion. The “duty to defend”

standard, as it is created by the California Supreme Court, is very

broad, and there may be grounds for substantial difference of

opinion. National, however, has failed to explain to the court why

this case is extraordinary in its legal implications. Defendant

has failed to meet its burden of showing why this court should

certify the issues addressed in the January 14, 2005 Order. Thus,

National’s motion for certification for interlocutory appeal is

DENIED.

Accordingly, the court hereby ORDERS that:

1. National’s motion for reconsideration is DENIED as to all

issues.

2. National’s motion for certification for interlocutory 

appeal is DENIED.

IT IS SO ORDERED.

DATED: May 26, 2005.

/s/Lawrence K. Karlton 

LAWRENCE K. KARLTON

SENIOR JUDGE

UNITED STATES DISTRICT COURT

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