Associated Indus. Ins. Co. v. McNicholas & McNicholas LLP

Decision Date19 October 2020
Docket NumberCase No. CV 19-6101-DMG (Ex)
Citation495 F.Supp.3d 869
Parties ASSOCIATED INDUSTRIES INSURANCE COMPANY, INC., Plaintiff, v. MCNICHOLAS & MCNICHOLAS LLP, et al., Defendants.
CourtU.S. District Court — Central District of California

Dina Rebecca Richman, Cozen O'Connor, Los Angeles, CA, Philip R. King, Pro Hac Vice, Samuel R. Stalker, Pro Hac Vice, Cozen O'Connor LLP, Chicago, IL, for Plaintiff.

Michael J. Bidart, Charles Anthony Mayr, Ricardo Echeverria, Shernoff Bidart Echeverria LLP, Claremont, CA, for Defendants McNicholas and McNicholas, LLP, Matthew S. McNicholas, Douglas D. Winter, Juan C. Victoria.

Michael T. Mihm, Nicole M. Quintana, Ogborn Mihm LLP, Los Angeles, CA, Thomas D. Neville, Pro Hac Vice, Ogborn Mihm LLP, Denver, CO, for Defendant Omar Gomez.

ORDER RE PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT [52]

DOLLY M. GEE, UNITED STATES DISTRICT JUDGE

This matter is before the Court on the motion for summary judgment ("MSJ") by Plaintiff Associated Industries Insurance Company, Inc. ("Associated") on its declaratory relief claims against Defendants McNicholas & McNicholas LLP; attorneys Matthew McNicholas, Juan Victoria, and Douglas Winter (together, "McNicholas"); and Omar Gomez. [Doc. # 52.] Associated also moves for partial summary adjudication on McNicholas's Affirmative Defenses. Id. McNicholas and Gomez each filed separate Oppositions. [Doc. ## 54, 55.] Associated filed a Reply. [Doc. # 56.] The Court held a hearing on the Motion on October 16, 2020. For the reasons set forth below, the Court GRANTS in part and DENIES in part the MSJ.

I.FACTUAL AND PROCEDURAL BACKGROUND1

This is an insurance coverage dispute concerning whether Associated owed a duty to defend or indemnify McNicholas in a legal malpractice lawsuit brought against it by Gomez in the Los Angeles County Superior Court, tiled Omar Gomez v. McNicholas & McNicholas, LLP, et al. , Case No. 19-ST-CV-18180 (the "Suit"). The facts are largely undisputed.

A. The Suit

McNicholas represented Gomez in a personal injury action that Gomez first brought against Suncor Energy U.SA., Inc. ("Suncor"), Safway Services, LLC ("Safway"), and Total Safety U.S., Inc. ("Total Safety") on September 24, 2014 in Los Angeles County Superior Court (the "First California Action"). SUF 15-16. Gomez's alleged injury occurred on October 29, 2012, meaning the First California Action was filed just one month prior to the expiration of the statute of limitations. SUF 14. On January 8, 2015, Suncor filed a Motion to Quash for lack of personal jurisdiction, which the California court granted on March 26, 2015. SUF 35-36. On April 16, Total Safety filed a Motion to Dismiss, which Safway later joined, asserting that Suncor was a necessary and indispensable party. SUF 37-38. On May 28, McNicholas refiled the same action on behalf of Gomez in Colorado state court against Suncor, Total Safety, and Safway (the "Colorado Action"). SUF 39. McNicholas then voluntarily dismissed the First California Action on June 11, while Total Safety and Safway's Motion to Dismiss was still pending. SUF 40.

On July 1, 2015, after the First California Action had been voluntarily dismissed, Suncor filed a Motion to Dismiss the Colorado Action on the grounds that the claims were barred by the statute of limitations. SUF 45. On July 11, McNicholas refiled Gomez's claims in California state court against Total Safety and Safway (the "Second California Action"). SUF 50. McNicholas then stipulated on behalf of Gomez to dismiss Suncor from the Colorado Action, with prejudice, which the Colorado court granted on August 5, 2015. SUF 46-47. McNicholas also moved to dismiss Total Safety and Safway without prejudice, which Safway opposed, accusing McNicholas of forum shopping and arguing that the claims were barred by the statute of limitations in both Colorado and California. SUF 48-49.

Safway and Total Safety demurred in the Second California Action based on the statute of limitations. SUF 24. McNicholas opposed on the basis of equitable tolling, arguing that the statute of limitations was suspended while Gomez pursued the First California Action and the Colorado Action. SUF 25. On March 10, 2017, the court granted the demurrers. SUF 26. McNicholas appealed, and on June 27, 2018, the California Court of Appeal affirmed the dismissal of the Second California Action in an unpublished opinion, holding based on existing case law that equitable tolling did not apply where the first action had been voluntarily dismissed in the same court. SUF 52. Despite these rulings, McNicholas believed that their equitable tolling argument had merit. SAF 85. McNicholas filed a Petition for Review with the California Supreme Court on August 6, 2018, seeking review of the Court of Appeal's decision, which was denied on October 10, 2018. SAF 77.

On February 6, 2019, McNicholas received a letter from attorney Thomas Neville, who stated that he represented Gomez and was investigating potential claims against McNicholas stemming from its representation of Gomez in the Colorado and California actions. SAF 83. This was the first time any allegations of wrongdoing had been raised against any of the McNicholas Defendants concerning their representation of Gomez. SAF 84. On May 23, 2019, Gomez filed the Suit, alleging that McNicholas committed malpractice by (1) failing to adequately investigate jurisdictional and immunity issues prior to filing the First California Action; (2) failing to oppose Total Safety and Safway's motion to dismiss for failure to join an indispensable party, and otherwise failing to assess and research the issue; (3) failing to assess the ramifications of voluntarily dismissing the First California Action; (4) failing to consider or seek an agreement from the defendants to waive jurisdiction and statute of limitations defenses in exchange for dismissing the First California Action; and (5) failing to adequately advise Gomez of the risks and benefits of initially filing in California, and of dismissing the First California Action and refiling in Colorado. SAF 86.

B. The Policy

McNicholas first purchased a Lawyers’ Professional Liability Insurance Policy (the "Policy") from Associated on September 1, 2014. SUF 1. The Policy Period covered one year, and McNicholas renewed the Policy on September 1 of each year from 2015 through 2019. SUF 1-5.

The Policy is a "claims-made" policy, meaning it only provides coverage for claims that are made during the Policy Period. In particular, the Policy states:

The Company shall pay Damages and Claim Expenses ... that the Insured shall become legally obligated to pay as a result of a Claim made against the Insured for a Wrongful Act, provided that (i) the Claim is first made against the Insured and reported to the Company, in writing, during the Policy Period ...; (ii) the Insured has no knowledge of such Wrongful Act prior to the Inception Date of this Policy ...

[Doc. # 52-4 at 23.]2 The Policy defines "wrongful act" as "any actual or alleged negligent act, error, or omission committed or attempted in the rendering or failing to render Professional Services ..." Id. at 28. The Policy also includes a "Notice of Circumstance/Claims Made Extension" provision, which states:

If during the Policy Period any Insured first becomes aware or has reasonable grounds to suspect that an Insured has committed or may have committed a specific Wrongful Act for which coverage is otherwise provided hereunder, and provided the Insured during the Policy Period gives notice to the Company of:
A. the specific Wrongful Act;
B. the injury or damage which has resulted or may result from such Wrongful Act; and
C. the circumstances by which the Insured first became aware of or suspected such Wrongful Act;
then any Claim that may subsequently be made against any Insured arising out of such Wrongful Act shall be deemed for the purposes of this insurance to have been made during the Policy Period.

Id. at 32. In other words, the Policy does not provide coverage if the insured had "knowledge of such wrongful act" giving rise to the claim prior to the inception of the Policy Period, even if the claim was tendered during the Policy Period (the "Prior Knowledge Provision"). Coverage can extend to claims tendered after the Policy Period, however, if the insured provides notice of the underlying wrongful act to the insurer during the Policy Period.

The Policy also includes the following words, first appearing towards the bottom of the Declarations page (page 5), in capitalized, bolded, size 8.04-point Arial font:

THIS IS A CLAIMS MADE AND REPORTED POLICY, [sic] EXCEPT AS OTHERWISE PROVIDED HEREIN, THIS POLICY COVERS ONLY CLAIMS FIRST MADE AGAINST THE INSURED DURING THE POLICY PERIOD AND REPORTED TO THE COMPANY DURING THE POLICY PERIOD OR EXTENDED REPORTING PERIOD, IF APPLICABLE. PLEASE READ THE POLICY CAREFULLY.

Id. at 17; SUF 8. Similar text, also capitalized and bolded, also appears on page 11 of the Policy, near the top of the page, just beneath the title "Lawyers’ Professional Liability Insurance Policy":

THIS IS A CLAIMS MADE AND REPORTED POLICY THIS POLICY IS LIMITED TO LIABILITY FOR
ONLY THOSE CLAIMS THAT ARE FIRST MADE AGAINST THE INSURED DURING THE POLICY PERIOD AND REPORTED TO THE COMPANY IN ACCORDANCE WITH THE TERMS OF THIS POLICY. CLAIM EXPENSES REDUCE THE LIMIT OF LIABILITY. PLEASE REVIEW THIS POLICY CAREFULLY.

[Doc. # 52-4 at 23.]

C. The Claim on the Policy and the Instant Action

McNicholas reported a claim to Associated on March 4, 2019, after receiving the February 6, 2019 letter from counsel that first raised Gomez's malpractice allegations. SAF 60. This constituted the first notice that Associated received of any circumstance relating to McNicholas's representation of Gomez. SAF 61. Both the February 6 letter and the March 4 notice were delivered during the 2018-19 Policy Period, which began on September 1, 2018 and ran until September 1, 2019. SAF 5.

On August 16, 2019, Associated filed the operative First Amended Complaint in...

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