United States District Court,

M.D. Louisiana.

Melvin HOLDEN

v.

BAH EXPRESS, INC., Westfield Insurance Company, and Sidney A. Grantham.

 

Civil Action No. 13–00423–SDD–SCR.

Nov. 27, 2013.

 

Larry S. Bankston, Jenna H. Linn, Bankston & Associates, LLC, Baton Rouge, LA, for Melvin Holden.

 

Joseph Warren Gardner, Jr., Patrick Ryan Plummer, Christovich & Kearney, New Orleans, LA, for Bah Express, Inc., Westfield Insurance Company, and Sidney A. Grantham.

 

RULING AND ORDER

SHELLY D. DICK, District Judge.

*1 This matter is before the Court on a Motion to Dismiss for Lack of Personal Jurisdiction and Improper Venue, and to TransferFN1 under Rules 12(b)(2) and 12(b)(3) of the Federal Rules of Civil Procedure and 28 U.S.C. § 1406(a), respectively, filed by Defendants, Sidney A. Grantham (“Grantham”), BAH Express, Inc. (“BAH”), and Westfield Insurance Company (“Westfield”). Plaintiff, Melvin Holden, has filed an Opposition,FN2 to which Defendants filed a Reply Memorandum.FN3 For the reasons stated herein, Defendants’ motion is GRANTED IN PART and DENIED IN PART.

 

FN1. Rec. Doc. 3.

 

FN2. Rec. Doc. 5.

 

FN3. Rec. Doc. 10.

 

I. BACKGROUND

On June 22, 2012, Plaintiff, Melvin Holden, a resident and citizen of Livingston Parish, Louisiana,FN4 was operating a semi-trailer truck along State Route 34 in Coweta County, Georgia. Travelling behind him was Defendant, Grantham, a citizen of the State of Georgia,FN5 who was also operating a semi-trailer truck in the course and scope of his employment with Defendant, BAH. Plaintiff alleges that Grantham “suddenly[,] … violently and without warning rear-ended” him.FN6

 

FN4. Rec. Doc. 1, p. 2, ¶ 3.

 

FN5. Rec. Doc. 1, p. 2, ¶ 3.

 

FN6. Rec. Doc. 1–1, Exhibit A, Petition for Damages p. 1, ¶ 4.

 

On May 20, 2013, Plaintiff filed this suit for personal injury damages in the 21st Judicial District Court in Livingston Parish, Louisiana, against Grantham, BAH, and BAH’s insurer, Westfield (collectively “Defendants”).FN7 Defendants timely removed this action to the United States District Court for the Middle District of Louisiana pursuant to 28 U.S.C. 1332(a). This Court’s diversity jurisdiction is invoked on the grounds that BAH is a Georgia Corporation with its principal place of business in the State of Georgia; FN8 Westfield is a foreign corporation incorporated under the laws of the State of Ohio with its principle place of business in Ohio; FN9 Grantham is a resident of the State of Georgia; FN10 and Plaintiff is a person of full age of majority domiciled in the Parish of Livingston, Louisiana.

 

FN7. Rec. Doc. 1–1, Exhibit A, Petition for Damages.

 

FN8. Rec. Doc. 3–4, Exhibit C, Declaration of Johnie Snider, p. 1, ¶ 3.

 

FN9. Rec. Doc. 3–5, Exhibit D, Declaration of Kyle Seymour, p. 1, ¶ 3.

 

FN10. Rec. Doc. 3–3, Exhibit B, Declaration of Sidney Grantham, p. 1, ¶ 4.

 

Defendants move to dismiss Plaintiff’s claims for lack of personal jurisdiction and improper venue. In the alternative, Defendants move for transfer of this matter to the Northern District of Georgia pursuant to 28 U.S.C. § 1406(a) or 28 U.S.C. § 1404(a).FN11

 

FN11. Rec. Doc. 8–2, p. 5. 28 U.S.C. § 1406(a) provides that “[t]he district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.”

 

II. STANDARD OF REVIEW

“When a nonresident defendant presents a motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing the district court’s jurisdiction over the nonresident.” FN12 The quantum of proof required to meet that burden varies depending upon the nature of the proceeding and the type of evidence which the plaintiff is permitted to present.FN13 The court has discretion as to the type and amount of discovery to allow, and may determine jurisdiction by evaluating affidavits, interrogatories, deposition, oral testimony or other recognized forms of discovery.FN14

 

FN12. Stuart v. Spademan, 772 F.2d 1185, 1192 (5th Cir.1985) (citing Thompson v. Chrysler Motors Corp., 755 F.2d 1162, 1165 (5th Cir.1985)).

 

FN13. Data Disc, 557 F.2d at 1285.

 

FN14. Walk Haydel & Assocs., Inc. v. Coastal Power Prod. Co., 517 F.3d 235, 241 (5th Cir.2008); Stuart v. Spademan, 772 F.2d 1185, 1192 (5th Cir.1985).

 

Where a court rules only on pleadings and affidavits without a full evidentiary hearing, as is the case here, the plaintiff need only make a prima facie showing of jurisdiction.FN15 In making its determination, the court “must resolve all undisputed facts submitted by the plaintiff, as well as all facts contested in the affidavits, in favor of jurisdiction.” FN16 A plaintiff’s unsubstantiated allegations, however, will not defeat contrary affidavits or declarations offered by the defendant.FN17 Should the plaintiff establish a prima facie case for jurisdiction, the burden then shifts to the defendant to present “a compelling case that the presence of some other considerations would render jurisdiction unreasonable.” FN18

 

FN15. Guidry v. U.S. Tobacco Co., Inc., 188 F.3d 619, 625 (5th Cir.1999) (citing Latshaw v. Johnston, 167 F.3d 208, 211 (5th Cir.1999); Bullion v. Gillespie, 895 F.2d 213, 217 (5th Cir.1990); Brown v. Flowers Industries, Inc., 688 F.2d 328, 332 (5th Cir.1982)). However, “at any time when the plaintiff avoids a preliminary motion to dismiss by making a prima facie showing of jurisdictional facts, he must still prove the jurisdictional facts at trial by a preponderance of the evidence.” Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280, 1285 n. 2 (9th Cir.1977), quoted in Travelers Indem. Co. v. Calvert Fire Ins. Co ., 798 F.2d 826, 831 (5th Cir.1986) modified, 836 F.2d 850 (5th Cir.1988).

 

FN16. Luv N’Care, Ltd. v. Insta–Mix, Inc., 438 F.3d 465, 469 (5th Cir.2006) (citing Wyatt v. Kaplan, 686 F.2d 276, 280 (5th Cir.1982)).

 

FN17. See Travelers Indem. Co., 798 F.2d at 831 (citing Brown, 688 F.2d at 332).

 

FN18. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985).

 

III. PERSONAL JURISDICTION

*2 A federal district court hearing a case in diversity may exercise personal jurisdiction over a foreign defendant if: (1) the long-arm statute of the forum state creates personal jurisdiction over the defendant; and (2) the exercise of personal jurisdiction is consistent with the Due Process Clause of the United States Constitution.FN19 Under Louisiana law, “the limits of the Louisiana long-arm statute are coextensive with constitutional due process limits.” FN20

 

FN19. Clemens v. McNamee, 615 F.3d 374, 377 (5th Cir.2010) (citing Latshaw v. Johnston, 167 F.3d 208, 211 (5th Cir.1999)); Seiferth v. Helicopteros Atuneros, Inc., 472 F.3d 266, 270 (5th Cir.2006) (citing Mink v. AAAA Dev. LLC, 190 F.3d 333, 335 (5th Cir.1999)); Paz v. Brush Engineered Materials, Inc., 445 F.3d 809, 812 (5th Cir.2006) (quoting Allred v. Moore & Peterson, 117 F.3d 278 (5th Cir.1997)); OuazzaniChahdi v. Greensboro News & Record, Inc., 200 Fed.Appx. 289, 291 (5th Cir.2006) (citing Revell v. Lidov, 317 F.3d 467, 469 (5th Cir.2002)); Ruston Gas Turbines, Inc. v. Donaldson Co., Inc., 9 F.3d 415, 418 (5th Cir.1993).

 

FN20. Walk Haydel, 517 F.3d at 242–43 (citing A & L Energy, Inc. v. Pegasus Group, 791 So.2d 1266, 1270 La.2001)).

 

“[T]he Fourteenth Amendment Due Process clause requires satisfaction of a two-prong test in order for a federal court to properly exercise jurisdiction: (1) the nonresident must have minimum contacts with the forum state, and (2) subjecting the nonresident to jurisdiction must be consistent with ‘traditional notions of fair play and substantial justice.’ “ FN21 “The ‘minimum contacts’ prong is further subdivided into contacts that give rise to specific jurisdiction and those that give rise to general jurisdiction.” FN22 The Fifth Circuit has explained:

 

FN21. Freudensprung v. Offshore Tech. Serv., Inc., 379 F.3d 327, 343 (5th Cir.2004) (citing Asarco, Inc. v. Glenara, Ltd., 912 F.2d 784 (5th Cir.1990) and Int’l Shoe Co. v. Washington, 326 U .S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945)).

 

FN22. Freudensprung, 379 F.3d at 343.

 

Where a defendant “has continuous and systematic general business contacts” with the forum state, the court may exercise “general jurisdiction” over any action brought against the defendant. Where contacts are less pervasive, the court may still exercise “specific” jurisdiction “in a suit arising out of or related to the defendant’s contacts with the forum.” FN23

 

FN23. Luv N’Care, Ltd. v. Insta–Mix, Inc., 438 F.3d 465, 469 (5th Cir.2006)(citing Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 & 414 nn. 8–9 (1984)) (internal citations omitted).

 

As Plaintiff does not allege that his suit is one “arising out of or related to the defendant[s’] [specific] contacts with the forum,” the Court need only examine whether it has general jurisdiction based on the Defendants contacts with the forum, including those unrelated to the controversy.FN24 General jurisdiction exists when a defendant’s forum-related “contacts are sufficiently systematic and continuous to support a reasonable exercise of jurisdiction.” FN25 In evaluating the sufficiency of a defendant’s contacts with the forum state, they “must be reviewed in toto, and not in isolation from one another.” FN26 Consequently, a court must consider “contacts of the defendant with the forum over a reasonable number of years, up to the date the suit was filed.” FN27 To that end, “vague and overgeneralized assertions that give no indication as to the extent, duration, or frequency of contacts are insufficient to support general jurisdiction.” FN28

 

FN24. See Helicopteros, 466 U.S. at 414. Indeed, Defendants vigorously deny any connection between the accident and any business related to Louisiana. See Rec. Doc. 3–1, p. 3; Rec. Doc. 3–3, p. 1, ¶ 7.

 

FN25. Holt Oil & Gas Corp. v. Harvey, 801 F.2d 773, 777 (5th Cir.1986).

 

FN26. Johnston, 523 F.3d at 610 (citing Holt Oil, 801 F.2d at 779).

 

FN27. Johnston v. Multidata Systems Intern. Corp., 523 F.3d 602, 610 (5th Cir.2008) (citing Access Telecom, Inc. v. MCI Telecomms. Corp., 197 F.3d 694, 717 (5th Cir.1999)).

 

FN28. Johnston, 523 F.3d at 610.

 

IV. ANALYSIS

 

A. Personal Jurisdiction over Grantham

 

Plaintiff has not established a prima facie case for the exercise of personal jurisdiction over Grantham. With the exception of a single, general reference that jurisdiction is proper over all “Defendants” in the conclusion of his Opposition, Plaintiff has presented no argument as to jurisdiction over Grantham. Plaintiff’s Opposition, as Defendants note, is singularly focused on BAH. Plaintiff has only offered that Grantham is domiciled in Georgia, FN29 an uncontroverted fact which by its very nature calls into question this Court’s jurisdiction. Grantham, for his part, offers via sworn declaration a plethora of facts which definitively weigh against jurisdiction: he does not own or rent property in Louisiana; has never lived in Louisiana; was not transporting cargo from or destined for delivery in Louisiana at the time of the accident; and his work for BAH does not regularly involve trips to or from Louisiana.FN30 Plaintiff has failed to carry his burden as to Grantham. Thus, this Court lacks personal jurisdiction over Grantham.

 

FN29. Rec. Doc. 3–3, Exhibit B, Declaration of Sidney Grantham, p. 1, ¶ 4.

 

FN30. Rec. Doc. 3–3, Exhibit B.

 

B. Personal Jurisdiction over BAH

*3 Plaintiff has likewise not established a prima facie case for the exercise of personal jurisdiction over BAH. Plaintiff states generally that BAH operates an interstate trucking business covering the continental United States, but offers no information as to the extent of its trucking operations in relation to Louisiana—e.g., how many shipments originate or terminate in Louisiana, what percentage of its business comes from Louisiana customers, or even what portion of its business involves transit through the State. The only forum-specific argument consists of unsubstantiated assertions that BAH “regularly transacts business” in Louisiana through an “office” in New Orleans. FN31 This argument is supported by reference to the company’s website which states: “In addition to … three [shipping] terminals, BAH also has satellite locations in Knoxville, TN and New Orleans, LA.” FN32 Plaintiff implies that the website itself constitutes direct advertisement to Louisiana citizens. Plaintiff asserts that a web presence and shipping terminal in New Orleans constitutes “continuous and systematic general business contacts” sufficient to give rise to general jurisdiction. The Court is not convinced. “[V]ague and overgeneralized assertions that give no indication as to the extent, duration, or frequency of contacts are [thus] insufficient to support general jurisdiction.” FN33

 

FN31. Rec. Doc. 5, p. 3.

 

FN32. Company Profile, B.A.H. Express, Inc., http:// www.bahexpress.com/profile.html (last visited Nov. 4, 2013).

 

FN33. Johnston, 523 F.3d at 610.

 

Defendant, BAH, offers the affidavit of Johnie Snider, Head of Safety and Human Relations for BAH, in contravention of Plaintiff’s claims of general jurisdiction. Mr. Snider attests that BAH does not: pay state property or payroll taxes; own or lease any real property in Louisiana; maintain a business office, address or phone number in Louisiana; keep or garage any of its trucks or equipment in Louisiana; nor direct its advertising to Louisiana or employ a direct sales force to solicit sales from customers in Louisiana.FN34 He describes the company’s “satellite location” in New Orleans as “the physical location of a customer of BAH … [who] permits BAH to use the location as a temporary drop off and pick up location for trucks or equipment, should the need arise.” FN35 Mr. Snider avers that BAH does not maintain an office or station employees at this location.FN36

 

FN34. Rec. Doc. 3–4, Exhibit C.

 

FN35. Rec. Doc. 10–1.

 

FN36. Rec. Doc. 10–1.

 

The uncontroverted facts suggest that, at a minimum, the very existence of the New Orleans satellite location indicates that BAH operates trucks which travel through Louisiana, destined for locations either inside or outside of the State. Mere operation of a foreign-based interstate trucking company which is known to utilize the roadways of a particular forum, without more, can hardly create “affiliations with the State … so ‘continuous and systematic’ as to render [the company] essentially at home in the forum State.” FN37 Accordingly, this Court has no personal jurisdiction over BAH.

 

FN37. Goodyear Dunlop Tires Ops. v. Brown, 131 S.Ct. 2846, 2851, 180 L.Ed.2d 796 (2011) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 319, 66 S.Ct. 154, 90 L.Ed. 95 (1945)). No argument has been made that the incident in question is in any way related to the satellite facility, obviating the need to address specific jurisdiction.

 

C. Personal Jurisdiction over Westfield

Plaintiff has offered no argument regarding jurisdiction over Defendant, Westfield. Defendants are correct that, because the accident occurred in Georgia under an insurance policy issued and delivered outside of Louisiana, Plaintiff cannot avail himself of the Louisiana Direct Action Statute to maintain a direct action against Westfield.FN38 However, the Court is not presented with a Rule 12(b)(6) Motion to Dismiss for failure to state a claim on behalf of Westfield. The issue presented is solely whether the Court may exercise personal jurisdiction over Westfield.

 

FN38. See Esteve v. Allstate Ins. Co., 351 So.2d 117 (La.1977).

 

*4 The Plaintiff alleges that Westfield is “a foreign insurer, authorized to do and doing business in the State of Louisiana.” Defendants have remained silent as to what, if any, business Westfield conducts in Louisiana.FN39 Given this uncontroverted allegation, the Court is required to construe the allegations in favor of Plaintiff and the existence of personal jurisdiction.

 

FN39. For example, the declaration from Kyle Seymour, a Westfield claims representative, states only that Westfield is “a foreign insurer organized under the laws of Ohio, with its principal place of business in Westfield Center, Ohio,” and makes no reference as to whether or not it operates in Louisiana. Rec. Doc. 3–3, Exhibit D, p. 1.

 

However, it is clear that the Plaintiff cannot maintain a direct action against Westfield because: (1) the accident did not occur in Louisiana nor was the policy issued in Louisiana, and (2) a direct action may not generally be maintained against the insurer alone.FN40 “Even if a party does not make a formal motion under Rule 12(b)(6), the district judge on his or her own initiative may note the inadequacy of the complaint and dismiss it for failure to state a claim as long as the procedure employed is fair to the parties.” FN41 The Fifth Circuit instructs that “As a general rule, a district court may dismiss a complaint on its own for failure to state a claim. However, we have previously noted that the district court can only dismiss an action on its own motion ‘as long as the procedure employed is fair.’ We have further suggested that fairness in this context requires “both notice of the court’s intention and an opportunity to respond.” FN42 Accordingly, the Court will dismiss, sue sponte, Plaintiff’s suit against Westfield for failure to state a claim upon which relief can be granted. Plaintiff shall have 15 days from the entry of the Court’s Order of Dismissal to file an objection and show cause why the complaint against Westfield should not be dismissed.

 

FN40. La. R.S. 22:655 B.

 

FN41. Wright and Miller, 5B Fed. Prac. & Proc. Civ. § 1357 (3d ed.)

 

FN42. Carroll v. Fort James Corp., 470 F.3d 1171, 1177 (5th Cir.2006), internal citations omitted.

 

D. Motion to Transfer

The Court possesses “broad discretion” in deciding whether to dismiss or transfer this case.FN43 Fifth Circuit precedent “supports transfer of a case pursuant to section 1406(a) or section 1404(a) from a Federal Court lacking personal jurisdiction to one possessing it, even if the case was removed from a state court that itself lacked personal jurisdiction.” FN44 Defendant’s seek transfer under 28 USC 1404(a).FN45

 

FN43. Caldwell v. Palmetto State Savings Bank, 811 F.2d 916, 919 (5th Cir.1987).

 

FN44. Bentz v. Recile, 778 F.2d 1026, 1027 (5th Cir.1985).

 

FN45. See note below. Footnote here that defendant’s concede that transfer under 1406 not applicable.

 

Section 1404(a) provides that “[f]or the convenience of the parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.” FN46 The statute is intended to save time, energy, and money while at the same time protecting litigants, witnesses, and the public against unnecessary inconvenience.FN47 Transfer may be requested by either party, or ordered by the court sua sponte.FN48 As noted, transfer may occur even when the transferring court lacks personal jurisdiction.

 

FN46. 28 U.S.C. § 1404(a).

 

FN47. Republic Capital Dev. Grp., L.L.C. v. A.G. Dev. Grp., Inc., 2005 WL 3465728, at *8 (S.D.Tx.2005).

 

FN48. Mills v. Beech Aircraft Corp., 886 F.2d 758, 761 (5th Cir.1989).

 

The application of 28 U.S.C. § 1404(a) requires a twofold analysis. The Court must first determine whether the judicial district to which transfer is sought is a district in which the claim could have been filed.FN49 If this first step is satisfied, then the Court must determine whether the transfer would serve “the convenience of parties and witnesses” and “the interest of justice” by weighing a number of private and public interest factors.FN50

 

FN49. In re Volkswagen A G, 371 F.3d 201, 203 (5th Cir.2004) (per curiam ).

 

FN50. 28 U.S.C. § 1404(a); Volkswagen, 371 F.3d at 203 (citations omitted).

 

*5 The Court finds that, because the alleged accident occurred in the Northern District of Georgia, the first step of the analysis is satisfied. Under 28 U.S.C. § 1391(b)(2), venue is proper in the Northern District of Georgia because it is “a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred.” FN51 Defendants also concede that the Northern District of Georgia is a proper venue and has personal jurisdiction over them.FN52

 

FN51. 28 U.S.C. § 1391(b)(2).

 

FN52. See Rec. Doc. 3, p. 2; Rec. Doc. 3–1, p. 2.

 

As both parties have agree to transfer under the circumstances, it is unnecessary for the Court to examine the public and private interest factors as it would were transfer contested. It is nevertheless worth noting that both “the convenience of parties and witnesses” and “the interest of justice” will clearly be served by transferring the case to the Northern District of Georgia. The Court finds that transfer will serve both “the convenience of parties and witnesses” and “the interest of justice” by saving the parties time and expense, and acceding to their mutual request. Defendants Motion to transfer to the Northern District of Georgia pursuant to 28 U.S.C. § 1404(a), is GRANTED.

 

V. CONCLUSION

For the foregoing reasons, the Court GRANTS Defendants, Sidney A. Grantham and BAH Express, Inc. Motions to Dismiss for lack of personal jurisdiction. The Court, own its own initiative, shall dismiss Plaintiff’s claims against Westfield Insurance Company for failure to state a claim. Plaintiff shall have 15 days from the date of this Court’s Ruling and Order to file an objection and show cause why the complaint against Westfield should not be dismissed. This matter will be transferred the Northern District of Georgia pursuant to 28 U.S.C. § 1404(a), after the expiration of the deadline for Plaintiff’s objection to the dismissal of Westfield, if any.

United States District Court,

E.D. California.

TRAVELERS INDEMNITY OF CONNECTICUT, et al, Plaintiffs,

v.

ARCH SPECIALTY INSURANCE COMPANY, Defendant.

 

No. 2:11–CV–1601–JLQ.

Nov. 27, 2013.

 

John Tinley Brooks, Marc Jeremy Feldman, McKenna Long & Aldridge LLP, San Diego, CA, for Plaintiffs.

 

Alexander M. Kargher, Aaron P. Allan, Fred D. Heather, Noah P. Perch–Ahern, Glaser Weil Fink Jacobs Howard Avchen & Shapiro LLP, Los Angeles, CA, for Defendant.

 

MEMORANDUM OPINION AND ORDER RE: CROSS–MOTIONS FOR SUMMARY JUDGMENT

JUSTIN L. QUACKENBUSH, Senior District Judge.

*1 BEFORE THE COURT are cross-motions for summary judgment. Plaintiffs Travelers Indemnity Company of Connecticut and Travelers Property Casualty Company of America (hereinafter “Travelers”) have filed a Motion (ECF No. 89) seeking summary judgment on all claims, or in the alternative partial summary judgment. Defendant and Counterclaimant Arch Specialty Insurance Company (“Arch”) has filed a Motion for Partial Summary Judgment (ECF No. 87). The parties filed Response and Reply briefs. Oral argument was heard on November 14, 2013, in Riverside, California. John Brooks participated on behalf of the Plaintiffs Travelers. Fred Heather and Aaron Allan appeared on behalf of the Defendant/Counterclaimant Arch. This Memorandum Opinion and Order memorializes and supplements the court’s oral rulings.

 

I. Procedural History

Travelers commenced this action by filing a one-count Complaint seeking a declaratory judgment pursuant to 28 U.S.C. § 2201(a). Travelers alleged that an actual controversy existed between itself and Arch concerning the handling of a state court personal injury lawsuit. Travelers sought a declaration that it had not breached any duty to settle the action and that Travelers was not obligated to reimburse Arch for the amounts Arch contributed to the eventual post-verdict settlement. (ECF No. 1, ¶¶ 9–10).

 

Arch Answered (ECF No. 10) the Complaint admitting that it had contributed $20.5 million towards settlement of the underlying action, and that Travelers had contributed $2 million. Arch asserted several affirmative defenses and filed a Counterclaim. (ECF No. 11). Arch then filed a First Amended Counterclaim (ECF No. 15), which asserted four claims: 1) breach of the implied covenant of good faith and fair dealing; 2) tortious breach of the implied covenant of good faith and fair dealing; 3) breach of the duty of care; and 4) declaratory judgment. Travelers filed a Motion to Dismiss the breach of duty of care counterclaim and Motion to Strike claims for attorneys fees and punitive damages. (ECF No. 19 & 20). The court granted the Motions, dismissing one count of the counterclaim and the request for attorney fees and punitive damages. (ECF No. 25).

 

The parties proceeded with discovery and filed cross-motions for summary judgment. During the briefing on those motions, Travelers asserted that Arch had moved for summary judgment on bad faith theories that were not pled. The court addressed this issue with the parties on December 3, 2012, the time set for hearing on the summary judgment motions, and Arch orally moved to amend its Counterclaim, followed by a written Motion for Leave to Amend (ECF No. 64). The court granted the Motion for Leave to Amend, and Arch filed a Second Amended Counterclaim. (ECF No. 71).

 

The operative pleadings are Travelers’ Complaint (ECF No. 1) and Arch’s Second Amended Counterclaim (the “SAC”) (ECF No. 71). The SAC contains three counts: 1) breach of the implied covenant of good faith and fair dealing; 2) tortious breach of the implied covenant of good faith and fair dealing; 3) declaratory judgment.

 

II. Factual Background

*2 The instant dispute arises out of an underlying California state court personal injury action which the parties refer to as the Mejia action. That case concerned a tragic set of circumstances where on November 27, 2004, Simon Loza–Mejia, a truck driver, ran over his nine-year old daughter after he had stopped the truck on the side of the road to go to the bathroom. Unbeknown to him, his daughter Diana, had also exited the truck to go to the bathroom. When Mr. Mejia started to drive away, Diana was crushed under the wheels of the truck and sustained severe injuries. (ECF No. 90–1, p. 3–4). Diana filed suit in the Superior Court of California, County of Sacramento in January 2006, against her father and Freeway Transport, a small business that arranges freight transportation. Freeway Transport had arranged for Mr. Mejia to transport a load of produce from California to Oregon. The theory of liability against Freeway Transport was that it was a common carrier, rather than a transportation broker, and was therefore vicariously liable for Diana’s father’s negligence. (Id. at 4).

 

Diana was represented in the Mejia action by Mark Swanson. Travelers had issued a primary liability policy covering Freeway Transport with limits of $2 million. Arch had issued an excess liability policy with a limit of $24 million. Travelers hired attorney John Haluck to defend Freeway Transport (hereafter “FT”). In May 2006, Haluck filed a motion for summary judgment on behalf of FT arguing that FT was not liable as a matter of law for Diana’s injuries as it was not a common carrier. On June 2, 2006, FT served discovery responses to Diana’s interrogatories that did not disclose the existence of Arch’s excess policy. On June 12, 2006, without knowledge of Arch’s $24 million excess policy, Diana’s counsel made a California statutory 998 Offer to settle the action for $2 million. At that time FT’s motion for summary judgment was pending and Haluck recommended to Travelers that FT reject the offer. No counteroffer was made.

 

In October 2006, FT’s motion for summary judgment on the issue of common carrier liability was denied. In November 2006, Haluck learned of the Arch excess policy and informed Diana’s counsel, Swanson. In November/December 2006, Travelers hired a law firm in Washington D.C. that specialized in transportation law to give an opinion on the common carrier aspect of the case. In March 2007, Swanson informed FT that he was now associating with Dreyer Babich, Buccola & Callahm as counsel for Diana. The parties describe Dreyer Babich as “one of the most high-powered personal injury firms in Northern California”. (ECF No. 90–1, p. 21). In April 2007, Travelers raised its liability reserve on Diana’s claim to $2 million (the limit of Traveler’s primary liability policy). Both Travelers and Arch agree that when Dreyer Babich first entered the case, Dreyer Babich did not want to mediate because it wanted to conduct further research and discovery. (Id.). The parties in the Mejia action then agreed to bifurcate the issue of FT’s liability from the question of damages. Liability would be determined first in a bench trial, and then, if necessary, damages would be tried to a jury. Dreyer Babich filed an Amended Complaint in November 2007. In February 2008, Travelers replaced defense counsel John Haluck with attorney Gary Ottoson.

 

*3 On April 1, 2008, Dreyer Babich sent a letter to Ottoson which mentioned the subject of mediation. On April 14, 2008, Dreyer Babich moved for summary judgment seeking to establish as a matter of law that FT was vicariously liable for Diana’s injuries. With Diana’s Motion For Summary Judgment still pending, a mandatory settlement conference (“MSC”) was set for August 2008. Approximately one-week before the MSC, Ottoson asked Diana’s counsel if there was any possibility of resolution within the $2 million limit, and was told no. (ECF No. 90–1, p. 25). On August 5, 2008, Dreyer Babich filed a MSC statement which asserted “the reasonable value of this case is $15,000,000.00.” On August 6, 2008, Ottoson informed Travelers and Arch that Dreyer Babich had stated there was no possibility of settling within the $2 million limits, and that both counsel had come to the joint conclusion that not much would be accomplished at the MSC. (ECF No. 90–1, p. 30). Also on August 6, 2008, Ottoson filed an MSC statement on behalf of FT. It made no mention of Diana’s 998 Offer of settlement made in 2006, and further stated: “Settlement Efforts: No efforts have been made by the remaining parties to date.” (ECF No. 92–1, ¶ 58).

 

On August 8, 2008, the California Superior Court issued an Order denying Diana’s Motion For Summary Judgment on the question of common carrier liability. The Order also stated: “It is also true that at this point at least the evidence in favor of finding Freeway Transport to be the carrier appears more credible and more significant that [sic] the evidence showing that Trucking was the carrier.” (Id. at ¶ 59). The MSC occurred on August 12, 2008, and Travelers did not offer any money in settlement. (Id. at ¶ 63). The MSC lasted only 15 to 20 minutes, and Diana did not make a demand. (ECF No. 90–1, ¶ 55). Arch and Travelers agree that as of the date of the MSC in August 2008, the liability of FT remained uncertain and Diana faced a risk of recovering nothing from FT. (ECF No. 92–1, ¶ 66).

 

On August 22, 2008, a conference call took place that included Ottoson, a Travelers’ claims adjuster, a claims adjuster from Arch, and Arch’s monitoring counsel. The parties dispute what was said on this conference call. Particularly, the parties dispute whether Arch was asked to contribute to a settlement, and if so, the response that Arch gave. Approximately one year later, in September 2009, after a deposition, Ottoson asked Diana’s counsel for a settlement number. Diana’s counsel responded that he still didn’t know what the case was worth, wasn’t ready to make a demand, and the only demand he’d be willing to make “would be a number you’d never pay.” (ECF No. 90–1, ¶ 77).

 

The common carrier liability issue was tried in a bench trial in September 2009. In December 2009, the court issued its ruling finding that FT had acted as a common carrier rather than a broker and was vicariously liable for Diana’s injuries. (ECF No. 92–1, ¶ 83). Prior to the court ruling on liability, Travelers had never offered its $2 million primary limit. Arch had never demanded that Travelers offer its $2 million limit or tender its $2 million limit to Arch. (ECF No. 90–1, ¶ 81). After the liability finding, in late-December 2009, Travelers authorized $2 million in settlement authority, and that offer was conveyed to Diana’s counsel in January 2010. Prior to making the $2 million offer in January 2010, no monetary settlement offer had ever been made by Travelers to the plaintiff on FT’s behalf. (ECF No. 92–1, ¶ 90). Diana did not respond to the $2 million offer, and a mediation was arranged while at the same time the parties were preparing for the jury trial on damages.

 

*4 Ultimately, during the trial on damages, the parties reached a high-low settlement agreement that provided Diana would receive at least $9 million, but no more than $22.5 million, depending on the jury’s verdict. The jury returned a verdict of $24.3 million, and Arch and Travelers, pursuant to the settlement agreement, paid Diana $22.5 million (with Travelers paying $2 million and Arch paying $20.5 million).

 

III. Discussion

 

A. Traveler’s Arguments in Support of Summary Judgment

 

Travelers argues that the court should rule that Arch has no claim or cause of action against Travelers based on Travelers’ rejection of the $2 million 998 Offer that was made in June 2006 prior to Diana’s counsel being informed of the $24 million Arch policy. Further, Travelers seeks a determination from the court that Arch has no claim against Travelers based on a failure to negotiate or pursue settlement opportunities, including that associated with the August 2008 MSC. (ECF No. 89, p. 2). Travelers argues that the $2 million 998 settlement offer was based on false interrogatory responses, verified by Teresa Spada, a principal of FT, and that therefore the $2 million offer was improperly induced, would not have been approved at a minor settlement hearing, and, if approved by the court, Diana’s counsel would have moved to set it aside upon learning of the Arch excess policy. Concerning the 2008 Mandatory Settlement Conference, Travelers further argues that the $15 million valuation in Diana’s written pre-mediation filing was not a demand. Travelers contends that Diana never made a demand between the initial $2 million 998 Offer in June 2006 and the determination of liability in December 2009. Travelers contends Dreyer Babich’s position was that they were not ready to settle because they were assessing Diana’s medical condition-the permanancy of her injuries and prognosis.

 

Travelers further contends that Arch declined to contribute to settlement in an August 2008 conference call. (ECF No. 89–1, p. 6). Travelers primary position is that there was never an opportunity to settle prior to the liability determination because Diana never made a demand. Secondarily, if the $15 million written premediation statement by Dreyer Babich is construed as a demand, Travelers contends it conveyed the demand to Arch and Arch was not willing to contribute.

 

Travelers additionally argues that under California law, there can be no duty on the insurer’s part to settle, in the absence of a demand. Finally, Travelers argues that if Arch could establish a breach of duty to settle, Arch could not produce nonspeculative evidence of damages.

 

B. Arch’s Arguments in Support of Summary Judgment

Arch argues that it is entitled to a determination as a matter of law that Travelers committed bad faith by not offering to pay out its $2 million primary insurance policy limits, or otherwise attempting to settle, in response to two alleged settlement opportunities: 1) a mediation proposal by Diana in April 2008, and 2) Diana’s $15 million mandatory settlement conference statement. (ECF No. 87, p. 5). Arch further contends that Travelers engaged in bad faith concerning the 998 Offer in 2006 by failing to inform the insured of the 998 Offer and failing to respond to the Offer.

 

*5 Arch concedes that it is not entitled to summary judgment concerning bad faith in the handling of the 998 Offer. Arch states that questions raised by the court at the prior summary judgment hearing demonstrate that “factual issues exist” concerning that claim. (ECF No. 87, p. 7).

 

C. Summary Judgment Standard

The purpose of summary judgment is to avoid unnecessary trials when there is no dispute as to the material facts before the court. Northwest Motorcycle Ass’n v. U.S. Dept. of Agriculture, 18 F.3d 1468, 1471 (9th Cir.1994). The moving party is entitled to summary judgment when, viewing the evidence and the inferences arising therefrom in the light most favorable to the nonmoving party, there are no genuine issues of material fact in dispute. Fed.R.Civ.P. 56; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). While the moving party does not have to disprove matters on which the opponent will bear the burden of proof at trial, they nonetheless bear the burden of producing evidence that negates an essential element of the opposing party’s claim and the ultimate burden of persuading the court that no genuine issue of material fact exists. Nissan Fire & Marine Ins. Co. v. Fritz Companies, 210 F.3d 1099, 1102 (9th Cir.2000). When the nonmoving party has the burden of proof at trial, the moving party need only point out that there is an absence of evidence to support the nonmoving party’s case.   Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir.2001).

 

Once the moving party has carried its burden, the opponent must do more than simply show there is some metaphysical doubt as to the material facts.   Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Rather, the opposing party must come forward with specific facts showing that there is a genuine issue for trial. Id.

 

Although a summary judgment motion is to be granted with caution, it is not a disfavored remedy: “Summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to secure the just, speedy and inexpensive determination of every action.” Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (citations and quotations omitted).

 

D. The 998 Offer of $2 Million in June of 2006

The first question of bad faith, is whether Travelers acted in bad faith by failing to accept the $2 million Offer made pursuant to California Code of Civil Procedure § 998 (hereafter “998 Offer”). At the time the 998 Offer was made, John Haluck was the attorney hired by Travelers to defend the action, and he advised Travelers representatives not to accept the 998 Offer. Arch was not aware of the 998 Offer at the time it was made. There is a dispute of fact as to whether the insured, FT, was informed of the 998 Offer through Teresa Spada. Travelers did not directly inform Spada of the offer and Spada claims she was unaware of it. However, Haluck met with Spada in late-June 2006, during the time when the 998 Offer was open, in order to prepare her for deposition. Haluck’s testimony was that it would have been his custom and practice to discuss the 998 Offer with the insured and that he had a vague recollection of discussing it with Ms. Spada. (Haluck Depo. p. 86–87).

 

*6 Under California law, an insurer has a “good faith duty to accept a settlement.” Gibbs v. State Farm, 544 F.2d 423, 426 (9th Cir.1976). The insurer “must settle when there is a danger of high recovery.” Id. If there is a “great risk of recovery beyond the policy limits” the insurer must attempt to settle within limits. Id. “[W]hether or not an insurer is guilty of bad faith is ordinarily a question of fact.” Highlands Ins. Co. v. Continental, 64 F.3d 514, 517 (9th Cir.1995). “[A]n insurer negotiates in bad faith when it refuses settlement offers that are both within policy limits and reasonable. An offer of settlement within policy limits is reasonable when there is a substantial likelihood that a jury verdict will be beyond those limits.” Id.

 

California Model Civil Instruction CACI 2334 provides that a settlement demand is reasonable if the defendant, in this instance Travelers, “knew or should have known at the time the settlement demand was rejected that the potential judgment was likely to exceed the amount of the settlement demand based on [Diana’s] injuries or loss and probable liability.”

 

The difficulty in assessing the claims herein, is that the determination of bad faith is not an exact science. Several courts have recognized the ambiguity of assessing good and bad faith. The district court in Fidelity Guaranty v. Reddy, 2008 WL 2441096 (E.D.Cal.2008) referred to bad faith as “an amorphous concept” where the “trier of fact must undertake a wide-ranging inquiry into such intangibles as motive, knowledge, experience, and the ability to prophesy.” Id. at *5. Similarly, the Ninth Circuit in Allen v. Allstate Ins. Co., 656 F.2d 487 (9th Cir.1981) stated: “What is good faith or bad faith on an insurer’s part has not yet proved susceptible to pat legal definition.”   Id. at 489. The question is “essentially a matter of fact.” Id. More than negligence is required for a finding of bad faith. See Fidelity Guaranty v. Reddy, 2008 WL 2441096 *6 (E.D.Cal.2008) (“bad faith and negligence are not legally synonomous”); CACI 2330 (“It [bad faith] is not mere failure to exercise reasonable care.”)

 

Travelers argues that it is entitled to summary judgment on the 998 Offer theory of bad faith liability because it is undisputed that FT’s discovery responses were false and failed to disclose the Arch excess policy and Diana would not have settled for $2 million had she known of the excess policy. (ECF No. 95, p. 5). Travelers argues that it is not relevant who was at fault for the false interrogatory response, but rather just that it was false. Travelers relies on the declaration of Mark Swanson, who was Diana’s counsel at the time, that the $2 million demand was induced by the false response, that he would not have made the offer if he knew of the Arch policy, and that he would have moved to set it aside if accepted and approved. Arch objects to the testimony of Swanson as speculative. The court has previously overruled that objection. See Order of November 4, 2013 (ECF No. 105).

 

*7 Arch argues that the incorrect discovery response was more attorney Haluck’s fault than it was Teresa Spada’s. (ECF No. 90, p. 9) (“In short, Travelers and Haluck caused these inaccurate discovery responses-not Ms. Spada.”). Arch disputes that FT had an obligation to correct the deficient discovery responses. Id. Finally, Arch also argues that even assuming Ms. Spada “acted inappropriately with respect to verifying Haluck’s discovery responses, that would still not excuse Travelers’ bad faith claims handling conduct.” Id.

 

Arch additionally argues that had the $2 million 998 Offer been accepted and the matter proceeded to a minor settlement hearing, the Arch excess policy may not have been discovered at that hearing. Arch questions, in the event of discovery of the excess policy, “whether the plaintiff would have moved to set aside a $2 million settlement upon learning of the Arch policy, given the risk of an adverse liability determination and a zero recovery?” (ECF No. 90, p. 15).

 

Arch is proceeding under a theory of equitable subrogation. Arch, as the excess carrier, is equitably subrogated to the rights of the insured [FT] against the primary carrier [Travelers]. The question becomes whether FT, which verified interrogatory responses through Ms. Spada that failed to disclose Arch’s excess policy, was entitled to benefit from that false response. “In subrogation litigation in California, the doctrine of superior equities is critical in determining whether a right of subrogation exists.” Dobbas v. Vitas, 191 Cal.App.4th 1442, 1452, 119 Cal.Rptr.3d 798 (2011). “Under the doctrine of equitable subrogation, the duty owed an excess insurer is identical to that owed the insured. The excess will not be able to force the primary into accepting any settlement which his duty to the insured would not require accepting.” Northwestern Mut. Ins. Co. v. Farmers’ Ins. Group, 76 Cal.App.3d 1031, 1045, 143 Cal.Rptr. 415 (1978) citing Peters v. Travelers Ins. Co., 375 F.Supp. 1347 (C.D.Cal.1974).

 

In Dobbas, the insured had two excess policies issued by CalFarm and American Guarantee. The CalFarm policy had lapsed, allegedly due to the fault of the insurance broker. American Guarantee argued it would not have been forced to pay, had the CalFarm policy remained in effect. The court stated, “this erroneous argument is based upon the apparent assumption that no one would have discovered the American Guarantee policy if the CalFarm excess policy had been in place.” Id. at 1453, 119 Cal.Rptr.3d 798. The court stated that “factual possibility” did not change American Guarantee’s legal position: “Had the CalFarm excess policy been in place, American Guarantee still would have been legally responsible for its pro rata share of damages.” Id.

 

Similarly here, Arch had contracted with FT to provide an excess insurance policy. No one disputes that the policy covered the accident involving Diana. Arch was obligated to perform pursuant to the terms of the contract. The fact that Arch can point to various factual possibilities under which through inadvertence or malfeasance its policy may have gone undiscovered in the Mejia action does not change Arch’s legal obligation. Concerning the 998 Offer, the court cannot find that Arch is in a superior equitable position. Arch’s theory relies on an injured nine-year old girl being fraudulently or negligently mislead as to the amount of insurance coverage. It further relies on the Arch policy not being discovered at a minor settlement hearing, and FT not coming forward before the settlement is approved to correct or supplement its discovery responses. Lastly, Arch’s scenario requires that once the policy was discovered, the court would not set aside the minor settlement approval assuming initial approval. Under California equitable subrogation law, Arch stands in the position of the insured, FT, and FT verified false interrogatory responses which failed to disclose Arch’s excess policy. FT is not entitled to benefit from the false responses, and Arch proceeding under a theory based on equity is not entitled to benefit from the false responses.

 

*8 Arch may not base its theory of recovery solely on an argument that Travelers acted in bad faith by failing to accept the June 2006, 998 Offer of settlement for $2 million. However, the court is inclined to allow the facts surrounding the 998 Offer to be presented to the jury. The jury may consider the 998 Offer as part of the totality of the circumstances concerning Travelers’ handling of the claim. Further, Travelers has argued in its briefs and orally to the court that it never received an offer within the policy limits. Arch should be allowed to present evidence concerning the 998 Offer so that the jury is not given the mistaken impression that there never was an offer from Diana.

 

E. Travelers’ Conduct After the 998 Offer and Specifically in 2008

Arch contends that Travelers acted in bad faith in 2008 when it did not make an offer to settle the case, or tender its primary policy limits to Arch, in response to a mediation conference statement that the case valuation was $15 million. Travelers contends that it never had the opportunity to settle within its $2 million policy limits at any time after the initial 998 Offer. Travelers also argues that the $15 million MSC Statement was not a “demand”. Travelers position is that it could not have breached the duty of good faith because it did not receive an offer.

 

This court finds that Travelers had a duty to attempt to effectuate settlement once liability became reasonably clear, and once it was reasonably clear that a verdict would exceed the $2 million policy limits, even in the absence of a formal settlement demand from Diana. California case law, and the California Insurance Code speak of a “duty to effectuate settlement”. It is not merely a duty to accept reasonable settlement offers. “Effectuate” means “to put into force or operation.” Oxford on-line Dictionary atwww.oxforddictionaries.com last visited November 21, 2013; see alsowww.dictionary.com citing to Random House Dictionary(“to bring about”) and Collins English Dictionary (“to cause to happen”). Therefore, to act in good faith, and to attempt to effectuate settlement, Travelers was required to do something in an attempt to bring about a settlement. The 998 Offer was received in June 2006. The California state trial court determined FT was liable in December 2009. In the intervening three years, Travelers did not make a single offer to settle the case.

 

A three judge panel of the United States Court of Appeals in the original opinion in Du v. Allstate, 681 F.3d 1118 (9th Cir.2013), stated that it was addressing the “central legal issue” of: “Does an insurer have a duty, after liability of the insured has become reasonably clear, to attempt to effectuate a settlement in the absence of a demand from the claimant?” Id. at 1122. The Ninth Circuit then addressed the relevant California authorities and concluded: “We hold that, under California law, an insurer has a duty to effectuate settlement where liability is reasonably clear, even in the absence of a settlement demand.” Id.

 

*9 After the Du opinion was issued, motions for rehearing were filed, and several amicus briefs were submitted on behalf of insurance companies. The Ninth Circuit issued an amended opinion, at 697 F.3d 753, which stated it need not resolve the issue concerning a duty to effectuate settlement in the absence of a demand-despite having previously described that question as the “central legal issue”. The three judge panel did not repudiate its prior analysis, but rather merely withdrew it as unnecessary. Thus, the original Du opinion, Du v. Allstate, 681 F.3d 1118 (9th Cir.2013), is not controlling precedent, but the court finds it highly persuasive.

 

The Ninth Circuit has previously stated, applying California law, that the duty to effectuate is more than merely the duty to accept. In Pray v. Foremost Ins. Co., 767 F.2d 1329, 1330 (9th Cir.1985), the court stated that California courts would impose a duty on an insurer to “attempt to settle a claim by making, and by accepting, reasonable settlement offers once liability has become reasonably clear.” (emphasis added). Recently, the Ninth Circuit stated that California Insurance Code Section 790.03(h)(5) “which identifies as an unfair claims settlement ‘not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear,’ has been construed as extending the duty to settle beyond mere acceptance of a reasonable demand.” Du v. Allstate Ins. Co., 697 F.3d 753, 757 (9th Cir.2012). In Gibbs v. State Farm, 544 F.2d 423 (9th Cir.1976), applying California law, the Ninth Circuit found that a written formal offer to settle was not required: “Though no formal, written offer existed, the jury could find that Gibbs’ statements gave State Farm a reasonable opportunity to settle the claim within the policy limits.” Id. at 427.

 

California state courts have recognized this as well. In Boicourt v. Amex Assurance Co., 78 Cal.App.4th 1390, 93 Cal.Rptr.2d 763 (2000), the California Court of Appeal held that “a formal settlement offer is not an absolute prerequisite to a bad faith action in the wake of an excess verdict when the claimant makes a request for policy limits and the insurer refuses to contact the policyholder about the request.” Id. at 1399, 93 Cal.Rptr.2d 763. It is not necessary that there be a formal written settlement demand, rather the inquiry is whether the insurer refused in bad faith a reasonable opportunity to settle. In Reid v. Mercury Ins. Co., 220 Cal.App.4th 262, 162 Cal.Rptr.3d 894, 2013 WL 5517979 (Oct. 7, 2013), the court stated: “For bad faith liability to attach to an insurer’s failure to pursue settlement discussions, in a case where the insured is exposed to a judgment beyond policy limits, there must be, at a minimum, some evidence either the injured party has communicated to the insurer an interest in settlement, or some other circumstance demonstrating the insurer knew that settlement within policy limits could feasibly be negotiated.” (Slip Op. 9). Once again, this language is broader than merely a duty to accept a settlement demand. The court speaks of pursuing settlement discussions, communication of an interest in settling, or knowledge that a within policy limits settlement was possible. The Reid court does however disclaim the notion that an insurer has a duty to initiate settlement discussions. The Reid court also disagrees that California Insurance Code 790.03(h)(5) imposes an affirmative duty to settle. The Reid court concludes that bad faith may occur, without a formal settlement offer, if “the insurer ignores the opportunity to explore settlement possibilities to the insured’s detriment, or when an insurer has an arbitrary rule or engages in other conduct that prevents settlement opportunities from arising.” (Slip.Op.17–18). However, an opportunity to settle does not arise “simply because there is a significant risk of an excess judgment.” (Id. at 18, 162 Cal.Rptr.3d 894).

 

*10 Travelers relies on Merritt v. Reserve Ins. Co., 34 Cal.App.3d 858, 110 Cal.Rptr. 511 (1973) and Coe v. State Farm Mut. Auto. Ins. Co., 66 Cal.App.3d 981, 136 Cal.Rptr. 331 (1977) to argue that California law requires a settlement demand in order for the insurer to be found liable for bad faith in refusing to settle. This argument is flawed both legally and factually. Legally, this argument was rejected by a three judge panel of the Ninth Circuit Court of Appeals in the original Du opinion. The Du court found that the defendant insurance companies’ reliance FN1 on Merritt and Coe was “misplaced”. Du v. Allstate, 681 F.3d 1118, 1123 (9th Cir.2012). The court went on to say that the Merritt court’s “refusal to find bad faith therefore rested not on any categorical rule that there is no legal duty to initiate settlement, but on the facts of that case,” which were that any settlement overtures would have been futile. Id. at 1124. As to the Coe case, the Ninth Circuit found that its broad language concerning failure to accept settlement was dicta and not consistent with more recent California case law. Id. Although the Ninth Circuit withdrew and amended its original Du opinion, this court. as stated supra, finds the reasoning persuasive.

 

FN1. The defendants in Du v. Allstate were represented on appeal by John T. Brooks, who is also counsel for Travelers herein.

 

Factually, Travelers argument is also incorrect. Travelers states, “[t]he simplest ground to grant summary judgment is that Diana made no settlement demand before the liability trial.” (ECF No. 95, p. 5). This is incorrect and ignores the 998 Offer of June 2006. Although that offer was based on false or incomplete information, it nonetheless indicated a willingness on Diana’s part to engage in settlement discussions.

 

Arch contends that Travelers missed many opportunities to settle. Chiefly among them, were failing to make a counteroffer to the 998 Offer, failing to respond to an April 2008 letter from Diana’s counsel which mentioned mediation, and failing to make a counteroffer to the $15 million valuation in the MSC statement. The question of bad faith in this case is for the jury. The jury will consider whether reasonable opportunities to settle existed and whether Travelers acted in bad faith by ignoring the opportunities to the detriment of the insured.

 

IV. Conclusion

The question of what constitutes bad faith on the part of an insurer is ordinarily and essentially a question of fact. This case also involves questions of reasonableness, that are to be determined by the trier of fact. The court cannot find as a matter of law that Travelers did not breach the duty to act in good faith by failing to effectuate settlement. The court also does not find as a matter of law that Arch is entitled to summary judgment determination that Travelers did breach the implied covenant of good faith and fair dealing.

 

The court does find as a matter of law that Arch cannot base its bad faith claim solely on the rejection of the $2 million 998 Offer in 2006. To allow Arch to recover $20.5 million on the basis that Travelers was required in good faith to accept the 998 Offer would be inequitable, for the reasons stated herein. However, as stated above, the court is inclined at this point, to allow the jury to consider the rejection of the 998 Offer and attendant circumstances then existing (including the non-disclosure of the Arch policy; the pending summary judgment motion filed by Haluck; whether Ms. Spada was informed of the offer, etc.) in assessing the totality of the circumstances. To keep the 998 Offer from the jury would allow Travelers to continue to argue that it never received an offer to settle, which would be inaccurate. The parties can address this issue further via motions in limine if they so choose.

 

*11 The court also concludes as a matter of law, that under California law, the duty of an insurer to effectuate settlement requires more than merely doing nothing while awaiting a formal written settlement demand. The insurer must act in good faith in response to reasonable opportunities to settle. Although Travelers was not required to accept the 998 Offer, a jury could find that the 998 Offer presented a reasonable opportunity to pursue settlement. Additionally, a reasonable jury could find that Diana’s MSC statement in August 2008 that “the reasonable value of this case is $15,000,000.00”, presented a reasonable opportunity to pursue settlement of the case and that Travelers’ failure to pursue settlement discussions at that point constituted bad faith.

 

IT IS HEREBY ORDERED:

 

1. Travelers’ Motion for Summary Judgment (ECF No. 89) is DENIED in PART and GRANTED in PART. The Motion is denied except to the extent that Arch cannot base its bad faith claim solely on Travelers’ refusal to accept the $2 million 998 Offer.

 

2. Arch’s Motion for Partial Summary Judgment (ECF No. 87) is DENIED.

 

IT IS SO ORDERED. The Clerk shall enter this Order and furnish copies to counsel.

 

DATED this 26th day of November, 2013.